Good day, ladies and gentlemen, and welcome to the second quarter 2015 SPX Corporation earnings conference call. My name is Janeda, and I will be your operator for today. [Operator Instructions] I would now like to turn the conference over to Mr. Ryan Taylor, VP of Communications. Please proceed.

Thank you, Janeda, and good morning, everyone. Thank you for joining us. Our Q2 earnings press release was issued this morning and can be found on our website at spx.com. This call is also being webcast with a slide presentation located in the Investor Relations section of our website. I encourage you to follow along with the slide presentation during our prepared remarks this morning. A replay of this webcast will be available on our website until August 7. 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. The financial information presented today is on a continuing-operations basis. In the appendix of today's presentation we have provided reconciliations for non-GAAP and pro forma financial measures presented. We have also provided additional supplemental information in the appendix, including a reconciliation and free cash flow from the most recent Form 10 filing to our 2014 Form 10-K. As usual, with me on the call this morning are Chris Kearney, Chairman, President and CEO of SPX; and Jeremy Smeltser, our Chief Financial Officer. As previously announced, both Chris and Jeremy are going with the Flow business, as the CEO and CFO. Chris will serve as the Chairman of the Board of Directors for SPX Flow. And in addition, he will serve as a member on the SPX Corporation Board of Directors. Following the spin-off of Flow, Gene Lowe will succeed Chris, as the CEO of SPX Corporation and it is intended that he will also serve on the Board, as a Member of the Board of SPX Corporation. Gene is with us on the call this morning, and he will review the Q2 results for the Thermal and Industrial segments. He will also provide a brief overview of the post-spin new SPX Corporation. The spin-off of our Flow business is on track. Based on our progress thus far, we anticipate the effective date of the spin will be near the end of the third quarter. The exact timing is subject to the finalization of the Form 10 with the SEC and final Board approval. On July 13, we completed our second filing of the Form 10 and anticipate a third filing of the Form 10 in August. Given the anticipated timing of the spin, we expect today's call to be the last earnings call for the combined entity. Accordingly, we plan to report our third quarter results as separate companies. As such, in today's presentation, we are providing updated financial modeling targets for both future companies on a standalone basis for Q3 and for the full year 2015. And with that, I'll turn the call over to Chris.

Thanks, Ryan, and good morning, everyone. I'll begin with a brief update on the spin. During the second quarter, we finalized the corporate organizational structures for both companies. Throughout the balance of third quarter, our corporate employees will be transitioning into their new roles. We're in the final stages of appointing the Directors for both companies and we expect to disclose the Board structures in the coming weeks. As Ryan mentioned, we completed the second filing of our Form 10 in July. We expect to file our next amendment in August. Based on our current timeline, we expect to disclose details regarding the record date, effective date and when-issued trading period by mid-September. Given the progress to date, we remain on track to complete the spin transaction in the third quarter and believe the effective date will most likely be near the end of Q3. During September, both management teams are planning to actively engage with investors. On September 2, Gene Lowe and his CFO, Scott Sproule, plan to host an investor event in New York, to present a detailed overview of the new SPX Corporation to analysts. For those interested in attending, Ryan will provide details on this event in the next week or so. From a cost perspective, we're tracking towards the lower end of our original budget. Through the second quarter we've recorded $29 million of after-tax separation costs. In Q3, we expect spin cost to ramp up, as we work towards completing the transaction. In total, we now estimate spin-related cost to be between $60 million and $70 million. We expect both companies will be well-positioned for success as separate entities with market-leading positions and attractive long-term growth markets, and we expect the strategic transaction to create value for shareholders of both companies. Moving on now…

Thanks, Chris. Good morning, everyone. I'll begin with earnings per share. For Q2 we reported diluted earnings per share from continuing operations of $0.96. This included $0.10 of items associated with the spin-off of our Flow business. We recorded $9 million of pre-tax cost in corporate expense on an after-tax basis, this was $7 million. We also recorded a $3 million tax benefit related to legal entity reorganization in conjunction with the spin. Excluding the spin-related items, EPS from continuing operations was $1.06 in the quarter. Moving to the segment results, beginning with Flow, we are providing the end-market breakdown of the Flow segment consistent with the Form 10. The one exception is that Flow's industrial results here do not include our Hydraulic Technologies business. For Q2, the hydraulic business was reported in the industrial product segment. Following the spin, it will be reported in Flow's industrial results. In total, Flow's revenue declined 13% year-over-year to $578 million. Currency was an 8% or $56 million headwind. Organic revenue was down 4% in total. Power and energy revenue declined 22% organically, reflecting the impact of lower oil prices. This decline was largely offset by 8% organic growth in food and beverage sales and 5% organic growth in Flow's industrial sales. Segment income was $76 million and margins were 13.1%, down 30 point year-over-year. Looking now at Flow's food and beverage results, revenue was $237 million in the quarter, down 2% versus the prior year. Currency was a 10% or $25 million headwind. Organic revenue grew 8%, driven largely by growth in our systems business. Aftermarket sales were up 1% year-over-over. This growth offset a modest decline in component sales, which was concentrated in North America, where demand from our distributor base has been relatively soft through the first half. Operating profit…

Thanks, Jeremy. Good morning, everyone. I'll begin with the review of Thermal's Q2 reported results. Revenue declined 9% to $298 million. Currency was a 5% headwind. Organic revenue declined 4% or $12 million. The organic revenue decline was concentrated in power generation sales, primarily lower sales of heat exchangers in Asia Pacific as well as the decline in cooling tower revenue North America where we are experiencing lower levels of reconstruction and refurbishment activity. The organic decline in our power businesses was partially offset by organic growth in global sales for our packaged cooling products into HVAC applications. Segment income was $6 million in Q2. This included a loss of $8 million on the South Africa project, consistent with Q and in line with our expectations. In our core business, operating profit was $14 million and margins were 5.3%, up 10 basis points over the prior year. We continue to focus on improving our cost position in the core business and expanding our sales mix into HVAC and industrial market. Moving on to backlog, Thermal's core backlog was $588 million, up 4% or $25 million from Q1. Currency was a modest benefit. On an organic basis, the core backlog increased 3%, primarily driven by strong order intake in our comfort heating businesses, an encouraging sign for these businesses, which were seasonally strong in second half of the year. In South Africa, the reported backlog was $59 million at the end of Q2. However, the backlog does not reflect future contract adjustments that we expect will increase our backlog position and revenue forecast related to the Medupi and Kusile projects. As a reminder, these projects began in 2007 and are highly complex. The schedule for completion has been extended multiple times. Eskon's most recent estimate on completing all 12 power units…

Thanks, Gene. I'll briefly review our capital position and upcoming refinancing, and then finish with the Q3 and full year targets for both companies. We ended the quarter with $329 million of cash on hand and just under $1.5 billion of total debt. Our gross leverage ratio was 2.7x and our net leverage was 2.2x. Given the seasonality in many of our businesses, we generate the majority of our annual free cash flow in the second half of the year. Over the balance of the year, we expect a stronger working capital performance particularly through reductions and accounts receivable and inventory. We remain in a solid financial position and expect to have both future companies in a similar leverage position at the date of the spin, with ample liquidity and flexibility to execute their future strategies. Tomorrow we'll be in New York, meeting with lenders to establish new credit facilities for both future companies. We intend for each credit facility to consist of a term loan, revolver and performance bond facility. And we expect to close on the refinancing by mid-August with the new credit facilities set to be effective, once the spin-off is completed. With respect to the dividend, the Q2 dividend payment is expected to be the final cash dividend as a combined entity. Once the spin transaction is completed, the respective Boards for each company will review the dividend policies independently. At this time, it is not expected that SPX Corporation will pay a cash dividend for the foreseeable future. Now, to our third quarter modeling targets; beginning with Flow. Note that these targets do include the hydraulic business for all periods presented. We expect revenue of about $625 million, down 7% to 10% versus the prior year. Currency is expected to 7% or a $45 million…

Thanks, Jeremy. So in summary, despite the challenging end-market environment in our energy and industrial markets, we're focused on items within our control including restructuring actions, cost reduction initiatives and working capital performance. We're very pleased with the strong improvement in Flow's food and beverage business as well as a solid quarter for Flow's industrial business. And we continue to see good growth opportunities this year in Flow's food and beverage business and in Gene's HVAC and Radiodetection businesses. We're in the final stages of preparing for the spin-off of the Flow business, which again we expect to complete near the end of Q3. We believe this spin will provide both future companies greater flexibility to focus on and pursue the respective growth strategies, enabling them to create significant value for shareholders, customers and employees. We also believe the execution of this plan will allow investors to distinctly value the unique attributes of each company. So that concludes our prepared remarks. And we'll open the call for questions.

[Operator Instructions] Your first question comes from the line of Shannon O'Callaghan with UBS.

Chris, obviously, a really strong margin improvement in food and beverage as well as the growth. Can you talk a little bit about, both from a systems and a components standpoint when you look at that margin improvement, how some of the things you've been trying to change there played out in the quarter? Was it more systems-driven thing or components or both, just a little more color there?

Yes, sure, Shannon. We had really good performance all the way around, and really proud of Marc Michael and his team and the steady consistent progress we've seen in that business quarter-over-quarter. So their project selection, their project management, focus on aftermarket and component development is all consistent with the plan. And so the team that he's put together and the focus on improvement in all those areas and the consistent delivery is something that we're clearly very proud of. And so what we see around the world is that the front log of new system opportunity still remains robust and still concentrated in fresh dairy and nutritional dairy-based ingredients, infant formula, whey protein processes. And most of these opportunities in that business we see in Europe and Asia Pacific. And opportunities that we see in Europe are specifically targeted at serving that Asian market, specifically in China. So their focus strategically is in the right parts of the world, performance is good, front log looks good going forward, and couldn't be again more proud of the work they've done there.

And as the systems process at this point, very consistent. I mean, historically there have been sort of some good, some bad projects. I mean do you feel confident going forward that the systems business is coming through, it's going to consistently come in at good margin?

Yes, absolutely. And again, Shannon, it's really a reflection of focus and on project selection and engineering opportunities that are really in our sweet spot, in terms of what we really do well and what we can leverage and grow. And so it all starts at the front-end of the process with the commercial intake. And the project that they are selecting and successfully bidding on around the world are frankly the ones that they should be, and then the performance on those projects is consistent with what we target out of that. And then the important thing obviously is that, as we develop good system opportunities that are attractive on their own merit, the other part of that process is developing the aftermarket and component replacement opportunities that go with that. So the plan is very solid, it makes sense and the execution that we're seeing against that plan is really reassuring.

And just quick on the upstream on power and energy, the stabilization you're seeing there. I mean, is that kind of last couple of weeks, last couple of months. When did that play out? And do you feel -- I know it's been tough to feel comfortable with the bottom there. I mean, is there anything that gives you comfort in saying that it stabilized?

The ending Q backlog, we're obviously pleased within. What we saw was, as the quarter progressed we saw an upswing, so it made us feel better about entering into Q3 and some good momentum in the predictable places, where I think we're a strong player, so positive momentum at the end of Q2.

Your next question comes from the line of Mike Halloran with Robert Baird.

So I might as well just continue with that line of sight. Could on the oil and gas power piece just delineate between how the aftermarket is progressing and how the OE is progressing? And then also give comparable commentary that you give on the upstream to the refining piece as well?

Sure. I'll try and go through each of the market segments for you Mike, if that'd be helpful. So in total Flow's power and energy orders, we're down 6% year-over-year, flat sequentially. But again, we do see signs of stability, but across all the sectors of that end-market, things were a little mix. So in the midstream, orders for pipeline valves increased by double digits year-over-year and we're up sharply from Q1 to Q2 and particularly strong, again, exiting the quarter, as we see some of the key customers actually moving forward with some large pipeline investments. So that's encouraging. Upstream Q2 orders were flat year-over-year and up modestly from Q1. But again, remember, they're very low levels. Downstream Q2 orders were weak, down year-over-year sequentially. And again, I would remind everybody that we don't have a lot of exposure in the oil and gas downstream. Power gen, I would describe Q2 orders there were flat year-over-year, but stable sequentially. And then in the aftermarket, we saw the sharpest declines in aftermarket orders, but again, there it's really due to tough comps. Q2 last year was our strongest aftermarket order period. But in the aftermarket MRO activity is pretty steady, but we're still seeing customers defer some large aftermarket investments as in pipe re-rate or refurbishment.

And so the message seems to be on the whole there is some stability building here. Does that mean when we think about the margin profile for the power and then the energy segment that you are thinking that this is reasonable level to build off of from a 2Q level, adjusting for seasonality and adjusting for whatever restructuring benefits are going to come through?

Yes, I think that is reasonable, Mike. As you think sequentially, obviously, last year second half margins were very strong in P&E, both Q3 and Q4. So the year-over-year will be more challenging, but sequentially, I completely agree. And we still do expect much stronger Q4 sequentially, as we really always see throughout the cycle in this business.

Your next question comes from the line of Steve Tusa with JPMorgan.

It's [ph] Pat Allen for Steve Tusa. Just a quick question on cash flow. So it looks like the receivables and the payables and the accrued expenses have been a big drag on operating cash for SPX Infrastructure and it's been negative for the past few years. Just wondering if you could talk about your visibility on collections and receivables, and ultimately improving free cash there? And then specifically, if you could address how these South Africa projects have dragged down that number?

I think there has been some confusion as the Form 10 have been filed around previous year's free cash flow for SPX Corp., where people were trying to take the previously filed 10-Ks and subtract out the cash flows for Flow from the Form 10. And that is a challenging mechanical exercise to do. So we've actually done is in the appendix we have provided some reconciliations that should help you for 2013 and 2014. And actually what you'll see is, when you take out some of the unusual items, such as pension funding and taxes on big asset, sale gains, the cash flow is actually fairly strong and it's much different than what people were calculating. So really the challenge is isolated to 2015. And what we've seen as the year has progressed is, as the settlement discussions that Gene talked about in his prepared remarks, have continued and extended out. There's a lot of working capital hung up across the South Africa project. And so if you look at the pro forma adjusted SPX Corp. cash conversion, you're probably looking at around $50 million of free cash flow on the year with net income in more in the low-40s. So you've got kind of a net $25 million working capital investment. And if you include, I'll call it, non-cash expenses and add back to that net income, you're probably looking more like a $40 million to $50 million working capital investment this calendar year, much of which we expect to collect next year and perhaps some into 2017. And I would tell you about half of that is due to the delays in cash flow that I talked about in South Africa, and the other is due to project timing of cash flows in our Asia-Pacific business, nothing to do with South Africa. But as it relates to the first couple of quarters, what you see in the combined company, frankly, is not all that inconsistent with our historical seasonal profile in cash flow. And so when you do look at those cash flow projections in the appendix, I mean we have good confidence in bringing many of those receivables and inventory build from the first half back in to cash in the second half as we always do.

Just one quick follow-up. With respect to thermal, any changes for the charges expecting on South Africa this year? And then if you could talk about the dynamics in the other thermal businesses, where revenues are down 11%, but margins are up 10 basis points. Just kind of what's going on with the other thermal businesses?

I'll answer the South Africa part, and I'll let Gene talk about what's going on in the other thermal businesses. On South Africa, pre-minority interest, so all-in we're at about a $16 million loss year-to-date. So a quarter of that loss is attributable to our minority partner. We expect a relatively similar performance in the second half of the year, which is around $23 million net of tax, and that is included as a reduction to the $150 million EBITDA target we have out there. Gene is going to address the second part of Pat's question.

So with regards to the thermal dynamics and what we're seeing, and why a little bit of improvement there, I'd really characterize it into a couple of markets. I'd say in the power side, what we're seeing is activity is relatively steady at low levels. But we are seeing improvement in our HVAC business. There's been a lot of focus, as Chris and Jeremy have talked over the years, on expanding into HVAC and industrial markets, and we've had a nice success on that front. This year, HVAC sales were up 6% year-over-year and we're going to continue to do that. I'd say the other thing that's been happening is we've been focused a lot in the thermal business on our cost structure, and we're seeing some benefits of that flowing through. I think there is still a lot of work to be done, but that's going to be an area of continued focus for us going forward.

Your next question comes from the line of Jeff Sprague with Vertical Research.

Could we touch on pricing a little bit? Across the portfolio you mentioned competitive pricing at transformers, but that's really kind of nothing new. But is there any change kind of beneath the surface there? And then maybe more importantly, in the Flow-related businesses, as people kind of pulled back on MRO and reevaluating project work. Are you seeing a downward bias on pricing and how significant is it?

Yes, Jeff, we're seeing certainly some price pressure. And as you think, specifically, in the P&E markets where you've got declining revenues across the board and our peer companies and competitors facing same market dynamics, that tends to obviously create a little more pressure as more players are chasing fewer opportunities. But what we're really happy about in terms of what we've done, and again, this gets back to my comment about focusing on things that are under our control, the restructuring offsets, the focus on manufacturing efficiency, and particularly, the success we've had on the material side with our supply chain initiatives have really helped us offset that price pressure that we do see and has helped minimize that impact. But I would say, in our Flow business across the board, where you're seeing more of that, would be in the P&E sector. But I would tell you, across the company, across all businesses, the work that our GMO organization has done, again both on the cost front that's certainly true at Waukesha, but true across the board, and through the Flow businesses, the work that David Kowalski and his team have done there have been quite helpful and Barry McGinley's work on the supply side has really had a benefit across all our businesses. So we're doing what we can conventionally to offset that pressure, but as I look across the businesses, probably more pressure on the P&E side.

And on transformers, I would say, as Gene said earlier, very steady from a pricing perspective and we're being very disciplined in how we're looking at price in that market, so really no change there. I would say, the one area in Gene's businesses, and you can certainly add anything you'd like Gene, but I'd say, in larger power-gen related projects globally, it's very competitive particularly on the dry cooling side, I would say. And so there are projects that we're choosing to walk away from and instead focus on our cost structure in that market. And that's not something frankly that we expect to change in the near future. And I think that's fair.

Just wondering on pipeline valves, could you elaborate a little bit more there. Do you have visibility on kind of more in the pipeline no pun intended versus kind of the single big project you booked, any other elaboration there would be helpful?

Sure, yes. We can't get specific lease into the projects that we're expecting to be let here shortly due to customer confidentiality, but the front log, and Tony has been saying this since the beginning of the year that the front log and what we're hearing from customers on the midstream was actually still quite positive. And that where they had permits already in place that if oil stabilized, which did relatively well there through Q2, obviously with some pressure here as of late, but if it's stabilized that our team expected many of those pipeline projects to go forward. And indeed, we are seeing that so far, albeit with some pricing pressure as compared to where we were two years ago, but not driving margins down like we've seen in some of our oil and gas peers frankly.

Your next question comes from the line of Robert Barry with Susquehanna.

A quick follow-up with the pipeline valves where you had that capacity constraint in Houston that you addressed, is that playing role there at all?

No, we have continued with our investment to expand that facility. That is a sweet spot for us in terms of the various segments of the P&E end-market. And what I would tell you, Robert, is that that expansion is progressing on schedule. We expect that to be finished on time. And it hasn't really been a constraint for us.

And parts of it actually are already in operation, which has brought our lead times down on those pipeline valves. So right now, we believe we're at industry-leading lead times, which is certainly helpful from a commercial perspective.

In Thermal, last quarter I think you mentioned that lower oil prices were impacting some customer capital spending decisions to move ahead. Can you just update us on the status of that dynamic?

Yes, I think what we're seeing in the large power build new projects, we still are seeing some sluggishness. I don't think we've seen a large change in that market. I think when we talked about the Thermal business backlog that we had, as well as some opportunities, we still see a fair number of opportunities out there, but I'd say in the large power side they're moving at a fairly slow pace.

Maybe just finally on restructuring in Flow, was there any benefit in the quarter from restructuring savings? And of the $10 million you expect in the back half, how was that apportioned between the quarters?

There wasn't really any restructuring savings in Q2 from the Q1 charges that we took. Typically you're looking at least a quarter delay there, so we do expect that to start in Q3 a little bit, but more pronounced savings in Q4 frankly.

Your next question comes from the line of Nathan Jones with Stifel.

Just like to follow-up on a question Jeff asked previously. Within Flow power and energy, can you talk about the difference that you're saying in pricing pressure in aftermarket relative to project work?

Sure. I mean, I don't think we're seeing much from an aftermarket perspective frankly. It's really coming all on the OE side that we've seen.

Is it possible to put any numerical framework around that in terms of margin compression, excluding the actions that you guys are taking to mitigate that?

It is really tough to quantify, particularly on the engineered to order products. I mean, it's more of an anecdotal answer frankly, Nathan. But as we pull the guys in the business, I would say that we see it on the large OE pump orders. And in fact, there are some of those that we're choosing not to play in frankly. And then in the midstream, I would say a typical ask from a customer who might be coming back on an RFQ looking to actually place an order, might be in the 10%, you could see 20% range, and at that point we're going to be negotiating, but we're certainly trying to balance the load in the factory in Houston each quarter with pricing and try to work with our customers to get the best overall situation. And as you can see in the margins in Q2, I mean, being down 300 basis points, when you're down 22% organically, from my experience that's kind of a best-in-class year-over-year performance from a margin perspective.

My follow-up then as on the food and beverage side and on the margins, again, you're seeing a really nice pickup this year. Can you talk about what of that is from operational improvement versus the strategy of selecting these OE projects that you can look in the aftermarket on? I would think that you're relatively early in that process, so from a mix perspective there should be more margin improvement to come there, maybe if you could talk about a longer-term goal there?

Well, I think, Nathan, that the margin improvement comes across all the initiatives, right. And again, as I mentioned before, it starts with a front-end process and the project selection. There is a very detailed project selection process that Marc Michael and his team have established that they follow religiously. And so the project selection is really key in terms of understanding the components of the project, and the risk associated with it and over what time frame. And so much of the success on a given project is determined by how you bid it and what you win, but then as you move through that material cost, sourcing initiatives, focus on execution and timelines and the gates that the teams have to go through, and the focus on that process when it's not going as planned and being corrective when they can, all of those things amount to a total price improvement result on the process. But then the backend of it, obviously, is when they select these projects, they're selected with aftermarket opportunity in mind. And when we value a project we look at the total lifecycle of it in terms of what you make on the system and what the opportunity is in the aftermarket and component replacement for the lifecycle of the system. And so all of that discipline amounts to a solid building block in terms of better margin, which we're seeing manifest itself quarter-to-quarter here, so this year is off to a great start. As opportunities increase, the leverage on that should likewise result in continued margin improvement, because you're getting more revenue based on that solid discipline and margin performance, so incrementally it should be better as revenues rise.

And as I look at it, Nathan, I would tell you that obviously the first half of the year saw just wonderful margin improvement, over 300 basis points in the first half in both quarters. I would say, roughly, a third of that would probably be from price and project selection and the rest on execution. If you recall a year ago, we were still having some challenges on some legacy projects and most of those have been closed down and what we're seeing today is much more steady execution on the projects in backlog. And I think the last part of your question, I think you're spot on that really the aftermarket, while it has improved year-over-year I think the large systems that we have built over the last three years in particular, that growth in the aftermarket revenue stream is still on the come, and that's part of why we remain confident that we can get the food and beverage business to the 14% segment level from the 12% to 12.5% we're targeting this year. And there is a number of other things that Marc and his team are working on from a project management prospective on a component side that we're really pleased with the initial results, so really solid performance and we're happy to see it this year. End of Q&A

Thanks, Nathan. This is Ryan Taylor. At this time, we've hit our time limit for the call, so we're going to have to conclude it at this point. As normal, I'll be around all day to answer any follow-up questions that you might have. Feel free to reach out to me. We look forward to seeing investors in New York on September 2 with Gene and his team. And thanks for joining us on our Q2 call. Goodbye, everybody.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.