SPX Technologies Inc

F:SPW0

Earnings Call Transcript 2021-Q2

[Operator]

Thank you for standing by, and welcome to the Second Quarter 2021 SPX Corporation Earnings Conference Call. [Operator Instructions] As a reminder, today's program may be recorded. And now I'd like to introduce your host for today's program, Mr. Paul Clegg, VP of Investor Relations and Communications. Please go ahead.

[Paul Clegg, executive]

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 Jamie Harris, our Chief Financial Officer. A press release containing our second quarter results was issued today 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 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 12.

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, including our disclosures related to the ongoing COVID-19 pandemic. Our comments today will largely focus on adjusted financial results. You can find detailed reconciliations of historical adjusted figures to their respective GAAP measures in the appendix to today's presentation. Our segment reporting structure includes the results of our South African operations in another category, which is excluded from our adjusted results. This quarter, we have begun reporting our transformers business in discontinued operations as a result of our announcement of an agreement to sell this business to GE-Prolec.

We have also recast our reportable segments, eliminating the Engineered Solutions segment and adding the results of the process cooling business to our HVAC segment. These changes have been made for all periods reported, unless otherwise indicated. In the appendix of today's presentation, we have also provided a table showing quarterly historical segment results on the same basis going back to 2019. Our adjusted earnings per share also exclude nonservice pension items, amortization expense and investment gain, certain favorable discrete tax items and acquisition-related costs. Finally, we will be conducting virtual meetings with investors over the coming months, including at the Sidoti Fall Conference in September.

And with that, I'll turn the call over to Gene.

[Eugene Lowe, executive]

Thanks, Paul. Good afternoon, everyone, and thank you for joining us. On the call today, we'll provide you with a brief update on our consolidated and segment results for the second quarter. We'll also provide an update to our full year guidance. I'll start with some of the highlights for the quarter. Our second quarter results were solid. Our HVAC and Detection & Measurement segments both generated strong revenue growth, and we grew adjusted EPS by approximately 44% over the prior year quarter. In June, we announced an agreement to sell our transformers business and outlined the strategy for driving faster revenue and margin growth to achieve our vision of SPX 2025 to a combination of organic and inorganic initiatives.

Earlier this week, we continued to execute on this strategy, announcing another acquisition in our Detection & Measurement segment that we believe is an excellent addition to our CommTech platform. We also continue to build momentum on internal initiatives, such as continuous improvement in digital. Lastly, we are updating our 2021 guidance for the overall strength we are seeing in our businesses and for the recent acquisition.

Turning to our high-level results for Q2. We grew adjusted revenue approximately 15%, with significant contributions from both organic and inorganic drivers. Adjusted segment income grew approximately 16%, driven primarily by the strength of our HVAC segment. Year-to-date, we grew adjusted EPS 43%, positioning us well for the full year. Overall, I am pleased with our performance with significant capital available and attractive M&A pipeline and several ongoing organic growth and continuous improvement initiatives. I am very excited about the substantial opportunities ahead for SPX.

As always, I'd like to touch on our value creation framework. Over the last few months, we have made progress on several key initiatives. We continue to execute on our continuous improvement in digital initiatives and extended our actions in ESG, including enhancing our diversity and inclusion and employee development and training initiatives. We also remain highly focused on ensuring that our safety culture remains a top priority.

With respect to ESG, we're about to release our fourth annual sustainability report, which includes key metrics on our water usage, energy usage and greenhouse gas emissions as well as several new disclosures to help assess our progress. We're also updating portions of our website to make our ESG information and data more easily accessible. We're adding several new disclosures about diversity and inclusion, employee development and the role that SPX plays in improving the health and safety of our society. We believe SPX is well positioned to thrive in a world where long-term targets and carbon emissions are realized.

Many of our businesses, products and initiatives offer a significant benefit to society, support a sustainable future and align closely with the themes of decarbonization and electrification. We offer a wide array of highly efficient and innovative products for the maintenance of critical infrastructure. Our cooling towers help produce energy usage in buildings. Our heating business offers highly efficient hydronic equipment as well as an array of electrical heating applications and our inspection equipment helps remediate leakage of underground water and wastewater pipes with minimal environmental disruption.

We also manage our business in accordance with our core values and set the high standards for social responsibility. Whether developing our employees through training and mentorship programs, supporting community, educational or charity events or embracing diverse backgrounds and points of view, we are committed to enabling a safer, healthier, more inclusive and sustainable society.

We have also continued to execute against our strategic growth initiatives by strengthening our contact platform with the recent acquisition of ECS. This is our ninth acquisition in the last 3 years, bringing total acquired revenue to approximately $275 million. This is the first acquisition specific to our CommTech platform within our Detection & Measurement segment. This acquisition strengthens SPX's position and comment by adding highly complementary products. ECS is a leader in the design and manufacture of highly engineered tactical data links and radiofrequency or RF jammers.

When combined with our TCI business, which focuses on spectrum monitoring, we believe this platform positions us well to deliver a broader end-to-end customer solutions. The company is headquartered in the U.K. and is expected to generate approximately $14 million in annualized revenue with margins accretive to the Detection & Measurement segment average. Just as we have successfully built our location in inspection and aged navigation platforms, we see several strategic opportunities ahead to continue expanding our attractive CommTech platform.

And now I'll turn the call over to Jamie to discuss our financial results in more detail.

[James Harris, executive]

Thanks, Gene. We're pleased with our results for the quarter. We grew adjusted EPS by $0.15 to $0.49 per share, an increase of approximately 44%. In addition to the segment drivers, which I will review shortly, several below-the-line items had a modest impact on our net results. These include: first, higher corporate costs, primarily associated with the strategic investments and continuous improvement and other initiatives. Because of the accounting associated with the reclassification of our transformer business to discontinued operations, our results from continuing operations include approximately $1 million of stranded cost as the historical allocation to the transformer business is eliminated.

This was only an accounting reclassification and had no effect on cash. Prospectively, once the sale of transformers is completed, we expect the TSA income to largely offset these calls throughout the 18 months. In addition, we will actively manage corporate cost to an appropriate level for both our business strategy and scale. Next, the $2.7 million revision to the reported insurance assets associated with potential legacy product liability claims. This expense had no in-period cash impact. We had -- also had less interest expense due to lower average debt balances and the beginning of a new swap arrangement, which carried a lower effective interest rate and began in April of 2021. We had other non-operating income of $2.7 million associated with the proceeds of life insurance benefits.

And last, we had a lower tax rate, which is driven by interest earned and the tax refund that is due to the company and the release of reserves related to statute expirations. Overall, our Q2 results reflect a backdrop of very strong demand in our run rate businesses. Some are seeing their strongest levels of end-market demand in years, and we are carefully managing tight labor markets and supply chain constraints to meet customer needs. As we look forward, we see a strong backlog building in our project-based businesses, where deliveries to date have been slower to return to pre-pandemic levels despite strengthening customer interest and activity. We believe this sets us up well for growth into next year and beyond.

A review of our adjusted results shows an overall strong quarter. Revenues increased 15.3%, driven by 9.6% organic growth and 6.1% from the ULC, Sensors & Software and Sealite acquisitions. The organic revenue increase was due to strong performances in both our HVAC and Detection & Measurement segments. Operating income of $25.5 million was modestly above Q2 2020 and includes the impact of the revision to the recorded insurance asset mentioned above. Excluding this change in estimate, operating income would be $28.2 million, a 16% increase from the prior year with a relatively flat margin of 9.5%.

As a reminder, this is our first time reporting with updated segment structure. With the agreement to sell our transformer business, we have moved that business into discontinued operations and eliminated the Engineered Solutions segment, leaving HVAC and Detection & Measurement as our 2 reportable segments. Our HVAC segment now includes the result of our process cooling business, which historically has been part of Engineered Solutions. As a reminder, our other segment only includes the remaining activities of our South Africa project, which is substantially complete operationally.

I will now review the details of our segment performance. Total HVAC segment revenues increased 12.2%, driven by 14.1% organic growth and a modest currency impact. These were partially offset by the impact of a contract settlement related to a legacy business, which had no impact on profit. Key sales were particularly strong and the primary driver of the organic increase. In the prior year period, heating product sales were negatively impacted by warmer than typical weather and the COVID-19 pandemic. Overall, cooling sales rose modestly with growth in the Asia Pacific region, where sales in the prior quarter were negatively impacted by the COVID-19 pandemic.

Adjusted segment income increased by $5.8 million and rose 180 basis points due to higher volumes and continuous improvement initiatives, partially offset by higher input costs, including freight. We continue to be encouraged about the strength and demand we are seeing in heating and for the Americas and Asia Pacific region in our cooling business. While effectively managing labor and input constraints continues to be an area of focus, we feel good about our full year outlook and growth opportunities.

In Detection & Measurement, revenues were up 20.7% year-over-year, including a modest organic increase and a 17.2% impact from the ULC, Sensors & Software and Sealite acquisitions. Overall, we are seeing significant year-over-year strength in shorter cycle products, while project-oriented shipments continue to face some delays despite strong customer interest and activity. Location and inspection had one of the strongest quarters on record, while our transportation business had lower revenue due to a large project delivery in the prior year that did not repeat.

Adjusted segment income increased modestly. Segment margin decreased 290 basis points due to the mix effect of lower revenue from our project-based businesses. We believe this is largely due to timing as backlog has been building. As a reminder, our project businesses carry high contribution margins, so the timing of project revenue can have a noticeable impact on segment income and the related margins. Organically, Detection & Measurement segment bookings are up 17% from the prior year, while backlog is up 50% and has more than doubled when including the effect of acquisitions. We believe this positions us very well for growth in the next year and beyond.

Turning now to our financial position at the end of the quarter. Our balance sheet remains strong. After purchasing ECS for approximately $38 million subsequent to quarter end, pro forma leverage was 1.8x or up slightly from the last quarter. The leverage calculation includes the effect of potential contingent consideration that is not included in $38 million. Year-to-date, adjusted free cash flow was approximately $31 million, up significantly from prior year. For the full year, we anticipate solid cash generation with conversion of around 100%. We anticipate that after the close of the sale of transformers, we will repay the revolver borrowing and other short-term debt.

While we would expect to keep our term loan in place for the time being, we anticipate having a significant amount of net cash on our balance sheet following the sale. Cash usage associated with South Africa was $6 million in the quarter, including the net effects of a dispute received by us and claims made on our bonds. Year-to-date cash associated with South Africa's positive $3 million, driven by the favorable dispute awards and the associated cash received. We feel good about positioning and dispute resolution process and continue to see favorable momentum. Overall, our strong balance sheet positions us well to pursue organic and inorganic growth initiatives.

Moving to our guidance. We have updated our full year 2021 guidance to reflect the strength of our underlying businesses and the ECS acquisition, which we anticipate will add a few cents to EPS based on approximately 4 months of ownership. We now estimate adjusted earnings per share in the range of $2.25 to $2.45, up from prior guidance in the range of $2.17 to $2.37. At the midpoint, this reflects a growth of over 27% versus 2020 adjusted results, which have been recast for the movement of transformers to discontinued operations. As always, you will find more details on our guidance in the appendix to today's slides.

With respect to the cadence of results for the remainder of the year, we are seeing strong backlog build in our project-oriented businesses with an anticipated Q3 delivery profile and overall segment results similar to the second quarter and significantly higher in the fourth quarter.

I will now turn the call back to Gene.

[Eugene Lowe, executive]

Thanks, Jamie. Overall, our markets are moving in a positive direction, and we're encouraged by the trends we are seeing. Certain markets and geographies are rebounding more quickly than others, and we continue to focus on managing supply chain and labor constraints to serve our customers. We also continue to monitor COVID-19 trends, and our task force in this topic meets regularly. In HVAC, order rates for heating continue to be strong across both residential and commercially focused channels. Cooling demand remains up significantly year-on-year in the Americas and Asia Pacific. In Detection & Measurement, our shorter-cycle products continue to perform well with locator demand rebounding strongly across most regions. As noted, our more project-oriented businesses are seeing very attractive customer activity and bookings and are building significant backlog despite slower delivery rates.

Looking ahead, I want to address the questions we continue to receive about our positioning for potential infrastructure legislation. SPX remains very well positioned for infrastructure spending in a number of different areas that have become important parts of current legislative proposals. These include: scanning with location equipment, which is required for activities that require digging; water inspection and remediation equipment from municipal water and sewer utilities; obstruction lighting for telecom towers related to broadband expansion; wind turbines related to renewable spending; and airports, ports and waterways; as well as upgrades of transportation networks, including bus fare collection systems.

While we cannot accurately predict with the current legislation on infrastructure spending will ultimately land, we are encouraged that there are a number of areas where SPX is well positioned to help lay the groundwork for future growth.

Before going into Q&A, I want to touch about -- touch on where we are along the path to our SPX 2025 goals. In June, when we announced the agreement to sell transformer solutions, we outlined our strategy to accelerate the transformation of SPX into a $2 billion revenue company in 2025, with significantly higher growth rates and margins, including 450 basis points of expansion and our adjusted operating income margin from the anticipated 2021 levels. We believe that these targets are reasonable and achievable, and supported by our track record, current momentum on organic initiatives, significant available capital and an active pipeline of acquisition prospects.

We believe that focusing on our HVAC and Detection & Measurement segments simplifies our business and enables us to better concentrate our efforts on further building scale in the attractive strategic platforms we have developed. These platforms share several attractive characteristics, including their focus on niche engineered products, technology and innovation. They are less capital-intensive overall, helping to support high-return profiles. We've had great success in our location and inspection in AtoN platforms and extending our HVAC product categories. With ECS, we are starting the same process with CommTech. We see numerous opportunities to further build upon these platforms and drive value by leveraging our infrastructure, management resources and business system.

With this context, our 2021 results provide a strong baseline from which to drive towards our long-term vision for SPX. The midpoint of our 2021 adjusted EPS guidance includes a number of items that, when normalized, would lead to significantly higher results in a range of $2.60 to $2.65 per share. We believe this presentation is the most reflective of what SPX will look like on an annualized basis post the sale of transformers. These items include a full year benefit from our acquisitions made during 2021, an annualized view of corporate costs and the benefit of using cash proceeds to pay down debt, resulting in significantly lower interest costs on a full year basis.

We have several key initiatives in place to drive growth, significant capital available and a robust pipeline of strategic acquisition opportunities. In addition, we anticipate recovery of our project-based businesses, which have yet to return to pre-pandemic levels. With this backdrop, we believe we have a clear path to substantial earnings growth and achieving the financial targets outlined in our recent strategic update.

In summary, I am very pleased with our solid Q2 performance, which positions us well for strong full year earnings growth. I'm excited about our recent acquisition of ECS, which further extends our CommTech platform and creates additional growth opportunities. I am also very pleased with the progress on our ESG and diversity and inclusion initiatives, which better position SPX for a successful and sustainable future. With a strong balance sheet and a highly capable experienced team, I'm looking forward to the significant growth opportunities ahead as we continue to execute on our value creation road map.

Now I'll turn the call back over to Paul.

[Paul Clegg, executive]

Thanks, Gene. Operator, we are ready to go to questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Bryan Blair from Oppenheimer.

[Bryan Blair, analyst]

HVAC results, again, very solid in the quarter. Recent growth weighted to the heating platform in that segment. But you noted momentum is building on the cooling side as non-res recovery gains traction. On that front, can you offer any additional detail on overall bookings trends in cooling? How orders have progressed relative to normal Q2, Q3 seasonality? How your team is thinking about replacement versus non-res new construction demand over the near to midterm? Just looking for any finer points to help us think about the underlying momentum and growth runway in that business.

[Eugene Lowe, executive]

If I want to start with that, this is Gene and then we'll let Jamie add any additional color. Overall, on the cooling side, bookings have been very healthy, and they are up. The coming into the year, the Dodge was predicting to be down a couple of percentage points. And we felt very good that we could outgrow the market and we are. So we're seeing positive trends on bookings. And I would really call out the Americas and Asia, in particular, as being very strong. Going into '22 and '23, again, the third-party data would suggest growth as opposed to some of the starts being down. And we would expect to grow in line or to outgrow the market growth over the next couple of years. So looking ahead, we actually feel very good about what we're seeing in front of us. Anything you'd like to add on that, Jamie?

[James Harris, executive]

No, I think that carried it well. The only thing I would add from the total cooling is both heating and cooling, we also saw good results from our continuous improvement programs. We're seeing good margins from both sides of the both platforms inside HVAC. And so we're very pleased.

[Bryan Blair, analyst]

All good to hear. And looking at D&M, the quarter obviously shook out pretty differently for run rate versus project-driven business. Any chance you can share how location and inspection revenue compared to Q2 '19? And then on the project side, can you quantify the impacts of shipment delays in the quarter? And maybe discuss where backlog sits relative to pre-pandemic levels?

[Eugene Lowe, executive]

Yes, sure, Bryan. I'll take a crack at this. I mean, I think the punch line, if you look at our Detection & Measurement segment is, overall, the run rate is very healthy. We feel very good about what we're seeing there. The return. We're just feeling really good about the demand profile there. And then on the project side, I would say it's improving, but it's mixed. And as it pertains to bookings and backlog, we have a very good story there. And I'll let Jamie get into some of the specifics, but we are way up. And we actually think that's going to be a nice positive for us going into '22 and '23.

If I go into the different platforms within D&M, the quick way that I see the market is location and inspection, very -- to your specific question of Q2 versus Q2, it's dramatically improved, but we see nice steady growth in location and inspection. We have good opportunities there. We have new products coming out and the team is executing very well. As you know, that's the biggest portion of our Detection & Measurement segment. AtoN as well, steady growth. We are integrating Sealite, our more recent acquisitions. And we also see some very attractive opportunities in some government military areas that are very intriguing to us that we're keeping our eyes on.

Transportation is slower this year. In terms of, if you're looking at deliveries, revenue will be down, but with very strong bookings. And we actually think we're very encouraged about what we see going into '22 and '23, so we feel very good on that. We actually think the infrastructure bill will also provide some additional support to that end market. And then on CommTech, we're -- that we are up last year, but I would say this is the area that we see the most choppiness. And at the simplest level, the way that I would describe it is the bulk of this business is outside of the U.S. and we serve countries all over the world.

And if you look outside of the U.S., there's still a lot of countries are still in lockdown. I can think of a couple of very specific processes, RFP processes, et cetera that have been slowed down due to COVID lockdowns or delays. What that means is they have the money and they want the product, but it's going through their processes in order to procure. So when I look at CommTech, I would expect, I would say, slower growth until we see COVID become more resolved in a number of countries. And Jamie, would you like to add kind of look at detection management, maybe backlog and bookings?

[James Harris, executive]

Yes. So Bryan, to start where you went radio as an example, very strong organic growth. In fact, it's probably the best quarter we've had on record for the L&I platform, but ready in a particular -- it's very strong organic growth had some acquisition add-ons from our Sensors & Software. We're -- our shorter cycle, we're in excess of 20% higher in some cases than we were in '19 levels. So we have gotten back to '19 and beyond there from a run rate standpoint. As Gene hit on the project-oriented businesses, timing is key to that business. We've got a solid backlog. As an example, our backlog is up year-over-year 60% from the standpoint of just raw dollars that we can see visibility.

Question is when did the shift. And in this particular business, we end up -- we generally have large shipments, all at once. It carries very high contribution margins, both incrementally and decrementally. And therefore, it has a big impact on margin. Almost all of our margin differential this quarter was because of the timing of some of our project businesses. And so I think it's -- to me, it's really a good news story. In a sense of run rate business, it's very strong. We certainly have things we're managing against, supply chain, et cetera. But our project business, we've got a very strong backlog, so we've got really nice visibility into the future and with that comes high margins and a lot of fall through. So we're encouraged.

[Bryan Blair, analyst]

Very helpful detail. And one last one. Given the significant dry powder you'll have following the transformers sale, there's naturally going to be a lot more attention paid to your M&A story and the prospect of flywheel value creation. Any further color you can offer on what you've referred to as a robust pipeline? Maybe talk about the total size of the funnel that's in place. Perhaps relative to pre-pandemic levels or anything in terms of that progression? And as a follow-on, if you were able to find the right opportunities or the opportunities were actionable in the next 12 to 24 months, and you deployed a lot of the dry powder that you have, are there any organizational constraints that would be in place? Or is the team ready to go if you can bring those target assets into the portfolio?

[Eugene Lowe, executive]

Yes. So Bryan, what I would say is when we look at M&A, we wholeheartedly believe in our strategy with that. I think we have a very good strategy. We've done 9 deals. We're really, I think excelled that building out platforms and then adding new market, new end markets more in the HVAC side. If you look at what we've built in location and inspection and in AtoN, as well as what our first step is, and its context, it's -- I think it's a very positive story because we're building scale and competitive strength in this platform. And we've told the story of how location and inspection has gone from 90 to, let's say, 260. AtoN, we have tripled in size. CommTech, we think there's a lot of runway to really build context. That's a very attractive platform.

And ECS, while it's very small on the revenue line, it's very strategic. It actually is oftentimes -- yes, in the same procurement with products that we sell. The software and the hardware are oftentimes bundled together, both in terms of their data lengths and their jammers. There is value in cross-selling and it enables us to really be a solution provider from the software and hardware, and we think that's very attractive. So I think at the end of the day, the funnel is larger. We are seeing more activity from people who are on the sidelines. We'll see more activity from, I would say, some of the private equity held assets or getting into the market a little more. So yes, I'd say we're very encouraged by the activity.

What I would also say is, I think it's a great question on organizational constraints. Because when you deploy capital, you're committing to results. And I would say, if you'd look at our businesses across our 9 acquisitions, we are above planned across season. And at the end of the day, we are adding more value than we had anticipated in our business case and in our acquisition models. And what that says is I really do think we have a good process on the front end for due diligence, and we have a very robust integration process. Having said that, you have to be very careful. And we can't -- we would not go -- go do 10 acquisitions in a row because what we do when we deploy capital, we have to deploy it very carefully, very smartly, and we have to meet our commitment.

So I do think we have a flywheel going. We have a very good front-end business development team and process, and we have also a very experienced back-end process where we integrate. And so overall, I feel really good about where we are. The opportunity set is very attractive. And as we talked about, just to kind of tie it all together, we talked about what's our pro forma earnings power. It's where we sit today. If you kind of take the midpoint of what we put out there, we're about $2.63 today. And that's without transformers, right? That has transformers in discontinued operations. If you think about where we were in '19 and '20 with transformers, that was in the $2.70s. I think those 2 years around $2.78.

And so where we are today, you can see us growing into '22. And then we do have a lot of firepower. And we -- I 100% believe in our model. I believe our flywheel is working, and we think there's a lot of opportunities to continue to invest for growth. Jamie, what would you like to add in terms of the M&A program and where we are? And any other thoughts you'd like to add?

[James Harris, executive]

No, I think it's well said. I think, Bryan, to your question about constraints, the company uses, I think, a nice mix of how I would describe it between internal resources and external resources when we do transactions, everything from diligence to looking at various professional firms. And so we're able -- that gives us the ability to have experience with a transaction that comes from the business as well as the functional areas, but also it allows us to leverage up if things got really, really busy. And so people and talent and experience is a key there. And we think between what we -- the folks that we have internally that have done some of the acquisitions and the external folks, we think we can handle that.

[Operator]

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

[Damian Karas, analyst]

Just wanted to ask you

[Audio Gap]

here. I understand the increase overall, but the range looks a little wide, I think, relative to where you guys normally would be halfway through the year. Maybe you could just talk us through that. I know you do lay out the slide that sort of has the full points around all the possible scenarios. But maybe just give us a sense on how you're thinking about the low and the high end in any areas where you're potentially less confident?

[Paul Clegg, executive]

Yes. So this is Paul starting. As you know, Damian, we do have a number of projects, businesses that we called out. We feel confident about the backlog of those overall for the range of guidance that we put out there. As typical, though, there is some level of variability potential in those. And the other factor I would call out is, as you know, we start the year off, not knowing what the weather is going to be in the fourth quarter and how that's going to drive heating revenue. And so that's one of the other factors that still leaves us a somewhat a wider range.

[Damian Karas, analyst]

Okay. Fair enough. And my follow-up question is on margins. When I look at the HVAC statement, the guidance for the full year seems to imply a step down in the second half. I'd be curious what your thinking is around that. And for D&M, obviously, a little bit of a setback in the second quarter. So just what gives you confidence in that 20%, 21% for the full year?

[Paul Clegg, executive]

Yes. So, Damian, Paul again. So I think as you look at across our quarters, we did -- let's talk about the cadence, I guess, for the second half of the year. And in terms of overall demand, we see Q3 actually being very similar in terms of level of demand that we're seeing. We expect to see similar levels of project orders, I think we mentioned during the prepared remark. And we're seeing run rate business continue at a strong level. On price cost, we're doing very well this year so far. Net price was roughly 0 impact in the first half. It was a little bit of a tailwinds in the first quarter, a little bit of headwind in the second quarter, but not a significant impact.

As we get into the third quarter, we're going to see a little bit more reversal there. And -- but we do feel very confident that we are going to see that favorable pricing come through in the fourth quarter because we're already seeing it really in our backlog. So that's one of the things you can see affecting margin a little bit in the third quarter. Of course, we did also have several below the line items that we went through in the prepared remarks, including the adjustment to insurance estimates and the insurance benefits, the lower tax rate, et cetera, that you'd have to adjust for when you look at the third quarter specifically, that we would be more likely to use a rate that's similar to our full year average of around 20%. But that's going to -- that has a little bit of an impact in the third quarter, which plays into the average for the year -- for the second half, I should say.

[Damian Karas, analyst]

Okay. Great. And just because you brought up price, could you give us a sense on kind of how much the price do you have in your guidance? How much price across the business is contributing to your top line?

[James Harris, executive]

Yes. This is Jamie. I'll take that one. We -- in the quarter, we had about 1.5% to 2% price. That was part of our organic growth. As we look forward to the second half of the year, we see that never being in the 2.5% range. From overall, if you look at the price and the supply chain that goes along with it from a cost structure standpoint, we think we are -- have good coverage, generally speaking. We had a net tailwind in both the first quarter and the second quarter. In terms of our price cost relationship in the second half of the year, we see a net tailwind.

We've made pricing adjustments in almost every business. They -- our competitors are doing the same thing. Those -- we're seeing those become effective and not really hurting volume to any material amount. We do think the timing is not perfect on the price. So we see a little pressure on the third quarter versus what it has been, but we see a nice rebound and a capture some of that back in the fourth quarter. So net-net, this year, price will be a tailwind for us. And this save generally average in the 1.5% to 2% range in terms of price as part of our top line growth.

[Operator]

Our next question comes from the line of Steve Ferazani from Sidoti.

[Steve Ferazani, analyst]

I did want to follow up on the guidance question. I'm curious about your margin guidance for Detection & Measurement coming out of this quarter and how dependent it is on seeing a lot of that project work hit in the back half and the risk to that?

[James Harris, executive]

Yes. This is Jamie. I'll take that one. Obviously, from the standpoint of the margins project, the project business, the project flow-through of revenue is very important. It does assume shipments of some projects that we have identified. As we mentioned earlier, in both my remarks and Gene's, we do have a very strong backlog. And then specifically, in our project-oriented businesses, we see a lot of -- we have a lot of good visibility of orders in hand. The question comes, what is the timing of the shipment. To the best of our knowledge right now, we see that happening in the fourth quarter, primarily more so than the third, but in the second half of the year for sure. Some of those processes, though, especially in some of our communication technology deliverables, there's a lot of steps to go through. And so that margin does -- it does have some dependency on project-level business.

[Steve Ferazani, analyst]

Would there be risk in terms of customer receiving or in certain equipment components or shortages? Or I'm trying to just determine what are the risks are to some of that stuff hitting in Q4?

[James Harris, executive]

We certainly have a little bit of a number of things, but predominantly, it's on the customer side being able to receive. I think, it's back to Gene's comments about, especially on our TCI business. We do a business with a lot of countries outside the U.S. And as some of those are not quite as open as we see ourselves right now here in the U.S., the timing of that becomes somewhat variable. But it's more on the customer receipt side and the ability to get it delivered than it is necessarily the components of the supply chain of our ability to make it and get it ready to show.

Net-net, I would say this is normal course. Right now, we have set up our model. These projects are a normal part of our businesses. There's always some variability, and we've been very good at predicting this over the -- our past 6 years. And I don't think we have any different feelings about -- it's obviously a big difference when you're trying to win an order, and then when you have the purchase order in your hand, you have the backlog, which gives us comfort. So I wouldn't say that there's any more -- this normal course as it pertains to the back half of the year.

[Steve Ferazani, analyst]

That's helpful. Do want to follow up on the questions regarding M&A and sort of your thoughts on hitting those 2025 sales goals. And just given the cash you've got from the transformers business, how does that change the way you may look at the size of deals? I mean, you set a pretty high goal for yourself. Does that mean or is it easier to get there with bigger deals [ on end ]?

[Eugene Lowe, executive]

Yes. I mean, if you think about it, we think, yes, 2025, we have 4 years of execution. If you think about it, we've been around a $100 million of revenue a year. Maybe a little bit less. If you think about it, our average deals have been in the $31 million I think and -- if you just kind of take the normal course and if that were to continue, you're talking about north of $400 million of acquired revenue. What I would say is we're very comfortable doing larger transactions. But then this have to be a very good strategic [ way ]. We feel like we're very good at what we do. In these engineered products, we typically have an advantage. We're typically the market leader. We typically have a big brand. We typically have a big install base.

So we're very focused on sticking to what we're good at. And -- but if I were -- my instinct would be you would see some larger opportunities than where we have operated over the past 3 years. But there's always a little bit of -- it's hard to predict perfectly in this market. But what I can tell you is we do see some really good opportunities, particularly in location and inspection in the 3 platforms within Detection & Measurement. We also see some very attractive opportunities in HVAC. And if I look across our 2 segments, what I would say is we've seen more opportunities in Detection & Measurement. Those tend to be a little bit smaller, and we see a smaller number of larger transactions. What I mean is $50 million, $100 million, $200 million of top line revenue on the HVAC side.

So we actually see some very attractive opportunities out there. And one of the key reasons that we do believe the transformer transaction makes a lot of sense is we can be very focused on building these 2 platforms as we are. So I would expect some acceleration as we go forward over the next couple of years.

[Operator]

[Operator Instructions] Our next question comes from the line of Walter Liptak from Seaport Research.

[Walter Liptak, analyst]

Speaking of strategic deals, I want to ask a couple of questions about ECS. I think you mentioned that it was going to be accretive, maybe $0.02 or $0.03. Was that annual? Or is that in 2021?

[James Harris, executive]

That was just '21.

[Walter Liptak, analyst]

Okay. All right. Great. And I wondered about ECS and the U.K. location for it. Does that help with some of the COVID restrictions and access into Europe in those parts of the world? First -- and I'm talking about for shipment of projects.

[Eugene Lowe, executive]

I'm not sure it helps on the existing business that we have out there. But what I would say is, we actually see some -- and actually, I just spoke with our President, who's over there this morning and just has spent several days with the leadership team there. The way I would think about it is there's a lot of customers out there. And we have certain strengths with a lot of global customers as does ECS. And they have strength with a lot of European customers. And you can see some of these on their website. They're very well positioned in Europe and NATO and the U.K. So they have some very good strategic key accounts. And we see some very attractive opportunities to cross-sell. Similarly, a lot of our customers buy the exact same products that ECS sell.

So we really do see this providing more opportunities in strengthening our channel and the customer. But I think it's less on COVID, but I do think it's more so over the long term. As this will be really operated as a CommTech business together, we're really working together and providing integrated solutions.

[Walter Liptak, analyst]

Okay. Got it. And when you were talking about the U.S. infrastructure bill, I didn't hear you mention CommTech being in there. But as I've kind of gone through and looked at what's in there, it sounds like there might be some CommTech related product. I don't know if you got any insight into that?

[Eugene Lowe, executive]

So if you look at -- if you look at our CommTech business, the bulk of the business is outside the U.S. It's typically with friendly countries to the U.S. And so there are some programs that have provided some support over the years, and that has been a nice demand driver. I have not seen that in infrastructure bill, as of date. There are already active programs that are out there that we're actively participating. And those are well funded is my understanding for a number of years. But in terms of incremental dollars to those existing programs, I haven't seen that. We can -- well, we can follow up with you on that question. But what we have seen, that has not been in there.

[Walter Liptak, analyst]

Okay. All right. And then maybe the last one for me is just on the heating season. Maybe a little bit early to start talking about any channel build, but the residential markets are pretty high. I think there's probably a lot of renovation going on. Are you seeing any channel build? Or is there any talk about this being a good heating season?

[Eugene Lowe, executive]

Yes. I mean I think -- yes, as you know, the bulk of our resi business in HVAC is going in hydronics and boilers. And the bulk of that is really replacement volume. And what I would say is we feel really good about our position. We feel like the channel is balanced. And we also feel really good about our product offerings. We have a new product called the [ Ecotec ], which I think is a real winner, which is getting nice traction in the channel. So I think we're very well positioned.

I do think at the end of the day, given the how much of our market is replacement that there will be -- how many heating degree days, for example, will be a driver of -- is the normal market expanded 5% or 10%? Or is it contracting 5%? And there's always that base load demand, but that would be a big driver. But from where we sit today, I'm very pleased with what we're seeing from our boiler business that had a good first half of the year, and I think they're well positioned for a good back half of the year.

[Operator]

I'm not showing any further questions at this time. I'd like to hand the program back to management for any further remarks.

[Paul Clegg, executive]

Thank you all for joining our call today. We appreciate your interest and look forward to updating you again next quarter.

[Operator]

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.