SPXC Q2 2025: Data Center Revenue Jumps to 9% of Mix, Backlog Up 19.5%
SPXC’s Q2 saw data center solutions climb to 9% of revenue and segment backlogs surge, reflecting robust demand for engineered HVAC and detection technology. Strategic investments in new capacity and modular cooling products are set to expand addressable markets into 2026. Updated guidance underscores confidence in both organic and acquisition-driven growth, with a strengthened M&A pipeline signaling further expansion ahead.
Summary
- Data Center Exposure Expands: Data center solutions now represent a material and growing share of revenue mix.
- Backlog Strength Signals Visibility: Backlogs rose sharply in both core segments, supporting multi-year project momentum.
- Capacity and Product Investments: Ongoing expansions and new modular offerings are positioned to drive future growth.
Performance Analysis
SPXC delivered double-digit top-line growth, with total revenue up 10% year over year, propelled by acquisitions and strong project execution in the Detection & Measurement (D&M) segment. Adjusted EBITDA rose 16% as margins expanded by 120 basis points, reflecting both scale and a more favorable mix. The HVAC segment, which accounts for a significant portion of revenue, posted 5.7% growth, with organic growth at 0.7% after normalizing for a prior-year project, and segment margins lifted by 190 basis points due to high-margin project execution and improved mix. D&M revenues increased 21% (5.5% organic), driven primarily by the KTS acquisition and higher project volume, though segment margin dipped 60 basis points from prior-year mix favorability.
Backlog performance was a standout, with HVAC backlog up 19.5% sequentially to $540 million and D&M backlog up 6% to $365 million, both providing strong forward visibility. The company ended the quarter with $137 million in cash and a leverage ratio of 1.7x, even after closing the Sigma and Omega acquisition. Adjusted free cash flow was $37 million, below last year due to working capital build and preemptive inventory actions in response to tariffs, but management reiterated full-year free cash flow confidence.
- Data Center Revenue Mix Shift: Data center solutions reached 9% of company revenue in 2025, up from prior years, with further growth expected in 2026.
- Project Timing Pull-Forward: D&M project deliveries originally slated for 2026 were accelerated into 2025, driving guidance increases.
- Margin Expansion Drivers: HVAC margin gains stemmed equally from high-margin projects and improved mix, though some normalization is expected in the second half.
SPXC’s growth is increasingly underpinned by secular demand for data center cooling, robust project backlogs, and the integration of recent acquisitions, offsetting modest tariff and working capital headwinds.
Executive Commentary
"We are making meaningful progress on expansion plans for our engineered air movement businesses where we see significant demand in excess of our current production capacity. We expect to announce site locations for the U.S. production expansion of our TAMCO actuated dampers and Ingenia custom air handling units before year end, with incremental production capacity anticipated to come online in the first half of 2026."
Gene Lowe, President and Chief Executive Officer
"Our Q2 performance was strong. We grew second quarter adjusted EPS by 16%. SPX continued to execute well, driving significant profit growth in both segments and making meaningful progress on several key initiatives. Once again, we're raising our full year guidance range to reflect our strong results and outlook for the remainder of the year."
Gene Lowe, President and Chief Executive Officer
Strategic Positioning
1. Data Center Solutions Scale Up
SPXC’s data center business, anchored by cooling towers and the Olympus VMAX modular cooling product, now represents 9% of revenue and is expected to surpass 10% in 2026. The modular, dry and adiabatic-capable Olympus VMAX, designed for hyperscale data centers, is positioned to expand the company’s addressable market, with management targeting tens of millions in bookings this year for 2026 revenue. SPXC’s legacy in cooling towers and proprietary mechanical components offers a technical moat, further validated by anticipated CTI (Cooling Technology Institute) certification, a key customer requirement for uptime assurance.
2. Capacity Expansion and Automation
Capacity investments in engineered air movement (EAM), including U.S. and Canadian facilities, are on track to raise run-rate capacity from $100 million to $140 million by year-end and toward $300 million by 2027. The Mirabelle (Canada) site’s ramp demonstrates SPXC’s ability to scale highly automated, robotic manufacturing, while U.S. expansions for TAMCO and Ingenia will support incremental data center and HVAC demand. These moves underpin the company’s confidence in capturing secular growth trends in both core and emerging end markets.
3. Project Backlog and M&A Pipeline
Robust backlogs in both HVAC and D&M segments reflect healthy project wins and solid end-market demand. Project timing in D&M was pulled forward into 2025, driving guidance upward and providing near-term visibility. The M&A pipeline remains a core growth lever, with management highlighting ongoing opportunities in engineered air movement and detection/ComTech, and recent integrations (KTS, Sigma, Omega) delivering early synergy realization and channel expansion.
4. Tariff Mitigation and Pricing Actions
Tariff exposure, while a modest EPS headwind, is being actively managed through pricing actions and supply chain recalibration. The impact is now expected to be only five cents for the year, down from previous estimates, with surcharges and selective price increases deployed across business units as competitive dynamics allow.
5. Free Cash Flow and Capital Allocation
Despite a first-half working capital build, management reiterated its confidence in meeting full-year free cash flow goals. The company’s leverage remains conservative, and its $1 billion credit facility provides ample firepower for future M&A. Capital allocation remains focused on growth, with 98% of cash flow historically directed toward acquisitions and CapEx, reinforcing the company’s long-term expansion strategy.
Key Considerations
SPXC’s Q2 results and commentary highlight a business in transition toward higher-growth, technology-driven end markets, underpinned by disciplined execution and strategic capital deployment.
Key Considerations:
- Data Center Market Penetration: Data center cooling and air movement now provide a secular growth tailwind, with modular products expanding addressable market and potential for share gains.
- Backlog Quality and Timing: Strong sequential backlog growth in both segments signals multi-quarter visibility, though project timing remains a source of quarterly variability.
- M&A Integration and Pipeline: Early synergy capture from KTS, Sigma, and Omega, plus a robust pipeline, reinforce inorganic growth as a key value lever.
- Tariff and Pricing Dynamics: Tariff headwinds are being offset by targeted pricing and supply chain actions, but remain a watchpoint, particularly in D&M margins.
- Working Capital Discipline: Inventory and receivables build tied to project timing and tariff mitigation should reverse in the second half, supporting free cash flow targets.
Risks
Project timing and backlog conversion remain sources of quarterly volatility, particularly in D&M where project pull-forwards can impact future periods. Tariff policy changes and competitive pricing pressure could weigh on margins if not offset by mix or scale. Broader macro uncertainty and capital project delays in end markets (like healthcare or manufacturing) could temper demand visibility, though current backlogs provide a near-term buffer. Integration risk from ongoing M&A remains, though management’s track record is positive.
Forward Outlook
For Q3, SPXC guided to:
- Adjusted EPS approximately flat sequentially versus Q2
- Second half cadence similar to prior year, with HVAC margins up 40 basis points YoY and D&M margins stepping down due to tariffs and investments
For full-year 2025, management raised guidance:
- Adjusted EPS range of $6.35 to $6.65 (midpoint up from $6.25 prior), reflecting 16.5% YoY growth
- Adjusted EBITDA growth of 18% at the midpoint
- HVAC revenue midpoint of $1.52 billion, margin up 75 basis points
- D&M revenue and margin raised to reflect additional 2025 project deliveries
Management cited healthy market conditions, robust backlogs, and strong M&A pipeline as drivers of confidence in updated guidance.
- Data center and engineered air movement capacity expansions will begin contributing in 2026.
- Tariff exposure is now expected to have a reduced impact for the remainder of the year.
Takeaways
SPXC is executing a multi-year transition toward higher-growth, technology-enabled segments, with data center cooling now a material driver and new modular products broadening the company’s reach. Backlog strength and disciplined capital allocation provide near-term visibility and strategic flexibility.
- Data Center and Project Backlog Momentum: Growth in data center revenue mix and strong project backlogs underpin the company’s raised outlook and provide multi-year visibility.
- Margin and Capacity Leverage: Margin expansion is being driven by mix and project execution, with incremental capacity investments poised to unlock further growth in 2026 and beyond.
- M&A Remains a Core Growth Lever: Early integration success and a robust pipeline reinforce the company’s ability to supplement organic growth with targeted acquisitions.
Conclusion
SPXC’s Q2 results showcase a business benefitting from secular data center demand, disciplined execution, and a robust M&A strategy. Backlog strength and capacity expansions set the stage for continued growth, while tariff and project timing risks remain actively managed.
Industry Read-Through
SPXC’s results highlight intensifying secular demand for data center cooling and engineered air movement solutions, signaling robust end-market growth for suppliers exposed to hyperscale infrastructure. The company’s modular, water-optional cooling products and automation-driven capacity investments point to evolving customer requirements around efficiency, uptime, and scalability. The integration of detection and measurement technologies—including drone detection and spectrum monitoring—reflects rising demand for infrastructure security and operational intelligence, themes likely to drive broader industry investment. Tariff management and project backlog conversion remain sector-wide watchpoints as global supply chains and capital project cycles continue to evolve.