SPX Corp
NYSE:SPXC
Earnings Call Analysis
Q4-2023 Analysis
SPX Corp
SPX Technologies concluded the fiscal year 2023 with solid performance, boasting a 50% growth in adjusted EBITDA and achieving adjusted earnings per share (EPS) near the top end of its guidance range. In the fourth quarter especially, they saw revenue surge by 9.3%, and adjusted operating income climb by 18.7% year-over-year, exhibiting margin expansion of 150 basis points. This robust close to the year, underpinned by the successful execution of operations and consistent demand across most end markets, has set a positive tone for 2024. The company's strong operational momentum is epitomized by outstanding margin performance in its HVAC segment, which benefited from continuous improvement initiatives, efficiency investments, and high customer demand.
SPX Technologies has not only excelled in operational efficiency but also in innovation and strategic acquisitions. The company introduced a new adiabatic cooling solution at the AHR trade show, signaling commitment to new product development and customer sustainability needs. Additionally, the recent acquisition of Ingenia, known for its excellence in custom air handling systems and strong engineering prowess, is expected to strengthen the company's reach in the engineered air movement and open up new growth avenues.
The company posted a 7% year-over-year growth in adjusted EPS to $1.25 for the quarter, with a significant 39% increase to $4.31 for the full year, closely aligned with its forward guidance. SPX's financial health was underlined by a strong total revenue uptick of 9.3% year-over-year and a 13.6% rise in segment income to $102.8 million for the quarter. The HVAC segment shone particularly bright, showcasing a 14% annual increase in revenue and an impressive 390 basis point boost in segment margin owing to operational leverage and recent acquisitions. Conversely, the Detection & Measurement segment experienced a modest 1.2% uptick in revenue with a flat organic sales performance.
SPX Technologies ended the year with a prudent fiscal approach, holding $105 million in cash against a total debt of $558 million. The leverage ratio, calculated as per the bank credit agreement, showcased a decrease from 1.7x in Q3 to 1.3x in Q4. This reduction reflects strong free cash flow generation, with the full year's adjusted free cash flow reaching $231 million, about 115% of the adjusted net income. Post-acquisition of Ingenia, the net leverage stood at 2x at the end of Q4 2023.
As SPX Technologies looks ahead to 2024, it forecasts revenue between $1.93 billion and $2 billion, with a segment income margin ranging from 21% to 22%. Ingenia is set to contribute significantly, with an expected annualized revenue of about $100 million. The guidance for the forthcoming year includes an adjusted EBITDA projection between $375 million and $405 million, embodying a year-on-year growth of 25% at the midpoint, and a margin of around 20%. These figures reflect continued prosperity and the company's confidence in its strategic path forward.
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Hello, and thank you for standing by. Welcome to SPX Technologies Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions].I would now like to hand the conference over to Paul Clegg. You may begin.
Thank you, and good afternoon, everyone. Thanks for joining us. With me on the call today are Gene Lowe, our President and Chief Executive Officer; and Mark Carano, our Chief Financial Officer.A press release containing our fourth quarter and the full year 2023 results was issued today after market close. You can find the release in our earnings slide presentation, as well as a link to a live webcast of this call in the Investor Relations section of our website at spx.com. I encourage you to review our disclosure and discussion of GAAP results in the press release and to follow along with a slide presentation during our prepared remarks. A replay of the webcast will be available on our website until February 29.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 filing. Our comments today will largely focus on adjusted financial results, and comparisons will be to the results of continuing operations only. You can find detailed reconciliations of historical adjusted figures from their respective GAAP measures in the appendix to today's presentation. Our adjusted earnings per share exclude primarily acquisition related costs, nonservice pension items, mark-to-market changes, amortization expense, and a charge associated with recent legal settlement.Finally, we will be hosting Investor Day on March 26 in New York. The event will be webcast. If you would like to attend in-person, please send a request to our Investor Relations email as noted at the end of today's press release and on our website.And with that, I'll turn the call over to Gene.
Thanks Paul. Good afternoon, everyone, and thank you for joining us. On the call today, we'll provide you with an update on our consolidated and segment results for the fourth quarter and full year 2023. We'll also provide our full year guidance for 2024.We had a strong close to the year. We grew adjusted EBITDA 50% and delivered adjusted EPS near the upper end of our guidance range. During Q4, we continued to execute well and saw robust demand continue across most of our end markets. Our HVAC segment in particular achieved excellent margin performance compared with very strong results in the prior year period.I'm proud of our team's accomplishments over the past year. We made great progress on our digital, continuous improvement, and sustainability initiatives. We also completed 2 strategic acquisitions in our HVAC segment that helped strengthen our positions in the attractive engineered air movement and electrical heating markets.Recently, we made another significant addition to our HVAC segment with the acquisition of Ingenia, a provider of high-value custom air handling systems that broadens our growth opportunities and geographic reach in the engineered air movement.Looking ahead, market conditions support continued robust growth for SPX and remain well positioned to continue our strong operational execution. Today, we're providing 2024 midpoint guidance for adjusted EBITDA growth of 25% and adjusted EPS growth of 16%. At the midpoint of $5 per share, our adjusted EPS guidance would achieve a key SPX 2025 target 1 year ahead of schedule.Turning to our high-level results. For the fourth quarter, we grew revenue by 9.3% and adjusted operating income by 18.7% year-on-year with 150 basis points of margin expansion. We ended the year with a healthy backlog, solid overall demand trends, and positive operational momentum.As always, I'd like to touch on our value creation framework. Over the past quarter, we continue to see the benefits of our continuous improvement initiatives, including investments in efficiency and throughput that have allowed our HVAC segment to serve historically high levels of customer demand and achieve record segment margins. We also continue to introduce new innovative products to meet our customers' sustainability needs.At the recent AHR trade show, we showcased a new adiabatic cooling solution that balances the water-saving benefits of air-cooled heat rejection with the energy efficiency of a water-cooled solution. This product serves an attractive niche for customers facing water conservation challenges.In our location and inspection platform, we launched an advanced solution that enables faster, simpler, and less costly precision location and instant mapping of underground utilities. This process is critical to many utilities whose pipes and cables were buried up to 50 years ago and who may lack accurate records.We've also continued to advance our inorganic growth initiatives. Earlier this month, we announced the acquisition of Ingenia, a leader in the design and manufacture of high-quality air handling units headquartered just outside of Montreal. I'm very pleased to welcome our new colleagues to the SPX team. Ingenia has a strong reputation for quality custom air handling solutions in diverse end markets, including healthcare, pharmaceutical, food processing, and other demanding industrial applications. Ingenia brings together strong engineering capabilities with a highly automated production process and proprietary configuration software. This combination enables them to provide demanding custom air handling configurations with unmatched speed and flexibility. We are excited about Ingenia's significant technical and production advantages and their opportunities to address this large and growing end market.Now, I'll turn the call over to Mark to review our financial results.
Thanks, Gene. Q4 was another solid quarter for SPX Technologies. Year-on-year, our adjusted EPS grew approximately 7% to $1.25. Full year adjusted EPS grew 39% to $4.31, or near the upward end of our guidance range, $4.22 to $4.32. As noted by Paul, in addition to our typical items, our adjusted results for Q4 and the full year excluded charge associated with the legal settlement. The after-tax impact to adjusted EPS was approximately $0.14. This was a highly unique, isolated event related to a dispute with a former business [ revenue ].For the quarter, total company revenues increased 9.3% year-on-year. Acquisitions drove the increase, while organic revenue declined modestly. FX was a slight tailwind. Segment income grew by $12.3 million or 13.6% to $102.8 million, while segment margin increased 80 basis points.For the quarter in our HVAC segment, revenues grew 14% year-on-year. Acquisitions contributed growth at 15.7% and included TAMCO in our cooling platform and ASPEQ in our heating platform. On an organic basis, revenues declined 2% driven by lower sales of hydronic equipment associated with unseasonably warm weather in our end markets. This followed a substantial increase in heating volumes in the prior year period. The year-on-year decline was partially offset by higher volumes of cooling product sales driven by continued strong customer demand [ higher ] throughput.Segment income grew by $19.7 million or 37%, while segment margin increased 390 basis points. Segment income and margin continued to benefit from operating leverage and higher throughput of our cooling platform, as well as accretion from our TAMCO and ASPEQ acquisitions. Backlog remained healthy at $306 million, up approximately 13% organically compared with the prior year end.For the quarter, in Detection & Measurement, revenues increased 1.2% year-on-year with flat organic sales and a modest FX tailwind. While we achieved our full-year revenue guidance, our Q4 margin performance was disappointing. In Q4, we experienced lower-than-anticipated volumes of run rate product sales that have high incremental margins. This was offset by higher CommTech project shipments that have path-through content, resulting in a lower-than-anticipated margin mix.During the quarter, we also incurred elevated expenses within the segment, including higher R&D for future growth initiatives. Year-on-year segment income declined by $7.4 million with a 500 basis point reduction in margin, resulting in a full-year margin, approximately 80 basis points below our midpoint guidance. Segment backlog at quarter end was $245 million, down modestly from the prior year.Turning now to our financial position at the end of the quarter. We ended Q4 with cash of $105 million and total debt of $558 million. Our leverage ratio as calculated under our bank credit agreement declined to 1.3x from 1.7x in Q3, reflecting strong free cash flow generation. Full-year adjusted free cash flow was $231 million, or approximately 115% of adjusted net income. Including the impact of closing the Ingenia acquisition, net leverage was 2x as of Q4 2023. We anticipate our leverage ratio declining to the lower end of our current range, 1.5x to 2.5x by year end, assuming no additional capital deployment.Moving on to our guidance. Today, we introduced full year 2024 guidance, which includes Ingenia. We anticipate revenue in a range of $1.93 billion to $2 billion, and segment income margin in a range of approximately 21% to 22%. Ingenia is anticipated to have annualized revenue of approximately $100 million in 2024, with revenue growth and margin rates that are above the segment average.Starting in 2024, our guidance for total company performance will include adjusted EBITDA, the primary difference between adjusted EBITDA and adjusted operating income depreciation. Please also note that our bank leverage covenant uses a different EBITDA measure as defined in our credit agreement.In 2024, we anticipate adjusted EBITDA in a range of $375 million to $405 million. At the midpoint, this reflects a margin of approximately 20%, and year-on-year adjusted EBITDA growth of 25%, following a 50% increase in the prior year. Our adjusted EPS guidance range of $4.85 to $5.15 reflects 16% growth at the midpoint over our strong 2023 results.In our HVAC segment, we anticipate revenue in a range of $1.325 billion to $1.375 billion, reflecting an increase of approximately 20% at the midpoint. We anticipate HVAC segment margin of 21.25% to 22.25% for an increase of approximately 85 basis points at the midpoint, as we benefit from further operating leverage and favorable margin mix from acquisitions.In our Detection & Measurement segment, we anticipate a significant reduction in our CommTech project sales, as we deliver the bulk of a large project order with past-week content in 2023. Despite this headwind, we anticipate Detection & Measurement segment revenue in a range of $605 million to $630 million, with the midpoint almost flat with the prior year. Excluding the decline from the CommTech pass-through project, we expect underlying sales to grow mid-single digits. This includes solid growth in project sales and a continuation of flatter market conditions for our run rate products.We anticipate D&M segment margin in a range of 20% to 21%, with the year-on-year increase largely due to a more favorable mix associated with the reduction in CommTech project sales. With respect to [ gating ], we anticipate the cadence of net earnings will be similar to 2023, with 46% of adjusted EPS delivered in the first half and 54% in the second half. In Q1, we anticipate a significantly stronger year-on-year results in HVAC, while we expect Detection & Measurement segment income to be roughly flat year-on-year. As always, you'll find modeling considerations in the appendix for our presentation.I'll now turn the call back over to Gene for a review of our end markets and his closing comments.
Thanks, Mark. Current market conditions are supportive of our 2024 outlook. Within HVAC, we continue to see strong demand for our cooling products across a broad set of end market applications, including data centers, semiconductor plants, and industrial facilities.In heating, we continue to see solid demand associated with decarbonization in our commercial and industrial markets. As always, residential sales are affected by winter temperatures.In Detection & Measurement, we are experiencing uneven global demand in our short-cycle businesses, while project orders remain healthy. Our customers continue to signal significant approaching demand [indiscernible] infrastructure.In summary, I'm pleased with the solid close to 2023 and our strong full-year performance. Our acquisition of Ingenia further scales our cooling platform and broadens our growth opportunities in engineered air. With a solid backlog, positive operational momentum, and continued demand strength in key markets, we are well positioned to achieve our 2024 guidance and reach our SPX 2025 targets 1 year ahead of schedule.Looking ahead, I remain very excited about our future. With the right strategy and a highly capable experienced team, I see significant opportunities for SPX to continue growing and driving value for years to come.With that, I'll turn the call back to Paul.
Thanks, Gene. Operator, we will now go to questions.
[Operator Instructions] Our first question comes from the line of Bryan Blair with Oppenheimer & Company.
Great 2023. Obviously, you came in about 4x the EPS growth you initially guided. That's quite impressive and you're on pace to hit 2025 targets 1 year early. All of that said, let's nitpick to start out, the D&M results came in a bit lower than anticipated and run rate pressure, that surprised us a little bit. And obviously, the mixed impact there, I assume, with radio detection. That did hit the variance for the quarter. Maybe offer a little more color there, and how you see run rate progression throughout 2024.
Yes. Bryan, I'll start out here. With respect to some of the run rate business, you're right, we saw it flatten out in Q4 relative to our guide and where our expectations were for the quarter. We expect -- and as we look into next year, we expect that to remain flat as we see it today. As we mentioned in our prepared remarks, those end markets are a little bit uneven, sort of depends on where in the world those products are being sold into, as you know, that is a more global business than some of our others. The U.S. market tends to be fairly resilient, so we feel pretty good there. But when you look outside the U.S. and Europe in particular, you're seeing some weakness there that we hadn't originally forecasted, whether that's in the U.K. or on the continent.
Okay. Understood. Time will tell. Maybe offer a little more color on Ingenia. It seems like another great deal for your team. Maybe touch on the overall fit with the EAM platform or sub-platform, I suppose. And how you think about growth prospects there? And you did mention revenue contribution. What are you baking in for accretion year 1?
Yes, why don't I start there, Bryan? It probably makes sense to step back. And I think it's been a really positive year over the past 12 months on the inorganic growth. I think we've done 3 great deals, really TAMCO [ an ] engineered air movement, ASPEQ [ an ] electric heat, and now Ingenia [ an ] engineered movement. We actually think these really strengthen us. Now, to put this in context, we have deployed about $800 million of capital over the past 12 months. If you look at it, we had planned on being at the lower end of our range, 1.5x by the end of the year. We're down about 1.3x. Even after doing Ingenia, we also think by the end of this year, we'll be down at the lower end of our range, 1.5x or less. So we feel good about where we are in the model.Specifically, about Ingenia, it's a really good company. We know the space very well. We've been tracking this space for years. Literally, I would say more than 6 years. I think this is the best company, we believe, in this market. They have highly automated robotics in terms of how they make the product. This actually gives them a nice advantage both in terms of lead times, but also in terms of the amount of labor and the people they have to make a product. They're much more efficient. We actually see in many cases they are less than half of certain competitors that they compete with. So really good technology. They have a really innovative software solution, which allows them to custom configure down to the very fine details what they're looking for. And they can do this much faster than their competitors. We think this gives them a lead time advantage. And they're serving very attractive end markets. You typically see them in markets where there's higher requirements, either in terms of air leakage or thermal performance, so healthcare, pharmaceutical areas of industrial, and they do very well in those markets, have a very nice win rate.Having said all that, they're very strong in Canada, and they've only started getting going in the U.S. I think they have maybe 7 states or a smaller number of states that they've really gone after. There's one that they've gone after that's penetrated very well, but in terms of synergy, we have the Marley business, the Marley cooling business, where we have really strong [ revs ] in North America, really in every corner, and we actually think we're going to be able to help them build out their channel, and we also see some nice synergies. If you think about it, every time a hospital goes in and needs a number of cooling towers, it needs this type of air movement, it needs this type of TAMCO dampers. You see a lot of synergy across these different product categories, which is why we all have them together, but yes, we're really excited about Ingenia. I think we're excited they're a part of the team, and we're looking forward to going forward.
Yes, Bryan, this is Paul. On the accretion question, it will be accretive. Obviously, there are -- there is a higher interest burden as a result of the borrowing that took place during the first quarter, about $300 million on a revolver at a rate of 6.5% to 7%, somewhere in the middle there. And most of that, we won't start paying that down until late in 2024. On the -- you're right about the run rate revenue being around $100 million. We'll have that for a little less than 11 months, and we've said that the segment margin would be a little higher than the HVAC average. The HVAC average, according to our updated for new midpoint guidance for 2024, is about 21.75%, so something a little higher than that.
Okay, understood. We have the breadcrumbs there, and Gene, a very helpful color on the strategic set. And Paul, you just kind of gave me the segue on HVAC margin, and I surmise this will be a key investor day topic, both HVAC and D&M. Is there any reason why at this point, given the structural enhancements to HVAC, that we should see the margin profile dip below what we've seen, new run rates and what's guided for 2024? And then on the D&M side, any reason why they should not get back to the low to mid-20s or perhaps even higher over time as platform scale?
Yes. Bryan, I think with respect to HVAC margins, we feel very comfortable with our guide for the year. When you step back and think about the market backdrop and the capabilities we've got there, we're really in a very good position, particularly with the backlog that we're coming into the year with, and you look at the demand drivers around it. So that in combination with some of the investments we've made into the platform to help drive incremental efficiency, drive throughput, gives us confidence in those margins for 2024. So with respect to D&M, we had this mixed issue in Q4 when you think about the dynamic around weakening run rate. That was offset, obviously, by some of the project businesses, some of these pass-through contracts that we've discussed in the past that were at a lower margin than typical for that business. As we roll into next year, we will have a little bit of this pass-through still flowing through in the first quarter or the first half of the year, but largely those contracts will be behind us. So when I think about that impact that was pressuring margins, when I think about our flat guide with respect to the run rate business, there's a path back to the margin guide that we have in here, which is sort of up 130 basis points year-on-year when you come to the midpoint of the guidance.So, and maybe I'll come back to your first question and my response there. I think the other thing you should think about with respect to the run rate business, it's flat, but we're not really seeing any downward pressure on it today. So when you think about radio and you think about some of those other businesses, given the high margins that we have in those, to the extent to that business turns up beyond where it is today, you'll see that benefit flow through on the margin side. We should create incremental upside if it materializes.
Our next question comes from the line of Steve Ferazani with Sidoti.
On the organic growth on HVAC this quarter, and you cited, obviously, we did have a very warm start to winter. I think this was a record December, but last year was pretty mild too. What's the sort of difference? What's the breaking point where you stopped seeing the sort of the boiler sales? Because I thought last winter was going to be weak, and it wasn't. It was very strong. If you can sort of differentiate.
Sure. Yes, sure. Last year was a little bit of a different situation. You're right about the weather, but the weather actually didn't matter last year. We had an elevated level of backlog, and we were seeing supply chain and labor return to more normalized conditions. That allowed us to send out just absolutely as much as we could get out of the plant. So last year, in the fourth quarter, our heating business was up by about 25% year-on-year. So we've got a weak comp this year against a very, very strong comp in the prior year.
Okay.
Yes, so we'll answer that, if you -- sorry, go ahead.
But when is mild to mild?
Yes. So let me get to that one, because I think it is...
I guess is my question. Is there any way for us to predict this? And obviously, December was record as noted, but what's the sort of breaking, I don't want to say breaking point, but the inflection point. Were you start really seeing an impact? You've been doing this a long time. Is there any way you can sort of help us with that?
Yes, I think it has been confusing just given that you have the dynamics of the post-COVID world coming up against changes in weather here. So let me run through that for you with respect to 2024. In Q1, we're still seeing warm weather. We did have kind of a promising cold snap at the beginning of the quarter, but then it got warmer again. So we would expect the first quarter heating to be down organically, and that is actually against, again, a very strong comp in the prior year where you were still living off backlog. And I think that one was up year-on-year. Now I'm talking about first quarter of 2023 was up around 22% year-on-year. So again, a weak weather quarter against a strong sort of post-COVID living off backlog quarter. You roll forward to the fourth quarter of this year, and we're then forecasting the fourth quarter, which is our other big weather quarter, to be a normal long-term winter, so that would be up year-on-year in the fourth quarter -- in heating for the fourth quarter of 2024. So hopefully that helps a little bit. I think when we look at the full year, we expect some organic growth in heating, but that's really going to come more in the back half because of those dynamics.
Okay. That makes sense. It's helpful. On Ingenia...
Steve, one other data point on that. If you look at, and this is going to probably be obvious, right, if you look at Q4 in HVAC, right, if you were to strip out the impact of the hydronic business organically, we would be up in single digits.
Right. When I think about that, is that -- should that indicate, and it would make sense, that obviously the hydronics business is a very good replacement market, very good cash flow, but you had a much better margin than you were expecting. Should that tell us that probably that's a typically good cash flow and less cyclical, but not quite the same type margin?
Yes, that's fair. Yes. We've historically said that while cooling and heating are similar in margin, the electrical heating side is -- has a higher margin than the hydronic side. That's right.
Okay. On Ingenia, Paul, you often like to talk about the types of multiples you pay, pre-synergy and post-synergy. And a lot of your success has been not overpaying. This looked like a really, really good acquisition when you look into it and what they're doing technology-wise. Can you give us any sense of how the -- what you paid versus your historic '13, '14 acquisitions?
Yes. So historically, we've talked about our average being just a little under 11x. And that includes ranges from about 8 to 12. I wouldn't say that it's changed all that. It really hasn't changed as a result of that. It's very, very similar in terms of the average.
Okay. Any extension of this technology? Given it's -- given the uses of robotics and the less labor-intensive and the precision of it, any extension of this technology to some of your other cooling businesses?
Either could be. In particular, our package business, the level of sophistication that they have in their software solution is incredibly impressive. And there could be very much applications of that in our package cooling business, which is a very similar type of bill of materials, build, lasers, punches, so forth. So I think that there very much could be. I also think if you have a better solution and you're really only playing in a portion of the market, the key question is, can you play in more of the market? We actually think that's another, as I mentioned earlier, another potential synergy where we have very good coverage across North America. They have -- and that's an area that we think we can help them accelerate as well.
Our next question comes from the line of Walter Liptak with Seaport Research.
Yes, congratulations on a great year. So I wanted to ask a couple of follow-ons, one on HVAC. And the 390 basis points of margin improvement looks great. I wonder if you could help us understand, what's going on there with automation and your go-to-market strategy whatever to improve the margins?
Yes, I think, Walter, I'll start. When you look at that increase in Q4 and what we're forecasting into our guide into 2024, a lot of this is being driven by 2 elements. The majority of it is just the operational improvements that we've made in that business. I kind of referenced this earlier in the call, but the substantial investment that we've made from a capital perspective to improve the quality of the equipment in there, to automate it, to reduce labor content on it. All of those elements have helped drive throughput in the across the HVAC platform and particularly on the cooling side. In addition, I think you know, certainly, the last 2 acquisitions that are impacting 2023 and then Ingenia in 2024, all 3 operate at higher margins than the segment has traditionally operated at. So you're getting kind of a benefit from both. We haven't really quantified that with numbers, but I would say probably 2/3 of it is really coming from the operating side with the balance from accretion in the quality of the businesses that we've acquired.
Okay. Now that you're at this nice level of margins, it sounds like you'll keep pushing those margins higher. What do you think the operating leverage, the incremental margins will be in HVAC with some revenue growth?
So well, historically, we look for incrementals in the 30s in HVAC. What we will say is that if you do some math around our 2024 guidance, you're going to see that there's a little bit of P&L investment baked in there to support some of our growth initiatives.
Okay. Great. And then thinking about some of the good things that HVAC has done, could you -- is it possible to incorporate some of those things into D&M to improve their profitability?
Yes. Well, we actually feel very good about the path of the D&M is on. We have had very strong success at HVAC. And one of the things you're going to see at our Investor Day next month is we're going to go a lot deeper in the strategy and the value creation model at both HVAC and D&M. And you're actually going to hear it from Sean McClenaghan over at HVAC and John Swann over at Detection & Measurement. I actually feel really good about the things we're doing, and I do feel like we're going to be on a good path there. So I think we're going to get a lot more detailed, and I do believe we'll get back to where we've been historically in Detection & Measurement. We are a lot larger. Some of the businesses had a little bit different margin profiles but we feel really good about where we're going.
Okay. All right. Sounds great. And then, thinking about the D&M business and just the flattening in the run rate business, why did that -- I mean, you may have said that I just didn't pick it up. Why did that business flatten out?
Yes, well, I mean, really, we -- relative to our expectations, I think we saw more softness outside the U.S. than we had originally expected. As I mentioned earlier, it was primarily in Europe. But as you know, some of those economies are weaker than we're seeing in the U.S. The U.S. platform has been resilient, so we feel good about that and the demand drivers behind that.
Okay. Great. And then, maybe a last one for me is the working capital this year look good. If you think about the core business, can you get more working capital in 2024 and cash inflow, I mean, from the working capital?
Yes. Well, I would say, working capital is approaching normalized levels, particularly when I look at inventories. We're not entirely there yet. I think we've mentioned in the past, and I still believe this is the case, it'll be kind of a 2-year journey, '23 and '24. By the end of '24, we should see it normalize. We do still see a few isolated supply chain issues, particularly around printed circuit boards and other specific areas. But there's probably some incremental upside there, but we're well on our way to a normalized working capital environment.
[Operator Instructions] I'm showing no further questions in the queue. I would now like to turn the call back over to Paul for closing remarks.
Thanks all for joining the call, and we look forward to seeing many of you at our investor day on March 26. If you would like an invitation to attend in person, please email the investor relations email listed on our website. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.