SPX Technologies, Inc.

Good day, and thank you for standing by. Welcome to the Q3 2025 SPX Technologies Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To answer other questions, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today.

Thank you, operator, and good afternoon, everyone.

Thanks for joining us. With me on the call today is Gene Lowe, our president and chief executive officer. A press release containing our third quarter results was issued today after market closed. can find the release and 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. The replay of the webcast will be available on our website. 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. Our comments today will largely focus on adjusted financial results and comparisons will be to the results of continuing operations only. You can find detailed reconciliations of historical adjusted figures from their respective gap measures in the appendix to today's presentation. Our adjusted earnings per share food amortization expense, acquisition-related costs, non-service pension items, mark-to-market changes, and other items. And with that, I'll turn the call over to Gene.

Thanks, Mark. Good afternoon, everyone, and thank you for joining us. On the call today, we'll provide you with an update on our consolidated and segment results for the third quarter of 2025, as well as an update on our outlook for the remainder of the year.

Our Q3 performance was strong.

We grew third quarter adjusted EPS by 32% and drove significant profit and margin growth in both segments. To reflect our strong performance in Q3, at the outlook for the fourth quarter, we are raising our four-year guidance range. We now anticipate adjusted EBITDA to exceed $500 million at the midpoint of our updated range, implying approximately 20% growth year-over-year. During Q3, we raised additional capital through an equity offering and increased the capacity of our revolving credit facility. These actions provide us with more than $1 billion of additional liquidity to support our organic and inorganic value creation initiatives and do not have a dilutive effect on our 2025 EPS. We also continue to progress on several key organic initiatives including the expansion plans for our engineered air movement businesses and launch of the Olympus Max product, a new large-scale cooling solution. Inorganically, our M&A pipeline remains robust with several attractive opportunities. Turning to our high-level results. In the third quarter, we grew revenue by 23%, driven by strong organic growth in both segments and the benefit of recent acquisitions. Adjusted EBITDA increased by approximately 31% year-over-year with 150 basis points of margin expansion. As always, I'd like to update you on our value creation initiatives. Over the past quarter, we've continued to gain traction on our growth and new product initiatives. We're making meaningful progress on expansion plans for our engineered air movement businesses where we see significant demand in excess of our current production capacity. We closed on a leased facility in Tennessee for US production of our TAMCO actuated dampers. We expect production in this facility to begin in the latter half of next quarter. We're also progressing on our expansion plans to produce Ingenia custom air handling units in the US. We are currently targeting a location in the southeast and will provide more detail next quarter. On the new product front, our Olympus MAX product, a dry and adiabatic cooling solution focused on the large-scale needs of data center customers, continues to receive excellent feedback and engagement from customers. We are on track to achieve our objective of booking $50 million of Olympus MAX orders in 2025 for revenue in 2026. Now, I'll turn the call back to Mark to review our financial results.

Thanks, Gene.

Our third quarter results were strong. Year-over-year, adjusted EPS grew by 32% to $1.84. For the quarter, total company revenue increased 23% year-over-year, primarily driven by higher project sales and detection and measurement, as well as inorganic growth from the acquisitions of KTS and Sigma and Omega. Consolidated segment income grew by $32 million, or 28%, to $146 million, while consolidated segment margin increased 110 basis points. In our HVAC segment, revenue grew by 15.5% year-over-year, with 6.7% inorganic growth and a nominal FX impact. On an organic basis, revenue increased 9%, with solid growth from both cooling and heating. Segment income grew by $14 million, or 18%, while segment margin increased 50 basis points. The increases in segment income and margin were largely driven by higher volume and associated operating leverage. Segment backlog at quarter end was $579 million, up 7% sequentially from Q2, all organic. In our detection and measurement segment, revenue increased 38.4% year-over-year, with strong organic growth of 26.5%. The KTS acquisition accounted for an increase of 11.6%, and FX was a modest tailwind. The increase in organic revenue was predominantly driven by higher ComTech project volumes. Segment income grew by $18 million, or 53%, and margin increased by 240 basis points. The increases in segment income and margin were primarily driven by operating leverage on higher organic sales and the KPS acquisition. Segment backlog at quarter end was $366 million, flat sequentially. Turning now to our financial position at the end of the quarter. During the third quarter, we accessed the capital markets to further strengthen our balance sheet and support our growth strategies. we completed a $575 million offering of our common stock. A portion of the net proceeds from this offering was used to repay the outstanding amounts under our revolving credit facility. As a result, there is no dilutive impact to 2025 EPS. We also amended our credit agreement to increase the capacity of our revolving credit facility by $500 million to $1.5 billion and extended the maturity of our credit facilities to 2030. Following these actions, our liquidity increased by more than $1 billion, and our available capacity now exceeds $1.6 billion. We ended Q3 with cash of approximately $232 million and total debt of $502 million. Our leverage ratio is calculated under our bank credit agreement approximately 0.5 times at quarter end. Q3 adjusted free cash flow was approximately $91 million. As is typical, we anticipate Q4 to be our highest cash flow generating quarter of the year. Moving on to our full year 2025 guidance. We are updating adjusted EPS to a range of $6.65 to $6.80, reflecting our strong Q3 results and Q4 forecast. This represents an increase from our previous range of $6.35 to $6.65, and reflects year-over-year growth of approximately 21% at the midpoint. For our HVAC segment, we are maintaining revenue and margin guidance and remain confident in the fourth quarter forecast. In detection and measurement, we are increasing full-year margin guidance to a range of 23.25% to 23.75%, raising the midpoint to 23.5%. This represents year-over-year growth of 140 basis points. We expect Q4 revenue for the DNM segment to be modestly lower sequentially due to the timing of project deliveries between Q3 and Q4. As always, you will find modeling considerations in the appendix to our presentation.

And with that, I'll turn the call back over to Gene. Thanks, Mark. Market conditions support our increased full-year outlook for 2025.

Within our HVAC segment, we continue to see solid demand in key end markets. Our strong backlog of highly engineered solutions and efforts to increase production capacity further reinforce our confidence in HVAC's growth opportunities. In our detection and measurement segment, we are seeing steady run rate demand. For our project-oriented businesses, we have a strong backlog and feel confident in our forecast for the fourth quarter. Looking to next year, front log activity remains steady. However, as we highlighted last quarter, approximately $20 million of project sales shifted from early 2026 into 2025, creating a modest headwind for next year. In summary, I'm pleased with our strong Q3 performance, including significant profit growth in both segments, an equity offering, an expansion of our revolving credit facility, which together provides more than $1 billion of additional liquidity with no dilution to 2025 EPS, and the continued progress on our U.S. capacity expansion and new product initiatives. We are well positioned to achieve our increased full-year guidance, which implies 20% growth and adjusted EBITDA and adjusted EPS at the midpoint. We also see multiple opportunities to continue growing our businesses both organically through our robust M&A pipeline. Looking ahead, I remain excited about our future. With a proven strategy and highly capable experience team, I see significant opportunities for SPX to continue growing and driving value for years to come.

With that, I'll turn the call back to Mark. Thanks, Gene. Operator, we will now go to questions.

Thank you. As a reminder, if you would like to ask a question, please press star 11 on your telephone. We also ask that you please wait for your name and company to be announced before proceeding with your question. One moment while we compile the Q&A roster. The first question today will be coming from the line of Brian Blair of Oppenheimer. Your line is open.

Thank you. Afternoon, Jessica.

Another very solid quarter. Given we're almost in November and you have supportive backlog in both segments, maybe speak to your team's visibility into 2026 and which platforms are across which end markets you're most confident in sustained growth and to balance that where there may be some watch items as you look to the new year.

Is your line on mute? Oh, okay. Can you guys, like, I'll assume you can hear us now.

We can hear you. Okay. Thanks for your question, Brian. So, yeah, I think if you step back and you look ahead to 2026, overall, we feel very good. If you look across our HVAC businesses, you know, we do have a diversity of product lines and And frankly, we're feeling pretty positive across all of our business areas. If you look at the markets that we see the most strength, those really haven't changed from what we've talked about in the past couple of quarters. We're seeing really sustained strength in data centers. We feel like we have some nice momentum there. Same in health care, institutional. We're also seeing a lot of activity. You know, I'd say the industrial markets are seeing a little bit. Those have been kind of flattish. We're seeing some modest growth there, which I think is a positive. And we're seeing more power activity in terms of some bidding and so forth, which could yield some opportunities. Some of the markets that have been relatively... lower or also similar, more commercial buildings, more hotels, things like that. But net-net, we feel very good about the markets. And then, you know, when I look at the markets, I feel good. But then I think about our initiatives on top of that. Probably the biggest one we've talked about is the Olympus Max. That's our new data center cooling solution that's either Dryer, ADB Attic, very good products. They're very good about that. That's a whole new market for us that we have not served. So, you know, we see the opportunity, as we've said, targeting 50 million of bookings this year, which is really revenue next year. We believe we're on track for that. We also have some capacity expansions for some businesses that there's just a lot more demand for our products, notably PAMCO, Ingenia, and Marley. So, you know, when I look at HVAC, I feel very good about the end markets and then our initiatives to drive further growth. You know, I think if you look at some of the third-party people who track markets, they would predict for the non-resi market probably mid-single digits. We would believe that we would target to be higher than that with our initiative-driven growth, as I just highlighted. On DNM, I would say overall run rate is steady. We're seeing some modest growth there, and it is a little bit of a very different geographically where the U.S. remains stronger, and we are anticipating that into 26th, see some good pockets in some areas that are really going nicely there. And then I'd say more flattish ex-US, talking about continental Europe. We are seeing an uptick in UK in some areas. But overall, I would say steady, modest growth in our run rate. And then our projects, we have very good activity. You know, we did, and Mark can tie this out, we did some of that, which we had in 26, that's accelerated into 25. And then we have a very high backlog. Now, some of that backlog is more, is not only 26, but we actually are having a lot more multi-year projects, which is really good, but we have to make sure we understand what falls into the forward year of 26. But overall, Now I would expect growth in DNM as well. So I think the backdrop for what we see is positive. Mark, what color would you like to add overall on DNM?

Yeah, I think I might just add across really both segments, right? We're in very strong backlog positions. They're kind of, for both segments, really both at or near all-time highs. So, you know, really good position from that perspective. As I look into 26 and I think about how much of that backlog, is scheduled to deliver in 2026 is about 40%. And that's similar across both segments. So we're in a nice position as we sit today looking out into next year. Jean did mention this one handful of projects that were originally in our 26 backlog. They actually delivered in Q3 in our DNM segment. I think we referenced that in our Q2 call, but they ultimately... were delivered and the revenue was recognized in Q3.

Understood.

I appreciate the walkthrough. Encouraging trends overall. Maybe offer a quick update on KTS and Sigma and Omega integration. How are those assets performing relative to deal model? And then given your now quite significant balance sheet capacity, that'd be great to hear more about your M&A pipeline. By platform, where do you see the most attractive opportunities and of the I believe you mentioned several attractive targets, any that are potentially actionable over the near term. Thank you.

Yeah, I would say we feel very good about both KTS and Sigma and Omega. Sigma and Omega is a little bit newer, so we haven't, you know, it's at an earlier stage. KTS is already, it's really kind of built in and operating, you know, to me operating is one with our ComTech business. Couple of points there. We're actually seeing some nice, nice wins. You know, they have gotten a few new things, proclamations from the government where they are becoming the basis of design and the standard. They've expanded into some different areas. So ATS we feel very positive about. We love their technology. I believe we mentioned in our last call, we're launching a joint product with KTS and then the legacy TCI business in Q4 in this quarter. And I think there's a lot of excitement around that. So KTS, I would say, we're feeling very positive about. And then Sigma and Omega, similarly, really good team, really nice win rate. That's, you know, the way that we think about that market is really multi-level applications, you know, hospitals or it could be hotels or it could be, you know, condos, things like that. And there's typically a boiler and there's typically a cooling tower. And so a key part of our thesis there was we They're very strong in Canada. We think we can help them grow more in the states where we have an established channel. Particularly our Marley channel is very strong, and then our Patterson Kelly channel, that's our commercial boiler line. So we have already signed up. I don't have the latest numbers in front of me, but I know of three or four that have already picked up and are very excited about Sigmund Omega. And not only are we expanding geographically, but they've launched some new products with COIL and then within their self-contained units. So they have some good innovation going on. So, yeah, I think that that fits very nicely within our hydronics business. The teams are working well. And I will say with both of those, really good leaders and really good teams and really good cultural fit. So, you know, it's still early. but off to a very positive start. The second question you had on M&A, I would say, and I know we've said this, it is very, we have a very high level of activity. We have a number of processes underway. And I would say as we look into 2026, we feel very good about strategic capital deployment. You know, we're going to remain disciplined. But there is a very attractive set of opportunities. On the HVAC side, I would say, you know, we've talked about engineered air movement as well as electric heat. In each of these areas, we see several opportunities that are very attractive opportunities. And then also on detection and measurement, we see some very interesting opportunities. I'd say a smaller number. We still see have a, say, right now a more active pipeline on the HVAC side, but some very good opportunities. So we feel very good as we think about, you know, moving into 26. And, you know, as Mark alluded to on the call, I mean, we really, we got basically a billion dollars almost for free. You know, there's no EPS solution. So it's kind of a really unique circumstance where you can expand your balance sheet so much and have the same level of earnings. And so that gives us the opportunity to invest in growth opportunities. And we're also going to be investing in some organic opportunities as well. So yes, overall, I would say feeling very good about the pipeline and the opportunities that we have in front of us.

Very helpful color. Thanks again.

Thank you. One moment for the next question. And the next question will be coming from the line of Damian Karras of UBS. Please go ahead.

Hey, good evening, everyone.

Hey, Damian. Hey.

I wanted to ask you first about the capacity expansion plans. Gene, you talked a little bit earlier about the – Tamco production going to be coming online later this year in Tennessee, and you're looking for a spot in the Southeast Virginia. Uh, could you just maybe give us a sense for. You know, initial production capacity, uh, how to think about that, how much you're planning to bring online and, uh, and then just, you know, the, in terms of the equity raise that you guys just did, like how much, uh, kind of investment, uh, outlay or for these expansion plans, are you expecting?

Yeah, I'll give a little bit of color, and then I think some of it we're not prepared to talk to. I think the TAMCO one is basically done. We've signed a lease. We're actually very excited about this. This is a 150,000 square foot facility, very similar to our existing facility. We actually think we can ramp this up over time. So, you know, we're very excited about that. And as we said, we're You know, we're targeting to get some of the equipment commissioned and to start. You know, it takes a while to ramp up, but by the end of Q1, we should get going there. But very good opportunity. That's in Tennessee. And we actually think that that will really give us the opportunity to grow quite a bit. That's very capital light. I actually think most of the capital is It has already been deployed there.

Some of it will be this year and then some in the next year.

A little bit next year. The bigger one will be the expansion of Ingenia. That's going to be a much larger site, probably in the neighborhood of, it could be three times as high. Again, we're making great progress there, but we're not at the point at which we can really say anything. What we are anticipating is by the end of, by our next earnings report, we should be able to kind of lay out very specifically what the investments as well as the revenue expansion capacity

is for all of those and mark you'd like more color there yeah i think we're just working through the finer details uh you know of the site and uh you know we when that ultimately we actually acquire uh that facility you know it's going to drive a little bit of the timing and the timing of the capital spend so uh as gene mentioned we're going to be prepared to provide more color uh to you in you know at our q4 call and we'll really walk people kind of the step function of what our plan is.

Obviously, it's a much larger facility, so it's more capital in there, you know, for those of you who went to Ingenia, think of an Ingenia. You'll see the lasers, the punches, the night train, the robotics, you know, so it would be a similar level of capital equipment.

Okay, gotcha. That makes sense. We'll look forward to getting that, uh, updated in, uh, in, in another few months. And then I wanted to ask you about the opportunity in nuclear. I think I asked you guys about that, you know, maybe a little over a year ago, but we've had a lot of developments in the market since then. So I was curious if you maybe started seeing some of those opportunities, uh, come the way of your HVAC business. you know, what do you think your entitlement is in that specific market? We really appreciate any thoughts on just nuclear.

So nuclear, if you kind of take, you know, the existing nuclear market, you know, rough order of magnitude, there's about 100 nukes in the U.S. About half of them have cooling towers. The other half would have what's called once through cooling. You know, that's where you use a lake or a, an ocean or something to provide your cooling. Of those that have cooling towers, we have a very high percentage of those units. You could see natural draft towers. Those are the big towers people think of when you think of nuclear power plants. They could be mechanical draft. There's a variety of technologies, but we have a very strong position there. So how does that affect us? as people want to keep power as a scarce resource right now. And there's a lot of demands on power. So upgrading your cooling towers, oftentimes you can get an extra 50 or 80 megawatts out of your power plant very quickly. And so that could provide some opportunities for us in the existing infrastructure. Could be nuclear, could be gas, could be coal. You know, we're seeing some of those types of opportunities. As it pertains to new nuclear, I would say that we see a lot of combined cycle power plants. There's a lot of combined cycles going all across the U.S. That seems to be the go-to. Really, if you want baseload power within the next few years, it looks like that's really your only option. You're seeing a lot of activity there, sometimes paired with data centers. And we do have an opportunity to go after the cooling towers there. Combined cycles tend to be a little smaller. But yeah, we see it as an opportunity. But the brand new nuclear, I don't think we see anything in our planning horizon, I would say, over the next two or three years.

Okay, that's helpful. Thanks a lot. I'll pass it along. Thanks. Thank you. And one moment for the next question, please. The next question will be coming from the line of Andrew Maubin of Bank of America. Please go ahead.

Hi, guys. Good afternoon. Hey, Andrew. Hey, how are you? So first question, I guess some of you, well, I don't know if they're competitors per se, but some of the HVAC players have been talking about push out of large projects. related to data centers, I would imagine it's because the industry is sort of out of capacity across the value chain. Any comments that you see, any push-outs on large projects that you guys observe? Thank you.

Andrew, not that we've seen, and we have a number of large accounts in U.S. and Asia and Europe, but You know, I think when you get into some of the large projects, they tend to be, you know, imperfect in terms of planning. You know, so you could take a large power project or a large automotive project or a large semiconductor, and I would put data centers in that same capacity. So there's always a little bit of uncertainty on timing, but I haven't seen anything out of the ordinary. What I would say is There's a very high demand from our key customers. They're very open with us about the demand profile, and they're very much pushing us to make sure that we can meet their timelines. So, you know, to answer your question specifically, there's always a little bit of push outs here and there, but I would say nothing out of the ordinary.

Gotcha. Thank you so much. And then just, I know you have residential exposure. And what we've seen is, you know, some pressure on consumer this summer. Are you observing any headwinds related to consumer and HVAC? And, yeah, I'll just leave it at that. Thank you.

Andrew, you know, if you look at where we play in residential, it's a pretty small part of our HVAC segment, and it's really the wild McLean boilers. And that is a very high percentage of replacement demand. If anything, we're actually seeing nice growth there. That's predominantly replacement demand. We think, you know, any given year could be 80 to 90% replacement for the residential portion. I would say the commercial portion has a higher percentage of new. But, yeah, we have not seen any slowdown or impact from the customer side. Um, you know, I think it's early in the heat season. Uh, but even, even, um, I, I spoke to the, uh, uh, the lead, the higher, our hydronics leader this morning, I believe we're a little bit ahead of Booking's plan. So we're actually feeling on target. Anything else, Mark, you'd like to add?

No, I mean, it's really that, that business, I think is, is, uh, many of you know, is, is largely driven because it's largely replacement by, uh, you know, the weather cycle, uh, for good or bad. And, um, You know, last year was a tough year for that business, but this year is different. It started off, you know, in a much better place.

I think we have a little bit of an easy comp versus last year. I think that's fair to say.

Well, we're super excited to be on board, and thanks so much.

All right, welcome. Thanks. Thank you. One moment for the next question. And the next question is coming from the line of Ross. Sparingly of William Blair, your line is open.

Good evening, gentlemen.

Hey, Rob.

Hey, guys. Maybe just get a little bit more culture on kind of your adoption expectations within the new Olympus product. What are you hearing from customers? We're targeting $50 million this year, but what's kind of the run rate, maybe base case for 2026?

Yeah, I think we would target to get 50 million into next year for the product. I would say the, you know, when I think about this, I actually have conviction on our value prop and our product. I think we have a very unique product on the dry and the ADB attic. I think it leverages a lot of our kind of core Marley strengths where we tend to be known for our engineering, our industrial grades, you know, products, I think it transfers very well. You know, having said that, what I would say is, you know, there's four kind of big cojones, you know, for the hyperscalers. They all have different philosophies on how they design their data centers. You know, do they want wet or dry? There's many different variations. So it does take some time. to break in there. But what I would say is we're on track and we feel very good about this brand new product hitting 50 mil. And I would expect it to kind of grow from there. And if we're successful, it could grow very rapidly into 27 and 28. But we're off to a nice start. There's a lot of bidding activity and there's a lot of discussions going on. You know, there is in some of these markets, as we discussed in an earlier question. There's a lot of also budget bidding where people are trying to get a site and trying to get funding. So you get a lot of what you'll typically see on these larger projects, some of the lumpiness and the timing changing. But what I would say is there's a very good set of opportunities in front of us. And I think we have the right product set. So, yeah, we're very encouraged and excited to go into next year with our Olympus Max.

That's really helpful. So it almost sounds like it's kind of some big game hunting with the hyperscalers. Do you guys feel that you have a good seat at the table in that design phase?

Yeah. And, you know, as you know, the hyperscalers typically have – confidentiality. So, you know, we can't get, you know, into some of those. But what I would say is, yeah, I do think we have a number of data center customers that we've been very proven with. You know, as you know, there's some customers, they say, we only want cooling towers. And then, you know, you try to be, some only want dry coolers. And I think what is going on at a macro level is you're seeing a movement towards higher heat loads, which tends to mean the easiest and the simplest is air-cooled chillers. If there's an air-cooled chiller, that doesn't really provide an opportunity for us because it's an all-integrated unit. As it goes to water-cooled chillers, we could either do the dry, the adiabatic, or the cooling tower on that. And everything we're hearing and seeing sees a trend moving towards that water-cooled chiller solution because you can, you really can reject more heat, frankly. So, yes, I think that's a trend that I think is favorable. It doesn't happen overnight, but it should be shifting over the next couple of years, which I think what it basically means for us is it can open up more addressable opportunity.

That's great, Keller. One last question here. Can I just put a finer point on the KTS acquisition? I thought the expectations there previously was more second-half weighted, but it looks like it might have been down sequentially in the quarter. Is there anything to call out from a modeling perspective?

Yeah, I don't think so, Ross, no. It is second half weighted, no doubt. And I think the fourth quarter will be its largest quarter. But we can chat about that offline just to sync up what you're saying.

Thanks. Thank you. One moment for the next question. And the next question will be coming from the line of Joe. Odia of Wells Fargo, your line is open.

Hi, guys. Thanks for taking my questions. Hey. Hey, how you doing? Can you just touch a little bit more on detection and measurement in the quarter? I think you're heading into the quarter anticipating that margin could have been down. Clearly, strong revenue, strong margin. I think this is an environment where we hear a little bit more about the potential for pushouts. It sounds like things came in. And so just to elaborate a little bit more on what you saw over the course of the quarter, maybe why you saw it come forward a little faster than anticipated.

Yeah, Joe, let me touch on that. And first of all, I think we're really, really pleased with the initiatives and the success and progress we've had on driving margins across our D&M platform. But really, I would sort of break it down into three buckets. when you look at year-over-year, you know, sort of 240 basis points of margin improvement at the segment income line. A part of that, probably 40, 50 basis points of it really related to ATS. That business is performing at a higher margin level than, you know, we had originally forecasted. So that business is performing nicely. We saw very nice operating leverage in the quarter on the revenue. And this is sort of a less favorable mix, you know, that we had signaled in the back half of this year, particularly relative to last year. Now, remember, we had $20 million of this project move up from 2026 that sort of added to the volume story here that wasn't, you know, originally in there. You know, that really drove very nice operating leverage. Those contracts actually executed at a higher level than we thought. And then lastly, we did have some initiatives within D&M related to some NPI and a couple other initiatives that have actually shifted out of the year. They're kind of shifting into 2026. And that's really largely, I think, just prioritization of... where the management team is spending their time and resources right now. I think we probably had more slated than we could really accomplish during the year. So those are still projects that are going to continue. Those costs will be there, but they're going to slip out into 2026, that cost. So the latter two, I didn't give you that. It's about, of the balance, called 200 basis points, splits about 50-50.

That's helpful color. And then I wanted to ask on the HVAC backlog up 7% sequentially, seems like seasonally from year to year, maybe it tends to be flat or could even move down. And so not sure if you would observe that as a little bit better than normal seasonal trend there and anything that you would point to that's contributing to that.

Yeah, I think, you know, I mean, on the backlog, a couple of things. One, when you look at it kind of year over year, it's up 32%. Organically, it represents about two-thirds of that. So nice year over year. Sequentially, you have a couple things going on there. Obviously, we typically see backlog reduction at this time of the year related to our hydronics business. So as we work through, you know, what we call kind of the pre-season buy that takes place that will, that happens at this time of the year, and then you'll see it, you know, again in Q4 as we relieve inventory related to that. So, you know, that's a little bit what's driving it. You know, as I look to the end of the year, what I would tell you is, you know, I think backlog overall,

from where we are today will likely be higher. I appreciate it. Thank you.

Thank you. One moment for the next question. And the next question will be coming from the line of Brad Hewitt of Wolf Research. Your line is open.

Hey, good afternoon. Thanks for the questions.

So I guess on the M&A side, Curious whether the billion dollars of additional balance sheet capacity that you've secured in recent months would indicate that perhaps M&A funnel is more actionable than it had been in recent months, and would it be fair to say your appetite for a larger deal has perhaps increased?

Brad, I'd say this is probably the number one question we got in the equity raise and I think from some investors. It's a good question, but the truth is nothing's really changed. Our strategy is the same. I would say, to your point, we do have a very robust pipeline of opportunities. You know, I think that really what predicated the raise was, you know, our EBITDA would kind of outgrown our revolver. You know, we'd gotten so, you know, we'd grown our EBITDA so much that we actually saw some opportunities that would have been challenging for us to be able to execute on. We didn't want to get caught in that situation. So we actually feel like we're in a very strong situation now. But yeah, very good activity, but no change in strategy. As you know, for us, we've typically said a smaller deal might be in the range of a $50 million enterprise value. A larger deal might be in the neighborhood of $500 million And that's really where the bulk of our opportunities lie. I would say 90% plus fall in that range. And there are a couple smaller. There are a couple larger. But, yeah, that's where we sit today. Okay. That's helpful.

And then curious what your latest thinking is around ingenia capacity exiting the year. I think the previous expectation was around 140 million. And then when you mentioned the planned ingenious facility in the southeast U.S., is that incremental to the $300 million of ultimate run rate capacity that you had previously cited?

Yeah. No, I think that we're still on track for, you know, hitting a $140 million run rate in this quarter, in Q4. But if you look at it, our revenue is going to be materially lowered. We're kind of ramping up, and that's really in our Mirabelle facility. And then previously when it was talked about the 300 million run rate, which we're really talking about is that run rate being Q4 of 2027, that is both facilities. That is both Mirabelle up in Canada outside of Montreal, and then the new facility, which we're pretty close on, and we should be able to announce here in our next earnings call. Yeah, it'd be both of us put together. Great. Thanks, Jean.

Thank you. One moment for the next question. And the next question will be coming from the line of Jamie Cook of Truist Securities. Your line is open.

Hi. Good evening. Nice quarter. I guess just two questions. One's following up on Joe's question about the profitability in DNM, obviously it was strong in the quarter and there were some, you know, favorable items in the third quarter. But even if I look at the run rate of what's implied in the fourth quarter, like just the run rate on DNM operating income, you know, it's quite a bit higher than what we've seen in the first half of the year. So just wondering if that's like a good cadence to think about, like the back half times two for base for 2026, just given, you know, what you're seeing on the top line and in the margins. And then I guess my second question, you know, just any, you know, updated thoughts on your 2027, 2028 sort of EBITDA goals, just given, again, where we should end up this year and given how much EBITDA has grown per year since you've put that out, it just seems like that could get pulled forward or potentially it's conservative. So, thanks.

Yeah, Jamie, I'll start on the...

I'll start on the DNM topic. So, you know, you really have to kind of look back to our, you know, our increase in our guide for the year, which was largely driven by DNM, the majority of it was, and kind of understand what's driving that as you look out to kind of what's implied in Q4. And there's really three things that we, that they're similar to Q3, they're connected to it. One is KTS margin improvement. You saw a little bit of that in Q3. You're going to see more of it in Q4. These initiatives that I talked about, that impacts both Q3 and a little bit in Q4, less so. And then the better leverage was really a Q3 element. So you think about KTS and the margin benefit from that. given that will be the largest quarter for the, did we lose someone? Okay. For that business performing this year. Does that clear it up for you?

Yeah, that's helpful. Thank you. And then on the 2027, 2028 EVA job targets?

Yeah, I mean, I think Why don't I start there, and then you can dive in. We had our investor day in the early 2024, so we kind of looked at 2023, which our EBITDA was 320 million. Is that right? Yeah, so 310. 310, okay. 310 million, and we said we think we can double this within a medium term, which would be four to five years. To your point, I think we're tracking very favorably on that, so... You know, we went from 310 to 421 last year. I think we're 505 at the midpoint this year. We're seeing nice growth dynamics, particularly on our HVAC side, as well as some good inorganic opportunities. So yeah, if I were to kind of say that was four to five years, I would say I'd be disappointed if we weren't The five feels too long. I do think we're ahead of plan here. And Mark, I don't know if you have any other comments you'd like to add to that.

No, I mean, I feel good about where we sit. I mean, particularly as I look out, you know, at our end markets that are, you know, in some of the longer-term megatrends that are thriving.

We very clearly say we want 15% growth every year. This year we're penciling in around 20%. Last year we were 29%. We think our model is tracking as we expected. So yeah, we'd expect, assuming we stay on plan, we would exceed that well before the five years.

Thank you and congratulations. Thanks. Thank you.

One moment for the next question. The next question will be coming from the line of Jeff Van Sinderen of B. Riley Securities. Your line is open.

Hi, everyone. And let me add my congratulations. Just as a follow-up to the last question, as you plan for 2026, what are your thoughts on building incremental P&L leverage for the enterprise as a whole? and maybe thoughts on potential for EBITDA margin expansion just for next year. Are there any anomalous things that we need to keep in mind that might skew that either way?

Yeah, I'll start, Jeff. I mean, I want to be careful. We're not in a position where we're going to share 2026 guidance today. But I don't think of anything anomalous. I'm just sort of thinking through You know, a couple things. I mean, when I think about our corporate structure that we have here in Charlotte, I mean, we're scaled, I think, appropriately today and really not a need to continue to really add to that as we scale the business. So, you know, clearly, I think, you know, next year, we are going to have some startup costs related to HVAC. We've got a little bit of that in this year. with respect to some of the initiatives we have underway you know regarding the data center development of some of the new technologies there the new plants that will be coming online so that's you know while they well the first was kind of a you know positive that that's something that it has potential to be a bit of a potential drag but it shouldn't be a material number really when I think about you know, the margin profile for next year. I mean, what I would say is, you know, I feel very good about what we've done over the last few years, whether it's kind of, you know, driving the margin profile of the HVAC business up to where it is and, you know, similarly returning the DNM business to the margin profile that it once was a number of years ago. So, you You know, if I look forward, you know, you think about as you continue to grow the top line, you know, we should get operating leverage there.

Okay, great. And then you touched on potential pushouts in the data center market. Given the nature of that data center beast, on the flip side, are you seeing any pull forwards in demand from any projects there?

Yeah, I would say it's a very fast-moving fluid environment where, yeah, there are some things that accelerate and can move, yeah, can definitely move up well earlier than planned. In some cases, you have some of these polos that will get a facility and they'll set up. location and then they want to get a customer or a major tenant and once they get it all of a sudden they're moving 90 miles an hour and so yeah we do see things moving in both directions there it is a very fast moving market with a lot of activity and a lot of It's a very dynamic market, as you might expect with the amount of growth that's going on in that market. But, yeah, we have seen it move forward as well as, you know, seeing some of the normal project delays.

Okay. Thanks for taking my questions and continued success.

Thanks. Thanks. Thank you. One moment for the next question. And the next question will be coming from the line. of Steve Forenzi of Sedota. Your line is open.

Evening, Jean. Evening, Mark. It's been a long call, so I'll try to ask you a couple of easy ones. Very strong free cash flow in 3Q. I know you had already tipped off the fact that all the remaining cash costs related to the long-ago discontinued ops were taken last year. Nevertheless, much stronger cash flow this quarter. You've You've got the balance sheet in great shape now, but I'm looking at my model. And 4Q, if you get the typical working capital reversal that you usually get, you're looking at a significant cash flow in 4Q, given that you've already cleaned up that balance sheet. If you're looking at a number, and I'm sure my number is not far off of yours, how are you thinking about using that 4Q cash?

Yeah, I think you're – well, I don't know your number, your presumption.

I don't want to give it, but it's sizable.

Yeah, listen, I mean, it comes back to the M&A pipeline that we have in front of us, right? I mean, we feel really good about the opportunities ahead of us, and that's just part of the pool of capital that will be available to us to – to drive the value creation. And obviously we've got, you know, the plant expansion, we haven't sized that yet, but, you know, we'll certainly, that will be part of the overall deployment of capital.

And Gene, let me follow up a question that was asked earlier, because obviously you are getting asked about M&A opportunities and size. And I know you've talked previously, we've discussed this, that if you go larger, Typical multiples get higher. I mean, so much of your success over the last few years has been paying very reasonable multiples for acquisitions. And I think investors want to hear that you're going to maintain that kind of discipline around businesses you know really well and paying that 10 to 12 times. Given the balance sheet is so much cleaned up, given your access to capital, is there an itch to go higher to find the right deals? Or do you expect to maintain that kind of discipline?

No, I think if you look at, I mean, it's a great question. I think that, you know, our model has really worked. And I think, you know, our average multiple has been in the neighborhood of 11 times. You know, we typically get one and a half, two turns. So you kind of get it under your roof at nine times, which is a really good, really good value when you think of our average EBITDA that we've acquired is 20%, and these have also been accretive ungrowth rates, not to mention the most important point in the whole purpose of how we do M&A is to really strengthen our competitive position and to be able to expand. So, yeah, I think I don't see any deviation from our strategy. Typically, if you see a smaller deal in the $50 million range, something like that, it would be a turn or two lower. If you see a larger deal that has more established management teams, more established IT systems, products, channels, is lower risk, you typically see it's always going to be a turn or two higher. But the flip side of that is you can get, you know, can typically get some more leverage and some more synergy when you have a larger organization like that so so yeah I think that our model has has not changed you know we do see deals that you know and this is probably more than the detection and measurement side you can see deals going for 19 times 20 times that's just not us that's just not you know that's not who we are We really do focus on cash returns. And, yeah, our model is going to stay, you know, we're executing the same strategy that we did a year ago, Steve.

Great.

Thanks, Gene. Thanks, Mark.

Thanks. Thank you. That concludes today's Q&A session. I would now like to turn the call back over to management for closing remarks. Please go ahead.

Thanks, Operator. That concludes today's conference call you may all disconnect.