Business context and reporting period
SPX Technologies, Inc. (formerly SPX Corporation) reported its third quarter and nine months ended October 1, 2022. The company completed a holding-company reorganization on August 15, 2022; SPX Technologies became the successor registrant. Continuing operations comprise HVAC and Detection and Measurement. Transformer Solutions, DBT, and Heat Transfer are presented as discontinued operations.
Financial performance
Amounts are in millions, except per-share data. Comparisons are with the corresponding 2021 period.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $370.5 | $285.7 | $1,031.6 | $869.5 |
| Gross profit / margin | $133.1 / 35.9% | $95.8 / 33.5% | $361.7 / 35.1% | $302.5 / 34.8% |
| Operating income / margin | $37.3 / 10.1% | $17.7 / 6.2% | $75.9 / 7.4% | $59.8 / 6.9% |
| Income from continuing operations | $12.5 | $13.9 | $44.6 | $54.6 |
| Net income | $3.1 | $330.3 | $27.5 | $419.0 |
| Diluted EPS, continuing operations | $0.27 | $0.30 | $0.96 | $1.18 |
Revenue rose 29.7% in Q3 and 18.6% year to date. Management attributed growth to organic gains and acquisitions; reported organic revenue growth was 19.2% for Q3 and 9.0% for the nine months. Operating income increased in both periods, while continuing-operations income declined. Q3 2022 net income included a $9.4 million after-tax loss from discontinued operations; prior-year net income was significantly boosted by the Transformer Solutions disposal gain. Accordingly, net income comparisons are not representative of continuing operating performance.
Q3 HVAC revenue was $227.8 million and segment income $30.9 million; Detection and Measurement revenue was $142.7 million and segment income $25.7 million. Backlog at October 1 was $287.7 million for HVAC and $275.1 million for Detection and Measurement.
Cash flow, debt, and liquidity
- Continuing-operations operating cash flow was negative $89.4 million for the nine months, compared with positive $95.6 million in 2021. Total operating cash flow, including discontinued operations, was negative $110.5 million.
- Continuing-operations investing cash outflow was $45.4 million, including the ITL acquisition and capital expenditures. Continuing-operations financing cash outflow was $41.2 million, including $33.7 million of share repurchases.
- Cash and equivalents were $183.4 million at October 1, 2022, compared with $388.2 million at December 31, 2021. Including cash held in discontinued operations, period-end cash was $187.3 million.
- Total debt was $246.9 million, including $244.6 million of long-term debt. The August 2022 credit agreement provides $770 million of aggregate committed facilities, maturing August 2027. The company reported $489.0 million of available revolving capacity and was in compliance with its covenants.
Changes, outlook, and key risks
- Revenue growth reflected pricing and, to a lesser extent, volume gains in HVAC, continued orders and project execution in Detection and Measurement, and acquisitions. Q3 gross margin benefited from improved manufacturing productivity and favorable Detection and Measurement mix. Year-to-date HVAC margin was pressured by supply delays and labor shortages, partly offset by revenue growth.
- Management said supply-chain disruption, labor shortages, and higher raw-material, component, and transportation costs had weighed on results, especially in the first half, and expected their effects to diminish as 2022 progressed. The filing provides no specific earnings or revenue guidance. Management reported no significant adverse operating impact from the Russia/Ukraine conflict through the first nine months.
- On November 1, 2022, after quarter-end, SPX divested subsidiaries holding all asbestos liabilities and related insurance assets. SPX contributed $138.8 million cash; it anticipated recording an approximately $70 million loss in Q4 2022, including a deferred-tax-asset write-off.
- Asbestos remains a significant contingency. A court ruling led to $21.7 million of Q3 charges across continuing and discontinued operations, relating to certain insurers’ defense-cost coverage. Recorded liabilities for claims and proceedings totaled $614.0 million; asbestos insurance recovery assets were $479.8 million. Recoveries depend on insurer solvency and coverage rights.
- DBT’s South African power-project disputes remain uncertain. The company recorded no revenue for its claims against MHI and no loss for MHI claims it assessed as not probable; potential outcomes could affect future results and cash flows.
- Disclosure controls were deemed ineffective at October 1 because of a material weakness in controls over asbestos insurance-recovery assets. Remediation was in process, and the weakness was not yet considered remediated. The filing also identifies acquisition-related impairment exposure, environmental and other litigation risks, and risks from fixed-price contracts, inflation, supply constraints, and competition.
Important facts for investors to verify
- Follow the asbestos-liability divestiture’s final accounting, cash effects, and the anticipated Q4 loss.
- Assess ongoing operating cash generation, working-capital needs, and the reasons for the year-to-date cash outflow.
- Monitor realization of backlog and remaining performance obligations: $174.7 million at October 1, with 48% expected to be recognized within 12 months and 90% within 24 months.
- Track remediation and testing of the material weakness in asbestos insurance-recovery controls.
- Review developments in DBT/MHI disputes, retained liabilities, and potential future goodwill or intangible-asset impairments.