Good day, ladies and gentlemen, and welcome to the SPX Corporation Q1 2016 Earnings Conference Call. At this time all participants in a listen-only mode, later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Paul Clegg, VP of Finance and Investor Relations. Sir, you may begin.

Thank you, Crystal, and good afternoon, everyone. Thanks for joining us. With me on the call today are Gene Lowe, our President and Chief Executive Officer, and Scott Sproule, our Chief Financial Officer. A press release containing our first-quarter 2016 results was issued after market close. You can find the release and our earnings slide presentation, as well as a link to a live webcast of this call, in the investor relations section of our website at spx.com. I understand that there were some technical difficulties loading this presentation. We hope to have it fixed momentarily, so keep checking back on the site. I encourage you to follow along with this slide presentation during the prepared remarks. A replay of the webcast will be available on our website until May 12. As a reminder, portions of the 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 pro forma financial results. Specifically, we will focus on pro forma core operating results, which exclude the results of the South African projects, and we will separately provide an update on those projects. Other adjustments to our GAAP results this quarter include the gain from the sale of our dry cooling business, a write-down of intangible assets in the power generation business, and a pension adjustment. You can find reconciliations of all adjusted figures to their respective GAAP measures in the appendix to today's presentation. Finally, we plan to be on the road this month meeting with investors. On June 1, we will participate in KeyBanc's Industrial, Automotive, and Transportation conference in Boston, and on June 9, we will participate in Susquehanna Financial Group's Energy and Industrials conference in New York. And with that, I will turn the call over to Gene.

Thanks, Paul. Good afternoon, everyone. Thanks for joining us. I'm happy to report that we had solid results in the first quarter and we are on track to meet our full-year guidance targets for 2016. We will give you a fairly quick update on our results, segment performances, and end markets before going into Q&A today. Now let's touch on some of the highlights from the first quarter. The first thing I would like to say is I'm very pleased with our performance this quarter. Our core segment income was up approximately 30% over the prior-year period and we saw strong margin expansion in our HVAC and detection and measurement segments. Operational improvements in our transformers business are continuing to drive efficiencies and remain well on track to achieving our market growth targets there as well. The performance of our power generation business continues to reflect challenging market conditions. We are committed to reducing complexity and cost in this business and we made progress on several fronts in Q1. Consistent with last year, we remain focused on rightsizing this business and took additional restructuring actions during the quarter. Also, in March we closed the sale of our dry cooling business at a price of approximately 48 million. And as you'll see in today's press release, we have engaged BNP Paribas to pursue the sale of the European-based portion of our power generation business. Turning to our results, on a core basis compared with the year-ago period, revenues grew modestly, with solid contributions from our HVAC and detection and measurement segments, as well as our transformers business. These were partially offset by lower power generation sales. Adjusted operating income increased to $10.9 million and 3% of sales from a modest loss in the year-ago period. As we have done in prior…

Thanks, Gene. I will start with our net results for the quarter. On an adjusted basis, core earnings per share for Q1 were $0.09. In addition to the results of the South African projects, we have excluded the gain on the sale of our dry cooling business, non-service pension costs, and a non-cash charge to write down certain intangible assets in our power generation business. As discussed on our February call, during the quarter we hired advisers to explore strategic options for portions of our power generation business. We have completed this assessment and decided on courses of action that we believe will deliver greater value to shareholders. These include pursuing the sale of the European-based portion of our power generation business that Gene just mentioned and implementing restructuring actions to further reduce the size of our power generation operation in the Americas, which we are initiating in Q2. As a result of this, we have concluded that certain intangible assets required as adjustments to reflect their fair value, resulting in the non-cash charge of $0.06 per share. Moving on to core segment results for the quarter, as Gene noted we achieved strong performances in our strategic growth platforms. Core revenues grew 1.8% to $369 million in the first quarter, compared with the prior year. This includes organic year-over-year growth of 2.8%, with increases in all three segments partially offset by a 1% currency headwind. Core segment income margin increased in all three segments and was 6.7% for the quarter, compared with 5.2% in the prior year. Now I will walk you through the details of our results by segment, starting with HVAC. Revenues increased 3.6% or 4.3% organically, due primarily to higher sales of cooling products, which continued to see steady demand associated with commercial construction in North America.…

Thanks, Scott. Before we go to your questions, I want to say I'm very pleased with the progress we have made during the quarter and since our last call. While we believe we have a lot more work to do, we feel good about how we have started the year and believe we are well positioned for the full year and additionally remain on track to meet our long-term value creation goals. In addition to the strong operational performance in our core businesses, we're making significant headway on our commitment to reduce risk and complexity in the more challenged areas of our portfolio. Our key accomplishments include the sale of our dry cooling business, engaging BNP Paribas to pursue the sale of the European based portion of our power generation business, and continuing to take other actions to reduce cost and complexity. As we continue through 2016, we will maintain our focus on aggressively pursuing our value creation roadmap and I look forward to updating you on our progress. We are confident that we have the right plan and the right team in place to unlock the significant earnings growth potential of our Company and to drive substantial value creation for our shareholders. With that, I will turn the call back over to Paul.

Thanks, Gene. Crystal, we are now ready to go to questions.

Thank you. [Operator Instructions] And our first question comes from Shannon O'Callaghan from UBS. Your line is now open.

Maybe just give us a little more color on how you are thinking about the whole power gen analysis in terms of the decision to move forward with the European piece. But it sounds like restructure the North America piece, maybe the different characteristics between those businesses, and the sizes of what would be left if Europe goes, et cetera, and just how you are thinking about the different pieces, the parts there.

Sure. Shannon, when we looked at our business, as we had said in our prior calls, we have a threshold where if we don't see a clear path to where our businesses can drive the appropriate returns and drive shareholder value, we're going to look at all options that we have in front of us. And we have gone through the strategic analysis and we have determined with regards to the European portion of our power gen business that the best solution for shareholders was to pursue a sale. We did highlight approximately the value of what we would see that accounting for it and I think that's in the neighborhood of 20% of our power segment, and we think that this is the right thing to do. This is a business that we believe has very good brand recognition, very good technologies, but we think the natural owner of this business would be a company that is more focused on growing and building in this area.

Just to add to that, so as Gene said, the portion that we are pursuing, actively pursuing the sale on, is about 20% of the power segment, once you exclude the dry business, so help you frame it up. The Americas piece is a much smaller business. And really, the assessment really came down to we felt like we could add incremental value by further restructuring and changing our market focus in the Americas, and then we have decided that really where we needed to pursue in the near term was the sale on the European businesses.

And then, just in detection and measurement, maybe just a little more flavor on the project timing delays you're talking about. Are these Genfare radio detection and are you talking about shifting within the quarters of '16 or out of '16? Just a little bit more on what you are seeing there.

Yes, I will take a cut at that, Shannon. I think that there is a number of our businesses or a number of our product lines in detection and measurement that, tend to be more run rate. We're actually seeing very steady demand, very healthy demand, in the majority of those product lines. I would say the one product line that we are keeping our eyes on would be TCI and I would say that what we are seeing is an interesting mix. We are seeing a healthier front log. There's a lot of opportunities there, but with the global macroeconomic environment, we have seen some shifts on some of the larger projects; however, nothing that was not expected and put together in our planning framework. So, I would say in general we are feeling good about detection and measurement. We're going to achieve our growth targets and our margin enhancement targets there and --.

When we set our targets for the year, when we talked about when we gave our guidance that we saw a robust front log for the project nature portion of this segment. And we did have some uncertainty around timing. And so when we established our guidance, we assumed some level of delays, given the macroeconomic environment, so really what we are reporting on is what we anticipated happen is actually occurring where right now we are not seeing anything that is concerning us to the point that is going to impact our full-year targets.

Thank you. Our next question comes from Ronny Weiss from Credit Suisse. Your line is now open.

Congrats on the solid quarter. Touch on the HVAC margins, up 220 basis points in the first quarter, but the guide is still flat. Is the Q3 the entire gap there to get to the flat margin for the year or does some productivity flatten out as you go throughout the year just how to think about that kind of ramping down.

Sure, this is Scott. I will start on that one. Yes, as you said, when we set our guidance and we had flat margins for performance, that really was because, as we talked about, we had this very large project in the cooling business in Q3 that really accelerated our margin performance profile in that business and we had other operational initiatives that weren't fully baked in 2015. So really what you are seeing in Q1 is some volume growth and the margin improvement on that, but then also the operational initiatives taking the full effect, most significantly in our manufacturing operation in the cooling business where we started significant actions to improve efficiencies last year, but really didn't start seeing those improvements until the second quarter. So the first quarter of this year was going to be the year, the quarter that we were going to see the most significant operational improvements.

Yes, and I would just so it's almost like we started the year with a little bit of a headwind because we were backfilling the large project in Q3, but we are -- just commentary about the HVAC business, I would say the teams in the cooling and the heating side are doing a great job and we are seeing better productivity in the plants. We are seeing a lot of the fruits from the efforts in strategic sourcing and some of the new product initiatives and even some of the marketing optimization work that is being done in terms of our rebating and so forth. We're feeling very good about that direction, so in the co-operations of the business, we are improving it, but it is covering a one-time benefit from last year.

And we do still expect to see operational improvement as we go throughout the year. It just won't be as pronounced year over year as it was the first quarter.

Got it. Makes sense and then, staying in HVAC there, if you guys could break out what you guys are seeing on the pricing side of things versus the volume, and then also if you are seeing any kind of raw material impact on the bottom line there.

I will take a crack at that and start, and Scott I think we always think about it in terms of the cooling and the heating businesses. For the cooling businesses, pricing has been consistent. Volume has been healthy. I would say with you look at the commercial market and the activity levels there, we have been seeing a nice run rate business and nice trends in that business, commensurate with what I would say the market is seeing in the commercial. On heating, I would say pricing is steady. Most of the margin improvement is really due to a lot of the initiatives that we just highlighted that really are driving better results for the business. And as a reminder, with the heating business there is a substantial portion of that that is residential and there is a portion of that that is dependent on the intensity of the weather. And as you know, as all the market data would have showed is it was a warm winter and the demand profile for most heating products was a little bit lower. But our team really did a nice job by expanding margins very significantly there with lower demand profiles, while maintaining our share and launching some new products. Overall, we are very pleased on that side of the house. But really on the price, we haven't really seen any change. I would say it is steady. Do you have anything else?

No, I would say that's right. And then on the commodity side, we have had some modest improvement from commodities, but a lot of our raw materials we have longer-term contracts on, whether it is steel, whether it is copper on the transformer side, so, our fluctuations around our commodities are less between, from a pricing perspective and it is also tied in with our customer pricing dynamic.

Thank you. Our next question comes from David Rose from Wedbush Securities. Your line is now open.

Just following up on the HVAC, particularly the heating. In the last conference call, I think you were asked about weather, and you felt pretty good at the time. So, was there a significant, and this was, what, late February. So was there a significant drop off in March or is it just pretty much what you expected?

Yes, I would say, and it is interesting because we did have a very slow first -- Q4. We had a light, warm start to the winter. In our last call, we did mention we had a nice uptick in January and even the portion of February. But frankly speaking we had a light March. And I think if you look at industry data, there was a tremendous amount of -- I believe this is the warmest winter in a number of years 2011 and --.

For our key markets, and as we have talked in the heating side, we have some certain market concentrations in the Americas. And as Gene said, we definitely, when you look at heating days, it was the warmest overall winter in several years. And we did -- we saw January and the beginning of February where orders were rebounded from the end of last year and were at a good pace, and then they just really dropped off in March.

And then on the flip side, from some of the package cooling products. Are you seeing any benefit from some of the more water efficient products that you have?

I think we're seeing a healthy front log there across all of our normal markets. And as a reminder, we have some NPI that has come out in our markets. We have also gotten into a new market that is starting to generate revenue for us, the evaporative condensers. The other thing that I think is interesting in that market that we are seeing this year is we're seeing a lot more large projects. So, we would characterize a large project in our cooling business as something that is north of $0.5 million order. Ad there is a much more robust front log that we are seeing and converting. So, yes, I would say -- I think both our heating and our cooling teams have really done a nice job, and heating executed in a little bit more of a challenging market. Cooling executed in more of a healthy market, but we're feeling very good about the operational performance and how that bodes for future quarters and future years. But we also, to your point David, we do have a number of innovations coming out. We have one that we are very excited about in Q3 that we will probably be talking a lot more about on our next call. So, we do believe we have some very good technologies that have some very strong value propositions and points of differentiation. I would say that's the part of our business that has the most robust product management processes and we're going to keep pushing that and accelerating that. And I'm actually very enthusiastic about the front log and the pipeline that we have in that business.

And then, lastly, as it relates to balancing the portfolio and the potential sale of the European based power gen business, you scoped the top line, broadly speaking. How much of a drag was that on earnings last year for you folks? Maybe just, again, ballpark?

Yes, I don't want to get into the specifics on the individual businesses. I will give you it in macro. If you remember, last year we had revenues $930 million in the segment, so transformer is about 40% of that and we had 7% margins in transformers. So you can do the math on what the power generation businesses were doing in total. And certainly on the heat exchange side of our business, which is where predominantly we are talking about here that is the most -- the part that is facing the most challenges in the market.

Right, but it is material and your point is very well noted, Dave, I think which is exactly why we are focused on the portfolio reshaping. As we have said, we have got a lot of great businesses, and we think as we go forward and we want to make sure that all of our businesses are contributing and adding value to shareholders and have a nice future ahead. So, if we don't see a path within our portfolio we're going to take action and we're going to make changes.

I was just going to add that, as Gene said in his prepared remarks, there is still a lot of work to do here and there is obviously some major market shifts that have occurred in our historical strong markets. And there is a lot of good technology, a lot of good customer positions here well branded, well -- strong engineering in the business. So there is a good opportunity here. They are just having to shift its focus from its historical markets to broader markets.

And based on -- and I know they're different businesses, but based on what your experience was with the dry cooling business, is there a sense that you can get this complete by year end?

What I would say, Dave, is we get these things started. A typical process could be anywhere from six to nine months. We're not going to put a stake in the ground until we have better visibility to where we are in the process, and we will keep everyone updated on our process, but I would say there could be a chance, but I would say right now it is too early to commit to that.

It is early stages of the process from a marketing perspective, and although the business is not where we wanted to be from a strategic perspective, there are people who are long in this market that this should be an attractive asset to.

Thank you. Our next question comes from Brett Linzey from Vertical Research. Your line is now open.

Just wanted to follow up on the BNP process and just the strategic review. I guess does this -- so this concludes that review, and seemingly you are deeming the Americas piece and everything ex Europe as core. I guess if you go the path of improving the business and you don't see the value, is there optionality to go back and test the market once that business improves? And then the second question to that is how much restructuring spend do you think is required to really right size the cost structure there?

This is Scott. I will take that. What I would say is I think there is always optionality. I think we will always be assessing the portfolio and the businesses. I think where we have made our assessments now and is really focused around where we want to take definitive action to move forward and move as quickly as we can, and obviously there is finite resources within the Company to be able to manage these things, so we prioritize where we want to spend our time here. And as far as the restructuring as we specifically associated with the Americas piece, that falls in with our overall guidance that we gave of approximately $5 million of restructuring in this year.

Okay [indiscernible] so you don't -- go ahead, sorry.

Well, to finish -- I was going to take a different angle. Is there anything on that particular point, Brett, you would like to wrap up with?

Well, I was just going to say you are not doing any incremental restructuring relative to the prior guide. You still have the 5 million, so I just didn't know if there was going to be anymore that would be required as the year progresses here.

No, that's correct. And that's really all we see line of sight to.

The only other comment I would make, Brett, is as you think about our portfolio, as we have said since day one we feel like we have two really strong growth platforms in HVAC and detection and measurement, and we have a lot of work going on and growing those and building those. And we are very excited about those. We have also talked about transformers. We are really encouraged by the leadership there and the actions and that's a really good business. It has a really good market position. And then on the power gen, as we have said a number of times, this is a business that is facing some real market headwinds. But you have to be careful. I think that as we have said there are some portions of that business that are driving shareholder value right now, that are earning nice returns on capital. But there is some that are clearly not. And if we don't see a path that is where we're going to take action to ensure that we do drive shareholder value. But I think you are alluding to a broader question of our corporate strategy, and at the end of the day, we are committed to driving value for shareholders. And as you look at our broader portfolio, we think we have some great assets here. The first thing we're going to do is get them all to their full potential and make sure they're all operating at the highest level that they can in the markets that they serve.

Okay. And then just on transformers, did you see any impact from the efficiency change for some of the low voltage in the United States? And do you see that helping mix as the year progresses and really being additive to some of the manufacturing actions you are taking?

I think when we look at what is going to be driving the improvements and the margins of the business, it is all the things we have talked about in the past, which is the standardizing on the design, the ability to then do strategic sourcing, improving quality in the plant, operational efficiencies, be able to have more flexibility of managing loads between our two plants. Those are all the factors that are driving our improvement in margins.

Okay. And then, just shifting to capital deployment, as you mentioned you are looking to the back half, you're going to have more capacity. Could you just remind us what your priorities are there and then how you would actually characterize your total capacity available as we get into the back half?

Yes, so our priority is always going to be looking at actions that are going to, from a risk-adjusted basis, give the greatest shareholder return. Where we sit today, we would be predisposed to deploying excess capital towards growth initiatives, whether they be organic or inorganic. And as far as where we think we're going to be by the end of the year, our stated range is 1.5 to 2.5 of net leverage. We think we will be in the middle of that range.

Thank you. And our next question comes from Robert Barry from Susquehanna. Your line is now open.

Just curious how you are thinking about the revenue outlook here, it seems like you are tracking pretty far ahead despite some weather pressures in HVAC, some shipment delays in detection. Was the quarter on your internal plan or are you actually really tracking ahead?

I would say we are tracking around where we expected to be for the quarter from a revenue perspective. When you look at it -- you can't obviously look at our quarter sequentially and consistently because of both the seasonal nature of the business, as well as the timing of projects in the project portions of our business, whether it be in power or in detection and measurement. But I think we are on track for what we expected for the year.

Got you, so if you are on plan and the outlook is unchanged for each of the businesses, it does imply that you would have a fair amount of slowing in each of these businesses in the subsequent quarters?

Well, as I tried to say in my prepared remarks, where we are really seeing some of that is going to be in Q2, specific to the power segment and specific to not having certain projects that were executed in 2015 that don't repeat so that we don't have similar projects in our backlog. And then with the sale of the dry cooling business, those revenues come out, and in Q2 of last year, that business was actually profitable.

Right, right. But even in the others, HVAC you guided up 2 and you are up 4 and you have got a very easy comp in the next quarter and especially in 4Q, similar story in detection. I understand not wanting to get ahead of your skis, especially in a seasonally weak quarter, but is there anything in particular maybe outside of that, what you just mentioned in power, that you can identify that becomes a headwind in the other segment?

So remember in HVAC, we had the one large project something like $7 million of revenue in the third quarter and that was a one-time that is a one timer so that becomes an actual headwind that has to be replaced by smaller orders or some of the larger orders, 0.5 million and above that Gene mentioned, but there's nothing of that size of a $7 million order in the front logs. So that's part of what creates the headwind year over year. And in detection and measurement, it is really going to be the timing of these projects.

Got you okay. Any color you can provide on heating versus cooling, like what the growth was in heating versus cooling in the quarter?

It was definitely stronger in cooling, consistent with the markets. I don't know if --.

Yes, I don't know if we're going to break it down quite into that detail for you. As Gene said, it was stronger in cooling than it was in heating. We referred to the weaker March that did affect the heating side of things, and as I am sure you have been hearing on a lot of different calls, the strong commercial construction market has a positive impact on the cooling side.

Right, right.

Yes, I will put it just broadly that there was growth in cooling. There was contraction in heating and that has a lot to do with the weather. Year over year, you had still a cold winter in Q1 of last year compared to this year.

Got you and then maybe just lastly on detection, you mentioned that some of the projects shifted to the back half. How should we think about if those projects come through in the back half? Does that end up being particularly accretive or dilutive to margins?

As I tried to explain when Shannon was asking the question, they have moved, but that was in expectation, aligned with our expectation. Basically when we started the year and you looked at the project timing and what we were expecting from customers at that time, it should have -- they should have been placed earlier. But when we looked at those and looked at the dynamics, we adjusted our expectations around when those projects would land, so we always had them in our guidance towards the back half of the year. Being concerned around some of the macros and not sure how that was going to work out, but seeing somehow these, our international orders, we did see them slide as anticipated. So I'm not really at this point, I'm not seeing, we are not seeing any orders canceled, but we are not seeing, we are still seeing them and they're very active, but it's our, the decision-making process is taking --.

And I would probably just point out that that's really we're talking about one product line that is, I would say, a smaller portion of detection and measurement.

Okay.

I would say that the 75%-plus of detection and measurement, you are not seeing any of those types of customer behaviors, and the interesting thing is and some of this could be market some of this could be some of our growth initiatives, but there is some healthy front logs that we are seeing across detection and measurement businesses.

Anything yet from the highway bill and Genfare, or just in general in Genfare?

I think we're optimistic on that business. I think there is a lot of activity. We talked about the new software solution, the Link, which is now in a production environment. We have taken several more orders there. I would say the tactical results from the highway bill, a lot of the projects are starting to get rolling and so forth. I would anticipate you'd probably see a lot more RFPs and hard action probably towards the latter half of ’16, early part of ’17. But we are seeing activity levels up. But I don't think that is something that turns on every night. The municipalities, they will determine which projects, they will go through the application process. But in general, that is a very good result for the whole industry. And I think the trade industry there, it is called APTA, they are very pleased with that and I think that's going to be good for all the participants in that market.

Got you, got you. Well, it seems like a very solid start to the year here. Thanks, guys.

Thank you and I am currently showing no further questions. I would now like to turn the conference back over to Mr. Paul Clegg for any closing remarks.

Thanks, Crystal. And thanks all of you for joining the call. We look forward to updating you on our new accomplishments and initiatives to drive value creation as we progress throughout the year. Thanks much.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a wonderful day.