SPX Technologies, Inc. (NYSE:SPXC) Q4 2022 Earnings Call Transcript

Steve Ferazani: Good evening Gene. Welcome Mark. I do want to follow-on that last question in terms of how the €“ how well you are now positioned to hitting those SPX 2025 targets. I think we are at now almost 10 months, 11 months since the last significant acquisition. I know they hit when they hit, but any reason to start pushing that back given that the length of time between the most recent acquisition?

Gene Lowe: Steve, I don’t believe so. I think you are spot on. It was a slow year. Really, the only bolt-on we did was IPL. That was our slowest year in 4 years. There is various reasons for that. One of the ones I will point out was the magnitude of the sale of our asbestos liabilities where we had to reorganize the company, restructure, sale, did consume a lot of management time and attention. In addition to various things that happened during the year that we don’t give color on what didn’t happen, I guess you could say. But what I would say is that I feel very good about 2025, and I feel very good about our pipeline. So, we have a very strong balance sheet. We are sitting here at 0.4x net debt, and we think we have some very smart ways to deploy that going forward. And so really, it’s up to us in executing it. But yes, I don’t €“ to answer the primary part of your question, I don’t feel we need to move back our 2025 targets.

Steve Ferazani: Great. Thanks. And then also on capital allocation, Mark, you noted that you expect more of a normalization in terms of working capital, which would indicate much stronger cash flow in 2023. Any thoughts outside of M&A, would you be looking at debt reduction or anything else you might want to do with that what should be increasing cash flow?

Mark Carano: Yes. I mean I think listen, as Gene kind of alluded to, right, our first focus is on growth, whether that would be organic investing in the business in CapEx or inorganic and driving the business in that method. I think with respect to other return of capital options, we have repurchased shares in the past. That was at a unique moment where we felt like the stock was undervalued at that time. And clearly, we will have a keen eye on that and wouldn’t rule that out as an option. But I wouldn’t say it’s sort of a primary focus at the moment with respect to deployment of capital.

Gene Lowe: Yes. I would say we kind of have allocated up to 10%. And I think that’s always out there. If we see dislocation in the stock, which we had last year, I think we are very comfortable, but we do see some very attractive growth opportunity, I think so.

Steve Ferazani: On that note, it sounds like CapEx is a little bit higher this year, $25 million.

Mark Carano: That’s right. And we are looking €“ yes, we are looking at some various growth opportunities. We have probably leaning a little bit more towards the HVAC business, both heating and cooling at the plant level, where there are some strong opportunities to improve our overall throughput, efficiency and growth rates. So, that’s what I don’t anticipate that, that will be sort of a permanent feature of our cash flow. But for this year and perhaps next year, you might see a little bit of an elevated level while we make those investments.

Steve Ferazani: Great. If I could squeeze one last one in. Just to go back to the really healthy HVAC margins this quarter, and you talked about working for more backlog. But as I recall a quarter ago when you were guiding and there was some caution there that you were going to see some older priced backlog work through. I am just trying to figure out how that kind of worked itself out.

Mark Carano: Sort of how that syncs with our €“ with the margins that we