Earnings Call Transcript - SPXC Q2 2024

Operator, Operator

Thank you for joining us, and welcome to SPX Technologies Second Quarter 2024 Earnings Conference Call. All participants are currently in listen-only mode. After the presentations, there will be a question-and-answer session. I will now turn the call over to Paul Clegg, VP of Investor Relations and Communications. Please proceed.

Paul Clegg, VP, 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 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 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. 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 acquisition-related costs, nonservice pension items, mark-to-market changes, amortization expense, and other items. Finally, we will be meeting with investors at various events during the third quarter, including the Seaport Annual Investor Conference on August 21 and the Jefferies Industrial Conference on September 5 in New York. And with that, I will turn the call over to Gene.

Gene Lowe, President and CEO

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 of 2024. We're also once again increasing our guidance for the full year. We had strong results for the quarter. In Q2, our company continued to execute very 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. For the second quarter, 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 first quarter since the spin with revenue in excess of $500 million and with adjusted operating income of more than $100 million. We also achieved our highest post-spin EBITDA and EBITDA margin, which reached $109 million and 21.7%, 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 OlympusV adiabatic unit, which optimizes the balance between power usage and water usage for a number of different cooling applications. In our Detection & Measurement segment, our Location & 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-border 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 are further broadening our exposure to robust growth markets such as data centers and health care. We also continue to see momentum in our continuous improvement initiatives, including further gains in throughput in our HVAC facilities. And now I'll turn the call over to Mark to review our financial results.

Mark Carano, CFO

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 exclude a charge for the resolution of a 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. 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 $33.2 million or 39.3% to $117.6 million, 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 million from the delivery of a large cooling service project that has no equivalent in the remaining quarters in 2024 or in the prior year period. Acquisitions contributed growth of 15% and included Ingénia in our cooling platform and ASPEQ in our heating platform. The FX impact was nominal. Segment income grew by $28.5 million or 51.6%, while segment margin increased 300 basis points. The increases in segment income and margin were due to acquisitions and operating leverage on higher organic cooling sales, including the benefit of continuous improvement initiatives. Segment backlog at quarter end was $434 million, roughly flat organically from the prior year period. For the quarter in Detection & Measurement, revenues decreased 6.2% year-on-year. FX was negligible. The decrease in revenue was driven largely by lower CommTech sales associated with a large pass-through project delivered during 2023 and into Q1 of this year. Year-on-year segment income grew by $4.7 million, and margin increased 450 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. 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 million, 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 million and total debt of $790 million. Our leverage ratio, as calculated under our bank credit agreement, was 1.6x. We anticipate our leverage ratio declining below the lower end of our target range of 1.5 to 2.5x by year-end, assuming no additional capital deployment. Adjusted free cash flow for the quarter was approximately $58 million. Moving on to our guidance. We are increasing our guidance for adjusted EPS to a range of $5.45 to $5.60 compared with a 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 Q2 performance and second half outlook, particularly on margins. In HVAC, we are increasing revenue guidance by $5 million to reflect stronger cooling volumes and raising margin guidance by 75 basis points, reflecting more efficient production and a more favorable sales mix. In Detection & 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 million to $430 million. At the midpoint, this reflects a year-on-year growth of 35% and a margin of approximately 21%. With respect to the second half, 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 the large cooling service project we called out in Q2. In D&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. I'll now turn the call back over to Gene for a review of our end markets and his closing comments.

Gene Lowe, President and CEO

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, health care facilities, semiconductor plants, and industrial facilities. In heating, overall demand remained stable, and we're seeing initial traction on climate-conscious solution introductions. In Detection & Measurement, we continue to experience flattish global demand in our short-cycle business with regional variation, while project orders remain healthy. 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. With that, I'll turn the call back over to Paul.

Paul Clegg, VP, Investor Relations and Communications

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

Operator, Operator

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

Ross Sparenblek, Analyst

Congrats on the quarter, another solid performance here. Maybe just considering the Dodge index, I know you went through some of the end markets within cooling. It sounds like segments are still strong. But how should we think about commentary coming out of this quarter thus far around weaker utility spend and also it sounds like maybe EVs are sliding to the right. I know that's been a decent mix within HVAC cooling tower previously. Is there any changes imminent in there?

Gene Lowe, President and CEO

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 centers remains very strong, and we're seeing some nice wins, nice new customers and some very nice trends there. Health care, pharma has been very strong, 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've seen nice traction there. And then the last two would be industrial and industrial tech. Industrial tech would be, as you referred 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 well.

Ross Sparenblek, Analyst

All right. That's very helpful. On Detection & Measurement, this is probably the first time I've heard you guys speak to continuous improvement, just knowing that it is more of your 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.

Gene Lowe, President and CEO

I'll start out. I think there's been a lot of focus on margins in Detection & Measurement. I'd say John Swann 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 really makes us more productive in 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 in Detection & Measurement, we're seeing very nice progress. It's very good. As you know, there's not as much manufacturing in Detection & Measurement, there's more software and light assembly. Most of the Lean initiatives tend to be, I would say, outside of the facility, more focused on things like value engineering, pushing more throughput or bidding processes, optimizing our front end, our engineering and NPI processes. So it's 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 there. You add a little more, Mark, from your point of view. I know you spent a lot of time on that.

Mark Carano, CFO

Yes, Ross, as Gene mentioned, we have seen significant progress with these efforts. This has been a crucial initiative for us as we aim to return our margins to the 22% to 24% range. There has been a lot of positive work in this area. Additionally, if you consider the guidance for the latter half of the year, much of the anticipated margin improvement is attributed to these initiatives and our expectation of enhancing value at the margin level for the D&M businesses.

Ross Sparenblek, Analyst

Got 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?

Paul Clegg, VP, Investor Relations and Communications

Well, this is Paul. There are a few factors this quarter that we should take a moment to discuss. A significant part of the margin improvement in D&M during Q2 was due to timing within the year. We had some projects that were pushed into this quarter with higher margins, while others with average margins were postponed. Additionally, we experienced some delayed spending, which we expect to recover in the second half of the year, potentially adding a couple of million dollars there. We've made considerable progress on our initiatives, and if you look at our updated guidance for the full year, it suggests an increase in segment income of about $3 million to $4 million, which we can estimate at around $3.5 million. This improvement is a result of our margin initiatives, which will have an effect through Q2 and into the second half.

Operator, Operator

Our next question comes from the line of Bryan Blair of Oppenheimer.

Bryan Blair, Analyst

Another fantastic quarter for HVAC, specifically in your cooling platform. To level set, if you're willing to share the details 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?

Paul Clegg, VP, Investor Relations and Communications

Yes, Bryan, this is Paul. We had three significant factors contributing to the year-over-year increase of about 300 basis points. The first was operating leverage from our organic growth, which was about 17%, nearly 18%. This accounted for nearly half of the increase. The second largest factor came from acquisitions, contributing roughly one-third, and the remaining portion resulted from strong performance on the service project we mentioned. Regarding price and cost, while it was beneficial, the impact is not as substantial as it was about a year ago. However, it did provide a favorable tailwind that contributed to the operating leverage.

Bryan Blair, Analyst

Okay. Understood. I appreciate the detail. And perhaps offer a little more color on how run rate D&M orders trended for the quarter and into early Q3. I'm particularly interested in radio trends given the somewhat canary nature of that business.

Gene Lowe, President and CEO

Yes, overall, I would describe D&M as steady. The run rate businesses have been relatively flat, while the project businesses are very healthy. We expect to end the year with a significantly higher backlog for D&M, which we believe will position us well for 2025 and 2026. You are correct that radio and our L&I platforms are important; radio often serves as an early indicator, but it remains stable. In fact, we are observing some encouraging developments in that area. I spoke with the GM this morning, and we are noticing some signs of improvement in Continental Europe, which is a smaller market for us, but shows positive trends. Additionally, the U.K. has slightly reduced rates by 0.25 points but is experiencing increased activity. The U.K. market is significant for radio detection, so I would characterize the situation as flat with some early positive indicators.

Operator, Operator

Next question comes from the line of Damian Karas of UBS.

Damian Karas, Analyst

Congrats on the quarter.

Gene Lowe, President and CEO

Hey, Damian. Yes, thanks.

Damian Karas, Analyst

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 outsized margin performance? And how much juice do you think you've got left in the tank, Gene?

Mark Carano, CFO

Damian, I'll start. I mean, we have 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 million plus, and that's close to 2% of revenue. So a good kind of 0.5% above where we've been. 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 are more activities and upgrades, if you like, to those facilities that will kind of continue throughout the year. 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. And then you overlay kind of a CI mentality to it as we're thinking about the activities within these plants.

Gene Lowe, President and CEO

And one small thing I would add is, as a reminder, Detection & Measurement's target has always been 22% to 24%. We believe that this business should operate there. And it's nice to see it 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 is 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 were doing was hidden at that time or it was impacted by those other areas. 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&A. M&A has added, we think, in the neighborhood of 150 to 200 basis points to that line. And so structurally, we do believe HVAC's 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.

Damian Karas, Analyst

That's great. And that's actually a good segue, Gene. I wanted to ask you about the acquisitions, kind of three notable ones over the past year. Combined, that's a pretty sizable chunk of your HVAC segment now. So how have these acquisitions performing relative to your initial expectations? I guess kind of early thoughts on Ingénia, but ASPEQ and TAMCO you're kind of about a year in. So appreciate any color on that.

Gene Lowe, President and CEO

Yes. Just we are very pleased with these three acquisitions. So there's Ingénia, which we think all three of these businesses are very good businesses, have great value propositions, great competitive positions. And then two of them are also very linked to data centers. And we have seen just some very nice growth. So I think Ingénia, ASPEQ, and TAMCO. As a reminder, Ingénia is air handling. That is very linked to health care, 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. ASPEQ and TAMCO also are performing at a very solid level. I think if you look at these three put together, I would say revenue is in the neighborhood of our plans, but we are exceeding 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, Ingénia, when you get into the specification of an air handling unit, they can often times influence the downstream specification. For example, they can influence TAMCO as a base design. 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 specifications is meaningful. So I'd say that we see some real synergies across the businesses there. They are 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 million of capital, very big for a company of our size. And we're going to be materially below our 1.5x by year-end. And 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 four years, we kind of had it rolling. But we feel good about stepping back a little bit. One of the common questions is, what are you seeing on the M&A front? And I'd say our activity pipeline is healthy. We actually see some very interesting opportunities for growth on our Detection & Measurement side, the last three 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 it.

Operator, Operator

Our next question comes from the line of Steve Ferazani of Sidoti.

Steve Ferazani, Analyst

I appreciate all the detail tonight. I want to follow up on your last comments, Gene. You mentioned that net leverage is likely improving, and it appears you're on track to fall below the target range. There seems to have been a slight reduction in debt this quarter. How do you plan to use cash until the next deal arises? Working capital increased slightly, and while there was a buildup, you still generated a substantial amount of cash flow this quarter.

Mark Carano, CFO

Yes, Steve. I mean, our priorities for use of 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&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 third and fourth quarter of the year. 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 signaled to the Street as our overall spend year-to-date or through the first six months, we're at about $20 million. So you'll see capital continue to be deployed to that. And then to the extent there aren't any other opportunities, we'll just continue to pay down debt in the near term.

Gene Lowe, President and CEO

Yes. And I would say, if you look at it historically, our focus has been growth. We believe it's part of our flywheel and our model. And really, all of our investments have been and 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, I made three or four years ago. But I would say 95% plus of our capital over the past time frame has really been deployed on growth. I wouldn't anticipate that to change over the next couple of years, Steve.

Mark Carano, CFO

Yes, I think our views are consistent with what we've shared at the Investor Day on that front.

Steve Ferazani, Analyst

Right. 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?

Gene Lowe, President and CEO

Yes, I believe we will need to increase capacity, but I don't expect this to be very noticeable. We usually consider our capital expenditures to be around 1.5 times. We have made substantial capital investments in our primary cooling business, including a significant number of lasers and punches, which have generated a considerable amount of revenue and enabled our growth. I anticipate that this trend will continue in certain areas that are beginning to face capacity constraints. However, we could have elevated capital expenditures in the 2% range. Given our recent growth, if you examine HVAC over the past two years, the organic growth was 23% this year and last year. That's a significant amount of growth, but I don't foresee anything particularly out of the ordinary. Mark, do you have any additional insights? And as we look toward 2025 and 2026, is there anything else you would like to add?

Mark Carano, CFO

Yes. I mean, I think you kind of largely covered it, Gene. I mean, we're just 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. But ultimately, it's a growth focus, and my expectation is M&A will be at the forefront and will continue to be.

Gene Lowe, President and CEO

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. 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 on the HVAC side.

Steve Ferazani, Analyst

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

Gene Lowe, President and CEO

Currently, our capacity is limited. They have a long-term plan and a substantial facility with a lot of equipment that we are in the process of utilizing. This plan is solid, but we are seeing very strong demand at the moment. You are correct in noting that they have a strong presence in Canada and serve several states, albeit a smaller number in the U.S. Our strength, however, lies in our Marley brand, which has a widespread presence and a strong network. We have a solid foothold with engineers, mechanical contractors, and service professionals in those areas. As we increase our capacity, we believe there will be synergies, particularly commercial synergies, that we are beginning to tap into where we have room to grow. However, at this time, we need to ensure we can meet the high demand levels in that specific business.

Operator, Operator

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

Walter Liptak, Analyst

Great quarter. I wanted to ask if you could discuss your growth in relation to the market. Do you believe you are gaining market share, and is this due to market expansion or new products? Any additional insights would be appreciated.

Gene Lowe, President and CEO

Yes. Are you referring to a specific segment or the overall Company, Walt?

Walter Liptak, Analyst

Sorry, I'd stay focused on HVAC and the cooling business.

Gene Lowe, President and CEO

On the cooling business, I believe we are gaining market share. Our strength in this segment has always been large projects, as we've successfully handled significant construction efforts in the past. We have strong technical expertise in addressing challenging engineering problems. Recently, we've experienced significant growth in larger projects, which could include data centers, chip manufacturers, or electric vehicles. This aligns with our core competencies. There has been an increased demand in our specific area of strength. Additionally, we developed the Everest product line, which we've discussed over the last few years. This product line has grown from nearly zero to nearly $100 million in revenue, gaining market share from constructed products. This representsadditional growth that we have captured, which we wouldn't have seen otherwise. Our innovation is noteworthy; prior to Everest, we already had the largest tonnage cooling tower globally. With Everest, we increased our capacity by 50%, and with our latest versions, we've doubled that capacity—from around 1,400 to 1,500 tons to over 2,800 tons. It’s a very effective solution favored by chip manufacturers and data centers. I believe our market share gain is due to our innovation and product management, as well as the market shifting towards areas where we excel. Combining these factors explains our increased market share.

Walter Liptak, Analyst

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

Gene Lowe, President and CEO

I don’t have specific numbers, but if you look across the cooling sector, the main areas of activity are data centers, healthcare and pharma, and institutional. Data centers show an attractive growth rate, healthcare maintains strong growth, and the institutional sector remains healthy. In industrial technology, which is a smaller portion, we see growth but also some project delays, such as an EV or battery plant adjusting timelines. Overall, this hasn't materially affected our demand profile. Paul, would you like to provide more detail on this with the chart you have?

Paul Clegg, VP, Investor Relations and Communications

Yes. So Walt, we mentioned that data center makes up about 10% of the cooling business, which translates to around 7% of the overall company.

Gene Lowe, President and CEO

Of HVAC.

Paul Clegg, VP, Investor Relations and Communications

HVAC makes up about 7% of the total company, while lab and health care account for approximately 9%. The institutional segment is also performing well, at around 9%. Additionally, there is a broad industrial category that represents 20%, where you will see some of the industrial technology that Gene mentioned.

Walter Liptak, Analyst

Okay. Great. And 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, maybe you could provide some detail on what was that regarding. And is there a business like that that you can go get in the future?

Mark Carano, CFO

Sure. Yes, Walt, I'll begin, and then Paul can chime in. This was a project that was not typical for us given its size. It involved a cooling service project we completed in the Northeast United States. It was appealing due to its margin profile, which we usually don't encounter with such projects. We were well-positioned to secure it, and it resulted in a high level of profitability. There are no similar projects expected for the rest of the year, and there was nothing last year that resembled it.

Paul Clegg, VP, Investor Relations and Communications

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

Operator, 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.

Paul Clegg, VP, Investor Relations and Communications

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

Operator, Operator

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