Earnings Call Transcript - SPXC Q2 2022

Paul Clegg, VP, Investor Relations and Communications

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. Our press release containing our second quarter 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 this webcast will be available on our website until August 11. 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 with the results of continued operations only. You can find detailed reconciliations of historical adjusted figures to their respective GAAP measures in the appendix to today's presentation. Our adjusted earnings per share also excludes nonservice pension items, amortization expense, certain favorable discrete tax items, and other strategy-related items. Finally, we will be conducting virtual meetings with investors over the coming months, including at the Seaport Annual Summer Investor Conference on August 24 and the Sidoti Small Cap Virtual Conference on September 22. And with that, I'll turn the call over to Gene.

Eugene Lowe, President and CEO

Thanks, Paul. Good afternoon, everyone, and thank you for joining us. On the call today, we'll provide you with a brief update on our consolidated and segment results for the second quarter. I'll also provide an update to our full year guidance. Now I'll touch on some of the highlights for the quarter. We had a strong performance in Q2, including the benefit of project deliveries in our Detection & Measurement segment, where we are seeing robust bookings. We continue to see strength broadly across our end markets, and we remain focused on aggressively managing challenging supply chain conditions. We also announced today that we plan to implement a new holding company structure to better align our legal entities with our business objectives and value creation strategy. We will address this in more detail later in the call. During the quarter, we repurchased approximately $34 million of our stock. While our capital allocation strategy will remain primarily focused on organic growth and acquisitions, we will continue to consider opportunistic share repurchases as a part of our strategy with the potential to reach 5% to 10% of our total capital allocation. Finally, we are raising our adjusted EPS guidance for the full year to reflect our strong Q2 results, our outlook for the second half and the impact of stock repurchases. Turning to our high-level results. For the quarter, both our HVAC and Detection & Measurement segments generated strong organic and acquisition revenue growth. Total adjusted operating income grew 47%, while margin increased 220 basis points. I'm very pleased with our results for the quarter and our outlook for the remainder of the year. With significant capital availability and an attractive M&A pipeline and several ongoing organic and continuous improvement initiatives, SPX remains well positioned to continue driving value for years to come. As always, I'd like to discuss our value creation framework. During Q2, we continued to make progress in a number of key initiatives. Our digital initiative continues to move forward. In our CUES business, which sells equipment to inspect and remediate water and wastewater pipelines, we gained further traction with customers standardizing their field work on our GraniteNet software platform, which helps to improve data collection, customer efficiency, and the value customers derive from using our hardware products. On the new product development front, we have had considerable success integrating technologies from TCI and our recently acquired ECS business. This has helped us to launch highly successful solutions and strong project bookings in the communications intelligence market. We also progressed on our ESG initiative. In Q2, we completed an updated materiality assessment to help tighten our focus on key areas of importance to our stakeholders as we work toward developing multi-year sustainability goals later this year. We published a presentation on our website, highlighting our ESG strengths and activities across a number of different focus areas and across our portfolio. And with that, I will turn the call to Jamie.

James Harris, CFO

Thanks, Gene. Proud to review our results. To give an update, I'd like to discuss a planned change to our legal structure. As Gene mentioned, we plan to implement a reorganization of our legal structure to better align with our long-term strategic goals. As a result of this transaction, the name of our company will change from SPX Corporation to SPX Technologies, but there will be no change in our ticker and no interruption in the trading of our stock. We anticipate several benefits from this change such as simplifying our legal structure, enabling more efficient management and growth of our business, including through M&A. And by segregating our legacy liabilities and the associated assets, we can explore opportunities to more efficiently address those liabilities. We currently do not have any plans to seek resolution of these liabilities through chapter proceedings, and we will continue to focus on efficient management of claims that have claims addressed in a manner generally consistent with historical practices. We have filed an 8-K with the SEC containing additional detail on the reorganization, and we plan to provide more information once the process is completed, which we expect to be on or about August 15. Turning to our results. We are pleased with our performance for the quarter. We grew adjusted EPS by $0.20 to $0.71 per share, an increase of approximately 39%. The adjustments that Paul described at the beginning of the call include the effect of a non-cash mark-to-market pension adjustment and costs associated with the execution of our corporate legal reorganization. In addition to the segment income drivers, which I will review later, some below-the-line items had a modest impact on our year-on-year earnings, including lower corporate and stock-based compensation costs, lower interest expense, and a higher tax rate. Our Q2 results reflect continued solid demand in our run rate businesses and strong project revenue. For several quarters, we have been seeing strength building in our Detection & Measurement project front log, and we are now seeing that convert into strong bookings and revenue in the second half of '22 and into '23. Our total backlog increased 56% year-on-year to $517 million, including organic growth of 39% with the remainder from acquisitions. During the quarter, we continued to work hard to manage through labor and supply challenges. We are pleased with the strong performance of our team and believe we are well-positioned for the second half of 2022. Our view of our adjusted results reflects strong year-on-year growth across the company. Revenues increased 19.4%. Robust project sales in Detection & Measurement and strong HVAC heating sales contributed to organic growth of 10.2%. Growth from acquisitions was 10.8% and relates to the purchases of Cincinnati Fan, ECS, and ITO. Segment income grew by $11.4 million to $56.1 million, while margin increased 70 basis points. The increase in segment income was driven by higher project revenue and Detection & Measurement. Price/cost was a modest margin tailwind for the quarter, and we expect it to be a tailwind for the remainder of the year. Reviewing our segment results, the HVAC and D&M were strong drivers of overall revenue growth. We also experienced a 1.6% currency translation headwind to revenue due to the strengthening U.S. dollar. Currency had a nominal impact on income and margin due to the strong natural hedges in our cost structure. Let's now review the details of our segment performance. In our HVAC segment for the quarter, revenue grew 18% year-over-year. The acquisition of Cincinnati Fan drove a 9.8% increase, while organic revenues increased 8.9%. Heating was the primary driver of strong organic growth with solid contributions from both price and volume. Adjusted segment income increased by $1.7 million, while margin decreased by 140 basis points, reflecting the impact of production constraints. Price cost was a modest tailwind. During the quarter, we saw some improvement in labor availability, and we continue leveraging our supply chain capabilities to manage through challenging supply conditions. As we head into the second half of the year, demand levels remain strong for our HVAC segment as reflected by a 27% organic increase in orders for Q2. Backlog increased 69% to $320 million, including organic growth of 51% with the remainder from acquisitions. Based on existing price increases and current input cost trends, we expect price cost to become more of a tailwind during the second half of the year. In Detection & Measurement, revenues grew 21.7% year-over-year. The acquisitions of ECS and ICL drove a 12.5% increase while organic revenues increased 12.4% with the growth in all of our platforms. We are also experiencing a 3.2% currency translation headwind due to the strengthening of the U.S. dollar. Adjusted segment income increased by 9.7%, while margin increased 420 basis points due to the higher revenue, particularly project deliveries, which carry a higher incremental margin. Overall, we continue to see solid demand in our run rate businesses and strong project orders and deliveries, notably in CommTech, where we have seen meaningful project synergies related to the ECS acquisition. Q2 segment orders increased approximately 14% organically. Backlog increased 38% to $196 million, including organic growth of 25% with the remainder from acquisitions. Turning now to our financial position at the end of the quarter. Balance sheet and liquidity remain strong and position us well to continue our organic and inorganic growth initiatives. During Q2, we purchased 707,000 shares of stock at an average price of $47.70. This amounts to 1.5% of our outstanding shares. We continue to have approximately $66 million of remaining availability under our current authorization for this fiscal year. We would anticipate continuing opportunistic share repurchases, reaching up to 5% to 10% of our overall capital allocation, while our primary focus will remain on acquisitions. In regards to overall cash flow, as previously noted, we anticipate the bulk of our cash generation in this year is coming in the second half. Notable cash uses this quarter included a tax payment of approximately $40 million related to a gain on the sale of Transformer Solutions, which closed in Q4 of last year, $34 million in share repurchases, and $20 million of strategic inventory investments related to the management of the supply chain. Moving on to our guidance. We have increased our full year 2022 guidance to reflect the strength of our Q2 results, solid second half demand and the impact of recent share repurchases. We now anticipate higher full year revenue in both HVAC and Detection & Measurement, and we have increased our midpoint adjusted EPS guidance by $0.08 to a range of $2.70 to $2.85. Our new $2.78 midpoint represents year-on-year growth of 19%. We are also increasing our guidance for adjusted operating margin to 11.5% to 12% or the upper end of our prior range, which was 11% to 12%. With respect to the cadence of earnings for the remainder of the year, we would expect Q3 to be operationally similar to Q2, but with modestly higher corporate costs and a higher tax rate. In HVAC, based on analysis of our current backlog, price increases we have implemented in recent commodity price trends, we currently expect Q3 HVAC results to be similar to Q2 with a significant increase in Q4. We now expect full year HVAC margin of approximately 14% or the lower end of our prior range of 14% to 14.5%, due to continued supply challenges, partially offset by higher pricing. In Detection & Measurement, based primarily on increased project orders, we anticipate second half results to reflect continued strength with Q3 being similar to our strong Q2 results, followed by an even stronger Q4. We continue to expect full year margin in the 19% to 21% range. As always, you can find modeling considerations in the appendix to our presentation. I will now turn the call back to Gene for a review of our end markets and his closing comments.

Eugene Lowe, President and CEO

Thanks, Jamie. Overall, we continue to see broad strength across our end markets. In HVAC, our North American cooling demand continues to reflect the strength of macro indicators such as the Dodge Momentum Index, while heating orders remain at healthy levels. In our Detection & Measurement segment, while we see some pockets of flattening, overall demand remains strong, particularly in our compact and transportation platforms. One of the biggest questions we've been getting recently is about how our diverse set of businesses will respond in an economic downturn. Overall, we feel good about our positioning for growth over the coming years based on strong segment trends such as infrastructure spending. While we do have some shorter cycle exposure, we believe that we would experience a more moderate impact than many industrials in a recessionary environment, as we did during the recession that occurred in 2008 and in the early stages of the COVID pandemic. A significant portion of our revenue, about two-thirds, comes from replacement sales, and many of our products are in regulated markets or markets where their use is mandated as safety equipment. These products are often sold to government, utilities, and other quasi-government customers, which tend to show more resilience in downturns. Our residential market is primarily our Hydronics business and is largely replacement demand. In prior downturns, these factors help balance out shorter cycle effects in the portfolio. In summary, I'm pleased with our strong Q2 results and our positioning to continue our growth journey. We continue to experience solid demand trends while managing through supply chain constraints and believe we are well positioned for a strong second half of 2022 and beyond. We have raised our EPS guidance to reflect our Q2 performance, a solid outlook, and our recent share repurchases. With a strong balance sheet and a highly capable experienced team, I'm very excited about our opportunity to continue creating value for shareholders in achieving our SPX 2025 targets. And now I'll turn the call back over to Paul.

Paul Clegg, VP, Investor Relations and Communications

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

Operator, Operator

Our first question comes from Damian Karas with UBS.

Damian Karas, Analyst

Nice to see some share repurchase, been waiting a while for that. So I guess some discretionary activity, $48 not too shabby.

James Harris, CFO

Yes. We were pleased with that.

Eugene Lowe, President and CEO

$47.70.

Damian Karas, Analyst

So I wanted to ask you about the kind of the margin guidance here. Gene, your commentary all sounds really positive on the demand front, good visibility into the second half. Just given the sales ramp, it feels like the margin guidance might be a little bit light. So I would appreciate any color you are able to provide on the margin cadence and how you're thinking about that through year-end?

James Harris, CFO

Yes. So a good question there. Yes. So we're back to where we started. We were very pleased with the quarter. As we look at the back half of the year, we see good bookings and a trend in our portfolio. We see good front log, specifically to the margins. When we look at the rest of the year, we still see some risk out there in our supply chain. As Gene noted in his comments, we see it stabilizing, in some areas it's getting better. There's still things that pop up. We still see some labor challenges in our Olathe plant, in particular, in our Vinisville facility. We took what we felt like was a very measured approach with our margins. There are opportunities for their margin to be on the high side of what we've laid out in our guidance, as well there's some risk areas. It really depends on where the supply chain falls. I mean we feel like through a lot of the CI initiatives that we've taken place already that we were working on a year or two years ago. And some of the progress we made, we feel like we've dealt with the supply chain very well, much more stable than it was last Q3 when we first raised that point, but it's still out there. So we have some risk there but also some upside there. We feel like we've called out a couple of times, backlog, been asked about backlog. We feel like at one point, we had potentially some cost risk there as we see some commodities pricing come down. We see probably some opportunities there if costs go our way. So there could be some opportunities in margin there. And then the last piece is really the project deliveries. We had a really strong quarter across our D&M platform. And as projects play out and a number of bookings in both our CommTech and our transportation platforms. As those projects play out, this is a complex process to get those out the door and delivered. We feel good about that. But we've also been measured about how we saw that playing out the rest of the year. And as you know, that's an area that carries a very high incremental margin. And so the margin opportunities are enhanced commencement with that.

Damian Karas, Analyst

Great. That's really helpful. And I wanted to ask you about some of these acquisitions, at least relative to where we were modeling it. They seem to be contributing a bit more. Could you just talk about how these newly acquired businesses are performing relative to your expectations? And I guess also, just more broadly, how is the integration going? And how are you buying things?

Eugene Lowe, President and CEO

Sure. I'll start on that, Damian. We've done 11 acquisitions. We actually have really good data, and we track this very closely. I think net-net, I would say very positive. These I'd say the most recent acquisitions that we've done, that would be Cincinnati Fan, Sealite, Sensors & Software, ECS, and ULC Robotics. I would say five of them are performing at a very high level, even ahead of our expectations. But really, the only one that's a little bit off in terms of where we thought there would be ULC Robotics, and this is a business we've talked about. I feel very good about the future of that business and the traction they're getting with not only their CISBOT product, but with some of the other markets that they're participating in, solar robotics opportunities, as well as some cross-border opportunities. But I think the punchline is if you look across the 11 acquisitions that we've done over the past three years, that is a very good success story. That's even with ELC, which I would say is off model. But I would say ULC is progressing positively this year. Additionally, we have been awarded some really nice business going into 2023 that we see some further growth there going into next year. In terms of the integration, I think overall, it's a very positive story, and it does vary by the acquisition that we did. For example, Sensors & Software and Schonstedt, these are really like new products as a part of radio detection. And those have really done well. They have taken a really good technology and scaled globally. We've gotten some really nice revenue gains throughout our channel there. Some of the other ones as well, PK, Patterson-Kelley, which is really high efficiency non-residential boilers has given us a very attractive channel and we've had nice inroads in expanding our presence in the non-residential space. You look at Sealite, IPL, and SABIC. We really think we've built the global leader in the eCom business. So the net-net, I would say, we feel really good about the progress we've made on building out our platforms. But I'd also say the runway in front of us is very, very attractive. We actually have very detailed plans for all six of our platforms, both for organic strategic growth initiatives but our inorganic. As you know, with our SPX 2025 plan, that's a continued part of our investment in growth and you're going to continue to see further expansion there. So net-net, we're very pleased with where we are, and we think there's a lot of opportunity in front of us.

Operator, Operator

Our next question comes from Bryan Blair with Oppenheimer.

Bryan Blair, Analyst

Solid quarter. To help us think about growth momentum into the back half, maybe provide a little more color on order rates by platform and where you're seeing any shift through July relative to the Q2 trends? And within reset sales guidance, the (inaudible) and HVAC, (inaudible). Is there a thing full weighting to a given platform in other 7?

Eugene Lowe, President and CEO

I’ll start with a high-level overview, and then Jamie or Paul can add more details. Overall, we're optimistic about the portfolio, with order rates up significantly year-over-year and a backlog of 20%. Our strong backlog positions us well for the latter half of the year. In terms of platforms, we have positive news for cooling; the U.S. and Asia markets are particularly healthy with orders increasing by 50% year-over-year. While we've faced some labor challenges, we are making progress in building our team. Macro data appears quite favorable for 2022 and 2023, which supports our confidence in the cooling segment. The heating demand remains strong, and we are effectively managing the supply chain while also achieving notable successes in our high-efficiency expansion. Our largest segment, HVAC, is well-prepared as we move towards the second half of the year. For Detection & Measurement, the core run rate business, which accounts for about two-thirds of our revenue, is robust, with the U.S. performing slightly better than Europe. While some areas are experiencing flattening, we are seeing solid growth overall, with a higher backlog than usual in our run rate services. Regarding project work, we have transitioned from discussing potential to realizing orders and revenue. Specifically, our efforts in contact and transportation have yielded strategic wins that position us well for 2022 and 2023. In summary, while we are monitoring the end markets closely, especially in light of some macroeconomic concerns, we remain optimistic about 2022 and are setting up nicely for a strong lead into 2023. Jamie or Paul, do you have any additional thoughts to share?

James Harris, CFO

I believe it was a solid overview. I would like to add something that connects this question to the previous one about acquisitions. We have noticed a significant increase in orders and strong bookings, and we are now working through the backlog in our CommTech business for 2022 and 2023. This clearly demonstrates the synergies achieved by merging our legacy TCI business with the ECS business we acquired last year. By combining two distinct product offerings and making them accessible to different customer channels from both legacy TCI and ECS, we have experienced considerable activity with the integrated product. We saw a nice increase in bookings this quarter, and we have a solid backlog. We are very pleased with how well this acquisition has integrated the sales teams and product offerings, which we believe sets our product apart in the marketplace.

Eugene Lowe, President and CEO

That's a great point, Jamie and that kind of links back to Damian's question on M&A. And that's where the deal thesis, the product thesis was by putting these two products together, you'd have a much more valuable product. And that has resulted in tens of millions of dollars of orders that we don't believe we would have gotten had we not had this joint product together. So yes, that's a great example on synergy and integration on the M&A question as well.

Bryan Blair, Analyst

That's helpful information. You've mentioned constraints in HVAC over the past year. How have those trends affected the figures or margin, especially when comparing Q1 and Q2 of this year? Also, what are the expectations for the second half of the year considering these constraints?

Paul Clegg, VP, Investor Relations and Communications

Well, maybe one thing that we can start with is that we did call out in the prepared remarks, the cadence for the quarters that we were anticipating for the rest of this year. And in HVAC, we're anticipating that the third quarter will be relatively similar operationally to the second quarter, the same in Detection & Measurement impact with, of course, your seasonal upswing in the fourth quarter due to stronger heating sales. And then on the Detection & Measurement side, more project deliveries in the fourth quarter. In terms of specifics on the impact of constraints, we didn't really break it out, but you can clearly see that there was a significant improvement from Q2 compared to Q1.

Eugene Lowe, President and CEO

Yes. I think you can see the gap between Q1 of HVAC margins just closed quite a bit. We expect that to close further in Q3 and to actually turn around in Q4.

Bryan Blair, Analyst

Okay. That's fair. And last one for me, I'll reiterate that it was nice to see repurchase activity in the quarter, particularly where your stock was trading, but we also appreciate that you're calling out up to 5% to 10% of capital allocation, given preference for strategic. So I guess on that front, how has macro uncertainty affected your deal funnel over the recent past? And what are your strategic interests there? Capacity is obviously there. More curious how recession here is shifting rate backdrop, tax policy are affecting the other side of the table.

Eugene Lowe, President and CEO

Yes, Bryan, it's a good question. What I would say is what we see in front of us is very solid activity. We have not seen really any change in activity levels in the amount of front log activity on M&A or on pricing as well. It's been pretty steady. If you look at the macro M&A data, that has slowed down a little bit. It's something we're keeping our eyes on. I think to your point, some of the macro uncertainty may be affecting that. But as a reminder, as you know, a lot of our work is done. We start with strategy. I believe we have six very robust platform growth strategies. A lot of our activity is proprietary, where we're out talking to people outside of a process. And so I would just say, overall, we feel good with where we are. I feel really good about our platform growth strategies. And I'd say we're on track for SPX-2025 plan.

Operator, Operator

Our next question comes from Steve Ferazani with Sidoti & Company.

Stephen Ferazani, Analyst

I wanted to ask about the timing of the reorganization. I understand this has been in consideration for some time. What prompted the decision to move forward with it now? Was there a specific reason that made you decide, "It's time to do this"?

James Harris, CFO

Steve, this is Jamie. That's a great question. You're correct that the timing has been discussed and needed for some time. As we mentioned in our prepared remarks, simplifying our structure was a significant factor. SPX evolved over the years through various acquisitions and divestitures, so it seemed like the right moment for this. We believe that simplifying our legal structure will allow us to manage our business more efficiently. This change will facilitate any future mergers and acquisitions we might pursue, as it positions the newly acquired entities for better management. Additionally, it will help in separating our legacy liabilities on both the asset and liability sides, enabling us to oversee them more effectively. By categorizing these assets and liabilities into distinct legal entities, we are creating a cleaner organization that allows us to plan, strategize, and manage more effectively.

Stephen Ferazani, Analyst

Does this have any impact on corporate costs moving forward after the actual transaction costs?

James Harris, CFO

In the near term, there won't be any changes to day-to-day operations. However, over the intermediate and long term, we believe this new simplified structure can lead to improvements in processes and some re-engineering. While I don't see it as a significant issue now, I think it will enhance our efficiency and effectiveness when we enter acquisition mode. The most noticeable impact will likely occur at that time. For day-to-day operations, there will be no immediate change in the corporate cost structure.

Stephen Ferazani, Analyst

Okay. Great. That's helpful. When I think about infrastructure spending, and I guess we haven't necessarily seen it funneled to states or end-users yet, are you seeing anything across your platforms to indicate some of that spending is coming? Are you seeing any impact yet?

Eugene Lowe, President and CEO

Yes, I can talk about that. We are focused on this across all our businesses. This has the potential to affect many of our operations. We're very aware and involved in some bidding activity, and we have several projects and work in the pipeline. This is likely more relevant for 2023 and probably 2024, but we're seeing activity related to our CUES robotics platform concerning our radio detection under the locate business. We're also noticing some movement in lighting, and we've had strong activity in transportation. While I'm not certain if that is directly tied to the bill, there's been increased movement and activity, which we believe is a result of the funding from the infrastructure bill. Overall, the only area where I think we’ve been materially impacted, and where some awards may have been affected, is in transportation. However, I believe this will serve as a positive driver for 2023 and 2024.

Stephen Ferazani, Analyst

Great. I did want to follow up on the question about supply chain and component shortages because we're sort of at the latter stages of earnings season. We've certainly heard from industrial companies that are at least citing component shortages, the issues being more diverse and popping up now in areas they would have never expected and creating more day-to-day challenges and problems when we would have thought it would have been smooth. Are you not seeing that?

James Harris, CFO

Yes, we are still experiencing that. During our Q3 call, we noted it as the first instance where it significantly impacted us. Since then, we've taken various actions, including investing in our supply chain through an increase in inventory levels, which we consider a boost to our safety stock. This has helped us reduce day-to-day and week-to-week variability in having necessary components available. We've focused on adding resources and sourcing options. While we didn't have significant reliance on single-source items, we did have some, and in all cases, we've expanded our supplier network. This process takes time, especially with engineered products, but we are actively working on multi-sourcing. We have identified stable and challenging areas, including electronic components, which are a common concern across the industry. For manufacturers like us, power modules and shipping logistics also present challenges due to ongoing imbalances in ship locations and delays. We believe our safety stock buildup has alleviated some of these issues, although we continue to face challenges. However, we believe we've managed them effectively.

Eugene Lowe, President and CEO

Yes. I want to add that we have a supply chain council within our business system that has been quite effective in promoting best practices. This includes tracking each bill of material item and stocking position for the upcoming months, which we have implemented across all our businesses, along with various tools and techniques. Additionally, our frontline labor has improved significantly, which has positively impacted our operations. I agree with Jamie; the market appears to be stable, perhaps even slightly better, and we are managing our operations more intelligently, contributing to our success. However, the market remains unpredictable.

Operator, Operator

Our next question comes from Walt Liptak with Seaport Research.

Walter Liptak, Analyst

Good quarter. I have a couple of follow-up questions. Will the costs from the new structure impact the second quarter, or will there be costs incurred in the future? How are those being reported?

James Harris, CFO

Yes, the costs were primarily reflected in the second quarter. This is included in the slide that showed the reconciliation between GAAP earnings and adjusted figures. It is accounted for under the line item called Other. We made adjustments from our GAAP numbers to our core results to provide a clearer picture of our operating performance. Most of these costs were incurred in the second quarter.

Walter Liptak, Analyst

Okay. Got it. It's great to see the TCI ECS working for new products. How should we think about that order? Is this something that's one-time? Or is this part of a recap cycle? Or is it something that could be scalable around the world? How sustainable are future orders?

James Harris, CFO

Yes, that's an excellent question. First and foremost, we are very pleased with the combination of these two companies. They have successfully integrated their sales teams and product offerings, bringing them to market effectively. We believe the project business has its ups and downs, but we see strong potential for sustainable growth. Looking globally, we think we have a solid product offering, which is even better collectively than it was when we operated separately. That alone is a significant advantage in the market. Given the current geopolitical landscape, with countries on high alert, our products are very appealing to many clients, including the Defense Department and our allies. This heightened state of alert is likely to continue for the foreseeable future, which we believe will sustain demand for our products, particularly with the combination of ECS and TCI's offerings. The bookings and backlog we are seeing certainly support this positive outlook.

Walter Liptak, Analyst

Okay. That's great. And the orders, the bookings that you took in, do those start shipping in the second quarter? Or is that going to come way later like in 2023?

James Harris, CFO

It's a combination in this part of our business because we're collaborating with the Department of Defense and often with allied countries through them, which involves many steps in the process. I recall our President mentioning that, in some cases, there can be up to 30 steps involved in getting an order processed through the system, so it does take time. However, we have received some orders this year that we have already shipped. Yet, I would say most of them will take time to assemble, produce, gather all necessary supplies, and ship to the destination, which also requires sending personnel for training. We have seen a significant backlog booked this year, and we expect that to continue into the second half of this year and into 2023, although we did see some of that reflected in our P&L this quarter.

Eugene Lowe, President and CEO

Okay. Great. Okay. Good. And maybe I'll just skip to the last one because we're probably late in the call. The M&A pipeline, Gene, I wonder if you could just talk about how you're feeling about the pipeline and valuations coming down at all from some of the lofty levels that have been talked about in the past. Yes, it's a good question. Looking at our platforms, specifically in HVAC cooling and heating, there are many high valuations, but we've been cautious in our purchases. Our blended net price has been around 10.4 times EBITDA before synergies and in the 8s afterward. Regarding pricing, there hasn't been much change either way, so it seems consistent with what we're observing. There's some positive activity in cooling, particularly with engineering quality. Cincinnati Fan provides a strong advantage in air movement, and we believe there are additional growth areas there. We're also considering expanding our cooling solutions. Like in heating, we see interesting opportunities. We've built significantly, and this is a robust platform with more prospects in our Location & Inspection segment. Overall, across the six platforms, there's a decent level of activity that we need to monitor, especially as a potential economic downturn could affect market dynamics. Currently, activity levels seem stable, neither increasing nor decreasing.

Operator, Operator

And I'm not showing any further questions at this time. I would now like to turn the call back over to Paul Clegg for any further remarks.

Paul Clegg, VP, Investor Relations and Communications

Thank you very much for dialing in, and we appreciate your interest. We look forward to talking to you again next quarter.

Operator, Operator

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.