SPX Technologies, Inc. 10-Q

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (in millions) FORWARD-LOOKING STATEMENTS Some of the statements in this document and any documents incorporated by reference, including any statements as to operational and financial projections, constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our businesses’ or our industries’ actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. Such statements may address our plans, our strategies, our prospects, changes and trends in our business and the markets in which we operate under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) or in other sections of this document. In some cases, you can identify forward-looking statements by terminology such as “may,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “project,” “potential” or “continue” or the negative of those terms or other comparable terminology. Particular risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, include the following: cyclical changes and specific industry events in the Company’s markets; changes in anticipated capital investment and maintenance expenditures by customers; availability, limitations or cost increases of raw materials and/or commodities that cannot be recovered in product pricing; the impact of competition on profit margins and the Company’s ability to maintain or increase market share; inadequate performance by third-party suppliers and subcontractors for outsourced products, components and services and other supply-chain risks; the uncertainty of claims resolution with respect to environmental and other contingent liabilities; the impact of climate change and any legal or regulatory actions taken in response thereto; cyber-security risks; risks with respect to the protection of intellectual property, including with respect to the Company’s digitalization initiatives; the impact of overruns, inflation and the incurrence of delays with respect to long-term fixed-price contracts; defects or errors in current or planned products; the impact of pandemics and governmental and other actions taken in response; domestic economic, political, legal, accounting and business developments adversely affecting the Company’s business, including regulatory changes; changes in worldwide economic conditions, including as a result of geopolitical conflicts; uncertainties with respect to the Company’s ability to identify acceptable acquisition targets; uncertainties surrounding timing and successful completion of acquisition or disposition transactions, including with respect to integrating acquisitions and achieving cost savings or other benefits from acquisitions; the impact of retained liabilities of disposed businesses; potential labor disputes; and extreme weather conditions and natural and other disasters. These statements are only predictions and actual events or results may differ materially. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. In addition, management’s estimates of future operating results are based on our current complement of businesses, which is subject to change as management selects strategic markets. All the forward-looking statements are qualified in their entirety by reference to the factors discussed under the heading “Risk Factors” in our 2023 Annual Report on Form 10-K, in any subsequent filing with the U.S. Securities and Exchange Commission, as well as in any documents incorporated by reference that describe risks, uncertainties and other factors that could cause results to differ materially from those projected in these forward-looking statements. We caution you that these risk factors may not be exhaustive. We operate in a continually changing business environment and frequently enter into new businesses and product lines. We cannot predict these new risk factors, and we cannot assess the impact, if any, of these new risk factors on our businesses or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those projected in any forward-looking statements. Accordingly, you should not rely on forward-looking statements as a prediction of actual results. We disclaim any responsibility to update or publicly revise any forward-looking statements to reflect events or circumstances that arise after the date of this document. POTENTIAL IMPACTS OF GEOPOLITICAL CONFLICTS Ongoing geopolitical conflicts, and governmental actions implemented in response to these conflicts, did not have a significant adverse impact on our operating results during the three and nine months ended September 28, 2024 and September 30, 2023. We are monitoring the availability of certain raw materials that are supplied by businesses in the countries impacted by these conflicts. However, at this time, we do not expect the potential impact to be material to our operating results. These conflicts have created additional demand for certain products within our communication technologies business. The longer-term impact of these global events on our business is currently unknown due to the uncertainty around their duration and broader impact. 31 OTHER SIGNIFICANT MATTERS • Acquisitions ◦ T. A. Morrison & Co. Inc. (“TAMCO”) ▪ Acquired on April 3, 2023 for cash consideration of $125.5, inclusive of an adjustment to the purchase price of $0.2 paid during the third quarter of 2023 related to acquired working capital, and net of cash acquired of $1.0 . ▪ Post-acquisition operating results of TAMCO are included within our HVAC reportable segment. ◦ ASPEQ Heating Group (“ASPEQ”) ▪ Acquired on June 2, 2023 for cash consideration of $421.5, net of (i) an adjustment to the purchase price of $0.3 received during the fourth quarter of 2023 related to acquired working capital and (ii) cash acquired of $0.9. ▪ Post-acquisition operating results of ASPEQ are included within our HVAC reportable segment. ◦ Ingénia Technologies Inc. (“Ingénia”) ▪ Acquired on February 7, 2024 for cash consideration of Canadian Dollar (“CAD”) 393.9 (or $292.0), net of (i) an adjustment to the purchase price of $2.1 during the third quarter of 2024 related to acquired working capital and (ii) cash acquired of $1.5. ▪ Under the terms of the purchase and sales agreement, the seller is eligible for additional cash consideration of up to CAD 3.0 (or $2.2 at the time of acquisition), with payment scheduled to be made in the event certain contingent liabilities do not materialize. The estimated fair value of such contingent consideration is $0.3, which is reflected as a liability in our condensed consolidated balance sheet as of September 28, 2024. ▪ Post-acquisition operating results of Ingénia are included within our HVAC reportable segment. • Financing Activities ◦ On August 30, 2024, we entered into an amendment to the Amended and Restated Credit Agreement governing our senior credit facilities (as amended, the “ Credit Agreement ” ) . ◦ The amendment increases the aggregate revolving credit commitments under the Credit Agreement from $500.0 to $1,000.0 and makes certain conforming changes and other amendments to the Credit Agreement. ◦ We expect to utilize the increased revolving credit capacity to finance, in part, permitted acquisitions, to pay related fees, costs and expenses and for other lawful corporate purposes. ◦ During the third quarter of 2024, we renewed, and increased the capacity of, our trade receivables financing agreement for the next 12 months, whereby we can borrow, on a continuous basis, up to $100.0, as available. ◦ See Note 12 to our condensed consolidated financial statements for additional details. • Changes in Estimated Fair Value of an Equity Security ◦ We recorded no adjustments to the fair value of an equity security that we hold during the three months ended September 28, 2024 and September 30, 2023. We recorded gains (losses) of $(4.2) and $3.6 during the nine months ended September 28, 2024 and September 30, 2023, respectively. ◦ See Note 17 to our condensed consolidated financial statements for additional details. • Resolution of Dispute with Seller of ULC Robotics (“ULC”) ◦ In connection with our acquisition of ULC in September 2020, the seller of ULC was eligible for contingent consideration of up to $45.0 under an earn-out provision. ◦ During the third quarter of 2021, we concluded that none of the milestones for the payment of any of the contingent consideration had been achieved. ◦ On May 20, 2024, we entered into a settlement agreement with the seller of ULC to resolve a lawsuit it commenced in August 2022 seeking contingent consideration of $15.0, prejudgment interest on that amount, and attorney's fees. ◦ The settlement agreement required a payment by us to the seller of ULC of $8.4, which was paid during the second quarter of 2024, with a corresponding charge recorded within “Other operating expense, net” within our condensed consolidated statement of operations for the nine months ended September 28, 2024. We expect this payment to be tax deductible in future periods. • Incremental Term Loan ◦ On April 21, 2023, the Credit Agreement was amended to provide for an additional senior secured term loan in the aggregate amount of $300.0, which was borrowed during the second quarter of 2023. 32 ◦ The funds from the additional term loan (“Incremental Term Loan”) were used to partially fund the acquisition of ASPEQ. ◦ See Note 12 to our condensed consolidated financial statements for additional details. • Resolution of Claims with Prime Contractor of South Africa Power Projects ◦ On September 5, 2023, SPX Technologies and our DBT Technologies (PTY) LTD (“DBT”) business entered into an agreement with MHI to affect the negotiated resolution of all claims between the parties with respect to DBT’s involvement in two large power projects in South Africa - Kusile and Medupi (the “Settlement Agreement”). ◦ In connection with the Settlement Agreement, the Company incurred a charge, net of tax, of $54.2 during the three months ended September 30, 2023. The charge included the write-off of $15.2 in net amounts due from MHI. Such charge is included in “Loss on disposition of discontinued operations, net of tax” for the three and nine months ended September 30, 2023. In addition, DBT made payments of $25.1 (net of $2.0 received on a related foreign currency forward agreement) and $25.3 to MHI during the third quarters of 2024 and 2023, respectively, in connection with the Settlement Agreement. ◦ There are no further payment obligations to MHI under the terms of the Settlement Agreement. ◦ See Notes 3 and 15 to our condensed consolidated financial statements for additional details. OVERVIEW OF OPERATING RESULTS Revenues for the three months ended September 28, 2024, totaled $483.7 compared to $448.7 during the respective period in 2023. The increase in revenues, compared to the respective period in 2023, was due primarily to (i) organic revenue growth within the HVAC reportable segment and (ii) inorganic revenue growth resulting from the Ingénia acquisition within the HVAC reportable segment, partially offset by an organic revenue decline within the Detection and Measurement reportable segment. The organic revenue growth within the HVAC reportable segment was due primarily to increased volume of cooling products driven by continued strength in demand and higher throughput resulting from expanded production capacity. The organic revenue decline within the Detection and Measurement reportable segment was primarily driven by lower large project volume within our communication technologies business associated with a larger-than-typical project that executed throughout 2023 and completed during the first quarter of 2024. This decline was partially offset by higher project volumes at our transportation and aids to navigation businesses, in which volume can vary from period to period based on project execution timing. Revenues for the nine months ended September 28, 2024, totaled $1,450.2 compared to $1,271.8 during the respective period in 2023. The increase in revenues, compared to the respective period in 2023, was due primarily to (i) inorganic revenue growth resulting from the Ingénia, ASPEQ, and TAMCO acquisitions (each within the HVAC reportable segment) and (ii) organic revenue growth within the HVAC reportable segment, partially offset by an organic revenue decline within the Detection and Measurement reportable segment. The organic revenue growth within the HVAC reportable segment was due primarily to (i) increased volume of cooling products driven by continued strength in demand and higher throughput resulting from expanded production capacity and (ii) execution of a larger-than-typical service project. These increases were partially offset by organic revenue declines of heating products due primarily to (i) the unseasonably warm winter conditions prevalent in the relevant end markets during the first quarter of 2024 and (ii) higher volumes during the first quarter of 2023 that was supported by elevated backlog resulting from the effects of the COVID-19 pandemic. The organic revenue decline within the Detection and Measurement reportable segment was primarily driven by (i) lower large project volume within our communication technologies business associated with a larger-than-typical project that executed throughout 2023 and completed in the first quarter of 2024 and, to a lesser extent, (ii) modestly lower global demand for location and inspection products. These declines were partially offset by higher project volumes at our transportation and aids to navigation businesses, in which volume can vary from period to period based on project execution timing. During the three and nine months ended September 28, 2024, we generated operating income of $78.9 and $218.1, respectively, compared to $57.7 and $158.8 for the respective periods in 2023. The increase in operating income during the three and nine months ended September 28, 2024, compared to the respective periods in 2023, was due primarily to higher income from our reportable segments of $22.2 and $80.8, respectively, lower corporate expense of $0.6 and $5.9, respectively, and, for the three month period, a decrease in integration costs of $1.5. These impacts were partially offset by increases during the three and nine months ended, compared to their respective periods in 2023, in intangible asset amortization expense of $2.0 and $15.8, respectively. The nine-month period ended September 28, 2024 also included increased integration costs of $1.3, primarily related to the Ingénia and ASPEQ acquisitions, and a charge of $8.4 related to a settlement with the seller of ULC regarding additional contingent consideration. The increase in income from our reportable segments was primarily due to (i) the revenue growth mentioned above and associated operating leverage, (ii) more favorable product mix, primarily within the Detection and Measurement reportable segment, and (iii) the impact of continuous improvement initiatives, partially offset by increases in personnel costs, within our HVAC reportable segment, due to annual merit increases and growth-related headcount additions. The increase in intangible asset amortization expense was driven by the acquisitions mentioned above. Cash flows from operating activities associated with continuing operations totaled $146.4 for the nine months ended September 28, 2024, compared to cash flows from operating activities of $120.0 during the nine months ended September 30, 33 2023. The increase in cash flows from operating activities was due primarily to cash inflows resulting from the increase in operating income discussed above, exclusive of the non-cash expenses (primarily intangible asset amortization and depreciation expense) incurred during the respective periods, and reductions in the level of elevated purchases of raw materials and components during the 2024 period due to stabilization of the supply chain environment. These impacts were primarily offset by (i) decreases in cash flows at certain of our project-related businesses, as cash flows for these businesses are often subject to contract milestones that can impact the timing of cash flows from period to period, (ii) additional interest payments of $16.7 due to higher average debt balances resulting from borrowings associated with the Ingénia, ASPEQ, and TAMCO acquisitions, (iii) $11.9 in additional short-term incentive compensation payments, (iv) a payment, during the first quarter of 2024, related to the resolution of a dispute with a former representative at one of our businesses within the Detection and Measurement reportable segment of $9.0, and (v) payment of $8.4 associated with a settlement for additional contingent consideration to the seller of ULC mentioned above. RESULTS OF CONTINUING OPERATIONS The unaudited information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements contained in our 2023 Annual Report on Form 10-K. Interim results are not necessarily indicative of results for the full year. We establish actual interim closing dates using a fiscal calendar, which requires our businesses to close their books on the Saturday closest to the end of the first calendar quarter, with the second and third quarters being 91 days in length. Our fourth quarter ends on December 31. The interim closing dates for the first, second and third quarters of 2024 are March 30, June 29, and September 28, compared to the respective April 1, July 1, and September 30, 2023 dates. We had one less day in the first quarter of 2024 and will have two more days in the fourth quarter of 2024 than in the respective 2023 periods. Cyclicality of End Markets, Seasonality and Competition — The financial results of our businesses closely follow changes in the industries in which they operate and end markets in which they serve. In addition, certain of our businesses have seasonal fluctuations. For example, our heating businesses tend to be stronger in the third and fourth quarters, as customer buying habits are driven largely by seasonal weather patterns. In aggregate, our businesses tend to be stronger in the second half of the year. Although our businesses operate in highly competitive markets, our competitive position cannot be determined accurately in the aggregate or by segment since none of our competitors offer all the same product lines or serve all the same markets as we do. In addition, specific reliable comparative figures are not available for many of our competitors. In most product groups, competition comes from numerous concerns, both large and small. The principal methods of competition are service, product performance, technical innovation and price. These methods vary with the type of product sold. We believe we compete effectively on the basis of each of these factors. Non-GAAP Measures — Organic revenue growth (decline) presented herein is defined as revenue growth (decline) excluding the effects of foreign currency fluctuations and acquisitions/divestitures. We believe this metric is a useful financial measure for investors in evaluating our operating performance for the periods presented as, when considered in conjunction with our revenues, it presents a useful tool to evaluate our ongoing operations and provides investors with a tool they can use to evaluate our management of assets held from period to period. In addition, organic revenue growth (decline) is one of the factors we use in internal evaluations of the overall performance of our business. This metric, however, is not a measure of financial performance under accounting principles generally accepted in the United States (“GAAP”), should not be considered a substitute for net revenue growth (decline) as determined in accordance with GAAP, and may not be comparable to similarly titled measures reported by other companies. 34 The following table provides selected financial information for the three and nine months ended September 28, 2024 and September 30, 2023, including the reconciliation of organic revenue increase to the net revenue increase: Three months ended Nine months ended September 28, 2024 September 30, 2023 % Change September 28, 2024 September 30, 2023 % Change Revenues $ 483.7 $ 448.7 7.8 $ 1,450.2 $ 1,271.8 14.0 Gross profit 197.6 168.6 17.2 581.3 482.1 20.6 % of revenues 40.9 % 37.6 % 40.1 % 37.9 % Selling, general and administrative expense 101.6 96.3 5.5 305.7 290.9 5.1 % of revenues 21.0 % 21.5 % 21.1 % 22.9 % Intangible amortization 16.6 14.6 13.7 48.2 32.4 48.8 Special charges, net 0.5 — * 0.9 — * Other operating expense, net — — * 8.4 — * Other income (expense), net (1.4) (0.2) * (7.1) 2.3 * Interest expense, net (11.5) (9.4) 22.3 (33.5) (16.5) 103.0 Income from continuing operations before income taxes 66.0 48.1 37.2 177.5 144.6 22.8 Income tax provision (15.1) (12.4) 21.8 (32.2) (31.5) 2.2 Income from continuing operations 50.9 35.7 42.6 145.3 113.1 28.5 Components of revenue increase: Organic 3.0 4.8 Foreign currency 0.4 0.1 Acquisitions 4.4 9.1 Net revenue increase 7.8 14.0 _________________________________ * Not meaningful for comparison purposes. Revenues — Revenues for the three months ended September 28, 2024, totaled $483.7 compared to $448.7 during the respective period in 2023. The increase in revenues, compared to the respective period in 2023, was due primarily to (i) organic revenue growth within the HVAC reportable segment and (ii) inorganic revenue growth resulting from the Ingénia acquisition within the HVAC reportable segment, partially offset by an organic revenue decline within the Detection and Measurement reportable segment. The organic revenue growth within the HVAC reportable segment was due primarily to increased volume of cooling products driven by continued strength in demand and higher throughput resulting from expanded production capacity. The organic revenue decline within the Detection and Measurement reportable segment was primarily driven by lower large project volume within our communication technologies business associated with a larger-than-typical project that executed throughout 2023 and completed during the first quarter of 2024. This decline was partially offset by higher project volumes at our transportation and aids to navigation businesses, in which volume can vary from period to period based on project execution timing. Revenues for the nine months ended September 28, 2024, totaled $1,450.2 compared to $1,271.8 during the respective period in 2023. The increase in revenues, compared to the respective period in 2023, was due primarily to (i) inorganic revenue growth resulting from the Ingénia, ASPEQ, and TAMCO acquisitions (each within the HVAC reportable segment) and (ii) organic revenue growth within the HVAC reportable segment, partially offset by an organic revenue decline within the Detection and Measurement reportable segment. The organic revenue growth within the HVAC reportable segment was due primarily to (i) increased volume of cooling products driven by continued strength in demand and higher throughput resulting from expanded production capacity and (ii) execution of a larger-than-typical service project. These increases were partially offset by organic revenue declines of heating products due primarily to (i) the unseasonably warm winter conditions prevalent in the relevant end markets during the first quarter of 2024 and (ii) higher volumes during the first quarter of 2023 that was supported by elevated backlog resulting from the effects of the COVID-19 pandemic. The organic revenue decline within the Detection and Measurement reportable segment was primarily driven by (i) lower large project volume within our communication technologies business associated with a larger-than-typical project that executed throughout 2023 and completed in the first quarter of 2024 and, to a lesser extent, (ii) modestly lower global demand for location and inspection products. These declines were partially offset by higher project volumes at our transportation and aids to navigation businesses, in which volume can vary from period to period based on project execution timing. See “Results of Reportable Segments” for additional details. 35 Gross Profit — For the three and nine months ended September 28, 2024, the increase in gross profit and gross profit as a percentage of revenues, compared to the respective periods in 2023, was due primarily to (i) the revenue growth mentioned above and associated operating leverage, (ii) a more favorable product mix, primarily within the Detection and Measurement reportable segment, and (iii) the impact of continuous improvement initiatives. Selling, General and Administrative (“SG&A”) Expense — For the three months ended September 28, 2024, the increase in SG&A expense, compared to the respective period in 2023, was due primarily to incremental SG&A resulting from the acquisition of Ingénia of $2.6 (including integration costs of $0.7) and increases in personnel costs, primarily within our HVAC reportable segment, due to annual merit increases and growth-related headcount additions. For the nine months ended September 28, 2024, the increase in SG&A expense, compared to the respective period in 2023, was due primarily to incremental SG&A resulting from the acquisitions of Ingénia, ASPEQ, and TAMCO of $17.4 (including integration costs of $3.7) and increases in personnel costs, primarily within our HVAC reportable segment, due to annual merit increases and growth-related headcount additions, partially offset by a reduction in corporate expense of $5.9. Intangible Amortiz ation — For the three an d nine months ended September 28, 2024, the increase in intangible amortization, compared to the respective periods in 2023, was primarily related to incremental amortization associated with (i) backlog from the Ingénia acquisition and (ii) other intangible assets associated with the acquisition of Ingénia and, for the nine-month period, the acquisitions of TAMCO and ASPEQ. Special Charges, net — Special charges, net, for the three and nine months ended September 28, 2024 related primarily to severance costs associated with restructuring actions at businesses within our HVAC and Detection and Measurement reportable segments. See Note 7 to our condensed consolidated financial statements for additional details. Other Operating Expense, net — Other operating expense, net for the nine months ended September 28, 2024 related to a charge of $8.4 related to a settlement with the seller of ULC regarding additional contingent consideration. Other Income (Expense), net — Other expense, net, for the three months ended September 28, 2024 was composed primarily of foreign currency transaction losses of $1.1, environmental remediation charges of $0.3, pension and postretirement expense of $0.2, and losses on fixed asset disposals of $0.2, partially offset by income of $0.5 derived from company-owned life insurance (“COLI”) policies. Other expense, net, for the three months ended September 30, 2023 was composed primarily of environmental remediation charges of $0.3 and pension and postretirement expense of $0.2, partially offset by foreign currency transaction gains of $0.3. Other expense, net, for the nine months en ded September 28, 2024 was composed primarily of a loss of $4.2 related to a change in the estimated fair value of an equity security that we hold, environmental remediation charges of $2.1, pension and postretirement expense of $1.0, foreign currency transaction losses of $0.8, and losses on fixed asset disposals of $0.2, partially offset by income of $1.4 derived from COLI policies. Other income, net, for the nine months ended September 30, 2023 was composed primarily of a gain of (i) $3.6 related to a change in the estimated fair value of an equity security that we hold and (ii) $0.4 related to income derived from COLI policies, partially offset by foreign currency transaction losses of $0.4, pension and postretirement expense of $0.6, and environmental remediation charges of $0.5. Interest Expense, net — Interest expense, net, includes both interest e xpense and interest income. The increase in interest expense, net, during the three and nine months ended September 28, 2024, compared to the respective periods in 2023, was due primarily to higher average debt balances during the 2024 periods, primarily resulting from borrowings associated with the Ingénia, ASPEQ, and TAMCO acquisitions. Refer to Note 12 to the condensed consolidated financial statements for additional details. Income Tax Provision — For the three months ended September 28, 2024, we recorded an income tax provision of $15.1 on $66.0 of pre-tax income from continuing operations, resulting in an effective rate of 22.9%. This compares to an income tax provision for the three months ended September 30, 2023 of $12.4 on $48.1 of pre-tax income from continuing operations, resulting in an effective rate of 25.8%. The most significant items impacting the income tax provision for the third quarters of 2024 and 2023 were $0.7 of tax benefits in 2024 resulting from increased federal tax credits and $0.8 of foreign withholding tax in 2023. 36 For the nine months ended September 28, 2024, we recorded an income tax provision of $32.2 on $177.5 of pre-tax income from continuing operations, resulting in effective rate of 18.1%. This compares to an income tax provision for the nine months ended September 30, 2023 of $31.5 on $144.6 of pre-tax income from continuing operations, resulting in an effective rate of 21.8%. The most significant items impacting the income tax provision during the first nine months of 2024 and 2023 were (i) $10.8 and $1.7, respectively, of excess tax benefits resulting from stock-based compensation awards that vested and/or were exercised during the periods, (ii) $0.7 of tax benefits in 2024 resulting from increased federal tax credits, and (iii) $0.5 of tax provision and $1.2 of tax benefit, respectively, related to revisions to liabilities for uncertain tax positions. In addition, the 2023 rate was favorably impacted by a tax benefit of $1.8 related to the release of valuation allowances recognized against certain deferred tax assets, as we now expect these deferred tax assets to be realized. RESULTS OF REPORTABLE SEGMENTS The following information should be read in conjunction with our condensed consolidated financial statements and related notes. These results exclude the operating results of discontinued operations for all periods presented. See Note 6 to our condensed consolidated financial statements for a description of our reportable segments. Non-GAAP Measures — Throughout the following discussion of segment results, we use “organic revenue” growth (decline) to facilitate explanation of the operating performance of our segments. Organic revenue growth (decline) is a non-GAAP financial measure and is not a substitute for revenue growth (decline). Refer to the explanation of this measure and purpose of use by management under “Results of Continuing Operations—Non-GAAP Measures.” HVAC Reportable Segment Three months ended Nine months ended September 28, 2024 September 30, 2023 % Change September 28, 2024 September 30, 2023 % Change Revenues $ 335.3 $ 289.2 15.9 $ 994.2 $ 809.8 22.8 Income 80.0 58.3 37.2 232.1 161.2 44.0 % of revenues 23.9 % 20.2 % 23.3 % 19.9 % Components of revenue increase: Organic 9.0 8.5 Foreign currency 0.1 — Acquisition 6.8 14.3 Net revenue increase 15.9 22.8 Revenues — For the three months ended September 28, 2024, the increase in revenues, compared to the respective period in 2023, was due primarily to organic revenue growth as well as inorganic revenue growth resulting from the Ingénia acquisition. The organic revenue growth was due primarily to increased volume of cooling products driven by continued strength in demand and higher throughput resulting from expanded production capacity. For the nine months ended September 28, 2024, the increase in revenues, compared to the respective period in 2023, was due primarily to (i) inorganic revenue growth resulting from the Ingénia, ASPEQ, and TAMCO acquisitions and (ii) organic revenue growth. The organic revenue growth was due primarily to (i) increased volume of cooling products driven by continued strength in demand and higher throughput resulting from expanded production capacity and (ii) execution of a larger-than-typical service project. These increases were partially offset by organic revenue declines within heating products due primarily to (i) the unseasonably warm winter conditions prevalent in the relevant end markets during the first quarter of 2024 and (ii) higher volumes during the first quarter of 2023 that were supported by elevated backlog resulting from the effects of the COVID-19 pandemic. Income — For the three and nine months ended September 28, 2024, the increase in income and margin, compared to the respective periods in 2023, was due primarily to the revenue growth mentioned above and associated operating leverage, as well as the impact of continuous improvement initiatives, partially offset by increases in personnel costs due to annual merit increases and growth-related headcount additions. Backlog — The segment had backlog of $437.7 and $338.2 as of September 28, 2024 and September 30, 2023, respectively. Backlog associated with the Ingénia acquisition totaled $136.4 as of September 28, 2024. 37 Detection and Measurement Reportable Segment Three months ended Nine months ended September 28, 2024 September 30, 2023 % Change September 28, 2024 September 30, 2023 % Change Revenues $ 148.4 $ 159.5 (7.0) $ 456.0 $ 462.0 (1.3) Income 33.8 33.3 1.5 99.1 89.2 11.1 % of revenues 22.8 % 20.9 % 21.7 % 19.3 % Components of revenue increase (decrease): Organic (7.8) (1.6) Foreign currency 0.8 0.3 Acquisitions — — Net revenue decrease (7.0) (1.3) Revenues — For the three and nine months ended September 28, 2024, the decrease in revenues, compared to the respective period in 2023, was due primarily to an organic revenue decline. The organic revenue decline for the three and nine months ended was primarily driven by lower large project volume within our communication technologies business associated with a larger-than-typical project that executed throughout 2023 and completed in the first quarter of 2024. In addition, the organic revenue decline for the nine months ended was impacted by modestly lower global demand for location and inspection products. For the three and nine months ended, these declines were partially offset by higher project volumes at our transportation and aids to navigation businesses, in which volume can vary from period to period based on project execution timing. Income — For the three and nine months ended September 28, 2024, the increase in income and margin, compared to the respective periods in 2023, was due primarily to (i) increased volume and a more favorable project mix within our transportation and aids to navigation businesses and (ii) the impact of continuous improvement initiatives. These increases were partially offset by the reduction in income associated with the volume declines from the larger-than-typical project within our communications technologies business mentioned above. Backlog — The segment had bac klog of $193.5 and $233.6 as of September 28, 2024 and September 30, 2023, respectively. CORPORATE AND OTHER EXPENSES Three months ended Nine months ended September 28, 2024 September 30, 2023 % Change September 28, 2024 September 30, 2023 % Change Total consolidated revenues $ 483.7 $ 448.7 7.8 $ 1,450.2 $ 1,271.8 14.0 Corporate expense 12.4 13.0 (4.6) 38.3 44.2 (13.3) % of revenues 2.6 % 2.9 % 2.6 % 3.5 % Long-term incentive compensation expense 4.0 3.4 17.6 11.0 10.0 10.0 Corporate Expense — Corporate expense generally relates to the personnel and general operating costs of our corporate headquarters based in Charlotte, North Carolina. The decrease in corporate expense during the three months ended September 28, 2024, compared to the respective period in 2023, was due primarily to a reduction in costs incurred for professional services. The decline in corporate expense during the nine months ended September 28, 2024, compared to the respective period in 2023, was due primarily to (i) lower expense related to various strategic and acquisition-related costs of $3.3, largely driven by the ASPEQ and TAMCO acquisitions in 2023, partially offset by expense incurred for the Ingénia acquisition in 2024, (ii) a reduction in short-term incentive compensation expense, and (iii) a reduction in costs incurred for professional services. These declines were partially offset by annual personnel merit increases. Long-Term Incentive Compensation Expense — Long-term incentive compensation expense represents our consolidated expense, which we do not allocate for segment reporting purposes. 38 LIQUIDITY AND FINANCIAL CONDITION Listed below are the cash flows from (used in) operating, investing, and financing activities and discontinued operations, as well as the net change in cash and equivalents for the nine months ended September 28, 2024 and September 30, 2023. Nine months ended September 28, 2024 September 30, 2023 Continuing operations: Cash flows from operating activities $ 146.4 $ 120.0 Cash flows used in investing activities (277.3) (561.2) Cash flows from financing activities 176.9 425.1 Cash flows used in discontinued operations (27.0) (38.0) Change in cash and equivalents due to changes in foreign currency exchange rates 5.5 (1.0) Net change in cash and equivalents $ 24.5 $ (55.1) Operating Activities — Th e increase in c ash flows from operating activities for the nine months ended September 28, 2024, compared to the nine months ended September 30, 2023, was due primar ily to cash inflows resulting from the increase in operating income discussed previously, exclusive of the non-cash expenses (primarily intangible asset amortization and depreciation expense) incurred during the respective periods, and reductions in the level of elevated purchases of raw materials and components during the 2024 period due to stabilization of the supply chain environment. These impacts were primarily offset by (i) decreases in cash flows at certain of our project-related businesses, as cash flows for these businesses are often subject to contract milestones that can impact the timing of cash flows from period to period, (ii) additional interest payments of $16.7 due to higher average debt balances resulting from borrowings associated with the Ingénia, ASPEQ, and TAMCO acquisitions, (iii) $11.9 in additional short-term incentive compensation payments, (iv) a payment, during the first quarter of 2024, related to the resolution of a dispute with a former representative at one of our businesses within the Detection and Measurement reportable segment of $9.0, and (v) payment of $8.4 associated with a settlement for additional contingent consideration to the seller of ULC mentioned above. Investing Activities — Cash flows used in investing activities of continuing operations for the nine months ended September 28, 2024 were comprised of net cash utilized in the acquisition of Ingénia of $292.0 and capital expenditures of $28.2, partially offset by net proceeds from COLI policies of $42.9, inclusive of borrowings of $41.2 against the cash surrender value of these COLI policies. See Note 12 to the condensed consolidated financial statements for additional details. Cash flows used in investing activities of continuing operations for the nine months ended September 30, 2023 were comprised of net cash utilized in the acquisitions of TAMCO and ASPEQ of $547.3 and capital expenditures of $16.5, partially offset by proceeds from COLI policies of $2.6. Financing Activities — Cash flows from financing activities of continuing operations for the nine months ended September 28, 2024 were comprised of (i) net borrowings under the Credit Agreement and trade receivables financing arrangement of $148.2 and $31.0, respectively, primarily in connection with the Ingénia acquisition, (ii) fees paid in connection with the August 30, 2024 amendment of our Credit Agreement, and (iii) net repayments under our other various debt instruments of $0.8. These net borrowings were partially offset by minimum tax withholdings paid on behalf of employees related to long-term incentive awards, net of proceeds from options exercised, of $1.1. Cash flows from financing activities of continuing operations for the nine months ended September 30, 2023 were comprised of net borrowings under the Credit Agreement and trade receivables financing arrangement of $396.3 and $32.0, respectively, primarily in connection with the TAMCO and ASPEQ acquisitions. These borrowings were partially offset by minimum withholdings paid on behalf of employees on long-term incentive awards, net of proceeds from options exercised, of $1.5, and fees paid in connection with the Incremental Term Loan of $1.3. Net repayments under our other various debt instruments totaled $0.4. Discontinued Operations — Cash flows used in discontinued operations for the nine months ended September 28, 2024 relate primarily to the final payment under the Settlement Agreement of $25.1 (net of the cash received upon maturation of the related foreign currency forward contracts of $2.0) to MHI and disbursements for liabilities retained in connection with previous dispositions. Cash flows used in discontinued operations for the nine months ended September 30, 2023 relate primarily to (i) cash payments of $25.3 made by DBT to MHI during the three months ended September 30, 2023 in connection with the Settlement Agreement, (ii) disbursements of $14.5 for professional fees and support costs incurred principally in connection with the claims resolved by the Settlement Agreement, and (iii) local taxes of $3.8 paid in South Africa, which we subsequently 39 recovered during the fourth quarter of 2023, partially offset by the recovery of legal costs we were awarded in arbitration proceedings between DBT and MHI of $6.8. Refer to Notes 3 and 15 to the condensed consolidated financial statements for additional details related to the Settlement Agreement. Change in Cash and Equivalents due to Changes in Foreign Currency Exchange Rate s — Changes in foreign currency exchange rates did not have a significant impact on our cash and equivalents during the first nine months of 2024 and 2023. Borrowings and Availability Borrowings — The following summarizes our debt activity (both current and non-current) for the nine months ended September 28, 2024: December 31, 2023 Borrowings Repayments Other (5) September 28, 2024 Revolving loans (1) $ — $ 610.2 $ (455.2) $ — $ 155.0 Term loans (2) 539.9 — (6.8) 0.4 533.5 Trade receivables financing arrangement (3) 16.0 217.0 (186.0) — 47.0 Other indebtedness (4) 2.4 0.1 (0.9) 0.7 2.3 Total debt 558.3 $ 827.3 $ (648.9) $ 1.1 737.8 Less: short-term debt 17.9 48.4 Less: current maturities of long-term debt 17.3 24.2 Total long-term debt, net $ 523.1 $ 665.2 ___________________________ (1) The revolving credit facility extends through August 2027 under the terms of the Credit Agreement and is primarily used to provide liquidity for funding acquisitions, including related fees and expenses, and was utilized as the primary funding mechanism for the Ingénia acquisition. (2) The term loans are repayable in quarterly installments equal to 0.625% of the initial balances of $545.0, in each of the first three quarters of 2024, and 1.25% during the fourth quarter of 2024, all quarters of 2025 and 2026, and the first two quarters of 2027. The remaining balances are payable in full on August 12, 2027. Balances are net of unamortized debt issuance costs of $1.3 and $1.7 at September 28, 2024 and December 31, 2023, respectively. (3) Under this arrangement, we can borrow, on a continuous basis, up to $100.0, as available. Borrowings under this arrangement are collateralized by eligible trade receivables of certain of our businesses. At September 28, 2024, we had $17.5 of available borrowing capacity under this facility after giving effect to outstanding borrowings of $47.0. (4) Primarily includes balances under a purchase card program of $1.4 and $1.9 and finance lease obligations of $0.9 and $0.5 at September 28, 2024 and December 31, 2023, respectively. The purchase card program allows for payment beyond the normal payment terms for goods and services acquired under the program. As this arrangement extends the payment of these purchases beyond their normal payment terms through third-party lending institutions, we have classified these amounts as short-term debt. (5) “Other” includes the amortization of debt issuance costs associated with the term loans. Senior Credit Facilities A detailed description of our senior credit facilities is included in our 2023 Annual Report on Form 10-K. On August 30, 2024, we entered into a Second Amendment to the Amended and Restated Credit Agreement and Incremental Facility Activation Notice (the “Second Amendment”) with Bank of America, N.A., as administrative agent (the “Administrative Agent”), the lenders party thereto, and certain domestic subsidiaries of the Company, as guarantors, which amends the Amended and Restated Credit Agreement, dated as of August 12, 2022 (as amended, the “Credit Agreement”) with the lenders party thereto, Deutsche Bank AG, as foreign trade facility agent, and the Administrative Agent. The Second Amendment increases the aggregate revolving credit commitments under the Credit Agreement from $500.0 to $1,000.0 and makes certain conforming changes and other amendments to the Credit Agreement. We expect to utilize the increased revolving credit capacity to finance, in part, permitted acquisitions, to pay related fees, costs and expenses and for other lawful corporate purposes. In connection with the Second Amendment, we recorded $2.6 of debt issuance costs classified within “Other assets” on the condensed consolidated balance sheet as of September 28, 2024. At September 28, 2024, we were in compliance with all covenants of the Credit Agreement. Availability — At September 28, 2024, we h ad $834.0 of available borrowing capacity under our revolving credit facilities, after giving effect to borrowings under the domestic revolving loan facilities of $155.0 and $11.0 reserved for outstanding letters of credit. In addition, at September 28, 2024, we had $8.9 of available issuance capacity under our foreign credit instrument facilities after giving effect to $16.1 reserved for outstanding letters of credit. 40 Financing instruments may be used from time to time including, but not limited to, public and private debt and equity offerings, operating leases, finance leases and securitizations. We expect that we will continue to access these markets as appropriate to maintain liquidity and to provide sources of funds for general corporate purposes, acquisitions or to refinance existing debt. Other Borrowings and Financing Activities During the third quarter of 2024, we renewed, and increased the capacity of, our trade receivables financing agreement for the next 12 months, whereby we can borrow, on a continuous basis, up to $100.0, as available. Company-owned Life Insurance The Company has investments in COLI policies, which are recorded at their cash surrender value at each balance sheet date. Changes in the cash surrender value during the period are recorded as a gain or loss within “Other income (expense), net” within our condensed consolidated statements of operations. The Company has the ability to borrow against a portion of its investment in the COLI policies as an additional source of liquidity. During the first nine months of 2024, the Company borrowed $41.2 against the cash surrender value of these COLI policies. Such borrowings were used primarily to pay down amounts payable under the revolving credit facility. The amounts borrowed incur interest at a rate of 5.3%. The cash surrender value of the Company’s investments in COLI assets, net of the aforementioned borrowing, was $34.0 and $76.7 at September 28, 2024 and December 31, 2023, respectively, recorded in “Other assets” on the condensed consolidated balance sheets. See Note 12 to the condensed consolidated financial statements for additional information. Concentrations of Credit Risk Financial instruments that potentially subject us to significant concentrations of credit risk consist of cash and equivalents, trade accounts receivable, COLI policies, and interest rate swap and foreign currency forward contracts. These financial instruments, other than trade accounts receivable, are placed with high-quality financial institutions. We periodically evaluate the credit standing of these financial institutions. We maintain cash levels in bank accounts that, at times, may exceed federally-insured limits. We have not experienced, and believe we are not exposed to, significant risk of loss in these accounts. We have credit loss exposure in the event of nonperformance by counterparties to the above financial instruments, but have no other off-balance-sheet credit risk of accounting loss. We anticipate, however, that counterparties will be able to fully satisfy their obligations under the contracts. We do not obtain collateral or other security to support financial instruments subject to credit risk, but we do monitor the credit standing of counterparties. Concentrations of credit risk arising from trade accounts receivable are due to selling to customers in a particular industry. Credit risks are mitigated by performing ongoing credit evaluations of our customers’ financial conditions and obtaining collateral, advance payments, or other security when appropriate. No one customer, or group of customers that to our knowledge are under common control, accounted for more than 10% of our revenues for any period presented. Other Matters Contractual Obligations — Other than items discussed in the borrowings and availability section above, and new operating leases referenced in Note 5 to the condensed consolidated financial statements, there have been no material changes in the amounts of our contractual obligations from those disclosed in our 2023 Annual Report on Form 10-K. Our total net liabilities for unrecognized tax benefits including interest were $4.0 as of September 28, 2024. Based on the outcome of certain examinations or as a result of the expiration of statutes of limitations for certain jurisdictions, we do not believe that within the next 12 months our previously unrecognized tax benefits will decrease by a material amount. Contingencies and Other Matters — Numerous claims, complaints and proceedings arising in the ordinary course of business have been asserted or are pending against us or certain of our subsidiaries (collectively, “claims”). These claims relate to litigation matters (e.g., contracts, intellectual property, and competitive claims), environmental matters, claims for contingent consideration on prior acquisitions, product liability matters, and other risk management matters (e.g., general liability, automobile, and workers’ compensation claims). Additionally, we may become subject to other claims of which we are currently unaware, which may be significant, or the claims of which we are aware may result in our incurring significantly greater loss than we anticipate. We accrue for these contingencies when we believe a liability is probable and can be reasonably estimated. As events change and resolutions occur, these accruals may be adjusted and could differ materially from amounts originally estimated. See Note 15 to the condensed consolidated financial statements for a further discussion of contingencies and other matters. 41 Our Certificate of Incorporation provides that we shall indemnify our officers and directors to the fullest extent permitted by the Delaware General Corporation Law for any personal liability in connection with their employment or service with us. While we maintain insurance for this type of liability, the liability could exceed the amount of the insurance coverage. In addition, you should read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Other Matters” herein, and “Risk Factors” in our 2023 Annual Report on Form 10-K, as well as similar sections in any future filings for an understanding of the risks, uncertainties, and trends facing our businesses. Critical Accounting Policies and Use of Estimates The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. The accounting policies that we believe are most critical to the portrayal of our financial condition and results of operations, and that require our most difficult, subjective or complex judgments in estimating the effect of inherent uncertainties are discussed in our 2023 Annual Report on Form 10-K , the discussion within which is incorporated herein by reference . We have affected no material change in either our critical accounting policies or use of estimates since the filing of our 2023 Annual Report on Form 10-K. 42 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk Management does not believe our exposure to market risk has significantly changed since December 31, 2023 and does not believe that such risks will result in significant adverse impacts to our financial condition, results of operations or cash flows.