Ladies and gentlemen, thank you for standing by and welcome to the Q4 2019 SPX Corporation Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to your speaker today, Paul Clegg, VP of Investor Relations. Thank you. Go ahead sir.

Thank you, Justine, and good afternoon, everyone. Thanks for joining us. With me on the call today are Gene Lowe, Our President and Chief Executive Officer; and Scott Sproule, our Chief Financial Officer. A press release containing our fourth quarter and full year 2019 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 disclosures 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 February 20th 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. You can find detailed reconciliations of historical adjusted figures to their respective GAAP measures in the appendix to today’s presentation. Our segment reporting structure combines the results of our Heat Transfer and South African projects into an all other category, which is excluded from our adjusted results. Consistent with how we established our guidance, our adjusted earnings per share also excludes non-service pension items, including our true-up of actuarial assumptions, amortization expense and investment valuation true-up and one-time cost associated with acquisition. In addition, our adjusted segment results excluding amortization and acquisition related costs. Finally, we will be meeting with investors during the first quarter in the Midwest and in Texas. We’ll also be attending the Sidoti & Company’s Spring Research Conference in New York on March 26. And with that, I’ll turn the call over to Gene.

Thanks Paul. Good afternoon everyone. Thanks for joining us. 2019 was a very good year for SPX and I’m proud of the work our team has done to drive solid improvement and our operational and financial performance. On the call today, we’ll give you brief update on our overall results. Segment performances and end market conditions. We’ll also provide guidance before going into Q&A. Overall our strong year-over-year performance in 2019 was a result of solid execution. Adjusted EPS was $2.76 an increase of 22% from 2018 while adjusted operating income grew $26 million. We also continue to generate strong free cash flow. Our businesses performed well operationally and we’re pleased with the pace of integration of our acquisitions including the recent purchase of Patterson-Kelley. Our balance sheet remains strong and we have substantial available capital to deploy for further strategic growth in value creation initiatives. For 2020, we expect adjusted EPS in the range of $2.90 to $3.05 where a midpoint of $2.98. Turning to adjusted results for Q4 and the full year 2019. Operating income for the quarter increased 4% compared to a strong prior year. For the full year adjusted operating income increased 18% with margins up 120 basis points. All three segments generated solid profit growth including the effect of new product and operational initiatives and the acquisition in our detection management and HVAC segments. Overall 2019 was another milestone year and I’m proud of the many accomplishments of our team. As always, I would like to give you a brief update on our value creation initiatives. Over the last year, we’ve been very successful reaching our value creation goals related to organic and inorganic growth, employing our business to enhance value and developing our employees. In 2019, we continued to drive organic growth with the…

Thanks Gene. I’ll start with our net results for Q4 in the full year. On a GAAP basis, we reported earnings per share of $0.75 for Q4 and a $1.67 for the full year. On an adjusted basis which excludes the impact of the items noted by Paul. EPS was $0.96 for the quarter and $2.76 for the year. Overall our solid results for the fourth quarter were driven primarily by our engineered solutions and HVAC segments. Turning now to our adjusted results. For Q4 revenues increased 3.8% driven primarily by the acquisitions in our detection and measurement in HVAC segments. Segment income increased $4 million and margins expanded 20 basis points largest impact from our engineered solutions segment. On a full year basis, revenues increased 6% due to significant growth from acquisitions and organic growth across each of our reportable segments. Organic revenue grew 1.3% and segment margin increased 80 basis points driven by the performance of our engineered solutions in HVAC segments. Now I’ll walk you through the details of our results by segment starting with HVAC. For the quarter, organic revenues increased 2.1% due primarily to strong sales in our cooling business. Segment income increased by $1.8 million while margins decreased 30 basis points due to sales mix. We called it in fourth quarter of 2018, our heating business benefitted from stronger than typical seasonal demand including large one-time replacement boiler shipment for utility customer. On a full year basis, revenues increased to 1.9% including modest organic growth. Segment income increased 7% and segment margin rose 80 basis points driven by positive price cost and operational improvements in our cooling business. Partially offset by lower seasonal demand for heating products compared to the exceptionally strong prior year. In detection and measurement, for the quarter revenues increased 3.7%…

Thanks Scott. Overall, we continue to be well positioned in our end markets for 2020 and beyond. Our customers and end markets are diverse with many demand drivers that are less sensitive to macroeconomic factors including government spending and regulatory mandates. In addition, around 70% of our revenue are driven by replacements sales which provide additional stability. The areas of our portfolio that have more economic sensitivity are the commercial portion of our HVAC business and our locators business which historically have shown a relationship with global GDP and construction trends. Our guidance anticipates some moderation in growth in these markets compared with last year. However, we continue to see a steady pace of orders in our less economically sensitive businesses and our new suite of new products and other operational initiatives leave us well positioned to achieve our full year targets. One variable, we continue to monitor is the Coronavirus. Obviously, we have only modest direct exposure to China, but we have been assessing the risk to our overall supply chain in developing contingency plans for any potential disruption to our businesses. During 2019, we made several positive changes and investments to strengthen our company and are on track to continue delivering value to our shareholders. The integration of our acquisition is going well. Our investments in our businesses are yielding positive results and we feel good about our ability to continue growing earnings and generating strong cash flows. Our balance sheet and liquidity position are very strong, with the recent refinancing of our credit facility we have even more flexibility to make attractive investments. Our pipeline of highly strategic acquisition candidates remains robust and we see multiple opportunities to expand our addressable market and growth profile in our HVAC and detection and measurement segments. Overall, I’m very pleased with our strong performance and the state of our business as we began another year of growth and value creation. And now I’ll turn the call back over to Paul.

Thanks Gene. Justine, we’re ready to go to Q&A.

[Operator Instructions] and our first question comes from Damian Karas from UBS. Your line is now open.

Congratulations on finishing a very strong year in 2019. So wanted to start off asking you about the detection and measurement margin guidance for 2020. Scott, I know you mentioned project timing when you sort of talked about the range for this segment. But I look at the guidance it kind of suggests flat to maybe slightly up margins on 5% underlying growth. I think you’d probably get better incrementals [ph] than that. So could you maybe just walk through the price cost mix, anything else - any other aspects to the equation later into your margins there?

Yes, sure. It’s not a price cost matter here. It’s really does relate to the project nature of the segment really within the communications technologies and transportation businesses. So it’s really more the timing of those projects and the nature of the projects. Not all projects are the same. We had some very strong margins two years ago into most businesses and decent margins last year there and when we sit there and estimate what level of projects will come into the year. We’re really putting in the high confidence level of projects and making some assumptions around margins at an average level. So they may execute when they finalize [indiscernible] because most of these are not in the backlog. So we try to take a prudent position there when we’re putting that forecast together.

Okay, that makes sense. And I guess question engineered solution in particular transformers. You highlighted in the slides a moderate firming signals, just kind of could you maybe give us some additional color around that. What kind of lead times are you seeing in the business right now perhaps is there any change in the market given some of the heightened focus that there’s been on trade recently and any other color you have just on sort of 100 basis place of improvement that you haven’t and the outlook for this year.

Damian, this is Gene. We’re very pleased with the progress of transformers. They’ve been executing very well. The facilities are executing at a nice level. Lot of nice CI initiatives there. In terms of the market we’ve seen a very steady demand as we all know that’s a very, very steady demand profile and the team just keeps winning order. Now we have been pushing for price and we’ve seen some pockets of price opportunity. So in general, we feel good about the market dynamics there and we’re going to keep pushing for price. So overall, we’re very pleased with where transformers is and their execution and feel good about their trajectory into 2020.

Okay, great, thanks. I’ll get back in the queue.

Thank you. And our next question comes from Joe Mondillo from Sidoti & Company. Your line is now open.

So just sort of follow-up on that prior question regarding the sort of margins D&M. just wondering if you could sort of walk through because there is a lot of different pieces to that segment of where the puts and takes are, the ups and downs related to the mix issue. Just where are you expecting maybe some of the lower margin to be higher than volumes to be higher there versus other parts of that business, just trying to understand what your visibility is at this point and how to make up of that margins?

Joe this is Scott, we don’t provide that level of detail by the different platforms within detection and measurement. But really where you’re seeing is in that the project portion and as I said, those projects all have good margins it’s just the level of margins associated with those projects is what can swing margins in the segment around a bit both from what the organic revenue looks like as well as the absolute margin level looks like. But when we stand back and we look at it and say, we’re going to have 23%, 24% margin. We feel like that’s always good performance in that business and it’s not always going to work like a normal where you just get volume, leverages and its all the same volume, some of that project volume [indiscernible] a wider variability of what the margins in those projects are going to execute at.

Okay and then at the HVAC segment revenue on the organic side was stronger than I expected. The gross margin was quite strong. I know you guys had a tough comp, so it’s impressive to see that you were able to put up the numbers that you did. Just curious, what sort of drove that and then number two, we’re looking at 2020. It looks like sort of excluding acquisitions you’re looking at sort of low single-digit organic growth correct me, if I’m wrong there. And if that’s correct, what’s your take on sort of the market dynamic related to that slower growth relative to what you saw on 2019 and talk about sort of the backlog that you have and the visibility that you have there.

Sure, let me take the 2019 and I’ll let Gene jump in on the market. So 2019 really it was just, we had great execution in our cooling business. They’ve been doing a lot of work around operational improvements in the facility to improve their throughput and they really kind of, they just had a really strong fourth quarter frankly and ended up exceeding the top end of our guidance range from a revenue perspective and that was the big driver. The other thing is, even though overall the heating season was warmer than anticipated we did see an early demand for our heating products, so that kind of offset and mitigated that. So we didn’t have as big of headwind there in the quarter. So just overall really strong performance by our HVAC business. Going into 2020, that does leave us with some a tougher comp particularly on the heating side with some of the market dynamics.

Joe, what we’re seeing if you look at the HVAC segment on the cooling side. We’ve said moderating growth little bit flattening; you do see some differences across some of the different geographies. We like our initiatives and some of the NPI’s [ph] that we have and we feel good about our actions there. Now there have been some positive signals, if you look at the end of the year, if you look at the Dodge, ABI [ph] there’s been a couple of months of some signals that could be positive for us. Now it typically takes six to seven months of those indicators to affect our demand profile. So what I would say is, if you look at those indicators and we’re seeing some nice traction there that could be a positive for us in the back half of the year. If you look at the heating side, I’d say things are steady. If you look at 2018, we did have too cold shoulders in Q1 and Q4. We are off to a little bit warmer start of 2020, if you look at the heating degree days. But overall, I feel really, really solid about that business and the initiatives, the expansion, the product line. So if you put the two together, we feel good about the opportunities. We don’t see dramatic growth there, but as you had pointed out we probably see modest growth there.

Okay and lastly, I was wondering if you could update us on sort of the continuous improvement initiatives. I know this is an effort that you’re sort of probably still in the early stages, but could you update us on how you’re doing with that, what you’re doing. And it doesn’t really seem like just at a higher level, it doesn’t seem like a whole lot. It’s baked into the guidance overall maybe you can comment on that as well.

Yes, sure. So the first thing I would say is, there’s actually a lot of activity going on and continuous improvement across our businesses. If you look at a lot of impact on margins over the past year. We’ve seen some really nice successes that I could point to very specifically into our transformers business, our cooling businesses, even some portions of our heating businesses have been driving some nice CI impacts. What we don’t do or what we’re really focused on instead of having good pockets of excellence is really driving this enterprise wide. And that’s a key focus area for this year that will be under Randy Data’s area and we have brought on our CI leader this month. We feel good about that. And we do have KPI’s across our enterprise with regards to our targets. When I look at this, I do see a nice opportunity here. This is not something that happens overnight. You don’t change culture overnight. This is a journey. But I actually think it’s a very attractive opportunity for us and we’re really moving in a positive direction there. So there’s a lot going on at the end of the day you have to resource it and you have to focus on it and I think this is the year where you’re going to see us really ramp up our focus there.

Okay and then just a follow-up on regarding the guidance. Would you say there is upside? It sounds like there is maybe a lot of opportunity that’s going to evolve overtime would you say that there is potential upside to the guidance just based on continuous improvement along depending on how things progress through the year, is that fair to say?

This is Scott, I’ll jump in. I think that as far as seeing the fruition of specific projects. We’re not expecting any significant impact from the new things. Obviously - as Gene alluded to, there’s underlying things going on at location-by-location. But from an enterprise wide approach we’re not anticipating that, we’re anticipating kind of this is a year of kind of setting things up, getting things established, setting foundations and prioritizing with the areas that we’re going to be focused on and would expect maybe some later part of the year benefits, but nothing of material nature and then starting to see impact from a 2021 forward.

Okay, great. Thanks a lot. Appreciated it.

And thank you. And our next question comes from Robert Barry with Buckingham. Your line is now open.

I wanted to clarify what you said about the segment income phasing, you referenced it. But also it sounded like you were signaling that maybe 1Q would be a little weaker. Maybe some of it was the heating degree days, maybe some if it was the virus etc. I just wanted to clarify what the message was?

Scott. What we said overall is, that it will have similar gating cadence as 2019. We were identifying there are some things that are challenging here in Q1, but we still do expect some modest year-over-year EPS growth.

Okay, I guess in 2019 it was little less than 20%. So maybe you’re referring that, it would be again.

I’m sorry, I didn’t catch that.

I guess in 2019, 1Q was a little less than the 20%. That’s kind of on Slide 23.

Our lowest quarter in 2019 was 1Q. Third quarter is also typically one of the lower quarters given the maintenance outages that are transformer plants.

Got it. I guess any - just wanted to follow-up on engineered or talk about engineered and the margin guidance there. It feels like a little softer than maybe what you’ve been talking about recently getting up into the 9% to 10% range, so just curious what’s change there, if anything?

Yes, I wouldn’t say anything has really fundamentally changed. We feel good about the initiatives that are in place. We feel really good about the progress that’s been made in 2019 and continuing forward and for transformers. The improvement and the mix profile of our process cooling business is going well. It is taking probably a little bit longer to get some of the levels of conversion that we anticipate, but so we feel good about saying 50 plus basis points of improvement going into 2020 and we’re continuing to hold to that longer term target of 9% to 10% margins for this segment.

Got it. I guess just lastly to clarify on China and what’s going there. I don’t think there’s much right, you said revenue in China, but maybe some supply chain parts of the business, does that impact in [indiscernible] contingency built in currently for that or how big a deal would that be?

So, as we said, we kind of recognized that impact to some level here in Q1. But as everybody is having a deal with, this is a very fluid situation. But to size it for you, it’s structurally given being still very heavily weighted towards North America. China in total as an end market is somewhere around 3% of our total revenues, little bit lessens that as far as in earnings perspective and then when you think about it from a supply chain perspective it’s low single digits as a percent of our COGS. And we think about from a supply chain, that right now from a Q1 perspective we’re in good shape no shortages that anybody is talking about, so really the exposure is about when does China become back fully up to - from an in country perspective fully operational and being in the supply chain in country fully operational and which is the same issue everybody is dealing with. But structurally it’s just not as material for us as it is for many others.

All right, thanks very much.

And our next question comes from Walter Liptak from Seaport. Your line is now open.

Most of my questions were taken, so I’ll just ask an easy one about the guidance. You took the guidance up and kind of very early [indiscernible] guidance out from late last year. When did you see in the business maybe one taken up this early especially with some of the Coronavirus and China slowing and things like that going out?

You’re talking about this year’s the growth in this year’s 2020 guidance? Just to clarify.

Yes, exactly. Right. Yes. The 2020 guidance.

Well I think as one of things we’ve talked about is that, I mean we look around many of our businesses the geographic profile of the company as many of our markets that don’t follow some of the broader GDP. So other than what Gene talked about Brexit has some effect to us although relatively minor given our presence there and some of the non-res construction markets in the US, those are the most sensitive areas. Otherwise, we see really good demand across the rest of our business, healthy backlogs, healthy order books and strong execution across the businesses. We feel good about the level of guidance given the initiatives we have and the overall market backdrop.

Okay and on that Slide 22, you got some of things that could go well and to the high end or to the low case. Obviously political events always look bad. But are you seeing any the weaker seasonal heating is that enough to get you to the low end for this year or commercial construction, are you seeing any deceleration in that right now?

We have started a little bit slower, if you look at the data on heating degree days, year-to-date. So, it has been a little bit warmer than it was last year. And then also, there is a little bit of deceleration of growth in the commercial construction market. But we believe, we’ve taken these into account as we put together our operating plan for 2020.

And I think when you look at the, similar to what we experienced in 2019 when you look at kind of what is one of the biggest variables, is going to go back to detection and measurement and the timing and scope of the project nature size of that business table to execute in the year.

Okay, got it. Great. Thanks guys.

Thank you. And we have a follow-up question from Damian Karas with UBS. Your line is now open.

So I have a longer term question for you on HVAC. One of things a lot of OEMs have been talking about recently are some of the regulatory changes related to refrigerants and obviously efficiency standards over the next several years. Just wondering, in your guides were all, does that really change anything related to your product line or you’re kind of more or less agnostic to what happens there with refrigerants and things alike.

Damian, this is Gene. What I would say and pretty much in general and I’ll get a little bit more specific on the HVAC. If you look across our portfolio, we’re typically the technology leader in the niche markets that we serve. So if you look in the - so what that means is, typically when the regulations get harder and more complex requiring more engineering or more solutions that in general typically benefits us because we are the best positioned competitor to be able to meet that spec or find a solution that can meet that new regulation or new specification and that’s definitely the case in our HVAC business. If you look on both the cooling and the heating areas. The specific refrigerant you’re talking to, is relevant to us but there are variety of other regulations that are very relevant to us and we sit, we’re on the board of Ashray [ph] and we’re on any number of working committees that have a very important hand in defining the regulations that affect our end market. So we take it very seriously. We play I would say a very important role in that, but in general it works to our benefit. If you look at on the heating side the DOE will typically put out higher efficiency ratings in both the residential and the commercial side and we being a leader in that market, have the resources to really ensure that we meet and maintain the specifications very similarly in the cooling side. Cooling is a reminder is the most efficient way, the most efficient form of air conditioning much more than using air cooled. So by its nature is a very green, very efficient product but even with that there’s always different regulations and rule and we think we’re in a nice position to be able to handle those, so to cut to the specific question. The refrigerant one we don’t think it affects us too much, but we do regulatory impact to something that we have in almost all of our businesses and we really focus on taking a very proactive strategic approach there. And in general like I said, when the bar gets raised that typically is a nice opportunity for us.

That’s really helpful and one last quick one, Scott. On the tax front, sorry if I missed this. But it seems like tax came in quite a bit below expectations anything to that.

Yes, we are at the obviously lower end, what we were expecting. We just had some - there was some discrete benefits there and more so in 2019, so we’re looking at 2020, we’re going to up just a little bit, but that probably has more to do with the increase in revenues in the US which is the highest tax jurisdiction.

Okay, great. Thanks guys. Good luck.

Thank you. And we have a follow question with Joe Mondillo from Sidoti & Company. Your line is now open.

Just regarding cash flow, you guys are projecting good conversions from earnings. Could you just comment on your M&A pipeline, how strong is it? Do you anticipate the pay down any debt or is the pipeline of acquisitions good enough that you’ll probably be using a good amount of your cash flow on acquisitions hopefully?

Joe, this is Gene. On the M&A side, what I would say is we have a very attractive front log and we do believe in our business model. And building out our platforms is a reminder where everything starts with strategy and all of our moves are very strategic in how we’re building out our platforms. I really like the businesses that we’ve have added to SPX. These are good businesses that have really strengthened our competitive position as well as enhanced our margin and our growth profile and if you look in front of us. We actually think we’re in the very early innings here. We think we have a really good business model and there’s a lot of runway in front of us. So, on capital allocation?

Joe, this is Scott. So, from a capacity perspective any year with our leverage at 1.6 times we are already at the low end of OR [ph] range, where we would not be looking to utilize cash for debt paid down. We’d much rather put that to work and we get our leverage up a little bit and put through the smart strategic acquisitions which as Gene said, we feel like we have some good opportunities there.

Okay and then, just a little more specifically on CapEx. Your CapEx is ramping up this year, could you comment on what you’re investing in. and then on inventory it’s up quite a bit year-over-year and I know that’s partially due to some of the acquisitions that you’ve acquired. But how do you think about sort of the inventory levels and is there, any opportunity at all or do you think there’s sort of in pretty good levels at this point?

So I’ll just first address on the CapEx side. So it is up a little bit. Some of it is from just more companies in the business with the acquisition, so we have a little bit higher CapEx just from that perspective versus historical and the other is, we are making some investments associated with some of our improvement and operational improvement issues at the facilities. So it’s tied to our returns, but if you look at overall, we’re still structurally not a very heavy CapEx company. Our model CapEx is below our overall depreciation for that company and that’s just structurally how we are set to be. From an inventory perspective, yes there were some build in inventory. Some of it is associated with, as you build up in our heating business anticipating for the demand here. So nothing, no real concerns around the company, around inventory will come down naturally and we’ll be able to manage it with the demand profile.

Okay, thanks a lot. Appreciated.

Thank you. And I’m showing no further questions. I would now like to turn the call back over to Paul Clegg, VP of Investor Relations for further remarks.

Thank you, Justine and thank you all for joining the call and we look forward to updating you again next quarter.

Thank you. Ladies and gentlemen, this conclude today’s conference call. Thank you for participating. You may now disconnect.