Executive Summary / Key Takeaways

• SPX Technologies is executing a focused strategy of acquiring engineered product businesses in HVAC and Detection & Measurement, leveraging its business system for operational efficiency and margin expansion.
• Recent acquisitions like KTS and Sigma Omega are strategically scaling key platforms (Communication Technologies and HVAC hydronics/air handling), expanding addressable markets in high-growth areas like defense, data centers, and multi-story buildings.
• Proprietary technologies, such as the Everest cooling tower and new adiabatic/dry cooling solutions, provide quantifiable advantages in efficiency and capacity, driving market share gains and supporting premium positioning.
• Strong Q1 2025 performance, driven by organic growth in HVAC and contributions from recent acquisitions, led to a raised full-year adjusted EPS guidance range of $6.10-$6.40, implying 12% growth at the midpoint despite tariff headwinds.
• While facing risks like tariffs and potential economic slowdowns, SPXC's diverse end markets, high replacement sales, critical/mandated solutions, robust backlog, and strong free cash flow generation position it for continued growth and capital deployment, with leverage expected to decline below the target range by year-end.

Setting the Scene: An Engineered Approach to Growth

SPX Technologies, Inc., with roots tracing back to 1912, has evolved into a global supplier of highly specialized, engineered solutions. Operating across 16 countries with sales spanning over 100, the company is strategically structured into two core reportable segments: HVAC and Detection and Measurement. This structure reflects a deliberate strategy to build high-quality, market-leading platforms through both organic initiatives and a consistent cadence of strategic acquisitions. Since 2018, SPXC has completed 15 such transactions, demonstrating a clear focus on inorganic growth as a key component of its value creation model.

The company's overarching strategy centers on identifying and integrating businesses that offer engineered products with strong leadership positions and a technological focus. This approach aims to capitalize on secular growth trends in critical end markets while maintaining a high level of recurring revenue through replacement sales and essential, often government-mandated, solutions. This foundational strategy, supported by a robust business system focused on operational excellence and continuous improvement, underpins SPXC's competitive positioning in diverse global markets.

Technological Edge and Innovation: The Core of the Moat

At the heart of SPXC's competitive strength lies its portfolio of differentiated technologies across its segments. In the HVAC segment, the company offers engineered cooling, air movement, and heating solutions. A prime example is the Marley brand's Everest cooling tower. This proprietary technology is not merely an incremental improvement; it represents a significant leap in capacity, capable of pushing 2,800+ tons, effectively doubling the capacity of previous large-tonnage towers. This innovation is actively taking share from traditional constructed products in the market and is particularly favored by demanding applications like chip manufacturers and data centers due to its efficiency and scale.

Further enhancing its cooling portfolio, SPXC has launched new adiabatic and dry cooling solutions. These technologies are designed to optimize the balance between power and water usage, addressing increasing customer demand for sustainable and efficient cooling in various applications, including data centers. Management notes strong interest in these new products, targeting material bookings in 2025 and revenue contribution in 2026. In air handling, the acquired Ingénia business brings expertise in custom units demanding high precision and reliability for critical environments like healthcare and pharma. This technology offers a unique value proposition, leading to demand so high the business is currently capacity-constrained. On the heating side, initiatives include developing biofuel boilers and heat pump boiler combinations, aligning with sustainability trends and offering customers solutions to reduce their carbon footprint. The standardization of HVAC control components is also driving operational benefits, leading to more streamlined manufacturing, shorter lead times, and lower costs.

In the Detection and Measurement segment, technological differentiation is equally crucial. The Radiodetection brand's precision locators now offer survey-grade accuracy with instant mapping capabilities, simplifying and speeding up the process of mapping underground utilities. New cross-border inspection equipment utilizes acoustics to detect problematic intersections between different underground lines, enhancing safety and efficiency. The recent acquisition of Kranze Technology Solutions (KTS) significantly bolsters the Communication Technologies platform with highly differentiated digital interoperability and tactical networking solutions. These solutions integrate and distribute real-time information across multiple communication domains, enhancing situational awareness for defense applications. KTS's technology is described as essential to the modern U.S. military strategy and complements SPXC's existing tactical data links and RF countermeasure offerings, creating opportunities for new product development and leveraging existing sales channels.

The "so what" for investors is clear: these technological advancements and differentiated product offerings are not just features; they are foundational elements of SPXC's competitive moat. They enable the company to command strong market positions, support premium pricing in certain niches, drive market share gains (as seen with Everest), expand the total addressable market (TAM) in high-growth areas (data centers, defense), and contribute directly to improved operational efficiency and margin expansion through design and manufacturing advantages.

Competitive Landscape: Navigating a Fragmented Market

SPXC operates in highly competitive markets, yet its competitive position is complex to assess in aggregate because no single competitor offers the exact same breadth of product lines across both segments. Competition primarily revolves around service, product performance, technical innovation, and price, areas where SPXC believes it competes effectively.

In the HVAC segment, SPXC faces large, diversified industrial players like Johnson Controls (JCI), Carrier Global Corporation (CARR), and Trane Technologies (TT). While these competitors have broader portfolios and often larger scale, SPXC carves out its niche through specialized, engineered solutions. For instance, SPXC's Marley cooling towers, particularly the Everest line, compete directly with offerings from JCI and CARR. SPXC's focus on technical competence in large, complex projects and its innovative product design (like Everest's capacity advantage) allow it to take share. Productivity initiatives have brought Marley lead times to competitive levels, believed to be at or below its two primary competitors. In air handling and engineered air movement, acquisitions like Ingénia and TAMCO are seen as bringing "better" products to market, challenging established players.

Comparing recent TTM financial performance metrics provides some insight:

• SPXC (TTM): Gross Margin 39.75%, Operating Margin 15.50%, EBITDA Margin 19.17%, Debt/Equity 0.67.
• JCI (2024): Gross Margin 35%, Operating Margin 11%, EBITDA Margin 14%, Debt/Equity 0.59.
• CARR (2024): Gross Margin 27%, Operating Margin 12%, EBITDA Margin 15%, Debt/Equity 0.90.
• TT (2024): Gross Margin 36%, Operating Margin 18%, EBITDA Margin 22%, Debt/Equity 0.64.
• EMR (2024): Gross Margin 51%, Operating Margin 15%, EBITDA Margin 19%, Debt/Equity 0.38.

Based on these TTM figures, SPXC demonstrates strong profitability margins (Gross, Operating, EBITDA) relative to large HVAC players like Johnson Controls and Carrier Global Corporation, although it trails Trane Technologies and Emerson Electric (EMR) (which has less direct HVAC overlap) in some metrics. Its Debt/Equity ratio is manageable and comparable to peers within its target range. This suggests that SPXC's focus on engineered, potentially higher-margin products and operational efficiencies is yielding results, allowing it to compete effectively on profitability despite being smaller than some rivals.

In the Detection and Measurement segment, competition is also present across various niches (locators, inspection, CommTech, AToN, transportation). SPXC believes it is the clear global leader in the Aids to Navigation (AToN) business. The KTS acquisition positions SPXC as a leader in a specific, highly differentiated niche within tactical networking, with secure positions on U.S. military platforms, providing a strong competitive moat in that area.

Overall, SPXC's competitive strategy is not to be the largest player across the board, but to hold leadership positions in specific, often technologically differentiated, niches within its chosen segments. Its ability to leverage its business system for operational efficiency and integrate acquisitions effectively are key factors in maintaining and enhancing its competitive standing.

Performance and Operational Momentum

SPXC has demonstrated strong financial momentum, particularly over the past year. For the three months ended March 29, 2025, the company reported revenues of $482.6 million, a 3.7% increase compared to the same period in 2024. This growth was primarily fueled by inorganic contributions from the KTS and Ingénia acquisitions, alongside organic growth in the HVAC segment. Operating income for the quarter rose to $66.6 million, up 3.1% year-over-year, while net income reached $51.2 million, a 4.5% increase. Diluted EPS was $1.09, up 3.8%.

Breaking down performance by segment reveals key drivers:

• HVAC: Revenues grew 6.8% to $323.0 million. Organic growth of 4.4% was notable, driven by higher heating product volumes compared to a warmer prior year. Acquisitions added 2.9%. Segment income increased 8.0% to $73.9 million, with margin expanding by 30 basis points to 22.9%, primarily due to the higher revenue volume and acquisition contribution. Backlog stood at $451.3 million at quarter-end.
• Detection and Measurement: Revenues saw a slight decrease of 2.0% to $159.6 million. This was due to a 6.9% organic decline from lower volumes in aids to navigation projects and inspection/rehabilitation (timing-related), partially offset by a 5.2% inorganic contribution from the KTS acquisition and higher communication technologies project volumes. Despite the revenue dip, segment income surged by 16.6% to $36.6 million, and margin expanded significantly by 360 basis points to 22.9%. This margin improvement was driven by favorable product mix (especially in communication technologies), strong project execution, and the KTS acquisition impact. Backlog saw a substantial sequential increase of 56% to $345.5 million, including a 34% organic increase and the KTS contribution.

This performance underscores SPXC's ability to leverage acquisitions for growth while driving operational efficiency. The significant margin expansion in D&M, even with a slight revenue decline, highlights the impact of favorable mix and ongoing efforts to enhance segment efficiency, moving towards management's target margin range of 22%-24%. HVAC margins also saw modest expansion, benefiting from volume and acquisitions.

The company's business system, focused on continuous improvement (CI) and value engineering, is a critical enabler of this performance. Investments in production facilities, such as lasers and punches in the Marley cooling business, have driven significant throughput improvements and margin expansion. Similarly, efforts are underway to expand capacity in high-demand areas like the acquired Ingenia business, which is currently capacity-constrained.

Capital Deployment and Financial Strength

SPXC maintains a strong financial position, characterized by robust cash flow generation and a disciplined approach to capital deployment. While Q1 2025 saw cash used in operating activities (-$10.4 million for continuing operations), this was significantly impacted by a large, non-recurring $46.5 million payment into an escrow account related to KTS employee retention agreements. Excluding this, operating cash flow would have been positive, building on the strong 108% adjusted free cash flow conversion achieved in 2024.

Investing activities in Q1 2025 primarily reflected the $304.1 million net cash outflow for the KTS acquisition and $5.5 million in capital expenditures. Financing activities saw net borrowings of $295 million under credit facilities and $50 million under the trade receivables arrangement to fund the KTS acquisition. Total debt increased to $960.3 million at March 29, 2025, up from $614.7 million at December 31, 2024.

Despite the increase in debt to fund acquisitions, SPXC's leverage remains manageable. The leverage ratio, calculated under the bank credit agreement, was approximately 1.6x excluding KTS and 1.9x including the pro forma impact of the Sigma Omega acquisition (closed April 15, 2025). Both figures are well within the company's target range of 1.5x to 2.5x. Management anticipates the leverage ratio will decline below the lower end of this target range by year-end 2025, assuming no further capital deployment beyond current guidance, underscoring the company's cash-generating capability.

SPXC's capital allocation strategy is clear: prioritize growth. Over 95% of capital deployed historically has been directed towards organic and inorganic growth initiatives. The company recently expanded its revolving credit facility to $1 billion, aligning its liquidity resources with its increased size and active M&A pipeline. Management sees attractive acquisition opportunities across both HVAC and D&M segments and intends to continue funding these through available cash and borrowings. A dividend is not anticipated in the near term, with the focus remaining on reinvesting cash flow to drive future growth and value creation. Capital expenditures are expected to be somewhat elevated (around 2% of revenue) to support growth and efficiency projects, particularly in capacity-constrained areas.

Outlook and Growth Trajectory

SPXC's updated full-year 2025 guidance reflects confidence in its strategic direction and market positioning, even amidst a dynamic environment. The adjusted EPS guidance range was raised to $6.10-$6.40, representing approximately 12% growth at the midpoint compared to 2024. Adjusted EBITDA is projected in the range of $460 million to $490 million, implying roughly 15% growth at the midpoint.

This upward revision is driven by the strong start to the year, favorable timing, and the anticipated modest accretion from the Sigma Omega acquisition. However, it also incorporates the estimated net impact of current tariff rates, quantified as a headwind of approximately $0.08 to $0.12 to adjusted EPS, which partially offsets these positive factors. Management is actively managing the tariff impact through price increases, surcharges, and sourcing strategies, expecting to offset these costs fully as they roll into next year. The near-term tariff impact is expected to be weighted towards Q2 2025.

Current market conditions are seen as supportive of this guidance. In HVAC, demand remains healthy across key end markets like data centers, healthcare, and institutional facilities. Management is incrementally more positive about data center opportunities in 2025 and 2026, citing good activity and wins, supported by new product introductions like the Everest and adiabatic/dry cooling solutions. The recent Sigma Omega acquisition is expected to drive growth by leveraging SPXC's U.S. sales channels and expanding U.S.-based production.

In Detection and Measurement, run rate demand is flattish with regional variations, but project businesses are seeing healthy frontlog activity. While some large project deliveries are slated for 2026 and beyond, the strong sequential backlog growth in Q1 2025, including a significant organic component, positions the segment well for future periods. The KTS acquisition is expected to contribute meaningfully, particularly given its alignment with ongoing defense spending priorities. Industrial reshoring also presents a long-term opportunity, expanding the TAM for SPXC's equipment in new manufacturing facilities.

Risks and Considerations

While the outlook is positive, several risks warrant investor attention. The dynamic tariff environment, with recent U.S. and retaliatory tariffs, presents a quantifiable headwind ($0.08-$0.12 net impact on 2025 adjusted EPS) that requires ongoing mitigation efforts. Although not expected to be directly material to the full year, the impact on general economic conditions remains uncertain.

Macroeconomic conditions, including the potential for a slowdown in U.S. growth, could impact demand. While SPXC believes it is less cyclical than many industrial tech peers due to its diverse markets, high replacement sales, and mandated solutions, a recession would still have an impact. The timing of large project deliveries in the D&M segment can introduce variability in quarterly results. Capacity constraints in certain high-demand businesses, such as Ingenia, could limit near-term growth potential if expansion efforts do not keep pace.

Other risks include environmental liabilities ($40.3 million accrued at March 29, 2025, with $32.5 million long-term), which are based on estimates subject to change, and self-insured risk management matters, where accruals and insurance may not fully cover potential losses. Geopolitical conflicts are being monitored for potential impacts on raw material availability and demand, though they have not been significantly adverse to date.

Conclusion

SPX Technologies is executing a compelling growth story built on a foundation of engineered products, technological differentiation, and strategic M&A. The company's ability to identify, acquire, and integrate businesses that enhance its core platforms in HVAC and Detection & Measurement, coupled with a disciplined focus on operational efficiency through its business system, is driving robust financial performance and margin expansion.

The strong start to 2025, reflected in the raised full-year guidance, underscores the momentum in key end markets like data centers and the strategic benefits of recent acquisitions like KTS and Sigma Omega. While macroeconomic uncertainty and tariff headwinds present challenges, SPXC's diverse portfolio, high level of recurring revenue, strong backlog, and healthy balance sheet provide resilience. The company's continued focus on innovation and leveraging its technological advantages, alongside an active M&A pipeline and strong cash flow generation, positions it for further value creation. Investors should monitor the execution of capacity expansion plans, the impact of tariffs, and the timing of large project awards as key indicators of future performance.