Ladies and gentlemen, thank you for standing by, and welcome to the Q4 and Full Year SPX Corporation Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker’s presentation, there’ll be a question-and-answer session. [Operator Instructions] I would now like to introduce your host of this conference call, Mr. Paul Clegg, VP, Investor Relations and Communications. You may begin, sir.

Thank you, and good afternoon, everyone. Thanks for joining us. With me on the call today are Gene Lowe, our President and Chief Executive Officer; and Jamie Harris, our Chief Financial Officer. The press release containing our fourth quarter and full year 2020 results was issued today after market close. You 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. A replay of the webcast will be available on our website until March 2nd. As a reminder, portions of our presentation and comments are forward-looking and subject to safe harbor provisions. Please also note the risk factors in our most recent SEC filings, including our disclosures related to the ongoing COVID-19 pandemic. Our comments today will largely focus on adjusted financial results. You can find detailed reconciliations of historical adjusted figures to their respective GAAP measures in the appendix to today’s presentation. Our segment reporting structure includes the results of our South African operations as an Other category, which is excluded from our adjusted results. Please note that our Heat Transfer operations, which were previously reported with the South African operations, are now being reported as discontinued operations as they have been fully wound down. The table showing the restated Other segments for the quarters of 2019 and 2020 is available in the appendix to today’s presentation. Our adjusted earnings per share also excludes non-service pension items, amortization expense, intangible asset impairment charges and investment gain, certain favorable discrete tax items and onetime costs associated with acquisitions. Finally, we will be conducting virtual meetings with investors over the coming months. We will also -- we also anticipate conducting a virtual Investor Day in late spring where we intend to provide an overview and updates on our value creation strategy and key initiatives. And with that, I’ll turn the call over to Gene.

Thanks, Paul. Good afternoon, everyone. Thanks for joining us. I hope that all of you and your families have remained safe and healthy. On the call today, we’ll provide you with a brief update on our overall results and segment performances for the fourth quarter and full year. We’ll also provide 2021 guidance and our view of the key variables driving this year. Now, I’ll touch on some of the highlights from the fourth quarter and the full year of 2020. We had a solid performance in a highly unusual and challenging year. I want to thank our employees who’ve done an outstanding job of adapting to very difficult circumstances, and despite the hurdles they faced bringing about numerous successes. Finishing 2020 with year-over-year earnings growth, a stronger balance sheet and positive operational momentum demonstrate the resilience of our businesses and the perseverance of our team. For 2021, we are targeting double-digit adjusted EPS growth. We also continue to gain traction on numerous internal growth initiatives and remain highly focused on the key value drivers of our success, including continuous improvement, investments in digital and strategic acquisitions. I’m very excited about the year in front of us, our opportunities and the ability to drive attractive growth in our earnings and cash flow for years to come. In Q4, revenue increased modestly as acquisitions more than offset softer non-residential HVAC sales and delayed project sales in Detection & Measurement. Overall, segment income was solid and in line with our expectations. For the full year, we grew adjusted revenue, segment income and net income. Our adjusted EPS of $2.80 is an increase of $0.04 from 2019. We did experience several unusual items in Q4. One particular item was an increase in our estimated reserves for legacy product liability matters, which caused a…

Thanks Gene. To echo Gene’s comments, we are very pleased with our results. On a GAAP basis, we reported earnings per share of $0.58 for the fourth quarter of 2020 and $2.20 for the full year. On an adjusted basis, EPS for Q4 was $0.89 compared with $0.96 in the prior year. Also on an adjusted basis, we grew full year EPS to $2.80 compared with $2.76 in 2019. As Gene mentioned, net earnings include several unusual items below the segment income line that negatively impacts our adjusted EPS on a net basis by approximately $0.06. These items include adjustments to our balance sheet to reflect changes in our long-term assumptions about legacy asbestos liabilities, we had a $9.4 million charge to operating expenses and an additional $7.6 million charge included in non-operating expenses. We also had income associated with proceeds from insurance policies on former company executives. And discrete tax benefits associated with favorable tax outcomes, including audit resolutions, statute expirations and other items. We do not anticipate material changes in our ongoing use of cash or overall cash generation as a result of these unusual items. To maintain consistency with past practice, they remain in our adjusted results. Despite the impact of these items and the challenges of the pandemic, we were able to achieve year-over-year EPS growth. Turning to a review of our adjusted results. For Q4, revenues increased 2.5%, driven by 4.5% increase from the acquisitions in our Detection & Measurement and HVAC segments. Organic revenue declined 2.4% due to lower HVAC volumes. Operating income and margin were negatively affected by the $9.4 million charge I mentioned earlier. On a full year basis, revenue increased approximately 2% as the impact of acquisitions more than offset a modest decline in organic revenue. As a result of the…

Thanks, Jamie. Overall, we are encouraged by the trends we are seeing in our end markets as we progress through 2021, although we continue to closely monitor certain areas. In HVAC, we previously noted year-on-year headwinds for the non-resi portions of our cooling and heating business. Recently, we have begun to see early signs of increased activity in these markets, although somewhat uneven geographically. Demand for our more residentially focused boiler products appears stable and as always, remains influenced by weather trends in the short term. In Detection & Measurement, locator demand has rebounded significantly across most regions. While we have seen that demand can be sensitive to pandemic-related lockdowns, current trends remain healthy. Inspection equipment, which showed solid demand from municipalities in 2020, has shown signs of flattening but remained steady. In our project-based D&M businesses, we continue to see solid frontlog and customer interest. While the impact of travel and access restrictions have not fully abated, we have seen forward movement on communication technologies orders that were delayed in 2020 and anticipate an improvement in this business in 2021. We continue to monitor these trends closely. In Engineered Solutions, we are seeing encouraging behavior from transformer customers and solid backlog. While transformers is a longer cycle business, we are well-positioned to address opportunities for increased investment in transmission infrastructure associated with potential renewable energy and grid reliability investments. In summary, I am very pleased with our solid performance in a challenging year. The efforts of our employees and the strength of our resilient platforms helped us drive growth in our earnings during a worldwide pandemic. This year, we anticipate a return to double-digit earnings growth and remain focused on initiatives to accelerate that growth through organic and inorganic levers, continuous improvement, further investments in digital and initiatives focused on our people and sustainability. With a strong balance sheet and a highly capable experienced team, I’m very excited about the opportunity ahead to continue driving value for our shareholders. And now, I’ll turn the call back over to Paul.

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

Thank you. [Operator Instructions] Our first question will come from the line of Brett Linzey from Vertical Research.

I wanted to start with supply chain constraints affecting the whole industry, obviously, also price costs, particularly steel. How are those two items informing the cadence of the year for ‘21? Should we expect a weaker first half in terms of profit with some recovery in the second half? Any color you can provide on those two items.

Hey. This is Jamie. I’ll kick this off. So, supply chain commodities in general, we are seeing a tightening of certain products in supply chain. We are seeing some commodity price increases in certain spots in our Company. From a pricing standpoint, we think at this point in time that we’re able to cover most of the commodity or material increases through price. We’re taking actions on potential supply chain shortages or constraints, if you will. We’re doing some safety stocks. We’re making sure we have good alternative supply choices to use. And so, right now, we don’t see that being a material issue, but it is something that we’re very closely monitoring. But again, we’re fortunate, a lot of our businesses are very highly technical, specialized product, and we’re able to pass that price through to the customer, in many cases, not all.

Okay, great. And then, on the cooling side, just wanted to square the comments with an early signs of recovery in the non-res piece, but you are guiding flat for the year against relatively easy comps. So, just conservatism, something else we should be considering there?

Brett, this is Gene. Yes, I think, if you look at what we have seen the -- last year, if you look at where the Dodge index was, had a little bit of a downward impact and projections for 2021. The latest projections, if you map out where the Dodge is versus our end markets, as a reminder, in non-resi, we’re very diversified. We’re in data centers, health care, commercial, hospitals, education. If you look at it, I think, the situation has improved. And the current Dodge index would probably have us at a plus 1%, maybe 2% according to the market demand, with a little bit more coming in the back half of the year. So, I do think it’s been a little bit of a positive change that we’ve seen in the market dynamics. So, I think, that is a fair point.

Just to follow up on the HVAC side, and particularly the heating side, I mean, we’re almost two-thirds of the way through the quarter. Have you seen the channel load in given some of the colder weather conditions in your served markets, or what’s the dynamic and kind of the early pulse here in the first quarter in heating?

Yes. So, I think, if you look outside, we have seen a lot of cold impacts across the U.S., something we monitor very closely is heating degree days. If you look at the data, our heating degree days is positive versus last year. It’s up nicely. But, having said that, it’s actually lower than our normal averages over the longer term. So, we are seeing positive versus last year, but a little bit lower than before. But we think that that would set up a favorable comparison in Q1. And then, obviously, as you think about how that flows through, having a nice second half of the shoulder, let’s say, Q1 sets you up well as you go into the preseason and the off-season. So, we think net-net, the weather to date has been more favorable and will be a positive for us this year.

And our next question comes from the line of Bryan Blair from Oppenheimer.

In terms of your D&M sales guide, I was wondering if you could break out what the team is thinking in terms of organic sales, carryover M&A and FX contribution to get to the low to mid-teens range?

Yes. We are -- sort of the low to mid-double-digits teens on D&M as a whole, a large part of that will be -- there will be some organic growth in there. A large part of that will be as a result of our ULC acquisition and our Sensors & Software acquisitions from both of which occurred in the fourth quarter, September, November, respectively, of last year. FX, we do have a little bit more -- we see in a little bit more contribution from FX. I think, it’s less than two points, maybe between 1.5 and 2 of FX. But the majority -- a large part of the gain -- of the increase will be from the acquisition side of the house, primarily ULC because it was the larger of the two. In terms of the organic, we are seeing a nice rebound in our shorter cycle businesses, in particular, location and inspection. We saw that happen -- begin to happen in the second half of 2020. We saw it accelerate a little bit more in Q4, and we are seeing it as we enter into 2021. As we look at our communication technology business, and that’s obviously a project-oriented business, and it carries the profile where there’s a project shipment that carries high dollars in revenue and a large incremental margin contribution when it happens. That business, 2020 was down rather significantly from where it was in 2019. We’re seeing a very nice rebound in that in 2021. We will not be back to the levels of 2019. And as you probably remember, 2019 was a level, both at the top line and the segment income line that probably historic record for SPX with that business. So, we’re not back there, but we are seeing a very nice rebound. And then, in our Genfare business, which are transportation business, we’re seeing that recover, but also carries the run rate business as we think, is doing well. That business also carries the characteristic of having a lot of big sales. And so, we’re seeing good frontlog out there. We also -- those projects have to execute. In terms of both of those businesses, it does involve working with governmental agencies. And so, we still see things moving positively along, although they still -- it can be difficult at times, especially with people still in being in a remote environment. But, all signs are positive there.

Very helpful color. Thank you. And anything you can offer in terms of ULC and Sensors & Software, integration, trends, et cetera? Curious what accretion you’re expecting from the deals in 2021? And maybe more important, how they’re influencing R&D and product development across your businesses?

Well, why don’t I take a crack at the first part of that and then I’ll hand it to Jamie on some of the accretion. We feel really good about the businesses there and the technologies that were required there. As a reminder, you’ll see robotics, their core business is a CISBOT. This is a very, very unique solution that only they have that goes into gas lines and can really remediate underground infrastructure in a way that no one has been able to do. We like that business. It’s a good, steady business. It’s a really good value proposition. And so, we’ve talked about that business a good amount. But, what we really like is they have an R&D business, which is about a quarter of the revenue. And in there is a number of different technologies that typically ULC Robotics will be solving a solution that has never been solved before, for an end customer. It could be an industrial customer, could be utility. Could be a variety of end customers. And what we’re doing right now is, we have a process where we’re going through this portfolio, and we’re focusing on a smaller number. I think, we’re down to the top four technologies. And we really like what we see. Now, commercialization of some of these things does take some time. And you have to get some of these in a production-ready environment. But, what I would say is, there’s always a little bit of risk when you bring a company in and you really learn everything about it backwards and forwards. And I would say, net-net, we’re feeling more positive about the technology that we’ve brought into the Company. They’re very strong obviously in robotics, but they’re also very strong in AI. And one of the…

Yes. So generally speaking, I think, when we put out a press release about ULC, I think we sort of indicated that we would -- we’re expecting to see a segment margin, incremental result from ULC and once fully integrated. And generally speaking, we see that as being year two or probably 2022. From what Gene said, the piggyback on integration, it is going very well to date. The R&D business is very exciting. You have a business there that’s got a nice UK business, a nice U.S. business, what I’ll call more of a run rate business and then R&D really offers a lot of opportunity. I think, one of the things about this business, just from a P&L perspective, it does carry with it a larger than normal amount of depreciation relative to our other D&M businesses. And so, when you look from the segment income margin to the EBITDA margin, it carries very high EBITDA margins. And so, -- but we see a 2022 rather large, good increase in our segment margin for this business. In the Sensors & Software side, I would think about that, as Gene said, a smaller. But think about that more as a product extension than necessarily a standalone acquisition. We do integrate all of them into the SPX family, if you will. But, the Sensors & Software becomes much more integral part of radio immediately because we’re already doing business and transacting business together. So, not as meaningful in terms of the total P&L, but a much quicker integration process for us.

And Brian, this is Paul. Just one -- I’ll throw in one modeling point here to help out the group. The combined annualized revenue from Sensors & Software and from ULC together is somewhere in the neighborhood of $50 million. In 2020, on a combined basis, they were about $17 million. Obviously, we only had them for a portion of the year.

And then, one last one, if I can. How are you thinking about your M&A funnel in early 2021? What are the prospects for getting some more strategic deals to come through? You obviously executed a couple during the pandemic. You’re towards the low end of targeted net leverage, so plenty of capacity. Just wondering if you can speak to confidence in further acceleration there this year?

Yes. Bryan, I think, it’s a good point. What I would say is, we’re seeing activity increasing. We obviously did the two acquisitions we just talked about. I really am excited about ULC Robotics and Sensors & Software. But, having said that, those were actually in discussions in ‘19. So, they actually -- they didn’t come up during the COVID time. We were actually already in discussions with both of those businesses beforehand. What we are seeing is more opportunities starting to pop up, I would say, particularly in the past two to three months. I wouldn’t say that we’re at a full normal run rate but we are -- I’d say, we’re rapidly getting to that point. From what we’re seeing, I would say, valuations seem consistent. As you know, we’ve been very disciplined on valuations across our acquisitions. Our average blended value has been 10.5 times pre-money or pre-synergy and 8.5 times post synergy. So, we think that’s probably still consistent with what we’re seeing in front of us. So, I’m very optimistic about the opportunities we have in front of us. What I would say is, we see a good amount of opportunities in Detection & Measurement, very good technologies, very strategically relevant, very good businesses. But I would say probably a little more on the smaller side. And then, we’ve seen, I’d say, a good opportunity set as well on the HVAC side. And then, I’d say probably more what I’d characterize as larger opportunities to us. And larger to us might be anywhere of north of $75 million. And so, -- but, where we sit today, we like the opportunities in front of us. We think we’re in the early innings of building out our platforms. We’ve seen, as you know, a dramatic shift in both our Detection and our HVAC businesses. And we think there’s a lot of runway to go there.

[Operator Instructions] Our next question comes from the line of Damian Karas from UBS.

I wanted to touch back on your margin guidance for the year. Just curious in particular, D&M and Engineered Solutions, you guys are calling for kind of flattish margins there. I know you called out potential M&A impact in D&M. But apart from that, I mean, kind of what’s going on with margins that -- with the underlying growth that you’re expecting that you’re not getting a little bit more operating leverage there? And maybe if you could just clarify on your prior comment, I think, you said that kind of expect price cost to be more or less neutral. But maybe if you could just kind of parse out what your expectations are?

Yes. This is Jamie. I’ll take that one. So, a couple of factors that really impact the margin on the D&M side, the largest of which is back to the project-oriented businesses, specifically communication technologies for us. And it carries -- a project, has a large amount of revenue, high margin, very high contribution margin, if you will. And we’re seeing a nice rebound of that business from 2020. It was down rather considerably from ‘19. So, we are seeing a nice rebound there. That being said, we are also -- we have other things going on in the P&L. We are making some, what I call P&L investments here and there. Things like -- we’re putting some feet on the Street in our location and inspection business to filling gaps in geography. We’re doing new product innovation product launch, marketing and to get it out in the marketplace. And so, those things, while not really hurting margins, they’re not improving it today as much as we hope, and we believe it will see next year and years down the road. As Paul mentioned a few moments ago that if you look at the guidance on the incremental from the acquisitions, I mean, it totals roughly total of about 50 in total from about 17 in last year. So, that’s incrementally up about 30 to 35. And so, that margin, that business does come in, in hear one, primarily ULC in hear one of the acquisition, a little bit lower than what our overall segment margin. So, it begins to dilute, if you will, the rebound that we’ve experienced from the communication technology resulting in sort of the flattish type guidance. Again, we’re still very bullish on the D&M. We think it’s a great platform for us to leverage our…

Okay. Got it. That makes a lot of sense. And I guess, sticking on engineered systems and transformers. Gene, I was wondering what some of the current issues that we’re seeing and hearing about kind of mean for the business? So thinking about what’s going on down in Texas with the outage situation down there. Also, if you think about the automotive world and really hearing about an acceleration in these EV platform intentions going forward. Obviously, that means there’s got to be some charging station build-out. When you think about all that, are these things that start impacting your business sooner rather than later, or is the right way to think about transformers still, it’s basically kind of this long cycle replacement story? What’s the trajectory when you think about that business?

Yes. I think, Damian, if I look at where that business is, I actually feel really good. And I think the points you bring up are really relevant. If you just kind of start with the operations of the business and where it’s been, the team has really done a great job driving continuous improvement, driving strategic pricing. I think, it’s just a much healthier business. You know it’s in the leadership position. It has a very, very strong place in the market. And it is a long lead cycle business. So, you typically start a year with somewhere in the neighborhood of three quarters of the orders in your back pocket already. So, you’re really booking in the second half, sometimes Q4, sometimes even the year after in some occasions. But, I think, the team has really built a strong foundation there, and it is a really strong business. They’ve also been able through CI, which has opened up capacity to grow. And they’ve had some nicer growth in the market over the past two years. And I think the point that you bring up are very real. I think the question would be of timing. I do think there are some mega trends that are very, very real. Electric vehicles obviously going to be very real. General Motors is getting out of internal combustion engines, right? And there will be a shift, and that will drive more generation. And whenever there’s more generation, particularly if it’s renewables, that drives T&D demand. And you’re right, the bulk of our business has been replacement because there is such a large aged infrastructure. But, if you see more -- if you look overall in the U.S., there has not been a lot of growth in energy usage over the past couple…

I’m currently not showing any further questions in the queue. I’d like to turn the call back over to speakers for any closing remarks.

Okay. Well, thank you all very much for joining us for this call. We look forward to updating you at our Investor Day in late spring and then next quarter again. Stay safe.

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