SPX Technologies Stock

Good day, and thank you for standing by. Welcome to the Q3 2026 SPX Technologies Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the call to your first speaker today, Johann Rawlinson, Vice President, Investor Relations.

Thank you, operator, and good afternoon, everyone. Thank you for joining us. With me on the call today are Gene Lowe, our President and Chief Executive Officer; and Mark Carano, our Chief Financial Officer.

A press release containing our third quarter results was issued today after market close. You can find the release and our earnings slide presentation as well as a link to a live webcast of this call in the Investor Relations section of our website at spx.com.

I encourage you to review our disclosure and discussion of GAAP results in the press release and to follow along with the slide presentation during our prepared remarks. A replay of the webcast will be available on our website.

As a reminder, portions of our presentation and comments are forward-looking and subject to safe harbor provisions. Please also note the risk factors in our most recent SEC filings. Our comments today will largely focus on adjusted financial results and comparisons will be to the results of continuing operations only. You can find detailed reconciliations of historical adjusted figures from their respective GAAP measures in the appendix to today's presentation.

Our adjusted earnings per share exclude intangible amortization expense, acquisition and integration-related costs and nonservice pension items, among other items. Finally, we look forward to meeting with investors at various events during the upcoming months.

And with that, I will turn the call over to Gene.

Thanks, Johann. Good afternoon, everyone, and thank you for joining us. On the call today, we'll provide you with an update on our consolidated and segment results for the third quarter of 2026 as well as an update on our full year outlook.

We delivered a strong third quarter. Adjusted EPS grew by 20%, marking the fifth consecutive quarter of a 20% plus year-over-year growth. Our HVAC segment delivered excellent growth during the quarter driven by strong demand in core end markets and the continued execution of our capacity expansions.

The D&M segment delivered another quarter of strong margin performance. Our recent acquisitions are performing well, and delivering on our strategic objectives.

Inorganically, we recently announced the addition of [ FS Water ] to the HVAC segment. This acquisition complements our existing cooling product offering and expands our capabilities in attractive adjacencies.

Finally, we are updating our guidance to reflect our third quarter results and outlook for the fourth quarter. At the midpoint, our updated guidance implies approximately 25% adjusted EBITDA growth for the full year, reflecting continued momentum in both segments.

Turning to our high-level results for the quarter. We grew revenue by 21% and adjusted EBITDA by 22% year-over-year, primarily driven by robust organic growth in the HVAC segment strong margin performance in the D&M segment and the benefit of recent acquisitions.

In HVAC, we experienced the effects of higher-than-forecasted growth-related inefficiencies, resulting from an increasing ramp in production levels necessary to meet accelerating customer demand as well as elevated input costs.

As always, I'd like to update you on our value creation initiatives, starting with our organic growth activities. The capacity expansions across our HVAC facilities to meet the strong demand for our data center and custom air handling solutions remain on track with the time line and capital requirements previously outlined. We continue to expect approximately $1.1 billion of total data center capacity once full production.

Importantly, [ Madison ] commenced assembly activities during the quarter, shipping both OlympusMax and Ingénia products and will ramp its production throughout the balance of the year.

Turning to new product innovation. Our [ heat trace ] launch is gaining momentum, providing a new avenue for growth across both industrial and commercial applications. Early customer engagement has been strong, and we see meaningful opportunity to scale the offering through our established channels.

Turning to [ FIS Water ]. This acquisition enhances our cooling platform with complementary water management and control solutions that broaden our offering to customers and strengthen our position in attractive end markets, including data centers. These products are typically paired with cooling towers. We believe [ FIS Water ] will benefit from SPX's global channels, OEM relationships and specification-driven sales capabilities, creating additional opportunities for growth. We welcome the [ FIS water ] to the SPX team.

And with that, I'll turn the call over to Mark to review our financial results.

Thanks, Gene. Our third quarter results showed strong growth. Year-over-year, adjusted EPS increased by 20% and to $2.21. For the quarter, revenue increased 20.5% year-over-year with 11.8% organic growth, 8.5% inorganic growth a negligible FX tailwind.

Adjusted EBITDA increased by $29.6 million or 21.7%, $165.7 million primarily driven by strong organic growth and the benefit of the recent acquisitions.

Adjusted EBITDA margin increased by 20 basis points to 23.2%. In our HVAC segment, revenue grew by a record 35.5% year-over-year with 13% inorganic growth and a negligible FX tailwind. On an organic basis, revenue increased 22.3%, driven by growth in both heating and cooling, including strong growth in data center volumes.

Segment income grew by $26.4 million or 28%, primarily driven by strong organic volume and acquisitions. Segment margin declined approximately 140 basis points principally due to the growth-related inefficiencies and elevated input cost that Gene noted earlier, with the former primarily associated with additional labor and outsourcing costs.

Segment backlog on an organic basis increased 69% year-over-year, 15% sequentially from approximately $1.1 billion, crossing the $1 billion mark for the first time.

In our Detection & Measurement segment, revenue decreased 7.7% year-over-year largely due to the prior year period benefiting from project timing as highlighted in prior earnings calls. Segment income increased by approximately $1 million or 1.7%. Segment margin increased by 260 basis points. The increase in margin was largely driven by favorable project mix continued benefits from our segment synergy initiatives as well as a commercial resolution with the customer. Segment backlog ended the quarter at $322 million, up 3% sequential.

Turning now to our financial position at the end of the quarter. We ended Q3 with $121 million of cash on hand and total debt of $1.3 billion. Our leverage ratio, as calculated under our bank credit agreement was approximately 1.8x at quarter end, including the impact of the acquisition of [ FIS Water ]. Year-to-date, adjusted free cash flow was $111 million.

Moving on to our full year 2026 guidance. We are lowering the top end of our full year adjusted EPS guidance range to $8.50 resulting in a midpoint of $8.35 this update reflects our revised outlook for both segments and modest accretion from [ FIS water ]. For HVAC, we are increasing our revenue range to incorporate the addition of FIS Water and modestly higher organic volumes.

The revised segment margin range for HVAC reflects the impact of growth-related inefficiencies and elevated input costs experienced in the third quarter as well as the expected impact of these items in the fourth quarter.

For D&M, we are updating our segment margin range to reflect our results for the third quarter and revised forecast for the fourth quarter.

As always, you will find our updated 2026 guidance on this slide and modeling considerations in the appendix to our presentation. And with that, I'll turn the call back over to Gene for a review of our end markets, his closing comments.

Thanks, Mark. Current market conditions continue to support our 2026 outlook implies approximately 25% adjusted EBITDA growth. In HVAC, core end markets remained healthy, including robust demand for our data center solutions. In Detection & Measurement, our run rate demand remains healthy, while the project-oriented businesses continue to see and active front log.

In summary, I'm pleased with our strong third quarter growth in revenue and profit. As we look to the rest of 2026 we expect to continue to drive additional shareholder value through both our organic and inorganic initiatives, including our ongoing efforts to expand capacity and deliver on our data center demand, integration of [ FIS Water ] and our other recent acquisitions, which further scale our HVAC platforms and strengthen our positions in key end markets and an active pipeline of attractive acquisition opportunities.

Looking ahead, I'm excited about the opportunities in front of us. The differentiated businesses, attractive end markets and an experienced team, we believe we're well positioned to deliver sustainable long-term shareholder value. And with that, I'll turn the call back to Johann.

Thanks, Gene. Operator, we will now go to questions.

[Operator Instructions] Your first question comes from the line of Andrew Obin with Bank of America.

Good morning -- good afternoon, It's been a really long day. Sorry about that.

Andrew. Yes, I understand a lot of guys going today.

Sorry Yes. So maybe we can talk about these inefficiencies in terms of the ramp. As we look at sort of the guide for your HVAC, certainly seems like they will continue into the fourth quarter. But can you just describe what are you seeing? And what's the rate? Is it going to get better in the fourth quarter? Is it sort of continues to get worse, what sort of stops and reverses it?

Yes, Andrew, thanks. I figured you to ask that question. And let me just put a little context around this. As I think you know, right, we've seen tremendous growth in our HVAC business this year. And our lot platform is going to grow by 30% or so in the second half organically. And we've just been seeing accelerating demand right through the year and really into next year.

So as we began to ramp our capabilities to really meet this demand, and we rolled into the third quarter as that sort of unfolded, quite honestly, I don't think we felt like we are capabilities or productivity was ramping fast enough. So really, as a result of that, we made a decision. It was an intentional decision to kind of accelerate our hiring and secure additional suppliers to ensure that we can meet the demand that's out there, really for the balance of this year and really set us up for next year as we look into what should be another strong year particularly around data center but across HVAC growth.

So that was really kind of the context of it, the background. We do expect these obviously, to continue on into Q4. So you'll see that impact through the balance of the year. What I would say, though, as you kind of look into next year, right, my expectation is this labor will get more productive. We'll begin to see efficiencies off of that. That said, we will be hiring as we continue to ramp the facilities.

And then on the outsourcing front, we're increasing our outsourcing. But as the equipment we have comes online, particularly at [ Madison ] and we begin to in-source more of that, you should see that come more online and be in-sourced more within our plant facility.

But I caveat that with demand is still very strong. So if we've got the capability to kind of drive and serve our customers, we're going to be balancing that with outsourcing. And this is really around metal fabrication, so you know.

Okay. And then maybe we can talk about the state of the supply chain because I think a number of HVAC companies have reported already and it sort of seems a long list of things you have a somewhat different product exposure, but I would imagine you're impacted by some of it. What has been your experience? And once again, how do you feel about the state of supply chain at the end of the third quarter and into the fourth quarter and early '27.

And I -- look, I appreciate that it was not an easy quarter, and you made the numbers did not -- don't mean to take away from all the hard work that the team is doing and the growth is terrific. But again, I just want to sort of focus on these issues.

Thanks, Andrew. And I think if you look at the supply chain, I think in general, as Mark had alluded to, you are seeing a tremendous amount of growth, that is putting more pressure on the supply chain in general I think if you look at our supply chain, I don't think we have anything material that has been a significant impact to us.

As we look in Q3 and Q4, the biggest impact of the specific supply chain items that Mark has really alluded to is a lot of what we were doing ourselves. Our metal fabrication with the size and scale of the growth, we did have to outsource some of that to meet customer requirements.

And so overall, we feel like our supply chain is in good shape. We are keeping a close set of eyes on it. Anything else, Mark, you kind of...

Yes. I think the only other thing I would add to that is, particularly in what you were just referencing, right, we're expanding our sourcing on some of this outsourcing that we are doing. And as we go to secondary suppliers with lead times that are appropriate for meeting this demand, just given the environment we're in, it's coming in at a higher cost than I think we would have originally thought.

Your next question comes from the line of Bryan Blair with Oppenheimer.

I'd like to stay on HVAC margins for now. And I guess, approach it a little bit differently. Is there a way to parse out the impact of growth-related inefficiencies versus direct inflationary or price cost pressure in Q3? And if so, are you willing to size that either on a dollar or margin basis? And then similarly, how are you thinking about Q4 on that front?

Yes, Bryan, I'll start. Listen, I think if you look year-over-year and the margin change, Q3 of last year, Q3 of this year, you would see that about 2/3 of that delta really relates to the volume net of these growth-related inefficiencies as we call them. And then the balance of it, about another 1/3 really relates to higher input costs or the price cost dynamic that we talked about.

Those are really -- that's how you should think about it. Those are sort of the two pieces of the puzzle there. As we look into Q4, listen, we're into October, we feel good about the start of the quarter. Remember, this is an intentional or a conscious decision that we made around labor and the sourcing side. We've got our arms around it, we feel, but those costs will impact us in Q4.

That said, the guide will imply about 150 basis points of change or increase sequentially. So about 2/3 of that is going to be the operating leverage. So the increased revenue, again, net of these growth-related inefficiencies, and then the balance of it is going to be from accretion from the acquisitions.

Understood. That's very helpful. And sticking with the margins, D&M profitability was eye-catching in the quarter and full year segment margin guidance now sits well above the medium-term framework that your team has had I understand there's mix favorability to consider for this year. Are we getting to the point where there's been enough structural margin improvement in D&M at the 22% to 24% medium-term margin level target is officially stale at this point?

Yes, that's a great question. We obviously haven't updated that yet, Bryan, but we're clearly that business has done a very nice job, I think, resetting the structural margin profile of D&M.

I expect we'll update that perhaps as we roll out the guide for next year. But no doubt, as we, I think, talked about in Q2, the business is really running at a higher margin level than that, as you described, it stale guide.

So that said, this year has had some unique elements to it. I think as you recall back in Q1, we had the scope expansion related to transportation project. We obviously called out this -- what I would refer to as a kind of discrete or onetime commercial resolution.

And the mix was attractive this year kind of relative to a normal mix. So when you think about our guide for 2026 and you sort of take those three elements, which we've -- I think we've shared the impact over the last few quarters, that equates to about 175 basis points or so. I think if you pull that out, that kind of gets you to where I would argue the structural margins of D&M we'd be operating at.

Your next question comes from the line of Jamie Cook with Truist Securities. .

I guess two questions. One, to what degree -- I understand some of the issues with capacity and inflation that you lowered the margins for HVAC are sort of tied to each other. But like to what degree do we need to be worried with your backlog growing that backlog potentially that it's not an optimal margin level just with inflationary pressures, broadly just continuing to get worse. I'm just wondering, as we look to 2027, is there a sort of inflation risk to margins?

And then I guess my second question, if you could just -- obviously, everyone is very excited about data centers. But if you could just talk to what you're seeing in other markets or how you would characterize industrial growth outside of data centers just sort of your broader portfolio organically?

Yes. Jamie, I'll start on your first question, I'll turn it over to Gene. You're right. I think like a lot of folks, we saw a material increase in our input costs in Q3. And you think about steel and frankly, diesel that moved up dramatically that really leaks through the supply chain. And when I think about this year, we're really now kind of roughly price cost neutral on a dollar basis for the full year. But it's clearly had a margin impact as a result.

That said, we have been raising price throughout the year. We continue to look at raising price across all of our HVAC businesses to really offset or mitigate these inflationary pressures.

You're right, with respect to some of the near-term backlog that we have, I mean -- and you can kind of see that obviously in the margin profile. -- that takes some time to pass through to new projects. And to the extent some of that backlog, we have the ability to adjust price related to these costs. we will do that. But I think net-net, we will be in a better price/cost position next year.

Yes, we have a lot of the price increases that are already in the backlog.

That's correct.

Yes, we're well positioned for as we're set up for Q4 and then the first half, yes.

On the second question, Jamie, I think the markets that we're seeing, overall, we're feeling very favorable. So you look at HVAC, obviously, data center is very strong. We're seeing I would say, even accelerating traction there. We're feeling very good about what we're seeing for this year and next year.

But if you look about the other HVAC markets, I would say, power very healthy lot of activity, industrial and semiconductor, very healthy health care, pharma, we've seen a good amount of sports and entertainment projects. And then I would say commercial replacement activity is very healthy.

If we look at what's flat to down, I would say, education and government seems to be soft. New commercial still remains pretty soft. And then chemical, we don't see a lot of activity right now.

But net-net, if you look at HVAC, we're very pleased with the organic growth, and we're both in the core markets and in the data center markets.

If you go to Detection & Measurement, I'll give you a quick look by the platforms. Transportation is very healthy, good growth this year. We have new products. We feel good about '27 there. So healthy there. CommTech, we see continued growth. That would really be our biggest brands there would be KTS and TCI. L&I or location and inspection business, I would say, is normal right in the mid-single.

The one that I would say is a little bit lower than our normal mid-single would be our [ ATOD ] business. We're seeing modest growth there. But we are seeing slower growth in Europe, Middle East and Asia. So that would be the one platform that we're seeing some slower growth, some modest growth, but not the mid-single.

But if we look at as we know, about 15% or so or mid-single, mid-teens is data center, you don't take that 85% that you're referencing. We feel very good about our normal growth model for our core markets as we look ahead to '27. So I think that would be a good baseline to think about where we will be for '27 for our HVAC and Detection & Measurement.

And then when you layer data center on top of that, that's obviously going to be a very high growth rate. And we're not prepared to obviously do '27 guidance, but we're seeing good momentum there as we look ahead to '27. So net-net, the markets are feeling pretty good.

Your next question comes from the line of Amit Mehrotra with UBS.

I wanted to ask about the supply chain issue, and I know a lot has been talked about, but I wanted to just understand sort of how it came to be in terms of when did you give visibility on it?

It's certainly -- you're not alone. A lot of people have had these issues. And I think what's been interesting to me at least is sometimes they sort of come out of nowhere and really bring things down. And I think you guys do use a decent amount of contracts. I know you have the IP, but you do use a lot of contract manufacturing. So I guess my question is, maybe shed some light on when this became really evident to you. Does the use of contract manufacturing weaken your visibility into the Tier 2, 3, 4 of the supply chain? And what gives you comfort that the visibility has been kind of addressed.

Yes. Let me take a cut at that, and we can turn it over to Mark to add a little color, but I think specifically with Q3, some of the challenges that we had was, as a reminder, at the end of Q2, we raised our guidance for data center and we had very high customer demand, and we agreed with the customer to take on approximately $130 million -- or the change was very significant north of $100 million.

So as we ramped up, you're talking ramping several hundred people into the facility. But when we talk supply chain, this is really our product, our components that we're making. Think about cut steel, punch steel that, frankly, we just got over -- we had more demand than our supply. So it's pretty typical you can outsource, cut products, things like that. So our billing materials, it's our intellectual property, but there are third parties that do that.

I would say we had a much higher amount of that than we were planning. And I would say the costs of that were higher. I think that in general, there's a lot of demand on supply chains everywhere. But that's really what happened.

What I would say is we have seen very nice improvement in performance. If you look at our supply chain in September and then actually where we are year-to-date in October, we're very pleased with what we're seeing. But that's the specific dynamic.

In the macro, what I would say is there is a lot of growth here. So you always have to keep an eye on all of your supply chain elements. As we've talked about in the past, if you look at our typical products, most of it is our intellectual property. So most of it we own.

So if there is a supplier or that we need more capacity. We can actually go out to another supplier that can fabricate that component for us. So it gives us a lot more control and flexibility in being typically sole source.

That's not always the case. There are a few times. I know, like, for example, [ EC ] fans is a very hot topic. Vast majority of our products do not use [ EC ] fans, but we do use [ EC ] fans in a few areas in our customer handling and so forth. So -- but we haven't seen the disruption that I think you're well aware of that has been out there. And Mark, what other color would you like to add?

Yes. I think I just maybe back to your -- just to be clear, on this outsourcing, and we're really talking as Gene referenced to metfab, in that case, we -- just because of the demand, we went to secondary supplies, where we had shorter lead times.

But given the environment, I think we're all working in, that came in a premium cost, right? Input costs are higher, obviously, but we needed that at that time in place to support the demand for the growth.

And that -- we will see that, I think, through the balance of the year, just given the demand that we have, but recognize that as the existing facilities and the new facilities come on, they're going to have substantial metal fab capabilities once we get those fully operational and efficient, more of this will ultimately be insourced.

Right. Okay. That makes perfect sense. And just as a follow-up, I guess we're sort of on this journey from $430 million to $1.1 billion later this decade.

I think that path is fairly linear. If you can sort of correct me if I'm wrong on that. And I do think in addition to the facilities you're ramping, you do take advantage of maybe some lease facilities where the economics can be quite positive in terms of throughput and returns on those investments?

Is there an opportunity to, I guess, just kind of a just position from the supply chain challenges, but is there an opportunity to maybe accelerate that linear path based on maybe some lease facilities as well?

Yes. I think let me start. I think with respect to the $1.1 billion that we've talked about and the timing on that, when we referenced that, I believe it was last quarter and we -- at the time, we talked about it being kind of linear in nature.

That said, I think the bias is that there will be more than what the linear might imply next year in 2028. Particularly when you think about some of the activities that we've taken on to accelerate labor, these growth-related efficiencies, they're impacting us today, but they should set us up better for 2027 to be able to drive more throughput and reach that potentially that $1.1 billion if not sooner or certainly the ramp will be deeper. So that -- but that's all within the confines of what we have underway and in our control today, a lease facility or something like that.

Yes. I mean I think that the lease facility is something we could do. One good example, and I think we've talked about our Springfield facility, which is a facility that we're very proud of that built a lot of our cooling towers, our [ Everest ] cooling towers, a variety of products, very successfully, very well. That is a leased facility that we added a very small amount of capital, a couple of million dollars and are pushing a couple of hundred million of revenue through. So we are very well aware of that model.

When we look at [ Madison ], that is fully integrated. So there is capital there. There's lasers there, there's metal bending. So that is a soup-to-nut. But as we look at -- I'm inferring from your question, once we get to $1 billion, how would you go beyond that? And what -- I would say we're very actively looking at different models here, and we're very comfortable with both models.

The way I look at it, [ Madison ], we needed Madison because we really, with custom air handling as well as cooling data center. That is a critical, critical bottleneck that we had. But as you look forward, I think you have to be more thoughtful on what is the duration of the demand, and we're going to be very thoughtful and careful as we look at the options.

But as we look ahead, there's a lot of hyperscalers talking very big numbers in '28, '29 and '30. So -- it's certainly something that we are evaluating in great detail, and there's a lot of work going on and it's a model that we're very familiar with. So yes, we are actively all over this.

And do you think we can get to the 11% run rate like early 28 instead of late '28? I don't want to put a fine point on it, but any additional thoughts there?

Yes. I think I'm not giving obviously 2027 guidance yet. So we're not going to give any 2028 guidance. Listen, we're optimistic. We're going to work as fast as we can to get as much throughput through there, but...

Sorry, it's my job to ask.

As it should, absolutely.

Your next question comes from the line of [ Daniel Dicico ] with BMO Capital Markets.

We'll go non-HVAC. So I'm losing count as a number of deals this year. So maybe if you could just refresh us on anticipated accretion and then just how those are tracking? Any areas that kind of stand out or any of the markets that stand out? And then any potential areas you're excited about as we move into '27 related to those deals?

Yes, sure. I think we're very, very excited about the strategic deals we've done this year. There's really been four strategic deals [ Crawford ], which is really air enterprises and a smaller coil business called [ RAM ], [ Thermolec ], [ Neptronic ] and most recently, [ FIS water ].

If you look at the amount of capital deployed is about $1.2 billion. And then really, you're talking about approximately $310 million of revenue run rate here.

These are really good businesses, very strong competitive positions. We see a lot of synergies across all of these in a number of dimensions, channel, technology and so forth.

I mean if you look at the blended multiple that we paid for these four transactions, it's approximately 11.7 tonnes. And then really, how are we tracking? We are basically on track or slightly to modestly ahead on a couple of these. So very, very pleased with the activity to date.

As you look ahead, what I would say is we have a very strong pipeline I would not expect anything as large as [ FIS ], but there are some very strategic opportunities that are still in the pipeline.

In terms of where we're seeing opportunities, there's been a little bit of change there. In HVAC, we typically talk about the very significant amount of opportunities in engineered on movement and electric heat. That remains true. What I would say is we're seeing more cooling opportunities, and we're seeing more niche hydronics opportunities. So really, across all of our areas in the HVAC side, we're seeing a lot of activity. We're seeing a lot of activity coming out in '27 as well.

On Detection & Measurement. I would say the two areas that we see the most activity right now would be on the location of the inspection side and then on the transportation side.

So very pleased busy integrating these four transactions and very good strategic opportunities in front of us. But probably nothing major before the end of the year. So anything else, Mark, on the [ ASA ]?

Yes. I think one thing to point out, they've all been -- they've all been accretive to margins. And when you look at the full year this year and kind of look at year-over-year, you'll see is about 60 basis points of margin accretion, give or take from the four acquisitions.

Your next question comes from the line of Joe Giordano with TD Cowen.

I don't know if it has been asked already, but are we still -- is the guide for HVAC? Is it still 430 for data center? I know we're adding [ FIS ]. Just curious if that number has changed?

We think it's modestly above that. It was probably another or above that. One thing to point out, I think, is worth noting. I think there is some data center in both [ Medtronic ] and [ FIS ]. That's not included in these numbers. We're still kind of calculating the percentages. Something we'll dive into more detail as we come into the guide for next year.

Okay. And then Yes. Can you just talk us through like the mechanisms you have in some of these backlog contracts to like to work with the customer on some of these inflationary things as they pop up.

Like are these mechanical kind of if X goes up by this much we get compensated? Or is this like discussions, like how kind of in place are these mechanisms?

Yes. I think what I would say is there when you have these frame agreements, you very clearly have mechanisms for how to do -- to make price adjustments.

Typically, the last demonstrating and showing the actual delta or the change in the input costs, you go through a process and I think we're really talking about more of the data centers we had very -- the hyperscalers. We have these larger frame contracts. But yes, I think the mechanism we have used this over the past couple of years, it works. It doesn't happen in like a day or a week. There's typically a process you go through. You sit down, you have some meetings. But it works very effectively.

It's something we're very careful on because we don't want to get pinned into a situation where we have structurally eroding margins due to backlog. So yes, we feel good about our structures. It's something we're very cognizant of and something we pay a lot of attention to in all of our hyperscaler contracts.

Your next question comes from the line of Piyush Khaitan with JPM.

Maybe I just wanted to ask about backlog on HVAC side. Usually, I haven't seen backlog increasing from 2Q to 3Q sequentially. I understand like a lot of data center growth is being embedded in there. but seeing the demand that you see out there, is it fair to assume backlog continues to grow on a sequential basis going forward?

Yes. I think, listen, I mean, the backdrop on -- well, Gene talked about it, our kind of core markets is healthy. And then, of course, I think we all know what's going on in the data center market, right? That demand remains very strong. .

So you always run into some puts and takes around backlog from quarter-to-quarter because sometimes you have a big release of a project or projects within a short period of time. But the backlog is $1.1 billion. It's at a record level. I would expect that we're going to continue to see more and more opportunities on the data center side, which will continue to drive that backlog higher.

And next follow-up would be like more on the pricing front. You guys talked about like increasing pricing. Is that -- is it coming under any particular business or end markets? Or is it like across the company on the HVAC side.

And we have seen like we heard from like the other your HVAC peers like there has been some pushback on pricing. So are you seeing any kind of pushback on pricing maybe?

We haven't seen any pushback on pricing. When I talk about that, I'm talking about -- it's really mainly in the HVAC businesses. And of course, we're pushing price at different levels and at different times across all of those business units that are a part of it. So up till now, we've been effective at moving price.

Your next question comes from the line of Zach Schechtman with Wells Fargo.

Since supply chain is a hot topic. I figured I'd dive a little deeper into that. One of your heat rejection competitors talked about a coil shortage. So I was just wondering what you're seeing in terms of demand in your raw coil business, anything to highlight there on industry capacity and if that's giving you a noticeable competitive advantage at this time.

We haven't had any coil shortages. I do think you have to develop your supply chain. And we do, as a reminder, we do some coils internally, some coils externally as a part of our [ Madison ] expansion. We will be expanding our coil manufacturer. But the way we're set up is we structurally do have outside suppliers that will fabricate. We have the engineering, we have the design, we have the quality, but we do have outsourced providers. So we do have a number of suppliers that provide us really our design of coils.

And as we grow, you have to keep developing that because that's really -- if you look at the OlympusMAX or the OlympusV product categories are dry or [ adobeatic ], they're very, very coil intensive. So it's probably our most important bill of material item. But we've been able to manage this. We feel good. We have good suppliers here but we will have to continue to expand and grow as we scale our volumes looking forward.

Got it. And then just on the dry cooler side. Are you seeing competition ramp there from some of the other players? It seems like the air cooled chillers from the legacy chiller OEMs have three cooling capabilities built in, but are you seeing new entrants to the space as water cooled chiller demand starts to ramp, like anything that you could touch on there?

Yes. We see a lot of different things. What I would say is A very common question you get is what architecture do you see? And do you see people with no chillers? Do you see people preferring water cool chillers when you have a water cold chiller, you typically put a dry cooler in antibiotic tower or a cooling tower on it or do you see intercultural is one of the interesting things that we are seeing is we have seen some architectures where typically, if you use our product, which you can use in free cooling, which would mean you don't have -- you don't require a chiller, you require lower capital investment.

We've seen one or two data center I would say more on the neo Cloud side that are using this architecture, [ Scientifically ], you're going to have chillers there. I would say more commonly, we see water core chillers. But we have seen a few solutions where there's an air cooled chiller with a dry cooler attached. And so when you need to get the mechanical [ LTT ], you can do it with a water cold chiller or an air cooled chiller. And typically, the air cooled chillers are stand-alone and they do not link into a an external heat rejection. But we have seen some architectures where that's the case.

So I don't think there's one standard. I think that there's different design criteria, there's different ways people are approaching this. Some of it is just a design philosophy. Some of it is the weather, you need a little bit less heat rejection in the northern regions than you would in Houston, Texas, for example.

So yes, we're seeing a lot of different solutions. I don't see I don't see one and it's a variety. But yes, there's a lot of activity and a lot of differences there.

The way I look at it, though, what I would say is the TAM or addressable opportunity that we can compete in is becoming a bigger and bigger share of the market. And that's one thing that we're very confident in, and we're seeing this typically with the larger hyperscalers and the larger clouds and so forth.

So overall, we feel like we have a good opportunity set in the evolving and changing data center technology space.

Your next question comes from the line of [ Joe O'Dea ] with Vertical Research.

I'll bring back to HVAC margins and really just trying to get a sense for dollar quantification of the headwinds relative to prior expectations. And so looking through it, I think back half of the year margins were previously anticipated around 26.5%, now maybe closer to $24 million that would suggest something like $25 million to $30 million of cost headwinds. So any color on that?

And then more importantly, as you think about next year, how do you see that pacing, meaning are those costs going to be there for a while or by the time in the back half of next year, have you really worked through that such that you could be back at that 26.5% kind of margin level.

Yes, Joe. So your math is close to right when you kind of do that bridge on the second half, it's about $25 million or so of costs.

The majority of it or more of it is really related to these growth-related inefficiencies, think about $15 million and the balance is around price/cost. These are obviously -- I think we've talked about this earlier on the call, particularly with the growth related inefficiencies. I mean it was a conscious decision that we made set ourselves up to deliver for the balance of this year. And as I mentioned, really for next year. I think I also said this already, but just repeated.

With respect to labor, I mean expect this labor that we've hired, we're going to see the efficiencies and the productivity out of that, but we will be hiring more as we ramp [ Madison ] into full production in the beginning of next year.

And the outsourcing we will begin to in-source more of that, but we'll be weighing that, I think, against the overall demand profile as that in-sourcing capability comes online. So I think you're going to see some of that dynamic leak into 2027.

What I would say, and I'm really not prepared to kind of give 2027 guidance at this point, but I would expect our margins to be towards the high end of our medium-term target range that we've outlined next year for the full year.

That's helpful color. And then just thinking about the revenue versus cost side of that. So the HVAC revenue guide moved up about $40 million at the midpoint. We're talking about $25 million of costs that went higher. It seems like it's probably wrong to draw a direct line saying $40 million of revenue translated to $25 million of cost. It was more the total revenue base and achieving that just a little bit harder to achieve, and that led to bringing on some of these costs.

Yes, your latter point is spot on. I mean, it was really costs required to support what is just continued accelerating demand for 2026. And then frankly, as we look at the opportunity into 2027, we need to be in a position where we can execute on that. So that was really the driver.

Your next question comes from the line of [ Walter Liptak ] with Seaport Research.

So as we -- Monday morning quarterback this in-source versus production and efficiency issue. Kind of in retrospect, was there anything that you could have done differently? Like would you -- could you have gone to outsourcing and then ramp the capacity, would that if any had any cost difference? Or is it purely just a an issue of we thought one thing, that's what was in the guidance. And now we're doing something else.

Why don't I start and then Mark dive in. I think that when you're ramping very rapidly and you're talking in the several hundred employees bringing them on, it's pretty obvious and we were expecting not to have brand-new employees performing as someone who had been in their roles for 5 years or 10 years. And so we obviously took that into account.

What I would say is where we had some material differences in how we thought things were going to play. We did have higher turnover in the quarter. We also had -- we're off on productivity. So there were some variances there and our expectations as we have grown.

We have, I would say, change how we're recruiting, how we're training, how we're scaling. So I think, yes, there are certainly things we could do better. I think there are some lessons learned that we are very actively applying. But yes, I think that we're very pleased to get -- to meet our customer demand. And we have some very important customers. We're very as Mark said, we invested to make sure we are going to meet our obligations and satisfy our customers. And did we perhaps overinvest to some degree? We might have a little bit. But overall, I feel like it's the right decision. And Mark, you have more color on the breakdowns here.

Yes. I mean, I might just add finer point to it just because it dovetails off of really even the last question we had, right? And big picture, right, meeting the customer demand that was out there was important to us, and we really thought it was the best long-term decision for us to be in that position to capture that demand, meet that demand and service our customers.

So while it's while the numbers and the impact that it had, we'd rather not have that, it does set us up, and we consciously did it so that we could be in a position to roll into 2027 in the best possible.

Your last question comes to the line of Jeff Van Sinderen with B. Riley Securities.

Can you give us a sense of how your customer concentration is evolving in data center among hyperscalers, neo clouds and colos what is your high-level view of the scope and cadence of data centers getting built out, considering the complex backdrop?

Yes. I think with data centers, if you're playing in this that is you are going to have some structural customer concentration.

What I would say is we have a lot of blue chip customers here. The majority of what we have, I would say, north of 90% is really pointed to the hyperscalers. We do have some neo clouds and some smaller data center activity. But I would say the bulk is really with the hyperscalers -- number of the hyperscalers. Obviously, confidentiality, you go on to specifics.

What I would say in the evolving landscape of data centers, what we see and hear from our customers is very good visibility over the next 2 to 3 years. What I would say is there's probably going to be some external factors that drive demand growth beyond that, the revenue generation of the customers that are using AI or using data centers or using these applications it may be harder to see what -- when we have all the market research reports that predict out for quite a long time.

But from what we see over the next 2 or 3 years, we see very healthy demand. And like I said earlier on the call, the -- where we sit today versus 3 months ago is increasing and accelerating demand. So it's a very good opportunity set. One that we feel like we have a good set of solutions that we can bring to the party here.

Great. Thank you all for joining today's call. We look forward to updating you again next quarter. And operator, with that, we can conclude the call. Thank you.

Thank you for standing by, and welcome to SPX Technologies Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

I would now like to hand the call over to Johann Rawlinson, Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Thanks for joining us. With me on the call today is Gene Lowe, our President and Chief Executive Officer; and Mark Carano, our Chief Financial Officer. The press release containing our second quarter results was issued today after market close. You can find the release and our earnings slide presentation as well as a link to a live webcast of this call in the new section of our website at spx.com.

I encourage you to review our disclosure and discussion of GAAP results in the press release and to follow along with the slide presentation during our prepared remarks. A replay of the webcast will be available on our website. As a reminder, portions of our presentation and comments are forward-looking and subject to safe harbor provisions. Please also note the risk factors in our most recent SEC filings. Our comments today will largely focus on adjusted financial results and comparisons will be to the results of continuing operations only.

You can find detailed reconciliations of historical adjusted figures from their respective GAAP measures in the appendix to today's presentation. Our adjusted earnings per share exclude intangible amortization expense, acquisition and integrated related costs and nonservice pension items, among other items. Finally, we look forward to meeting with investors at various events during the upcoming months. Also, we are hosting an investor site visit at our Alta Tensor facility on November 3. Please let me know if you are interested in attending.

And with that, I'll turn the call over to Jim.

Thanks, Johann. Good afternoon, everyone, and thank you for joining us. On the call today, we'll provide you with an update on our consolidated and segment results for the second quarter of 2026 as well as an update on our full year outlook. We had a strong second quarter with year-over-year growth in adjusted EBITDA of 20% and adjusted EPS of 22%. Looking at our value creation initiatives. Organically, we continue to advance our capacity expansion initiatives and now expect $1.1 billion of total data center capacity once at full production up from our previous expectation of $750 million.

Inorganically, we recently announced the addition of Netronics to the HVAC segment. This strategic acquisition complements our existing product offering and expands our capabilities into new adjacencies. Touching on our full year guidance. We are increasing the midpoint of our range to reflect higher data center volume, stronger performance from our Detection & Measurement segment and the Medtronic acquisition. The midpoint of our updated guidance now implies 27% adjusted EBITDA growth.

Turning to our high-level results for the quarter. We grew revenue by 23% and adjusted EBITDA increased 20% year-over-year, primarily driven by strong organic growth in both segments and the benefit of recent acquisitions. As always, I'd like to update you on our value creation initiatives, starting with our organic growth activities. The capacity expansions across our HVAC facilities to meet the strong demand for our data center and customer handling solutions are progressing well.

They remain on track with the time line and capital requirements previously outlined. In July, we launched assembly activities for the Olympus Max at our new Madison, Alabama facility and will add production capabilities in this facility during the first half of 2027. Production of our highly engineered aluminum dampers and Tamco's new Tennessee facility continues to ramp as expected. And in Ilesa and Springfield throughput of our data center cooling solutions has exceeded our initial expectations.

Based on the meaningful progress to date, we now expect total data center capacity to reach approximately $1.1 billion once in full production, up from our prior expectation of approximately $750 million. Turning to metric. This acquisition reference a natural extension of our HX strategy and another important step in strengthening our differentiated high-value portfolio. Atronic brings complementary product platforms, including intelligent controls, electric duct heaters, humidification solutions and actuated valves that expand our product breadth while strengthening our capabilities across the HVAC control stack.

Strategically, this acquisition advances SPX in 3 important ways. First, it deepens our controls and systems intelligence moving us further up the solution stack of equipment-focused offerings towards integrated, controlled enabled solutions. Second, it expands our addressable market through complementary products serving commercial, health care, institutional and mission-critical applications, including data centers.

And third, it gives us additional opportunities to leverage SPX's global channels, OEM relationships and operational scale to accelerate Neptronic's growth while preserving its culture, strong innovation. Ultimately, this acquisition positions SPX to deliver greater customer value through more intelligent integrated HVAC solutions and improved performance energy efficiency and operational intelligence while driving growth and long-term margin expansion.

Now I'll turn the call back to Mark to review our financial results.

Thanks, Gene. Our second quarter results were strong. Year-over-year, adjusted EPS grew by 22% to $2.02. For the quarter, Total company revenue increased 23% year-over-year, 17% organic growth. Consolidated segment income grew by $31.3 million or 23% and to $167.1 million, while consolidated segment margin remained at 24.6%. In our HVAC segment, revenue grew by 27.6% year-over-year with 8.5% inorganic growth and a negligible tailwind. On an organic basis, revenue increased 18.9% with double-digit growth in both cooling and heating.

Segment income grew by $14 million or 15% primarily driven by higher volume. 260 basis point decline in segment margin primarily resulted from capacity expansion related start-up costs and the net impact of tariffs, both of which were consistent with our expectations. Segment backlog at quarter end was $919 million, up 59% organically year-over-year, primarily driven by strong data center demand.

In our Detection & Measurement segment year-over-year, revenue grew by 13%. Segment income grew by 43% and segment margin increased by 610 basis points. These increases were largely driven by high-margin project volumes, including a project that executed earlier than previously forecasted. We also continue to see the benefit of segment synergy initiatives. Segment backlog at quarter end was $312 million, down year-over-year primarily driven by higher project volumes in the quarter.

Turning now to our financial position at the end of the quarter. We ended Q2 with $168 million of cash on hand and total debt of $615 million. Our leverage ratio, as calculated under our bank credit agreement, was approximately 0.7x at quarter end, including the effect of the Neptronic acquisition, our leverage ratio was 1.4x. Q2 adjusted free cash flow was approximately $72 million. Moving on to our full year 2026 guidance. We are increasing our adjusted EPS guidance by $0.45 to a midpoint of $8.40.

The increase reflects additional data center volume, our revised outlook for the D&M segment, incorporating higher volumes and margins and modest accretion from the Neptronic acquisition. As always, you'll find our updated 2026 guidance on this slide and modeling considerations from the appendix to our presentation.

With that, I'll turn the call back over to Gene for a review of our end markets and his closing comments.

Our end market conditions continue to support our 2026 outlook, which implies 27% adjusted EBITDA growth. In HVAC core end markets remain healthy, including robust demand for our data center solutions. Within Detection & Measurement, our run rate demand remains healthy while project-oriented businesses continue to see an active front log. In summary, I'm very pleased with our strong second quarter results and the momentum we built through the first half of 2026. As we look to the rest of 2026, we expect to continue to drive additional shareholder value through both our organic and inorganic initiatives, including our ongoing efforts to expand capacity and deliver on increased data center demand, integration of Neptronic and our other recent acquisitions, which further scale our HVAC platforms and strengthen our positions in key end markets and an active pipeline of attractive acquisition opportunities.

The strength of our execution in end markets give us confidence in our increased full year guidance, which implies 27% adjusted EBITDA growth at the midpoint. Looking ahead, I'm excited about the opportunities in front of us with differentiated businesses, attractive end markets and an experienced team we believe we're well positioned to deliver sustainable, long-term shareholder value.

Before I close, I'd like to touch on a few organizational updates. John Swan, who has led our Detection & Measurement segment will be retiring at the end of the year. John has had an outstanding career and consistently delivered results across organic and inorganic initiatives. The part of a thoughtful succession process John has worked closely with his successor, Eric Khaled, to ensure a smooth and well-planned transition. Since joining SPX, Eric has demonstrated strong operational leadership and has delivered meaningful results across the business.

Having led the Transportation and com tech platform since 2019 is well positioned to guide detection and management through its next phase of growth. Finally, we're pleased to welcome Brian Deck to our Board of Directors as an independent member. Brian brings significant industrial and operational expertise as the CEO of JBT Morale and we look forward to benefiting from his perspective and experience.

And with that, I'll turn the call back to Johann.

[Operator Instructions] Our first question comes from the line of Andrew Obin of Bank of America. .

Just a question on D&M. It was a very strong performance. How much of the strength was project timing pull forward versus sort of a durable step up in underlying demand and also cadence of D&M into the back half?

Yes, Andrew, that's a great question. We're -- listen, we're very pleased with the performance we saw in the quarter at D&M. I kind of break it down this way. If I think about the 610 basis point increase, really about half of that was driven by favorable project mix in the quarter relative to the project mix that we had last year. That was something that was known we were expecting coming into the quarter.

The balance of it and the majority of that balance really was project timing, we referenced a project that shifted forward into Q2. That actually moved from Q3 into Q2. And it was about $15 million in size at a high margin. So that move and that impact, along with continues to be initiatives around driving synergies across the whole D&M platform. That's really what drove the balance of that 610 basis point beat. I think we talked about this before, particularly with these projects, at these revenue levels when a high-margin project kind of moves into a quarter like that, it levered our fixed cost base very nicely. So you see a lot of accretion in the margins with respect to that.

I think you -- your second question was.

Just cadence for the rest of the year?

Yes. I think that -- as I think about the back half of the year, Q4 is probably going to be larger than our Q3 numbers. I would expect the margins across both quarters to be very similar.

Our next question comes from the line of Jamie Cook of Truist Securities.

Congrats on a nice quarter. I guess just 2 questions. Jean, can you just elaborate on the -- obviously, the data center capacity is coming down quicker? I think you said it's up to 1.1 versus 750. Just color on how you got there, how much incremental is in 2026 versus 2027? And how you think that contributes to the accelerate potentially top line growth, I guess, over the next 12 to 18 months? And then second, Mark, just on the -- I know you -- we had capacity additions and tariffs that weighed on margins in the second quarter. Can you just call that out? And then it also looks like you raised your mine a little in the back half for HVAC. So any color on that?

I'll just start, Jamie. Yes, we're very pleased with the capacity. A couple of things I'll point out really the capacity is coming from 2 broad areas. And this is a reminder to level set kind of where we are in data center volumes. We are approximately 150 million 2 years ago, 200 million last year and it really came out with a plan for 300 this year. We've seen some very strong demand for our solutions. We raised that to 350 last quarter. And we subsequently raised it again to 430 for the full year as of now.

So that's basically growth of about 115%. Really underpinning some of these expansions in revenue is getting more efficiencies through. And the 2 broad areas are. The first is the Olympus Max. This is a very big, complicated product with very complicated controls. We've done a lot of work on this product over the past several years, but in the production process over the past 6 months, we've done a number of lean projects. We've done some productivity work and we've also done some flow optimization and the punchline is we're getting more throughput than we had anticipated.

And this will really be seen to benefit us both. As a reminder, we make the Olympus Max in both Arata, our core main cooling facility as well as the new Madison facility where we've just started assembling there. So one is, can get more Olympus Max throughput. And then the second area would be really our core cooling business. And this is really most commonly our Everest Product.

We have seen very high demand for that product as well. And we've done a lot of work on blocking and tackling, I'd say, more space, better flow and a number of lean projects that have helped as well as augmented staffing in different ways to basically to get more product out the door. So it's really the combination of those 2 broad categories that have allowed us to really raise the $750 million to $1.1 billion, and we have very good conviction about that. But then also, that has been a contributing factor for why we have been able to get our $300 million up to $430 this year as the teams have done some really nice work and feel good about that. Just as -- not as a plug, but we are doing an investor relation or IR meeting in November, I believe.

So if you guys want to come out and see some world Olympus Max at Marley Everest towers, we'd be glad to show you, but that's a big -- that's a big thing. And then the second question on...

Yes. I think, Jamie, maybe the easiest way to think about it is the 260 basis point decline year-over-year in the Q2 margins really, I mean, that was primarily driven by kind of 3 known items that we sort of contemplated as we forecasted the year. One was the net tariff impact. That actually hasn't changed. It was -- it was where we expected it to be the start-up costs similarly. And then we had a prior year comp that was a tough one in Q2, but all of those equal to about 80 basis points of a decline individually give or take.

And then we did see some modest inflationary headwinds. I'd probably size that around 50 basis points or so that impacted the quarter. With respect to the full year, really the raise in HVAC was driven by Neptronic. That was the 25 basis points increase. The balance of the forecast within HVAC unchanged.

Our next question comes from the line of Bryan Blair of Oppenheimer.

Congrats on the corner. Another impressive step-up in data center revenue expectations for this year. Given the backlog and project visibility that you have along with accelerating throughput with the Olympus Max and Everest, how should we think about your visibility into 2027? And realistic growth ranges perhaps? And then the increase to $1.1 billion in capacity, what's now a realistic time line for you to ramp to that level of revenue?

Brian, why don't I start on the first one, and then I'll hand it off to Mark on kind of how to think about the future. I think the punch line is -- we feel very good about our competitive position in data centers and the demand profile in did -- we're both seeing existing or very significantly increasing demand with our existing hyperscale -- we're seeing a lot of activity with a variety of customers. And the punchline is, I really think the market is shifting towards our solutions. So basically, a bigger and bigger portion of the market is coming -- becoming addressable by our solutions.

And I think we have very good solutions here. We are seeing a lot more liquid cooling under the roof. And then for our products, I'd say probably dry seems to be the most favorite solution, but we are also seeing a biotic and we're also seeing nice demand for our cooling towers. We have very good relationships with the hyperscalers. We have a lot of -- we've had some nice wins with colos and neo clouds as well. But as we look ahead to '27, I feel very good about '27. Typically, our hyperscalers give very good visibility for the -- for several years. And the reason is they're nervous that they need our product to turn the data center on.

So they're very -- they want to make sure that we can deliver the volumes that they want. There's a lot of direct feedback back and forth. You'll find these companies in our facilities, you get him in there for 2 weeks at a time with 10 people. So a very good to direct voice customer. So the pipeline is, I feel very good about '27 and then going forward, we see a very nice ramp in the forward years, but be careful about '27 guidance. Mark, anyone talk about how we're going to scale the capacity.

I think the way to think about it, Brian, is -- and maybe just kind of break it down when you think about where the data center work is emanating from Latin Springfield have actually performed, I think, better than we initially expected. Clearly, we've been able to deliver more data center revenue this year as a result of that. And Gene, I think, kind of referenced, I mean, as we've the Olympus Max in that facility. There's been a lot of learnings there. We've gotten much more efficient at how we've executed on that. TAMCO business in Nashville, that's on track. We talked about that being a at full capacity -- production capacity in sometime in 2027.

And then I think as we bring Madison online, and we're manufacturing our first product there now, I feel actually good about the learnings that we've developed in Alta in the Springfield facilities. -- that, that will ramp smoothly and kind of on track. Now what we've said to date, I think, as you know, we expect that to be at full production capacity call it, in the second half of 2028. So largely, I would say our view hasn't changed with respect to the ramp. That said, I would say there is a bias but it could be earlier if things continue to go well. But I think from where I sit today, it's probably a little too early to make that call.

Okay. That's fair. I appreciate all the color. With regard to Medtronic, we know modest accretion for this year. How should we think about growth rates going forward. Importantly, the sustainability of very healthy margins. And then given the complementary applications and some of the new technology that you're bringing into the fold, how does Neptronic affect HVAC TAM?

Yes, Brian, why don't I start with kind of some date about kind of the strategic logic and then Mark can kind of dive into how things are going to affect us financially and the growth rate and so forth. But in is we're very excited that the products are part of SPX. The way that I would think about this is pretty simply about passive business is very close to our core business, almost very similar products. They do electric duct heating, as everyone knows, we invented docketing with in Deco. We had a very important part of our electric key business during humidification, they actually have some very strong technology and humidification.

I mean humidification is a very important part of a number of our businesses, particularly in the customer handling if you look at our enterprises and Ingenia, that's a very important part. So half their business is very, very -- is either our existing business or very close core. I'd say the newest piece would be the control oven. Well, we do a lot of controls. We do controls for our Hydronics business. We have controls for our cooling business. We have controls for electric key. They have a more advanced set of controls particularly in the configured controls, they have really, really good capability.

And they win very nicely on the outside market. our controls really that we have to date in all of our capabilities really for our own equipment. They have a very nice controls business where they work third-party fan walls and other OEM HVAC equipment, and they can even operate at a higher level there. So we think this is a really part important part of strengthening our competencies and building our controls capabilities. I can tell you a lot of our businesses are very excited that they're joining and what they can do and how we can innovate together there.

So -- and the other thing I would say here is with both their heating, humidification and controls, we actually think we can accelerate our growth. And the reason being -- we have a great channel. We have very good OEM relationships. We have very good data on our relationships. So we can open a lot of doors and allow them to get more at bats, which we think would yield more growth. So very much like with TAMCO, with Ingenia, with a number of actually Canadian businesses that we've acquired we think 1 plus 1 can equal 3. And Mark, do you want to talk about how we should think about this going forward?

Yes. Brian, I think from a growth rate perspective, when you think about everything Gene said and across all the capabilities they had they have. I think this business is going to grow above our medium-term growth targets that we put out there. I would probably put at a high single-digit growth rate it will be different depending on the components that they sell in the business they sell.

They obviously, I think most people have gathered from from the information that we provided that it does have a nice high sustainable margin profile that is higher than the segment average, kind of in -- on a segment income basis, I would say it's kind of in the low 40s EBITDA basis kind of mid-40s.

Our next question comes from the line of Amit Mehrotra of UBS. Your question please, Amit.

I wanted to ask if you can just talk about contribution margins as the data center revenue sort of increasingly scales and the contribution margin book that revenue relative to broader HVAC portfolio, just given obviously the capacity investment and incremental engineering costs. And then just related to that, how much of Neptronics current revenue is exposed to data centers? And is there an opportunity to kind of expand that penetration through sort of your existing customer relationships?

Yes, thanks. With respect to the data center business, what we've said, we don't really talk about it from a contribution margin perspective. We really talk about it from a segment margin incrementals perspective, we would expect those incrementals to be similar or consistent with the balance of the HVAC business. So we typically identify those as sort of high 20s to low 30s incrementals. And

Then do you -- yes, sorry, go ahead

Yes. On the Neptronics. they do have some state in a presence. I would say they're very similar to our HVAC data center percentage. If you look at this year, and I'd say actually maybe a tad higher there, but similar they've had some good success, and we actually see some very nice opportunities for growth there going forward.

Okay. And then after Neptronic, I mean you still have a nice amount of capacity and net leverage is sort of under 1x. And you guys have a very good track record of kind of identifying and paying the right multiple for these types of quality assets. Does the pipeline look good? Just be curious in terms of how you -- how you think about the go-forward opportunities after what you just did?

Yes, sure. I think the first thing, I think we were -- I believe it was 0.7 at quarter end with pro forma with Neptronic, I believe we're a 1 -- yes, you're right. That's still below our target of 1.5 to 2.5, and we generate similar cash that, that will be very low by the year-end. So you're right, we have a lot of capacity here. We actually see a lot of very attractive opportunities. I'd say the areas that we see a lot of activity right now would be in Detection & Measurement on location and inspection. We think there's some very nice opportunities there as well as comtech and transportation.

I would say, electric heat. We've obviously just added Thermax and Neptronic to electric heat. So that's actually been very nice additions that really strengthens that business and provides some very complementary products. I would say if you look across HVAC, where do we see the opportunities, the biggest number of active opportunities would be an engineered air movement number of very attractive opportunities, I would say we're talking to or we have on the board.

And so the punch line to your question is, we've done a lot in the first 6 months. If you look at the amount of capital we've deployed, there's still a very attractive strategic set of opportunities even over the next 6 months. So we would expect to continue growing here.

Our next question comes from the line of Brad Hewitt of Wolf Research.

So as we think about E&M margins in the next year, I know they can be a little bit lumpy based on the project mix and the software attach. But is the base case expectation that D&M margin should be up year-over-year next year?

Yes. Brian, let me talk to you a little bit about that. I think when you think about where we're forecasting for the year, I think our guide is generally for '26 is 26.5%. There's a couple of kind of discrete elements that set us at that point. If you back out that scope expansion, we talked about in the first quarter in that software project. And you kind of normalize for what has been sort of a favorable mix for the year back to kind of what we call a more normal mix.

You kind of left with, I think, a structural improvement in margins based on a lot of the work that we've done to drive synergies across the D&M platform, kind of around 25%. Now that those margins can obviously be impacted by the mix of volume that we have in a certain year in the types of projects. So I want to be careful. It really provide guidance for '27, not prepared to do that, but I think that's a framework to think about it.

Okay. That's helpful. And then maybe switching back to the HVAC side of things. So you mentioned that you expect to be at the $1.1 billion of data center capacity probably by second half I guess curious as we stand today, like how much visibility do you have to that 1.1 from a demand perspective?

We see we see a lot of visibility. There's -- we feel very good about the demand profile and feel good about our value prop. So I would say we feel very good about sustained continued growth there.

Next question comes from the line of of Joe Giordano from TD Cohen.

Just what do you have for book-to-bill in the quarter?

For -- are you talking about for which business?

Talking about both.

Yes. I think if you kind of -- if you did the math around both segments, which you guys can do, I think you'd find that book-to-bill in HVAC was about 1.4 and D&M was maybe just a hair below 1.

Okay. With Neptronic, one, like how much are you adding into the guidance just from that specifically on the revenue and EBITDA side. And then with the EBITDA margins in the mid-40s, obviously, extremely attractive, but how do you like to stress test that in your own diligence, right? Because it is like double what you guys are doing as a company. So how much of that margin do you feel like was price over the last couple of years kind of getting crazy and scarcity for some of this stuff? And versus like how sustainable is that until like the tenure of your ownership here.

And one comment I'll make, Joe, I'll to over to Mark. Right now, if you look at segment income, for HVAC, right? And this is probably low 40s, 41, so it's not double. And you actually -- we know the electric heat business and the humidification business quite well. And margins, I guess, what I would say is we spent a lot of time on that question. I feel very good. I don't think these are anomalous. I think these are real and frankly, sustainable as we going forward. I do think -- I also think there's a lot of growth here that we can help support.

Yes. And I think maybe just to dovetail up what Jen said and then I can kind of walk you through a little bit of the contribution math for the year, if that's helpful. But I think when you think about some of these products like controls, I mean they're a high-value high consequence piece of equipment within these systems and very -- to how they function. So we obviously disclosed the revenue kind of $75 million full year, we're going to own this for about 5 months, right, in 2026. So that kind of gets you into the low 30s contribution for revenue.

And then segment incomes in the low 40s. I will tell you, we paid about 12.5x for the business, which should help you back into where the EBITDA ultimately is. And sort of netting all the way down, really, it's probably about $0.05 to $0.06 of addition or accretion to the numbers. That's obviously built into the guide raise.

Our next question comes from the line of Walter Liptak of Seaport Research.

Great quarter, guys. So I wanted to ask -- thanks sort of the detail about Neptronics that you just gave. I wanted to ask about the CapEx and the guidance for this year $135 million to $165 million. What does it take to get to the high end of that? And what are you thinking about for CapEx to get to that $1.1 billion? How much of it do you have to get in place in 2027?

Yes. Walter, with respect to the kind of the back half -- your second part of your question, that CapEx related to all these plant expansions is was contemplated. Some of it fell in 2025 and then the balance of it will fall into 2026. It could be that some of it slips into 2027. But right now, we're forecasting it to be in 2026 just given what we're seeing today. So I think when I think about the CapEx for this year and the guide range we had, at the midpoint, that contemplates the CapEx required to support the expansions within the year. it is going to be back half weighted.

So if you're looking at kind of the first half of the year and feeling like it's maybe a little bit behind on that guide, we always expected it to be back half weighted. And then the balance of it is really our regular way CapEx, which we've always said is sort of in the 1.5% to 2% range, and I expect we'll be right there.

Okay. Great. And as we're thinking about you ramping for the hyperscalers, the data center customers, it sounds like the capacity can be put in place that you're going to be there mostly by the end of the year. What becomes the heavy lift to make sure that you can deliver everything into 2027, 2028?

Yes, it's a great question. I think as we think about ramping up those plants, I feel really good about the team that we've got in place. I mean they've they've been kind of overseeing all these site expansions, plant expansions that we've got underway. They clearly have done a really nice job so far as we've kind of met or, in some cases, exceeded our expectations.

So as I look out into 2027, I think a lot of it is going to be a function of making sure we get the right employees in place and the right team up to speed and begin to ramp up into what our expectations are for 2027. But that's just one example. I mean bringing a plant online is always complicated. And there's a lot of things that have -- that need to fall into place. But I feel good about we've got a plan and that we'll deliver on the expectations we've laid out.

Our next question comes from the line of Piyush Khaitan of JPMorgan.

Just on -- just on HVAC maybe, can you help me with like the cadence of the growth in the back half of the year? And correct me if I'm wrong, if we take out the data center growth that you're embedding the rest of the segment is like tracking right in that 5% to 6% range?

Yes. I think to your second point, that you're absolutely -- you're absolutely right. With respect to thinking about gating in the back half of the year, in a the way I would think about it is Q3 and Q4 will have kind of similar revenue growth rates. And I would expect margins will be higher in Q4 than in Q3.

Yes. On that margins, is there any particular reasons because the incrementals like go way above, I think, 40% more than up. So if you can provide some color on that one.

Are you talking about in sort of the back half of the year?

Yes, Yes.

Yes. I think you've got a handful of things going on there, depending on how you've modeled it, right? It's you got the operating volume and the leverage off of that. You also had the contribution from Neptronics and the M&A contribution there. And then remember, the start-up costs and the tariffs that were kind of a headwind in first half, those will moderate. So I think if you kind of think through all those elements, that really helps explain that sort of first half, second half ramp.

Our next question comes from the line of Jeff Van Sinderen of B. Riley Securities.

I wanted to ask you a little bit more about the really strong demand you're seeing in data center cooling solutions. I'm just wondering how are you thinking about potential for long-term agreements there? Maybe it's too early, but any thoughts around long-term agreements?

Yes. I mean, Jeff, we actually have long-term agreements with several customers in place. It's just not something we typically talk about. So yes, I think long-term agreements, I think I think works very well. You get alignment on demand. But as you well know, that's not a purchase order per se, right? So we don't put things into the backlog until they are kind of formal purchase orders and it's a good way to get alignment with our -- particularly our hyperscaler customers about demand.

And then we always have the appropriate protections in there such that if the demand is not there. The POs are not placed within a year or an advanced period of time, that capacity frees up us that we fill that capacity with other customers. So yes, we actually have a very good -- a lot of our customers who have been working. We do have some new large customers. We have some old large customers. I think we have very good relationships, very open, very direct sharing of what we're seeing and what they're planning on doing.

Very good to hear. And then as far as supply chain, what's the latest you're seeing there? And then any steps you're taking to procure what you need without interruption?

That's a great question. With this type of growth in volume, you've got to be very careful of supply chain. Any bill of materials item could be I'd say one of the good things about our strategy is really all of the components of , for example, we engineer our own fans. We engineer our own gear is we engineer our own sale or heat exchangers. And so it's always our design, and we own it typically for the vast bulk of what we provide, that gives us supply chain flexibility we could either, in some cases, do it ourselves or have outside third parties.

But it's something, the point you bring up is very important. And we have seen some people fall down on the supply chain side. One of the things we're very careful about and before we take on a large order, we actually have a very strong supply chain team that will scrub every bit item and validate that we believe we can fill those items. So we're not flying blind. We know we have the capacity, and we know we can fulfill that order. We're very careful about that because at the end of the day, our experience, particularly in the data center around customers are very, very engineering intensive.

And that aligns very well because I do believe we have the best engineering in the world for cooling -- and I think we can satisfy their needs, but you got to deliver. If you fall down and you're late, you have that quality, that could be very problematic. And as we know, there's a smaller number of customers here. There's some level of customer concentration with a number of hyperscalers you want to be sure you can deliver and meet your commitments. So we're very careful about that. But that's -- I think it's a very good question in a world where there's some tremendous scaling going on in a variety of different areas.

Our next question comes from the line of Zachary Schechtman of Wells Fargo.

I was just wondering if we could shift back to D&M and just maybe talk about the mix and Comtech navigation, maybe the type of products that drove margins up so much the reason for that pull forward from 3Q to 2Q? And then maybe anything to note that's on the horizon, military opportunities in your Comtech business, like drone detection demand, anything about nature? Just curious.

Yes. The -- maybe I'll start with the project that move forward. That was just driven by the customer moved up from the first half of Q3 into Q2. We talk about this often. It's -- we sometimes have this dynamic. We're pretty good about getting it in the year, but sometimes these projects can move from quarter-to-quarter both Comtech is largely a project business.

And depending on kind of the mix of where those projects are within the types of products that they provide that can drive the margin profile. the Aton business is a mix of run rate and project businesses. And we've just seen some nice project activity, some large orders in certain markets that have been just very profitable relative to...

Yes. I think we feel good about the projects. When you see projects for as the measure. You're really talking about half of contact. That's really the TCI has. And I'd say there's a lot of good activity going on there. There's a lot of good innovation going on there we conclude about that. transportation. Transportation has had nice sustained growth in the past several years. We expect that to continue. And then the smaller portion is in on when they also have some very nice innovation coming out in particular one now at the end of next year that we think so. Drive more demand. So you had say overall, we look at this year, this year is relatively flattish for D&M, we would expect to return to our normal growth path going forward next year and beyond.

Thank you. I would now like to turn the conference back to Johann Rawlinson for closing remarks.

Great. Well, thank you all for joining today's call, and we look forward to updating you again next quarter. Thank you, operator. We can end the call.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good afternoon. We're going to keep things going with SPX Technologies. I'm Joe O'Dea. I lead the Multis effort here at Wells, and very pleased to have CEO, Gene Lowe with us; as well as CFO, Mark Carano. So thank you, gentlemen, very much for being with us this afternoon.

We're going to start things with a few slides. And so Gene, I'll turn it over to you. And then after that, we'll go into Q&A.

Yes, sounds good. Thank you, Joe. Just a brief update. I have about 6 or 7 slides just to give you a good feel for who we are and how we think about where we play.

Just some context for where we are about $2.6 billion this year, about $613 million EBITDA. This is our latest guidance, about closing on 24% EBITDA margins. These colors came across a little funny here. But a few things that are very, very important when you look at us. What really defines our company is we play in engineered niches, with leading positions that are tech-enabled, that have moats and are sustainable, meaning there's a lot of opportunity in the out decades ahead. If you look at us, we're about 2/3, a little more than 2/3 HVAC, 1/3 Detection & Measurement. And we're predominantly North American-based, really U.S. and Canada with some smaller amount in Mexico.

This is a visual so you can see where our products play. If you start in the HVAC, this is a hospital, this could be a data center. This could be an office building, but cooling towers, we literally invented the cooling tower. That's our largest business. We've had that business for more than 100 years, boilers, electric heat, custom air handling, duct heating, very good portfolio of what I would characterize as engineered niches.

And then on the left side, you really see a wide variety of products really broken into 4 platforms that we manage. We have technologies that go underground. This would be robots that manage water and wastewater infrastructure, manage natural gas, location equipment, that's if you've ever had your front yard scanned looking for electrical lines or cable lines, things like that. We're the global leader in that market. We do above ground with AtoN, our aids to navigation, and our CommTech businesses, and then we have a transportation business.

This is really precision equipment. If you look at this business 15 years ago, it was largely just the precision equipment. If you look at it today, there's a lot of software embedded in our products. As a matter of fact, all of our 4 platforms in that have a material amount of software, which we think gives us a nice advantage when we compete in these markets.

Here's a look at where we play, the end markets that we touch. This is '25 revenue. So you've seen some change here. We jokingly say about data center is about 9% of our revenue. We've seen some very rapid growth there. This year, it will be north of, we've said, teens, low teens, low to mid-teens. You can see where else we play, health care, pharma, institutional, commercial, industrial power. This is really on the HVAC side. And then over here is Detection & Measurement. On the Detection & Measurement side, we have a lot of sales to government or government-controlled entities or are mandated by the government. So it's a very steady business with very steady demand.

If you look at our business, I'm not sure what's happened here, Johann. We're not seeing some great -- you can see the revenue, about $1.8 billion and about $750 million margins. This is segment income margins around 24.5% and about pushing 26% segment income. What I'd say is interesting about our company is we have a very strong amount of replacement sales that gives us some nice steady demand year-over-year is that replacement revenue. And then our market position, we are the leaders in the markets we serve for the vast majority of our revenue, about 90% of our revenue, we're #1 or #2.

If you look at it, these are is our portfolio of brands, Marley, so if you're in the cooling tower business, Marley is a very, very well-regarded brand. We literally invented the cooling tower. You look at Cincinnati Fan or TAMCO or Schonstedt. In many cases, our trade brands are much better known than we are as SPX. We are becoming a little bit more well known, but in the markets we serve, it's really our trade brands is where the value is.

Here's some of our results. We've grown our EBITDA from a little over $200 million to $600 million over the past couple of years, and you can see the impact on EPS. We feel like we have a model that's working. And really, over the past couple of years, we've been executing that same model.

If you look at this slide comes from our Investor Day, which was 2.5 years ago, about 2 years ago, and we said we were going to double EBITDA within the medium term, which we said 4 or 5 years. We're actually right very close to doubling it within 3 years, and we feel very good of the momentum we have and the fact that there's a lot more growth and a lot more opportunity ahead to continue on this path. What we have here are these are the levers that we pull to drive our value creation framework. I'm going to talk about that in just a second, but it's really these 6 levers, which we think accelerates and provides that improvement for us.

This is the last slide I'll talk about now. This is really what we call our strategy in a box. So again, it starts with what defines all of our businesses. It's right here, engineered niches, leading positions, tech-enabled, moat, sustainable. And then really, this is how we drive value. This value is driven not only within our existing businesses, but our acquired businesses. M&A is a very important part of our value creation framework. We've done approximately 18 bolt-ons over the past 5 years, about $2.5 billion. The average multiple we paid for these businesses is 11x. That's before synergy, approximately 6x after synergies. These are really good businesses with some strong engineered leadership positions that we have been able to oftentimes double or triple in the size of the revenue.

And you can see here some of our levers that we pull. Digital AI, we do lean across our entire company. Talent development is important, particularly as we're growing so fast. We talked about strategic M&A. But we also spend a lot of time in product management and commercial excellence. Those are levers that are absolutely critical to us.

So the punchline is, we target greater than 15% growth every year. If you take out the 2 COVID years, we've cleared greater than 20% earnings growth every year since the time of our spin. So we feel like our model is working. We feel like we're in the early innings, and Joe, I think we can get started.

All right. Terrific. Well, thank you for the overview and the intro. Why don't we start on portfolio and M&A, just on the heels of some of your comments there. Kind of a 2-part question. One, just in terms of the portfolio you have, are there gaps that you see within it? And then the other part is what you see as the synergy value because we can look at D&M and HVAC and see some very different businesses, but what you think some of the common denominators are there?

That's a great question. I think if you look at the portfolio, the way we think about it is we have 2 segments, and then we have 6 platforms underneath. We view things when we kind of look at what the full potential of our business is, is really at the platform level. So for each of our businesses, we start with the strategy, here's where we are today, the point of departure, where can we be in 5 years? So that's looking at new products, that's looking at lean, entering new channels, that's entering new geographies.

And then with that, we look at, hey, what are the products, to your point, that we're missing, or how could we serve customers better if we had this piece of software or there's this customer segment we're not serving or this market that we're not serving. And that really defines how we develop our M&A strategy. It's really our strategic way that we want to strengthen our competitive position, but also add more value to customers.

So as a result of that, we typically have approximately 300 to 350 targets that come out of our strategic planning process that we are -- really customers or companies that we are talking to in various stages of various levels of talking to. Some, it's just an occasional chit-chat once a year. Some we're talking in more details. So a lot of these are family-owned businesses that may decide they don't want to sell now, but in a couple of years, they may want to sell. A lot of times, it's something it could be a health issue or the daughter or the son doesn't want to manage the business, things like that. And the reason I bring that up, it's important as we get a lot of proprietary deals because of that, approximately half of all of the deals that we have done have been proprietary.

So when I look at it, if you look across all of SPX, on the HVAC side, I would say there's an incredible amount of growth opportunities on engineered air movement. We think -- I think we can take that business to greater than $1 billion with organic and inorganic growth. And then I would say in the electric heat area, the electric heat business, that's a very fragmented market where we believe we're a very natural consolidator.

On the Detection & Measurement, we have 4 platforms. And I would say in all 4 platforms, we have some very attractive bolt-on opportunities as well. So to the second question, of where is the synergy? I would say the way that we operate our business system up here, so you kind of think of those business system levers, some people will look at our business, say, HVAC and Detection & Measurement are very different. And I would say that's very true. I think if you look at a lot of industrial tech compounders, the segments that they have can oftentimes look very different.

And one of the things that's a little bit interesting about our business is we spun 10 years ago, if you look at our HVAC and our Detection & Measurement businesses, they have both grown exactly at 5.5% organic, and they've both grown exactly at 5.5% inorganic. So they both had an 11% CAGR since the time of our spin and very similar margin structures. But where we get value across the overall enterprise, I would say, is how we operate the business or our business system. So we do lean everywhere. We basically have approximately 20 lean professionals deployed across all of our large operation centers. We have another 70 to 80 where lean is a portion of their job. Very often, that's an engineering manager in a manufacturing facility that will might spend 40% of their time on Kaizen and so forth. So lean, very embedded across our organization.

How we do supply chain, very centralized and embedded across our organization. For example, it would not be logical for us to have 12 AWS accounts, we want 1. We'll get better pricing, better service, better tools, things like that. And it's something that you see across all of our businesses. So supply chain, I would say, talent is an area, the way that we develop talent. This is really, really important for us because we've been growing very rapidly. As you grow, as you add businesses, as you add new products, you need to have engineering managers who can step up, commercial leaders who can step up, general managers who can step up. If you don't, you're going to fall down. I think talent development has been incredibly powerful for us.

And the last one that I'll call out, there's a lot of elements to our business system is we are in engineered products. So the most important part of our business is what we call product management. So our products are always changing. So if you take a cooling tower, we will have a 3- to 5-year road map of all the new features and benefits that we're adding to it. What are we doing on efficiency? What are we doing on sound? What are we doing on floor space? What are we doing on water usage? What are we doing on serviceability, things like that. And in our business, you have to be very good at product management to win. You have to understand voice of the customer, you have to understand how you are vis-a-vis your competitors.

And I'd say that our product management has really improved over the past decade, and I think we're in a good situation there. So hopefully, that gives you a little bit of feel. On the HVAC side, it's much more obvious the channel you're calling on the same engineers, the same mechanical contractors. You're absolutely right in Detection & Measurement, there are different platforms and different end markets here.

That's great detail. I appreciate that. Just one thing you commented on the engineered air movement and that can be over $1 billion platform, where you are today, the time line to get to that? How much of that is kind of inorganic versus organic?

Yes. So that's been a really good business for us. If you look at what is engineered air movement today, I'll start with -- we've always been an air movement, if you think about it, what's a cooling tower, like a cooling tower is air movement and heat exchange. So we've been engineering our own fans, we've been engineering our own gearboxes, our own cooling tower motors. But there's a whole segment right next to us that we were not participating in, engineered blowers, for example. Cincinnati Fan is a very good example where we have almost the exact same technology and the exact same channel. We're able to bring them in and we believe add them to a number of new reps and to really help them grow. But then also, we have the shared technology. We're very good at CFD analysis. We're very good at how to design fans and deal with back pressure and things like that. But Cincinnati Fan was our first move, TAMCO, Ingénia and most recently, Air Enterprises and Rahn. So these businesses today, Mark, I think, are pushing $400 million-ish?

Just about. Yes.

At above segment margins. We're seeing very strong growth there. We believe there is some advantaged value propositions in these product categories, I'd say, in particular, our Ingénia business. Our TAMCO has a very strong position, and we think we can accelerate the growth. So I would say we expect some very nice organic growth where we're helping them take share. So for example, TAMCO, when we acquired them in the first 2 years, we have tripled their revenue. We have helped them get into different areas of data center. We have helped them expand their rep product line. Ingénia, we have doubled Ingénia since the time we acquired them. We'd like to double them again. So this is real, doubling a business is a lot of growth. And we think we can help these grow very nicely organically. But then I also think there's some very nice inorganic opportunities as well.

So yes, so getting to $1 billion would be more than doubling, but I think that's very achievable. This is a very good segment that's very aligned with our capability set, and we actually think there's a lot of fragmentation here, where we can be a natural consolidator.

I think we're going to touch on it in a minute because data center will be an important part of that. But before we go there, I just want to touch on margins because you've also had significant margin expansion, I think, since 2019 or so, up maybe 1,000 bps. How do you think about where you are today? And given those margin levels, what kind of the opportunity is moving forward on expansion?

Mark, do you want to take that one?

Yes, I'll start. And I think it's helpful just we did have a tremendous level of margin kind of reset. We've often said we structurally reset the margin profile of our HVAC business. And we did that about 2/3 of that, we've said, was very intentional. We're really focused on the business over that time period. You didn't see it as COVID was kind of masking some of the activities we had underway, investing in the platform, bringing CI to bear, which is really a very critical component. We deploy that across all of our businesses. But really on the HVAC side, it was very material. And really about 2/3 of that margin reset to where we are today, mid-20s, came from things that we did internally to really drive incremental throughput, reduce cost, reduce labor content to drive the margin profile up.

The other, the balance, about 1/3 of it came from the acquisitions. So all the acquisitions that we've made on the HVAC side have been margin accretive. So as we have added to the business portfolio, we have changed the margin profile of HVAC along the way. So that's kind of an important, I think, background to think about. If you sit and look at where we are today, and Gene mentioned our Investor Day 2, 2.5 years ago, as part of that, we laid out margin targets for each of the segments, one of which was HVAC. And we said, hey, we think that margin range is 21% to 25%. We're clearly running at the top of that margin range today.

Do I think there's opportunity to continue to grow margins beyond where we are? Absolutely. I think you'll see that incrementally happen over the coming few years as we continue to grow the top line of the business, continue to deploy CI. You think about this data center opportunity and the operating leverage that we're going to see across all of that growth. So I think we are still -- while we've made tremendous progress on our margin journey, there is still room to go here across HVAC.

And I know folks are focused on '26 and margins look a little flat this year relative to last year. That is really a function of the investments that we've been making on the plant expansion front, really to set the business up for this tremendous opportunity on data center for growth. And as you look through the back half of this year and you look into next year, you're going to start to really see that operating leverage. Our guide would imply 25-plus percent margins as we exit the end of the year. And I would anticipate you see those continually to incrementally increase as these new facilities come online.

Yes. And on the D&M front, again, we had set up -- at that Investor Day, we said 22% to 24%, just to level set folks. That business is approaching 26% today. So really great work by the team there. A number of years ago, we took those businesses and organized them in a segment. We have a very strong leader on top of that with the mandate to really drive not only top line growth but synergies across all of those businesses. As Gene sort of referenced some of the CI we brought to bear around that platform. There's a lot of leverage or energy across all of those platforms. While they're in different markets with different products, they use very similar engineering talent, they all have software as a component to the hardware sale. There's opportunity to further leverage and scale the software platform that we have there. You think about the IoT, you made that reference, right? That's just a perfect example of something where we're really leveraging the cost base across all of those.

So it's been an intentional effort there. And I think when I look at where we are today, and we often get asked the question, well, do you think you've reset that margin profile? Is this temporary that you're at this level above 24%? I think we've structurally reset the margin profile of that segment above our original targets. And those are -- in both those businesses, those are areas where I think we're going to look at and address as we get to the back half of this year and into next year.

Yes, we have another Investor Day to kind of give our new margin targets and lay that out because we obviously have pushed them out.

Yes. Shifting to data centers. Just to start, talk about how you've served that market historically. And then based on some of the technology changes, how you're serving it moving forward?

Yes. So we've been serving data centers a really long time. I think that we have a lot of these customers that we've been with for years and years. I'd say what has happened, probably the biggest change is if you look at a lot of our equipment, it's used on bigger stuff. So any large application, it could be a hospital, a building like this, it could be an airport. Typically, anything will go towards cooling towers, which is kind of where we are. Typically small applications would be more air cooled chillers. You've seen a lot of data centers that have historically been more air cooled chillers, which basically means we can't really participate that much. There's not much opportunity for us. With the increase in kilowatts in the racks, the heat load coming in the AI chips. We have seen a very significant shift. I'd say, the puck's moving towards us, where we work very closely with a number of hyperscalers.

And what we're seeing is a significant opportunity on the cooling side. That's about 3/4 of our content that goes into data centers is on the cooling side. That could be a cooling tower, an adiabatic tower or a dry tower. Those latter 2 would be what we call our OlympusMAX product categories. And then about 1/4 of our business is TAMCO, which is our actuated air movement, really for moving the air around. So for reference, this business has grown pretty rapidly. It was about $150 million in '24, about $200 million in '25. We had said $300 million for guidance this year. We just raised that $50 million in our last quarter. And frankly, we're pushing for more. We have a very high level of demand from our customers. And the opportunity set that we see over the next years is very high.

I think that if you look at this market, it's a very technical market, very engineering-intensive. I think what they desire is very well suited with what we can bring to the party. We have very close relationships. I'd say, in the past month, we've had several hyperscalers with at least 5 to 12 engineers at our facilities, and there's just a lot of good things going on. So we feel really good about where we are in the ramp-up, and we actually see a lot of opportunity ahead over the next couple of years.

We had talked about some of the plant expansions where we've taken -- we've added about $550 million more of capacity for data centers, which would have taken us from $200 million to about $750 million. Mark and I have been alluding that we actually do really well on productivity and finding some more opportunities for growth. So we actually think there's more opportunity within our existing machines, our existing footprint. And we're going to get into that more in the Q2 earnings call. But net-net, we view it as a very attractive opportunity. We believe we're very well positioned there.

And on the dry cooling side, adiabatic, when we talk about OlympusMAX and think about the capacity expansion, is that entirely in the dry cooling space, just because of where you see the market going and the demand?

Yes, I'd say the capacity expansion, the bulk of it was for the OlympusMAX product categories, the adiabatic and the dry. We are seeing more demand on the dry side. But there was about $150 million of capacity expansion for our custom air handling. That would be our Ingénia product category, and then we most recently acquired Air Enterprises in Q1. So we see opportunities to continue to grow those businesses. Those are predominantly in the more drug manufacturing, pharma, health care, hospitals, areas with high requirements. We do very well in the custom air handling there.

And have you talked at all about the time line to get to that $750 million, both the restrictions or limits based on the phasing of the capacity adds. Clearly, that's going well. But then what you hear from customers and when the demand gets to that level?

Yes. We haven't given specific guidance for '27 or '28. What I would say is we see very significant growth ahead. I think we're going to try -- I mean, obviously, we going to come out with guidance, but any comments Mark here on how we're going to frame this up?

Yes. I mean you sort of alluded to the fact, first of all, the bias is above $750 million. We feel good about how -- what we've done so far has progressed and frankly, the Madison facility, which is the very large facility, which has a big chunk of the data center work. That's going to be coming online here next month. So we'll begin production there. So we have good line of sight now, I think, to how these things are progressing and our expectations around them. They are going to come on in sequences here. So we've talked about the $750 million, the Kansas City or Olathe facility we often talk about, that is up and running now. It is ramping towards full capability or capacity. The Nashville facility, this is really on the TAMCO side. That is operational today. We're adding incremental lines throughout the year. That will be at what we call full production capacity in, let's call it, mid-2027.

And then the Madison facility, assembly only for the 6 months of the balance of this year, we will have production capacity beginning in 2027. And that plant will ramp over kind of an 18-month plus period. We'd expect to be at full production capacity there in the middle to the back half of 2028.

So we haven't articulated exactly what '27 and '28 are going to look like. But I think our sense is just given -- we've got a great team focused on both of these -- really all 3 of these initiatives. They have gone better than we originally thought. And if we continue on that path, I think the ramp will be -- will obviously deliver more across the footprint and hopefully sooner.

And when you see a move from $300 million to $350 million, just explain a little bit the concentration of your customer base. Are you working with a select few? It's one that can drive that kind of move? Or are you working with a large group?

Yes. That's a great question. And if you look at data centers, there obviously is some structural customer concentration. We've all seen, if you read the Wall Street Journal, how the large hyperscalers account for a lion's share of the spend, a very significant share, $700 billion you saw in the Wall Street Journal. So what I would say is our air movement product category kind of goes everywhere. And several large customers specify it. So it's mandated, but that's very peanut butter-ish across a lot of different applications and solutions.

I would say on the hyperscaler side, we always like to say we're more than one, but less than 5. But we do have multiple hyperscalers that we serve. And they tend to be tough customers, very engineering intensive, but very good customers. I think if you earn their trust and they respect your engineering, I think you can have a very good relationship with them. Now you have to deliver the right -- the appropriate quality and the appropriate time line, right, to meet their requirements, but they're very, very good customers for us.

So yes, I would say -- but there's the hyperscalers, but there's also a whole another set of customers out there, all of the colos, a wide variety of these guys, these edge guys. Most of our products, the colos, a lot of the bigger colos, they are building campuses that look a lot like the hyperscale. As you're talking about 1-gigawatt. We'll see a 2-gigawatt campuses. You're seeing these really, really massive data centers being put into place. So it's -- there is a broad customer set, but there is structurally some customer concentration here.

And then the broad market kind of color or commentary, there are sometimes concerns that there's a crowding out effect that data centers are attracting so much attention if it pulls away the ability to do much in other markets. But just in terms of HVAC ex data center, a little bit around the growth that you're seeing there?

That's a great question. And it's something organizationally you have to be very careful of. So if you have a business that's growing 75% a year or something like that, you don't want it to be the sexy business that everyone wants to go work for. But if you look at our HVAC businesses, you put data centers to the side. Our guide has about 5.5% organic in the everything else category. We're seeing some really nice traction, some areas of strength that we're seeing, in particular, health, pharma, drug, a lot of activity there, very well suited for our value proposition with high requirements. We're seeing the broad industrial ticking up, which has been more flattish over the past couple of years. I would say, power. Obviously, data centers have driven a higher demand of power, which has been relatively flat for a number of decades.

And I'd say institutional is still doing pretty well. So that would be things like universities, government. I'd say the areas that are still kind of slow commercial office building. We have a very nice replacement revenue there, but there's not a ton of new office buildings going in. We're not seeing a ton of new hotels going in. One of the things we like, if you look across HVAC and like say, cooling towers, everything needs cooling towers, it was like the end markets are everywhere. And there's always some markets that are moving up and growing and then some that are have less growth in them.

And so a lot of what you try to do is mobilize and go after where those growth areas are. Obviously, data center is the big kahuna right now. But we're actually seeing very nice growth in all of our businesses. But I think you bring up a really important point. It's something we have to be very cognizant of because you don't want to fumble the football on your core business.

Last one for you, capital deployment. Obviously, a very successful track record on M&A. Just overall, balance sheet is in great shape. What your appetite is for M&A, your confidence that you could get something else done this year. I'm sure that the pipeline is good, but we're also in a market where multiples are high, and you guys have shown discipline over time.

I'd say our confidence is very high. We have in our pipeline and one of the reasons we raised equity last year is we saw a number of relationships that we've been developing over time start to come to fruition. Our pipeline is very good. I would say we've done 2 transactions in Q1, about $400 million. But I would expect us to keep going and any comments on the...

Yes. Listen, I think from a balance sheet perspective, right, we're at 0.9, just under 1x. To your point, we've got plenty of liquidity and capacity and the opportunity set is really good out there. We're excited about what we're seeing. That said, we're going to be -- as we have been in the past, we're going to be disciplined and very thoughtful in how we approach acquisitions. They got to fit strategically. They've got to be at the right valuation. They got to drive synergies for us across the platform, otherwise, they won't make sense.

Yes. Terrific. Well, thank you very much. Really appreciate you being here.

Thank you, Joe.

So welcome to the next session. We have SPX Technologies. And we have Gene Lowe, President and CEO; and Mark Carano, who is VP, CFO and Treasurer.

We love SPX. We love SPX stock. We sort of highlighted, on a relative basis, we think it looks particularly good given recent market entrants. We can talk about that offline. But yes, I think you guys are going to have some slides, and then we're going to go into Q&A. Thanks so much.

I think, yes. Okay. Yes. Go ahead.

I didn't realize we're giving a presentation. Why not? Do you have the clicker here? I'll try to give a brief overview of who we are to set the stage.

Just a quick snapshot of who we are, about $2.6 billion, around $613 million of EBITDA, 23.5% EBITDA margin. And then you can kind of see the composition of our business, really 2 segments, approximately 2/3 HVAC, 1/3 D&M, predominantly North American based. You'll see a little bit, about 11% EMEA, 7% APAC, but really predominantly North America is where our business sits today.

The thing that really defines who we are is a couple of things. We really play in engineered niches with leading positions. We lead in about 90% of our revenue. We're #1 or #2 in the markets we serve. We're tech-enabled. We typically have very strong moats in the businesses that we operate, and we are very sustainable. What I mean is we're in businesses that we think have a long runway over the next couple of decades.

A few things about us. We really like our core business. We have a very good growth model. I'll talk about that in a second. We typically convert 95% to 100% of net income and cash flow. We generate a ton of cash. We have a very powerful business system, which we've been operating for the past decade. And then we really focus on organic and inorganic investments, and I'll talk about that in just a second.

If you think about where we play, this is a Fisher Price diagram that we like to show you. Where is SPX? I'll start on the right. This is just an example of a hospital. This could be a data center. This could be a commercial office building. This could be a -- actually the Bank of America building in Charlotte, for example, and you'll find our products all over these buildings. We basically invented the cooling tower. This is our largest business. It is cooling towers, boilers, very strong in the hydronics business. You think about electric heat and auxiliary heat, you think about custom air handling, you think about critical exhaust units, duct heating, all over a typical business, typically in the configured areas. These are nonstandard products. So what I mean by that is we don't make a single cooling tower to inventory. These are uniquely configured or engineered to your particular requirements, your Delta T, your flow rate, your sound requirements, your footprint requirements. But most of what we do are configured or engineered products.

On the other side, we have a great set of businesses. This is, I would say, 10, 15 years ago, this is more precision equipment. Now it's typically precision equipment with software. And there's a couple of areas where we play. In location and inspection, we are very strong underground. We have robots that monitor water and wastewater, robots that can repair natural gas lines in the live gas line. If you've ever had your house scanned before you dig, you have to scan before you dig to identify electrical lines or gas lines. We're the global leader in that market. And then we also have products that scan above ground. This will be our CommTech business, our AtoN business, very good businesses there, and then we have a transportation business. Again, what ties them together is precision equipment or software with very strong positions.

This is a snapshot of where we play in terms of our end markets. And you can see here, really, HVAC is on the left, Detection & Measurement is on the right. Some very -- a lot of exciting things going on, on the HVAC side. I think our #1 question we always get is data center. We've been growing data center very dramatically. The cooling requirements of data centers are, as you might imagine, increasing tremendously. We're participating very well in that. We see some great growth opportunities in health care, pharma, drug manufacturer. We play in institutional, commercial, and we have a little bit of resi. This is mostly replacement. And then all over industrial. This would include power. This includes industrial tech. This would include battery plants, electric cars, et cetera.

Smart infrastructure is more, I would say, government regulated. In many cases, the actual purchase of the equipment is the government. You think about defense technology, obviously, that's going to militaries all over the world. Transportation, typically municipal budgets or municipal customers. And you think some of the other areas like our robots for maintaining your gas and water infrastructure, that's either directly to the government or the contractors that serve the government.

Real quick, I'll walk over this way and make things more exciting. This is just a breakdown of our business. One of the things that we like about our business is we get a lot of revenue from replacement sales. So it's a very steady ballast that gives us very steady demand every year, a lot of replacement revenue. We're really leaders in the markets that we play. And you can see some of our brands that are very, very well known in the markets that we participate in. Marley for cooling tower, Cincinnati Fan, TAMCO, Ingenia is really a custom air handler, some of our detection and measurement brands down here. And you can see the composition of our products and our revenue for the different categories.

This has been what our business model has produced. You can see the CAGR. I think the punchline is we believe we have a business model that's working. For the past 5 years, we've exceeded 20% EBITDA growth every year, and we actually see a lot of line of sight to continuing that in the future. We believe our business model is working and there's a lot of runway here. So it's produced some solid results.

Look at our framework, this is really what we call our one-page strategy in a box. So if you look at it, as I have already talked about, here are the 5 areas that define all of our products, niches, leading positions, tech-enabled. But this is really how we drive value, both within our businesses, but also within the companies that we acquire and add to our platforms.

We do a ton on digital and AI. We've been doing digital for 10 years very intently. AI has been a very big initiative. I can walk through a lot of stories of how we're using this internally, but also in the software that we sell to our customers, we've actually created new products based on AI. Still relatively small, a couple of million dollars in terms of revenue today, but we see a lot of opportunities there.

Lean is very embedded in our business, and we are very focused on talent because as we grow, you have to have talent to be able to scale.

On the growth side, M&A is a critical lever that we drive growth. We've done approximately 18 acquisitions over the past several years. I'll talk a little bit more about that. And then we spend a lot of time on product development and commercial excellence.

The product we're most recently talking about is OlympusMAX. This is a product that we've created for data centers. That's off to a very good start.

So Andrew, I think that -- I don't know how much time you want to take here, but I could probably -- I think I've already covered some of the HVAC and Detection & Measurement stuff, but could probably go -- might be a few areas I might dive into.

One of the things, actually, I'll spend a second on this. Because we've been growing so rapidly, we've had to open 2 facilities. One in Nashville, Tennessee. This is really for our TAMCO damper line, which is very oriented towards data centers. The other is in Madison, Alabama, which is really focused for data centers cooling as well as our custom air handling. We actually think this investment is going to give us about $700 million additional capacity. And frankly, we're looking to overdrive that and even expand that further as our demand is very, very high for our products that we have today.

Let's see if there's anything else here I'd like to touch on because I think Andrew had a number of questions. You have our guidance. You guys can see that. You can see that the bulk of our capital is really in M&A. We're very disciplined on our net debt. We actually became a separate company 10 years ago with the spin of SPX into 2 pieces, SPX and SPX FLOW. SPX FLOW, if you follow them, got bought out by private equity, recently sold to ITT. And we're the other side of that. But we're very careful. And then you can see the amount of capital that we've deployed to acquisitions over the past couple of years in how our model works. And then here's actually the companies that we've added to our portfolio over the past couple of years.

You can see a visual of our different -- we have 6 platforms. We have 2 platforms in HVAC, heating and cooling. And then here are the 4 platforms that we have in our Detection & Measurement segment and how we've continued to build and strengthen these platforms.

And why don't I -- I'll make this the last slide here, then we'll jump over because I know Andrew has a lot of questions. The punchline on our M&A is we've deployed about $2.5 billion. We brought in about $930 million of revenue at about 20% EBITDA. That's before synergies, somewhat modest deal size, about $140 million on average per acquisition. Our multiples we pay have been, on average, I think, across all of them around 10.7%, a little under 11%, but that's before synergies. With synergies, we think it's more in the 9x frame. So these are really good businesses that we're bringing in, that we're getting at a very attractive net price. And we've significantly, I'd say, strengthened our platforms and expanded our TAM.

Andrew, why don't we leave it there?

Yes, why don't I -- I'm going to redo my script a little bit. Maybe we can dive into HVAC from the beginning because I think you outlined. So I guess one of the questions we're sort of getting is your data center exposure and your ability to support further growth. I think you've highlighted the ability to support roughly $550 million of data center revenue capacity longer term. What are the key bottlenecks to unlocking that? And how visible is customer demand beyond '26? And can you take -- what would it take to take the business beyond that?

Yes. Yes. So if you look at data centers, it's a very material portion of our business. We know these data center customers, many of whom we've been working with for years and years and years. So if you look at what it means to us specifically, approximately in '25 -- '24, we had approximately $150 million of data center revenue. '25, it was $200 million. This year, we guided for $300 million.

Our demand is extremely strong. At our last quarterly update, we guided that to $350 million. We're really focusing on expanding our capacity, and we're making great progress there. Actually, we're actually pushing -- we've been pushing -- we're pushing very hard there. We're making very nice progress.

So if you look at today, we've guided to $350 million, and we're going to push -- continue to push that number as we go forward. If we look at our capacity, we added $550 million of capacity to a $200 million that we already had. So you could say our data center capacity is approximately $750 million. Similarly, we're pushing to significantly expand that as well. And we're making very -- we're making nice progress, and we actually think there's going to be some opportunities.

We're going to give some more updates as we go forward, but there's a lot of runway there. Where we participate is predominantly in the cooling. Cooling will account for approximately 3/4 of our data center revenue. We have cooling towers. We believe we're the global leader in cooling towers for data center. Marley is a very well-known brand in cooling towers. We literally invented the cooling tower more than 100 years ago. So every cooling tower in the world came from Marley, came from our company.

Most recently, we've entered into dry and adiabatic with our OlympusMAX product, which is a different adjacent segment that we feel like we have a great solution for and a great opportunity for. What we had committed to last year when we launched that product was $50 million of bookings and $50 million of revenue. And this year, we feel very happy that we're comfortably exceeding those numbers, and we see some very attractive opportunities.

So yes, so data centers has been a really big growth driver for us. Right now, we're sitting at 70% growth year-over-year. But as I look ahead to '27 and '28 and even into '30, we just see a very attractive opportunity.

The last piece that I didn't talk about was in air movement, engineered air movement. So TAMCO dampers, we are the leader in actuated air movement, have a very strong position with TAMCO, and that's been a nice success story for us as well.

And so just to sort of understand it, if demand continues to grow, you have a stated capacity number, but you effectively feel comfortable that if demand is there, you can continue to support the market growth because I think the fear is that you end up ceding a lot of market share that you're somehow capacity constrained, growth comes in and SPX just gets left behind.

Yes. I would not view that as a -- I feel very comfortable. Our team is managing that. I feel very good we'll be able to scale with the growth. And I think the way that I think about it is right now, we've said $750 million for the data center. We're looking for opportunities to expand that within our existing machine, our existing infrastructure, but there's also levers we can pull as demand grows.

And maybe we can talk about because I think -- so there is some confusion about technology, the underlying technology. So how do you differentiate yourself versus competitors as data center cooling evolves towards lower power density, water efficiency and modularity? Like do you care which direction the technology goes?

Yes, it's interesting. We -- it is a confusing market and just because people use words like liquid and immersion, and we very often get the question, oh, my god, liquid cooling. This business has liquid cooling, and that means you don't need a cooling tower. And the way that I would describe it quite simplistically is if you think about under the roof of a data center, that's where the chips are, that's where the racks are, you have to get the heat away from the chip. There's a variety of ways to do that.

Historically, it's just been air. They've just put air conditioning in there. As heat has gone up, there's been different technologies. There's rear door. Now liquid cooling is actually getting a lot of traction, and on the horizon is immersion cooling. That's where we actually put the whole server under water -- not under water, under a liquid to extract the heat.

But no matter how you get the heat away from the chip, you still have to get it outside the building and then reject that heat. And that's really where we play. We don't play -- we're not competing for immersion cooling or on CDUs or rear-door panel. Where we play is when that fluid gets outside, we reject the heat. We're really good at that. I would argue we're the best -- I believe we're the best in the world at that.

And so we like to say we're Switzerland. And as the heat load goes up, you need more cooling to extract and reject that heat. So with the amount of heat in the chips, like the Vera Rubin chip is incredibly -- and the amount of kilowatts packed into these servers, it's a net driver for us. So we see a very nice opportunity, and we're really focused on capitalizing.

So I have a very simplistic view. It's like rack-mounted engine has gone from mid- to high single digits kW to now pushing 1 megawatt. So order of magnitude 100x for us. And electrons in, basically, almost one for one equals heat out. And then somehow this heat has to leave the building and you are the escape valve.

Yes. Exactly. Exactly. You got to get out of the building and you need to reject it. One of the questions we had, Andrew, you may remember this, is the Vera Rubin chip can operate at higher temperatures. And so you don't need to get it to a lower temperature.

And so that -- there was a lot of questions. Will that affect the amount of heat rejection? And it doesn't affect the amount of heat rejection at all. You still have to get that fluid out. You still need to take the heat out. You just -- in some cases, we're seeing, where some architectures of plants, they don't require a cooler to bring that temperature down even further for the chips. But it does depend on the philosophy of the data center customer and how they want to build.

But effectively, your experience is that whatever the philosophy is dry cooling, you still need -- your experience and you've seen the designs, are there designs that do not require heat rejection?

No, I haven't seen any -- and I don't know how you would not do heat rejection. We've been in the industry our whole lives. I've never seen that. Do you have any ideas, let me know.

So as data center customers push for faster delivery and customization, how do you protect returns on capital while meeting these demands?

Yes. I think if you -- I'll say -- make a few comments, and I'll throw it to Mark. I think if you look at us, we're a pretty capital-light business. Our typical CapEx as a percentage of revenue is 1.5%. As we've been growing a lot, we've been pushing towards 2%. If you look at these plant expansions, they have a profile. And Mark, do you want to kind of go into kind of how we're thinking about the cash-on-cash returns here?

Yes. I mean I think with -- we're pretty thoughtful about how we approach the -- this plant expansion really to make sure that we're able to drive the right returns. Gene sort of talked about the demand profile, right? There's more demand than there is capacity today. So we're building this capacity to meet the moment. And when I think about these customers and our ability to meet that and meet the returns that we want, this is -- these investments are very attractive, right? I mean they're generating a payback of, let's call it, less than 2 years, right, just when you think about the amount of volume that's going to come through. So we feel really good about what we spec out there. We feel good about the demand. And we've got a great team in place really bringing these plants online so that we can meet this ever-increasing demand.

And it's probably worth noting like the OlympusMAX, which we're very, very excited about. It's really an organic brand-new product that we came up with. And I would argue, this is going to be the most successful product we've ever created, and it's really got some nice traction.

And maybe can you describe the competitive positions of Marley, SGS and TAMCO versus both large OEMs and small niche players? Do you compete against -- do you compete with Trane, JCI, Carrier? Or do you go against sort of different set of competitors?

That's a great question. It's a very common question we get with our HVAC business. Hey, do you compete with Trane and Carrier, JCI? We really don't. We provide complementary products. So if you think of a typical solution for a hospital or a data center or an airport or any large application, you'll typically have a water-cooled chiller, and that's typically provided by a Trane or a Carrier, JCI, and then you need a cooling tower, and we provide that.

So in our -- our largest business is cooling, and we really have 2 private companies that we compete with as our primary competitors. I think in the U.S. market, you really see us 3 accounting for the vast bulk of the market today. If you look at -- that's on the cooling power side. If you go to the dry cooling adiabatic, I think you'd see probably 2 other private companies. So it's more private companies. We don't really see the names that you would cover that you're more familiar with in those markets.

Excellent. And maybe just outside of data centers, there's -- power market is doing quite well. Maybe you sort of -- you highlighted your power exposure. It's a meaningful market for you. Can you just talk about what trends you're seeing? Do you benefit from more natural gas? Do you benefit -- what will drive -- there's a lot of talk about nuclear. Do you have any exposure to nuclear? Maybe talk about that.

Yes. So I think we're very, very strong in power. If you actually look at Marley, that's a lot of our historical legacy. If you look at our installed base across power, it's incredibly high, probably more than 50% of the market. If you look at, for example, you mentioned nuclear, we believe we are -- the vast, vast majority of those cooling solutions are ours. So we're very used to operating in a high specific...

And vast majority's market share well north of 50% to 60% to 70%.

Yes. Yes. And so there's not a lot of brand-new nuclear plants being opened in the U.S., but you have to maintain that infrastructure. Approximately, in North America, you'll have 100 nuclear plants, 50 of them use once through cooling. That's where you use like an ocean or a lake. That's not an opportunity. The other 50 have cooling towers. The vast majority of those are ours.

So as you look at new power and new nuclear, I think we're very well positioned to take advantage of that. So as there's opportunities -- and we actually are seeing activity, I would say, more on the modular side, and we're actually in discussions with various opportunities out there. There's a number of modular companies that are coming to market. I've recently seen, I think, 2 of them have been approved. It usually takes a little time to get nuclear through the approval process. But yes, there seems to be some momentum there on the modular side.

And these nuclear generators, these towers sit around? Do they require any upgrades? Do you get any benefit from the fact that capacity is being -- life extension upgrades, are you getting a benefit from that?

Yes. What I would say, if you step back at 30,000 feet, one of the things that's happened is the power market has been very slow for many, many years because there has not been a lot of electricity demand growth. Every year, efficiency, it used to be GDP and electricity demand were very tightly correlated. You go back a couple of decades ago and it disaggregated. And every year, there'd be economic growth, but power growth would not -- would be flat. So it's been a very flat market for a very long time.

But data centers has changed the game. And now there's so much demand from data centers that you're seeing an urgent need to get more power. One of the things you can do is add new combined cycle power plants. You've seen GE and a lot of the gas turbine guys are doing phenomenally well because there's an urgent need for more power. That means you need more cooling as well. But we're also seeing a lot of existing coal plants, nuclear plants, gas plants. Every time you upgrade your cooling tower, we can upgrade a 1,000-megawatt nuclear power plant, for example. Oftentimes, we can get 50 to 70, 80 more megawatts out of that power plant. So what does that mean? That's more dollars in the pocket of the utility, and it allows...

And you get paid for it?

We get paid for it. So you're seeing in a world where there was not as much demand growth, people are doing that, but at a more moderate pace. We are seeing more activity on people upgrading their cooling systems because they're trying to keep up with the demand increases there.

And as we think about sort of end market mix that goes beyond data centers, can we just talk about your industrial commercial infrastructure applications? What kind of growth are you seeing in the HVAC market?

Yes. So we actually -- if you look at our guide right now and if you were to pull out data centers and put it aside because there is very nice growth there, there will be a very nice growth for the next couple of years there, our core business is doing really well. So our model is about 5.5% growth for our non-data center HVAC business. And that would be -- you're really looking at markets.

Health care, drug, pharma is very big. You're seeing institutional. That will be things like universities, some government buildings there. Commercial is in there. Commercial has been kind of slow. And then really all of -- if you look at our -- we have [ EMEA ] in our presentation that breaks this down. But within that industrial, you'll have things like power, industrial tech, that will be like semiconductors, battery plants.

There's a lot -- one of the nice things we like about cooling towers is almost everything needs a cooling tower. You could be making Budweiser beer or you could be making agricultural products. You go to a stadium for football, you'll see -- so it's something that's needed wherever there's a lot of heat load.

And within Detection, just sort of it sounds like in HVAC, the end market continues to be strong. I think within Detection & Measurement, you have some economically sensitive businesses as well. What are you seeing in terms of the economy? March, April, May, what's your sense because you do have some sort of canary in the coal mine kind of businesses?

Yes. If you look at it, interestingly, D&M, a lot of the businesses there, very good precision equipment, typically paired to software. A lot of this is government mandated or government procured. So for the most part, that is less sensitive to the market. The one that is, I think you're right, is radio detection. So our radio detection business, that's the underground scanner. So if you've ever seen the signs scanned before you dig in America, in the U.K. and a lot of countries, you have to scan before you dig because you don't want to hit a gas line and have an explosion or hit an electrical line, that type of solution.

And what you see is that is a great proxy for economic activity because everything needs to be scanned. If you're putting in a swimming pool, if you're Google Fiber is coming to your house, if you're putting in a new home, if you're revitalizing your home, anything that requires digging, which is a lot of different stuff.

So to get to your point, the demand has been healthy. We're actually feeling very good about what we're seeing in that business. The -- I'd say the U.S. market is seeing steady growth. Europe has been flatter over the past couple of years. We have not seen a lot of economic growth on the continent. But I would say, overall, we're pleased with what we're seeing. And the North American market, I'd say, is holding up very well.

Maybe we can just -- just on D&M a little bit. It's been very strong growth. How sustainable it is? And should we worry about a cliff here?

Yes. I mean if you look at our businesses and one of the things we looked at since the time of spin, which is 10 years ago now, we've done a lot of analytics. Our 2 segments have both grown exactly at 11% CAGR a year. And that's 5.5% organic, 5.5% inorganic. And it's kind of interestingly how precise they were exactly at the same growth rate. So there's good growth drivers there.

What you're seeing now is HVAC is going to be above organic with data center overwhelming the numbers. You're going to see better growth there, obviously. But the Detection & Measurement has some very good end markets. Ironically, we don't get as much attention on it because of some of the other drivers, but a very good business for us. We actually have been very pleased with the growth and it's been very nice. The leaders have really focused on margins, and it's a great margin story there.

Yes, the margin profile and the margin journey in that business, if you looked at it 2 or 3 years ago, you'd see it was kind of a 22% margin business. Before Q1, we had raised the guide to 25%. We actually raised it up to 25% in 3 quarters at the midpoint, which related to a distinct project that we had in Q1.

But the team has done a really good job, I think, structurally resetting the margin profile of that business up to a higher level. And quite frankly, we get this question a lot. You're at a level that's above your stated target range from a few years ago. And I do think we're running at a higher level than that, at least here in the near term. So that's something we're going to look at as we get through the year.

And maybe last question on Section 232 sort of framed as a near-term headwind, but not a long-term earnings issue. Can you just talk about countermeasures you're taking to offset tariffs and how will it flow through the year?

Yes. I would say we were sort of tested last year. These are obviously different, and they really relate specifically to our products that come out of Canada going into the U.S., right, that are -- these derivative tariffs are being applied to. But really, there's 3 approaches we've got that have proved to be successful, and I'm confident we'll mitigate the tariff impact as we get through the back half of the year, and I wouldn't expect to see any impact in '27.

Everything that -- almost everything we sell is engineered to order, configured to order. So that gives us the flexibility in our pricing, right? We're pricing oftentimes real time. So we have been able to offset that through price. We have a very strong business system focused on supply chain. We have a very strong, not surprisingly, team there that was tested heavily during COVID, quite frankly, and what we saw there. And even last year, looking at ways that we can mitigate those costs on the supply side.

And then lastly, what I would say is the 2 businesses or the businesses that have really been impacted, we're expanding those businesses in the U.S. So they've got attractive Canadian markets. We've seen very attractive U.S. opportunities. So following on what has traditionally been our in-country for-country strategy for manufacturing and sale of products. So that kind of third leg will really mitigate as we go forward.

Excellent. We're right on time. Thank you, gentlemen.

Great.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the First Quarter 2026 SPX Technologies Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

At this time, I would like to turn the conference over to Mr. Mark Carano. Sir, please begin.

Thank you, operator, and good afternoon, everyone. Thanks for joining us. With me on the call today is Gene Lowe, our President and Chief Executive Officer. I'm also excited to be joined by our new Head of Investor Relations, [indiscernible]. He has joined us from the Hertz Corporation, Research as Head of Investor Relations for the last 5 years. A press release containing our first quarter results was issued today after market close. You can find the release and our earnings slide presentation as well as a link to a live webcast of this call in the Investor Relations section of our website at spx.com.

I encourage you to review our disclosure and discussion of GAAP results in the press release and to follow along with the slide presentation during our prepared remarks. A replay of the webcast will be available on our website. As a reminder, portions of our presentation and comments are forward-looking and subject to safe harbor provisions. Please also note the risk factors in our most recent SEC filings.

Our comments today will largely focus on adjusted financial results and comparisons will be to the results of continuing operations only. You can find detailed reconciliations of historical adjusted figures from their respective GAAP measures in the appendix to today's presentation. Our adjusted earnings per share exclude intangible amortization expense, acquisition and integration-related costs, nonservice pension items, among other items. Finally, we look forward to meeting with investors at various events during the upcoming months.

And with that, I'll turn the call over to Gene.

Thanks, Mark. Good afternoon, everyone, and thank you for joining us. On the call today, we'll provide you with an update on our consolidated segment results for the first quarter of 2026 as well as an update on our full year outlook. .

We had a strong start to the year with year-over-year growth in adjusted EBITDA of 23% and adjusted EPS of 22%. We continue to execute well driving significant profit growth in both segments and making meaningful progress on several key initiatives. We are raising our full year guidance range to reflect our strong performance in Q1 and outlook for the remainder of the year partially offset by the impact of the recent changes to the Section 232 tariffs.

We do not expect these tariffs to impact 2027 earnings. Looking ahead, we remain well positioned to continue executing on our organic and inorganic value creation initiatives supported by our robust M&A pipeline. Turning to our high-level results for the quarter. We grew revenue by 17.4%, driven by the benefit of recent acquisitions and organic growth in both segments. Adjusted EBITDA increased 23% year-over-year with 90 basis points of margin expansion.

As always, I'd like to update you on our value creation initiatives. The capacity expansions across our HVAC facilities to meet the strong demand for our data center cooling and custom air handling solutions are progressing well. They remain on track with the time line and capital requirements outlined last quarter. In Q1, we began producing highly engineered aluminum dampers and AmCo's new Tennessee facility and expect production to steadily increase throughout the year.

We also began production of the Olympus maps in our Alasa-Kanses facility in the first quarter. Additionally, the Madison Alabama facility build-out is well underway. We still expect to have assembly capabilities for Olympus Max and custom air handling products in the second half of this year and initial production capabilities in the first half of 2027. Turning to Detection & Measurement. We continue to advance our new product initiatives across the segment. Our location and inspection platform, recently launched a new locate performance management software that meaningfully expands the real-time analysis of our customers' critical data and is seamlessly transferred from our radio detection precision locations and field.

We believe this solution significantly enhances how our customers locate underground utilities by increasing their efficiency, safety, accuracy and overall data management capabilities. And now I'll turn the call back to Mark to review our financial results.

Thanks, Gene. Our first quarter results were strong. Year-over-year, adjusted EPS grew by 22% to $1.69. For the quarter, total company revenue increased 17.4% year-over-year primarily driven by the benefit of acquisitions, strong organic growth in HVAC. Consolidated segment income grew by $25 million or 22% to $135 million. Our consolidated segment margin increased 100 basis points.

In our HVAC segment, revenue grew by 22% year-over-year with 11.5% inorganic growth and a modest FX tailwind. On an organic basis, revenue increased 9.6%, with solid growth in both cooling and heating. Segment income grew by $15 million or 20% primarily driven by higher volume, while segment margin decreased 40 basis points, largely due to start-up costs associated with the capacity expansions. Segment backlog at quarter end was $755 million, up 38% organically year-over-year, primarily driven by data center demand.

In our Detection & Measurement segment, revenue grew by 8.3% year-over-year. The one month of inorganic revenue from KTS contributed 3.9% and FX was a modest tailwind. On an organic basis, revenue increased 3%, primarily driven by higher volumes in our transportation platform. Segment income grew by $10 million or 28% and segment margin increased 410 basis points. Increases in segment income and margin were primarily driven by higher volume and a favorable [indiscernible] typical high-margin software volume. Segment backlog at quarter end was $333 million, down modestly year-over-year.

Turning now to our financial position at the end of the quarter. We ended Q1 with $158 million of cash on hand and total debt of $674 million. Our leverage ratio, as calculated under our bank credit agreement was approximately 0.9x quarter end, below our long-term target range of 1.5 to 2.5x, giving us significant capacity to pursue accretive growth opportunities. Q1 adjusted free cash flow was approximately $16 million. In addition, during the quarter, we received approximately $60 million in cash proceeds following the completion of the sale offered United's industrial and transportation products business.

As a reminder, these businesses were reported in discontinued operations and not part of our original 2026 guidance. And net of these proceeds, the implied EBITDA multiple for the acquisitions of the Air Enterprises and Ron Industries, formerly the Air Handling segment of Crawford United is approximately in line with our average acquisition model. Moving on to our full year 2026 guidance. We are increasing our adjusted EPS guidance by $0.15 to a midpoint of $7.95 to reflect our strong Q1 results particularly in D&M and additional data center-related volume anticipated to be delivered in the second half of this year.

Our updated guidance reflects a $0.05 to $0.10 impact from the recently announced changes to the Section 232 tariffs. This headwind is expected to predominantly affect HVAC in the second quarter. Excluding this tariff headwind in Q2, we expect first half adjusted EPS gaining to be similar to the prior year. As always, you will find our updated 2026 guidance on this slide and modeling considerations in the appendix to our presentation.

And with that, I'll turn the call back over to Gene for a review of our end markets and his closing comments.

Thanks, Mark. Current market conditions support our 2026 outlook, which implies 21% adjusted EBITDA growth. Within our HVAC segment, our core end markets remain resilient and we continue to see strong demand for our data center solutions. In Detection & Measurement, our run rate businesses continue to see solid demand supported by new product introductions. For our project-oriented businesses, the frontlog remains active.

In summary, I'm pleased with the strong start to 2026. I -- we're executing at a high level and our key initiatives, including the capacity expansions and the integration of recent acquisitions are on track. We are confident in our increased full year guidance which implies adjusted EBITDA growth of 21% at the midpoint, and we remain well positioned to navigate the changing tariff environment.

Looking ahead, I'm excited about our future. is a proven strategy and a highly capable experienced team, I see significant opportunities for SPX to continue growing and driving value for years to come.

With that, I'll turn the call to Johan.

Thanks, Gean. Operator, we will now go to questions.

[Operator Instructions] Our first question comment comes from the line of Andrew Obin from Bank of America.

Can we just talk just on your HVAC business, very strong growth even with data centers. But if you back data centers out, what end markets really stand out to you in terms of strength?

Yes, sure. I think I'd say, Andrew, if you look at it, our -- you're right. The growth is strongest in data center. With the change in outlook this year, we moved our data center growth somewhere from the neighborhood of 50% to 70%. If you look at the rest of HVAC, where we're mid-single digits, maybe a hair above that.

And really, what we're seeing, I'd say, outside of data centers, health care and pharma remains very, very strong. we're seeing power be very strong. And I think some of this is somewhat linked to data center. This would be both on new power and aftermarket. We're seeing some heavy industrial that also a lot of activity there. And then the aftermarket has been very strong for us. So in general, -- we've seen a number of areas of strength across HVAC. I'd say the areas of softness. They really have not changed a lot quarter-to-quarter.

I'd say, commercial real estate still remains at a relatively low level, same with hotels. And what I would say, if you kind of look at more institutional market, universities, government that's been very healthy over the past couple of years. I'd say that's relatively flattish this year from what we're seeing in the early part of the year. And then we've called out softness in battery and semiconductor which was very strong a couple of years ago. That has been lower recently. Having said that, we actually see some nice new opportunities coming, some bidding. So that could be something that is coming back on the upswing. But overall, we're feeling very good about our markets, both within data center and outside of Datacenter.

And on Detection & Measurement, you highlighted strength in transportation. I think military was an area of strength that was some pull forward. How should we think about that? Any benefit from what's happening? I know you have a very different business, but any benefit from what's happening in Iran on your business? And just generally, how did the government business do?

Yes. So I think we touched the government in a lot of ways. Transportation tends to be more on the U.S. municipal markets. I'd say the area of exposure that the Iran impact could effectively be more on the Comtech business. What I would say is we've had very strong demand there over the past couple of years, and we expect that to continue that Comtech as a reminder, would be our legacy TCI ECS business, does a lot of drone detection and so forth. With the addition of KT -- so we see continued growth there, but I wouldn't say we see any really step change in growth there because there's been a lot of activity over the past couple of years there.

So I'd say it's very active. We like our value proposition. But I don't think it's something that, at least at this point in time, materially changes our mid-single-digit anticipated growth rate for [indiscernible] .

Our next question or comment comes from the line of Joe O'Dea from Wells Fargo.

Just talk about the step-up in the HVAC orders in the quarter? And just the timing of shipments around that as well as when you talk about the front log as we see that backlog number step up to where it is and just trying to think about moving forward, and expectation setting and the degree to which there was a sort of concentrated amount of activity? Or as you look forward, you see that strength persisting?

Yes. Joe, I'll start off. I mean I think with respect to the backlog, I think we -- in our prepared remarks, we talked about data centers and there's real strength there in those markets, and we're seeing those orders come through. We also raised our guide for the year on the HVAC side, I think as you saw again in the slides on the prepared remarks, largely driven by the data center market.

So we're seeing opportunities, orders bookings going into backlog for 2026. And then as we look out into 2027, we're seeing opportunities there that will be executed next year. So that market, I would say, is obviously very healthy. The momentum is strong there. So it sets us up well, I think, for '26 and we'll see as we look into 27.

Yes. So I think if you kind of look at the data center market overall, we're just very pleased with what we're seeing. -- the demand strength is very strong. We would say accelerating. We're seeing this across our different product lines -- we're seeing some of our key customers really looking to accelerate, and we're able to expand capacity in this year. That's how we've taken our growth rate from 50% to 70% in data centers this year. But beyond kind of to your question, what does this look like? We actually see some attractive runway looking ahead in '27 and '28.

We think we have a really good customer mix here. We have a number of hyperscalers and colos. We have a good global presence here. We're very balanced, and we have a very good line of communication and good visibility with what the expectations of demand are from our data center customers. So overall, we're very pleased with what we're seeing in data center, and we think we're really getting some nice traction in that market, and we would expect that to continue.

I appreciate the color there. And then on the tariff and sort of cost inflation front, just in terms of your response to that? And how much of that is a pricing response? How much of that is a cost mitigation response? And then in particular, where you're manufacturing outside of the U.S. what you see as a time line to bring more of that into the U.S. to help on the mitigation side?

Yes. A couple of comments there, Joe. With respect to sort of sizing that. And we talked about $10 million of kind of gross costs. But that will -- we can offset, we believe [indiscernible] that, primarily through price, but we've got other levers to pull with respect to that. So that kind of gets you to a net impact, probably 75%, 80% of that is going to fall within the second quarter of this year. Why is that? Well, it really relates to a couple of our businesses in Canada, the Ingenia business and the Sigma Omega business that have backlog today that's already priced. .

But as we go through the back half of the year, we think the impact will be de minimis. And in 2027 I think as we highlighted in our prepared remarks, we don't expect to see any impact from tariffs. We've got the levers in place to offset that. with respect to your kind of second part of your question, we're largely in country for country, really. So we manufacture in the region that we're selling in. So when you think about those Canadian businesses, for example, the TAMCO expansion that we've highlighted in Tennessee and then the Madison facility, a part of that is going to be for the Ingenia product, the custom air handling we were doing that, a, because there's a lot of demand, obviously, in the U.S. market for those products. But also, it allows us to move that manufacturing into the U.S. and kind of create that in country for country model.

Our next question comment comes from the line of Brad Hewitt from Wolfe Research.

So you mentioned there were some start-up costs and related inefficiencies with HVAC capacity expansions curious if you'd be able to quantify how much of that HVAC margin miss versus your expectations was due to the capacity ramp? And have you seen anything so far that kind of changes your thinking about the near-term timing of the ramp or the margin impact?

Yes. I would -- Brad, I'll start. I think if you're referring to Q1, a couple of comments to make, we had, I think, in our last call, highlighted the start-up costs. I think if you did the math around what we said, it would kind of get you to $8 million to $9 million of start-up costs, predominantly landing in the first half of the year, right? 2/3 of it will impact kind of Q1 and Q2. So you'd see that impact, and I can come back to what those costs were, if that's helpful.

But what I would say is First of all, I mean those start-up costs were expected. I think as we thought about the margin performance in Q1, it was on track with where we expected it to be from our perspective. And if you peel out those start-up costs and just look at the operating leverage and the accretion from the acquisitions, you'd see there's sort of sort of roughly 4 basis points of margin lift absent the start-up costs.

Okay. Great. And then maybe switching over to the B&M side of things. Curious if we could kind of unpack some of the moving pieces there with the revenue outlook unchanged, but margins bumped up by 75 bps for the year. It sounds like there may have been some pull forward on transportation, but just -- any color on how that project timing shifted and kilteresulting impact on the segment seasonal guide for the year would be helpful.

Yes. Sure. Just back on your last question, just to be clear, I was talking about year-over-year when I made that last kind of comment around the bridge. So when you think about where Q1 actual was and for 26 versus Q1 2025. With respect to the D&M, so it wasn't a project pull forward. what this was, was expanded scope on an existing project we have that we're currently executing. It is in the transportation segment. It's one of our larger multiyear projects -- and many of these projects, as you know, have a software scope to them. This one did, and the customer decided to expand the scope of that portion of the project.

So it wasn't something that was in our forecast or in our backlog. It's sort of effectively by expanding the scope in a way it sort of dropped in, for lack of a better word. So those projects, I think, as you know, the software components, they have high margins. We don't typically disclose what those are just for competitive reasons. But when you think about the software revenue that we have, it has a very high variable margin associated with it. So when you expand that scope, it really leverages through.

And that's really what -- when you think about the full year guide and raising it by 75 basis points, it's really driven in large part by the benefit from this expanded scope and project.

Our next question or comment comes from the line of Jamie Cook from Truist Securities.

Just understanding like some of the margin impact in the quarter that you spoke to for the year related to just tariffs and capacity additions. I guess, Mark, what's your comfort level in the ability to put up normalized incremental margins as we exit 2026 just concerned capacity could continue to weigh on margins. .

So I guess it's my first question. And then the second question, was there anything unusual as you think about the cadence of orders or sales throughout the quarter and as we were into, I guess, April, just given some of the macro uncertainty that's out there.

Yes, I'll start on margins. Listen, I'm very confident in our ability to kind of deliver our traditional kind of incremental margins that we see in the HVAC business, particularly through the back half of the year and as we get into next year. When you sort of look at where we ended the year in 2025 and you look at our guide, right? And if you strip out the impact of these expansion costs that I was chatting about just on an earlier call and a very modest impact from tariffs that we're going to see in Q2. If you pull that out, you're going to see -- if you isolated the revenue, you'd see operating leverage of, let's call it 60 tp 70 basis points. And then on top of that, you have the inorganic piece, which I think we've sized is 10 to 20 basis points.

So we're seeing it right now when you strip out those costs, I know it's harder for you guys to see all those components. But I've got confidence in what we're doing now, and I'm not worried about it as we go into next year.

And on the end markets question, Jamie, I think we're actually feeling very good. We do have a small amount of sales into the Middle East. I think it's under less than 1%. And we are seeing some impact there, which is to be expected, but not really material. And I would say if you look outside the Middle East, in general, across all of our businesses, we actually track our bookings very close in each business by end market.

And I would say, we're feeling good about what we're seeing. And I would say we're a little bit ahead about where we thought we would be in bookings. So overall, we're feeling comfortable with what we're seeing on the end market demand side.

Our next question comment comes from the line of Bryan Blair from Oppenheimer.

Thank you I was curious, how did radio detection perform in Q1? How is your team thinking about Q2 and full year revenue performance? And to what extent is the outlook influenced by the new technology and product rollout that you set it? .

So when I do I'll do the full year and then you guys can get into -- we're feeling very good about what we're seeing in rate of detection -- as you know, they're the global leader in underground location equipment, very strong presence, Asia, Europe, U.S. if you look at the revenue, it's been modestly flattish over the past couple of years, but we are seeing -- so part of that is a result of some real slowness on the continent of Europe, U.K. some of the Asian countries. But we actually see some very nice momentum there, both in just the end market demand, but also the innovation that we're bringing to market. .

We did talk about -- I did mention in the prepared remarks about locate performance management. This is an area we believe we have a very nice advantage to anyone in the market. This is an area that's really getting traction. We've also been a leader in bringing in mapping solutions as well as integration with utility ERP. So we're doing a lot, and it's actually working. So radio -- and you might be asking this question because we've always said this is the canary in the coal mine, but radio is actually performing very well to date. One of the things, Brian, we talked about -- I talked to every GM on the day of these calls, and we like what we're seeing right now.

Yes. And I think, Brian, I mean Gene touched on it, right? The order rates are healthy. And particularly in the U.S., that market has performed well. I would say, when I think about that business overall, it's kind of this year we're forecasting, and I feel confident about kind of mid-single-digit growth, and we're seeing that in the first quarter kind of low to mid-single-digit growth in that business.

Okay. That's great to hear. And it's obviously very early days, but maybe offer a quick update on the integration of Air enterprises, Ron and Thermalik. And has there have been any surprises positive or negative to date. Then as always, it would be great to hear a little more color on your M&A pipeline and the prospects for capital deployments over the next few quarters.

Yes. Sure, Brian. I think -- I mean, the Paninis, we're very pleased with both of these acquisitions. The air enterprises [indiscernible] was a little more complicated. That was where we acquired Crawford United, the pink sheet public company. And as we had announced, we successfully sold off the noncore piece within the quarter. So very quick. And I really like Air enterprises and Rob, I think he's really strengthened us Air Enterprise is a really good customer handling solution, very unique, very good leakage rates. So very pleased with that.

And then Thermo also, there is such a good team. They have such a good market position. As a reminder, the logic for ThermoLeg is we believe we're a leader, the leader in electric duct heating in the Americas, but we're always tiny in Canada. We believe ThermoAc is the leader in Canada. And we see some really nice synergies where we can help leverage our channels to grow some of their products and technologies. And similarly, we actually think Thermax has a very nice channel. So we see some real nice synergy there.

As a reminder, after the sale, both of these are, I would say, at very attractive valuations, both these are right around our normal acquisition before synergy, which is 10.5 to 11x. And so we feel like we've gotten 2 really good businesses, and we're off to a very nice start there. Look at the pipeline, even after doing these 2 acquisitions, as Mark alluded to, we're about 0.9x leverage below our target leverage. We think it would be down about where we were at the end of last year. So we have a lot of capacity.

The areas where we see the most opportunity haven't really changed in HVAC, I would say it still remains near our movement and electric heat. The one change I would say is we are seeing more detection and measurement opportunities. some intriguing opportunities, both in transportation, Comtech and Aton at the moment. So what I would say is the pipeline is very robust. We feel like we have a very good opportunity in front of us and the flywheel is working. So there's a lot of activity going on, and we feel good about both the recent acquisitions and then what we have in the pipeline right now.

The other point that I would bring up is, as a reminder, we also did Sigma Amega and KTS last year, and we're also very pleased with these 2. So they fit really nice. KTS is really given more scale and some really nice technology to our Comtech business, and Sigma Amega just fits in so well with our Hydraulics business. So it's very complementary. And so -- yes, I think on our inorganic strategy, I feel very good about what we're seeing in front of us, but also the companies that we brought into the family.

Our next question comment comes from the line of Joe Giordano from TD Cowen.

Just follow-up on the cap deployment side, what's the sense of like can a disciplined acquirer be successful in the market like this right now? I mean, anything assets touching things that are really attractive right now are kind of like spiraling in terms of spiraling higher in terms of the valuations paid and there seems to be people willing to pay it. So how do you think about your discipline in a market that is seemingly lacking a lot of that?

That's a great question. I think we have been if you think about you step back at 30,000 feet and talk about our M&A strategy, as we've always said, it always starts with strategy. So everything starts with how we get the full potential out of our businesses organically. So new products, new channels, new geographies, lean, digital AI. And then out of that process is really how we define our M&A strategy. So as a consequence, as you know, approximately half of our M&A targets have been proprietary deals. These are deals where there's no banker involved, there's no 1 else involved, and we like that. for those that do have the banks involved in our competitive processes, what I would say is you just have to be disciplined. I think there's some segments that are at valuations that we just will never play.

As we have talked about, our average valuation over our 18 acquisitions before synergies is in the neighborhood of 10.5 to 11x. If you actually take the synergies that we capture you're probably talking another 1.5 to 2x. So we're bringing these really strong businesses into our company, and we're getting them for effectively 9x EBITDA. And I think when you do see some craziness and I would say there is some areas that you will not be likely to see us playing is there are some areas of detection and measurement, larger, kind of larger businesses, you could see going in the high teens or 20x EBITDA. We're not going to play there. We're seeing some data center companies getting acquired for 20, 25, 30x EBITDA.

And that's just not -- we will never be there. That's just not our cup -- so at the end of the day, I think you focus on strategy, you stay very doodplaned. And what I would say is with what we have in front of us, we have a tremendous amount of opportunities with what we know and what we're working on. So I think we've been able to stay disciplined and still affect capital deployment and growth. So yes, I think -- but I tell you, I would agree with you. There are some things you see out there and some of the valuations on there. They're rich.

Yes, I agree. Anything noteworthy that you're seeing in terms of inflation. We're seeing some of the readings tick higher here. And just curious how you're planning around that.

Yes. I think, Joe, you're probably referring to some of these costs, input costs like steel, aluminum and things of that nature.

Those costs have moved up a little bit over time. I guess the bias is probably upwards. But I think from our perspective, the reality is that as a total cost of goods sold, they represent kind of let's call it, mid-single digits of exposure. But reality is, just given the nature of our business, a lot of what we do is engineered to order or configured to order.

So our ability to pass those incremental costs on price real time, effectively, that really puts us in a good spot and has allowed us to mitigate any of these inflationary pressures so far. So I feel good about where we sit today. It's not something I'm clearly watching, but I'm not overly concerned about.

Our next question or comment comes from the line of Amit Mehrotra from UBS.

Mark, maybe just give us a sense of how you're thinking about the second quarter, just so we can calibrate our expectations. I mean -- there's some tariffs, there's new capacity, there's good growth in data centers. Any color on organic growth and margin by segment in the second quarter would just be helpful to calibrate our expectations.

Yes, it's a good question. I mean I think just broadly, I would say those markets that we participate in, I mean, all of them kind of remain healthy, right? We're not seeing any challenges or I wouldn't say we're at the tipping point of anything that would change with respect to that. And when I think about the second quarter, we kind of spoke to that a little bit in the prepared remarks. We kind of suggested the first half gating would be similar to the prior year.

So when you look at that absent the tariff impact you really need to pull that out to really kind of get a sense for what those numbers are. But I think broadly defined, we're -- we feel good about as we look into the second quarter.

I think the other thing I would add to that, I mean, listen, when you think about HVAC revenue, I would expect that to be up sequentially. With respect to D&M, I think, obviously, that business can be impacted by the timing of project revenue and that clearly, as we often talk about, we're pretty good about getting that in the year. But where it ultimately lands quarter-to-quarter can create some variability for us. But we feel good about where we sit from that perspective.

And just on the -- when you say sequentially up, are you talking about year-on-year growth is up from the $9.6 million or just absolute revenue up sequentially...

Well, year-on-year, but also yes, Absolutely.

Okay. You're on your -- got you. Yes, yes, of course. Okay. And then just maybe a more -- less tactical question, forgive me for that question. But maybe a more important question for the long term. you're obviously adding a lot of capacity. You raised the data center growth of 50% to 70%. One, can you just update us now on where you think data centers are going to be a percentage of your revenue probably low teens.

I would imagine. And then when you ramp up this capacity, Tennessee, Mirabel, Adison, et cetera, how much more revenue you think you can lock -- because the question is, it feels like you're more capacity constrained than customers seem like they might want to -- they'll take anything you can give them. And so I'm just curious about when this capacity comes online, how much more revenue you need to unlock for that market?

Yes. I mean we talked a little bit about this in our last call. Maybe a couple of comments. First of all, when I think about the incremental data center growth that we're going to see this year and then we've added into our guidance. Our Olathe facility which is really the primary driver of that for 2026. That's just come online earlier than anticipated. So we're seeing really nice performance on that and it is allowing us to meet more of the demand that's out there. But as we look out over the next couple of years in support of all this capacity expansion, I would say, as we sit today, our view hasn't really changed from that perspective.

We highlighted that these capacity expansions would give us the ability to serve circa $550 million of revenue in the data center market. These sites though, whether it's Oleo or the new facility in Huntsville, right, they are they're constructed in a way that gives us flexibility to ultimately drive the product line that's most available to us at that time. So I'd say our view hasn't changed on that. That capacity is really going to ramp I think should be at full capacity as we get into mid-2027.

The Tennessee facility, which is the TAMCO business. We expect that to be at full capacity in 2027. And -- and then the ramp on the Madison facility is not going to be as linear as those 2 because we're going to be doing assembly only in the back half of the year, we'll have full production capacity until the first half of '27, and then it will ramp from there. And our stated view and from last quarter and still holds at that would be at full capacity -- running at full capacity in middle of 2028. .

Yes. And one comment, Mark, just to clarify for people on the call, that $550 million was incremental off of a $200 million base. So if you kind of say at -- what is the data center capacity after we get these up and roll and really our expansions in our existing facilities are largely in production right now. So those have gone very well. Our TAMCO expansion is they've already got 3 lines up. I believe they're adding the fourth line. They're already shipping. That's done very well. And then the Madison Alabama facility is the longest lead time, but we will be producing product there in the back half of the year. And we actually will see a nice ramp up there next year.

So point being, if you kind of say we're at 200 last year, I say we're in the 350 neighborhood for data centers this year. you can say that we have about $400 million more capacity. And we actually think there could be some more levers we could pull to potentially push more that facility. But that's kind of where we sit today.

Our next question or comment comes from the line of Jeff Van Sinderen from B. Riley Securities.

A little bit more on the data center area. Are you guys seeing any supply chain delays or any other color on supply chain around data center for you?

Not for us, I think that there's several critical components that we have and before we can take on more purchase orders. We go through a very rigorous process to ensure that we do have this supply chain, but we've been very fortunate. I think with the rapid growth we have had to expand. As a reminder, we are truly an engineered product. So we really -- everything is pretty unique to us. So take our cooling towers, for example, we design and engineer our own fans. We have proprietary fans, proprietary gearboxes, proprietary motors, proprietary heat exchange. And so it's ensuring that we have a supply chain that we can make it or the raw material inputs, we can manufacture that.

So yes, it has put a little pressure on us. We've had to expand some new suppliers, but we feel very good about where we are now, and we're actively working to ensure that we feel very comfortable as we look ahead to '27 and '28, where we would expect continued growth.

Okay. Great. And then I think you mentioned semiconductors and just wondering what kind of work you're seeing to bid on there.

Yes. So I think -- I know there's a couple of -- there's some bidding going on now I think there's 1 we believe we're very well positioned to be awarded on. Some of these are under confidentialities. I don't think we can speak to the names at this point in time. What I would say is we are very strong, typically in semiconductor with a lot of the largest OEMs. Some of these have us specified in as the choice for cooling towers. So I think we have a very strong value proposition for that market.

So as that market starts to bubble off, we think we'd be very well positioned to capture more opportunity. And it is nice to see some early bidding. So I don't think we'll be back where we were a couple of years ago, but we are getting some new opportunities, which we think we'll be able to convert to revenue.

Okay. Great. And then just 1 more to clarify. It sounds like with the Middle East, I realize only -- or less than 1% of your business is there. But it sounds like you don't anticipate any impact from higher oil prices and the macro around that on your business. Is that a fair assessment?

I think Mark alluded to this, and I think it's very true, something that is somewhat unique to us in being an engineered product company is we don't make a product and then ship that same product for the whole year. So it's very rare. So like every cooling tower, for example, is unique. We don't build a single one of those to inventory. So when we do a proposal that we have real-time information on exactly what our costs are.

So it's very rare, we have PPV either positively or negatively because we're very real time. So I think you do have to manage inflation. You do need to be careful about that. But I think we have pretty good systems and processes in place and the fact that the majority of our business is engineered or configured products also makes it such that you're pricing things in a much more real-time basis.

Our next question or comment comes from the line of Walter Liptak from Seaport Research.

Yes, I want to stick with the data center questions. I don't mean to beat a dead horse on this, but so last quarter, the numbers are on data center where $200 million in 2025, going to $300 million. I wasn't sure I fully understood why you're taking that number now up to $350 million. .

Yes. Well, I'd say the punchline is the demand is there. One of the things we've seen from a lot of our large customers is pushing for accelerated deliveries and when we put our plan together, we had capacity expansion. We've pulled some different levers, some new lines, and we've found ways to expand our capacity to be able to meet demand. This is predominantly in our late facility as well as our Springfield facility.

Okay. Great. And kind of a follow-on to that, is the data center demand during the quarter, did your teams make progress with new hyperscalers with new customers -- or is it existing customers that are looking for more capacity and quicker lead times. .

Yes, yes and yes. So I wouldn't say our existing large customers want more and it's interesting the increased CapEx that caused a big stir from the large hyperscalers, we are seeing that front and center. Having said that, several of these are existing customers. There's also some new customers, large hyperscalers and colos that we've talked to. So -- but what I would say was it's not just 1 or 2 customers, it's very broad-based. We're seeing a lot of activity. And it's both with -- everyone talks about the the 4 to 5 hyperscalers, but it's also the chip manufacturers. It's also a lot of the colos.

And I think we're very well positioned with our product line here. I think if you look at what we bring to the table, if you look at our different product lines and cooling towers, I do believe we're the global leader in cooling towers for data centers. I think we have a leading position with our TAMCO business, our actuated dampers and air movement technology there is a very strong position and then a lot of the growth is really coming in the dry and abiotic area. That's kind of a more of a nascent newer area.

So we're talking to some customers is the first time they bought this, that they're installing these. And I just think we bring a lot to bear in this market because the requirements are so large -- and that is where we really excel. We are superb at large complicated cooling. And so I think our background -- so I think we're technologies evolving for these very large-scale data centers. You're seeing some that are gigawatt, some even larger it fits well with what we are good at.

So yes, it's pretty broad-based, and we're very encouraged and very excited about the opportunity. Some of the things customers are looking for a lot of these customers. They want custom engineering for their particular requirements. It could be size, could be thermal capacity, speed, they want modularity and of course, they want efficiency, both on the power side and the water side. So they're looking at solutions that can help their PUE or their [indiscernible] typically report at. And I think that's kind of -- as I said, I think it's in line with what we're typically very strong.

And so yes, it's a very active and exciting market. It's moving very quickly.

Thank you all for joining today's call. We look forward to updating you again next quarter. Operator, with that, we can end the call. Thank you.

Thank you, sir. Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day. Speakers, stand by.

Good day, and thank you for standing by. Welcome to the SPX Technologies Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I'd now like to hand the conference over to your speaker today, Mark Carano, Chief Financial Officer. Please go ahead.

Thank you, operator. Good afternoon, everyone. Thanks for joining us. With me on the call today is Gene Lowe, our President and Chief Executive Officer. Our press release containing our fourth quarter and full year results was issued today after market close. You can find the release and our earnings slide presentation as well as a link to a live webcast of this call in the Investor Relations section of our website at spx.com.

I encourage you to review our disclosure and discussion of GAAP results in the press release and to follow along with the slide presentation during our prepared remarks. A replay of the webcast will be available on our website.

As a reminder, portions of our presentation and comments are forward-looking and subject to safe harbor provisions. Please also note the risk factors in our most recent SEC filings. Our comments today will largely focus on adjusted financial results and comparisons will be to the results of continuing operations only. You can find detailed reconciliations of historical adjusted figures from their respective GAAP measures in the appendix to today's presentation.

Our adjusted earnings per share excludes intangible amortization expenses, acquisition and integration-related costs, nonservice pension items, changes in estimated value of equity security, among other items.

Finally, we will be meeting with investors at various events during the upcoming months. And with that, I'll turn the call over to Gene.

Thanks, Mark. Good afternoon, everyone, and thank you for joining us. On the call today, we'll provide you with an update on our consolidated and segment results for the fourth quarter and full year of 2025. We'll also provide full year guidance for 2026.

We had a strong close to the year. We grew full year adjusted EBITDA and adjusted EPS by 21%, with strong performance by both segments. In addition, we continue to advance our value creation initiatives. Organically, we made further progress on our efforts to expand capacity within our HVAC segment to meet the growing demand for our highly engineered solutions.

During the fourth quarter, we completed the purchase of a new 459,000 square foot facility in Madison, Alabama, which will have capabilities to produce our data center and custom air handling solutions.

Inorganically, we recently announced the addition of Thermolec, Air Enterprises and Rahn Industries to the HVAC segment. These strategic acquisitions strengthen our position in the attractive electric heat and engineered air movement markets.

Also, today, we are introducing our 2026 midpoint guidance, which implies approximately 20% adjusted EBITDA growth at the midpoint.

Turning to high-level results. For the fourth quarter, we grew revenue by 19.4%, driven by the benefit of recent acquisitions and organic growth in both segments. Adjusted EBITDA increased by approximately 22% year-over-year with 50 basis points of margin expansion.

As always, I'd like to update you on our value creation initiatives. Demand for our customary handling and data center cooling products remain strong. To capture the growing demand, we are investing in expanding capacity across several of our existing HVAC facilities, including Ingénia's Mirabel and Cooling Products Olathe locations, and have recently added 2 new facilities to further accelerate our expansion efforts.

During last quarter's call, we announced the addition of a facility in Tennessee that will produce TAMCO highly engineered aluminum dampers, which are seeing strong demand within the data center market. Production in this facility is expected to begin by the end of this quarter and steadily ramp throughout the year.

Additionally, in Q4, we completed the purchase of the facility in Madison, Alabama They'll have flexible manufacturing capabilities to produce both our customer handling and data center solutions, including our new Olympus Max product. We expect to have assembly capabilities towards the latter half of this year and initial production capabilities in the first half of 2027.

We expect the expansion-related investments across all of our HVAC facilities to acquire approximately $100 million of capital in 2026, in addition to approximately $60 million invested in 2025. We anticipate these investments will enable nearly half of our HVAC segment's revenue growth in 2026 and add roughly $700 million of incremental capacity once at full production, supporting substantial growth in both data center and custom air handling volume.

We've also continued to advance our inorganic growth initiatives. During the first quarter of 2026, we completed 2 strategic acquisitions in our HVAC segment that strengthen our positions in the attractive electric heating and engineered air movement markets.

I'm very pleased to welcome our new colleagues to the SPX team. Air Enterprises and Ron Industries, only the air handling segment of Crawford United, advanced our strategy to build market-leading positions in the engineered air movement market by expanding our portfolio of customer handling solutions in enhancing our capabilities with the coil offering.

The combination of complementary technologies, design capabilities and manufacturing footprint strengthens our ability to serve customers in the attractive health care, institutional and commercial markets. Thermolec, located in Montreal is a natural extension of our electric heat strategy, adding a complementary custom duct heating solution and broader geographic reach to enhance the value we deliver to customers throughout the North American commercial, industrial and multifamily markets.

The combination of Thermolec's exceptional service, quality and strong Canadian presence with our established electric heat channels in the U.S. provides significant opportunity for growth.

And now I'll turn the call over to Mark to review our financial results.

Thanks, Gene. Our fourth quarter results were strong. Year-over-year, adjusted EPS grew by 25% to $1.88. Full year adjusted EPS grew by 21%, to $6.76 are towards the upper end of our guidance range of $6.65 to $6.80.

For the quarter, total company revenues increased 19.4% year-over-year driven by the acquisitions of KTS and Sigma Omega, as well as organic growth. Consolidated segment income grew by $27 million or 21% to $156 million, while consolidated segment margin increased 30 basis points.

For the quarter, in our HVAC segment, revenue grew by 16.4% year-over-year with 5.5% inorganic growth and a modest FX tailwind. On an organic basis, revenue increased 10.3% and with solid growth in both cooling and heating.

Segment income grew by $17 million or 18%, while segment margin increased 40 basis points. The increases in segment income and margin were largely driven by higher volume and associated operating leverage.

Segment backlog at quarter end was $585 million, up 22% organically year-over-year. For the quarter in our Detection & Measurement segment, revenue increased 26.3% year-over-year. The KTS acquisition contributed growth of 23.2%, and FX was a modest tailwind.

On an organic basis, revenue increased 1.7%, primarily driven by higher project volumes. Segment income grew by $10 million or 27%, and margin increased 20 basis points. The increases in segment income and margin were primarily driven by higher volume, including the benefit of KTS.

Segment backlog at quarter end was $350 million, or up 43% organically year-over-year. Turning now to our financial position at the end of the year. We ended the year with $366 million of cash on hand and total debt of $502 million. Our leverage ratio, as calculated under our bank credit agreement was approximately 0.3x at year-end.

Including the effect of the recently announced acquisitions, our leverage ratio was 1. Full year adjusted free cash flow was $294 million, reflecting a 90% conversion of adjusted net income, inclusive of the approximately $60 million invested to support our capacity expansion efforts.

Moving on to our guidance. Today, we introduced full year 2026 guidance inclusive of the recently announced acquisitions, Thermolec and Air Enterprises and Rahn Industries. Now Crawford United's Industrial and Transportation Products businesses are not included in our guidance. They will be reported in discontinued operations while we seek a suitable buyer.

We anticipate total company revenue in a range of $2.535 billion to $2.605 billion, and segment income margin in a range of 24.6% to 25.1%. We expect adjusted EBITDA to be in the range of $590 million to $620 million. At the midpoint, this implies year-over-year growth of approximately 20% and a margin of approximately 23.5%.

Our adjusted EPS guidance range of $7.60 to $8 reflects approximately 15% growth at the midpoint. In our HVAC segment, including the recent acquisitions, we anticipate revenue in a range of $1.8 billion or $1.84 billion and segment margin in a range of 24.5% to 25%.

In our Detection & Measurement segment, we anticipate revenue in a range of $735 million to $765 million and a segment margin in a range of 24.75% to 25.5%.

As a reminder, growth in 2026 will be impacted by the execution of projects in 2025, totaling approximately $20 million that were originally slated to execute in 2026. For Q1, as a percentage of our full year 2026 guidance midpoint, we expect revenue and segment income for both segments and adjusted EPS to be similar to the prior year. As always, you will find modeling considerations in the appendix to our presentation.

And with that, I'll turn the call back over to Gene for a review of our end markets and his closing comments.

Thanks, Mark. Current market conditions support our 2026 outlook, which implies significant growth. Within our HVAC segment, we continue to see solid demand in key end markets. Our strong backlog of highly engineered solutions and increasing production capacity further reinforce our confidence in HVAC's growth opportunities. In our Detection & Measurement segment, we are seeing improving global market conditions, which is supportive of growth in our run rate businesses. For our project-oriented businesses, frontlog activity remains steady and backlog is at record year-end levels yet with a higher percentage of multiyear projects.

In summary, I'm pleased with the close to 2025 and our strong full year performance. As we look to 2026, we expect to continue to drive additional shareholder value through both our organic and inorganic initiatives, including our continued efforts to expand capacity to meet the growing demand for our HVAC solutions, integration of our recent acquisitions, which further scale our HVAC platforms and strengthen our positions in key end markets and an active pipeline of attractive acquisition opportunities.

With these initiatives and a solid demand backdrop, we are well positioned for another year of 20% growth adjusted EBITDA in 2026. Looking ahead, I remain excited about our future. With a proven strategy and highly capable experienced team, I see significant opportunities for SPX to continue growing and driving value for years to come.

With that, I'll turn the call back to Mark.

Thanks, Gene. Operator, we will now go to questions.

[Operator Instructions] Our first question comes from Bryan Blair with Oppenheimer.

There understandably a lot of focus on your team's data center exposure. So I guess the level set on that front, how much did data center revenue grow in 2025? What percentage of revenue is now driven by data centers? And how is your team thinking about DC sales growth within your initial '26 guidance

I'll start there, Brian. We're seeing substantial growth. I see here. We had talked about some of the numbers we shared previously that '25 would be about 9% of revenue. it's in the neighborhood of $200 million, maybe a little bit more than $200 million. That's up quite a bit. I would give the number of 7% prior, and we would anticipate that to be, as we said, low double digits, say, 12%. So we'd expect nice growth here, probably in the 50% neighborhood for our data centers going into '26.

That's very encouraging. And maybe offer a little more color on the strategic set of Air Enterprises and Rahn industries in thermal like within EAM and electric heat, respectively. They seem like very down the center kind of deals for your team. How do the asset strengthen HVAC positioning overall? How should we think about commercial synergies and the ability to accelerate growth going forward? And what exactly have you baked in for revenue and profitability in the initial '26 outlook?

Yes. We want to touch on the strategy side. I think that a couple of things. So with Crawford United, their air handling units, really 2 pieces. The bigger piece is enterprises, this is custom air handling -- they have a great product, a blue chip customer base. They have a different style of product, lower leakage. And I would say they're viewed as a premium provider in this market. They really have -- you can go to the website, you'll see all of the blue-chip customers that basically have them oftentimes as basis of design. So it's a little bit different flavor of a product versus Ingénia, but a very high-quality product and one that we're very excited to have as a part of our portfolio.

We think we can help them grow. We think we can help them operationally. We also think we can help them in the building of the channels there. The wrong component of that is somewhat smaller. That's the coil manufacturer that would be coils for the customary handling units. We actually like that because we can actually use that, not only for air enterprises, but also for Ingenia, which we predominantly buy outside. So we have a lot of coils and coil usage increasing across our product lines in HVAC. And this is going to give us more confidence. We see some nice growth there not only within our own businesses, but within our customers where we have a very strong position, particularly the TAMCO business. So operational synergies and channel synergies there. with Thermolec, this is a real no-brainer.

We're very strong in duct heating, as we've talked about within Deco, we invented duct heating. We had the original patent very strong position in the U.S., but very, very low in Canada. Thermolec is the leader for duct heating in Canada. So very complementary. They have a very good brand, a very good channel. We really like the team, a great leader there, really engaged workforce. And we actually think that they have a variety of products that we will be able to -- they don't only sell in Canada, the majority of their business is Canada, let's say, approximately 2/3. We think we can help them grow more in the U.S. And then we actually see some products that we have not been able to successfully sell into Canada and we think we can really leverage the Thermolec channel. So we see some nice channel synergies on both sides there. Additionally, I think we really do have a good lean process and operational experience that they are also very capacity constrained. We believe we can help them grow as we look ahead. So Mark, do you want to make any comments on the The numbers or any.

Yes, Brian, let me add to that, your question of the impact on 2026. We've disclosed a few numbers out there. There's also some publicly available information out on some of the businesses. with respect to Air Enterprises and Rahn. But what I would guide you to is $35 million in revenue at the thermolic business and something in the low or the air Enterprise and Rahn business combined. That's on an annual basis. Obviously, we're going to own both of these businesses for 11 months. So that kind of gets you to something just shy of about $110 million. Segment income margins for both these businesses are slightly higher than our segment average.

Our next question comes from Andrew Obin with Bank of America.

So I know a lot of people will be talking about HVAC. Maybe I'll ask about detection at. A couple of things. A, this $20 million pull forward of revenue, how should we model it in '26? And part 2 of the question, how should I think about the growth for the business given the backlog is up organically 45%, if I heard it correctly.

Yes. Let me start. This is something we talked about. We had had a project that was -- we actually have a very nice backlog as you have seen from our press release, we have record year-end backlog of $350 million in Detection & Measurement. This is up more than 40% organic basis. So very -- we feel really good about how that business is doing. But what I would say is we had a project that was in '26 that the customer pulled it forward is approximately $20 million. We talked about it a if you do the math, that makes '25, $20 million higher and '26, $20 million lower.

It's about a 5% growth headwind. And so as you look at it, that would be the reason we're more flattish. If we look across the business, as a reminder, about 2/3 of this business is run rate. We actually are seeing nice growth in our run rate business. I would say GDP plus growth rates in our business is there. And then on the projects, -- we have a lot of projects and we also have a lot of backlog as you look at the '27 and '28. That's the reason that we're more flattish. And you want to give a little more color there, Mark, on.

Yes. I think, Andrew, Gene kind of touched on the top line. I think it's important if you do the math, you kind of -- he gave you a little bit of it to look at what the impact of that growth would that shifting of that project had on 2026. So had it not shipped it out into 2025, you would have been mid-single-digit top line growth in '26.

Yes, I think my question was simpler. Should we model in Q1, Q2? Or what should I take this $20 million out versus normal seasonality?

It was in the back half of the year. That's where we should look to adjust it. So I can take this.

Right. But then it was pulled forward from is all the impact in Q1 Sorry, it's just my question. I think it's a lot simpler than Europe. Should I just take $20 million out of Q1 versus what I would normally have? Is it that simple?

Yes, it's -- I mean, that's probably the right way to think about it. The D&M business, we always talk about the fact that there's a project element to it and the way these projects gate and how they fall within the quarters can move around on us. But I think that's probably the right approach.

And I know you sort of answered part of your question when you talked about data centers, but I think you've described the lymphoma as your most successful product launch ever -- could you just tell us about what the feedback has been? What are booking -- any update on bookings there and applications beyond data centers?

Data centers and beyond how has reception has been particular in the life, we've been getting questions about NVIDIA announcement. Does it tie in at all to that? Or is that more about PUEs, just maybe give us a little bit more color there.

Yes. The Olympus Max, if anything, I'm feeling more bullish than I was on our last earnings call. The pontine is we have a winner here. We have advantages with our product. We believe we have advantages on tonnage. We believe we have advantages on flexibility, specifically the fact that we our dry unit can be upgraded to an 8 biotic and get a lot more thermal heat exchange additives after the fact gives you a lot of flexibility. We have integrated controls, which is a differentiator versus our competitors, and we have more robust mechanical equipment.

We have already been awarded with 3 customers, material amounts, and we feel good. So I mean we're not going to get into the specifics of dollars and so forth. What I would say is we targeted to get $50 million of bookings last year. We did get that and we're converting that to revenue this year. I would say that we feel really good as we look to '27, '28, '29, we have 1 customer that has already locked up multiple years of demand, growing demand and a lot of activity that we feel good about. So I would just say, I feel like I feel very good about the Olympus Mack, and I think it's the right solution for the market.

Next question comes from Ross Sparenblek with William Blair.

Just sticking on the Olympus Max, what could we read through from the new Ribbon announcement and the way that this market is heading. Do you get a sense that this will be the predominant cooling tower going forward? Or whether this will be a nice mix or water cooling as well?

Yes. I know Thanks, Ross. There was a little bit of -- when the Rubin announcement came out, it can run at lower water temperatures, and that caused some concern for -- do you need a chiller and there's some different variations, and I can't really speak too much. I think there are some circumstances where you may need less chillers or not lead etailers. But we're not aware of circumstances where the Ruben chip would reduce the need for external heat rejection, which is where we play.

So Rubin chip really have no impact on us. I would say it's actually some positive impact on some of the architectures that we have seen. So the other thing, as a reminder, is as chips move towards the AI chips, like the Rubin chip, they generate a lot more heat and that heat is linear, the more electricity, the more kilowatts, you're going to need more cooling towers.

And that cooling tower could either be an antibiotic, it could be a drive or it could just be a normal Marley cooling tower. We are seeing, as we've talked about in the past, -- the bulk of the data center market, I think, historically has been done with air cool chillers. We don't really participate in that market. That's the smaller stand-alone rooftop unit to often seed but the heat loads get bigger, they're moving more and more towards water called chilling, free cooling, and these are opportunities that are very attractive for us. So we like the direction basically, the more compute power, the more heat, it's very simple, you need more cooling towers. So yes, we feel like we're well positioned with some of the trends that we're seeing in the data center market.

That's very helpful, Gene. And then maybe just taking through lead times. It takes a couple of years to build a data center, typically, these clear towers 1 of the last things that go into the field. if your booking orders now, is there an expectation that, that should just start to compound and you start booking into '27 potentially '28? Or just how should we kind of conceptualize that?

Yes. I think there's a set of hyperscalers, a couple of hyperscalers we work with, and they have different methodologies. Some will actually lock you up for 4 or 5 years, and you kind of have very clear, you know exactly what your future demand is going to look like. And I'd say, we feel very good about the trajectory that we're seeing. There's others that more lay out what the plan is, although you don't have a PO in-house to release the POs on a more quarterly basis but they will vigorously validate that you have the capacity to meet their demand and that you can meet their growing demand at the appropriate levels of quality. So I would say you do get different levels of visibility across different customers.

But what I would say is we're growing a good amount in we would expect nice growth into '27 and '28 with what we're seeing in front of us. So there's a lot of activity. And we feel like we have a good set of solutions in order to meet that demand.

Our next question comes Joe O'Dea with Wells Fargo.

I wanted to on your comment around the -- can we just start on the capacity additions. I just wanted to confirm, I think you said when your full production that would equate to roughly $700 million of revenue potential. Just wanted to confirm that. And then if you could touch on the time line to reach full production? And how much you think those capacity adds will contribute to revenue growth in 2026?

Yes, Joe, you're correct. It was -- that is what we said $700 million. It's going to take some time to get to that full production level, particularly at our Madison facility. So both those projects, both the investments that we're making in the facility for TAMCO as well as Madison, they're going to take some time to ramp up some of that's driven by equipment lead times and then as we get them up and running into their respective production processes, I think just so your level set, when you think about the TAMCO business, that, that facility will come online at the end of Q1, it will ramp through the year.

And then the Madison facility will kind of -- will come online in the second half of the year. It will be assembly only. It really won't be in a production phase until 2027. So I think big picture, if you sort of step back and look at it, it will be some time in 2028 before you'd see a sort of a full production capacity across these expansions.

Now I'm just focused on those 2 expansions. We've also obviously been making incremental investments in a couple of other facilities that we noted as well, but they're all part of that collective investment to meet the market really around data centers and also customer handling.

That's helpful. And then on the D&M margin expansion in '26, I think up 140 bps at the midpoint. Can you just bridge that? I think last quarter, you were talking about some initiatives that would require some investments, maybe some things around NPI and a couple of other initiatives and so potentially some cost adds but clearly some pretty good margin expansion expected. And so just bridging the path to that.

Yes. Happy to do that. So when you think about that margin, I'd really kind of bucket it in 2 areas. One is a function of the mix that we're going to see next year across the business. Some of that is driven obviously by the project mix that we have and the margin profile of those that are forecasted for 2026. That's probably close to 2/3 of it, and then the balance, the other 1/3 or so is really this continuation of this, we call it this cost optimization initiatives that we have. But it's really about leveraging the capabilities of engineering, of R&D, sourcing.

We're looking at some rationalization of the footprint. It's really a broad portfolio of things that we're doing across the segment as they work together more in unison, really to drive more efficiency out of those businesses. So it's really kind of that's really the way we break it down.

Our next question comes from Jamie Cook with Truist Securities.

I guess just first a flip question on HVAC, Mark, on the margins. I think you imply, the top line growth is fairly healthy, and the organic growth implied is healthy. I think margins at the midpoint are up about 25 basis points, which is less margin expansion than what you saw, I guess, this past quarter and this year. So just any commentary on that? And then just my second question, just on the M&A pipeline. Obviously, you guys have been very active in the market throughout 2026, just wondering how we should think about M&A potential, given the strength you've seen so far or the amount of M&A you've done so far?

Yes, sure. Jamie, I'll start on your question with respect to HVAC margins in the guide. I think we suggested maybe in the last call that we've sort of indicated that there will be start-up costs related to the bringing these plants online really in 2026. These are going to be temporary in nature. But I would kind of gauge them as around 50 basis points of a temporary impact. I would expect as we ramp these facilities up to full capacity, you're going to get operating leverage off of that. will outstrip that initial cost. But with any plant as you're getting it stood up, there's obviously costs that are required.

Yes. Some questions on the M&A pipeline. I would say, first of all, we're very pleased with the 2 transactions that we executed in Q1 that we talked about. We think these are great fits, very value accretive. Having said that, as Mark has shared in his prepared remarks, even with the pro forma leverage, we're about net debt-to-EBITDA point being, we have a lot of capacity. And what I would say is there is a lot of activity. So we -- as I said in Q3, Q2, I was talking about the amount of activity, and we've seen this come to fruition. And it's in very similar spaces we've talked about before. So engineered air movement and electric heat, these are the 2 acquisitions that we -- those are the areas we highlighted. Those are the areas that we close these 2 transactions. We similarly see a lot of activity as well also in engineered air movement and electric heat as well as a number of detection and measurement platform.

So to your question, I would say the pipeline of opportunities is very full. It remains very full. And we feel we feel like there's a good probability that there will be more opportunities for us to invest in growth this year.

Our next question comes from Amit Mehrotra with UBS.

I have a question about nondata center end markets. Within HVAC and then also in D&M, there's a lot of anticipation right now that we're seeing some sort of cyclical or procyclicality. And I just want to get a sense from you if you're seeing any of that in real time, if orders have worked up, I know you talked about mid-single-digit growth in D&MX the $20 million. But any color outside of kind of just normal procyclicality, I think, would be helpful.

This is Gene. Let's see. A couple of comments I'll make here. We have a list of where we're seeing growth and which markets are opportune a little slower, and I can kind of walk through some of these, but if you look across HVAC, some of the areas that we're seeing some really nice strength, obviously, data centers, health care, power, heavy industrial aftermarket as well as institutional and higher ed. Some of the areas that I'd say that we see when we look at '26 are a little softer, would be battery, automotive, semiconductor, chemical, and I'd say commercial real estate, which is still active, but at a lower level.

You put it all together, and we actually see pretty solid growth even outside of data centers. So what I would say also is when you look at the end of Q4 and the first 7 weeks of bookings in this year, we've had a nice start. So I'm not going to predict the GDP of the U.S., but we're seeing some positive signs here.

Okay. That's very helpful. And then just, Mark, maybe a question on overall earnings growth. Obviously, you're forecasting another very, very strong year of earnings growth. And then there's also kind of this layering in of capacity as we progress through the year. I just wonder if that kind of informs some cadence of earnings growth, if you could just give us a little bit of help or handholding around as we progress through the year, how the earnings growth kind of cadence evolves as that capacity comes online?

Yes. No problem there. I think what I would say with respect to the gaming, we kind of gave some color with respect to Q1 in the prepared remarks. But if you step back from that and sort of think about first half, second half gating, it be similar to last year on a percentage basis with respect to revenue, segment income and EPS. I mean the capacity expansions are going to ramp incrementally really each quarter. So you're going to see as they come online, through that throughout the year, you'll see the benefit of them as you get into the back half of the year.

And is there anything around the backlog of orders, particularly in data centers that is an elongation of your typical lead times because we're seeing this across the board in other companies, just the numbers are very, very strong, but begs the question of lead times and if these orders are actually getting a little bit longer dated.

I think that with the large data center customers, this is obviously mission-critical. They can't start a data center without cooling -- they give you a lot more visibility than a local hospital or local commercial building or local airport. So I'd say you have know what's coming earlier, but our lead times haven't really changed that much. If you look at across our businesses is pretty similar to where they've been.

Our next question comes from Joe Giordano with TD Cowen.

I appreciate the color on the -- like the warmer liquid and warmer liquid use for cooling, what that means. I'm curious what -- like a move to significantly higher voltages in the DCs would mean where current goes down and much less copper and less heat required like per unit of compute. So like as you move into these next-generation architectures, kind of how does that have implications for you guys?

Yes. I mean, I think all of the shifts that we have seen generate more heat. So if you look at the KW going into the racks and the amount of electricity going into the data centers, I haven't seen anything where that's basically increasing at the point in which you're seeing these gigawatt data centers, just massive, massive amounts of electricity and the electricity correlates very well to heat, which correlates very well to the amount of data cooling you would need. So yes, I mean, if there were to be an invention that significantly reduced electricity that would reduce the need in the amount of cooling towers that you have. I'm not aware of any such invention.

And then anything we should think about in terms of tariffs. I know this is only 24 hours or whatever for you guys to think that through. But what any of those changes have to mean for you guys? And the volatility you're seeing in metal prices?

Yes. It's a great question, obviously, and timely given the tariff dynamic is back here 12 months from the last time we were talking about this. For us, I would say the tariffs during 2025 were really not a material impact to us. We were largely able to offset that impact, whether that be through price or sourcing or CI initiatives. So it's something we're clearly going to keep our eye on and play very close attention to. For obvious reasons. But our model really is we're largely U.S., we're largely in country, for country on the sourcing front.

So -- and when you think about our North American business, particularly the Canadian businesses, those are all covered under the U.S. MCA. So something that we're going to keep our eye on, not something I'm overly concerned about as I sit today. and metals prices, we'll be watching those. One of the dynamics with our business is everything that we sell a large part of what we sell, I should say, on the HVAC side is configured to order or engineered to order. So we're largely taking that order and pricing and manufacturing in real time, right? So we don't have kind of real exposures, long lead time exposures for things like steel and aluminum, where the largest metal exposure would be for us.

Our next question comes from Jeff Van Sinderen with B. Riley Securities.

Just kind of getting back to the data center area and -- maybe you could just share a little bit more in terms of what you're hearing from your customers, what they're asking for most? What's top of mind to them at this point? And then really, how is that evolving?

I would say at a high level, demand is increasing, and there's push for acceleration of demand with several of the hyperscalers that we deal with. So I would say the demand that we see, both with our existing customers but also with there is bidding and new situations and I just -- I would say it remains very robust.

Okay. Good. And then just circling back to supply chain for a minute. Are there any areas -- did you mention any areas that you think might be increasingly tight this year that you anticipate for supply chain, any bottlenecks potentially or not really?

Yes. I don't -- Jeff, as I'm thinking across the supply chain that we have. I don't think there's anything that jumps out that where there's material concerns today back to the supply chain. I mean through the process as you grow, and we have our products growing pretty dramatically. You have to go through a line item by line item bill materials with you to make sure you can scale up. And yes, we've gotten through that, and that's something that we always do to make sure we feel good we can support the growth. And I don't think we see any red flags as of today. I think that's right.

Okay. Good to hear. And then if I could squeeze 1 more in a completely different topic, but curious to know what trends you're seeing in drone detection and jamming for that business line and then the outlook there?

Yes. I think that, that business -- our [ contact ] business plays in a niche. It's a very effective product. You look at the drone detection world, there's a lot of players out there. A lot of people are trying to do residential or trying to do stadiums. We've seen a lot of those kind of belly flop. Really, we're playing more on the military side predominantly. And I think we have a very good solution there. We have 1 primary competitor that we typically see a German competitor that we know very well. We compete very effectively against, but I would say there's a good amount of activity, but I don't see anything dramatically higher or lower. I think it's pretty steady with what I see in front of us.

Our next question comes from Walter Liptak with Seaport Research.

And I'll ask 1 to on data center. The CapEx is going up quite a bit. And so we might well ask about the timing of the cash out for the CapEx, and it's fairly big range. What could be there for pluses and minuses getting all that capital spending done this year?

Yes. Walt, I mean, it's the plan is to meet that CapEx guidance for the year. So it's obviously important and relates to the plant expansions stand-ups that we're in the process of doing. So I think if you were to see any of a shift, it would just be really related to timing of delivery of equipment that would be and something that we're watching very carefully. We've got a great team on it. They're very focused on it, something that I think we're concerned about today. But that's really what would impact the CapEx that relates to the projects or the client expansion.

Okay. Great. Okay. And I'm interested in thinking about the capacity that's going in, and you mentioned that some of the hyperscalers are trying to lock down capacity? Is that what is there to meet or is within that $700 million run rate, is that kind of room to grow kind of projecting out future demand levels. is there another round of CapEx that might happen after this? Is there like a Phase 2 of this data center HVAC build out?

Yes. I think, Walt, I think it's -- what I would say is it's nice to have hyperscale who wants increasing growth demand over the next couple of years. With these expansions, as Mark had alluded to, we think this is approximately $700 million, which would be about $550 million for data center, about $150 million more for the customer handling predominantly Ingenia. So I would say that this gives us some runway over the next couple of years. Where we sit today, we don't see an imminent need over the next couple of years of anything. Now having said that, if all of a sudden, there is an increasing acceleration. We'll always look at what -- if there is an excessive growth in demand we'll always be careful to look at those opportunities.

But we feel very good about this expansion. We think this is going to give us a lot of flexibility over the next several years.

Our next question comes from Brad Hewitt with Wolfe Research.

So it looks like you're guiding to about low double-digit organic growth in HVAC in 2026. You mentioned the 50% growth expected in data center, and then if we also adjust for the Ingenia revenue growth, it seems like the implied growth rate for the rest of the segment was around 3%. Is one of the DFS kind of in the right ballpark and how you think about some of the puts and takes to growth in core HVAC Ingenia ex data center?

Yes. Brad, your math is directionally right. I would say kind of low single digits growth in the nondata center non-air handling customer handling parts of the business exactly.

Okay. Great. And then on the D&M side, you're guiding the margins of 25% at the midpoint versus the Investor Day target of 22% to 24%. Do you still think of that as an appropriate medium-term target? Or should we think about 25% of the good baseline upon which you can then layer on normal incrementals over the next several years?

I think it's a great question. When I -- and I think I mentioned this in a question that was asked earlier today. Some of this margin improvement is related to mix, and some of it is related to some of these opportunities that we're pursuing, to really drive the overall margin profile of D&M up. Those are structural in nature. So I expect them to be durable going forward. if you kind of did the math around that, that would sort of pencil out to a margin right about at the top of our range that we guided to a couple of years ago. So the 22% to 24% segment income range. So I think for now, I don't think we're looking to change the overall target profile of the business, but something we'll certainly look at as we go through the year and into next year.

That concludes today's question-and-answer session. I'd like to turn the call back to Mark Carano for closing remarks.

Thank you all for joining us for today's call. We look forward to updating you again next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Q3 2025 SPX Technologies Earnings Conference Call.

[Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to turn the conference over to your speaker for today.

Thank you, operator, and good afternoon, everyone. Thanks for joining us. With me on the call today is Gene Lowe, our President and Chief Executive Officer.

A press release containing our third quarter results was issued today after market close. You can find the release and our earnings slide presentation as well as a link to a live webcast of this call in the Investor Relations section of our website at spx.com. I encourage you to review our disclosure and discussion of GAAP results in the press release and to follow along with the slide presentation during our prepared remarks. A replay of the webcast will be available on our website.

As a reminder, portions of our presentation and comments are forward-looking and subject to safe harbor provisions. Please also note the risk factors in our most recent SEC filings.

Our comments today will largely focus on adjusted financial results and comparisons will be to the results of continuing operations only. You can find detailed reconciliations of historical adjusted figures from their respective GAAP measures in the appendix to today's presentation. Our adjusted earnings per share exclude amortization expense, acquisition-related costs, nonservice pension items, mark-to-market changes and other items.

And with that, I'll turn the call over to Gene.

Thanks, Mark. Good afternoon, everyone, and thank you for joining us. On the call today, we'll provide you with an update on our consolidated and segment results for the third quarter of 2025 as well as an update on our outlook for the remainder of the year.

Our Q3 performance was strong. We grew third quarter adjusted EPS by 32% and drove significant profit and margin growth in both segments. To reflect our strong performance in Q3 with the outlook for the fourth quarter, we are raising our full year guidance range. We now anticipate adjusted EBITDA to exceed $500 million at the midpoint of our updated range, implying approximately 20% growth year-over-year.

During Q3, we raised additional capital through an equity offering and increased the capacity of our revolving credit facility. These actions provide us with more than $1 billion of additional liquidity to support our organic and inorganic value creation initiatives and do not have a dilutive effect on our 2025 EPS.

We also continue to progress on several key organic initiatives, including the expansion plans for our engineered air movement businesses and launch of the Olympus Max product, a new large-scale cooling solution. Inorganically, our M&A pipeline remains robust with several attractive opportunities.

Turning to our high-level results. In the third quarter, we grew revenue by 23%, driven by strong organic growth in both segments and the benefit of recent acquisitions. Adjusted EBITDA increased by approximately 31% year-over-year, with 150 basis points of margin expansion.

As always, I'd like to update you on our value creation initiatives. Over the past quarter, we've continued to gain traction on our growth and new product initiatives. We're making meaningful progress on expansion plans for our engineered air movement businesses where we see significant demand in excess of our current production capacity.

We closed on a lease facility in Tennessee for U.S. production of our TAMCO actuated dampers. We expect production in this facility to begin in the latter half of next quarter. We're also progressing on our expansion plans to produce Ingénia custom air handling units in the U.S. We are currently targeting a location in the Southeast and we'll provide more detail next quarter.

On new product front, our Olympus Max product, a dry and adiabatic cooling solution focused on the large-scale needs of data center customers, continues to receive excellent feedback and engagement from customers. We are on track to achieve our objective of booking $50 million of Olympus Max orders in 2025 for revenue in 2026.

Now I'll turn the call back to Mark to review our financial results.

Thanks, Gene. Our third quarter results were strong. Year-over-year, adjusted EPS grew by 32% to $1.84. For the quarter, total company revenue increased 23% year-over-year, primarily driven by higher project sales in Detection & Measurement as well as inorganic growth from the acquisitions of KTS and Sigma & Omega. Consolidated segment income grew by $32 million or 28% to $146 million, while consolidated segment margin increased 110 basis points.

In our HVAC segment, revenue grew by 15.5% year-over-year, with 6.7% inorganic growth and a nominal FX impact. On an organic basis, revenue increased 9%, with solid growth from both cooling and heating. Segment income grew by $14 million or 18%, while segment margin increased 50 basis points. The increases in segment income and margin were largely driven by higher volume and associated operating leverage. Segment backlog at quarter-end was $579 million, up 7% sequentially from Q2, all organic.

In our Detection & Measurement segment, revenue increased 38.4% year-over-year, with strong organic growth of 26.5%. The KTS acquisition accounted for an increase of 11.6% and FX was a modest tailwind. The increase in organic revenue was predominantly driven by higher CommTech project volumes. Segment income grew by $18 million or 53% and margin increased by 240 basis points. The increases in segment income and margin were primarily driven by operating leverage on higher organic sales and the KTS acquisition. Segment backlog at quarter-end was $366 million, flat sequentially.

Turning now to our financial position at the end of the quarter. During the third quarter, we accessed the capital markets to further strengthen our balance sheet and support our growth strategy. We completed a $575 million offering of our common stock. A portion of the net proceeds from this offering was used to repay the outstanding amounts under our revolving credit facility. As a result, there is no dilutive impact to 2025 EPS.

We also amended our credit agreement to increase the capacity of our revolving credit facility by $500 million to $1.5 billion and extended the maturity of our credit facilities to 2030. Following these actions, our liquidity increased by more than $1 billion and our available capacity now exceeds $1.6 billion.

We ended Q3 with cash of approximately $232 million and total debt of $502 million. Our leverage ratio as calculated under our bank credit agreement was approximately 0.5x at quarter-end. Q3 adjusted free cash flow was approximately $91 million. As is typical, we anticipate Q4 to be our highest cash flow generating quarter of the year.

Moving on to our full year 2025 guidance. We are updating adjusted EPS to a range of $6.65 to $6.80, reflecting our strong Q3 results and Q4 forecast. This represents an increase from our previous range of $6.35 to $6.65 and reflects year-over-year growth of approximately 21% at the midpoint.

For our HVAC segment, we are maintaining revenue and margin guidance and remain confident in the fourth quarter forecast. In Detection & Measurement, we are increasing full year margin guidance to a range of 23.25% to 23.75%, raising the midpoint to 23.5%. This represents year-over-year growth of 140 basis points. We expect Q4 revenue for the D&M segment to be modestly lower sequentially due to the timing of project deliveries between Q3 and Q4. As always, you will find modeling considerations in the appendix to our presentation.

And with that, I'll turn the call back over to Gene.

Thanks, Mark. Market conditions support our increased full year outlook for 2025. Within our HVAC segment, we continue to see solid demand in key end markets. Our strong backlog of highly engineered solutions and efforts to increase production capacity further reinforce our confidence in HVAC's growth opportunities.

In our Detection & Measurement segment, we are seeing steady run rate demand. For our project-oriented businesses, we have a strong backlog and feel confident in our forecast for the fourth quarter. Looking to next year, front-log activity remains steady. However, as we highlighted last quarter, approximately $20 million of project sales shifted from early 2026 into 2025, creating a modest headwind for next year.

In summary, I'm pleased with our strong Q3 performance, including significant profit growth in both segments, an equity offering, an expansion of our revolving credit facility, which together provides more than $1 billion of additional liquidity with no dilution to 2025 EPS, and the continued progress on our U.S. capacity expansion and new product initiatives. We are well positioned to achieve our increased full year guidance, which implies 20% growth in adjusted EBITDA and adjusted EPS at the midpoint. We also see multiple opportunities to continue growing our businesses both organically and through our robust M&A pipeline.

Looking ahead, I remain excited about our future. With a proven strategy and a highly capable, experienced team, I see significant opportunities for SPX to continue growing and driving value for years to come.

With that, I'll turn the call back to Mark.

Thanks, Gene. Operator, we will now go to questions.

[Operator Instructions] The first question today will be coming from the line of Bryan Blair of Oppenheimer.

Another very solid quarter. Given you're almost in November and you have supportive backlog in both segments, maybe speak to your team's visibility into 2026 and which platforms or across which end markets you're most confident in sustained growth? And to balance that, where there may be some watch items as you look to the new year?

[Technical Difficulty] Okay. Can you guys -- like I'll assume you can hear us now?

We can hear you now, yes.

Okay. Thanks for your question, Bryan. So yes, I think if you step back and you look ahead to 2026, overall, we feel very good. If you look across our HVAC businesses, we do have a diversity of product lines. And frankly, we're feeling pretty positive across all of our business areas.

If you look at the markets that we see the most strength, those really haven't changed from what we've talked about in the past couple of quarters. We're seeing really a sustained strength in data centers. We feel like we have some nice momentum there. Same in health care, institutional, we're also seeing a lot of activity.

I'd say in the industrial markets, we're seeing a little bit -- those have been kind of flattish. We're seeing some modest growth there, which I think is a positive. And we're seeing more power activity in terms of some bidding and so forth, which could yield some opportunities. Some of the markets that have been relatively lower are also some of the more commercial buildings, more hotels, things like that. But net-net, we feel very good about the markets.

And then when I look at the markets, I feel good. But then I think about our initiatives on top of that. Probably the biggest one we've talked about is the Olympus Max. That's our new data center cooling solution that's either dry or adiabatic. Very good product, feel very good about that. That's a whole new market for us that we have not served. So we see the opportunity, as we've said, targeting $50 million of bookings this year, which is really revenue next year. We believe we're on track for that.

We also have some capacity expansions for some businesses that there's just a lot more demand for our products, notably TAMCO, Ingénia and Marley. So when I look at HVAC, I feel very good about the end markets and then our initiatives to drive further growth. I think if you look at some of the third-party people who track markets, they would predict for the non-resi market probably mid-single digit. We would believe that we would target to be higher than that with our initiative-driven growth that I just highlighted.

On D&M, I would say overall run rate is steady. We're seeing some modest growth there. And it is a little bit of very different geographically where the U.S. remains stronger, and we are anticipating that into '26. See some good pockets and some areas that are really going nicely there. And then I'd say more flattish ex U.S., talking about Continental Europe. We are seeing an uptick in U.K. in some areas. But overall, I would say, steady, modest growth in our run rate.

And then our projects, we have very good activity. We did, and Mark can tie this out, we did some of that, which we had in '26, it actually accelerated into '25. And then we have a very high backlog. Now some of that backlog is more -- it's not only '26, but we actually are having a lot more multiyear projects, which is really good, but we have to make sure we understand what falls into the forward year of '26.

But overall, I would expect growth in D&M as well. So I think the backdrop for what we see is positive. Mark, what color would you like to add overall on D&M?

Yes. I think I might just add across really both segments, right, we're in very strong backlog positions there kind of -- for both segments really, both at or near all-time highs. So really good position from that perspective.

As I look into '26 and I think about how much of that backlog is scheduled to deliver in 2026, it's about 40%, and that's similar across both segments. So we're in a nice position as we sit today looking out into next year. Gene did mention this one handful of projects that were originally in our '26 backlog, they actually delivered in Q3 in our D&M segment. I think we referenced that in our Q2 call. But they ultimately were delivered and the revenue was recognized in Q3.

Understood. I appreciate the walk-through. Encouraging trends overall.

Maybe offer a quick update on KTS and Sigma & Omega integration. How are those assets performing relative to deal model? And then given your now quite significant balance sheet capacity, that would be great to hear more about your M&A pipeline by platform. Where do you see the most attractive opportunities? And of the -- I believe you mentioned several attractive targets, any that are potentially actionable over the near term?

Yes. I would say we feel very good about both KTS and Sigma & Omega. Sigma & Omega is a little bit newer, so we haven't -- it's at an earlier stage. KTS is already -- it's really kind of built in and operating, to me, operating as one with our CommTech business.

A couple of points there. We're actually seeing some nice wins. They have gotten a few new things, proclamations from the government where they are becoming the basis of design and the standard. They've expanded into some different areas. So KTS, we feel very positive about. We love their technology. I believe we mentioned in our last call, we're launching a joint product with KTS and then the legacy TCI business in Q4, in this quarter. I think there's a lot of excitement around that. So KTS, I would say, we're feeling very positive about.

And then Sigma & Omega similarly, really good team, really nice win rate. The way that we think about that market is really multilevel applications, hospitals, or could be hotels or it could be condos, things like that, and there's typically a boiler and there's typically a cooling tower. And so a key part of our thesis there was we -- they're very strong in Canada. We think we can help them grow more in the States where we have an established channel, particularly our Marley channel is very strong and then our Patterson-Kelley channel, that's our commercial boiler line.

So we have already signed up, I don't have the latest numbers in front of me, but I know of 3 or 4 that have already picked up and are very excited about Sigma & Omega. And not only are we expanding geographically, but they've launched some new products with coil and then within their self-contained units. So they have some good innovation going on. So yes, I think that that fits very nicely within our hydronics business. The teams are working well.

And I will say with both of those, really good leaders and really good teams and really good cultural fit. So it's still early, but off to a very positive start.

The second question you had, on M&A, I would say, and I know we've said this, it is very -- we have a very high level of activity. We have a number of processes underway. And I would say as we look into 2026, we feel very good about strategic capital deployment. We're going to remain disciplined, but there is a very attractive set of opportunities.

On the HVAC side, I would say we've talked about engineered air movement as well as electric heat. In each of these areas, we see several opportunities that are very attractive opportunities. And then also on Detection & Measurement, we see some very interesting opportunities. I'd say a smaller number. We still see -- have, I'd say, right now, a more active pipeline on the HVAC side. But some very good opportunities.

So we feel very good as we think about moving into '26. And as Mark alluded to on the call, I mean, we really -- we got basically $1 billion almost for free. There's no EPS dilution. So it's kind of a really unique circumstance where you can expand your balance sheet so much and have the same level of earnings. And so that gives us the opportunity to invest in growth opportunities. And we're also going to be investing in some organic opportunities as well. So yes, overall, I would say, feeling very good about the pipeline and the opportunity set we have in front of us.

And the next question will be coming from the line of Damian Karas of UBS.

I wanted to ask you first about the capacity expansion plans. Gene, you talked a little bit earlier about the TAMCO production going to be coming online later this year in Tennessee and you're looking for a spot in the Southeast for Ingénia. Could you just maybe give us a sense for initial production capacity, how to think about that, how much you're planning to bring online? And then just in terms of the equity raise that you guys just did, like how much kind of investment outlay for these expansion plans are you expecting?

Yes, I'll give a little bit of color, and then I think some of it we're not prepared to talk to. I think the TAMCO one is basically done. We've signed the lease. We're actually very excited about this. That is a 150,000 square foot facility, very similar to our existing facility. We actually think we can ramp this up over time. So we're very excited about that.

And as we said, we're targeting to get some of the equipment commissioned and to start. It takes a while to ramp up. But by the end of Q1, we should get going there. But very good opportunity. That's in Tennessee. And we actually think that that will really give us the opportunity to grow quite a bit. That's very capital light. I actually think most of the capital is -- has already been deployed there.

Some of it will be this year and then some into next year.

A little bit next year. The bigger one will be the expansion of Ingénia. That's going to be a much larger site, probably in the neighborhood of -- it could be 3x as high. But again, we're making great progress there, but we're not at the point at which we can really say anything. What we are anticipating is by the end of -- by our next earnings report, we should be able to kind of lay out very specifically what the investments as well as the revenue expansion capacity is for all of those.

And Mark, would you like more color there?

Yes. I think we're just working through the finer details of the site. And when that ultimately -- we actually acquire that facility, yes, it's going to drive a little bit of the timing and the timing of the capital spend. So as Gene mentioned, we're going to be prepared to provide more color to you in -- at our Q4 call, and we'll really walk people through kind of the step function of what our plan is there.

Obviously, it's a much larger facility. So the capital...

Therefore, it's more capital in there, for those of you who've...

Know Ingénia.

Yes, who went to Ingénia. Think of an Ingénia now, and you'll see the lasers, the punches, the night train, the robotics. So it would be a similar level of capital equipment.

Okay. Got you. That makes sense. We look forward to getting that update in another few months.

And then I wanted to ask you about the opportunity in nuclear. I think I asked you guys about that maybe a little over a year ago, but we've had a lot of developments in the market since then. So I was curious if you maybe started seeing some of those opportunities come the way of your HVAC business. What do you think your entitlement is in that specific market? Really appreciate any thoughts on just nuclear.

So nuclear, if you kind of take the existing nuclear market, rough order of magnitude, there's about 100 nukes in the U.S. About half of them have cooling towers, the other half would have what's called once-through cooling. That's where you use a lake or an ocean or something to provide your cooling.

Of those that have cooling towers, we have a very high percentage of those units. You could see natural draft towers. Those are the big towers people think of when you think of nuclear power plants. They could be mechanical draft. There's a variety of technologies, but we have a very strong position there.

So how does that affect us? As people want to keep power, is it's a scarce resource right now and there's a lot of demands on power. So upgrading your cooling towers, oftentimes, you can get an extra 50 or 80 megawatts out of your power plant very quickly. And so that could provide some opportunities for us in the existing infrastructure. Could be nuclear, it could be gas, could be coal. We're seeing some of those types of opportunities.

As it pertains to new nuclear, I would say that we haven't seen -- we see a lot of combined-cycle power plants. There's a very active -- there's a lot of combined cycles going all across the U.S. That seems to be the go-to -- really if you want baseload power within the next few years, it looks like that's really your only option. So you're seeing a lot of activity there, sometimes paired with data centers.

And we do have an opportunity to go after the cooling towers there. Combined cycles tend to be a little smaller. But yes, we see it as an opportunity. But the brand-new nuclear, I don't think we see anything in our planning horizon, I would say, over the next 2 or 3 years.

The next question will be coming from the line of Andrew Obin of Bank of America.

So first question, I guess, some of your -- well, I don't know if they're competitors per se, but some of the HVAC players have been talking about pushout of large projects related to data centers. I would imagine it was because the industry is sort of out of capacity across the value chain. Any comments if you see any pushouts on large projects that you guys observe?

Andrew, not that we have seen -- and we have a number of large accounts in U.S. and Asia and Europe. I think when you get into some of the large projects, they tend to be imperfect in terms of planning. So you could take a large power project or a large automotive project or a large semiconductor. And I would put data centers in that same capacity. So there's always a little bit of uncertainty on timing, but I haven't seen anything out of the ordinary.

What I would say is there's a very high demand from our key customers. They're very open with us about the demand profile and they're very much pushing us to make sure that we can meet their time lines. So to answer your question specifically, there's always a little bit of pushouts here and there, but I would say nothing out of the ordinary.

Got you. And then just I know you have residential exposure, and what we've seen is some pressure on consumer this summer. Are you observing any headwinds related to consumer and HVAC? And yes, I'll just leave it at that.

Andrew, if you look at where we play in residential, it's a pretty small part of our HVAC segment, and it's really the Weil-McLain boilers. And that is a very high percentage of replacement demand. If anything, we're actually seeing nice growth there. That's predominantly replacement demand. We think any given year, it could be 80% to 90% replacement for the residential portion. I would say the commercial portion has a higher percentage of new.

But yes, we have not seen any slowdown or impact from the customer. I think it's early in the heat season. But even -- I spoke to our hydronics leader this morning, I believe we're a little bit ahead of bookings plan. So we're actually feeling on target. Anything else, Mark, you'd like to add?

No, I mean, it's really that business, I think, as many of you know, is largely driven, because it's largely replacement, by the weather cycle, for good or bad. And last year was a tough year for that business. But this year is different; it started off in a much better place.

Yes, I think we have a little bit of an easy comp versus last year, that's fair to say.

Exactly.

Well, we're super excited to be onboard, and thank you so much.

And the next question is coming from the line of Ross Sparenblek of William Blair.

Maybe just give a little more color on kind of your adoption expectations within the new Olympus product. What are you hearing from customers? You're targeting $50 million this year, but what's kind of the run rate maybe base case for 2026?

Yes. I think we would target to get $50 million into next year for the product. I would say the -- when I think about this, I actually have conviction on our value prop and our product. I think we have a very unique product in the dry and the adiabatic. I think it leverages a lot of our kind of core Marley strengths where we tend to be known for our engineering, our industrial-grade products. I think it transfers very well.

Having said that, what I would say is there's 4 kind of big kahunas for the hyperscalers. They all have different philosophies on how they design their data centers. Do they want wet or dry? There's many different variations. So it does take some time to break in there. But what I would say is we're on track and we feel very good about this brand-new product hitting $50 million. And I would expect it to kind of grow from there. And if we're successful, it could grow very rapidly into '27 and '28.

But we're off to a nice start. There's a lot of bidding activity and there's a lot of discussions going on. There is in some of these markets, as we discussed in an earlier question, some of there's a lot of also budget bidding where people are trying to get a site and trying to get funding. So you get a lot of what you'll typically see on these larger projects, some of the lumpiness and the timing changing.

But what I would say is there's a very good set of opportunities in front of us, and I think we have the right product set. So yes, we're very encouraged and excited to go into next year with our Olympus Max.

That's really helpful. So it sounds like it's kind of some big game hunting with the hyperscalers. Do you guys feel that you have a good seat at the table in that design phase?

Yes. And as you know, the hyperscalers typically have confidentiality. So we can't get into some of those. But what I would say is, yes, I do think we have a number of data center customers that we've been very proven with. As you know, there's some customers, they say, "We only want cooling towers." And then you try to do that. Some only want dry coolers.

And I think what is going on at a macro level is you're seeing a movement towards higher heat loads, which tends to mean the easiest and the simplest is air-cooled chillers. If there's an air-cooled chiller, that doesn't really provide an opportunity for us, because it's an all-integrated unit. As it goes to water-cooled chillers, we could either do the dry, the adiabatic or the cooling tower on that. And everything we're hearing and seeing sees a trend moving towards that water-cooled chiller solution because you really can reject more heat, frankly.

So yes. I think that's a trend that I think is favorable. It doesn't happen overnight, but it should be shifting over the next couple of years, which I think what it basically means for us is it can open up more addressable opportunity.

That's great color. One last question here, just to put a finer point on the KTS acquisition. I thought the expectations there previously was more second half weighted, but it looks like it might have been down sequentially in the quarter. Is there anything to call out from a modeling perspective?

Yes. I don't think so, Ross. No. It is second half weighted, no doubt. And I think the fourth quarter will be its largest quarter. But we can chat about that offline just to sync up what you're [ seeing ].

And the next question will be coming from the line of Joe O'Dea of Wells Fargo.

Can you just touch a little bit more on Detection & Measurement in the quarter? I think you're heading into the quarter anticipating that margin could have been down. Clearly, strong revenue, strong margin. I think this is an environment where we hear a little bit more about the potential for pushouts. It sounds like things came in. So just to elaborate a little bit more on what you saw over the course of the quarter, maybe why you saw it come forward a little faster than anticipated.

Yes, Joe, let me touch on that. And first of all, I think we're really pleased with the initiatives and the success and progress we've had on driving margins in our across our D&M platform. But really, I would sort of break it down into 3 buckets. When you look at year-over-year, sort of 240 basis points of margin improvement at the segment income line.

A part of that, probably 40, 50 basis points of it really related to KTS. That business is performing at a higher margin level than we had originally forecasted. So that business is performing nicely. We saw very nice operating leverage in the quarter on the revenue. And this is sort of net of a less favorable mix that we had signaled in the back half of this year, particularly relative to last year.

Now remember, we had $20 million of this project move up from 2026, that sort of added to the volume story here, that wasn't originally in there. So that really drove very nice operating leverage. Those contracts actually executed at a higher level than we thought.

And then lastly, we did have some initiatives within D&M related to some NPI and a couple of other initiatives that have actually shifted out of the year. They're kind of shifting into 2026. And that's really largely, I think, just prioritization of where the management team is spending their time and resources right now. I think we probably had more slated than we could really accomplish during the year.

So those are still projects that are going to continue. Those costs will be there, but they're going to slip out into 2026, that cost. So the latter 2, I didn't give you that, it's about, of the balance, call it, 200 basis points, it splits about 50-50.

That's helpful color. And then I wanted to ask on the HVAC backlog up 7% sequentially. It seems like seasonally from year-to-year, maybe it tends to be flat or could even move down. And so not sure if you would observe that as a little bit better than normal seasonal trend there. And anything that you would point to that's contributing to that?

Yes. I think -- I mean, on the backlog, a couple of things. One, when you look at it kind of year-over-year, right, it's up 32%. Organically, represents about 2/3 of that. So nice year-over-year.

Sequentially, you have a couple of things going on there. You obviously -- we typically see backlog reduction at this time of the year related to our hydronics business. So as we work through what we call kind of the preseason buy that takes place, that will -- that happens at this time of the year. And then you'll see it again in Q4 as we relieve inventory related to that.

So that's a little bit what's driving it. As I look to the end of the year, what I would tell you is I think backlog overall from where we are today will likely be higher.

And the next question will be coming from the line of Brad Hewitt of Wolfe Research.

So I guess on the M&A side, curious whether the $1 billion of additional balance sheet capacity that you've secured in recent months would indicate that perhaps M&A funnel is more actionable than it had been in recent months? And would it be fair to say your appetite for a larger deal has perhaps increased?

Brad, I'd say this is probably the #1 question we got in the equity raise and I think from some investors. It's a good question. But the truth is nothing has really changed. Our strategy is the same. I would say, to your point, we do have a very robust pipeline of opportunities.

I think that really what predicated the raise was our EBITDA, we've kind of outgrown our revolver. We've gotten so -- we've grown our EBITDA so much that we actually saw some opportunities that would have been challenging for us to be able to execute on. We didn't want to get caught in that situation. So we actually feel like we're in a very strong situation now.

But yes, very good activity and -- but no, no change in strategy. As you know, we -- for us, we've typically said a smaller deal might be in the range of a $50 million enterprise value, a larger deal might be in the neighborhood of $500 million. And that's really where the bulk of our opportunities lie. I would say 90% plus fall in that range. And there are a couple of smaller, there are a couple of larger. But yes, that's where we sit today.

Okay. That's helpful. And then curious what your latest thinking is around Ingénia capacity exiting the year. I think the previous expectation was around $140 million. And then when you mentioned the planned Ingénia facility in the Southeast U.S., is that incremental to the $300 million of ultimate run rate capacity that you had previously cited?

Yes. No, I think that we're still on track for hitting a $140 million run rate in this quarter, in Q4. But if you look at it, our revenue is going to be materially lower than that, right? We're kind of ramping up. And that's really in our Mirabel facility. But no.

And then previously, when it was talked about the $300 million run rate, which we're really talking about is that run rate being Q4 of 2027, that is both facilities. That is both Mirabel up in Canada, outside of Montreal, and then the new facility, which we're pretty close on and we should be able to announce here in our next earnings call. So yes, it'd be both those put together.

The next question will be coming from the line of Jamie Cook of Truist Securities.

Nice quarter. I guess just 2 questions. One is following up on Joe's question about the profitability in D&M. Obviously, it was strong in the quarter and there were some favorable items in the third quarter. But even if I look at the run rate of what's implied in the fourth quarter, like just the run rate on D&M operating income is quite a bit higher than what we've seen in the first half of the year. So just wondering if that's like a good cadence to think about like the back half times 2 for base for 2026 just given what you're seeing on the top line and in the margins?

And then I guess my second question, just any updated thoughts on your 2027, 2028 sort of EBITDA goals just given, again, where we should end up this year and given how much EBITDA has grown per year since you've put that out? It just seems like that could get pulled forward or potentially it's conservative.

Yes, Jamie, I'll start on the D&M topic. So you really have to kind of look back to our increase in our guide for the year, which was largely driven by D&M, the majority of it was, and kind of understand what's driving that as you look out to kind of what's implied in Q4. And there's really 3 things that we -- that are similar to Q3, they're connected to it.

One is KTS margin improvement. We saw a little bit of that in Q3; you're going to see more of it in Q4. These initiatives that I talked about, that impacts both Q3 and a little bit in Q4, less so. And then the better leverage was really a Q3 element. So you think about KTS and the margin benefit from that given that will be the largest quarter for the -- did we lose someone? Okay. For that business performing this year. Does that clear it up for you?

Yes, that's helpful. And then on the 2027, 2028 EBITDA targets?

Yes. I mean I think -- why don't I start there and then you can dive in? When we had our Investor Day in early 2024, so we kind of looked at 2023, which our EBITDA was $320 million. Is that right? Yes, so...

It was $310 million.

310, okay. $310 million. And we said we think we can double this within the medium term, which would be 4 to 5 years.

To your point, I think we're tracking very, very favorably on that. So we went from $310 million to $421 million last year. I think we're $505 million at the midpoint this year. We're seeing nice growth dynamics, particularly on our HVAC side, as well as some good inorganic opportunities. So yes. If I were to kind of say that was 4 to 5 years, I would say I'd be disappointed if we weren't -- the 5 feels too long. I do think we're ahead of plan here.

And Mark, I don't know if you have any other comments you'd like to add to that.

No. I mean I feel good about where we sit. I mean particularly as I look out into -- at our end markets that are in some of the longer-term megatrends that are driving the business.

As we very clearly say, we want 15% growth every year. This year, we're penciling in around 20%. Last year, we were at 29%. We think our model is tracking as we expected. So yes, we'd expect, assuming we stay on plan, we would exceed that well before the 5 years.

The next question will be coming from the line of Jeff Van Sinderen of B. Riley Securities.

Let me add my congratulations. Just as a follow-up to the last question, as you plan for 2026, what are your thoughts on building incremental P&L leverage for the enterprise as a whole? And maybe thoughts on potential for EBITDA margin expansion just for next year. Are there any anomalous things that we need to keep in mind that might skew that either way?

Yes, I'll start, Jeff. I mean I want to be careful, we're not in a position where we're going to share 2026 guidance today. But I don't think of anything anomalous. I'm just sort of thinking through a couple of things. I mean when I think about our corporate structure that we have here in Charlotte, I mean, we're scaled, I think, appropriately today and really not a need to continue to really add to that as we scale the business.

So clearly, I think next year, we are going to have some start-up costs related to HVAC. We've got a little bit of that in this year, with respect to some of the initiatives we have underway regarding the data center development of some of the new technologies there, the new plants that will be coming online. So that's -- while the first was kind of a positive, that's something that has potential to be a bit of a potential drag. But it shouldn't be a material number really when I think about the margin profile for next year.

I mean what I would say is I feel very good about what we've done over the last few years, whether it's kind of driving the margin profile of the HVAC business up to where it is, and similarly, returning the D&M business to the margin profile that it once was a number of years ago. So as I look forward, you think about, as you continue to grow the top line, we should get operating leverage there.

Okay. Great. And then you've touched on potential pushouts in the data center market. Given the nature of that data center beast, on the flip side, are you seeing any pull forwards in demand from any projects there?

Yes. I would say it's a it's a very fast-moving, fluid environment where, yes, there are some things that accelerate and can move, yes, can definitely move up well earlier than planned. In some cases, you have some of these colos that will get a facility and they'll set up a location and then they want to get a customer or a major tenant. And once they get it, all of a sudden, they're moving 90 miles an hour.

And so yes, we do see things moving in both directions there. It is a very fast-moving market, with a lot of activity and a lot of -- it's a very dynamic market, as you might expect, with the amount of growth that's going on in that market. But yes, we have seen it move forward as well as seeing some of the normal project delays.

Thanks for taking my question, and continued success.

And the next question will be coming from the line of Steve Ferazani of Sidoti.

It's been a long call, so I'll try to ask you a couple of easy ones. Very strong free cash flow in 3Q. I know you had already tipped off the fact that all the cash -- the remaining cash costs related to the long-ago discontinued ops were taken last year. Nevertheless, much stronger cash flow this quarter.

You've got the balance sheet in great shape now. But I'm looking at my model, in 4Q, if you get the typical working capital reversal that you usually get, you're looking at significant cash flow in 4Q given that you've already cleaned up that balance sheet. You're looking at a number, and I'm sure you -- my number is not far off of yours, how are you thinking about using that 4Q cash?

Yes. I think your -- well, I don't know your number, your presumption is correct.

I don't want to give it, but it's sizable.

Yes. Listen, I mean, it comes back to the M&A pipeline that we have in front of us, right? I mean we feel really good about the opportunities ahead of us. And that's just part of the pool of capital that will be available to us to drive the value creation. And obviously, we've got the plant expansion. We haven't sized that yet, but we'll certainly -- that will be part of the overall deployment of capital.

Okay. And Gene, let me follow up a question that was asked earlier because, obviously, you are getting asked about M&A opportunities and size. And I know you've talked previously and we've discussed this, that if you go larger, typical the multiples get higher. I mean so much of your success over the last few years has been paying very reasonable multiples for acquisitions. And I think investors want to hear that you're going to maintain that kind of discipline around businesses you know really well and paying that 10 to 12x.

Given the balance sheet is so much cleaned up given your access to capital, is there an itch to go higher to find the right deals? Or do you expect to maintain that kind of discipline?

No, I think if you look at -- I mean, it's a great question. I think that our model has really worked. And I think our average multiple has been in the neighborhood of 11x. We typically get 1.5, 2 turns. So you kind of get it under your roof at 9x, which is a really good value, when you think of our average EBITDA that we've acquired is 20% and these have also been accretive on growth rates. Not to mention the most important point, the whole purpose of how we do M&A is to really strengthen our competitive position and to be able to expand.

So yes, I think I don't see any deviation from our strategy. Typically, if you see a smaller deal, in the $50 million range, something like that, it will be a turn or 2 lower. If you see a larger deal that has more established management teams, more established IT systems, products, channels, is lower risk, you typically see is always going to be a turn or 2 higher. But the flip side of that is you can typically get some more leverage and some more synergy when you have a larger organization like that.

So yes, I think that our model has not changed. We do see deals that -- and this is probably more in the Detection & Measurement side, you can see deals going for 19x, 20x. That's just not us. That's just not -- that's not who we are. We really do focus on cash returns. And yes, I would -- our model is going to stay. We're executing the same strategy that we did a year ago, Steve.

That concludes today's Q&A session. I would now like to turn the call back over to management for closing remarks. Please go ahead.

Thanks, operator.

That concludes today's conference call. You may all disconnect.