SPX Technologies - Q2 2024

Transcript

Operator (participant)

Thank you for standing by, and welcome to SPX Technologies' Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press Star one one on your telephone. To remove yourself from the queue, you may press Star one one again. I would now like to hand the call over to Paul Clegg, VP Investor Relations and Communications. Please go ahead.

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 Gene Lowe, our President and Chief Executive Officer, and Mark Carano, our Chief Financial Officer. The press release containing our second quarter results was issued today after market close. You can find the release in our earnings slide presentation, as well as a link to a live webcast of this call in the Investor Relations section of our website at spx.com. I encourage you to review our disclosure and discussion of GAAP results in the press release and to follow along with the slide presentation during our prepared remarks. A replay of the webcast will be available on our website until August 8th. 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 lead to the results of continuing operations only. You can find detailed reconciliations of historical adjusted figures from the respective GAAP measures in the appendix to today's presentation. Our adjusted earnings per share exclude acquisition-related costs, non-service pension items, mark-to-market changes, amortization expense, and other items. Finally, we will be meeting with investors at various events during the third quarter, including the Seaport Virtual Investor Conference on August 21st and the Jefferies Industrial Conference on September 5th in New York. With that, I will turn the call over to Gene.

Gene Lowe (President and CEO)

Thanks, Paul. Good afternoon, everyone, and thank you for joining us. On the call today, we'll provide you with an update on our consolidated and segment results for the second quarter of 2024. We're also once again increasing our guidance for the full year. We had strong results for the quarter. In Q2, our company continued to execute well and drove substantial growth in all of our key profit measures with significant year on year increases in margin. We continue to experience robust demand across key markets and gain momentum in our continuous improvement initiatives. Today, we are raising our full-year 2024 guidance. Our new midpoint reflects year on year growth of 35% in Adjusted EBITDA and 28% in Adjusted EPS. Turning to our high-level results, for the second quarter, we grew revenue by 18.4% and Adjusted EBITDA by 45% year on year, with 400 basis points of margin expansion.

We achieved several firsts in this quarter, including the first quarter since the spin, with revenue in excess of $500 million and with adjusted operating income of more than $100 million. We also achieved our highest post-spin EBITDA and EBITDA margin, which reached $109 million and 21.7%, respectively. As always, I'd like to update you on our value creation efforts during the quarter. In Q2, we had a number of successes with new products. In our cooling business, we received multiple orders and quotes for our newly introduced OlympusV adiabatic unit, which optimizes the balance between power usage and water usage for a number of different cooling applications. In our detection and measurement segment, our location and inspection platform continued to gain traction, converting customers to our new precision locators with instant mapping capabilities. This upgraded product simplifies and speeds up the process of mapping underground utilities.

We also gained further acceptance among utility customers on our cross-bore inspection equipment, which facilitates the location of risk areas between gas and water lines. On the operational front, we are executing well on cross-selling opportunities, allowing our recent acquisitions to leverage our well-established sales channels to expand their market reach. We are further broadening our exposure to robust growth markets such as data centers and healthcare. We also continue to see momentum in our continuous improvement initiatives, including further gains in throughput in our HVAC facilities. Now, I'll turn the call over to Mark to review our financial results.

Mark Carano (CFO)

Thanks, Gene. Q2 was another very strong quarter for SPX Technologies. Year on year, our adjusted EPS grew 34% to $1.42. In addition to our typical adjustments, adjusted earnings this quarter excluded charge for the resolution of a legal dispute. The after-tax impact to adjusted EPS was $0.13 per share. The settlement resolved all litigation related to an earnout payment to the former owner of ULC. For the quarter, total company revenue increased 18.4% year on year. Organically, revenue grew 9%, driven by HVAC, while acquisitions drove a 9.5% increase, and FX was a slight headwind. Consolidated segment income grew by $33.2 million, or 39.3% to $117.6 million, while segment margin increased 360 basis points. For the quarter in our HVAC segment, revenues grew 32.5% year on year.

On an organic basis, revenues increased 17.7%, driven by higher cooling sales, including approximately $20 million from the delivery of a large cooling service project that has no equivalent in the remaining quarters of 2024 or in the prior year period. Acquisitions contributed growth of 15% and included Ingénia in our cooling platform and ASPEQ in our heating platform. The FX impact was nominal. Segment income grew by $28.5 million or 51.6%, while segment margin increased 300 basis points. The increases in segment income and margin were due to acquisitions and operating leverage from higher organic cooling sales, including the benefit of continuous improvement initiatives. Segment backlog at quarter end was $434 million, roughly flat organically from the prior year period. For the quarter in detection and measurement, revenues decreased 6.2% year on year. FX was negligible.

The decrease in revenue was driven largely by lower CommTech sales associated with a large pass-through project delivered during 2023 into Q1 of this year. Year on year segment income grew $4.7 million, and margin increased 450 basis points. We had favorable sales mix in Q2, driven by lower-than-typical margins on the pass-through project delivered in the prior year, as well as a shift in project delivery schedules, which brought forward some higher margin projects into the quarter. Segment income and margin also benefited from efforts to enhance the efficiency of our segment structure, which we expect to continue in the second half. Segment backlog at quarter end was $205 million, down 12% organically from the prior year due to deliveries of the pass-through project. Absent this project, backlog was up mid-single digits. Turning now to our financial position at the end of the quarter.

We ended Q2 with cash of $133 million and total debt of $790 million. Our leverage ratio, as calculated under our bank credit agreement, was 1.6x. We anticipate our leverage ratio declining below the lower end of our target range of 1.5-2.5x by year-end, assuming no additional capital deployment. Adjusted free cash flow for the quarter was approximately $58 million. Moving on to our guidance. We are increasing our guidance for adjusted EPS to a range of $5.45-$5.60, compared with a prior range of $5.15-$5.40. The new midpoint reflects year on year growth of approximately 28%. This guidance update reflects our strong Q2 performance and second-half outlook, particularly on margins. In HVAC, we are increasing revenue guidance by $5 million to reflect stronger cooling volumes and raising margin guidance by 75 basis points to reflect more efficient production and more favorable sales mix.

In detection and measurement, we are raising our outlook for segment income and increasing margin guidance by 75 basis points as we continue our initiative to drive segment margins to historical levels. At a total company level, we anticipate adjusted EBITDA in a range of $410 million-$430 million. At the midpoint, this reflects year on year growth of 35% and a margin of approximately 21%. With respect to second-half gating, in HVAC, as is typical, we expect Q4 to be our highest revenue and margin quarter, while Q3 revenue is anticipated to be modestly down sequentially due to the large cooling service project we called out in Q2. In D&M, we expect higher margin project revenue to be more weighted to Q3 than Q4. As always, you will find modeling considerations in the appendix to our presentation.

I'll now turn the call back over to Gene for a review of our end markets and his closing comments.

Gene Lowe (President and CEO)

Thanks, Mark. Current market conditions support our updated 2024 outlook. Within HVAC, we continue to see strong demand for our cooling products across a broad set of end-market applications, including data centers, healthcare facilities, semiconductor plants, and industrial facilities. In heating, overall demand remains stable, and we're seeing initial traction on climate-conscious solution introductions. In detection and measurement, we continue to experience flattish global demand in our short-cycle business with regional variation, while project orders remain healthy. In summary, I'm very pleased with our Q2 performance. With robust demand and significant operational momentum, we're well-positioned to achieve our updated full-year guidance, which implies 35% growth in adjusted EBITDA. We see multiple opportunities to continue growing our businesses both organically and through our attractive acquisition pipeline. Looking ahead, I remain very excited about our future.

With the right strategy and a highly capable, experienced team, I see significant opportunity to continue driving value for years to come. With that, I'll turn the call back to Paul.

Paul Clegg (VP of Investor Relations and Communications)

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

Operator (participant)

Thank you. As a reminder to ask a question, you will need to press star one one on your telephone. To remove yourself from the question queue, you may press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Ross Sparenblek of William Blair.

Ross Sparenblek (Research Analyst)

Hey, guys.

Gene Lowe (President and CEO)

Hey, Ross.

Mark Carano (CFO)

Hey.

Ross Sparenblek (Research Analyst)

Hey. Congrats on the quarter. Another solid beat and raise here. Maybe just considering the Dodge Index, I know you went through some of the end markets within cooling. Sounds like semis are still strong, but how should we think about commentary coming out of this quarter thus far around weaker utility spend? And also, it sounds like maybe EVs are sliding to the right. I know that's been a decent mix within HVAC cooling power previously. Is there any change in sentiment there?

Gene Lowe (President and CEO)

Yeah, Ross, I think if you look at it, we're actually feeling very good about what we're seeing in our end-market strength. As you know, we're very diverse. We serve a lot of different end markets, but the number of larger markets that are very strong just provide a lot of tailwinds for us. Specifically, data center remains very strong, and we're seeing some nice wins, some nice new customers, and some very nice trends there. Healthcare, pharma has been very strong. We see continued tailwinds there. Institutional is now a very significant portion of our business. You're talking about governments, schools, things like that. We've seen a nice traction there. And then the last two would be industrial and industrial tech. Industrial tech would be, as you'd refer to, things like chip plants, battery plants, EVs.

There will be inconsistent timing on those, but there's still some large orders out there. I think if you look at it across HVAC, we still feel very good about the demand environment that we see in front of us, both for this year, but then also looking ahead to next year as well.

Ross Sparenblek (Research Analyst)

All right. That's very helpful. On Detection and Measurement, this is probably the first time I've heard you guys speak to continuous improvement, just knowing that it is more of a disparate platforms. Can you help us get a sense of what that impact was relative to mix and maybe just gross margin expectations? I know you gave some color on the second half, but any color of that would be great.

Gene Lowe (President and CEO)

Yeah. I'll start out. I think there's been a lot of focus on margins in Detection and Measurement. I'd say John Swann and his team have really done a nice job. I think that the segment strategy is working. We are seeing some leverage in how we develop software, how we do things in a smarter way that really makes us more productive. And you're really seeing that starting to flow through in the numbers. So I would say that if you look at it, virtually all of our platforms within Detection and Measurement, we're seeing very nice progress. It's very good. As you know, there's not as much manufacturing in Detection and Measurement. There's more software and light assembly.

Most of the lean initiatives tend to be, I would say, outside of the facility, more focused on things like value engineering, pushing more throughput through our bidding processes, optimizing our front end, our engineering, and NPI processes. So it's a little bit different because there's less engineering there, but we are seeing some really nice improvement in our supply chain and in our optimization there. But you had a little more, Mark, from your point of view. I know you spent a lot of time on that.

Mark Carano (CFO)

Yeah, Ross. I think as Gene enunciated there, I mean, we've just had really good traction with respect to those efforts. I mean, it's been a key initiative for us as we think about driving margin levels back to kind of 22%-24% level. So a lot of good work on that front. And it's really when you look at the guidance, which you haven't asked that question, but I'm sure someone will go there. You think about the implied margin in our guide for the back half of the year. A lot of that benefit and the reason for that is driven by these initiatives and the expectation that we can drive more value at the margin line for the businesses in D&M.

Ross Sparenblek (Research Analyst)

Got it. So there's nothing really to call out that would imply that incrementals should divert from the healthy levels we saw in the second quarter here?

Paul Clegg (VP of Investor Relations and Communications)

Well, there's a little bit. Sorry, Ross. This is Paul. There are a few moving parts this quarter that may make sense to just take a step back and unpack some of that. A lot of the benefit that you saw in the Q2 margin in D&M was really timing within the year. And so what we're talking about there, we had some projects push into the quarter with higher margin, and then others move out of the quarter that had, let's call it, average margin. And we also had some delayed spending that we do think will catch up on in the second half of the year. Call that $2 million there. But as I said, we've made really good progress here on the initiatives.

If you look at the update in our guidance for the full year, you get an implied increase in segment income of about $3million-$4 million, $3.5 million, let's call it. And that's really the margin initiatives, and that's spread through Q2 and the second half.

Ross Sparenblek (Research Analyst)

Perfect. Thanks, guys.

Paul Clegg (VP of Investor Relations and Communications)

Thank you.

Operator (participant)

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

Bryan Blair (Managing Director and Senior Analyst)

Thank you. Good afternoon, guys.

Gene Lowe (President and CEO)

Hey, Bryan.

Mark Carano (CFO)

Hey.

Another fantastic quarter for HVAC, specifically your cooling platform. So level set, if you're willing to share the detail on profit improvement year on year, how much of the 300 basis point expansion would be attributable to volume, price cost, productivity, and mix of creative deal contribution?

Paul Clegg (VP of Investor Relations and Communications)

Yeah. Bryan, this is Paul. We had kind of three notable drivers of the year-over-year increase of about 300 basis points. The first was really operating leverage on the organic increase. Organically, we were up about 18%. And so that was almost half of the 300 basis points. The acquisitions were the next largest driver, maybe about a third. And then the rest of it was really outperformance on that service project that we mentioned. In terms of cost, it is a benefit. The benefits we're seeing are not as large as we saw a year or so ago, but it was a favorable tailwind that we got caught up in the operating leverage there.

Bryan Blair (Managing Director and Senior Analyst)

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

Gene Lowe (President and CEO)

Yeah. I think overall, Bryan, what I'd say is D&M is steady. It's been flattish on the run rate businesses. And then on the project businesses, I would say it's very healthy. We expect to finish the year with a very strong backlog for D&M, significantly higher, which we think is going to set us up well for 2025 and 2026. But you're right. Radio and our L&I platforms, radio is typically a canary in a coal mine, but radio is holding steady. And actually, we're seeing a few things that are kind of positive there. So we feel good about where radio is. And as a matter of fact, I was just talking to the GM this morning. We're seeing some loosening and some positive signs on Continental Europe, which is pretty small for us, but we're seeing some positive inclinations there.

The second thing would be U.K., I believe, just cut slightly, I believe, quarter a point. You're seeing more activity there. U.K. is a meaningful market for radio detection. I'd say flattish with potentially some positive early signals there.

Bryan Blair (Managing Director and Senior Analyst)

Okay. That's encouraging. I will get back in queue. Thank you.

Gene Lowe (President and CEO)

Thanks, Bryan.

Operator (participant)

Thank you. Our next question comes from the line of Damian Karas of UBS.

Damian Karas (Senior Equity Research Analyst)

Hey. Good evening, everyone. Congrats on the quarter.

Gene Lowe (President and CEO)

Hey, David.

Mark Carano (CFO)

Hey, Damian.

Damian Karas (Senior Equity Research Analyst)

Yeah. Thanks. I wanted to ask you a follow-up on your margins just because the performance has been impressive. You're raising the guidance a few straight quarters, and that's after 300 basis points or so of expansion last year. So I was wondering if maybe you could just kind of hone in a little bit on the execution and where it's been better than expected, any of those initiatives that are really driving kind of the upside margin performance. And how much juice do you think you got left in the tank, Gene?

Mark Carano (CFO)

Hey, Damian. I'll start. I mean, we've talked about this over the last few quarters. As you know, we've been investing a tremendous amount of capital relative to where we've been historically. This year, I think we've targeted $40+ million, and that's close to 2% of revenue. So a good kind of 0.5% above where we've been. And those have been just very strategic investments across the cooling platform in areas where we can drive both incremental throughput, drive efficiencies, as well as reduce labor content. So we're kind of seeing it really across the footprint. That has been ongoing really for 12+ months. We're not through with it. There are more activities and upgrades, if you like, to those facilities that will kind of continue throughout the year. So that's kind of, in a broad stroke, what's really driving it.

I wouldn't suggest that there's one particular change that we made. It's really the combination of all of that. And then you overlay kind of a CI mentality to it as we're thinking about the activities within these plants.

Gene Lowe (President and CEO)

Yeah. And one small thing I would add is, as a reminder, Detection and Measurement, really, our target's always been 22%-24%. We believe that that business should operate there. And it's nice to seeing it get back there and really good work there. The segment that's really changed has been HVAC, which remember, the jumping-off point of the number you're talking about was probably a little bit suppressed due to some of the COVID supply chain, some of the labor challenges. And a lot of the good work that we were doing was hidden at that time, or it was impacted by those other areas. But I think that's where you think we had historically had around a 16% business. And that has structurally changed, as Mark has alluded to, a lot of the investments in productivity, a lot of the growth in demand and the operational leverage.

But also, don't forget about M&A. M&A has added, we think, in the neighborhood over the past two years, you're talking in the neighborhood of 150-200 basis points to that line. And so structurally, we do believe HVAC's a much stronger business unit. Sean and the team have done a phenomenal job over the past couple of years. And we feel good about the future there.

Damian Karas (Senior Equity Research Analyst)

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

Gene Lowe (President and CEO)

Yeah. Just, we are very pleased with these three acquisitions. So there's Ingénia, which we think all three of these businesses are very good businesses, have great value propositions, great competitive positions. And then two of them are also very linked to data centers. And we have seen just some very nice growth. So I think Ingénia, ASPEQ, and TAMCO, as a reminder, Ingénia's air handling, that is very linked to healthcare, pharma. We're in a situation there where we have so much demand for our product. Our focus is on making sure we can expand our capacity fast enough. We are truly capacity constrained there. And a lot of our time and our effort is building and enhancing that because we do believe we have a better solution in the market. We really have a very good product. ASPEQ and TAMCO also are performing at a very solid level.

I think if you look at these three put together, I would say revenue is in the neighborhood of our plans, but we are exceeding in our profit levels. The other thing I would say is not only is there good performance of these individually, but we actually think there's some really nice synergies that we're seeing and we're starting to capture. For example, Ingénia, when you get into the specification of an air handling unit, they can oftentimes influence the downstream specification. For example, they can influence TAMCO as a basis of design. They can also influence our air products, our Strobic product line, which oftentimes will actually get built into the air handling unit. We also get leads for our other product categories because we'll know a hospital's going up here or a pharmaceutical's going up there.

And some of our businesses like Marley Cooling, we have very good coverage. So there's not a lot that we don't see. But being able to get in early and meet the engineers and influence is meaningful. So I'd say that we see some real synergies across the businesses there. They're very synergistic. And I'd say we're still in the early days of capturing that. But I would say we're very pleased with all three of these. And interestingly, we had our biggest year last year where we deployed north of $800 million of capital. So very big for a company our size. And we're going to be materially below our 1.5x by year-end. And so I think it's a testament to our model where we just generate a lot of cash. And it allows us to invest that cash in growth.

And I think last year to this year is a good example of that, as well as I think the prior four years, we've kind of had it rolling. But yeah, we feel good about stepping back a little bit. One of the common questions is, what are you seeing on the M&A front? And I'd say our activity pipeline's healthy. We actually see some very interesting opportunities for growth on our detection and measurement side. The last three were all on our HVAC side. But it's a good, healthy market. And we believe in our strategy. And we're going to continue executing on it.

Bryan Blair (Managing Director and Senior Analyst)

Great color. Thanks. I'll pass it along.

Paul Clegg (VP of Investor Relations and Communications)

Thanks, Damian.

Operator (participant)

Thank you. Our next question comes from the line of Steve Ferrazzani of Sidoti.

Steve Ferrazzani (Analyst)

Good evening, everyone. Appreciate all the detail tonight. I want to follow up your last comments, Gene. You pointed out that net leverage probably I mean, you're well on your way to getting back below the target range. Looks like there's a little bit of debt reduction in the quarter. How are you thinking until the next deal comes along on uses of cash? Working capital was up a little bit. There was a little bit of a build, but you still generated a significant amount of cash flow this quarter.

Mark Carano (CFO)

Yeah. Steve, I mean, our priorities, right, for use of capital are obviously growth, right, whether that's organic or inorganic. I think when I think about the pipeline of opportunities out there and what we're seeing in the M&A space, we feel good about where we are and the opportunity to deploy capital going forward in that. Our cash flow has been and continues to be more back-end loaded than it is in the first half of the year. To Gene's point, you will see that deleveraging coming in as we roll into the third and fourth quarter of the year. But we do have a fairly substantial CapEx plan this year that I referenced earlier. We're about halfway through that.

When you think about what we signaled to the street as our overall spend year to date, or through the first six months, we're at about $20 million. So you'll see capital continue to be deployed to that. And then to the extent there aren't any kind of other opportunities, we'll just continue to pay down debt in the near term.

Gene Lowe (President and CEO)

Yeah. I would say if you look at historically, our focus has been growth. We believe it's part of our flywheel and our model. Really, all of our investments have been in growth. I would say it's unlikely to look at a dividend over the next couple of years. As you know, we did do a smallish buyback a couple of years ago, maybe three or four years ago. I would say the 95%+ of our capital over the past timeframe has really been deployed on growth. I wouldn't anticipate that to change over the next couple of years, Steve.

Mark Carano (CFO)

Yeah. I think our views are consistent with what we've kind of shared at the investor day on that front.

Steve Ferrazzani (Analyst)

Right. Absolutely. How are you thinking about CapEx? I think, Gene, you mentioned earlier in response to one of your questions, some capacity constraints on one of the acquisitions. Do you need to add capacity for some of these faster growth HVAC acquisitions, and should we expect that?

Gene Lowe (President and CEO)

Yeah. I think we will need to add capacity. But I wouldn't anticipate this to be anything that's really noticeable. I think for us, we think of our CapEx as normally at around 1.5x. We did a lot of capital investments in our primary cooling business, a significant amount of lasers and punches. We drove a really significant amount of revenue, which really has allowed us to grow. I would expect to see that continue in certain areas that start to get capacity constrained. But I think in large measure, we could have elevated CapEx in the 2% range if we maintained we've had a lot of growth. If you look at HVAC for the past two years, the organic growth alone was the plan of this year. And last year's 23% organic growth. That's a significant amount of growth.

But I don't see any large out of the ordinary. And Mark, any color you'd like to add there as we look ahead for 2025 and 2026? Anything else? Any other color you'd like to add?

Mark Carano (CFO)

Yeah. I mean, I think you kind of largely covered it, Gene. I mean, we're going to continue to deploy capital where we can generate the highest return. And there will be some opportunities, I think, on the organic front to continue to invest. So you could see it slightly elevated relative to where we've been historically. But ultimately, it's a growth focus. And my expectation is M&A will be at the forefront and will continue to be.

Gene Lowe (President and CEO)

I will say the capital we have deployed, I believe, has had a tremendous return. And not only was it the capital, but it was the lean projects that we had. And I think that has been, as you had pointed out, not only the ability to drive more throughput, but at a structurally higher margin and improved quality, less labor. The programs that we have undertaken have had a very nice return profile. And I do think that is a meaningful portion of our structural change in our margins, particularly on the HVAC side.

Steve Ferrazzani (Analyst)

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

Gene Lowe (President and CEO)

Right now, we're limited by capacity. They had a multi-year plan. They have a humongous facility. There's a lot of equipment in there that we're actually operationalizing. So this is a very good plan. But right now, the demand is very strong there. You're exactly right. If you think about it, they're very strong in Canada. They serve a number of states, a smaller number of U.S. states. But where our strength lies is in our Marley brand, where we are everywhere. And we tend to have a very strong rep network. We tend to have good presence not only with the engineers, but with the mechanical contractors, as well as the service professionals in each of those regions. So as we expand capacity, we actually think we're going to see and you're really talking about synergies, commercial synergies. We do believe those are there.

We are starting to capture that where we have capacity. Right now, in that particular business, we want to make sure that we can meet the demand levels, which are very high.

Steve Ferrazzani (Analyst)

Of course. Of course. That's great. Thanks so much, Gene. Mark.

Gene Lowe (President and CEO)

Thank you.

Operator (participant)

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

Walter Liptak (Industry Analyst)

Hey. Thanks, guys. Great quarter. You guys are touching on this with the growth. But I wonder if you talk about sort of your growth versus the market. Do you think you're gaining market share? And I guess, why? Is it from the market expansion, or is it new products? If you could provide some color.

Gene Lowe (President and CEO)

Yeah. So I think, are you talking one segment or are you talking company overall, Walter?

Walter Liptak (Industry Analyst)

Oh, no. Yeah. Sorry. I think focused on HVAC and the cooling business.

Gene Lowe (President and CEO)

Okay. On the cooling business? Yeah. I do believe we're taking share there. Specifically, I would say our strength in the cooling segment has always been the large projects because we have done the large constructed projects in the past. We just have great technical competence in solving difficult engineering. So I would say that we have seen a lot of growth in larger projects. And that could be data centers. That could be chip manufacturers. That could be EV. And that's really in our core. So I would say there's been an enhanced level of demand in our particular area of strength. The second thing I would say is we had invented the Everest product line. And that's something we've talked about over the past several years. That has essentially gone from approximately zero to pushing $100 million of revenue.

That is taking share from constructed products in the market. So that is incremental growth to us that goes in our pocket that would not have been in our pocket. That is truly a great innovation where even before we invented the Everest, we had the largest tonnage cooling tower in the world. With the Everest, we were able to first increase it by 50%. Then with our current version and our new versions, I think we've even doubled where we were before. So you're talking about going from 1,400-1,500 tons to pushing 2,800+ tons. Just a really good solution for the market. That has been particularly favored by chip manufacturers and data centers. So I would say that I do think we've taken share. I do think it's a function of our innovation and our product management.

I also think it's a function of the market has moved in areas where we have some real strength. When you put those two together, I'd say that's why we've taken share.

Walter Liptak (Industry Analyst)

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

Gene Lowe (President and CEO)

And I'll give some, and Paul, you can pull out what we have specifically. But if you look across cooling, where a lot of this activity is, I would say the biggest areas would be one, data centers, two, healthcare, pharma, and three, institutional. So those are the very big areas. Data center, we see a very attractive growth rate. Healthcare, the growth rate has maintained some very positive strength there. Institutional has been healthy. On what you would call industrial tech, that's a smaller portion. I'd say that's still growing. You are seeing some projects get delayed. We have seen an EV plant or a battery plant move out in timeline here or there. But as it pertains to our overall demand profile, I don't think it's been something that we have seen as being material to us.

So overall, and Paul, you want to get into a little more color here? You have the chart in front of you.

Paul Clegg (VP of Investor Relations and Communications)

Yeah. So what we did call out data center as being around and there's a slide I should say that I'm currently looking at in our investor day deck that has some breakdowns for the entire company. But data center is about 10% of the cooling business. That makes it around 7%.

Gene Lowe (President and CEO)

Of HVAC.

Paul Clegg (VP of Investor Relations and Communications)

Of HVAC. Yeah. Which makes it around 7% of the total company. Lab and healthcare is about 9% of the total company. Institutional, again, doing quite well, also around 9%. So you got quite a few. We've got a broad industrial category in there that's 20%. And that's where you're going to see some of this industrial tech that Gene was talking about.

Walter Liptak (Industry Analyst)

Okay. Great. And just switching gears to that service project that you had, it sounds like that came in the quarter and you completed it. Is that right? And I guess if you could provide some detail of what was that regarding and is there business like that that you can go get in the future?

Mark Carano (CFO)

Sure. Yeah. Well, I'll start. And then Paul, feel free to kind of add in. This was a project that was I don't know if I'd call it one-off, but it was not something that we normally have given the size of it. It was a cooling service project that we completed up in the Northeast United States. And it was an attractive one for us just because it had a margin profile that we don't normally see with these types of projects. So we were well-positioned to go win it. And it drove a high degree of profitability. There's no comparable project like that for the balance of the year. There was nothing in last year that looked like it.

Paul Clegg (VP of Investor Relations and Communications)

Yeah. Apart from that, well, I'd say we just called it out really because, as Mark said, it didn't have any comparable in the other quarters of the year or in the prior year. And we just wanted people to be aware of it in terms of the comparisons going forward as well. I believe it was in our backlog in the prior quarter. Obviously, it came out of the backlog this quarter.

Mark Carano (CFO)

So when you think about it, well, on a sequential basis or year-over-year, we thought it was beneficial that people understood what that project is and that it was in there.

Walter Liptak (Industry Analyst)

Okay. Great. Makes sense. Okay. Thanks so much.

Operator (participant)

Thank you. Again, to ask a question, please press star one one on your telephone. Again, to ask a question, press star one one at this time. As there appear to be no further questions in queue, I would now like to turn the conference back to Paul Clegg for closing remarks. Sir.

Paul Clegg (VP of Investor Relations and Communications)

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

Operator (participant)

This concludes today's conference call. Thank you.