Spx Technologies, Inc. · NYSE:SPXC
Spx Technologies — Investor Presentation (July 2018)
64 slides from Spx Technologies's investor presentation, Jul 10, 2018
Slide 1: Forward-looking statements disclaimer
July 2018 2 Certain statements contained in this presentation that are not historical facts, including any statements as to future market conditions, results of operations, and financial projections, are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1
Slide 2: Executive Management
Executive Management Gene Lowe President and CEO Scott Sproule VP, CFO and Treasurer July 2018 3
Slide 3: SPX Corporation Overview
SPX Corporation Overview July 2018
Slide 4: Company Overview
Company Overview SPX Corporation Headquartered in Charlotte, NC A leading supplier of: HVAC products, Detection & Measurement technologies, and Engineered Solutions ~$1.4b Core Revenue* in 2017 ~5,000 employees NYSE Ticker: SPXC 2017 Core Revenue* by Region 8% 5% 87% SPX is a Leading Supplier of HVA
Slide 5: Executive Highlights
Executive Highlights Well-positioned to invest for sustainable double digit earnings growth Solid FCF* conversion 100% to 110% of Core net income >$400M remaining available capital to deploy through 2020 Solid platform to expand (products, markets, channels) Completed two proprietary acquisitons YTD
Slide 6: Strong Brands and Attractive Market Dynamics
Strong Brands and Attractive Market Dynamics *Non-GAAP financial measure. Note: Core results are non-GAAP financial measures that exclude the results of the South African projects. (1) Weil-McLain, a division of The Marley-Wylain Company July 2018 7 2017 Core Revenue* ~$1.4B Management Estimates (1)
Slide 7: Key Product Offerings and Financial Profile by Segment
Key Product Offerings and Financial Profile by Segment Locators Fare collection systems Communication technologies Obstruction lighting Package cooling units Fluid coolers Residential and Non-Residential Boilers Electrical heating products Power transformers Cooling towers Heat exchangers 2017: $511
Slide 8: Transformation of SPX (Core) – 2015 Through 2017
$ Ms (except per share data) 2015 1 2017 Core revenue $1,692 $1,397 % Power generation end markets >30% <10% Core segment income % 8.0% 13.1% Adjusted operating income 2 % 3.7% 8.6% South African projects (Status) 3 of 5 scopes remaining 1 of 5 scopes remaining FCF conversion Nominal 118% Debt/EBITD
Slide 9: SPX Margin Transformation
SPX Margin Transformation Actions Taken Since Spin Have Significantly Strengthened SPX’s Financial Profile *Non-GAAP financial measure. Excludes the results of the South African projects. Adjusted EPS* N/A $1.10 $1.47 $1.78 $2.15-2.25 $2.65-2.90 July 2018 10 $1.75B Revenues $1.38-$1.43B Reflects man
Slide 10: Updated Value Creation Roadmap
Updated Value Creation Roadmap SPX Business System Organic Growth Culture & Values Inorganic Growth New products New channels Adjacent markets Focus in HVAC and D&M Significant capital to deploy Large target pipeline Policy deployment Operational excellence Due diligence/integration Leadership devel
Slide 11: Updated Value Creation Roadmap
Updated Value Creation Roadmap Organic Growth + New products + New channels + Adjacent markets DETECTION & MEASUREMENT ENGINEERED SOLUTIONS + Focus in HVAC and D&M. + Significant capital to deploy + Large target pipeline ‘SPX Business System + Policy deployment + Operational excellence + Due diligen
Slide 12: Segment Overview
Segment Overview July 2018 SPX
Slide 13: HVAC Segment Overview
2017 Revenue by Product 2017 Revenue by Geography 87% 5% 8% HVAC Segment Overview July 2018 14 Strong Product Brands and Leading Market Positions Across HVAC Heating and Cooling Product Portfolio ($ millions) Segment income % $511m 14.5% Segment GM% 34% 32% + ~200 bps Segment EBITDA $86 $80 + ~10% .
Slide 14: Strategic Growth Initiatives – HVAC
Strategic Growth Initiatives Several Attractive Opportunities to Expand and Grow HVAC Platform Channel Development Operational Excellence Commercialize NC Everest (Cooling) Grow Evergreen (high-efficiency boiler) Expand refrigeration – Evaporative Condenser; LS Fluid Cooler Grow combi-boilers (Aquab
Slide 15: Cooling Products Overview
Cooling products used in non-residential, commercial construction, process cooling and refrigeration applications Well-recognized product brands: Marley and Recold Well-established sales channel including reps and distributors Demand generally follows construction trends (e.g., Dodge Index) Approxim
Slide 16: Cooling Product Examples
Cooling Product Examples July 2018 17 Strong Product Portfolio of Cooling Technologies with Opportunity for Expansion Marley NC Cooling Tower High efficiency Low drift rates Quiet by design Long-life construction Recold Fluid Cooler High performance design Low cost of ownership
Slide 17: Cooling - Key New Products
Cooling - Key New Products Strong Brand Identity and Well Established Channel Support a Broader NPI Impact Marley MD Everest Tower Launched in July 2018 for larger applications 85% more cooling capacity than any other pre-assembled tower Installation 80% faster than field erected cooling towers Marl
Slide 18: Heating Products Overview
North American businesses with strong brands Products used in residential and non-residential markets and sold primarily through distributors Demand for boiler systems is seasonal: Concentrated in the fourth quarter Approximately 80% replacement revenues 2017 Revenue Breakdown Heating Products Overv
Slide 19: Heating Product Examples
Heating Product Examples Broad Product Offering of Heating Solutions for Residential and Light Commercial Applications Commercial Boilers High efficiency natural gas Standard cast iron Digital wall heaters Aluminum convection heaters Wash-down, corrosion resistant heaters Residential Boilers High ef
Slide 20: Heating – Key New Products
Growth Oriented Initiatives Evergreen® floor standing/wall mount modulating condensing boiler, launched in Q3 2015: 95% efficiency meets Department of Energy regulations and achieves Energy Star rating to maximize customer rebates Sizes cover residential and light commercial applications 2016 Dealer
Slide 21: Heating — Key New Products
Heating — Key New Products HVAC v3) New Product Development: Weil-Mctain") ‘ondensing Boiler = Evergreen® floor standing/wall mount modulating condensing boiler, launched in Q3 2015: a 95% efficiency meets Department of Energy regulations and - achieves Energy Star rating to maximize customer rebate
Slide 22: Detection & Measurement Segment Overview
2017 Revenue by Product 2017 Revenue by Geography 69% 23% 8% Detection & Measurement Segment Overview July 2018 23 Long-Term Targets Include 2% to 6% Annual Organic Revenue Growth and Moderate of Margin Expansion ($ millions) Segment income % 22.5-23.5% Segment GM% 46% 46% Moderate Decline Segment E
Slide 23: Strategic Growth Initiatives – Detection & Measurement
Strategic Growth Initiatives Several Attractive Opportunities to Expand and Grow Detection & Measurement Platform Upgrade Installed Base Operational Excellence Scale new GPS-enabled locator Grow fare-collection solutions platform Build out geographic and vertical channels New LED Red lighting soluti
Slide 24: Radiodetection Overview
Based in the U.K., a leading global supplier of underground cable and pipe locators, and inspection equipment Continuous new product enhancement and loyal customer base Key demand drivers: Global infrastructure growth Construction growth Health & Safety Legislation Radiodetection Overview July 2018
Slide 25: Radiodetection – Key New Products
Radiodetection – Key New Products New Product Introduction Continues to Drive Radiodetection’s Performance Video Inspection Cable Avoidance Pipeline Mapper July 2018 26
Slide 26: Communication Technologies Overview
TCI : A leading global supplier of spectrum monitoring, communication intelligence and geolocation technology Flash Technology: A leading North American supplier of obstruction lighting products Key demand drivers: Global growth of wireless usage Increased spectrum provisioning and monitoring Anti-t
Slide 27: SMS & Communications Intelligence Products
SMS & Communications Intelligence Communication Technologies Products Our Communication Technologies Solutions are Adapting to Serve Evolving and Complex Customer Needs Flash Lighting Systems July 2018 28
Slide 28: Genfare Overview
A leading North American supplier in fare collection: Historical market position concentrated on fare box installations Rapidly evolving technology in the market has driven a transformation in our business: Evolved from “farebox supplier” to “fare collection system provider” Invested in software, pr
Slide 29: Genfare Products: Next Generation Fare Collection
Genfare Products: Next Generation Fare Collection Fare Collection Suite of Products Integrated with Back-End Support; We Believe This is The New Industry Standard e-Fare Point-of-Sale Fast Fare-e Legacy Farebox Cloud-Based Infrastructure Mobile Ticketing Fast Fare Farebox Service and Support Softwar
Slide 30: Genfare Products: Next Generation Fare Collection
Genfare Products: Next Generation Fare Collection MEASUREMENT, Legacy Farebox Fast Fare Farebox Fast Fare-e Fare Mobile Ticketing Point-of-Sale +s Mi Ges e @ Fare Collection Suite of Products Integrated with Back-End Support; We Believe This is The New Industry Standard Service and Support
Slide 31: Engineered Solutions (Core) Segment Overview
2017 Revenue by Geography Engineered Solutions (Core) Segment Overview July 2018 32 Large Installed Base, Strong Product Offering and Brands; Well-Positioned to Achieve Margin Improvement 96% 4% 0% ($ millions) Core income %* Engineered Solutions (Core) Revenue* Organic CAGR 2.0-3.0% *Non-GAAP finan
Slide 32: Strategic Growth Initiatives – Engineered Solutions
Strategic Growth Initiatives Several Attractive Opportunities to Grow Profitability of Segment Expand Market Presence Operational Excellence Broaden component offerings Commercialize proprietary load tap changer (LTC) Expand service and components More selective on process cooling projects Large vol
Slide 33: Transformer Business Overview
Transformer Business SPX is a leading supplier of power transformers into North America with strong brand equity Customers include: Public and private electric utilities Independent power producers Large industrial sites Two primary manufacturing locations: Waukesha, WI Goldsboro, NC Service and Com
Slide 34: Transformers Overview - North American Market
Demand largely driven by replacement of aging installed base: Average age of installed base is ~40 years Electricity demand has been flat over the past decade, however new T&D construction continues driving demand for power transformers: Utility-scale solar and wind grid connections New capacity of
Slide 35: Transformer Product and Service Examples
Transformer Product and Service Examples Leading North American Supplier of Medium Power Transformers Transformer Service Large Power (High Voltage) Transformer July 2018 36
Slide 36: Process Cooling Overview
Based in the U.S., a leading global manufacturer of cooling towers and parts & components Continuous new product enhancements and exceptional quality equipment for more than a century Large installed base in U.S. and abroad Growing component and aftermarket opportunities Greater selectivity in proje
Slide 37: Process Cooling – Key New Products
Process Cooling – Key New Products Aftermarket Service and Components is Focus Area of New Product Initiatives Gear Reducer Heat Transfer Media Air Flow Components TBD July 2018 38
Slide 38: Financial Position & Capital Allocation
Financial Position & Capital Allocation July 2018
Slide 39: Capital Allocation Discipline
Capital Allocation Discipline July 2018 40 Methodology Expected Outcome Utilize strategic planning process to evaluate future revenue and earnings growth Quantify projected future cash flows and estimate total company valuation Maintain target capital structure Net Debt to EBITDA(1) target range: 1.
Slide 40: Capital Structure
Capital Structure July 2018 41 ($millions) Q4 2017 Q1 2018 Short-term debt $7.0 $6.8 Current maturities of long-term debt 0.5 4.9 Long-term debt 349.3 344.9 Total Debt $356.8 $356.6 Less: Cash on hand (124.3) (103.7) Net Debt $232.5 $252.9 * Calculated as defined by SPX’s credit facility agreement.
Slide 41: Cash Flow & Liquidity
Cash Flow & Liquidity July 2018 42 *Calculated as defined by SPX’s credit facility agreement. Net debt subtracts cash in excess of $50 million. ** Uses gross debt and LTM EBITDA as defined by SPX’s credit facility agreement. ($ in millions) Note: Core results are non-GAAP financial measures that exc
Slide 42: SPX Acquisition Approach
SPX Acquisition Approach July 2018 43 Qualitative Focused on building existing platforms Existing markets or close adjacencies Engineered products Attractive growth opportunities Secular growth drivers Fragmented market with consolidation opportunities Differentiated offering through technology, bra
Slide 43: Strategic Impact of Acquisitions
Strategic Impact of Acquisitions July 2018 44 Radiodetection Global Leader in Locators Schonstedt Market Leading Magnetometer Products Strengthens Global Leadership in Location Equipment Radiodetection Inspection Equipment CUES Market Leading Inspection Equipment Global Leader in Inspection Equipmen
Slide 44: Schonstedt Overview
Company Profile 2017 Sales: $9M Purchase multiple*: <7x post-synergies Description: Manufacturer of magnetic locator products used for locating underground utilities and other buried objects. Acquisition Rationale: Strengthens Detection & Measurement Highly complementary locator technology Market le
Slide 45: CUES Overview
CUES Overview July 2018 46 Company Profile 2017 Sales: ~$86M Purchase multiple*: <10x post-synergies Description: Leading manufacturer of inspection and rehabilitation equipment. Acquisition Rationale: Strengthens Detection & Measurement Significantly increases presence in inspection market Market l
Slide 46: Impact of Acquisitions on Segments – 2018 Pro Forma
Impact of Acquisitions on Segments – 2018 Pro Forma* July 2018 47 Detection & Measurement Becoming Most Profitable Segment Cable & Pipe Location & Inspection EBITDA Margin ~17% ~24% ~10% Note: Core results are non-GAAP financial measures that exclude the results of the South African projects. *Based
Slide 47: 2016-2018 SPX Adjusted EBITDA Performance
2016-2018 SPX Adjusted EBITDA Performance Continuous Delivery of Value Creation Since Spin July 2018 48 *Non-GAAP financial measure. Reconciliation to its nearest US GAAP financial measure is available in the Appendix of the presentation. ~10% Higher + ~40 bps ($ MMs) Reflects management view as of
Slide 48: 2016-2018 SPX Adjusted EBITDA Performance
2016-2018 SPX Adjusted EBITDA Performance soumemneannees GOR SPX Adjusted EBITDA Adjusted EBITDA Margin % $s Mid ne eae id Wigher aa tom Hs $150 12% 10% $125 sus 10% | 9% $100 | 126 8% $78 6% $50 4% $25 % $0 0% 2016A* —-2017A* 2018-2018 Exit 2016A* 20174" ——-2018E_—-2018 Exit Rate with Rate with Sch
Slide 49: Long-Term Financial Targets
Long-Term Financial Targets (all targets are Non-GAAP financial measures) July 2018 50 >$400M of Capital Available to Deploy Through 2020; Clear Line of Sight to Sustainable Double Digit Adjusted EPS Growth 2020 Financial Targets $1.7 - $1.8B Core Revenue 10.5-11.5% Adjusted Operating Income Margin
Slide 50: Long-Term Financial Targets
Long-Term Financial Targets (ail targets are Non-GAAP financial measures) SPX 2020 Financial Targets = $1.7 -$1.8B Core Revenue = 10.5-11.5% Adjusted Operating Income Margin = $2.65 - $2.90 Adjusted EPS | | | = $2.90 - $3.10 Adjusted EPS excluding M&A amortization = 100-110% FCF Conversion of Adjust
Slide 51: SPX Key Value Creation Accomplishments
SPX Key Value Creation Accomplishments Substantial Progress Achieved on Key Value Creation Initiatives Growing in Adjacent Markets New evaporative condenser product (industrial refrigeration) Expanding Product Breadth New high-efficiency boiler (residential heating) Innovating Transformative Solutio
Slide 52: 2018 Adjusted EPS Guidance - Key Drivers
2018 Adjusted EPS* Guidance - Key Drivers 53 Commercial Growth Decelerates Commodity Inflation/Pass-Throughs Warmer Winter Weather Lower Interest Rates Colder Winter Weather Commercial Growth Accelerates $2.25 $2.15 $2.20 High Case Base Case Low Case Favorable Economic Policy/Infrastructure Stimulus
Slide 53: 2018 Modeling Considerations
2018 Modeling Considerations Metric Commentary/Assumptions Corporate costs Low $40Ms Long-term incentive comp $16-17M Restructuring costs $1-2M Interest cost $19-20M, including $2.5M related to acquisition financing Equity earnings, other $2M Tax rate Approximately 22% effective rate; maintaining lo
Slide 54: Organic Segment Financial Targets (Core)
Organic Segment Financial Targets (Core) July 2018 55 HVAC Detection & Measurement Engineered Solutions (Core)* SPX Total (Core)* 2017 Revenue $511 $260 $625 $1,397 Long-term Modeling Target Organic Revenue* CAGR Business Model Change Total Revenue Growth +2% to +4% - +2% to +4% +2% to +6% - +2% to
Slide 55: Engineered Solutions Business Model Shift – Pro Forma Revenues
Engineered Solutions Business Model Shift – Pro Forma Revenues Baseline Growth of 2% to 3% 56 July 2018 Note: Pro Forma for illustrative purposes only. Based on management estimates. 2017 Future Baseline Baseline $540 - 560m $60 - 80m Business model change Baseline growth of 2 - 3% Baseline
Slide 56: South African Projects Overview
South African Projects Overview July 2018 57 These Two Power Stations Expected to Add ~10 GW of Power Capacity When Completed Medupi & Kusile Power Stations Two mega-projects sites: Twelve 800 mega-watt coal-fired plants (six at each project site) Total project value of ~$1.3B (>85% complete) Eskom
Slide 57: South African Projects Status
South African Projects Status Estimate of Cash Usage Through Completion of $25-$30 Million 2016 2017 2018 2019 2020 Scope 3 Scope 4 Scope 5 $33M 2016 $49M 2017 $25-$30M 2018 through Completion 2015 Cash Usage*: Scope 1 Scope 2 2015 2016 2017 2018 2019 2020+ Pre-2015 Substantial Completion by End of
Slide 58: Full-Year Gross Margins to U.S. GAAP Reconciliation
Full-Year Gross Margins to U.S. GAAP Reconciliation July 2018 59 (1) For the three and twelve months ended December 31, 2017, we made revisions to our estimates of expected revenues and costs on our large power projects in South Africa. As a result of these revisions, we reduced revenues for the pro
Slide 59: Full-Year EBITDA to U.S. GAAP Reconciliation
Full-Year EBITDA to U.S. GAAP Reconciliation July 2018 60 (1) For the three and twelve months ended December 31, 2017, we made revisions to our estimates of expected revenues and costs on our large power projects in South Africa. As a result of these revisions, we reduced revenues for the projects d
Slide 60: Full-Year Adjusted EBITDA to U.S. GAAP Reconciliation
Full-Year Adjusted EBITDA to U.S. GAAP Reconciliation July 2018 61 ($ millions) (1) For the twelve months ended December 31, 2017, we made revisions to our estimates of expected revenues and costs on our large power projects in South Africa. As a result of these revisions, we reduced revenues for th
Slide 61: Engineered Solutions (Core) Segment Income to U.S. GAAP Reconciliation
Engineered Solutions (Core) Segment Income to U.S. GAAP Reconciliation July 2018 62 Note: Core results are non-GAAP financial measures that exclude the results of the South African projects. Additionally, Q3 2017 Core segment income also excludes a gain related to contract settlement within our Engi
Slide 62: Full-Year 2017 U.S. GAAP to Adjusted EPS Reconciliation
Full-Year 2017 U.S. GAAP to Adjusted Earnings Per Share Reconciliation July 2018 63 ($ millions, except per share values) GAAP Adjustments Adjusted Segment income (1) 124.9 $ 57.8 $ 182.7 $ Corporate expense (46.2) — (46.2) Pension and postretirement income (expense) (0.3) — (0.3) Long-term incentiv
Slide 63: Full-Year 2016 U.S. GAAP to Adjusted EPS Reconciliation
July 2018 64 ($ millions) Full-Year 2016 U.S. GAAP to Adjusted Earnings Per Share Reconciliation GAAP Adjustments Adjusted Segment income (1) 142.8 $ 14.5 $ 157.3 $ Corporate expense (41.7) — (41.7) Pension and postretirement income (expense) (2) (15.4) 16.0 0.6 Long-term incentive compensation expe
Slide 64: U.S. GAAP to Core Free Cash Flow from Continuing Operations
a U.S. GAAP to Core Free Cash Flow from Continuing Operations SPX (smo) [Net operating cash flow fiom continuing operations. s 42 Capital expenditures - continuing operations ao, Free cash flow used in continuing operations Adjustment for South A ican projects 495 (Core free cash flow from continuin