Earnings Call Transcript - SPXC Q1 2023

Operator, Operator

Good day, and thank you for standing by. Welcome to the SPX Technologies Q1 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would like now to hand the conference over to Paul Clegg, VP of Investor Relations and Communications.

Paul Clegg, VP of Investor Relations and Communications

Thank you, operator, and good afternoon, everyone. Thanks for joining us. With me on the call today are Eugene Lowe, our President and Chief Executive Officer; and Mark Carano, our Chief Financial Officer. A press release containing our first quarter 2023 results was issued today after market close. You can find the release and an 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 May 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 to 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 exclude primarily acquisition and strategic transformation costs, non-service pension items, mark-to-market changes, amortization expense, and a gain on the change in the value of an equity security. Finally, we will be conducting meetings with investors over the coming months, including at the William Blair Growth Stock Conference in Chicago on June 7. And with that, I'll turn the call over to Gene.

Gene Lowe, CEO

Thanks, Paul. Good afternoon, everyone, and thank you for joining us. On the call today, we'll provide an update on our consolidated and segment results for the first quarter, our full-year guidance for 2023, and our recent M&A activity. Our Q1 results exceeded expectations and were the strongest for a first quarter in over a decade. This performance is due to a strong backlog, continued demand across our markets, and effective execution by our teams, supported by stable supply chain and labor conditions. Both segments performed well, contributing to approximately 30% revenue growth. HVAC, in particular, had strong results, achieving a segment margin of 19%, the highest for our first quarter ever. In April, we completed one acquisition in our HVAC cooling platform and announced another agreement to acquire a second company in our HVAC heating platform. We expect these acquisitions to generate over $170 million in run-rate revenue, boosting the margin and growth rate of our HX segment. With our strong performance and the acquisition of TAMCO, we are raising our full-year 2023 guidance for adjusted EPS to a range of $3.80 to $3.95, reflecting about 25% year-over-year growth at the midpoint. With TAMCO, our HVAC segment revenue guidance exceeds $1 billion, marking a new milestone for our company. For the quarter, both HVAC and Detection & Measurement grew revenue by over 30% organically. Adjusted operating income increased by 132% year-on-year, with a margin expansion of 640 basis points, reflecting strong segment results. I'm very satisfied with our Q1 performance and our positioning for the rest of 2023. Moving forward, we continue to observe strong demand across our markets, with a solid backlog, robust order trends, and operational momentum in our plants. I am confident in our ability to meet our updated guidance and continue making progress toward our SPX 2025 targets. I'd like to highlight our progress in our value creation framework. In Q1, our teams focused on improving efficiencies in our plants and accelerating delivery times, demonstrating the benefits of our continuous improvement initiatives. We are also introducing our customers to our new digital tools and software that can significantly reduce labor in the field, enhance quality, and improve planning and workflow, which in turn boosts customer experience and loyalty. This includes our CUES AI-enabled GraniteNet software for inspecting and assessing the condition of water and wastewater assets and McLean's Pro Tools app, which helps on-site technicians resolve issues, eliminating the need for multiple visits. Additionally, we have made significant strides in our inorganic growth initiatives. On April 3, we announced acquiring PAMCO, and this week, we reached an agreement to acquire Aspect Heating Group. TAMCO is a leader in motorized and non-motorized dampers controlling airflow in large-scale specialty applications across commercial, industrial, and institutional markets. They are recognized for their eco-friendly solutions with very low leakage levels in critical thermal applications, like data centers and healthcare facilities. This acquisition positions us well within the engineered and movement market in our cooling platform, and we see substantial growth opportunities by integrating TAMCO's high-quality solutions with SPX Technologies' global presence and existing offerings. TAMCO has annual revenues exceeding $50 million, with anticipated margins and revenue growth rates above the HVAC segment average. This week, we also announced an agreement to acquire Astec Heating Group, providing electrical heating solutions for high-value industrial and commercial applications. We expect Astec to have run-rate revenue exceeding $120 million in 2023, with margins above average. The completion of this transaction is subject to antitrust regulatory approval, and we expect to finalize it by late Q2. This will be our largest acquisition post-spin and will more than double our electric heating product revenue, a segment with promising growth opportunities, including decarbonization efforts. By integrating Astec with our Marley Engineered Products business, we foresee numerous opportunities to enhance value for our customers, such as more efficient distribution channels, customer-driven innovations, digital tools, and next-generation eco-friendly product development. I am excited about the positioning and growth prospects that both TAMCO and Aspect present for our HVAC segment, which I believe will deliver significant value to our customers and shareholders. Now, I'll turn the call over to Mark for a more detailed discussion of our financial results.

Mark Carano, CFO

Thanks, Gene. It was an outstanding quarter. In Q1, our adjusted EPS grew 133% year-on-year to $0.93. The adjustments from GAAP results covered earlier by Paul are consistent with our historical practice. Overall, revenues increased 30.2% year-on-year, including 30.6% organic growth with strength in both our HVAC and Detection & Measurement segments. The acquisition of ITL in April 2022 contributed modest inorganic growth and FX was a headwind of 1.1%. Segment income grew by $34.8 million or 88% to $74.4 million, while margin increased 570 basis points. These increases were driven by strong operational performances in HVAC and Detection & Measurement. Price/cost remained a margin tailwind in both segments due primarily to our pricing actions over the last 12 months. For the quarter in our HVAC segment, revenues grew 30.3% year-on-year. Heating and cooling both contributed to organic growth of 30.9%, driven by a balanced contribution of increased volume and price in both platforms. FX was a modest headwind. During the quarter, we continued to drive strong throughput in our plants, particularly in cooling as a result of process improvement, favorable operational execution, and a more stable supply chain and labor conditions. Segment income increased by $27.1 million and margin increased 830 basis points, reflecting operating leverage on higher volumes and favorable price-cost trends. In Q1, we also experienced an incrementally higher mix of aftermarket parts sales in our cooling business, which benefited our segment income margin. By comparison, in the prior year quarter, we experienced headwinds related to supply chain, labor, and price/cost. Bookings remained strong despite the historically high Q1 HVAC sales, segment backlog increased again this quarter, up modestly year-on-year to $270 million and up 11% sequentially from Q4. For the quarter, in Detection & Measurement, revenues grew 30% year-on-year. Organic growth of 30.1% was driven by increases across all of our platforms, but was particularly strong in our project-focused businesses, Comtech and transportation. The acquisition of ITL contributed inorganic growth of 1.8% and FX was a headwind of 1.9%. Segment income increased by $7.7 million and margin expanded 130 basis points. We continue to experience solid run rate demand and a strong environment for project sales. Segment backlog at quarter end was $245 million, up 60% year-on-year, primarily due to large project orders in Comtech and Transportation. Turning now to our financial position at the end of the quarter. Our balance sheet remains strong, and we have significant liquidity available to support our strategic growth initiatives. At quarter end, we had cash of $213 million, including $67 million from borrowings under our credit facilities to fund the closing of the TAMCO acquisition, which took place after the end of the quarter. Net leverage remained at 0.4 times. On a pro forma basis for TAMCO, net leverage was 0.8 times. With the anticipated closing of the acquisition of Astec in Q2, we have amended our credit agreement to include an incremental $300 million term loan based on similar terms to our existing credit facility. We expect to draw on this facility to fund the acquisition. Following closing, we would expect our leverage ratio to increase to approximately 2 times by the end of the second quarter and then subsequently decline to approximately 1.5 times by year-end as we typically generate the bulk of our annual cash flow in the second half of the year. In line with typical seasonal patterns, adjusted free cash flow was a nominal use for the quarter. As we noted last quarter, we expect to return to a more normalized run rate of cash generation for the full year 2023. Moving on to our guidance. We are increasing our 2023 guidance for adjusted EPS to a range of $3.80 to $3.95. The new midpoint reflects a year-on-year growth of approximately 25%. In our HVAC segment, we now anticipate revenues in excess of $1 billion or a year-on-year increase at the midpoint of approximately 14%. Segment income is anticipated to be in the range of 17.25% to 18.25% or a year-on-year increase of approximately 300 basis points at the midpoint. The anticipated strong revenue and margin performance in HVAC reflects a combination of continued solid demand trends, a high starting backlog, improved pricing, strong operational execution at the plant level in both heating and cooling, and the acquisition of TAMCO, which has higher than segment margins. In our Detection & Measurement segment, we anticipate modestly higher revenue in a range of $570 million to $590 million or a year-on-year increase of approximately 6%. We continue to anticipate full year segment income margin in a range of 20.5% to 21.5%. With respect to the cadence of the quarters, we expect the year to be modestly second half weighted, with Q4 being our highest quarter for adjusted EPS, as is typically the case. We would expect Q2 earnings to be sequentially lower than Q1 but up year-on-year. We currently anticipate closing the Aspect acquisition in late Q2, subject to antitrust clearance. Once closed, we intend to update our full year 2023 guidance to reflect the transaction. Including the impact of increased interest costs associated with financing the acquisition, we would expect Aspect to be modestly accretive to the second half of 2023, increasingly accretive in subsequent periods as we grow the business and reduce debt with cash generation. 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, CEO

Thanks, Mark. Current market conditions remain supportive of our outlook for the remainder of 2023. Across our HVAC businesses, supply chain and labor have been more stable overall. 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, driven by commercial and industrial demand and residential replacements. And in Detection & Measurement, our run rate demand is solid overall with some regional variations while the environment for project orders remains strong. In summary, I'm pleased with our very strong start to the year. I'm excited about the significant opportunities we see to drive value through our recently announced acquisitions and continued execution on our key initiatives. With a strong backlog and good operational momentum, I feel confident in our updated full year guidance, which reflects approximately 25% year-on-year growth at the midpoint. With our highly capable experienced team, I look forward to continuing to drive towards our SPX 2025 targets and executing on our value creation roadmap for years to come. And with that, I'll turn the call back to Paul.

Paul Clegg, VP of Investor Relations and Communications

Operator, we are ready to go to questions.

Operator, Operator

Our first question comes from Damian Karas with UBS.

Damian Karas, Analyst

Good evening, everyone. Great job. I have to say, this looks like the best results and outlook update I've seen this earnings season. Gene, could you start by elaborating on the market trends? Specifically, could you discuss the order trends you've observed as we moved from the first quarter into April? You mentioned some areas with stable orders or potential growth. Are there any areas where you might be seeing declines? Or, more generally, how is the overall order expansion looking to date?

Gene Lowe, CEO

Yes, Damian. Overall, we feel very positive about what we're observing across our platforms. To break it down by platform, starting with HVAC, which is our largest segment, we are encouraged by the demand drivers there. We had a strong quarter and actually increased our backlog, positioning ourselves well in this area. The only slight concern we have is in commercial office buildings, which represents a smaller part of our business, roughly around 5%. However, sectors like data centers, battery storage, semiconductors, as well as institutional and education markets, are showing very strong demand. We are optimistic about 2023 and even more so about 2024. Regarding heating, it's returning to a more typical rhythm, and we are seeing lead times stabilize in a growing market. Winter weather will affect us, but last year we had significant backlog that was just being fulfilled. Overall, we've noticed a positive shift in market share, and our products are performing well. We've previously mentioned the success of our Ecotec product, and we feel upbeat about the heating business, which is primarily in the replacement market. For Detection and Measurement, we generally analyze this in terms of projects and run rate business, with projects being about one-third and run rate two-thirds. Project strength remains robust, and we are optimistic about the outlook for 2023 and even into 2024 across all platforms. The run rate business is steady, with some areas showing more strength and others a bit softer, particularly in continental Europe, though that segment is a small part of our operations. Based on our current insights, we are confident about the demand profile for this year and are pleased with the backlog and wins we are achieving, especially on larger projects. Mark or Paul, feel free to add anything to this overview.

Mark Carano, CFO

No, I think you largely covered it. Sentiment is positive really across the board.

Damian Karas, Analyst

That's really helpful insight. And you guys have obviously been quite busy on the deal front. If you had to boil things down, what would you say drew you most to TAMCO and Aspect? And how do you foresee them integrating with your business, just thinking about potential cross-selling opportunities or cost savings?

Gene Lowe, CEO

I'll start by mentioning that Cincinnati Fan was acquired last year, and we’re very pleased with what we call the engineered air movement business. TAMCO complements Cincinnati Fan very well, along with the Strobic brand. We see significant opportunities for cost synergies, shared procurement, and overall operational efficiencies between these brands. There's also a considerable customer overlap, especially with Strobic, which shares similar channels with TAMCO, focusing on high-performance applications like data centers, healthcare, and pharmaceuticals that require specific thermal and leakage standards. The management for TAMCO will come under the same business unit that oversees Cincinnati Fan and Strobic, allowing us to leverage synergies both in terms of costs and growth potential. We believe TAMCO is a strong addition to our portfolio. Regarding Astec, it has been a key target for our heating business since our spin-off. We appreciate the team, their market positioning, and the high margins and growth rates they offer. They command strong competitive advantages, with the Deco brand being well-regarded in the market. Astec has a healthy mix of commercial and industrial products, primarily focusing on industrial offerings, and their product lines complement our existing range without much overlap. Astec's growth story is bolstered by their ESG positioning as electric heating gains traction over steam and gas heating solutions. Their products are often tailored for customers, leading to a steady pipeline of recurring revenue. We see Astec as a great fit and are enthusiastic about both TAMCO and Astec moving forward. TAMCO's acquisition is finalized. For Astec, we’ve signed a definitive agreement, and it’s currently undergoing regulatory review. We expect the deal to close by the end of Q2, provided everything goes smoothly. At that time, we will provide further details on how these businesses integrate into our overall strategy. Regarding our debt situation, as Mark mentioned in our prepared remarks, this will elevate our net debt to around 2 times, slightly below that, and we anticipate reducing it to 1.5 or less by year-end. Our target range remains 1.5 to 2.5, which we feel comfortable maintaining. Overall, we're pleased with these acquisitions and confident they will enhance our strategic platforms.

Damian Karas, Analyst

Thanks for all that color. I'll pass it along.

Operator, Operator

One moment for our next question. Our next question comes from Bryan Blair with Oppenheimer.

Bryan Blair, Analyst

Thank you. Good evening. A fantastic start to the year. And I wonder if you can offer a little more color on how we should think about the revenue and earnings seasonality going forward just given the outsized nature of the Q1 beat and kind of netting to your revised framework, particularly curious about HVAC given just really standout performance from the segment in Q1.

Mark Carano, CFO

Yes, I'll start, Bryan. And maybe I'll start with HVAC just first because it was such a strong performance in the quarter. It's interesting; if you look back to Q4, we had very strong performance in HVAC then and the business is really kind of starting to hit on all cylinders given some things I'll talk about in a minute, but really turning that corner. I think as we look into Q1, our sense was some of that may or may not have been durable; it turned out to be the case. I think about the labor environment and the supply chain environment that we were facing earlier in the year that began to improve. We didn't really feel like we were out of the woods in Q4, but I think it has continued to stabilize, at least for the time being. And then we've been doing a lot of work. We talked about some of the capital that we're deploying incrementally higher than prior years to really improve really across all the platforms, but cooling is an area of particular focus and some of the improvement efforts that we have employed there that are driving what I would call structural cost improvements in the business. So that, combined with the pricing actions from last year, created a price-cost benefit to us and really set us up for frankly a very strong Q1. There was a unique dynamic that I referenced in my prepared comments around some aftermarket work that we had in that quarter. And we circled that at about $4 million of operating income or segment income, if you will, of a benefit. That was something that probably isn't necessarily going to recur again throughout the year. That's sort of a unique opportunity where we had some SEP and some aftermarket opportunities there, which were fairly substantial and related to some large projects. So if you kind of pro forma that out, you've got a quarter that looks from a margin perspective very similar to where our guidance is for the full year, call it, in the 17.5% range. So then if you take that and look forward to the full year and what we're guiding there, I would say, listen, I think our view is it's pretty balanced. We've tried to kind of weigh both the risks and the opportunities that are out there. We feel good about the cooling business and the performance. I think that will continue to be strong throughout the year. The heating business in our backlog there has normalized, which actually is a good thing. We're back to more of a steady state. But the flip side of that is that we're going to largely be tied to the heating season that will take place here in late Q3 and into Q4. So depending on those trends, that will drive that business. And then with D&M, we're in a good position with respect to our project businesses, and the opportunity there, part of our that business is short cycle in nature, right? And it is sensitive to the kind of the near-term economic environment. So I think we're being cautiously optimistic around that business as we look at the back half of the year. So hopefully, that gives you some color as to how we think about the full year, and particularly in the second half.

Paul Clegg, VP of Investor Relations and Communications

I'll just provide some insight into our modeling. As mentioned earlier, the fourth quarter is typically the largest, partly due to higher gene revenue. Last year, we had significant backlog and were not affected by the weather, which influences our year-over-year comparisons. When we set our guidance for the full year, we will assume a more typical long-term winter for the fourth quarter this year. Additionally, for the Detection & Measurement quarters, we expect a similar margin progression to what we experienced in 2022, with certain high-margin projects becoming more prominent in the latter half of the year.

Bryan Blair, Analyst

Okay. Very helpful. And sorry if I missed the detail, but what is being baked into the updated guide for TAMCO accretion in the back half? And similarly, if Aspect closes on time by the end of the second quarter, perhaps quantify the modest accretion there. And then most importantly, looking forward, what's a full combined year one, the accretion run rate and with some debt paydown and the actions that your team has planned a year or two lift from the acquisitions.

Paul Clegg, VP of Investor Relations and Communications

So yes, Bryan, for the TAMCO part of it, $0.10, and I think if you just kind of run rate that across three quarters, that's fine. That's going to include obviously some interest cost impact over those quarters. With respect to the combined businesses, we're going to hold off on giving more detail on this. We did say modest when it came to Aspect, and we'll get into more detail about that. But I think one thing that we could say to give you a more magnitude here of the overall impact of these two acquisitions. Once we close on the Aspect transaction and it becomes part of SPX, the combined annualized EBITDA for those two businesses for TAMCO and Astec together would be approximately $45 million to $47 million. And I think you picked up from our press releases; we'd also expect a combined growth rate above the company average.

Bryan Blair, Analyst

Understood. I appreciate the color there. And then last one. It sounds like both sides, Detection and Measurement, your run rate business and project trending well, near-term outlook is positive. If we look later in the year and into 2024 and likely '25 and beyond, where should we see infrastructure spending read-through as a catalyst for the businesses? And what sequence is it reasonable to expect that?

Mark Carano, CFO

I think the infrastructure spending is quite interesting. We are just beginning to see some of those funds come through. My expectation is that we will start to see that more in the second half of this year and into 2024. We are already noticing some of that in our transportation business. One of the dynamics with all these funds is that while the money has been allocated and is available, if there isn't a project ready to launch, there won't be anything to utilize those funds in the short term. It seems to have been a bit more delayed than many anticipated, but I believe we will really start to witness that positive impact in the latter half of this year and into 2024.

Bryan Blair, Analyst

Understood. Thank you.

Operator, Operator

One moment as we bring up our next question. Our next question comes from Lawrence De Maria with William Blair.

Lawrence De Maria, Analyst

Hey, thanks. Good afternoon, everybody. So just staying on the deal questions here. Obviously, begs the question after two deals here. One, obviously, unclosed yet. Are we holding and digest pattern? And also, is D&M becoming a priority at this point? So I'm just kind of curious about the cadence going forward?

Gene Lowe, CEO

Yes, Larry, I'll start there. We've always said that we really like how our portfolio has evolved over the years. Currently, we are pleased with both segments and our six platforms. We have engaged in more D&M deals lately, typically involving smaller but more numerous transactions. We are excited about both of these HVAC opportunities. In considering your question, it's important to note that we've been very cautious regarding our debt levels. By the end of the year, we anticipate being at 1.4 to 1.5 times debt. We still have capital to invest and a strong project pipeline. I believe that we have a good system in place for these acquisitions. Astec will be our 13th acquisition in recent years, and we are still actively pursuing opportunities while being mindful of our debt levels. Mark, Paul, do you have anything else to add on this topic?

Mark Carano, CFO

I think, I mean there's significant liquidity out there. Obviously, in the event that we decided to pursue something here later this year. But to Gene's point, I think we're going to be very thoughtful about the balance sheet making sure that we remain within leverage levels that we think are appropriate for the business.

Lawrence De Maria, Analyst

Okay. That's good color and makes sense, obviously. I think you said the D&M backlog was $245 million. Can you quantify the HVAC backlog and the mix in there between obviously, heating and cooling? And then secondly, price was obviously important in the quarter. Can you just let us know how to think about it, how it plays out for the rest of the year and whether that contribution tails off on maybe pricing comps? Or just how to think about pricing as we go through the year contributor?

Paul Clegg, VP of Investor Relations and Communications

So on the backlog question with respect to HVAC, backlog for HVAC was $270 million, which was actually up a little bit, about 11% from the fourth quarter despite the very strong results in the first quarter. At this point, the growth of that backlog is actually now in cooling 80%, 85% or so, whereas, if you look at that at the middle of last year, it would have been 60-40, something like that. So that's just a reflection of us seeing the heating backlog getting closer to normal levels there. Your other question was on, I think, price. If you look at the first quarter, price and volume were distributed, not quite evenly, but we were about 60-40 volume price and HVAC was more price-weighted D&M was more volume weighted. As you look across the year, our guidance implies around 11% growth; let's call it 2% or 3% of that is from acquisitions, and another 8% or 9% organic. We would look for that to be a little bit flipped in the other direction, 40% volume, 60% price.

Lawrence De Maria, Analyst

Okay. That's really good color and good luck to share.

Operator, Operator

Our next question comes from Steve Ferazani with Sidoti.

Steve Ferazani, Analyst

Good evening, everyone. I echo some of the other comments in terms about it being one of the stronger earnings releases of the quarter. I mean, to me, the big difference is, we've seen a lot of companies beat pretty handily Q1. But given the economic uncertainty that's developed since the fourth quarter, it caused a lot of caution on the second half; you don't seem to be as concerned. And it sounds like bookings project orders are reducing your concern. But just what gives you the confidence given what we know is clearly some economic uncertainty into the second half?

Gene Lowe, CEO

Yes, Steve. Looking at the HVAC sector, we have a clear outlook for 2023 and even into 2024, particularly on the cooling side. We have a substantial backlog and strong visibility on upcoming bids. If a severe recession were to occur, it would take time to impact this market, and we believe that won't happen this year. The heating segment, as we've mentioned, will operate more typically, growing at a steady rate each year with some fluctuations based on weather influencing market demand during the winter. Overall, we expect a standard year with a normal backlog and a balanced channel, primarily focused on replacement sales, showing little variation. On the Detection and Measurement side, our backlog for projects remains robust, giving us confidence in that area. However, in the event of a severe recession later in the year, we would monitor our Detection and Measurement run rate businesses closely, as that sector is more sensitive to economic shifts. We consider our radio detection business a key indicator. Most of our business is linked to government or municipal contracts, which tend to be more stable and less affected by GDP changes. For instance, during COVID, while many of our competitors experienced a significant drop in revenue, we were only slightly impacted, and overall, our revenues remained flat. This demonstrates the resilience of the markets we serve. However, if a recession does occur, we would carefully watch the run rate businesses in Detection and Measurement, as they are most closely tied to GDP fluctuations.

Mark Carano, CFO

And Steve, I want to point out that the dynamic of infrastructure spending and federal dollars entering the market, although the timing has taken longer, is something we should benefit from. While it may not have a significant impact in 2023 as we would like, it should certainly contribute in 2024. This will provide support for that part of the business.

Steve Ferazani, Analyst

That's helpful. I ask you every time I speak to Gene, and it's probably a much easier answer this time in terms of your confidence level in hitting 2025 targets seems a lot easier now. Is there much more work left to be done?

Gene Lowe, CEO

There's always work to be done. There's always a lot of work to do.

Steve Ferazani, Analyst

On the M&A side.

Gene Lowe, CEO

Yes. I'd tell you, we are very pleased with both TAMCO and Astec. It's knowing aspects not closed yet, but we really like these businesses. We really like the people that are part of these businesses. We really think they're going to strengthen our platforms and we think we can add a lot of value, and we'd like to help them grow faster. So this certainly does take a big step in the direction. As you can see from our guidance this year, before anything with Astec, we're starting to push up on the high end of close to $4. And as we've said, $5.25. I have good conviction that we're going to get there, and I think that we're doing the right things. But it's not easy; there's a lot of hard work. There's a lot of new products. There's a lot of new continuous improvement initiatives. There's a lot of digital we got to put out there. We got to win in the market. But yes, I'm feeling very good about where we are, and we feel very good about meeting our commitments there.

Steve Ferazani, Analyst

We don't ask about this too much because you managed it so well. But I think what we did see in Q1 from a lot of companies that were having very significant supply chain constraints was very clear easing. Now you've managed it well, but would you echo that, that supply chain constraints are making things a little bit easier on your end? And also on the labor side, given the growth projections, are you fully staffed to meet the growth?

Gene Lowe, CEO

Yes. I would say, from a supply chain perspective, I mean, it has eased, right, whether that's steel or some of the big commodity input costs, lead times can be long on certain areas still like printed circuit boards in areas like that, but availability is much greater than it was before. And I think on the labor front, I mean, listen, we're not probably out of the woods on that front entirely. There's still strong competition for labor out there, particularly in certain markets, but we are in a much better place than we were a year ago and probably even a couple of quarters ago.

Mark Carano, CFO

Yes, much better. There are still supply chain challenges, but overall there is significant improvement in both areas, and this trend has been a key contributor to our operational performance.

Steve Ferazani, Analyst

Thanks, Gene. Thanks, Mark.

Operator, Operator

Our next question comes from Walter Liptak with Seaport Research.

Walter Liptak, Analyst

Thanks. Great quarter, guys. So the question I've got is about the D&M backlog. I wonder if you could help us just kind of review the timing. I think you said it was $245 million, up 60%, was that the number? And I guess one question is, I think the orders started picking up around this time last year. So are you starting to comp that or higher backlog in the second or third quarter?

Paul Clegg, VP of Investor Relations and Communications

Yes, you did see the increase in backlog occur in the second and third quarter. That's right, where a lot of it did happen last year, well, and your number of 60% was right. As we look through the remainder of this year, we'll see some of that roll out of our backlog and into revenue obviously, and in Detection & Measurement because of the project nature of some of the businesses that can be a little bit lumpy. But where we sit today and looking at our front log and looking at the discussions we're having about many of these same products that are doing quite well in end markets. I'm not sure that we would expect our backlog to go down this year. Actually, I think we were looking for quite a good setup for next year, as Gene mentioned.

Walter Liptak, Analyst

That sounds great. And you mentioned that it was Comtech and transport that are both up. Are those both up equally? Or is there a higher weighting towards one or the other?

Mark Carano, CFO

You are actually much more weighted towards Comtech in terms of the increase.

Walter Liptak, Analyst

Okay. Great. And then, Mark, in your prepared remarks, you mentioned again that first half revenue would be a little bit weaker or not weaker, but a lower percentage and then more weighting in the back half. And I think last quarter, you guys talked about 43% in the first half, 57% in the back half. Can we still use that?

Mark Carano, CFO

I can address that. You mentioned the expectation that the revenue split would resemble the previous year in D&M. It's likely to be similar, perhaps around a 45-55 split between the first and second halves. However, it's crucial to highlight that when considering the margin profile, the mix, and the timing of key projects, these factors play a significant role. We anticipate a margin progression akin to what we observed in 2022, where margins increased throughout the year as more higher-margin projects were delivered in the latter half.

Walter Liptak, Analyst

Okay great. Thanks guys.

Operator, Operator

Our next question is from Damian Karas with UBS.

Damian Karas, Analyst

Just had a quick follow-up question on the heating business. So one of your large public boiler competitors lowered their outlook this past quarter, and they talked about inventory destocking taking place. Gene, you sounded like you're seeing your business is more stable, but just curious where you think channel inventories are. And I know you had some outsized supply chain issues last year. But what's your sense for how you're performing versus the overall boiler market?

Gene Lowe, CEO

Yes. Just so you know the process I follow, I speak with all the presidents of every business on the day of these earnings calls, and we review many of the numbers. The individual managing the McLean business has good visibility into the channel and inventory levels, although not for all distributors, but for a significant portion. Currently, the situation looks balanced. We are comfortable as it is neither overstocked nor understocked. The only area where we are experiencing delivery delays due to high demand is with our standard efficiency cast iron commercial boilers. The rest of the businesses are operating normally, and we believe the channel is balanced. However, we're still working to ship a lot of products and return to our usual lead times.

Damian Karas, Analyst

Understood. Thanks again. Best of luck, guys.

Operator, Operator

At this time, I would like to turn it back to Paul Clegg for closing comments.

Paul Clegg, VP of Investor Relations and Communications

Thanks to all of you for joining our call today, and we look forward to speaking to you again next quarter or during the quarter at one of the events we're attending. Thanks.

Operator, Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.