SPX Technologies, Inc.

Thank you for standing by, and welcome to XPX Corporation's fourth quarter earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. Should you require any further assistance, please press star 0. I would now like to hand the call over to your host, Paul Clegg, VP of Investor Relations.

Thank you, Operator, and good afternoon, everyone.

Thanks for joining us. With me on the call today are Gene Lowe, our President and Chief Executive Officer, and Jamie Harris, our Chief Financial Officer. A press release containing our fourth quarter and full year 2020 results, 2021 results, was issued today after market close. You can find the release in our earnings slide presentation, as well as a link to a live webcast of this call in the investor relations section of our website at spx.com. I encourage you to review our disclosure and discussion of GAAP results in the press release and to follow along with the slide presentation during our prepared remarks. A replay of the webcast will be available on our website until March 2nd. As a reminder, portions of our presentation and comments are forward-looking and subject to safe harbor provisions. Please also note the risk factors in our most recent SEC filings, including our disclosures related to the COVID-19 pandemic. Our comments today will largely focus on adjusted financial results. You can find detailed reconciliations of historical adjusted figures to their respective gap measures in the appendix to today's presentation. As noted in our press release, our South African operations are now being accounted for as discontinued operation for all periods presented and are no longer part of our non-GAAP adjustments. As such, our other segment has been eliminated, bringing our GAAP reporting framework to two segments from three previously. Our adjusted results exclude non-service pension items, amortization expense, investment gains, certain discrete tax items, acquisition-related items adjusted for certain legacy liability charges, and certain other non-recurring items. Finally, we will be conducting virtual meetings with investors over the coming weeks, including at Sedoti's Spring Virtual Small Cap Conference in March. And with that, I'll turn the call over to Dean.

Thanks, Paul. Good afternoon, everyone, and thank you for joining us. On the call today, we'll provide you with a brief update on our consolidated and segment results for the fourth quarter and full year 2021. We'll also provide guidance for 2022. I'll start with some of the highlights from the quarter and the year. We close the year with solid results and the balance sheet that positions us well to achieve our growth plans. Looking back, 2021 was a transformational year for SPX Corporation. We continued to execute on our value creation roadmap and had several significant accomplishments. We closed on three strategic acquisitions and completed the sale of our largest business, Transformer Solutions. This transaction simplified and strengthened SPX and allowed us to focus on our higher margin, higher growth HVAC and debt detection and measurement segments. We also advanced our digital and continuous improvement initiatives, continued to invest in and develop our people, and further progressed our ESG and diversity and inclusion initiatives. In 2022, we expect continued solid growth before taking into account any new capital deployment. While the current environment prevents several challenges, end market demand remains strong, and our team continues to execute with focus and purpose to drive success. We are well positioned to continue our value creation journey and look forward to reporting additional successes throughout the year. Turning to our results, our Q4 performance reflects strength in our detection and measurement segment, while our HVAC segment faced headwinds primarily related to supply chain. Despite these pressures, segment income and margin increased on a year-on-year basis, and we exceeded our updated full-year EPS guidance. turning to our value creation framework. We made solid progress in 2021 on several fronts. We introduced a number of innovative solutions and continued to scale several others. In our HVAC heating platform, our Juan McLean Ecotech premium high efficiency boiler continues to gain market traction and was the only hydronic boiler to win a prestigious dealer design award in 2021. In our HVAC cooling platform, our cool spec product selection tool continues to receive strong, favorable customer feedback and interaction. We believe this tool is a leap forward in customer experience when assessing and selecting the proper cooling solution for their needs and better positions us to achieve basis of design with engineers. In our detection and measurement segment, Our location and inspection platform introduced new solutions to improve efficiency and safety for our end market utility customers, including innovative approaches to resolving cross-border concerns about unintended intersections between different underground utility assets, as well as less invasive and safer robotic approaches to road work in high traffic areas. On the inorganic front, We closed three acquisitions last year, adding approximately $120 million in run rate revenue. The integration of these three businesses is going well, and we see meaningful opportunities for synergies and potential for additional investments to further strengthen and broaden our position in these attractive niche markets. 2021 is also an important year of growth for key initiatives, as we made considerable strides in our continuous improvement, digital, diversity and inclusion, and ESG. I feel very good about our continued progress on these fronts that are critical to building sustainable value. And now, I'll turn the call to Jamie to review our financial results.

Thanks, Gene. For the fourth quarter, adjusted EPS was $0.88. As Paul mentioned, this is the first quarter with South Africa in discontinued operations, and it is no longer a part of our adjustments. In Q4, we made a decision to harmonize our accounting method for inventory to FIFO, converting the remaining businesses from LIFO. Our method is now consistent within all segments and across the company. Accordingly, we have restated prior quarters and prior years to reflect this change. In addition to the segment drivers, which I will review momentarily, interest costs were lowered due to lower debt balances and a lower fixed rate on our swap agreement, which began in April. In the fourth quarter of both 2021 and 2020, our tax revision benefited from discrete items, resulting in a lower-than-normal effected tax rate in both periods. Also, this quarter, we have excluded charges resulting from revisions to long-term modeling assumptions associated with legacy asbestos liabilities and the rate at which these liabilities decline over time. These charges do not reflect end-period or near-term cash uses. They reflect our best estimates of future liabilities projected out to 2057. For comparison purposes, we have also adjusted corresponding items from our 2020 results. A table with our quarterly results reflecting these changes for 2020 and 2021 is available in the appendix to our presentation. With regards to our high-level results for Q4, despite strong orders and backlog, revenue and adjusted operating income were only modestly higher compared with the prior year. Organic growth and detection and measurement and the benefit of acquisitions were largely offset by organic decline in HVACs. We also made P&L investments in continuous improvement and other initiatives and experienced higher corporate expense related to performance-related compensation. Reviewing our segment results. In Q4, acquisitions and strong project deliveries within our detection and measurement segment were the primary drivers of revenue growth. Q4 margins were up year over year with an increase in detection and measurement partially offset by a decline in HVAC. For our HVAC segment, revenues declined 8% with an organic decline of 9%, partially offset by half a month of ownership of Cincinnati Fan, which we acquired on December 15th. The demand for both our heating and cooling businesses remained strong, as evidenced by a significant backlog, but both platforms were production constrained for the quarter. Heating revenues declined 7% against the backdrop of strong demand due largely to supply and production constraints related to the availability of certain components. Cooling revenues were down approximately 9%. During Q4, our America's business continued to face production constraints related to supply chain and labor, which were exacerbated by rising COVID cases. Adjusted segment income and margin decreased $4.5 million and 60 basis points, respectively. The decline was largely due to supply chain availability of certain component parts, cost inflation, and labor constraints. Together, these impacted productivity, shipments, and costs. Overall demand levels remained very high for our HVAC products. Organically, backlog was up 38% compared with the prior year. Total ending backlog for HVAC was $227 million, with the most significant increases from our heating platform, particularly for boilers, and the addition of Cincinnati fans. Based on our bookings and backlog, both heating and cooling are well positioned for growth in 2022. In detection and measurement, revenues were up 17% year-over-year, including an organic increase of 4.2%, and a 12.8% impact from the acquisitions of Sea Light and ECS. Adjusted segment income and margin grew $6.4 million and 130 basis points respectively. The increase was largely due to higher project sales and transportation, as well as the benefit of acquisitions. As we discussed last quarter, our ULC businesses experienced some lower revenue near term as a result of a UK utility rate case. We expect revenue to improve during the second half of 2022. Despite the short-term revenue decline, we continue to see this business as a great strategic addition and among the most attractive growth opportunities over time. Organically, detection and measurement backlog was up 14%. Ending backlog was approximately $154 million, including the benefit of acquisitions. Overall, we believe the segment is well-positioned for growth in 2022 and beyond. Turning now to our financial position at the end of the quarter. We ended the quarter with cash of $396 million, which includes the impact of our purchase of Cincinnati Fan in Q4. Net of our term loan, we are in a net cash position of $150 million. Adjusted free cash flow for the full year was approximately $104 million, representing approximately 96% conversion of adjusted net income. This excludes $20 million of positive cash flow associated with South Africa, which includes tax benefits realized during the year. Overall, our strong balance sheet and liquidity positions us to continue growing through organic and inorganic investments. We have a robust pipeline of acquisition opportunities, including several active prospects. While we are confident in our ability to execute on growth investments, we will monitor for significant stained value displacement in our stock price, and we will consider using our share repurchase authorization if appropriate. As a reminder, our board has authorized stock repurchases of up to $100 million, the details of which are included in our 10-K. Regarding 2022, in HVAC, the demand outlook remains strong, and we anticipate solid full-year growth. Tight labor and supply chain conditions have continued into Q1, leading us to expect flat segment income compared with the prior year first quarter. In detection and measurement, we are seeing strong run rate and project front log activity. Along with our acquisitions, we see this driving higher revenue and income for the full year. However, in Q1, we anticipate lower ComTech and ULC revenues compared to solid prior year results. In 2021, ComTech in particular had a revenue profile that was heavily weighted in the first quarter, which is atypical. We see revenue for both businesses strengthening throughout the year based on identified demand from customers. As a result, for the total company, we anticipate first quarter segment income to be approximately 20% lower than the prior year due to the high incremental margins of these detection and measurement project businesses. For the balance of 2022, we expect year over year increases in segment income. For the full year, we estimated an increase in total revenue of approximately 10% to 15% and adjusted earnings per share before capital deployment in the range of $2.50 to $2.80 per share. The midpoint of 265 reflects year-on-year growth of approximately 14%. In addition, there are approximately 11 cents per share of interest expense that could be eliminated if we use part of our $396 million of cash to pay off our term loan. we have purposely decided not to pay off a term loan because we expect to deploy that capital for acquisition opportunities. This 11 cents of earnings would bring our midpoint to $2.76, and we believe this is a better representation of our operational earnings power. Our four-year midpoint of EPS reflects overall strong demand, but with supply constraints continuing in early 2022. Our range reflects various scenarios for supply chain and labor, as well as the timing of project revenues and detection and measurement. As we progress through the year, we would expect to tighten this range. Overall, we remain excited about our business outlook moving forward. We continue to aggressively address supply challenges and believe we are winning in the marketplace with our customers. As always, you will find more details on our guidance in the appendix to today's slides. I will now turn the call back to Gene for a discussion of our end markets.

Thanks, Jamie. Overall, our end markets continue to see favorable demand trends. In HVAC, there are differences geographically with notable strength in the Americas. In detection and measurement, we continue to see a strong level of demand for run rate products across most regions. Our more project-oriented businesses continue to see attractive customer activity and bookings overall, although we are seeing softer orders in our ComTech platform. In summary, we closed the year with a solid earnings performance and a very strong balance sheet, which supports our growth plans. We entered 2022 a more focused, higher margin, and higher growth business. with a clear game plan to achieve our SPX 2025 targets of approximately $2 billion in revenue and 18% EBITDA margins. We continue to make progress on our key initiatives and look forward to reporting more successes throughout the year. Current demand trends remain strong, and we are continuing to manage through headwinds on supply chain, labor, and inflation. We anticipate solid growth in 2022 prior to any benefit for capital deployment and believe we are well positioned to continue advancing our value creation initiatives for years to come. And now I'll turn the call back over to Paul.

Thanks, Gene. Operator, we are ready to go to questions.

As a reminder to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Brian Blair of Oppenheimer. Your question, please.

Thanks. Good evening, guys.

Good evening.

Hey, Brian. Brian. You offered very useful detail on Q1 dynamics. What How should we think about the progression of supply and labor constraints in HVAC? Contemplate it in your guide. How would you frame the midpoint relative to those factors if we think about Q2 through Q4 progression?

Hey, Brian. This is Jamie. So I think so far in 2022, We've seen, I think, a moderate improvement in supply chain. We, early on, like most everybody in the country, experienced a big uptick in Omicron cases, and therefore we had some absenteeism that was over and above the normal. I think we do see some moderate improvement in labor. We see some moderate improvement in supply chain. We are taking a lot of aggressive actions in terms of managing and setting up, trying to improve our process and supply chain. So we do think it impacts us. We also see that continuing to lessen as the year goes on. As we mentioned in our prepared remarks, we do have a tough comp in our ComTech business from prior year. We have the rate case with our customer in the UK on ULC. But as we look forward to the year and to your specific question of guidance, I think if you take the midpoint, we probably see you know, the guidance is a little bit broader than normal, first of all. But we see supply chain is having, if it breaks well, some nice upside embedded in that. You know, there's also risk in it, as you would imagine. If we were saying we would probably say we've got more heavily weighted opportunities on the upside versus what the downside might look like. But we do see it continuing to improve in the first half of the year. And as we enter the second half of the year, we see a lot of opportunities Specifically to cooling, the cooling has been primarily a labor, therefore a productivity throughput matter. We are seeing some improvement, but it's still tough. We have seen the Omicron cases like the country go down significantly over the past few weeks. And in heating, we continue to have a huge backlog that we're working through. We see that as a great way to start the year, of course. And, you know, The component parts in various businesses are still challenges, but we do think they're improving.

Yeah, and just a few other comments from my side. I think clearly supply chain is still choppy out there. I do think we are seeing some moderate improvement. The team's managing really well. And as you know, with our business system, we have both the Supply Chain Council and the Manufacturing Council, and they've really done a nice job applying best practices across all of our businesses, making sure we have robust S&OP processes, reorder points, safety stock, diversity of vendors, all of the things combined with, I would say, pretty robust analytics. Things as straightforward as looking at your bill of material items and looking at your order, your manufacturing plan over the next several months and looking at what you got and what you're waiting on. And we actually look at that every single day. So I think our operations has gotten much stronger, and we actually feel good about the direction we're going. But it is something – it is still choppy out there, I would say, on the supply chain side.

That makes sense. I appreciate the color. To clarify on cooling, are labor constraints isolated to process cooling or more generalized?

I'd say the biggest impact we're seeing is not really on process cooling, more on what we have called HVAC cooling, our package business. And really, the main facility there in Kansas is the one that we're seeing. And I would say last year that had been on a negative trend over the year. I'd say, as you know, we've put in a number of countermeasures, we have a number of initiatives, and we've actually seen some nice improvement month over month for the past four or five months, modest, but we are seeing things going in the right direction there. So that's probably the biggest area of impact of labor that we've seen across SBX.

Understood. And staying on HVAC. What's baked in for Cincinnati Fan revenue in year one margin, and how should we think about normalized growth rates for that business and margin potential looking out to year two, three of ownership?

Yeah, so Brian, this is Paul. For Cincinnati Fan, we talked about $60 to $70 million roughly being a good starting point for them from a revenue perspective. Modeling here, I'd probably break it up evenly throughout the year. In terms of margin, we said that they would be eventually accretive to segment margin, implying that they weren't currently. So you'd model something a little bit below the segment average for the year.

Okay, that's fair. And should we think of that business as potentially another platform within HVAC, or is it a clear enough extension of cooling that that's likely where it's going to sit going forward?

yeah right now we see a lot of overlap with cooling and we actually think that can be a lot larger than it is today as as you know every cooling tower has fans and air movement and blowers and we engineer the vast majority of those and and design and test uh those ourselves uh sell those uh both with our uh cooling towers and without so we we know air movement we We have a lot of overlap in our technology there. And then also on the channel, if you look at our go-to-market, both on the light industrial commercial side and then more the heavy industrial, we see some real synergy there. So I think it's a really nice growth product area there. You know, whether we would break it out and call it one of our, you know, right now, the way I think about us, we have six platforms, heating, cooling, and then our four platforms in detection and measurement. I'd say right now we're not anticipating breaking it out separately, but as that grows, I don't know if I would take it off the table in the future.

Got it. Thanks again, guys. Thanks, Brian.

Thank you. Our next question comes from Damian Caron of UBS. Your line is open.

Hey, good evening, guys. Hey, Damian. Hey, Damian. A follow-up question on HVAC. You guys aren't expecting too much margin improvement this year at the midpoint. My math's right, you know, kind of 20% or so incrementals. Maybe you could just elaborate on your margin expectations for the year and talk about kind of price cost, whether you're expecting any tailwinds. from lower steel prices potentially later this year, you know, mixed factors, maybe you could just kind of spell out the HVAC margin guide.

Hey, Damon, this is Jamie. So let me start with price calls because I think it leads into the other question you asked specifically about HVAC. I mean, if you go back into 21, we were ever so slightly had a headwind on dollars with price cost. As you know, cost went up quite dramatically late in the year. We put in some pricing a couple of times in our HVAC businesses. The last one, like October, so it really took effect late in the year and really positioned us probably better for 2022 in terms of capturing that price. That had a negative implication of, let's call it, 50 basis points embedded in the price cost. on total company, if you roll that into 2020, we're seeing a couple things. We think from a price-cost perspective for new business, we will have, we will more than cover our cost that we're projecting and regain some of that margin that we may have given up last year. And that's a couple things. It's both the late in the year, or let's call it the first of the fourth quarter price increases, as well as the price increases we have planned for 2022. That being said, as we enter 22, you know, we do have, you know, a large backlog that's got embedded in it, some price that is reflective, you know, priced in the late third quarter, fourth quarter, that still is compressing the margin a little bit. So as you think about it, you know, as I think about it, the new pricing, the new business, we definitely, in our head, we think of the price and will we gain some that we may have lost last year, but we'd still work through some compression from the backlog.

Okay, got it. And then I wanted to ask about capital allocation. Jamie, you mentioned before, you know, possibly taking down your interest expense. How are you thinking about capital deployment, you know, in terms of timing when you might pull the trigger on, you know, some buyback or some debt down if you haven't got any deals done? And Gene, just, you know, I know obviously you've you don't have a crystal ball, can't comment on timing of deal execution, but maybe you could just kind of give an update on the pipeline and gut feeling whether you think you'll be relatively more or less active this year on the acquisition front.

Yes, sure. Damian, why don't I start on the M&A side or the growth side, and then I'll let Jamie take over the broader capital allocation question. Overall, with M&A, we feel very good. We like where we are today. We've done 10 bolt-ons over the past couple of years. We've added around $350 million of revenue. And if you look at last year, we added three deals with $120 million of revenue. And as you know, in our SPX 2025 plan, we basically said... We're going to go from 1.25 to 2 billion in 2025. 250 million of that's organic and approximately 500 million of that's acquisition. So that's 125 a year. So we're already at that run rate. I would say the pipeline and what we see in front of us, we see a lot of activity. I'd say there's also a fair amount of proprietary activity. So overall, if I look at the opportunity, and as you know, where we sit today, we have approximately a billion dollars of opportunity to invest in growth. I think it's an attractive opportunity in front of us. And, you know, our target would be to be ahead of our plan for the SPX 2025 plan. But we're already running, I would say, at that run rate. On the logical question would be, hey, how's pricing? Pricing is still, you know, it's not a cheap market. I'd say it's a very aggressive market, particularly in some larger opportunities. I would say particularly if you're looking at scale detection and measurement businesses, we're seeing some very high multiples. But with our strategy and with, you know, the way that we've managed this, we feel very good we'll be able to accomplish our goals. So that's the M&A side. Why don't I hand it over to Jamie to keep going here?

Yep. So, Damian, I think Gene set up the conversation well because when I joined the company, one of the things that attracted me to the company was it had a very strong balance sheet with a lot of energy around growing through acquisition and organically. Having that billion dollars available, we look at every day how we're going to allocate capital and put it to use effectively. You know, in the remarks, we did note there's about 11 cents of interest in our P&L that we could take out if we wanted to. We purposely have made the decision not to do that at the present time because we do think we have some really good opportunities in the acquisition front. Were we to move down with a larger type transaction, we would you know, probably redo that capital structure at that time and, you know, kind of extend it out and just reposition it. But today, as just to pay that down, it's a choice we're choosing not to make. That being said, you know, I think when it relates to buybacks in particular, first of all, we think we have a very good growth story. We sold Transformers because we wanted to reposition the company in higher growth, higher margin, you know, pieces of our business and we deploy the capital in those areas. That being said, you know, we constantly are watching, you know, kind of the market and our stock in particular. And if we were to see, you know, where there's a dislocation, if you will, of what we see looking at it internally from a valuation perspective, we would definitely, you know, take action against that. You know, we do have, as a reminder, $100 million of authorization that the board has granted. that we're working against or with. In the market that we're in today, as we all know, what we don't want to do is get in front of a bad market. We do not want to do that. But what we do want to do is support our stock if we believe it is kind of singled out as being dislocated from what we see the value being. So it is on the forefront of our thoughts, but I kind of leave saying Our M&A strategy is our number one growth objective for capital allocation right now. That being said, buybacks are clearly something we've got in our sight to keep an eye on.

Makes sense. Thanks for the thoughts. Best of luck, guys. Thank you.

Thank you. Our next question comes from Steve Farazani of Sudoti. Your line is open.

Good evening, everyone. I wanted to follow up a little bit on the M&A questioning. I just wanted to ask, and I know some of the previous acquisitions were on the DNM side, but you've always said you'd still be looking on the HVAC side. As you noted, sort of the margin profile and the growth profile improve as you make more of those DNM acquisitions. I'm just trying to get a better sense of how and why you think Cincinnati fan fits within sort of this progression over the next couple of years. Sure.

Yes, Steve, good evening. I think if you look at the data, the 10 hold-ons that we have done, three have been in HVAC and seven have been in DNM. And we've said that these acquisitions before Synergy were right around 20%. They're around 19.7% if you aggregate them all up. And we actually think we can get more margin acquisitions you know, via cost synergies predominantly, but also some revenue synergies on some of these. So we actually feel like these have been very accretive to our overall margin profile. We also think they've been very accretive to our growth profile. And I actually think there's some very attractive opportunities. I don't see a lot of difference on DNM and HVAC in terms of the attractiveness of the opportunities. With regards to Cincinnati fan, I would say that'd be modestly, you know, a little bit under our segment average for HVAC this year. I would anticipate that to be at or above the segment average next year. So, you know, we, we acquired Cincinnati fan on December 15th. So we've really started to get in there and, and, um, Started all of the integration processes and so forth, but I actually feel like that will end up being a very good Growth area for us going forward and yeah, I'm very excited about that one in particular Great thanks an interesting question on the balance sheet on working capital certainly know that a lot of companies have built up inventory given the supply chain constraints and

trying to think about where, how you're thinking about inventory and working capital in general in 2022 and where you're comfortable with given the current supply chain constraints. And is that build on inventory really related to that? Or is that just the dollar cost, higher dollar cost of the inventory you're carrying?

Yeah. A couple of things there, Steve. I think specifically to management of working capital, I mean, it's, an initiative really we kicked off in 21 is going to be a more emphasis on it in 2022 but not from the context of minimizing or lowering working capital i would call it right-sizing working capital given the supply chain challenges are out there and a lot of times you think about managing working capital is always taking it down i always clearly want to use it effectively and so um We've actually – we have our MBRs. We actually encourage folks to, you know, let's be buying safety stock or component parts if we need to because having it and carrying the working capital is much more effective and advantageous than running out of it, obviously. And so it is an initiative that we want to look at, but it's more about right-sizing it given the environment we're in. What you see, I think, on the balance sheet is probably most reflective of two things, the higher cost of inventory generally, and also the increase in inventories because of some of the acquisitions. And when you look at it period over period, you don't have that in the beginning balance sheet numbers.

Thanks, everyone.

Again, to ask a question, please press star 1 on your touchtone telephone. Again, that's star 1. on your touch-tone telephone to ask a question. Our next question comes from Walter Liptack of Seaport. Your line is open.

Hi. Good evening, guys. So I wanted to ask about DNM. The operating margins looked really nice in that segment, and the operating leverage looked just terrific. I wonder if you could just talk a little bit about that margin again. And was it the mix of business or was it leverage? You also had some acquisitions coming through. Were they accretive to the margin?

Well, this is Jamie. And that's obviously a great question. It's something we're focused on very much. I think if you look at the quarter in particular, It's driven by a number of things. We had a locator business, had a really strong quarter, but also our project businesses, particularly our transportation business, Gen Fair, and our TCI business in ComTech. You know, you've heard us talk in many quarters that we've seen projects get pushed out in the incremental margin that flows down because of that. I think what we saw in the fourth quarter was some of those projects come into fruition and the incremental margin that goes to the bottom line or to the gross margin line because of those projects. You know, we had, Gen Fair had a great quarter. A lot of things we've been working on for several months and several quarters came together. Same for TCI. So I think you see the reflection and the margins of really the power of the model. Unfortunately, sometimes it's a little volatile in a given quarter, but in the long run, we think it's got some good, attractive margin profiles to it.

Okay, great. And with the backlog up 14% organically in DNM, and I think there was a comment that you guys have a nice front log of business. I was wondering about the guidance around DNM's margin for the year. Is it front-loaded, back-loaded, you know, how will the project workflow in 2022? Yeah, well, so this is Paul.

As we talked about in the prepared remarks, at least the first part of that, the first quarter, obviously, is going to be more of a challenge from a margin perspective, given the project log that we're seeing in ComTech. and also because of the ULC dynamic. But as you progress throughout the year, we would expect to see those lift year over year. As you get to later in the year, typically in our ComTech business, because of budgetary cycles, that tends to be a little bit late in the year or back in the year. So you would expect that to be a higher margin.

Okay, sounds good. And I'll just ask the final one on M&A. We've seen some companies' valuations coming down here in the market with concerns about the Ukraine or supply chains or other things. How are you seeing the private company valuations? Are you starting to see valuations come down at all?

You know, I think... Just my perception, you don't see a lot of change on that week-to-week or month-to-month too rapidly. I think that, as you know, Walt, we've been very careful. Our blended price is in the neighborhood of 10 and a half times. That's before Synergy. And so we've been very careful about pricing. I think you do see, particularly on larger deals, particularly larger DNM deals, you will see a lot higher pricing. You know, you're talking mid-teens or very high teens in some cases that we have seen. So I don't think I've seen a lot of change. I think it's a good point, however, particularly with, you know, if there's a reset on multiples ultimately in the public markets, will that ultimately flow down to the private market pricing, I think that could happen. But we think we have a good model, a good value creation strategy, and I haven't seen any deviations that would cause us to change that going forward.

Okay, great. Thanks for taking my questions.

Thanks, Walt. Thanks, Walt.

Thank you. At this time, I'd like to turn the call back over to Paul Clegg for closing remarks. Sir?

Okay, thank you all for joining us on the call today, and we look forward to updating you next quarter. Please feel free to reach out to our IR team in the meantime if you have further questions.

And this concludes today's conference call. Thank you for participating. You may now disconnect.