Spx Technologies, Inc. · NYSE:SPXC
Spx Technologies — Investor Day (March 2017)
81 slides from Spx Technologies's investor day presentation, Mar 6, 2017
Slide 1: Investor Event
Investor Event March 6, 2017 New York
Slide 2: Forward-looking statements
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: SPX Investor Day Agenda
SPX Investor Day Agenda Speaker Title Topic(s) Paul Clegg VP, Finance and Investor Relations Welcome/Opening Remarks Gene Lowe President and CEO SPX Overview Updated Valuation Creation Roadmap Segment Overview Randy Data President, Global Operations and SPX Business System South Africa Scott Sproule
Slide 4: Executive Management
Executive Management Gene Lowe President and CEO Randy Data John Swann Scott Sproule President, President, Weil McLain, VP, Treasurer Global Operations & MEP and Radiodetection and CFO South Africa Tausha White John Nurkin Brian Mason VP, Chief Human VP, General Counsel President, SPX Resources Offi
Slide 5: Executive Summary
Executive Summary 2015 – Introduced value creation framework 2016 – Transformed SPX to position company for substantial growth Today – Introducing updated value creation framework built on solid foundation Substantial Growth Opportunity Ahead March 6, 2017 5
Slide 6: SPX Corporation Overview
SPX Corporation Overview Gene Lowe, President and CEO March 6, 2017
Slide 7: Company Overview
Company Overview SPX Corporation Headquartered in Charlotte, NC 2016 Core Revenue* by Region A leading supplier of: 88% 7% HVAC products, Detection & Measurement technologies, and Engineered Solutions 5% ~$1.4b Core Revenue* in 2016 ~5,000 employees NYSE Ticker: SPXC *Non-GAAP financ
Slide 8: Key Product Offerings and Financial Profile by Segment
Key Product Offerings and Financial Profile by Segment Package cooling units 2016: Fluid coolers $510m revenue Residential and Non-Residential Boilers Segment income margin 16% Electrical heating products Locators 2016: Fare collection systems $226m revenue Communication technolo
Slide 9: Foundational Strengths
Foundational Strengths Our strong foundation provides significant advantages High replacement revenues Leadership economics Solid platform to expand (products, markets, channels) March 6, 2017 9
Slide 10: Strong Brands and Leading Market Positions
Strong Brands and Leading Market Positions ~88% of Revenue from #1 or #2 Market Position (1) 88% 2016 Core Revenue* ~$1.4B Management Estimates (1) Weil-McLain, a division of The Marley-Wylain Company *Non-GAAP financial measure. Note: Core results are non-GAAP financial measures that exclude the re
Slide 11: Attractive Market Dynamics
Attractive Market Dynamics 69% of Revenue from Growth Rates in Key End Markets Replacement Sales (3-year forward CAGR estimates) Industrial 2-3% Telecom 3% Power Transmission 2% 69% Transportation 8-10% HVAC 5% 0% 2% 4% 6% 8% 10% 2016 Core Revenue* ~$1.4B Management Estimates Based on external indus
Slide 12: Commercial Excellence
Commercial Excellence Incentive Plans Significant focus on optimizing commercial processes Talent Value Selling Value selling Aligned incentives Channel management Key account programs CRM Key focus area across portfolio Key Account Optimization Planning & Metrics Channel Management Marc
Slide 13: SPX Corporation Value Creation
SPX Corporation Value Creation Gene Lowe, President and CEO March 6, 2017
Slide 14: Value Creation in Core Business
Value Creation in Core Business Grow HVAC platform: Grow Detection & Measurement platform: Measurement New product development Continue to upgrade installed base Detection & HVAC New product launches Channel development Expand vertically and geographically Geographic expansion Extend p
Slide 15: SPX Year 1 Key Value Creation Accomplishments
SPX “Year 1” Key Value Creation Accomplishments Delivering Operational Excellence Building Large Project Backlog Driving Operational Initiatives Driving year-over-year margin Awarded two of largest jobs in Transformer business achieved long- expansion several years term margin target of 10% Re
Slide 16: SPX Margin Transformation
SPX Margin Transformation Adjusted Operating Income Margin* 10% 8% 6% 8.5% 4% 7.0% 5.1% 2% 3.7% 0% 2015 2016 2016 2017 (as reported Guidance (as reported Guidance 2/25/16) 2/23/17) Adjusted EPS* N/A $1.10 $1.47 $1.63 *Non-GAAP financial measure. Excludes the results of the South African projects. Ac
Slide 17: Vision for Future
Vision for Future 2020 2016 ~$1.5 -1.7B Core Revenue* $1.4B Core Revenue* ~10-11% Adjusted Operating 7% Adjusted Operating Income margin* Income margin* $2.25-$2.50 Adjusted EPS* $1.47 Adjusted EPS* Build Organic and inorganic Improve growth Implement operational Simplify excellence initiatives Redu
Slide 18: Updated Value Creation Roadmap
Updated Value Creation Roadmap Organic Growth SPX Business System New products Policy deployment New channels Operational excellence Adjacent markets Due diligence/integration Inorganic Growth Culture & Values Focus in HVAC and D&M Leadership development Significant capital to depl
Slide 19: HVAC
HVAC
Slide 20: HVAC Segment Overview
HVAC Segment Overview 2016 Revenue by Product ($ millions) Revenue Segment income % Cooling Products Heating Organic $510m 48% Products “At lower end CAGR 3-4% 52% of LT range of $510 2-4%” ~16.0% 16-17% 2016 Revenue by Geography 15.7% 4% 9% 2016 2017E 2020 87% Strong Product Brands and Leading Mark
Slide 21: HVAC End Market Drivers
HVAC End Market Drivers Commercial Replacement Economic Weather Construction Demand Growth March 6, 2017 21
Slide 22: Strategic Growth Initiatives
Strategic Growth Initiatives New Product Commercialize NC Everest (Cooling) Development Grow Evergreen (high-efficiency boiler) Adjacent Expand refrigeration – Evaporative Condenser; LS Fluid Cooler Markets Grow combi-boilers (AquabalanceTM) Expand geographic and vertical market channels C
Slide 23: Cooling Products Overview
0 Cooling Products Overview 2016 Revenue Breakdown Cooling products used in non-residential, commercial Package Cooling construction, process cooling and refrigeration applications Towers 87% $247m Parts and Well-recognized product brands: Marley and Recold Service 13% Well-established sales c
Slide 24: Cooling Product Examples
Cooling Product Examples Marley NC Cooling Tower Recold Fluid Cooler High efficiency High performance design Low drift rates Low cost of ownership Quiet by design Long-life construction Strong Product Portfolio of Cooling Technologies with Opportunity for Expansion March 6, 2017 24
Slide 25: Cooling NPI
Cooling NPI Marley NC Everest Tower Marley LW Fluid Cooler Evaporative Condenser Launched in 2016 Launched in Q4 2016 Launched in 2015 50% more cooling capacity than High efficiency, low height fluid Adjacent product and market any other pre-assembled tower cooler (refrigeration) Award
Slide 26: Heating Products Overview
Heating Products Overview North American businesses with strong brands 2016 Revenue Breakdown Products used in residential and non-residential markets and sold primarily through distributors Boiler Systems Demand for boiler systems is seasonal: 67% $263m Electrical Concentrated in the fourth
Slide 27: Heating Product Examples
Heating Product Examples Residential Boilers Commercial Boilers Electrical Heating Products High efficiency natural gas High efficiency natural gas Digital Standard cast iron Standard cast iron wall heaters Unique hybrid design Wash-down, corrosion resistant heaters Aluminum convection hea
Slide 28: Heating NPI
Heating NPI Growth Oriented Initiatives Weil-McLain(1) New Product Development: Evergreen® Condensing Boiler Evergreen® floor standing/wall mount modulating condensing boiler, launched in Q3 2015: 95% efficiency meets Department of Energy regulations and achieves Energy Star rating to maximize c
Slide 29: Detection & Measurement
SPX Detection & Measurement
Slide 30: Detection & Measurement Segment Overview
Detection & Measurement Segment Overview 2016 Revenue by Product ($ millions) Revenue $226m Segment income % Organic “Middle of LT CAGR 3-6% range 2-6%” $226 2016 Revenue by Geography 22 -24% 21% 21.0%- 20.0% 22.0% 12% 67% 2016 2017E 2020 Targeting 3% to 6% Annual Organic Revenue Growth and 100 to 3
Slide 31: Detection & Measurement End Market Drivers
Detection & Measurement End Market Drivers Industrial/ Government Telecom Transportation Commercial Regulation Infrastructure Spending Development Spending March 6, 2017 31
Slide 32: Strategic Growth Initiatives
Strategic Growth Initiatives New Product Scale new GPS-enabled locator Development Grow fare-collection solutions platform Adjacent Build out geographic and vertical channels Markets New LED Red lighting solution Upgrade Aged bus fleet (fare collection) Installed Base Communication techn
Slide 33: Radiodetection Overview
Radiodetection Overview 2016 Revenue by Product Based in the U.K., a leading global supplier of underground Locators 75% cable and pipe locators, and inspection equipment Inspection ~$96m & Other 25% Continuous new product enhancement and loyal customer base 2016 Revenue by Geography Key deman
Slide 34: Radiodetection – Key New Products
Radiodetection – Key New Products Pipeline Mapper Cable Avoidance Video Inspection New Product Introduction Continues to Drive Radiodetection’s Performance March 6, 2017 34
Slide 35: Communication Technologies Overview
Communication Technologies Overview 2016 Revenue by Product Obstruction TCI : A leading global supplier of spectrum monitoring, Lighting communication intelligence and geolocation technology 58% SMS & $77m Comm. Int. Flash Technology: A leading North American supplier of 42% obstruction lighting
Slide 36: Communication Technologies Products
Communication Technologies Products SMS & Communications Intelligence Flash Lighting Systems Our Communication Technologies Solutions are Adapting to Serve Evolving and Complex Customer Needs March 6, 2017 36
Slide 37: Genfare
Genfare A leading North American supplier in fare collection: Historical market position concentrated on fare box installations Rapidly evolving technology in the market has driven a transformation in our business: Evolved from “farebox supplier” to “fare collection system provider” Invest
Slide 38: Genfare Products: Next Generation Fare Collection
Genfare Products: Next Generation Fare Collection Legacy Farebox Fast Fare Farebox Fast Fare-e e-Fare Mobile Ticketing Point-of-Sale Cloud-Based Infrastructure Software as Service and a Service Support Fare Collection Suite of Products Integrated with Back-End Support; We Believe This is The New Ind
Slide 39: Engineered Solutions
SPX Engineered Solutions
Slide 40: Engineered Solutions (Core) Segment Overview
Engineered Solutions (Core) Segment Overview ($ millions) Engineered Solutions (Core) Revenue* Core income %* ”Revenue down mid- single digits” (Project Organic CAGR 2016 Revenue* by Geography 2-3% 4% Selectivity) 8-10% ~6-7% 4.9% 1% 95% 2016 2017E 2017E Adj 2020E *Non-GAAP financial measure. Note:
Slide 41: Engineered Solutions End Market Drivers
Engineered Solutions End Market Drivers Grid Maintenance/ Government Replacement Industrial Expansion Regulation Parts Development March 6, 2017 41
Slide 42: Strategic Growth Initiatives
Strategic Growth Initiatives New Product Commercialize proprietary load tap changer (LTC) Development Broaden component offerings Evolve Business Expand service and components Model More selective on process cooling projects Expand Market Large voltage/EHV transformers Presence Supply to
Slide 43: Engineered Solutions – Transformers Overview
Engineered Solutions – Transformers 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 manufactur
Slide 44: Transformers Overview - North American Market
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-
Slide 45: Transformer Product and Service Examples
Transformer Product and Service Examples Oil Processing Truck Large Power (High Voltage) Transformer Leading North American Supplier of Medium Power Transformers March 6, 2017 45
Slide 46: Process Cooling Overview
Process Cooling Overview 2016 Revenue by Product Based in the U.S., a leading global manufacturer of cooling Cooling Towers towers and air cooled heat exchangers 80% $281m Continuous new product enhancements and exception Other quality equipment for more than a century 20% Large installed base
Slide 47: Process Cooling Technologies Aftermarket Products
Process Cooling Technologies Aftermarket Products Gear Reducer Air Flow Components Heat Transfer Media TBD Aftermarket Service and Components is Focus Area of New Product Initiatives March 6, 2017 47
Slide 48: SPX Business Systems
SPX Business Systems Randy Data, President Global Operations & South Africa March 6, 2017
Slide 49: Executive Summary
Executive Summary Operating Model Evolution SPX Business System Accomplishments & Next Steps March 6, 2017 49
Slide 50: Operating Model Evolution
Operating Model Evolution Holding Operating Company Company Role of Corporate Center SPX Strategy Limited Fully Responsible Business Unit Strategy Limited Fully Responsible Commercial No Role Standard Definition Excellence Operational No Role Standard Definition Excellence Cultural Definition No Rol
Slide 51: SPX Business System Defined
SPX Business System Defined Areas of Focus... The way we operate and manage the Company – policy deployment Set of best practices for business operations – margin growth How we diligence and integrate acquisitions – inorganic growth March 6, 2017 51
Slide 52: Business System Policy Deployment
Business System Policy Deployment Annual Operating Plan Strategic Plan • Select and link key initiatives to • Perform market assessment financial performance • Evaluate strategic alternatives • Develop current year financial • Develop key initiatives targets Results Accountability Integrity KPI Deve
Slide 53: Application of Best Practices – Operational Excellence
Application of Best Practices – Operational Excellence Asset/ Operational Costs of Organizational Project Excellence Goods Sold Optimization Management Office Continuous Improvement Strategic Sourcing Operating Model Due Diligence Processes Manufacturing Dashboard Value Engineering Facilities Footpr
Slide 54: Operational Excellence Impacts
Operational Excellence Impacts Transformers ~300 bps • Strategic sourcing initiatives • Production planning improvements • Value engineered design 2015 2016 HVAC Heating ~200 bps • Product quality improvements • Reduction of indirect spend • Strategic sourcing initiatives 2015 2016 March 6, 2017 54
Slide 55: Diligence and Integration in the Acquisition Process
Diligence and Integration in the Acquisition Process Target Due Negotiate Strategy Integration Screening Diligence & Close • Global Operations owns core due diligence and integration processes • Utilize business unit, corporate and external resources to lead processes • Implement best practices to d
Slide 56: SPX Business System | Driving Shareholder Value
SPX Business System | Driving Shareholder Value Area of Focus Accomplishments Next Steps • Focus on succession planning • Operating cadence firmly established Policy Deployment • Driving excellence from strategy to • Key processes in place employee objectives • Transformers operational improvement •
Slide 57: Available Capital & Acquisition Strategy
Available Capital & Acquisition Strategy Scott Sproule VP, Treasurer and CFO March 6, 2017
Slide 58: Available Capital & Acquisition Strategy
Available Capital & Acquisition Strategy Available Capital Organic Segment Financial Targets Capital Allocation Discipline Projected Capital Availability SPX SPX Acquisition Acquisition ApproachApproach Target Characteristics (primary focus) Return Criteria Areas of Focus Acquisition P
Slide 59: Organic Segment Financial Targets
Organic Segment Financial Targets Detection & Engineered SPX Total ($ millions) HVAC Measurement Solutions (Core)* (Core)* 2016 Revenue $510 $226 $653 $1,389 2020 Modeling Target Targeting Organic Organic Revenue Revenue CAGR Growth +3% toThrough +4% +3% to +6% +2% to +3% +2% to +3% 2020 Business wi
Slide 60: Capital Allocation Discipline
Capital Allocation Discipline Methodology Expected Outcome 1) Utilize strategic planning process to evaluate Quantify projected future cash flows and future revenue and earnings growth estimate total company valuation 2) Maintain target capital structure Net Debt to EBITDA(1) target range: 1.5x
Slide 61: Projected Capital Availability
Projected Capital Availability 2020 Capital Availability ($ in millions) ($ in millions) Free cashflow generation and existing cash $450 create $300m of the available capital $400 $350 $100 Operating at upper end of target leverage $300 range provides an additional $100m of $250 available capita
Slide 62: SPX Acquisition Approach: Target Characteristics
SPX Acquisition Approach Target Characteristics Focused on Acquisition Focused Opportunities on building existing to platforms Strengthen SPX Existing markets or close adjacencies Engineered products Attractive growth opportunities Secular growth drivers Fragmented market with consolidat
Slide 63: SPX Acquisition Approach: Return Criteria
SPX Acquisition Approach Return Criteria Acquisitions to be a Tool for Value Creation Focused on cash returns (ROIC) that exceed our WACC in 3-5 years Accretive to EPS Adjusted in year 1 (excluding deal amortization and one-time accounting items) GAAP in year 2 Integrate acquisitions using
Slide 64: SPX Acquisition Approach: Areas of Focus
SPX Acquisition Approach Areas of Focus HVAC Detection & Measurment Engineered Solutions Consolidation Consolidation Components Adjacent markets and Adjacent markets and Service product line extensions product line extensions Expanding technology Existing technologies platform Comm
Slide 65: SPX Target ID and Review Process
SPX Acquisition Approach SPX Target ID and Review Process Disciplined Approach from Identification • Source to leaders and through business Integration professional relationships Identification • Current pipeline includes ~70 opportunities • Monthly reviews by senior management • Apply a disciplined
Slide 66: Long-Term Financial Targets
Long-Term Financial Targets 2016 2020 Targets $1.4B Core Revenue* $1.5 - $1.7B Core Revenue* 7% Adjusted Operating Income 10-11% Adjusted Operating Margin* Income Margin* $1.47 Adjusted EPS* $2.25 - $2.50 Adjusted EPS* $75 million Core FCF* >100% FCF* Conversion of Adjusted Net Incom
Slide 67: Executive Summary
Executive Summary Actions since the spin have strengthened SPX Increased operating margins, stronger cash flow and earnings We have a solid portfolio of engineered products with strong positions in niche growth markets We have an attractive organic and inorganic growth opportunity with substantial
Slide 68: Updated Value Creation Roadmap
Updated Value Creation Roadmap Organic Growth SPX Business System New products Policy deployment New channels Operational excellence Adjacent markets Due diligence/integration Inorganic Growth Culture & Values Focus in HVAC and D&M Leadership development Significant capital to depl
Slide 69: Q&A
Q&A
Slide 70: Appendix
Appendix March 6, 2017
Slide 71: 2017 Core Guidance
2017 Core Guidance Segment Income Revenue Margin HVAC Organic growth* at lower end of LT range of 2-4% Approximately 16% Detection & Organic growth* towards middle of LT range of 2-6% 21-22% Measurement Segment revenue decline in mid-single digits % Engineered Solutions Flat Transformer
Slide 72: 2017 Adjusted EPS Guidance - Key Drivers
2017 Adjusted EPS* Guidance - Key Drivers • Accelerated Tax Reform/Favorable Economic Policy $1.70 • Lower Interest Rates • Colder Winter Weather • Commercial Growth Accelerates $1.63 Base Case • Commercial Growth Decelerates • Commodity Inflation/Pass-Throughs • Warmer Winter Weather $1.55 • Unfavo
Slide 73: FCF Dynamics
FCF Dynamics Capital Structure Update ($ in millions) Term Debt Repayment Schedule 2016 Core Free Cash Flow* of approximately ($ in millions) $75 million reflecting 120% conversion of Adjusted Net Income* Projecting $400 million of capacity for capital allocation through 2020 $298 Growth inves
Slide 74: Free Cash Flow U.S. GAAP Reconciliation
Free Cash Flow U.S. GAAP Reconciliation ($ millions) FY 2016 Net cash used from continuing operations $ 53.4 Capital expenditures - continuing operations (11.7) Free cash flow used in continuing operations 41.7 Adjustment for South African projects 33.1 Free cash flow used in continuing operations e
Slide 75: Q1 2016 GAAP to Adjusted Earnings Per Share Reconciliation
Q1 2016 GAAP to Adjusted Earnings Per Share Reconciliation ($ millions, except per share values) Q1 2016 GAAP Adjustments Adjusted Revenue $ 360.6 $ (20.5) $ 340.1 Segment income 29.8 3.4 33.2 Corporate expense (11.4) (11.4) Pension and postretirement income (expense) (1.0) 1.1 0.1 Long-term incenti
Slide 76: Q2 2016 GAAP to Adjusted Earnings Per Share Reconciliation
Q2 2016 GAAP to Adjusted Earnings Per Share Reconciliation ($ millions, except Q2 2016 per share values) GAAP Adjustments Adjusted Revenue $ 371.4 $ (19.6) $ 351.8 Segment income 32.2 2.9 35.1 Corporate expense (8.6) (8.6) Pension and postretirement income (expense) (2.8) 2.9 0.1 Long-term incentive
Slide 77: Q3 2016 GAAP to Adjusted Earnings Per Share Reconciliation
Q3 2016 GAAP to Adjusted Earnings Per Share Reconciliation ($ millions, except Q3 2016 per share values) GAAP Adjustments Adjusted Revenue $ 345.0 $ (25.4) $ 319.6 Segment income 26.0 3.5 29.5 Corporate expense (9.6) (9.6) Pension and postretirement income (expense) (0.8) 1.0 0.2 Long-term incentive
Slide 78: Q4 2016 GAAP to Adjusted Earnings Per Share Reconciliation
Q4 2016 GAAP to Adjusted Earnings Per Share Reconciliation ($ millions, except Q4 2016 per share values) GAAP Adjustments Adjusted Revenue $ 395.3 $ (17.8) $ 377.5 Segment income 54.8 4.7 59.5 Corporate expense (12.1) - (12.1) Pension and postretirement income (expense) (10.8) 11.0 0.2 Long-term inc
Slide 79: Full-Year 2016 GAAP to Adjusted Earnings Per Share Reconciliation
Full-Year 2016 GAAP to Adjusted Earnings Per Share Reconciliation Full-Year 2016 ($ millions, except GAAP Adjustments Adjusted per share values) Revenue $ 1,472.3 $ (83.3) $ 1,389.0 Segment income 142.8 14.5 157.3 Corporate expense (41.7) - (41.7) Pension and postretirement income (expense) (15.4) 1
Slide 80: Q4 and Full-Year 2016 South African Projects
Q4 and Full-Year 2016 South African Projects ($ millions) Q4 2016 FY 2016 Revenue Segment Income Revenue Segment Income Engineered Solutions 177.6 8.8 736.4 17.3 Exclude: South African Projects (17.8) 4.7 (83.3) 14.5 Engineered Solutions (Core) $159.8 $13.5 $653.1 $31.8 March 6, 2017 80
Slide 81: SPX
SPX