Spx Technologies, Inc. · NYSE:SPXC
Spx Technologies — Investor Day (March 2019)
70 slides from Spx Technologies's investor day presentation, Mar 5, 2019
Slide 1: SPX Corporation 2019 Investor Event
SPX Corporation 2019 Investor Event March 5, 2019 New York City SPX Corporation 2019 Investor Event - New York
Slide 2: Forward-looking statements disclaimer
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 1934, as am
Slide 3: Agenda
Agenda Welcome and Introductions Paul Clegg SPX’s Value Creation Journey Gene Lowe Organic Growth and Improvement Strategy John Swann Inorganic Growth Strategy Franklin McClelland SPX Business System Randy Data Financial Structure and Capital Allocation Scott Sproule Q&A All SPX Corporation 2019 Inv
Slide 4: Speaker Introductions & Topics
Speaker Introductions & Topics Gene Lowe Randy Data, President, Global President and CEO Operations & South Africa SPX’s Value Creation Journey SPX Business System John Swann Scott Sproule President, Heating, and Treasurer and CFO Location & Inspection Financial Structure and Capital Organic Growth
Slide 5: SPX's Value Creation Journey
SPX’s Value Creation Journey Gene Lowe President and CEO SPX Corporation 2019 Investor Event - New York
Slide 6: Why SPX? Sustainable Double Digit EPS Growth with Strong Cash Conversion
Why SPX? Attractive Core Well positioned key platforms in growth markets Growth Favorable secular trends and business mix; growth initiatives in early innings Cash Flow >110% conversion of adjusted net income* Business System Consistent repeatable process to drive improvement Anticipate ~$500m of ca
Slide 7: SPX at a Glance – 2018
SPX at a Glance – 2018 REVENUE EBITDA MARGIN* Cooling towers Boilers $582m 16% REVENUE FROM Electrical heating ~70% REPLACEMENT SALES Location & inspection $321m * * 27% Fare collection Communication technologies REVENUE FROM ~90% #1 OR #2 MARKET POSITION† Transformers $537m 9% Proce
Slide 8: Attractive Market Dynamics
Attractive Market Dynamics FAVORABLE & BALANCED DEMAND DRIVERS GROWTH RATES IN KEY END MARKETS (Industry 5yr CAGR estimates) Heating 2% ~70% Commercial Building 3% Replacement Water 5% Revenue* Transportation 4% Telecom 4% 0% 2% 4% 6% 8% Based on external industry and economic estimates with managem
Slide 9: Value Creation Framework
Value Creation Framework Organic Growth SPX Business System • New products • Policy deployment • Channel expansion • Operational excellence • Adjacent markets • Due diligence/integration Inorganic Growth Culture & Values • Focus in HVAC and D&M • Leadership development • Significant capital to deplo
Slide 10: Impact of Value Creation Framework
Impact of Value Creation Framework Adj EPS $3.00 CUES 2020 Midpoint Acquisition Sabik Acquisition Acquisition Sale of 2018 Adj European EPS $2.27* Power Gen SPXC SHARE 2017 Adj Sale of PRICE EPS $1.75* Global Dry Cooling 2016 Adj Spin off EPS 1.47* Build 2015 Adj Improve EPS <$1 Simplify *Non-GAAP f
Slide 11: Segment Revenue Transformation
Segment Revenue Transformation SPX CORPORATION ENGINEERED SOLUTIONS SEGMENT REVENUE CHANGES ($M) SEGMENT REVENUE CHANGES ($M) * $931 $537 ~3% Substantial CAGR Growth in $321* HVAC and $232 Detection & $529 $582 Measurement Underlying 2015* 2018 Growth† Model Shift Strategic exits† Divestitures/ Busi
Slide 12: Segment Income Transformation
Segment Income Transformation $90m 2018 $81m* 2018 $80m $35m 2015 2015 $46m 2018 2015 $10m* NEW PRODUCT INTRODUCTIONS NEW PRODUCT INTRODUCTIONS OPERATIONAL EXCELLENCE CHANNEL INITIATIVES ACQUISITIONS BUSINESS EXITS (POWER GEN) OPERATIONAL EXCELLENCE OPERATIONAL EXCELLENCE FOCUS ON
Slide 13: Recent Inorganic Investments
Recent Inorganic Investments Global Leader in Inspection Equipment Radiodetection CUES Market Leading Inspection Equipment Inspection Equipment Strengthens Global Leadership in Engineered Specialty Lighting Flash Technology Obstruction Sabik Market Leading Lighting Equipment Marine Lighting Products
Slide 14: Attractive Platforms For Growth & Margin Expansion
Attractive Platforms For Growth & Margin Expansion ’19 EBITDA $95-100m $95-100m $50-55m Process Cooling Transformers Transportation Communication Technologies Heating Cooling Inspection Location & ‘19 GM% Low 30%s Mid-40%s Mid-teens FOCUS ON INORGANIC GROWTH ORGANIC GROWTH & CONTINUOUS MARGIN ENHANC
Slide 15: Value Creation Framework
Value Creation Framework Organic Growth SPX Business System • New products • Policy deployment • Channel expansion • Operational excellence • Adjacent markets • Due diligence/integration Inorganic Growth Culture & Values • Focus in HVAC and D&M • Leadership development • Significant capital to deplo
Slide 16: SPX – Well Positioned for Continued Value Creation
SPX – Well Positioned for Continued Value Creation Well- Capital Growth Positioned Allocation Business Initiatives in Growth (~$500m System Early Innings Platforms thru 2020) Sustainable Double Digit EPS Growth with Strong Cash Conversion SPX Corporation 2019 Investor Event - New York March 5, 2019
Slide 17: Organic Growth & Improvement Strategy
Organic Growth & Improvement Strategy John Swann President, Heating and Location & Inspection SPX Corporation 2019 Investor Event - New York
Slide 18: SPX Organic Growth Focus
SPX Organic Growth Focus Built into goal deployment with KPIs for each business unit and functional group Critical component of multi year strategy process including key initiatives and product / service roadmaps Product management / channel management as key competency focus for best practice
Slide 19: Growth Toolkits
Growth Toolkits Channel New Product • Advanced analytics to • Voice of customer maximize market coverage • Reduced complexity • “80/20” approach to (quality, delivery, cost) increase key account & • Rapid speed to market wallet share conversion • Impactful launch • Contractor and specifier “pull” st
Slide 20: Channel Management Toolkit
Channel Management Toolkit Who should we do business with? Which How do we align channels best incentives with capture end- our channel user share? partners? How can we How do we generate pull- support our through channel demand? partners? SPX Corporation 2019 Investor Event - New York March 5, 2019
Slide 21: New Product Development Toolkit
New Product Development Toolkit Prioritize opportunity Application -based spaces Segmentation Innovate Organize Customer- “Strong Form” around for Product driven Product customer success Management Specs needs Lean NPD Marketing Process Maximize Campaigns Discipline De-risk launch development impact
Slide 22: Toolkit Execution Examples
Toolkit Execution Examples HVAC Heating Location & Inspection * New boiler introductions Channel expansion/penetration New product introductions Channel expansion/penetration *Weil-McLain is a division of the Marley-Wylain Company, Inc. SPX Corporation 2019 Investor Event - New York March 5,
Slide 23: Key Product & Commercial Initiatives (Boilers)
Key Product & Commercial Initiatives (Boilers) Results Launch New High Efficiency Lines: New Extend portfolio to broadest in • Expanded line coverage by 30%* Products 1 since 2015 industry Channel & Coverage Strategy: • Designed and launched best-in- Channel 2 Capture high efficiency share with clas
Slide 24: Product Development Example – High Efficiency Boilers
Product Development Example – High Efficiency Boilers • Seven new product introductions in the high efficiency boiler category since 2015 • New launches have expanded addressable market coverage from 64% to 95%* • Established “Good, Better, Best” line structure in Residential segment • Only boiler O
Slide 25: Channel Management Example – Commercial Electric Heat
Channel Management Example – Commercial Electric Heat Commercial Project Funnel Engage Earlier Leverage Tools & Metrics See More* Quote More* – Win More* Analytics-driven lead Submittal and Quote tools generation Prioritized support for sales E-heat system integration teams Top of Funnel Foc
Slide 26: Product Development Example – Location & Inspection
Product Development Example – Location & Inspection • Twelve new product introductions since 2015 • Application-specific product launches tailored to high value market segments Radiodetection • Introduced cloud-based asset C.A.T. Manager Online management software solutions to CUES GraniteNet improv
Slide 27: Overall Strategy Impact
Overall Strategy Impact • Share growth across all major heating categories in 2018* • Averaged double digit growth in high value Channel Commercial Electrical spec volume since 2015 • Increased boiler product vitality index by 76% and locators by 500% since 2015 • Strong momentum in applying toolkit
Slide 28: Other Enterprise Organic Initiative Examples
Other Enterprise Organic Initiative Examples Channel management and product development best practices Global Sales Everest Product Product & Business Coverage Model Innovation Model Innovation Developing and executing against strategies across other organic growth initiatives Aftermarket / Data ana
Slide 29: Inorganic Growth Strategy
Inorganic Growth Strategy Franklin McClelland VP, Business Development & Strategy SPX Corporation 2019 Investor Event - New York
Slide 30: SPX Acquisition Approach
SPX Acquisition Approach Aligns with strategic priorities Strengthens competitive positions EPS Accretive Adjusted EPS accretion by year 1; GAAP by year 2 Double Digit Cash ROIC (3-5 yrs) Growth and synergies to drive strong returns SPX Corporation 2019 Investor Event - New York March 5, 2019 30
Slide 31: SPX M&A Philosophy
SPX M&A Philosophy STRATEGIC FOCUS AREAS Build core scale Enhance capabilities / technologies Invest in adjacent platforms TARGET TRAITS Differentiated leadership Highly engineered products Creates scale and optionality across our platforms “Fit” with SPX culture SPX Corporation 2019 I
Slide 32: Scalable, Repeatable M&A Value Creation Model
Scalable, Repeatable M&A Value Creation Model Strategy-led, tied to Relentless focus on long-term goals sources of value Clear alignment and SUCCESSFUL, Integration starts accountability early VALUE-ACCRETIVE ACQUISITIONS Proactive and Consistent/objective decisive assessments Strategic Fit + Repeat
Slide 33: Completed Deals - Assessment
Completed Deals - Assessment Where We Are Focused What We Look For CORE PLATFORM NICHE PLATFORM CULTURAL SCALE TECHNOLOGY ADJACENCY MARKETS SCALE FIT Completed Deals Good Examples of M&A Focus Areas / Approach SPX Corporation 2019 Investor Event - New York March 5, 2019
Slide 34: Inspection & Location – Platform Development
Inspection & Location – Platform Development Expansion/Growth Vectors Market leading position – Extend inspection underground location Geography sales focus Global market strength Municipal / utility customers Other “buried Data analytics +$200M revenue Product infrastructure” areas base with st
Slide 35: Communication Technologies – Platform Development
Communication Technologies – Platform Development Expansion/Growth Vectors Market leading Offshore wind / Mission critical comms systems Vertical oil & gas / military Regulated specifications Rugged telecom/land-based Regional build out, operating environments +$125M revenue Geographic global ex
Slide 36: Roadmap for Path Forward
Roadmap for Path Forward BUSINESS KEY CORE PLATFORM AREA BRANDS SCALE TECHNOLOGY ADJACENCY COMMENT Heating Weil-McLain, Build on strong brands, Marley channel HVAC Cooling Marley Several attractive adjacencies Inspection & Radiodetection, Several adjacent categories Detection & Measurement Location
Slide 37: Business System
Business System Randy Data President, Global Operations & South Africa SPX Corporation 2019 Investor Event - New York
Slide 38: SPX Business System Overview
SPX Business System Overview Framework for how Goal Employee engagement Talent we operate SPX Deployment Management and development SPX Business System Business analytics Business Operational Best practices for and standardization Excellence Excellence facility operations Driving Growth and Margin E
Slide 39: SPX Business System Evolution
SPX Business System Evolution 2015 Today Future State Holding Operating Company Company Goal Deployment Well developed process … early focus as we organized a new Company Business Excellence Reshaped portfolio, executing on growth strategy and applying process tools Talent Management Key resource ad
Slide 40: Goal Deployment
Goal Deployment Framework for how Goal we operate SPX Deployment SPX Strategic Planning Process Annual Operating Plan Business Key Performance Indicators (KPI’s) System Monthly Business Reviews Performance Management Establishes a Common Framework for how we Operate SPX Corporation 2019 In
Slide 41: Business Excellence
Business Excellence SPX Business Business System Business analytics Excellence and standardization Diligence and Integration Playbook Digital Transformation Sales/Channel Management New Product Development Developing Common Applications and Analytical Approaches SPX Corporation 2019 Investor
Slide 42: M&A Due Diligence and Integration Playbook
M&A Due Diligence and Integration Playbook Common processes that drive a consistent and proven approach Process Standard checklists to ensure key elements are covered Leadership resources who understand interdependencies People Business resources who drive value through execution Technolog
Slide 43: M&A Due Diligence and Integration Results
M&A Due Diligence and Integration Results Expected Acquisition Business Objective Primary Value Drivers Synergy Result Core Scale Channel Expansion Schonstedt Technology Enhancement Strategic Sourcing International Growth CUES Platform Scale Strategic Sourcing Production Enhancement Intern
Slide 44: Operational Excellence
Operational Excellence SPX Business System Best practices for Operational facility operations Excellence Continuous Improvement Strategic Sourcing Manufacturing Excellence Environmental Health & Safety Sustainability Driving Operational Efficiencies and Margin Improvement SPX Corporation 2
Slide 45: Business and Operational Excellence Success: CUES
Business and Operational Excellence Success: CUES Manufacturing Excellence Capacity expansion to support growth and insourcing Capacity rationalization to reduce cost and complexity Strategic Sourcing Logistics reductions through corporate contracts Vendor consolidation across business + Exp
Slide 46: Continuous Improvement and Manufacturing Excellence
Continuous Improvement and Manufacturing Excellence Manufacturing Excellence Framework Define Manufacturing Define the Strategy and Footprint Production Plan Stronger focus on facility output and efficiency Continuous Driving continuous improvement to a higher level Improvement Safety First Plan
Slide 47: Talent Management
Talent Management Employee engagement Talent and development Management SPX Business Leadership Development System Talent Acquisition Approaches Talent Health Assessment & Succession Planning Coaching & Career Planning Cultural Identity & Employee Engagement Building a Culture and Talent B
Slide 48: SPX Business System: Value Creation
SPX Business System: Value Creation Increase manufacturing throughput/efficiency COGS 1 – 2% Leverage strategic sourcing across company Cash Conversion Reduce overall working capital Drive continuous improvement and analytics in Target 1 – 2 X core and acquired businesses Synergy Benefit Sup
Slide 49: Financial Discussion & Capital Structure Analysis
Financial Discussion & Capital Structure Analysis Scott Sproule Chief Financial Officer & Treasurer SPX Corporation 2019 Investor Event - New York
Slide 50: Strong Progression Towards Targets – Profit Measures
Strong Progression Towards Targets – Profit Measures ADJUSTED SEGMENT INCOME ($M) 4 ADJUSTED EPS 250 $3.00 $207 ~$225 3 $2.58 200 $182 $2.27 Includes $157 Some Capital 2 $1.75 150 $1.47 Deployment 100 1 50 0 0 2016* 2017* 2018* 2019E 2020E 2016* 2017* 2018* 2019E 2020E *Non-GAAP financial measure. R
Slide 51: Strong Progression Towards Targets – Cash Measures
Strong Progression Towards Targets – Cash Measures 175 250 ADJUSTED EBITDA ($M) ADJUSTED FREE CASH FLOW ($M) 190% 155 20% ~$200 135 $123 200 170% CONVERSION % $170 14% 115 $139 13% 15% 150 $126 12% 95 150% 10% $75 $82 EBITDA % 9% 10% 75 >110% 100 120% 122% 130% 55 50 5% 35 107% 110% 15 0 0% -5 90% 2
Slide 52: South African Projects Status
South African Projects Status Pre-2015 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020+ 2020 Scope 1 Scope 2 Substantial Scope 3 Completion by End of Scope 4 2019 Scope 5 Cash Usage*: $33M $49M $24M Modest Cash Usage 2016 2017 2018 Through Final Construction Project Execution Finalizing / *Ne
Slide 53: Solid Underlying Revenue Growth
Solid Underlying Revenue Growth 2015-2018 Revenue* CAGR HVAC 3.5% Positive Organic Detection & Total SPX 4.6% Measurement 3.7% Engineered 3.3% Solutions † * Non-GAAP financial measure. Reconciliations from US GAAP financial measures are available in the appendix of the presentation. † Engineered Sol
Slide 54: Organic Segment Financial Targets
Organic Segment Financial Targets Adjusted Detection & Engineered SPX Total HVAC Measurement Solutions (Adjusted) 2019 Revenue ~$575m ~$390m ~$535m ~$1.5b Long-term Modeling Target Total Organic Revenue Growth 2% to 4% 2% to 6% 2% to 3% 2% to 4% 2019 Segment Income† % 15.5-16.0% 23-24% ~8% ~15% Long
Slide 55: Capital Allocation Philosophy
Capital Allocation Philosophy Maintain Service Debt/ Leverage of Legacy 1.5-2.5x Obligations CAPITAL ALLOCATION PROCESS Opportunistic Invest for about Growth & transformative Value Creation targets *Calculated as defined by SPX’s credit facility agreement. SPX Corporation 2019 Investor Event - New Y
Slide 56: Leverage and Capital Availability
Leverage and Capital Availability Available Capital at 2.5x leverage ~$500m 2019-2020 2015 2016 2017 2018 2019E 2.5x Lower end 2.1x of LT Target 1.5x 1.7x Range of 1.5-2.5x Net Leverage* *Calculated as defined by SPX’s credit facility agreement. SPX Corporation 2019 Investor Event - New York March 5
Slide 57: Wrap Up
Wrap Up Gene Lowe President & CEO SPX Corporation 2019 Investor Event - New York
Slide 58: SPX – Positioned for Value Creation
SPX – Positioned for Value Creation Well- Capital Growth Positioned Allocation Business Initiatives in Growth (~$500m System Early Innings Platforms thru 2020) Sustainable Double Digit EPS Growth with Strong Cash Conversion SPX Corporation 2019 Investor Event - New York March 5, 2019 58
Slide 59: Q&A
Q&A SPX Corporation 2019 Investor Event - New York
Slide 60: Appendix
APPENDIX SPX Corporation 2019 Investor Event - New York
Slide 61: 2015 Adjusted Revenue and Segment Income to U.S. GAAP Reconciliation
2015 Adjusted Revenue and Segment Income to U.S. GAAP Reconciliation ($ millions) FY 2015 GAAP SA Projects Adjusted Revenue HVAC 529.1 529.1 D&M 232.3 232.3 Engineered Solutions 957.9 (27.3) 930.6 Total SPX $1,719.3 ($27.3) $1,692.0 Segment Income HVAC 80.2 80.2 D&M 46.0 46.0 Engineered Solutions (1
Slide 62: FY 2016 Consolidated EBITDA to U.S. GAAP Reconciliation
FY 2016 Consolidated EBITDA to U.S. GAAP Reconciliation ($ millions) FY 2016 Consolidated Revenue $ 1,472.3 Exclude: South African projects 83.3 Adjusted revenues $ 1,389.0 Adjusted operating income $ 96.7 as a percent of adjusted revenue 7.1% Adjustments: Depreciation & amortization 26.5 Other inco
Slide 63: FY 2018 Adjusted Earnings Per Share to U.S. GAAP Reconciliation
FY 2018 Adjusted Earnings Per Share to U.S. GAAP Reconciliation GAAP Adjustments Adjusted ($ millions) (1) Segment income $ 178.5 $ 24.8 $ 203.3 (2) Corporate expense (48.5) 4.9 (43.6) Long-term incentive compensation expense (15.5) — (15.5) Special charges, net (3) (6.3) 5.0 (1.3) Loss on sale of d
Slide 64: FY 2017 Adjusted Earnings Per Share to U.S. GAAP Reconciliation
FY 2017 Adjusted Earnings Per Share to U.S. GAAP Reconciliation ($ millions) GAAP Adjustments Adjusted Segment income (1) $ 124.9 $ 56.8 $ 181.7 Corporate expense (46.2) (0.9) (47.1) Long-term incentive compensation expense (15.8) — (15.8) Pension service cost (0.3) — (0.3) Special charges, net (2)
Slide 65: FY 2016 Adjusted Earnings Per Share to U.S. GAAP Reconciliation
FY 2016 Adjusted Earnings Per Share to U.S. GAAP Reconciliation GAAP Adjustme nts Adjuste d ($ millions) 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 expense (13.7) — (13.7
Slide 66: FY 2018 and FY 2017 Adjusted Revenue and Segment Income Reconciliation
FY 2018 and FY 2017 Adjusted Revenue and Adjusted Segment Income to U.S. GAAP Reconciliation ($ millions) Twelve months ended December 31, 2018 December 31, 2017 Consolidated revenue $ 1,538.6 $ 1,425.8 Exclude: "All Other" operating segments (1) 98.6 93.8 Acquisition accounting adjustment to acquir
Slide 67: FY 2018 and FY 2017 Adjusted Segment Income, Operating Income, Net Income and EBITDA Reconciliation
FY 2018 and FY 2017 Adjusted Segment Income, Adjusted Operating Income, Adjusted Net Income and Adjusted EBITDA to U.S. GAAP Reconciliation ` FY 2018 FY 2017 ($ millions) GAAP Revenue $ 1,538.6 $ 1,425.8 Exclude: "All Other" operating segments 98.6 93.8 Exclude: Acquisition accounting adjustment to
Slide 68: FY 2018 and FY 2017 Adjusted Free Cash Flow Reconciliation
FY 2018 and FY 2017 Adjusted Free Cash Flow from Continuing Operations to U.S. GAAP Reconciliation ($ millions) FY 2018 FY 2017 Net operating cash flow from continuing operations $ 112.9 $ 53.5 Capital expenditures - continuing operations (12.4) (11.0) Free cash flow used in continuing operations 10
Slide 69: FY 2016 Adjusted Free Cash Flow Reconciliation
FY 2016 Adjusted Free Cash Flow from Continuing Operations to U.S. GAAP Reconciliation ($ millions) FY 2016 Net operating cash flow from continuing operations $ 53.4 Capital expenditures - continuing operations (11.7) Free cash flow used in continuing operations 41.7 Adjustment for South African pro
Slide 70: FY 2015 – FY 2018 Organic Revenue Reconciliation
FY 2015 – FY 2018 Organic Revenue to U.S. GAAP Reconciliation Underlying Revenue Growth Detection & Engineered Adjusted Revenue ($M) HVAC Measurement Solutions SPX 2015 Adjusted Revenue (as reported) $ 529.1 $ 232.3 $ 930.6 $ 1,692.0 Foreign exchange impact $ (5.3) $ (5.0) $ (3.7) $ (14.0) Sales of