All right, I think the doors are all closed now. So we're at the one o'clock session here with SPX Technologies. My name is Chirag Patel. I cover machinery and HVAC here at Jefferies, along with Steve Volkmann. It's our pleasure to introduce Gene Lowe, President and CEO, and then Mark Carano?
Carano.
Carano. I did that twice now already. My fault.
It's all right.
The CFO, and then, Mr. Paul Clegg in the Vice President of Investor Relations to keep everyone on track here. Just really quick here, the company was put together here in 2015, September 2015, off of a spin, and since then, they've really reshaped the company. And you can see it reflected in the stock price. That's up almost six times here at this point. So they've developed a reputation of being a compounder, having done 13 acquisitions in HVAC and detection and measurement segments, and so. And then also have divested about $1 billion in revenues.
So with that, I will kind of — that's where we are today into 2023, and then I'll give it to Gene to go through the presentation, and we'll do Q&A at the end. There's a mic that'll be floating around as well, guys. Thanks.
Thank you. Appreciate that. So let's get started today. I'm gonna give you a little bit of an overview of SPX Technologies. We've been a standalone company about eight years, about where we are and where we're going. Then we're gonna open up. If there's any Q&A, we'd be glad to answer any questions. Now, let's see here. Advancing the slide. Is there a different one? Is that the one, Mark?
No, that's the mic, I think, or recorder. No.
Okay.
Here we go.
All right. I think that's our last slide. Why don't we go to the first slide here, and let's see if I can move this forward. There we go. Perfect. Thank you. So a little bit about us. This is a profile. We're geographically predominantly in North America, about 85% of our revenue. See about 10% Europe and Africa, and about 5% Asia. Really two segments. We're about $1.75 billion. We're based out of Charlotte, and I'll give you a little more information on who we are and what we do. I'll start with our value creation framework. This is how we drive value across the enterprise. What we do is focus on growth. We spend a tremendous amount of time on organic growth. That's product management, new products, new channels, commercial excellence.
Inorganic growth, we've done 13 acquisitions over the past five years. We'll talk a little bit about how we've built out our platforms. We have a very robust business system. This is how we drive lean across the enterprise, this is how we drive digital across the enterprise, and this is an area that we think gives us a real unique area of competitive advantage. And lastly, probably most importantly, is our talent. We have really great talent here, and we have really great talent programs at all areas of the company, from the executive leadership team, to the middle management, to the first-time management, to also the individual contributors, and it's an area that we've spent a lot of time on, and I think we've had a lot of success. You can see here what defines us.
What we are is engineered products in niche markets with leadership positions. That is who we are. That's what defines us across our portfolio. So if you look at it, here are our businesses. You can see that we're approximately $1.1 billion in HVAC, this segment, really broken down between cooling and heating. You can see some of our trade brands there that we use in the markets that we serve. If you look at detection and measurement, we're about $600 million, and again, 4 platforms that we operate within detection and measurement. And again, what defines us: premium engineered niches, technology innovation focus. We are leaders in approximately 90% of the business that we serve. We're number one or number two in the markets that we serve.
Because of that, we have a very high install base, and we have a very high replacement revenue. So replacement revenue is more than two-thirds of our company, so we really like that revenue stream. Most of our markets are very spec-driven. We jokingly say about our company, our life's in the hands of 26-year-old engineers, because that's who specifies our products. And so when we think about how we operate the company and how we set up digital tools to win in the market, we keep that very much in the back of our mind, and we take that very seriously. Last thing I'd say is we're very capital light. Maybe 1% of our revenue is, on average, CapEx, and we would say we're less cyclical than most industrial tech companies.
So again, here's a framework for how we operate. We spend a lot of time on organic growth, CI, talent, and digital. These are our initiatives that we drive across the enterprise. You can see how we've done M&A. We've done 13 deals over the past five years. The average price has been $98 million per deal. These have been, on average, 20% EBITDA before synergy, and at a multiple of 10.6x. Now, that's before synergy. Post synergy, we're around 8.5–9x in terms of the multiples of the acquired companies. These are very good businesses. These are businesses that are accretive to us on the margin side, but also accretive to us on the growth side, and we really are very excited about the platforms that we've built today.
This will give a little bit of feel of how we've progressed over time. We spun as a separate company in 2015. At that time, the bulk of our business was power. It's not shown on this chart, but in 2016, we had $1 billion of power and $700 million of HVAC and detection and measurement. To cut to the punchline, we did not see attractive returns in power, so we ultimately divested all of our power businesses. So that took several years, but that was all eliminated. If you look at the HVAC and detection and measurement businesses, you can see our progression over time. So we started at $700 million, we're at $1.74 billion this year.
So we've had a compound annual growth rate in our HVAC segment of 10% a year, and we've had a compound annual growth rate in our detection and measurement segment of 15% a year. Now, that is a combination of organic and inorganic. We actually believe our organic is more typically a 4%–5%, which you should convert to the bottom line by doubling it. One of the things that is out there are our 2025 targets, and really, we put our 2025 targets out there in 2021. The reason is because we divested the last portion of our power business. This is the power transformers business. We divested this to Prolec GE, and as a result, we really shrunk the business. So we were about $1.007 billion, we went back to $1.2 billion.
What we said is we were gonna get back to $2 billion, 40% gross margin, 20% segment income margin, and $5 of EPS, and we're tracking very nicely to this. So you can see where we are today. We've already achieved our segment income, our operating income, and our growth targets, and we believe we're very well positioned to achieve the rest of our targets. Because of this, we're probably gonna be updating our targets because we've advanced faster than we had anticipated. I would say in Q1 of this year, we'll report our 2023 results, we'll give our 2024 guidance, and we'll give our updated long-term planning framework.
To give a little bit of color about how we build our platforms and what type of businesses we have within our company, I'll start with the cooling segment. So the cooling tower is a really important part of our business. We invented the cooling tower, so every cooling tower in the world comes from us. Marley is a, I would say, a very prestigious brand in the cooling tower business. It's based out of Kansas City, and it's a business that's done very, very well over the years. We actually think there's a lot of opportunities to continue to build this platform. By the way, this Marley hit its 100-year anniversary 2 years ago. So just to give some context of how long we have been in this market.
Some examples of how we've built out this platform, the first would be the acquisition of SGS, which is really giving us industrial refrigeration products. This would be on cold storage areas, been a very nice acquisition for us. The other thing I would say that we're very excited about is what we call our Engineered Air Movement. So if you think about what a cooling tower is, a cooling tower is air movement and heat exchange. And if you think about what engineered air movement is, it's air movement. It's very similar R&D, very similar capabilities. We don't make a single cooling tower to stock. Every single one of these is unique for the application. The bulk of our products are engineered products. Cincinnati Fan is very similar. They do blowers in very similar end markets.
So by acquiring Cincinnati Fan, we have an adjacent product that we can push through our rep network, and we see very attractive synergies on the R&D side and the commercial side. It has been a very good acquisition for us. We actually think it's a great opportunity for a lot of future growth, looking ahead. Most recently, we did TAMCO. Again, that's another air movement product category within our EAM. And again, this putting this together puts us a little bit north of $660 million. These margins for these products are in the 20% range. You could see our HVAC segment is at 20% this year. To start with HVAC, actually, the second portion of our HVAC segment is our heating business. So to start with Weil-McLain, we're a leader in hydronics in North America.
Weil-McLain has the largest install base in North America. We have a great portfolio of products in high efficiency and standard efficiency. We extended our product offering in high-efficiency commercial boilers with the acquisition of Patterson-Kelley. We already had a really good set of products that gave us some really nice access to the engineers, very similar to our cooling business. The other side of the business here is a very good business that has really nice drivers going forward due to decarbonization, is electric heat. We have a very strong position with our Marley electric heat business. This would typically be auxiliary heat that you see in a hospital or a commercial building, where it's not the main heat source, but it's the heat source around that the main heat source can't get to. We have a very strong spec position there.
Aspeq has been our number one target since the spin for eight years, and we're very pleased to add Aspeq to our portfolio. So you put this together, we have about $500 million of hydronics and electric heating serving the heating business. We also think there's a lot of growth here, particularly in the electric heatings business, where there's a lot of fragmentation, and we believe we're a natural consolidator here. Talk a little bit about some of the things that we are doing. We spend a lot of time on innovation, and I would say in most of the markets we serve, not all, but most of the markets we serve, we are the most innovative company that's playing in that market.
For example, in cooling towers, our Marley Everest cooling tower is the largest tonnage cooling tower on the planet, and it has opened up new markets for us and yielded some really impressive growth. That's been a key contributing factor for why our cooling business has grown so fast. Radiodetection, that's in our location and inspection platform. That is the scanning of underground before you dig. We are the global leader in scanning underground before you dig. That's in North America, that's in Europe, that's in China. A very good business for us and one that we've built out over time. You're seeing software become an increasingly important part of what we do. If you take our detection and measurement businesses, every single one of our products comes with software as a part of it.
That software is really important 'cause it really makes the customer relationship sticky, and it really creates, moats or real high switching costs for customers who put this software into their, into their business processes. So a really important part of our business. We, we do a lot of robotics. Our CUES robotics business is the leading robotics business in managing water and wastewater infrastructure in the U.S. And AI is a nascent area, but one that we already have a number of products that is, that are getting traction in the market. You can see some of the M&A, and we also do a lot of stuff on channel and CI. We have lean operators in every one of our business areas, and it's something that we've built into our business system and how we operate, soup to nuts.
ESG, it's very important to be sustainable, and I think that one of the things, we've always had a great portfolio that has a very good ESG story. We haven't always done a good job of telling the story. Our products, our cooling business significantly helps you lower emissions, lower carbon, use less electricity. Our products help safety, they help clean water, they help clean energy. Our products are very well positioned in a Paris Accord world. If you look at how we make it, we take diversity and inclusion very seriously. We take CI very seriously. We're very focused on minimizing waste. Our recycling is built into how we operate, and I think this is an area that we've seen a lot of activity on, and we're getting a little bit better at communicating this.
We will be publishing our 2022 sustainability report here, I believe, in the next week or so, and we've made very nice progress against our targets that we've committed to in carbon reduction. The last thing I'll say here is we have a very nice portfolio of businesses. We have some very nice end market drivers of our businesses. Our business system is what defines us. It's how we operate the business, beginning to end. And not only do we operate our existing businesses, but companies that come into our portfolio, we operate with the business system, and that's really how we extract a lot of value. And we generate a lot of cash. So we typically operate at a 1.5x-2.5x times net debt to EBITDA.
We expect to be a little bit below 1.5 times by the end of the year, so, you know, largely in range with our normal expectations. Our businesses generate a ton of cash. We've generated around 100% of net income over the prior 6 years. I would say last year was an exception, where we had some supply chain. We added some inventory to supply chain, but in general, we should be at a 95% plus cash conversion, and we're a capital light business. Our CapEx is typically 1% of revenue. We're a little bit accelerated this year because we're making some strategic investments, so our CapEx this year is more in the neighborhood of 1.5 times. So with that, I'd be glad to open it up to questions. Would you?
So I'll help you start off here. I guess, the first kind of question that I had is just, if we're thinking about the idea of where infrastructure spending is going and those kinds of dynamics, how are you guys positioned, and what kind of opportunities do you see?
Yeah, no, it's a great question, and we're actually seeing in a number of areas. I think this is something that we've seen some areas that have benefited to date, but we also see some areas that are gonna benefit over the next several years. I would say that some of the areas that we've seen most impactful today would be on the cooling side, some of the semiconductor programs. We have very good success with some of the large semiconductor OEMs. And then I would say in the transportation platform, we've seen some nice success. Mark, do you wanna give a little more color on where we see some of the opportunities in the rest of the portfolio?
Yeah, sure, Gene. I think, you know, as we think about the government spending that's been authorized and is really just starting to show up in the economy generally. To give you another example that's out there, think about our Aids to Navigation business. This is our lighting business. When you think about wind farms and some of the funding that's gonna be supported by the IRA program to build these across the U.S., whether it's onshore or offshore, every one of those is gonna require a lighting package, a modem, and a monitoring system. So there's a perfect example of an area where we should benefit from that. That's probably a year or two away, quite frankly.
But as you think about the dollars that'll be leaking out, we should benefit really across the enterprise, at different times, over the next number of years.
I guess the other one thing that I had on my agenda here was just on the reshoring benefits. Can you talk a little bit about if this is just a phase or if this is a long-term opportunity still?
It's a good question. We're seeing a lot of activity in light industrial. Some of it is more structural and more repeatable. For example, data centers. We are very strong in data centers. We have seen data centers accelerate. That's become a bigger portion of our business. Talk about electrification. We have won a number of electric car facilities, battery facilities, where they have cooling requirements. We believe we're very well positioned. That is more sustainable. Same with semiconductors, where semiconductors are built. That's a growing market. There's gonna be additional capacity added. I think your question is, if there is... Are people relocating from China, for example, to North America? That is some portion of the demand. I don't think it is the I think that's relatively, from what I'm seeing, a more smaller portion of the demand.
Most of the demand is being driven by those that we think are not one-off in nature. They're more sustainable, economic areas that are gonna continue on their normal growth path into the future. And Mark, I don't know if you have any comments like that?
Yeah. No, I think you're right. I mean, you do, you do look at some of these broader trends. Take the automotive and the EV market, right? There's a giant kind of shift in the supply chain. More and more of it is moving to the U.S. It's actually a lot of it's moving into the Southern U.S. So whether that's just the battery side of it or all the other components that go into that supply chain, more of it's moving to the United States. So you're seeing reshoring around some of these broader trends, and I suspect you'll see it elsewhere, you know, over the coming years.
All right. And so then in that case, the other question I had was just on the margin opportunities. We've talked about the HVAC and the big uptick there. One, is that sustainable? And then two, what are some of the other levers to be pulled here?
Yeah, that's a good, good question. Just for those of you who are somewhat unfamiliar to our story, our margin targets have historically been 15%–16% in HVAC, 22-24 in detection and measurement. Our last quarter, we raised our targets for HVAC to 18%–20%, and we've communicated guidance of 20% for our HVAC segment this year. A very common question we are getting: Is that sustainable? We do believe it's sustainable. We would not have raised that unless we thought it was sustainable over the cycle. We've actually had a lot of things going on over the past couple of years in terms of how we've leaned our facilities.
We've made some investments in automation, that have taken a good amount of labor out, a good amount of waste out, and you are seeing it really manifest in this year's numbers. Last year was a choppy year because a lot of the supply chain issues or some labor issues, those types of things add cost to an operation. You've got to double-touch something. You're waiting for one component. You have to put your equipment over here. We're largely through all of that, and you're really seeing it manifest itself in the results. The other thing I would say is we've done 2 acquisitions this year. Those will add about 100 basis points. Those are accretive in terms of margins, accretive in terms of growth rates, so that is a contributing factor as well.
So net-net, we have raised our targets quite a bit on HVAC, and we feel very good about that. We see a lot of runway there. On the detection and measurement side, I'd say we're a little bit at a light year. We're at about 20% segment income this year. We should really be about 21%. There's a few headwinds we have. We have a mix issue with some pass-through content on one of our CommTech projects. Really good business, but the pass-through content comes in through at a lower margin. We will not see that next year. So, I actually believe that 22%–24% is the right target. I think you will see improvement next year, and I do think we will get to those margin targets on the detection and measurement side.
If you look at it blended at a company level right now, our segment incomes are about 20%.
Then just on the acquisition side and the M&A side, what's your capacity to take on additional opportunities here? You said that the leverage ratio is already gonna be trending below 1.5 as we go forward here. And where do you find white space to kind of still go into? Are there pockets of your portfolio that you're kind of targeting more than others?
Yeah, I'll start with that, and then, Mark, you can jump on in.
Sure.
I'll start with where we see the opportunities. So if you take the HVAC side, on the cooling side, it's a fairly consolidated market.
Mm-hmm.
There's really two other private competitors, so it's unlikely to have core consolidation in that market. The areas that we really like, that we see a lot of runway for growth, would be Engineered Air Movement, where we believe we can be a leader in that market, and then on the electrical heat, where we've always been a leader, but with the combination with Aspeq, we have a really strong competitive position. So on the HVAC side, we see some very attractive opportunities. On the detection and measurement side, location and inspection's about half of our business. That's grown quite a bit. That's grown from $90 million to around $260 million. We actually think there's a lot of runway to continue to grow that going forward. Very strong business, great relationships with our customers, global business. We see some nice opportunities there.
Our second biggest business, AtoN, I'd say is a very good business, but we're in the process of integrating. I would say it's probably unlikely over the next 12-18 months, because we have a lot of execution on our integration activities there. And then our two smaller platforms, transportation and CommTech, we actually see some very attractive opportunities. So on the strategic side, we see a very frothy pipeline, and we're very excited about on the balance sheet.
Yeah, I think from a capacity perspective, as Gene kind of mentioned earlier, we've targeted a net leverage ratio of kind of 1.5x-2.5 times. So we certainly could go higher than that if we chose to. It'd have to be for really the right acquisition, and it'd have to be truly strategic to us. But so we've got plenty of capacity to support the growth going forward. We expect leverage to be at 1.5 times by the end of the year. And when you think about the size of the transactions that we do, our average transaction size, you know, has been around $100 million over the last 13 years. Certainly, it might be larger than that going forward.
But when you think about the capacity and the access to capital that we have, we've got, we've got the firepower to go ahead and continue to drive the business from that perspective.
Excellent, and I think we're out of time with the final piece. So thank you guys for taking the time to come to the conference.
Thank you.
Thank you.