Earnings Call Transcript - SPXC Q2 2023

Paul Clegg, Vice President, Investor Relations and Communications

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 Carano, our Chief Financial Officer. A press release containing our second quarter 2023 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 August 9. 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 continued operations only. You can find detailed reconciliations of historical adjusted figures from their respective GAAP measures in the appendix to today's presentation. Our adjusted earnings per share exclude primarily acquisition and strategic transformation costs, non-service pension items, mark-to-market changes, amortization expense and certain discrete tax items. Finally, we will be conducting meetings with investors over the coming months, including at the Seaport Global Virtual Conference in August and at the Jefferies Industrial Conference in New York in September. And with that, I'll turn the call over to Gene.

Eugene Lowe, President and Chief Executive Officer

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 second quarter. We'll also provide an update on our full year guidance for 2023. Our Q2 results were outstanding. This performance was driven by overall demand strength across our end markets and strong execution, particularly in our HVAC segment. Considering our strong year-to-date performance and outlook, we are raising our full year 2023 guidance for adjusted EPS to a range of $4.15 to $4.30 reflecting year-over-year growth at the midpoint of approximately 36%. Our success this quarter is in part the result of hard work on our value creation initiatives, which have driven durable improvements, resulting in a new level of margin performance in our HVAC segment. As we look ahead, we see significant opportunities to continue executing on these initiatives to drive further value for shareholders. Turning to our high-level results. For the quarter, we grew revenue by approximately 15% organically with strong contributions from both HVAC and Detection & Measurement. Adjusted operating income grew 64% year-on-year with 450 basis points of margin expansion, reflecting primarily the strong performance of our HVAC segment. I'm very pleased with our Q2 and year-to-date performance and our positioning for the remainder of 2023. With a strong backlog, overall solid order trends and excellent operational performance, I feel confident in our ability to achieve our updated guidance and to continue progressing towards our SPX 2025 target of $5 per share of adjusted EPS. As always, I'd like to update you on our progress and our value creation framework. During Q2, we continued to make progress on several key initiatives. Our SPX cooling business introduced a water saving and optimization system called Marley WaterGard, which can significantly reduce water usage in our evaporative cooling products. In digital, we continue to expand customer adoption of our Cues' AI-enabled GraniteNet software, which helps drive significant efficiencies for customers when inspecting and assessing the condition of water and wastewater assets. In continuous improvement, our cooling facility in Olathe, Kansas, is seeing benefits from the optimization of our plant layout and investments in automation to reach new levels of operating margin performance. The changes we have been making are driving durable improvements in our ability to supply more of our customers' needs with greater efficiency while providing higher returns for our shareholders. I'm very pleased with the hard work of our team across the company and see numerous opportunities to continue our progress. And now I'll turn the call over to Mark to review our financial results and guidance.

Mark Carano, Chief Financial Officer

Thanks, Gene. It was another very strong quarter for SPX Technologies. In Q2, our adjusted EPS grew 49% year-on-year to $1.06. The adjustments from GAAP results covered earlier by Paul are consistent with our historical practice. Total company revenues increased 19.6% year-on-year, including 14.6% organic growth, with similar increases in both our HVAC and Detection & Measurement segments. Acquisitions contributed 5.3% growth and foreign exchange was a modest headwind. Segment income grew by $28.3 million or 50% to $84.4 million while margin increased 410 basis points, driven by a strong operational performance in HVAC. Price/cost remained a margin tailwind. For the quarter, in our HVAC segment, revenues grew 20% year-on-year. On an organic basis, revenue grew 15%, driven by Cooling, while heating's organic revenue was roughly flat. Acquisitions contributed growth of 8.6%, which included a full quarter of TAMCO in our cooling platform and one month of ASPEQ in our heating platform. Foreign exchange was a modest headwind. Segment income increased by $26.9 million and segment margin increased 760 basis points. The year-on-year increase in HVAC segment income and margin has a number of drivers. In our cooling business, we continued to achieve strong plant throughput facilitated by our investments in plant automation and continuous improvement. This favorable operational execution was aided by a high level of backlog and a more stable labor and supply chain conditions. By comparison, in the prior year quarter, cooling experienced headwinds related to supply chain, labor and price/cost that drove lower than typical margins. For heating, segment income margin improved notably year-on-year due primarily to favorable price/cost and channel mix. In addition, our TAMCO and ASPEQ acquisitions were both accretive to HVAC segment margin. Bookings remained strong despite record Q2 sales, HVAC segment backlog ended the quarter at $337 million, including $31 million from acquisitions. On an organic basis, backlog was up 13% sequentially. For the quarter, in our Detection & Measurement segment, revenues grew 14% year-on-year with organic growth across all our platforms, strong project revenues from CommTech, Transportation and AtoN were key drivers. Segment income increased by $1.4 million, while margin declined 160 basis points due to less favorable sales mix. As we have noted previously, our 2023 Detection & Measurement revenue includes certain project sales in our CommTech platform that contain pass-through content, resulting in a lower than typical incremental margin. Additionally, in Q2, we began to experience a one-off supply chain disruption that is constraining sales of a limited number of locator products. We have implemented a solution to address this issue and we are confident in the normalization of production during the second half. Segment backlog at the quarter-end was $234 million, down 4% sequentially due to the timing of project deliveries. Overall, we continue to experience a strong environment for project sales. Turning now to our financial position at the end of the quarter, we ended the quarter with cash of $95 million and total debt of $676 million. Our balance sheet reflects the completion of 2 acquisitions during the quarter. While we deployed more than $500 million in Q2 to acquire TAMCO and ASPEQ, our net leverage remains at a modest level of 1.8x, or below the midpoint of our target range of 1.5 to 2.5x. At this point, we anticipate a further decline in leverage to approximately 1.5x or lower by year-end as we typically generate the majority of our cash flow in the second half of the year, positioning us to continue investing for growth. Moving on to our guidance, we are increasing our 2023 guidance for adjusted EPS to a range of $4.15 to $4.30. The new midpoint reflects year-on-year growth of approximately 36%. In our HVAC segment, we anticipate revenue growth of approximately 24% at the midpoint. We are raising guidance for the HVAC segment income margin to approximately 20% compared with a prior range of 18% to 19%. This represents a year-on-year margin increase for HVAC of more than 500 basis points. The anticipated strong revenue and margin performance in HVAC reflects a combination of continued solid demand trends, high backlog, strong operational execution at the plant level, and the benefit of easing labor and supply chain conditions. In our Detection & Measurement segment, we anticipate revenue in a range of $590 million to $605 million or a year-on-year increase of approximately 9% at the midpoint. Due to the supply chain constraint mentioned earlier, we now anticipate a less favorable margin mix, resulting in segment income margin of approximately 20% compared with our prior range of 20.5% to 21.5%. With respect to the cadence of second half guidance, we would expect segment income to rise sequentially in both Q3 and Q4. However, we would expect adjusted EPS to be sequentially lower in Q3 than in Q2, primarily due to higher interest costs associated with acquisitions and the timing of certain corporate expense items. As is typical, we expect Q4 to be the highest adjusted EPS quarter of the year. As always, you'll find modeling considerations in the appendix to our presentation. I'll now turn the call back over to Gene for a review of our end markets and his closing comments.

Eugene Lowe, President and Chief Executive Officer

Thanks, Mark. Current market conditions remain supportive of our outlook. Across our HVAC segment, supply chain and labor have been more stable overall, which is helping us to improve plant level efficiency and throughput. In HVAC cooling, we continue to see growing demand for our products in North America and the APAC region. In our heating business, bookings remained steady overall, driven by commercial and industrial demand and residential replacements. In Detection & Measurement, our run rate demand is steady overall, with some regional variations while the environment for project orders remains strong. In summary, I'm pleased with our strong results for the quarter and performance year-to-date. Our focused execution on our key value creation initiatives has helped drive durable gains in our margins and growth profile. Looking forward, I see significant opportunity for further improvements as we execute on our roadmap. We also remain well positioned to continue investing for growth given our solid balance sheet, strong cash generation and active M&A pipeline. With a strong backlog position and good operational momentum, I feel confident in our updated full year guidance, which reflects approximately 36% year-on-year growth at the midpoint. And with that, I'll turn the call back to Paul.

Paul Clegg, Vice President, Investor Relations and Communications

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

Operator, Operator

Our first question comes from Bryan Blair from Oppenheimer.

Bryan Blair, Analyst

Another great quarter, I guess.

Paul Clegg, Vice President, Investor Relations and Communications

Thanks, Bryan.

Bryan Blair, Analyst

I was hoping you can offer a little more detail on the continued step-up in HVAC guidance. We know the high-level drivers, but curious if you could parse out whether expectations for ASPEQ, which per your deal call coming in $75 million or so in sales contribution, high 20s margin, whether that has increased again now that the asset is in your portfolio or if the incremental lift is on the side of legacy operations or TAMCO or some combination thereof?

Eugene Lowe, President and Chief Executive Officer

Yes, Bryan, I'll run through that. And let's step back at a high level and look at our segment income margins at the SPX level first because we've been applying our business system across the enterprise, and we think it's made a positive impact. If you just step back, in 2020, our segment income margins were 15.4%, in 2021, they were 16.4%. Last year, we had a lot of challenges with supply chain and labor, resulting in a margin of 17.1%. We thought that 17.1% was a little lower than what it should have been. Where we sit today is 20% at segment income margin. So that reflects a steady increase, basically 460 basis points in 3 years. So that indicates to me that I believe in our business system, think it's working, and I believe our strategy is sound. So if we drill down into HVAC specifically, the way I think about the business is, historically, we've considered that as a 15% to 16% business. Last year, as we talked about, we had a lot of headwinds, and we ended up at around 14.8%, just under 15%. However, we think a lot of the improvements that we made in lean management and plant layout, as well as some investments in automation equipment, were masked by some of these headwinds. Looking at where 2022 ended and where we are in 2023, a couple of factors have driven this improvement. One is operating leverage thanks to growth. The second is the aforementioned investments in automation, productivity, and lean strategies that are making a significant and sustainable impact for our business. The third would be the reduction of some of the issues we faced last year regarding labor and supply chain. We also did add accretive acquisitions, ASPEQ and TAMCO, which we are very pleased about. We think these have structurally raised our segment income target by probably 100 basis points. Thus, when we looked at it before, we estimated that 15% to 16% was the right target, but where we sit today, we believe an 18% to 20% range is a more sustainable target for us moving forward, given the volumes we anticipate. So we think we've significantly and structurally improved the HVAC business, and we feel good about that. So that breaks that down.

Bryan Blair, Analyst

That's very helpful color. The 20% for this year, so that will be the high end of normalized ranges, at least for the time being. Should we see that continue to expand going forward as the platforms that comprise HVAC continue to scale and fine-tuning continues? I suspect that you'll have further accretive deal flow over time. Just curious any incremental color you can offer there?

Eugene Lowe, President and Chief Executive Officer

Yes. One of the factors that may have been a headwind last year was the negative productivity price variance; however, we observed some positives this year in our numbers. The essential question you're trying to get at is what's the right jumping-off point? There could be up to 100 basis points of those more one-off type items in this year's results, but we remain very confident that we have structurally improved the margins of this segment by several hundred basis points. Mark, would you like to add anything here?

Mark Carano, Chief Financial Officer

Yes. To augment Gene's comments, from a price cost perspective, because it often comes up, we believe we're in a more stable or normalized environment, and we believe that's going to be the case going forward. Therefore, as you look ahead, a key driver in sustaining and potentially improving those margins will be related to the capital we're investing in the plant footprint. We're in the early stages of that, and you'll see it reflected in our CapEx comments for the year. That should meaningfully impact the efficiency of those plants, including reducing required labor and driving increased throughput.

Bryan Blair, Analyst

Very helpful. You mentioned margin compression in the quarter and near-term headwinds within Detection & Measurement. Could you quantify the impact of the negative sales mix from the contact pass-through relative to the supply chain constraints within locators and how much both of these factors are affecting the guidance outlook?

Eugene Lowe, President and Chief Executive Officer

Yes. Bryan, I would say it's really a combination of both factors you mentioned. However, it's probably more heavily weighted towards this isolated supply chain issue with respect to the locator product line. That said, the supply chain issue is temporary in nature; I think you've referred to it as a one-off, and that is not something we expect to recur. The project mix has also been a dynamic that has benefited us from an income standpoint this year obviously, but those projects, as we have called out in the past, carry slightly lower margins than the historical margins of the D&M business.

Operator, Operator

And our next question comes from Lawrence De Maria from William Blair.

Lawrence De Maria, Analyst

Larry here. I have a couple of questions. First, it appears that you may have more pricing power in HVAC than we previously thought, as you've received credit for it in the last few years. Do you believe there is still significant room for positive price increases in HVAC over the coming years, or is that more inflation-related? Also, with the expected 24% growth, how is that divided between price and volume?

Eugene Lowe, President and Chief Executive Officer

Well, why don't I start on pricing power. If you look at our portfolio of businesses, we believe we have pricing power in our HVAC and Detection & Measurement. The businesses that we did not feel we had pricing power in were divested, particularly the transformer business and some legacy businesses. However, we are in competitive markets. Where we stand today, we think we are in a balanced position. We don't believe our prices are too high and coming down; rather, we believe we're aligned with our average pricing.

Paul Clegg, Vice President, Investor Relations and Communications

On the pricing volume question, for the quarter, when you look at SPX as a whole, it was fairly balanced between volume and price, with a slight inclination towards price. This is due to D&M being more volume weighted and HVAC being more priced weighted. For the full year, I anticipate the organic growth implied in our guidance will be more in the range of 60-40, price to volume. This is with us achieving higher pricing in the first half of this year compared to the previous year when price was still a bit weaker. As we enter the later quarters, the comparisons will tighten somewhat.

Lawrence De Maria, Analyst

Okay. I want to ask about boilers. Some companies are seeing weakness in boilers. It doesn't seem to be the case for you guys. So just what are you seeing and any kind of clues and why there's a divergence in the market that you guys are not maybe seeing the weakness that others are seeing?

Eugene Lowe, President and Chief Executive Officer

Yes. I mean I think we have a very strong position in boilers and hydronics; our trade band is very strong. I think that over the past year or two, there's been tremendous demand and tremendous backlog. We are working through that backlog. What we see today is a pretty balanced position, and this is one of the few areas. Most of our products are engineered to order, so we have better insight regarding channel overstock or understock trends. Currently, everything appears balanced. On the non-residential side, it's been healthy. I believe our new product initiatives have taken market share, as we've mentioned our share gains last year. The Eco-Tech product was notably successful last year on the residential side. On the non-residential or commercial side, our Patterson-Kelley business has expanded their footprint and tonnage, and we believe we are capturing additional market share there as well. So, in conclusion, we feel comfortable with what we're seeing in the boiler segment.

Lawrence De Maria, Analyst

That's good color. If I could sneak in one more and then I'll hand it over to someone else. Obviously, there's some weakness in the industrial world that some are seeing tends to be more around capital-intensive big projects and orders. How did orders trend through the quarter? Anything troubling, any signs of weakness? Or can you provide insights regarding the context of some of the industrial economy that you guys don't seem to be seeing weaknesses yet, but others are?

Eugene Lowe, President and Chief Executive Officer

Yes. Larry, overall, we feel good. I'll break it down by segments. In HVAC, the cooling business is strong, and we are seeing many projects where our solutions are well suited. We are also seeing some reshoring activity, with notable strength in semiconductor, data centers, and battery sectors. If I look at our engineered air movement business, that's healthy and diversified. One of the businesses is considerably involved in medical, institutional pharma, and has considerable backlog extending into next year. Regarding the heating business, we have found that the electric heating segment has been booking very well due to significant megatrends affecting that segment. Switching to the D&M side, our projects have been robust this year and look ready to maintain that strength heading into next year, especially in transportation, CommTech, and AtoN, while our run rate remains consistent. We are seeing limited visibility regarding the infrastructure bill; while it has impacted transportation, it has not affected other areas too much. Mark, do you have anything else to add, especially some additional color on the hard data?

Mark Carano, Chief Financial Officer

Yes. Larry, when you look at sequential growth of orders, quarter over quarter, they've been strong, as Gene pointed out, very strong in the HVAC segment, but also across the entire platform, we're observing positive order growth. On a total company basis, I would characterize it as being in the high single digits.

Operator, Operator

Our next question comes from Steve Ferazani from Sidoti.

Stephen Ferazani, Analyst

I just wanted to follow up briefly on the last question, which is typically, Gene, you've mentioned in a slowing economic environment that the first place you might feel it would be in the locators for D&M. But it sounds like your only locator issue right now is supply chain. Is that accurate? And are you seeing any demand change on locators?

Eugene Lowe, President and Chief Executive Officer

I would say that the locators have remained steady. While I wouldn't describe it as experiencing rapid growth, I'm feeling somewhat more optimistic about the second half of the year due to some recent successes we've achieved. I don't see any concerning signs either. It's a relevant point since locators generally reflect larger economic trends, given their involvement in activities such as fiber installation, gas line projects, and renovations for both residential and commercial buildings. Overall, I would characterize the situation with locators as steady, though I think it remains flat this year.

Mark Carano, Chief Financial Officer

Yes, I think that sums it up well. Yes, it is one of our more global businesses, and we have not observed any weakness in any of our active markets around the world.

Stephen Ferazani, Analyst

Okay. When you're guiding for leverage, you've indicated stronger cash flow in the second half. But just considering the numbers, it appears that your expectation is not to begin paying down debt in the near term. Is that accurate or not?

Eugene Lowe, President and Chief Executive Officer

No, Steve, we are indeed using the free cash flow generated throughout the year to pay down our outstanding debt. All of our debt is prepayable and consists of bank debt. Therefore, we will continue to utilize free cash flow to reduce leverage. You will see leverage decrease through a combination of both repayment of the debt and, naturally, an increase in EBITDA resulting from our growth.

Stephen Ferazani, Analyst

Okay, then thinking about that in connection to the debt repayment strategy, does this provide any clues on what the pipeline looks like because you wouldn't necessarily be inclined to rush to pay down debt if acquisitions are on the horizon?

Eugene Lowe, President and Chief Executive Officer

No, I wouldn't draw any conclusions from that. I believe that the best use of our capital right now is to reduce debt. However, I also consider it in the context of our leverage capacity and the ability to support any transaction in the market. We have access to ample capital when the right opportunity arises.

Mark Carano, Chief Financial Officer

Which is $500 million.

Eugene Lowe, President and Chief Executive Officer

Exactly. So we have a $500 million liquidity revolver available.

Stephen Ferazani, Analyst

When we discuss your 2025 target, which, a couple of years ago, seemed quite distant, now appears to be much closer. To achieve the goal of $5 adjusted EPS, do you anticipate that additional acquisitions are necessary, or could you potentially reach that goal with your current operations?

Paul Clegg, Vice President, Investor Relations and Communications

Yes, Steve. This is Paul. At this stage, we are clearly outperforming on various metrics, and we're exploring options to adjust or replace this framework. Typically, we expect this exploration to take place in the context of our 2024 guidance in February. I can confirm that we've reiterated a growth model where we grow at mid-single digits on the top line and organically double that at the bottom line. We also expect about 8% to 10% growth from acquisitions. We feel we're in striking distance one way or another.

Stephen Ferazani, Analyst

Perfect. Regarding the corporate expense guidance you provided in the appendix, it seems to suggest that corporate expenses will be lower in the second half compared to the first half. However, in your third-quarter guidance, you noted that Q3 expenses may be higher. Could you clarify the trend of corporate expenses, especially considering the integration costs you faced in the first half due to the significant ASPEQ deal?

Paul Clegg, Vice President, Investor Relations and Communications

Sure. On an adjusted basis, Steve, our corporate expense in the first half of the year, which I'll specifically mention just the corporate expense line without stock-based compensation, was 25. This includes $13 million in Q1 and $11.5 million in Q2. We expect corporate expenses to rise slightly in the second half. The previously anticipated costs for Q2 will shift to Q3, resulting in a slight increase for that quarter. Typically, Q4 is our strongest quarter for adjusted expenses.

Operator, Operator

Our next question comes from Walter Liptak from Seaport Global.

Walter Liptak, Analyst

Congratulations from me too. That 2025 goal of $5, which indeed did seem distant, has now made substantial progress. I wanted to inquire about the locator issue. With the supply constraints, has there been a push into the third quarter from the second on sales? Could you size that up for us?

Eugene Lowe, President and Chief Executive Officer

Yes, Walt, the supply chain issue has largely been resolved at this point, but we will ship that product impacted by it in the latter half of the year, with some of it likely slipping into next year as well. So the sales are sliding into part of 2024.

Walter Liptak, Analyst

Okay, and you were able to maintain it; there wasn't any loss of market share or anything like that, I guess?

Eugene Lowe, President and Chief Executive Officer

It was just purely a timing issue.

Walter Liptak, Analyst

Great. In D&M, you mentioned project orders; are they primarily related to infrastructure or larger city projects that are in the funnel?

Eugene Lowe, President and Chief Executive Officer

Yes. When we talk about projects, these are prevalent in two primary areas: transportation, which has shown very healthy demand this year and is expected to continue to do so over the next couple of years, likely boosted by the infrastructure bill affecting project behavior. The other projects we typically see include our Commtech business, which has experienced stability. We have secured numerous contracts in 2022 and 2023, and looking into 2024, we continue to feel quite positive. Overall, I would say that project volume in the last two or three years has been among the strongest I've witnessed in eight years, and we do think our expanding portfolio is contributing to that positive momentum.

Operator, Operator

Our next question comes from Damian Karas from UBS.

Damian Karas, Analyst

Who would have thought in just a few quarters, you take us from basically needing 150 basis points of margin expansion after this year to get to those 2025 goals to being there today. So very well played.

Eugene Lowe, President and Chief Executive Officer

Thank you. I appreciate it.

Damian Karas, Analyst

Yes. So Gene, do you think the combination of the backlog you currently possess and the ongoing demand strength, would you say it is aligning such that you already have visibility into organic sales growth again in 2024?

Eugene Lowe, President and Chief Executive Officer

Yes. What I would say is we feel good about what we are observing, though it may be too early to provide guidance for 2024. I can say confidently that as Mark has indicated, our orders, backlogs, and projects are strong. HVAC cooling, which comprises a significant portion of HVAC, had a strong quarter and continues to present more opportunities. Thus, we feel optimistic about the cooling sector for the coming years. As for heating, it appears to be stabilizing and returning to normal in hydronics and boilers. Additionally, our electric heat sector stands to grow due to several attractive growth drivers. On the D&M side, we've discussed how our projects have remained strong this year, and we expect them to hold strong moving forward, particularly in transportation, CommTech, and AtoN, while we monitor the run rate closely. If a recession were to arise, indicators would first show in the D&M run rate, particularly in radio detection. However, as of now, we feel good about what we're seeing in our end markets as we approach 2024.

Damian Karas, Analyst

Good to hear. I'm curious about how we ought to consider the seasonal shaping for the HVAC business going forward. Historically, the fourth quarter was strongly driven by margins, primarily due to boiler seasonality. Has cooling reached a level of parity with heating at this point? Additionally, considering some of your new acquisitions, what does that seasonality look like for HVAC?

Paul Clegg, Vice President, Investor Relations and Communications

Yes, Damian, we will likely continue to see some seasonality leaning toward the fourth quarter due to the heating demand impact. While overall seasonality is still mixed, fourth quarter is typically the largest quarter. Your point is well taken regarding the acquisitions; you've likely seen the rough numbers regarding ASPEQ at a run rate of around $120 million. If you distribute that evenly across quarters, it’s reasonable to anticipate good returns. TAMCO has been evaluated at over $50 million annually too. You will see considerable back and forth in marginal performance of those companies quarter to quarter. However, generally, I expect a seasonal stronger fourth quarter overall.

Eugene Lowe, President and Chief Executive Officer

Indeed, cooling typically peaks in Q4 as well; that's when a lot of work gets scheduled.

Damian Karas, Analyst

That’s great to know. Also, if I could inquire about your acquisitions this year, how has the integration process been? Have you learned anything new that you didn't necessarily know going into those deals, and how have the businesses been performing in the current environment?

Eugene Lowe, President and Chief Executive Officer

Yes, Damian, I would say it's early still. However, both deals are tracking along the models we anticipated. With respect to the TAMCO acquisition, integration has been smoother because we are essentially bringing it into our engineered air movement division, making the integration seamless. However, ASPEQ entails merging two electric heat businesses, which complicates the integration process, and it will take a bit more time. That said, nothing in our outlook has changed. We remain enthused regarding both acquisitions. Generally, there are still opportunities to build our electric heat business and enhance our engineered air movement division.

Operator, Operator

I'm showing no further questions at this time. I would like to turn the conference back to Paul Clegg for closing remarks.

Paul Clegg, Vice President, Investor Relations and Communications

Thank you all for joining us on the call today. We look forward to updating you in the upcoming quarters through ongoing investor outreach and at conferences. Take care.

Operator, Operator

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