SPX Technologies, Inc. Q3 FY2026 earnings call

• Organic Growth & Capacity: HVAC capacity expansions are on track, with Madison facility commencing assembly of Olympus Max and Ingenia products. Total expected data center capacity is ~$1.1 billion upon full production.
• New Product Innovation: Heat trace launch is gaining momentum with strong early customer engagement in industrial and commercial applications.
• Inorganic Growth (FIS Water): The acquisition enhances the cooling platform with water management solutions, particularly for data centers. It is expected to benefit from SPX’s global channels and OEM relationships.
• Market Conditions: Core HVAC end markets (power, industrial, semiconductor, healthcare) remain healthy. Data center demand is accelerating. Detection and Measurement run-rate demand is healthy, though project-oriented businesses face timing variances.
• Value Creation: Management remains focused on integrating recent acquisitions (Crawford, Thermalect, Neptronic, FIS Water) which are performing well and contributing to margin accretion.

HVAC Segment: Revenue grew by a record 35.5% year-over-year, driven by strong organic volume and acquisitions. Segment income increased by $26.4 million (28%). Segment margin declined approximately 140 basis points due to labor costs, outsourcing premiums, and input cost inflation. Backlog reached a record $1.1 billion, up 69% year-over-year. DNM Segment: Revenue decreased 7.7% year-over-year, impacted by prior year project timing. Segment income increased slightly by ~$1 million (1.7%). Segment margin improved significantly by 260 basispoints to 23.2%, driven by favorable project mix, synergy initiatives, and a one-time commercial resolution.

• Full-Year 2026 Adjusted EPS: Lowered top-end to $8.50, resulting in a midpoint of $8.35. This reflects revised outlooks for both segments and modest accretion from FIS Water.
• HVAC Revenue: Increased revenue range to incorporate FIS Water and modestly higher organic bodies.
• HVAC Margin: Revised segment margin range reflects growth-related inefficiencies (labor/outsourcing) and elevated input costs experienced in Q3 and expected in Q4.
• DNM Margin: Updated segment margin range reflects Q3 results and revised Q4 forecast, acknowledging structural improvements but noting one-time benefits from prior quarters.
• Full-Year EBITDA: Midpoint implies approximately 25% adjusted EBITDA growth for the full year.

• Growth-Related Inefficiencies: Rapid hiring and ramp-up at new facilities led to lower productivity and higher turnover than anticipated, impacting margins.
• Supply Chain & Input Costs: Significant pressure from rising costs of steel and diesel. Outsourcing metal fabrication to secondary suppliers incurred premium costs due to shorter lead times.
• Execution Risk: Balancing aggressive capacity expansion with operational efficiency; risk that insourcing capabilities may not fully offset outsourcing costs immediately.
• Customer Concentration: Heavy reliance on hyperscalers for data center revenue (>90%), creating structural concentration risk despite blue-chip status.

Q: How do growth-related inefficiencies and inflation impact HVAC margins, and will they persist?

A: CFO Mark Carano stated that roughly two-thirds of the margin decline relates to volume-driven inefficiencies (labor/productivity), while one-third is due to higher input costs. These costs will continue into Q4. However, as new facilities like Madison come online, operations will become more efficient and insourced. Management expects margins to recover toward the high end of the medium-term target range in 2027 as these efficiencies materialize.

Q: What is the status of supply chain visibility and contract manufacturing risks?

A: CEO Gene Lowe explained that challenges arose primarily from metal fabrication, where high demand forced reliance on secondary suppliers with shorter lead times but higher costs. Unlike competitors facing component shortages, SPX retains IP and design control, allowing flexibility to switch fabricators. Supply chain performance improved significantly in September/October, and EC Fan disruptions seen elsewhere have not materially impacted SPX.

Q: Are there pricing pressures or pushback from customers regarding inflation?

A: Management reported no significant pushback on price increases. SPX has been raising prices across all HVAC business units to offset inflationary pressures like steel and diesel. While some backlog projects carry older pricing, frame agreements with hyperscalers include mechanisms for price adjustments based on input cost deltas, ensuring long-term margin protection.

Q: How does customer concentration look in the data center market?

A: Gene Lowe noted that over 90% of data center revenue comes from hyperscalers, creating structural concentration. However, he emphasized that these are blue-chip customers with strong visibility into demand for the next 2-3 years. Demand is accelerating, supported by AI adoption, and SPX sees a growing addressable market share across various cooling architectures (water-cooled vs. air-cooled).

Q: What is the strategic outlook for M&A and capacity expansion beyond current plans?

A: Management highlighted four strategic acquisitions this year ($1.2B deployed) adding ~$310M in revenue, all accretive to margins. They maintain an active pipeline for niche hydronics and cooling opportunities. Regarding capacity, while Madison is a capital-intensive build-out, management is actively evaluating leased facility models (like Springfield) for future scaling beyond the $1.1B target, aiming to accelerate throughput if demand persists.