Motorola Solutions Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 1, 2024

There are 9 speakers on the call.

Operator

Thank you for standing by and welcome to SPX Technologies Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. I would now like to hand the call over to Paul Clegg, VP, Investor Relations and Communications. Please go ahead.

Speaker 1

Thank you, operator, and good afternoon, everyone. Thanks for joining us. With me on the call today are Gene Lowe, our President and Chief Executive Officer and Mark Perano, our Chief Financial Officer. Press release containing our 2nd quarter 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.

Speaker 1

I encourage you to review our disclosure and discussion of GAAP results in the press release and to follow along with a slide presentation during our prepared remarks. A replay of the webcast will be available on our website until August 8. 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.

Speaker 1

You can find detailed reconciliations of historical adjusted figures from their respective GAAP measures in the appendix of today's presentation. Our adjusted earnings per share exclude acquisition related costs, non service pension items, mark to market changes, amortization expense and other items. Finally, we will be meeting with investors at various events during the Q3, including the Seaport Virtual Investor Conference on August 21st and the Jefferies Industrial Conference on September 5th in New York. With that, I will turn the call over to Gene.

Speaker 2

Thanks, Paul. 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 Q2 of 2024. We're also once again increasing our guidance for the full year. We had strong results for the quarter.

Speaker 2

In Q2, our company continued to execute well and drove substantial growth in all of our key profit measures with significant year on year increases in margin. We continue to experience robust demand across key markets and gain momentum in our continuous improvement initiatives. Today, we are raising our full year 2024 guidance. Our new midpoint reflects year on year growth of 35% in adjusted EBITDA and 28% in adjusted EPS. Turning to our high level results.

Speaker 2

For the Q2, we grew revenue by 18.4% and adjusted EBITDA by 45% year on year with 400 basis points of margin expansion. We achieved several firsts in this quarter, including the Q1 since the spin with revenue in excess of $500,000,000 and with adjusted operating income of more than $100,000,000 We also achieved our highest post spin EBITDA and EBITDA margin, which reached $109,000,000 21.7 percent respectively. As always, I'd like to update you on our value creation efforts during the quarter. In Q2, we had a number of successes with new products. In our cooling business, we received multiple orders and quotes for our newly introduced Olympus V adiabatic unit, which optimizes the balance between power usage and water usage for a number of different cooling applications.

Speaker 2

In our Detection and Measurement segment, our location and inspection platform continued to gain traction, converting customers to our new precision locators with instant mapping capabilities. This upgraded product simplifies and speeds up the process of mapping underground utilities. We also gained further acceptance among utility customers on our cross bore inspection equipment, which facilitates the location of risk areas between gas and water lines. On the operational front, we are executing well on cross selling opportunities, allowing our recent acquisitions to leverage our well established sales channels to expand their market reach. We're further broadening our exposure to robust growth markets such as data centers and healthcare.

Speaker 2

We also continue to see momentum in our continuous improvement initiatives, including further gains and throughput in our HVAC facilities. And now, I'll turn the call over to Mark to review our financial results.

Speaker 3

Thanks, Gene. Q2 was another very strong quarter for SPX Technologies. Year on year, our adjusted EPS grew 34% to $1.42 In addition to our typical adjustments, adjusted earnings this quarter excluded charge for the resolution of the legal dispute. The after tax impact to adjusted EPS was $0.13 per share. The settlement resolved all litigation related to an earn out payment to the former owner of ULC.

Speaker 3

For the quarter, total company revenue increased 18.4% year on year. Organically, revenue grew 9% driven by HVAC, while acquisitions drove a 9.5% increase and FX was a slight headwind. Consolidated segment income grew by $33,200,000 or 39.3 percent $117,600,000 while segment margin increased 360 basis points. For the quarter in our HVAC segment, revenues grew 32.5% year on year. On an organic basis, revenues increased 17.7% driven by higher cooling sales including approximately $20,000,000 from the delivery of a large cooling service project that has no equivalent in the remaining quarters of 2024 or in the prior year period.

Speaker 3

Acquisitions contributed growth of 15% and included Ingenia in our cooling platform and Aspect in our heating platform. The FX impact was nominal. Segment income grew by $28,500,000 or 51.6 percent, while segment margin increased 300 basis points. The increases in segment income and margin were due to acquisitions and operating leverage from higher organic cooling sales, including the benefit of continuous improvement initiatives. Segment backlog at quarter end was $434,000,000 roughly flat organically from the prior year period.

Speaker 2

For the quarter in Detection

Speaker 3

and Measurement, revenues decreased 6.2% year on year. FX was negligible. The decrease in revenue was driven largely by lower Comtech sales associated with a large pass through project delivered during 2023 into Q1 of this year. Year on year segment income grew $4,700,000 and margin increased 4.50 basis points. We had favorable sales mix in Q2 driven by lower than typical margins on the pass through project delivered in the prior year as well as a shift in project delivery schedules, which brought forward some higher margin projects into the quarter.

Speaker 3

Segment income and margin also benefited from efforts to enhance the efficiency of our segment structure, which we expect to continue in the second half. Segment backlog at quarter end was $205,000,000 down 12% organically from the prior year due to deliveries of the pass through project. Absent this project, backlog was up mid single digits. Turning now to our financial position at the end of the quarter. We ended Q2 with cash of $133,000,000 and total debt of $790,000,000 Our leverage ratio as calculated under our bank credit agreement was 1.6 times.

Speaker 3

We anticipate our leverage ratio declining below the lower end of our target range of 1.5 times to 2.5 times by year end, leaving no additional capital deployment. Adjusted free cash flow for the quarter was approximately $58,000,000 Moving on to our guidance. We are increasing our guidance for adjusted EPS to a range of $5.45 to $5.60 compared with the prior range of $5.15 to $5.40 The new midpoint reflects year on year growth of approximately 28%. This guidance update reflects our strong 2Q performance and second half outlook, particularly on margins. In HVAC, we are increasing revenue guidance by $5,000,000 to reflect stronger cooling volumes and raising margin guidance by 75 basis points to reflect more efficient production and more favorable sales mix.

Speaker 3

In Detection and Measurement, we are raising our outlook for segment income and increasing margin guidance by 75 basis points as we continue our initiative to drive segment margins to historical levels. At a total company level, we anticipate adjusted EBITDA in a range of $410,000,000 to $430,000,000 At the midpoint, this reflects a year on year growth of 35% and a margin of approximately 21%. With respect to second half gating, in HVAC as is typical, we expect Q4 to be our highest revenue and margin quarter, while Q3 revenue is anticipated to be modestly down sequentially due to large cooling service project we called out in Q2. In D and M, we expect higher margin project revenue to be more weighted to Q3 than Q4. As always, you will find modeling considerations in the appendix to our presentation.

Speaker 2

I'll now turn the call back over to Gene for a

Speaker 3

review of our end markets and his closing comments.

Speaker 2

Thanks, Mark. Current market conditions support our updated 2024 outlook. Within HVAC, we continue to see strong demand for our cooling products across a broad set of end market applications, including data centers, healthcare facilities, semiconductor plants and industrial facilities. In heating, overall demand remains stable and we're seeing initial traction on climate conscious solution introductions. In detection and measure, we continue to experience flattish global demand in our short cycle business with regional variation, while project orders remain healthy.

Speaker 2

In summary, I'm very pleased with our Q2 performance. With robust demand and significant operational momentum, we're well positioned to achieve our updated full year guidance, which implies 35% growth in adjusted EBITDA. We see multiple opportunities to continue growing our businesses both organically and through our attractive acquisition pipeline. Looking ahead, I remain very excited about our future. With the right strategy and a highly capable experienced team, I see significant opportunity to continue driving value for years to come.

Speaker 2

With that, I'll turn the call back to Paul.

Speaker 1

Thanks, Gene. Operator, we will now go to questions.

Operator

Thank Our first question comes from the line of Ross Spernbleck of William Blair.

Speaker 4

Hey, guys.

Speaker 3

Hey, Ross.

Speaker 4

Hey. Hey, congrats on the quarter. Another solid beat and raise here. Maybe just considering the Dodge index, I know you went through some of the end markets within cooling. It sounds like Simmons are still strong, but how should we think about commentary coming out of this quarter thus far around the weaker utility spend?

Speaker 4

And also it sounds like maybe EVs are sliding to the right. I know that's been a decent mix within ASI cooling tower previously. Is there any changes in it there?

Speaker 2

Yes, Ross, I think if you look at it, we're actually feeling very good about what we're seeing in our end market strength. As you know, we're very diverse. We serve a lot of different end markets, but the number of larger markets that are very strong did provide a lot of tailwinds for us. Specifically, data center remains very strong, and we're seeing some nice wins, nice new customers and some very nice trends there. Healthcare Pharma has been very strong.

Speaker 2

We see continued tailwinds there. Institutional is now a very significant portion of our business. You're talking about government, schools, things like that. We're seeing a nice traction there. And then the last 2 would be industrial and industrial tech.

Speaker 2

Industrial tech would be as you'd refer to things like chip plants, battery plants, EVs. And yes, there will be inconsistent timing on those, but there's still some large orders out there. I think if you look at it across HVAC, we still feel very good about the demand environment that we see in front of us, both for this year, but then also looking ahead to next year as

Speaker 3

well. All

Speaker 4

right. That's very helpful. On Detection and Measurement, this is probably the first time I've heard you guys speak to continuous improvement, just knowing that it is more of a disparate platforms. Can you help us get a sense of what that impact was relative to mix and maybe just gross margin expectations? I know you gave some color on the second half, but any color there would be great.

Speaker 4

Yes.

Speaker 2

I'll start it out. I think there's been a lot of focus on margins in Detection and Measurement. And I'd say John Swan and his team have really done a nice job. I think that the segment strategy is working. We are seeing some leverage in how we develop software, how we do things in a smarter way that is it really makes us more productive.

Speaker 2

And that you're really seeing that starting to flow through in the numbers. So, I would say that if you look at it in virtually all of our platforms and detection and measurement, we're seeing very nice progress. It's very good. As you know, there's not as much manufacturing in detection and measurements. There's more software and light assembly.

Speaker 2

Most of the lean initiatives engineering, pushing more throughput or bidding processes, optimizing our front end, our engineering and NPI processes. So it's just a little bit different than because there's less engineering there, but we are seeing some really nice improvement in our supply chain and in our optimization, which you had a little more market from your point of view. I know you spent a lot of time on that.

Speaker 3

Yes, Ross. I think we just as Gene enunciated there, I mean, we just had really good traction with respect to those efforts. I mean, it's been a key initiative for us as we think about driving margin levels back to kind of 22% to 24% level. So a lot of good work on that front. And it's really when you look at the guidance, which you haven't asked that question, but I'm sure someone will go there.

Speaker 3

You think about the implied margin in our guide for the back half of the year, a lot of that benefit and the reason for that is driven by these initiatives and the expectation that we can drive more value at the margin line for the business as businesses in D and M.

Speaker 2

Got

Speaker 4

it. So there's nothing really to call out that would imply that incrementals should divert from the healthy levels we saw in the second quarter here?

Speaker 1

Well, there's a little bit sorry, Ross, this is Paul. Maybe there are a few moving parts this quarter that may make sense to just take a step back and unpack some of that. A lot of the benefit that you saw in the 2Q margin in D and M was really timing within the year. And so what we're talking about there, we had some projects push into the quarter with higher margin and then others move out of the quarter that had, let's call it, average margin. We also had some delayed spending that we do think we'll catch up on in the second half of the year, all that a couple of $1,000,000 there.

Speaker 1

But we as we said, we've made really good progress here on the initiatives. And if you look at the update in our guidance for the full year, you get an implied increase in segment income of about $3,000,000 to $4,000,000 $3,500,000 let's call it. And that's really the margin initiatives and that's spread through Q2 and the second half.

Speaker 2

Perfect. Thanks guys. Thank you, Nick.

Operator

Thank you. Our next question comes from the line of Brian Blair of Oppenheimer.

Speaker 5

Thank you. Good afternoon, guys.

Speaker 3

Hey, Brent. Hey, Brent.

Speaker 5

Another fantastic quarter for HVAC, specifically in your cooling platform. So level set, if you're willing to share the detail on profit improvement year on year, how much of the 300 basis point expansion would be attributable to volume, price cost, productivity and mix accretive deal contribution?

Speaker 1

Yes. Brian, this is Paul. We had kind of 3 notable drivers of the year over year increase of about 300 basis points. The first was really operating leverage on the organic increase of organically we were up 17% about 18%. And so that was almost half of the 300 basis points.

Speaker 1

The acquisitions were the next largest driver, maybe about a third and then the rest of it was really outperformance on that service project that we mentioned. In terms of price cost, it is a benefit. It's not these the benefits we're seeing are not as large as we saw years ago. But it was a favorable tailwinds that we get caught up in that in the operating leverage there.

Speaker 5

Okay, understood. Appreciate the detail. And perhaps offer a little more color on how run rate D and M orders trended to the quarter and into early Q3, particularly interested in radio trends given the somewhat canary nature of that business?

Speaker 2

Yes. I think overall Brian what I'd say is D and M is steady. It's been flattish on the run rate businesses. And then on the project businesses, I would say it's very healthy. We expect to finish the year with a very strong backlog for D and M, significantly higher, which we think is going to set us up well, 25% and 26%.

Speaker 2

But you're right, radio and our L and I platforms, radio is typically a canary in a coal mine, but radio is holding steady. And actually, we're seeing few things that are kind of positive there. So, we feel good about where radio is. And as a matter of fact, I was just talking to the GM this morning. We're seeing some loosening and some positive signs on the Continental Europe, which is pretty small for us, but we're seeing some positive inclinations there.

Speaker 2

The second thing would be, U. K, I believe just cut slightly, I believe, quarter a point and you're seeing more activity there. U. K. Is a meaningful market for radio detection.

Speaker 2

So I'd say flattish with potentially some positive early signals there.

Speaker 3

Okay. That's encouraging. I will

Speaker 5

get back in queue. Thank you.

Speaker 1

Thanks, Brian.

Operator

Thank you. Our next question comes from the line of Damian Karas of UBS.

Speaker 6

Hey, good evening, everyone. Congrats on the quarter.

Speaker 2

Hey, Damian. Hey, Damian. Yes, thanks.

Speaker 6

I wanted to ask you a follow-up on your margins just because the performance has been impressive. You're raising the guidance a few straight quarters and that's after 300 basis points or so of expansion last year. So I was wondering if maybe you could just kind of hone in a little bit on the execution and where it's been better than expected. Any of those initiatives that are really driving kind of the outside margin performance? And how much juice you think you've got left in the tank, Gene?

Speaker 3

Damian, I'll start. I mean, we've talked about this over the last few quarters. As you know, we've been investing a tremendous amount of capital relative to where we've been historically. This year, I think we've targeted $40,000,000 plus and that's close to 2% of revenue. So a good kind of 0.5% above where we've been.

Speaker 3

And those have been just very strategic investments across the cooling platform in areas where we can drive both incremental throughput, drive efficiencies, as well as reduce labor content. So we're kind of seeing it really across the footprint. That has been ongoing really for 12 plus months. We're not through with it. There is more activities and upgrades if you like to those facilities that will kind of continue throughout the year.

Speaker 3

So that's kind of in a broad stroke what's really driving it. I wouldn't suggest that there's one particular change that we made. It's really the combination of all of that.

Speaker 2

And then you overlay kind of

Speaker 3

a CI mentality to it as we're thinking about the activities within these plants.

Speaker 2

Yes. And one small thing I would add is, as a reminder, Detection and Management, really our target has always been 22% to 24%. We believe that that business should operate there. And it's nice to see you get back there and really good work there. The segment that's really changed has been HVAC, which remember the jumping off point of the number you're talking about was probably a little bit suppressed due to some of the COVID supply chain, some of the labor challenges and a lot of the good work that we're doing was hidden at that time or it was impacted by those other areas.

Speaker 2

But I think that's where you think we had historically had around a 16% business and that has structurally changed. As Mark has alluded to a lot of the investments in productivity, a lot of the growth in demand and the operational leverage, but also don't forget about M and A. M and A has added, we think, in the neighborhood over the past 2 years, you're talking in the neighborhood of 150 basis points, 200 basis points to that line. And so, structurally, we do believe HVAC is a much stronger business unit. Sean and the team have done a phenomenal job over the past couple of years and we feel good about the future there.

Speaker 6

That's great. And that's actually a good segue, Gene. I wanted to ask you about the acquisitions, kind of 3 notable ones over the past year combined. That's a pretty sizable chunk of your HVAC segment now. So how have these acquisitions been performing relative to your initial expectations?

Speaker 6

I guess kind of early thoughts on Ingenia, but Aspect and Tamco, you're kind of about a year in. So appreciate any color on that.

Speaker 2

Yes. I would just we are very pleased with these 3 acquisitions. So there is Ingenia, which we think all three of these businesses are very good businesses, have great value propositions, great competitive positions. And then 2 of them are also very linked to data centers. And we have seen just some very nice growth.

Speaker 2

So I think Ingenia, Aspect and TAMCO, as a reminder, Ingenia's air handling, that is very linked to healthcare, pharma. We're in a situation there where we have so much demand for our product. Our focus is on making sure we can expand our capacity fast enough. We are truly capacity constrained there and a lot of our time and our effort is building and enhancing that because we do believe we have a better solution in the market. We really have a very good product.

Speaker 2

Aspect and TAMKO also are performing at a very solid level. I think if you look at these 3 put together, I would say revenue is in the neighborhood of our plans, but we are exceeding in our profit levels. And the other thing I would say is not only is there good performance of these individually, but we actually think there's some really nice synergies that we're seeing and we're starting to capture. For example, in Jynia, when you get into the specification of an air handling unit, they can oftentimes influence the downstream specification. For example, they can influence TAMCO now as a base of design.

Speaker 2

They can also influence our air products, our strobic product line, which oftentimes will actually get built into the air handling unit. We also get leads for our other product categories because we'll know a hospital is going up here or a pharmaceutical is going up there. And some of our businesses like Marley Cooling, we have very good coverage. So there's not a lot that we don't see, but being able to get in early and meet the engineers' influence is meaningful. So I'd say that we see some real synergies across the business is there.

Speaker 2

They're very synergistic. And I'd say we're still in the early days of capturing that. But I would say we're very pleased with all three of these. And interestingly, we had our biggest year last year where we deployed north of $800,000,000 of capital, so very big for a company our size. We're going to be materially below our 1.5 times by year end.

Speaker 2

So I think it's a testament to our model where we just generate a lot of cash and it allows us to invest that cash in growth. And I think last year to this year is a good example of that as well as I think the prior 4 years we kind of had it rolling. But, yes, we feel good about stepping back a little bit. One of the common questions is what are you seeing on the M and A front and I'd say our activity pipeline is healthy. We actually see some very interesting opportunities for growth on our detection and measurement side.

Speaker 2

The last 3 were all on our HVAC side. But it's a good healthy market and we believe in our strategy and we're going to continue executing on

Speaker 6

it. Great color. Thanks. I'll pass it along.

Speaker 1

Thanks, Damian.

Operator

Thank you. Our next question comes from the line of Steve Farazani of Sidoti.

Speaker 7

Good evening, everyone. I appreciate all the detail tonight. I want to follow-up your last comments, Gene. You pointed out that net leverage probably, I mean, you're well on your way to getting back below the target range. Looks like there was a little bit of debt reduction in the quarter.

Speaker 7

How are you thinking until the next deal comes along on uses of cash? Working capital was up a little bit. There was a little bit of a build, but you still generated a significant amount of cash flow this quarter?

Speaker 3

Yes, Steve. I mean, our priorities, right, for use capital are obviously growth, right, whether that's organic or inorganic. And I think when I think about the pipeline of opportunities out there and what we're seeing in the M and A space, we feel good about where we are and the opportunity to deploy capital going forward in that. So our cash flow has been and continues to be more back end loaded than it is in the first half of the year. So to Gene's point, you will see that deleveraging coming in as we roll into the 3rd Q4 of the year.

Speaker 3

But we do have a fairly substantial CapEx plan this year that I referenced earlier and we're about halfway through that. When you think about what we signal to The Street as our overall spend year to date or through the 1st 6 months we're at about $20,000,000 So you'll see capital continue to be deployed to that. And then to the extent there aren't any kind of other opportunities, we'll just continue to pay down debt in the near term.

Speaker 2

And I would say, if you look at historically, our focus has been growth. We believe it's part of our flywheel in our model. And really all of our investments have been in growth. I would say it's unlikely to look at a dividend over the next couple of years. And as you know, we did do a smallish buyback a couple of years ago, maybe 3 or 4 years ago.

Speaker 2

But I would say that 90 5% plus of our capital over the past timeframe has been really, really been deployed on growth. I wouldn't anticipate that to change over the next couple of years, Steve.

Speaker 3

Yes. I think our views are consistent with what we kind of shared at the Investor Day on that front.

Speaker 8

Right.

Speaker 7

Absolutely. How are you thinking about CapEx? I think Gene, you mentioned earlier in response to one of your questions, some capacity constraints on one of the acquisitions. Do you need to add capacity for some of these faster growth HVAC acquisitions? And should we expect that?

Speaker 2

Yes, I think we will need to add capacity, but I wouldn't anticipate this to be anything that's really noticeable. I think for us, we think of our CapEx is normally at around 1.5 times. We did a lot of capital investments in our primary cooling business, a significant amount of lasers and punches. We drove a really significant amount of revenue, which really has allowed us to grow. I would expect to see that continue in certain areas and start to get capacity constrained.

Speaker 2

But I think in large measure, we could have elevated CapEx in the 2% range if we maintain we've had a lot of growth. If you look at HVAC for the past 2 years, the organic growth alone was the plan of this year and last year's 23% organic growth. That's a significant amount of growth.

Speaker 6

But I don't see any

Speaker 2

large out of the ordinary. And Mark, any color you'd like to add there? And as we look ahead for 20 25 and 20 6 anything else? Any other color you'd like to add?

Speaker 3

Yes. I mean, I think you kind of largely covered it, Gene. I mean, we'll just we're going to continue to deploy capital where we can generate the highest return. And there will be some opportunities I think on the organic front to continue to invest. So you could see it slightly elevated relative to where we've been historically.

Speaker 3

But ultimately it's a growth focus and my expectation is M and A will be at the forefront and will continue to be.

Speaker 2

I will say the capital we have deployed, I believe, has had a tremendous return. And not only was it the capital, but it was the lean projects that we had. And I think that has been, as you pointed out, not only the ability to drive more throughput, but at a structurally higher margin and improved quality, less labor. It's been the programs that we have undertaken have had a very nice return profile. And I do think that is a meaningful portion of our structural change in our margins, particularly in the HVAC side.

Speaker 7

When I think about some of these acquisitions like Ingenio, which may be on your platform, you have much, much wider market reach. Have you been able to take that out to your full reach at this point? Are you limited by capacity and their ability to get projects out?

Speaker 2

Right now, we're limited by capacity. They had a multi year plan. They have a humongous facility. There's a lot of equipment in that we're actually operationalizing. So this is a very good plan.

Speaker 2

But right now, the demand is very strong there. You're exactly right. They could if you think about it, they serve a they're very strong in Canada. They serve a number of states, a smaller number of U. S.

Speaker 2

States. But where our strength lies is in our Marley brand where we are everywhere And we tend to have a very strong network. We tend to have good presence not only with the engineers, but the mechanical contractors as well as the service professionals in each of those regions. So as we expand capacity, we actually think we're going to see and you're really talking about synergies, commercial synergies. We do believe those are there and we are starting to capture that where we have capacity.

Speaker 2

But right now in that particular business, we want to make sure that we can meet the demand levels, which are very high.

Speaker 7

That's great. Thanks so much, Gene, Mark.

Speaker 3

Thanks.

Operator

Thank you. Our next question comes from the line of Walter Liptak of Seaport Research.

Speaker 8

Hey, thanks guys. Great quarter. Wondering you guys touched on this with the growth, but I wonder if you can talk about sort of your growth versus the market. Do you think you're gaining market share? And I guess why?

Speaker 8

Is it from the market expansion or is it new products? Can you provide some color?

Speaker 2

Yes. So I think you've and you talk in one segment, you're talking company overall, Walt. No. Yes. Sorry, I had

Speaker 8

to stay focused on HVAC and the cooling business.

Speaker 2

On the cooling business, yes, I do believe we're taking share there. Specifically, I would say, our strength in the cooling segment has always been the large projects, because we have done the large constructed projects in the past. We just have great technical competence in solving difficult engineering. So I would say that we have seen a lot of growth in larger projects. And that could be data centers, that could be chip manufacturers, that could be EV and we are that's really in our core.

Speaker 2

So I would say, there's been an enhanced level of demand in our particular area of strength. Second thing I would say is, we had embedded the Everest product line and that's something we've talked about over the past several years. That is essentially gone from approximately 0 to pushing $100,000,000 of revenue and that is taking share from constructed products in the market. So that is incremental growth to us that goes in our pocket that would not have been in our pocket. And that is a truly a great innovation where even before we invented the Everest, we had the largest tonnage cooling tower in the world.

Speaker 2

With the Everest, we were able to first increase it by 50% And then with our current version and our new versions, I think we have even doubled where we were before. So you're talking about drawing from 1400, 1500 tons to pushing 2,800 plus tons and a truly just a really good solution for the market. That has been particularly favored by chip manufacturers and data centers. So I'd say that I do think we've taken share and I do think it's a function of our innovation and our product management. But I also think it's a function of the market has moved in areas where we have some real strength.

Speaker 2

When you put those 2 together, I'd say that's why we've taken share.

Speaker 8

Okay. That's great. And wonder if you could just give us an update on sort of those growth businesses, chipmakers, data center, EV, what percentage of HVAC is that now? And what do you think the growth rate is on it?

Speaker 2

So and I don't have I'll give some and Paul, you can pull out what we have specifically. But if you look across pooling where a lot of this activity is, I would say the biggest areas would be 1, data centers 2, healthcare, pharma and 3, institutional. So those are the very big areas. Data center, we see a very attractive growth rate. Healthcare, the growth rate has maintained some very positive strength there.

Speaker 2

Institutional has been healthy. On the what you would call industrial tech, that's a smaller portion. I'd say that's still growing. You are seeing some projects get delayed. We have seen an EV plant or a battery plant move out in timeline here or there.

Speaker 2

But as it pertains to our overall demand profile, I don't think it's been something that we have seen as being material to us. So overall, and Paul, you want to get into a little more color here, you have the chart on each.

Speaker 1

Yes. So, Walt, we did call it data center as being around and there's a slide I should say that I'm currently looking at in our Investor Day deck that has some breakdowns for the entire company. But data center is about 10% of

Speaker 2

the cooling business and that makes it around

Speaker 1

7% of HVAC, yes, which makes it around 7% of the total company. And lab and healthcare is about 9% of the total company. Institutional again doing quite well also around 9%. So you got quite a few we've got a broad industrial category in there that's 20% and that's where you're going to see some of this industrial tech that Gene was talking about.

Speaker 8

Okay, great. And just as just switching gears to that service project that you had. It sounds like that came in, in the quarter and you completed it. Is that right? And I guess, if you could provide some detail of what was that regarding?

Speaker 8

And is there business like that that you can go get in the future?

Speaker 3

Sure. Yes. Walt, I'll start and then Paul feel free to kind of add in. This was a project that was I don't know if I call it one off, but it was not something that we normally have in our given the size of it. It was a cooling service project that we completed up in the Northeast of the United States.

Speaker 3

And it was an attractive one for us just because it had a margin profile that we don't normally see with these types of projects. So we were well positioned to go win it and it drove a high degree of profitability. There's no comparable project like that for the balance of the year. There was nothing in last year that looked like it.

Speaker 1

Yes, I'm parting Matt. Well, let's say we just called it out really because it did as Mark said, it didn't have any comparable in the other quarters of the year or in the prior year. So it does and we just wanted people to be aware of it from terms of the comparisons going forward as well. I believe it was in our backlog in the prior quarter, obviously came out of the backlog this quarter.

Speaker 3

So when you think about it, well, on a sequential basis for year over year, we thought it was beneficial that people understood what that project is and that it was in there.

Speaker 8

Okay, great. Makes sense. Okay, thanks so much.

Speaker 1

Thank you.

Operator

As there appear to be no further questions in queue, I would now like to turn the conference back to Paul Clegg for closing remarks. Sir?

Speaker 1

Thank you all for joining us on the call today and we look forward to catching up with you at upcoming conferences and investor engagement. Thanks.

Operator

This concludes today's conference call. Thank you

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Earnings Conference Call
Motorola Solutions Q2 2024
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