SPX Technologies Inc

F:SPW0

Earnings Call Transcript 2021-Q4

[Operator]

[Call starts abruptly]

[Paul Clegg, Vice President of Investor Relations]

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 Fourth Quarter and Full Year 2020 Results -- 2021 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 March 2. 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 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. As noted in our press release, our South African operations are now being accounted for as discontinued operations for all periods presented and are no longer part of our non-GAAP adjustments. As such, our other segment has been eliminated, bringing our GAAP reporting framework to two segments from three previously. Our adjusted results exclude non-service pension items, amortization expense, investment gains, certain discrete tax items, acquisition-related items, adjusted for certain legacy liability charges and certain other non-recurring items. Finally, we will be conducting virtual meetings with investors over the coming weeks, including at Sidoti's Spring Virtual Small Cap Conference in March. And with that, I'll turn the call over to Gene.

[Gene Lowe, President & Chief Executive Officer]

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 fourth quarter and full year 2021. We'll also provide guidance for 2022. I'll start with some of the highlights from the quarter and the year. We closed the year with solid results and the balance sheet that positions us well to achieve our growth plans. Looking back, 2021 was a transformational year for SPX Corporation. We continue to execute on our value creation road map and several significant accomplishments. We closed on three strategic acquisitions and completed the sale of our largest business transformer solutions. This transaction simplified and strengthened SPX and allowed us to focus on our higher-margin, higher-growth HVAC and Detection & Measurement segments. We also advanced our digital and continuous improvement initiatives, continued to invest in and develop our people and further progressed our ESG and diversity and inclusion initiatives. In 2022, we expect continued solid growth before taking into account any new capital deployment. While the current environment prevents several challenges, end market demand remains strong and our team continues to execute with focus and purpose to drive success. We are well positioned to continue our value creation journey and look forward to reporting additional successes throughout the year. Turning to our results; our Q4 performance reflects strength in our Detection & Measurement segment, while our HVAC segment faced headwinds primarily related to supply chain. Despite these pressures, segment income and margin increased on a year-on-year basis and we exceeded our updated full year EPS guidance. Turning to our value creation framework; we made solid progress in 2021 on several fronts. We introduced a number of innovative solutions and continued to scale several others. In our HVAC heating platform, our Weil-McLain Ecotech premium high-efficiency boiler continues to gain market traction and was the only hydronic boiler to win a prestigious Dealer Design Award in 2021. In our HV AC cooling platform, our CoolSpec product selection tool continues to receive strong favorable customer feedback and interaction. We believe this tool is a leap forward in customer experience when assessing and selecting the proper cooling solution for their needs and better positions us to achieve basis of design with engineers. In our Detection & Measurement segment, our location and inspection platform introduced new solutions to improve efficiency and safety for our end market utility customers, including innovative approaches to resolving cross for concerns about unintended intersections between different underground utility assets as well as less invasive and safer robotic approaches to roadwork in high-traffic areas. On the inorganic front, we closed three acquisitions last year, adding approximately $120 million in run rate revenue. The integration of these three businesses is going well and we see meaningful opportunities for synergies and potential for additional investments to further strengthen and broaden our position in these attractive niche markets. 2021 is also an important year of growth for key initiatives as we made considerable strides in our continuous improvement, digital, diversity inclusion and ESG. I feel very good about our continued progress on these fronts that are critical to building sustainable value. And now I'll turn the call to Jamie to review our financial results.

[Jamie Harris, Chief Financial Officer]

Thanks, Gene. For the fourth quarter, adjusted EPS was $0.88. As Paul mentioned, this is the first quarter with South Africa in discontinued operations and it is no longer a part of our adjustments. In Q4, we made a decision to harmonize our accounting method for inventory to FIFO, converting the remaining businesses from LIFO. Our method is now consistent within all segments and across the company. Accordingly, we have restated prior quarters and prior years to reflect this change. In addition to the segment drivers which I will review momentarily, interest costs were lower due to lower debt balances and a lower fixed rate on our swap agreement which began in April. In the fourth quarter of 2021 and 2020, our tax revision benefited from discrete items resulting in a lower-than-normal effective tax rate in both periods. Also, this quarter, we have excluded charges resulting from revisions to long-term modeling assumptions associated with legacy asbestos liabilities and the rate at which these liabilities decline over time. These charges do not reflect in period or near-term cash uses, they reflect our best estimates of future liabilities projected out to 2057. For comparison purposes, we have also adjusted corresponding items from our 2020 results. A table with our quarterly results reflecting these changes for 2020 and 2021 is available in the appendix to our presentation. With regards to our high-level results for Q4, despite strong orders and backlog, revenue and adjusted operating income were only modestly higher compared with the prior year. Organic growth in Detection & Measurement and the benefit of acquisitions were largely offset by organic decline in HVAC. We also made P&L investments in continuous improvement in other initiatives and experienced higher corporate expense related to performance-related compensation. Reviewing our segment results. In Q4, acquisitions and strong project deliveries within our Detection & Measurement segment were the primary drivers of revenue growth. Q4 margins were up year-over-year with an increase in Detection & Measurement, partially offset by a decline in HVAC. For our HVAC segment, revenues declined 8% with an organic decline of 9%, partially offset by 0.5 month of ownership of Cincinnati Fan which we acquired on December 15. The demand for both our heating and cooling businesses remained strong as evidenced by a significant backlog but both platforms were production constrained for the quarter. Heating [ph] revenues declined 7% against the backdrop of strong demand due largely to supply and production constraints related to the availability of certain components. Cooling revenues were down approximately 9%. During Q4, our Americas business continued to face production constraints related to supply chain and labor which were exacerbated by rise in COVID cases. Adjusted segment income and margin decreased 4.5 and 60 basis points, respectively. The decline was largely due to supply chain availability of certain component parts, cost inflation and labor constraints. Together, these impacted productivity shipments and costs. Overall demand levels remain very high for our HVAC products. Organically, backlog was up 38% compared with the prior year. Total ending backlog for HVAC was $227 million, with the most significant increases from our heating platform, particularly for boilers and the addition of Cincinnati Fan. Based on our bookings and backlog, both Heating and Cooling are well positioned for growth in 2022. Detection & Measurement, revenues were up 17% year-over-year, including an organic increase of 4.2% and a 12.8% impact from the acquisitions of Sealite and ECS. Adjusted segment income and margin grew 6.4 and 130 basis points, respectively. The increase was largely due to higher project sales and transportation as well as the benefit of acquisitions. As we discussed last quarter, our ULC business has experienced some lower revenue near term as a result of a U.K. utility rate case. We expect revenue to improve during the second half of 2022. Despite the short-term revenue decline, we continue to see this business as a great strategic addition and among the most attractive growth opportunities over time. Organically, Detection & Measurement backlog was up 14%. The ending backlog was approximately $154 million, including the benefit of acquisitions. Overall, we believe this segment is well positioned for growth in 2022 and beyond. Turning now to our financial position at the end of the quarter. We ended the quarter with cash of $396 million which includes the impact of our purchase of Cincinnati Fan in Q4. Net of our term loan, we are in a net cash position of $150 million. Adjusted free cash flow for the full year was approximately $104 million, representing approximately 96% conversion of adjusted net income. This excludes $20 million of positive cash flow associated with South Africa which includes tax benefits realized during the year. Overall, our strong balance sheet and liquidity positions us to continue growing through organic and inorganic investments. We have a robust pipeline of acquisition opportunities, including several active prospects. While we are confident in our ability to execute on growth investments, we will monitor for significant sustained value displacement in our stock price and we will consider using our share repurchase authorization if appropriate. As a reminder, our Board has authorized stock repurchases of up to $100 million, the details of which are included in our 10-K. Regarding 2022, in HVAC, the demand outlook remains strong and we anticipate solid full year growth. Tight labor and supply chain conditions have continued into Q1, leading us to expect flat segment income compared with the prior year first quarter. In Detection & Measurement, we are seeing strong run rate in project frontlog activity. Along with our acquisitions, we see this driving higher revenue and income for the full year. However, in Q1, we anticipate lower CommTech, ULC revenues compared to solid prior year results. In 2021, CommTech in particular, had a revenue profile that was heavily weighted in the first quarter which is atypical. We see revenue for both businesses strengthening throughout the year based on identified demand from customers. As a result, for the total company, we anticipate first quarter segment income to be approximately 20% lower than the prior year due to the high incremental margins of the Detection and Measurement project businesses. For the balance of 2022, we expect year-over-year increases in segment income. For the full year, we estimate an increase in total revenue of approximately 10% to 15% and adjusted earnings per share before capital deployment in the range of $2.50 to $2.80 per share. The midpoint of $2.65 reflects year-on-year growth of approximately 14%. In addition, there are approximately $0.11 per share of interest expense that could be eliminated if we use part of our $396 million of cash to pay off our term loan. We have purposely decided not to pay off a term loan because we expect to deploy that capital for acquisition opportunities. This $0.11 of earnings would bring our midpoint to $2.76 and we believe this is a better representation of our operational earnings power. Our full year midpoint EPS reflects overall strong demand but with supply constraints continuing in early 2022. Our range reflects various scenarios for supply chain and labor as well as the timing of project revenues in Detection & Measurement. As we progress through the year, we would expect to tighten this range. Overall, we remain excited about our business outlook moving forward. We continue to aggressively address supply challenges and believe we are winning in the marketplace with our customers. As always, you will find more details on our guidance in the appendix to today's slides. I will now turn the call back to Gene for a discussion of our end markets.

[Gene Lowe, President & Chief Executive Officer]

Thanks, Jamie. Overall, our end markets continue to see favorable demand trends. In HVAC, there are differences geographically with most -- with notable strength in the Americas. In Detection & Measurement, we continue to see a strong level of demand for run rate products across most regions. Our more project-oriented businesses continue to see attractive customer activity and bookings overall, although we are seeing softer orders in our CommTech platform. In summary, we closed the year with a solid earnings performance and a very strong balance sheet which supports our growth plans. We entered 2022 a more focused, higher-margin and higher-growth business with a clear game plan to achieve our SPX 2025 targets of approximately $2 billion in revenue and 18% EBITDA margins. We continue to make progress on our key initiatives and look forward to reporting more successes throughout the year. Current demand trends remain strong and we are continuing to manage through headwinds on supply chain, labor and inflation. We anticipate solid growth in 2022 prior to any benefit for capital deployment and believe we are well positioned to continue advancing our value creation initiatives for years to come. And now I'll turn the call back over to Paul.

[Paul Clegg, Vice President of Investor Relations]

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

[Operator]

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

[Bryan Blair, Oppenheimer]

Thanks. Good evening, guys. You offered very useful detail on Q1 dynamics. What -- how should we think about the progression of supply and the labor constraints in HVAC. Contemplated in your guide, how would you frame the midpoint relative to those factors, if we think about Q2 through Q4 progression?

[Jamie Harris, Chief Financial Officer]

Bryan, this is Jamie. So I think -- the -- so far, in 2022, we've seen, I think, a moderate improvement in supply chain. We -- early on, like most everybody in the country experienced a big uptick in Omicron cases and therefore, we had some absenteeism that was over and above the normal. I think we do see some moderate improvement in labor. We see some moderate improvement in supply chain. We are taking a lot of aggressive actions in terms of managing and setting up -- trying to improve our process and supply chain. So we do think it impacts us. We also see that continuing to lessen as the year goes on. As we mentioned in our prepared remarks, we do have a tough comp in our CommTech business from prior year. We have the rate case with our customer in the U.K. on ULC. But as we look forward to the year and to your specific question of guidance, I think if you take the midpoint, we'd probably see -- got us a little bit broader than normal, first of all. But we see supply chain as having -- if it breaks well, some nice upside embedded in that. There's also risk in it, as you would imagine, if we were saying we would probably say we've got more heavily weighted opportunities on the upside versus what the downside might look like. But we do see it continuing to improve in the first half of the year. And as we enter the second half of the year, we saw a lot of opportunities specifically to cooling. The cooling has been primarily labor. Therefore, our productivity throughput matter. We are seeing some improvement but it's still tough. We are -- we have seen on the com [ph] cases like the country go down significantly over the past few weeks. And in heating, we continue to have a huge backlog that we're working through. We see that as a great way to start the year, of course. And the component parts in various businesses are still challenges that we do think are improving.

[Gene Lowe, President & Chief Executive Officer]

Yes. And just a few other comments from my side. I think, clearly, supply chain is still choppy out there. I do think we are seeing some moderate improvement. The team is managing really well. And as you know, we -- with our business system, we have both the Supply Chain Council and the manufacturing council and they've really done a nice job applying best practices across all of our businesses, making sure we have robust S&OP processes, reorder points, safety stock, diversity of vendors, all of the things, combined with, I would say, pretty robust analytics, things as straightforward as looking at your bill of material items and looking at your order, your manufacturing plan over the next several months and looking at what you got and what you're waiting on. And we actually look at that every single day. So I think our operations has gotten much stronger and we actually feel good about the direction we're going. But it is something -- it is still choppy out there, I would say, on the supply chain side.

[Bryan Blair, Oppenheimer]

That makes sense. I appreciate the color. To clarify on cooling. Are labor constraints isolated to process cooling or more generalized?

[Gene Lowe, President & Chief Executive Officer]

I'd say the biggest impact we're seeing is not really on process cooling one, what we have called HVAC cooling, our package business. And really, the main facility there in Kansas is the one that we're seeing. And I would say, last year, that had been on a negative trend over the year. I'd say, as you know, we've put in a number of countermeasures. We have a number of initiatives. And we've actually seen some nice improvement month-over-month for the past four or five months, modest. But we are seeing things going in the right direction there. So that's probably the biggest area of impact of labor that we've seen across SPX.

[Bryan Blair, Oppenheimer]

Understood. And staying on HVAC, what's baked in for Cincinnati Fan revenue in year one margin? And how should we think about normalized growth rates for that business and margin potential looking out to year two, three margin?

[Paul Clegg, Vice President of Investor Relations]

Yes. So Bryan, this is Paul. For Cincinnati Fan, we talked about $60 million to $70 million roughly being a good starting point. But then from a revenue perspective, modeling here, I'd probably break it up evenly throughout the year. In terms of margin, we said that they would be eventually accretive to segment margin implying that they weren't currently. So you'd model something a little bit below the segment average for the year.

[Bryan Blair, Oppenheimer]

Okay, that's fair. And should we think of that business as potentially another platform within HVAC? Or is it a clear enough extension of cooling that's likely where it's going to sit going forward?

[Gene Lowe, President & Chief Executive Officer]

Yes. Right now we see a lot of overlap with cooling and we actually think that can be a lot larger than it is today. As you know, every cooling tower has fans and air movement and blowers and we engineer the vast majority of those and design and test those ourselves, sell those, both with our cooling towers and without. So we know our movement. We have a lot of overlap in our technology there. And then also in the channel, if you look at our go-to-market, both on the light industrial commercial side and then more of the heavy industrial, we see some real synergy there. So I think it's a really nice growth product area there. Whether we would break it out and call it one of our -- right now, the way I think about it, we have six platforms heating, cooling and then our four platforms in Detection & Measurement. I'd say right now, we're not anticipating breaking it out separately. But as that grows, I don't know how I would take it off the table in the future.

[Bryan Blair, Oppenheimer]

Got it. Good. Thanks, again.

[Gene Lowe, President & Chief Executive Officer]

Thanks, Bryan.

[Operator]

Thank you. Our next question comes from Damian Karas of UBS. Your line is open.

[Damian Karas, UBS]

Hey, good evening guys. Follow-up question on HVAC. You guys aren't expecting too much margin improvement this year at the midpoint and that's right kind of 20% or so incrementals. Maybe you could just elaborate on your margin expectations for the year? Talk about kind of price cost, whether you're expecting any tailwind from lower steel prices potentially later this year, mix factors? Maybe if you could just kind of spell out the exact margin guide.

[Jamie Harris, Chief Financial Officer]

Damian, this is Jamie. So let me start with price/cost because I think it leads into the other question you asked specifically about HVAC. I mean if you go back into '21, we ever so slightly had a headwind on dollars with price/cost. As you know, cost went up quite dramatically late in the year. We put in some pricing a couple of times in our HVAC businesses. The last one like October so it really took effect late in the year and really positioned us probably better for 2022 in terms of capturing that price. That had a negative implication of, let's call it, 50 basis points embedded in the price/cost on total company. If you roll that into 2020, we're seeing a couple of things. We think from a price/cost perspective for new business, we will have -- we will more than cover our cost that we're projecting and regain some of that margin that we may have given up last year. And that's a couple of things just both the late in the year or just call it the first or the fourth quarter price increases as well as the price increases we have planned for '22. That being said, as we enter '22, we do have a large backlog that's got embedded in it some price that is reflective of price in the late third quarter, fourth quarter that still is compressing the margin a little bit. So as you think about it -- as I think about it, the new pricing, the new business, we definitely are ahead we think of the price and we'll regain some that we may have lost last year but we still have to work through some compression from the backlog.

[Damian Karas, UBS]

Okay, got it. And then I wanted to ask you about capital allocation. Jamie, you mentioned before possibly taking down your interest expense. How are you thinking about capital deployment in terms of timing, when you might pull the trigger on some buyback or some debt paydown if you haven't got any deals done? And Gene, just I know obviously you don't have a crystal ball, can't comment on timing of deal execution. But maybe you could just kind of give an update on the pipeline and gut feeling whether you think they'll be relatively more or less active this year on the acquisition front?

[Gene Lowe, President & Chief Executive Officer]

Damian, why don't I start on the M&A side or the growth side and then I'll let Jamie take over the broader capital allocation question. Overall with M&A, we feel very good. We like where we are today. We've done 10 bolt-ons over the past couple of years, have added around $350 million of revenue and if you look at last year, we added three deals with $120 million of revenue. And as you know, in our SPX 2025 plan, we basically said we're going to go from $1.25 billion to $2 billion in 2025. $250 million of that's organic and approximately $500 million of that's acquisition so that's $125 million a year. So we're already at that run rate. I would say the pipeline and what we see in front of us, we see a lot of activity. I'd say there's also a fair amount of proprietary activity. So overall if I look at the opportunity and, as you know where we sit today, we have approximately $1 billion of opportunity to invest in growth. I think it's an attractive opportunity in front of us and our target would be to be ahead of our plan for the SPX 2025 plan. But we're already running, I would say, at that run rate. The logical question would be hey, how is pricing? Pricing is still -- it's not a cheap market. I'd say it's a very aggressive market particularly on some larger opportunities. I would say particularly if you're looking at scale, detection and measurement businesses, we're seeing some very high multiples. But with our strategy and with the way that we've managed this, we feel very good we'll be able to accomplish our goal. So that's the M&A side. Why don't I hand it over to Jamie to keep going here?

[Jamie Harris, Chief Financial Officer]

Yes. So Damien, I think Gene set up the conversation well. I mean we -- when I joined the company, one of the things that attracted me to the company, it had a very strong balance sheet with a lot of energy around growing through acquisition and organically. Having that $1 billion available, we look at every day how we're going to allocate the capital and put it to use effectively. In the remarks, we did note there's about $0.11 of interest in our P&L that we could take out if we wanted to. We purposely made the decision not to do it at the present time because we do think we have some really good opportunities in the acquisition front. Were we to move down with a larger type transaction, we would probably redo that capital structure at that time and kind of extend it out and just reposition it. But today just to pay that down is a choice we're choosing not to make. That being said, I think when it relates to buybacks in particular, first of all, we think we have a very good growth story. We sold transformers because we wanted to reposition the company in higher growth, higher margin pieces of our business and redeploy the capital in those areas. That being said, we constantly are watching kind of the market and our stock in particular and if we were to see where there's a dislocation, if you will, of what we see looking at it internally from a valuation perspective, we would definitely take action against that. We do have, as a reminder, $100 million of authorization that the Board has granted that we are working against or with. The market that we're in today, as we all know. I mean what we don't want to do is get in front of a bad market. We do not want to do that. But what we do want to do is support our stock if we believe it is kind of singled out as being dislocated from what we see the value being. So it is on the forefront of our thoughts. But I'd kind of leave saying our M&A strategy is our number one growth objective for capital allocation right now. That being said, buybacks are clearly something we've got in our sight to keep an eye on.

[Damian Karas, UBS]

Makes sense. Thanks for the thoughts. Good. Best of luck, guys.

[Gene Lowe, President & Chief Executive Officer]

Thanks, Damian.

[Operator]

Thank you. Our next question comes from Steve Ferazani of Sidoti. Your line is open.

[Steve Ferazani, Sidoti]

Good evening, everyone. I wanted to follow up a little bit on the M&A questioning. Just want to ask and I know some of the previous acquisitions were on the D&M side but you've always said you'd still be looking on the HVAC side. But you noted sort of the margin profile and the growth profile improve as you make more of those D&M acquisitions. So I'm just trying to get a better sense of how and why you think Cincinnati Fan fits within sort of this progression over the next couple of years?

[Gene Lowe, President & Chief Executive Officer]

Steve, I think if you look at the data the 10 bolt-ons that we have done, three have been in HVAC and 7 have been in D&M and we've said that these acquisitions before synergy were right around 20%. They're around 19.7% if you aggregate them all up. And we actually think we can get more margin via cost synergies predominantly but also some revenue synergies on some of these. So we actually feel like these have been very accretive to our overall margin profile. We also think they've been very accretive to our growth profile. And I actually think there's some very attractive opportunities. I don't see a lot of difference on D&M and HVAC in terms of the attractiveness of the opportunities. With regards to Cincinnati Fan, I would say that'd be modestly a little bit under our segment average for HVAC this year. I would anticipate that to be at or above the segment average next year. So we acquired Cincinnati Fan on December 15 so we've really started to get in there and started all of the integration processes and so forth. But I actually feel like that will end up being a very good growth area for us going forward and I'm very excited about that one in particular.

[Steve Ferazani, Sidoti]

Great. And then, just a question on the balance sheet on working capital. Certainly know that a lot of companies have built up inventory given the supply chain constraints. Trying to think about where -- how you're thinking about inventory and working capital in general in 2022 and where you're comfortable with given the current supply chain constraints? And is that build on inventory really related to that or is that just the dollar cost -- higher dollar cost of the inventory you're carrying?

[Gene Lowe, President & Chief Executive Officer]

Couple of things there, Steve. I think specifically to management of working capital, I mean it's an initiative really we kicked off in '21. There's going to be more emphasis on it in 2022 but not from a context of minimizing or lowering working capital. I would call it rightsizing working capital given the supply chain challenges are out there. A lot of times you think about managing working capital is always taking it down. We clearly want to use it effectively and so we actually have our MBRs actually encouraged so as to loosely buying safety stock or component parts if we need to because having it and carrying the working capital is much more effective and advantageous than running out of it obviously. And so it is an initiative that we want to look at but it's more about rightsizing it given the environment we're in. What you see I think on the balance sheet is probably most reflective of two things, the higher cost of inventory generally and also the increase in inventories because of some of the acquisitions. And when you look at a period-over-period, you don't have that in the beginning balance sheet numbers.

[Steve Ferazani, Sidoti]

Thanks [ph].

[Operator]

[Operator Instructions] Our next question comes from Walter Liptak of Seaport. Your line is open.

[Walter Liptak, Seaport]

Hi, good evening guys. So I wanted to ask about D&M. The operating margins looked really nice in that segment and the operating leverage was just terrific. I wonder if you could just talk a little bit about that margin again and was it the mix of business or was it leverage? You also had some acquisitions coming through, were they accretive to the margin?

[Jamie Harris, Chief Financial Officer]

Walter, this is Jamie. That's obviously a great question. It's something we're focused on very much. I think if you look at the quarter in particular, it's driven by a number of things. We had -- our locator business had a really strong quarter. But also our project businesses, particularly transportation business Genfare and our TCI business in CommTech. You've heard us talk in many quarters that we are seeing projects get pushed out and the incremental margin that flows down because of that. I think what we saw in the fourth quarter was some of those projects coming to fruition and the incremental margin that goes to the bottom line or to the gross margin line because of those projects. We had -- Genfare had a great quarter. A lot of things we've been working on for several months and several quarters came together, same for TCI. So I think you see the reflection in the margins of really the power of the model. Unfortunately, sometimes it's little volatile in a given quarter. But over the long run, we think it's got some good attractive margin profiles to it.

[Walter Liptak, Seaport]

Okay, great. And with the backlog up 14% organically in D&M and I think there was a comment that you guys have a nice front log or business. I was wondering about the guidance around D&M's margin for the year. Is it front-loaded, back-loaded? How will the project work flow in 2022?

[Paul Clegg, Vice President of Investor Relations]

Walter, this is Paul. As we talked about in the prepared remarks, at least the first part of that, the first quarter obviously is going to be more of a challenge from a margin perspective given the project log that we've seen in CommTech and also because of the ULC dynamic. But as you progress throughout the year, we would expect to see those lift year-over-year. As we get to later in the year typically in our CommTech business because of budgetary cycles, that tends to be a little bit late in the year or [indiscernible] in the year. So you would expect that to be a higher margin in the fourth quarter.

[Walter Liptak, Seaport]

Okay, sounds good. And I'll just ask a final one on M&A. We've seen some companies' valuations coming down here in the market with concerns about the Ukraine or supply chains or other things. How are you seeing the private company valuations? Are you starting to see valuations come down at all?

[Gene Lowe, President & Chief Executive Officer]

I think just my perception; you don't see a lot of change on that week-to-week or month-to-month too rapidly. I think that as you know, Walt, we've been very careful. Our blended price is in the neighborhood of 10.5x, that's before synergy and so we've been very careful about pricing. I think you do see particularly in larger deals -- particularly in larger D&M deals, you will see a lot higher pricing. You're talking mid-teens or very high teens in some cases that we have seen. So I don't think I've seen a lot of change. I think it's a good point, however, particularly with -- if there's a reset on multiples in the -- ultimately in the public markets, will that ultimately flow down to the private market pricing? I think that could happen. But we think we have a good model, a good value creation strategy and haven't seen any deviations that would cause us to change that going forward.

[Walter Liptak, Seaport]

Okay, great. Thanks for taking my questions.

[Gene Lowe, President & Chief Executive Officer]

Thanks, Walter.

[Operator]

Thank you. At this time, I'd like to turn the call back over to Paul Clegg for closing remarks. Sir?

[Paul Clegg, Vice President of Investor Relations]

Okay. Thank you all for joining us on the call today and we look forward to updating you next quarter. Please feel free to reach out to our IR team in the meantime if you have further questions.

[Operator]

And this concludes today's conference call. Thank you for participating. You may now disconnect.