nVent Electric Q4 2024 Earnings Call Transcript

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February 6, 2025
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Operator

Good day, and welcome to the Invent Electric Fourth Quarter twenty twenty four Earnings Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Tony Ryder, Vice President of Investor Relations. Please go ahead.

Tony Riter
Tony Riter
VP-IR at nVent Electric

Thank you, and welcome to nVent's fourth quarter twenty twenty four earnings call. On the call with me are Beth Wozniak, Chair and Chief Executive Officer and Sarah Zawoyski, Chief Financial Officer. Today, we'll provide details on our fourth quarter and full year performance and our outlook for 2025. As a reminder, starting in Q3 twenty twenty four, the company began reporting the results of the Thermal Management business as discontinued operations. 2023 and 2024 results for all prior periods, along with guidance, are presented on a continuing operations basis.

Tony Riter
Tony Riter
VP-IR at nVent Electric

All results referenced throughout the presentation on our continuing operations basis unless otherwise stated. Before we begin, let me remind you that any statements made about the company's anticipated financial results are forward looking statements subject to future risks and uncertainties, such as the risks outlined in today's press release and MVET's filings with the Securities and Exchange Commission. Forward looking statements are made as of today, and the company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances. Actual results could differ materially from anticipated results. Today's webcast is accompanied by a presentation, which you can find in the Investors section of nVent's website.

Tony Riter
Tony Riter
VP-IR at nVent Electric

References to non GAAP financials are reconciled in the appendix of the presentation. We will have time for questions after our prepared remarks. With that, please turn to Slide three, and I will now turn the call over to Beth.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Thank you, Tony, and good morning, everyone. It's great to be with you today to share our fourth quarter and full year results. 2024 marked a pivotal year for nVent with our strong performance and portfolio transformation. Q4 had 9% reported sales growth, margin expansion and adjusted EPS growth of 7%. For the full year, we had 13% reported sales growth, continued margin expansion, strong earnings growth and outstanding cash flow.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

I'm very proud of our Invent team and everything we have accomplished. We have made great progress on transforming our portfolio. Last week, we closed on the sale of the thermal management business. We expect to have nearly $2,000,000,000 in capital available to deploy in 2025. I'm very excited with how we are repositioning the nVent portfolio to be more focused around the trends of electrification, sustainability and digitalization.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Our 2025 guidance at the midpoint reflects approximately 9% sales growth and 22% adjusted earnings per share growth. We are well positioned for strong sales and earnings driven by our focus on high growth verticals, new products and acquisitions. Slide four summarizes our Q4 and full year performance. Fourth quarter sales were up 9%, organic sales were slightly down, sales to our key distribution partners were down more than expected as they managed their inventory positions. Importantly, sellout remained positive.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Segment income grew 12% year over year with return on sales up 50 basis points. Adjusted EPS grew 7% and we generated $150,000,000 of free cash flow. Looking at sales performance across our key verticals, infrastructure led up low single digits organically. Industrial was flat. Commercial resi declined mid single digits with continued softness.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Finally, energy was up mid teens. Turning to organic sales by geography, North America declined low single digits and Europe was up slightly. Asia Pacific grew in the mid teens with solid growth in China. Lastly, organic orders were up low teens in the quarter, including double digit order growth in data solutions. For the full year, we had sales of $3,000,000,000 an increase of 132% organically.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Segment income grew 15% with margins expanding 50 basis points. Adjusted EPS was up 7%. For the full year, we had strong free cash flow of $427,000,000 growing 20%. Let me share a few more highlights. First, we launched approximately 90 new products in 2024 contributing more than two points to our sales growth.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

We have great momentum in our innovation pipeline. Second, organic growth was led by the infrastructure vertical. Within infrastructure, data solutions now represents approximately $600,000,000 in sales and grew approximately 30% in 2024. Overall, I'm proud of our nVent team and the strong results we delivered in 2024. We believe 2025 will be a year of strong growth and value creation.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Moving to Slide five. We have been on a journey to transform our portfolio and 2024 was a pivotal year. The divestiture of thermal management positions nVent as a more focused, higher growth electrical connection and protection company. Approximately 70% of our portfolio is exposed to secular trends and one third of our sales are in the infrastructure vertical, up from low teens when we spun as a company nearly seven years ago. We also have done seven acquisitions to date, adding significantly to the offerings of our business segments.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Now is the right time to rename our segments to better reflect what they do for our customers. Beginning in Q1 twenty twenty five, the Enclosure segment will be known as Systems Protection. This segment includes enclosures, but is far beyond that with power distribution units, cooling solutions, both liquid and air, and control buildings. We provide our customers with products and solutions that protect electronics, systems and data. In addition, the electrical and fastening segment will be known as electrical connections to represent the expansion of this portfolio to power connections along with electrical and fastening solutions.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

This segment offers products and solutions that make electrical systems safe, efficient and resilient. Turning to Slide six and our outlook for the verticals in 2025. Infrastructure is expected to grow the fastest, up low double digits. Data center CapEx is expected to continue to increase. Also, electrical infrastructure is expected to continue to expand in power utilities, renewables and energy storage given the increasing electrical demand.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Industrial is expected to grow low to mid single digits with improving CapEx investment in North America. Commercial resi is expected to be up low single digits as commercial improves with electrification demand for both new construction and existing buildings. Now on to Slide seven. I would like to talk more about how we are growing in the infrastructure vertical. Overall, we have expanded our product portfolio both organically and inorganically in infrastructure.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Data solutions is approximately 20% of our sales with products in liquid cooling, power distribution units, enclosures and cable management. We have seen strong growth across the portfolio and expect another year of double digit growth in 2025, supported by a growing backlog. We are investing in new products and expanding our offerings in liquid cooling, but also in cable management with innovation in our wire basket tray, for example, and extending our power distribution offering. Also in infrastructure, power utilities now represent approximately 10% of our sales. The acquisition of Trokdi last year more than doubled our exposure to power utilities and creates an entirely new growth platform of controlled buildings.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

The demand for controlled buildings is increasing with an aging electrical infrastructure that needs upgrading, a need to expand the overall grid, the move to more renewable energy and the increase in data centers. We continue to see the backlog grow in this business, supporting our forecast for double digit growth in power utilities this year. Moving to Slide eight. New products and innovation are a core part of our strategy and a strong contributor to our sales growth. We are focused on six core technology platforms.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

These include cable management, control buildings, equipment protection, liquid cooling, power connections and power management. We are prioritizing innovation on these platforms to drive differentiation, modularity for flexibility and velocity and are actively expanding our global certifications. Last year, we opened a new technology center in Bangalore to allow us to build more R and D capability from design, modeling, simulation, etcetera, expanding our technical capabilities. Looking at 2025, we expect to launch over 75 new products, helping to drive over two points of sales growth in the year. In addition, we expect new product vitality to be above 22%.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

At our core, nVent is a products and solutions company. So our strong focus on products and innovation are key to our growth strategy and our customer experience. This wraps up my remarks. I will now turn the call over to Sarah for details on our results as well as our 2025 outlook. Sarah, please go ahead.

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

Thank you, Beth. I am pleased to share another quarter of solid sales and earnings growth, margin expansion and robust free cash flow. Let's begin on slide nine with our fourth quarter results. Sales of $752,000,000 were up 9% compared to last year. Organic sales were down 1% with price and volume each slightly down.

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

Acquisitions added a meaningful $66,000,000 to sales or 10 points to growth. Fourth quarter adjusted operating income was $158,000,000 up 12%. Return on sales was 21% up 50 basis points year over year. Our performance was driven by acquisitions and strong productivity, partially offset by higher investments and inflation of approximately $25,000,000 Q4 adjusted EPS was $0.59 up 7% and at the midpoint of our guidance range. And we generated robust free cash flow of $150,000,000 Now please turn to slide 10 for a discussion of our fourth quarter segment performance.

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

Starting with Enclosures, now systems protection, sales of $466,000,000 increased 16% and down 1% on an organic basis. The TRACTI acquisition contributed 16 points to sales and continues to perform very well, up strong double digits versus a year ago and backlog continues to grow. From a vertical perspective, infrastructure grew with continued strength and data solutions. Industrial and commercial resi each decline. Geographically, organic sales in Europe grew low single digits and Asia Pacific grew over 20%, while North America declined low to mid single digits.

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

Fourth quarter segment income was $100,000,000 up 18%. Return on sales of 21.5% increased 40 basis points year over year driven by strong execution. Moving to electrical and fastening, now electrical connections, sales of $287,000,000 were flat organically. Industrial and infrastructure each grew in the quarter. This was offset by a decline in commercial resi.

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

Geographically organic sales were flat in North America and Europe. Fourth Quarter segment income was $84,000,000 down 1%. Return on sales was 29.4% down 20 basis points mainly due to mix. Now turn to slide 11 for a recap of our full year 2024 results. We ended the year with sales of $3,000,000,000 up 13% or 2% organically.

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

Acquisitions contributed 10 points to growth for the year. Adjusted operating income grew 15% to $652,000,000 Overall return on sales expanded 50 basis points to 21.7%. Adjusted EPS for the full year was $2.49 up 7%. Free cash flow was $427,000,000 up 20% with 102% conversion of adjusted net income. This included higher CapEx investments for growth and capacity.

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

In summary, 2024 was a year of strong performance and execution. Now turning to Slide 12, titled balance sheet and cash flow. We exited the year with $190,000,000 of cash on hand and $600,000,000 available on our revolver, putting us in a very strong liquidity position, even prior to the proceeds from the thermal sales. Our debt stands at just under $2,200,000,000 and we paid down approximately $100,000,000 in the fourth quarter. Our strong free cash flow was driven by improvement in working capital, particularly inventory.

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

We believe our healthy balance sheet and strong cash position provides us with ample capacity to execute on our growth strategy and create shareholder value. Turning to Slide 13, where we outline our capital allocation priorities. We continue to prioritize growth and execute a balanced disciplined approach to capital allocation to deliver strong returns. We invested $74,000,000 in CapEx in 2024, up 13%. This included expanding our footprint to increase our liquid cooling capacity for X and support our growing backlog.

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

We returned $227,000,000 to shareholders in 2024, including share repurchases of $100,000,000 And we increased our quarterly dividend five percent. Looking ahead, we have significant optionality for further capital deployment. This year, we expect to have nearly $2,000,000,000 in available capital to deploy, including the net cash proceeds from the thermal sale and our strong cash flow. Moving to slide 14 and our 2025 outlook, we forecast another year of strong sales and earnings growth. Reported sales are expected to grow 8% to 10% with organic growth in the range of 4% to 6%.

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

Acquisitions are expected to contribute approximately five points to growth. Our outlook for full year adjusted EPS is $2.98 to $3.08 which represents growth of 20% to 24%. And we expect free cash flow conversion to be between 95100%. A few other important items to note for the year. First, we are assuming shares of $166,000,000 which includes share buybacks beyond dilution.

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

And second, for modeling purposes, for now, we are assuming net interest expense of approximately $60,000,000 This assumes the net cash proceeds from the thermal management sale earned interest and we pay down a portion of the TRACI acquisition debt. As we have said, we intend to use these proceeds for acquisitions and share repurchases. And third, we expect our adjusted tax rate to now be approximately 22% versus 23% in 2024. And lastly, we continue to evaluate impacts of potential tariffs and have not yet reflected them in our guidance. A couple additional 2025 assumptions of note.

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

Corporate costs are forecasted to be approximately $100,000,000 These costs include some indirect costs that didn't get allocated to the thermal management sale that we are actively working to reduce and expect to come down through the year. And finishing up, we expect CapEx of $75,000,000 to $80,000,000 Moving to Slide 15 and our first quarter outlook. We expect organic sales growth in the range of flat to 2% and for earnings per share, we expect adjusted EPS in the range of $0.65 to $0.67 up 7% to 10% year over year. Wrapping up our team delivered a strong year and I believe we are well positioned for a great 2025. With that, please turn to slide 16 and I will now turn the call back to Beth.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Thank you, Sarah. Key to our success has been our people and our culture and making nVent a great place to work. We are focused on delivering for our customers and having a positive impact on our communities. On this slide, you can see numerous awards and recognition that we've received as we focus on our people and building a more sustainable and electrified world. For the first time last year, we were recognized as one of the world's most ethical companies by Ethosphere.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

We also earned a silver sustainability rating from EcoVadis and we were certified as a great place to work for the third consecutive year. These are just a few of the many awards and recognitions we have received. I'm extremely proud of our InvenTeam and everything we have accomplished. And there's always more that we can do. Wrapping up on Slide 17.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

20 20 four was another year of strong performance for nVent while transforming the portfolio. We are well positioned with the electrification of everything, sustainability and digitalization trends. And we expect 2025 to be another year of strong sales, earnings and cash flow. Our future is bright. With that, I will now turn the call over to the operator to start Q and A.

Operator

We will now begin the question and answer session. Our first question comes from Joe Ritchie of Goldman Sachs. Go ahead please.

Joe Ritchie
Joe Ritchie
Managing Director at Goldman Sachs

Thank you. Good morning, everybody.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Good morning. Hi, Joe.

Joe Ritchie
Joe Ritchie
Managing Director at Goldman Sachs

Hi. So maybe, why don't we just start off with just the organic growth expectations. So a little bit of a slower start to the year on that 0% to 2%, but then ultimately accelerating as the year progresses. I know the comps certainly get easier. But Beth, maybe you can just kind of walk us through, your expectation.

Joe Ritchie
Joe Ritchie
Managing Director at Goldman Sachs

And I'm particularly interested in looking at Slide six on the industrial and commercial businesses, like, and what you're seeing in those businesses today that gives you confidence that, you will see organic growth accelerate as the year progresses?

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Okay. Thank you, Joe, for the question. So you are correct. Last year, our strongest quarter was Q1. So we're lapping some strong growth from a year ago.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

A couple of things when we think of our outlook is first, we have growing backlogs in both our data solutions and power utilities verticals. And so we see that backlog growing and it is ramping, which we believe will also progress through our sales over the course of the year. The next thing I would point out is when we, certainly we ended the year, with less organic growth than we were expecting. And as I commented, that is given the distribution effect of management of inventory through year end. Now orders have continued to be positive, but we see things ramping as we go through the year.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

And I will say as we talk to our sales teams and our channel partners, one thing we are seeing is our funnels build and particularly with small CapEx type projects. And so we're seeing that pervasive across many different industrial applications and verticals. So it's those areas that we look at infrastructure continuing to be the strongest for us and backlogs that have been growing, industrial improving a funnel supporting that mega projects as we've always talked about, we're a little later in the cycle, but we believe those, you know, we start to see momentum there and we expect commercial resi to improve over the course of the year.

Joe Ritchie
Joe Ritchie
Managing Director at Goldman Sachs

Thanks, Beth. That's helpful. I should have clarified also, I just, just in terms of pricing for the, for the year as well, what's embedded in your assumptions?

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Yeah. So Joe, I would say like last year, we continue to expect that organic growth of 4% to 6% to be more heavily weighted towards volume, But price does play an important factor in that overall equation of managing price plus productivity offsetting inflation. So we would expect that price to be positive in 2025.

Joe Ritchie
Joe Ritchie
Managing Director at Goldman Sachs

Okay. Okay. Great. And then just one last one. Slide eight, love the breakout of the core technology platforms.

Joe Ritchie
Joe Ritchie
Managing Director at Goldman Sachs

Also great that you're in a position now to be very front footed with capital deployment. So as you're thinking about M and A, is it logical to think that these are kind of like the areas that you would you potentially invest in? Or, are you looking at potentially other platforms, other ways to maybe just increase the breadth of your portfolio? Thank you.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Yes. So, the slide eight was meant to be a look at how we're investing organically in our new product areas to drive a differentiation. But as we think about, M and A, we always say we look at high growth verticals and great products. So we could add to this product portfolio. We're very focused on growing in that infrastructure vertical.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

And so as you know, we have a flywheel that is great products that we can scale and invest in to grow pointed in the, that, you know, high growth vertical. And so we're going to continue to be, applying and disciplined within that framework.

Joe Ritchie
Joe Ritchie
Managing Director at Goldman Sachs

Thank you.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Thank you.

Operator

The next question comes from Julian Mitchell of Barclays. Go ahead please.

Julian Mitchell
Equity Research Analyst at Barclays Investment Bank

Hi, good morning.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Good morning. Good morning.

Julian Mitchell
Equity Research Analyst at Barclays Investment Bank

Good morning. Maybe just to start with the operating margin guidance. So it looks maybe as if operating margins are down in the first quarter and then sort of flattish for the year as a whole. Wanted to check if that was roughly correct. And any main divergences between the margin performance year on year of the two segments that we should be aware of?

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

Yes. So let me start maybe with Q1. So overall from a Q1 perspective, you're right. Embedded in that overall Q1 guide, we do see return on sales down modestly. And a couple of things I would point out, Jillian, one would just be our corporate costs do tend to be at our highest, if you will, in, in Q1.

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

And as we talked about in our prepared remarks, you know, we do have some indirect costs, that didn't go with that thermal sale. So that's just going to take us a little bit of time to work that down to the course of the year. I think the second thing I would say we are and continue to invest in our infrastructure vertical, particularly data solutions and power utilities. And as Beth said, you know, we, our, our backlog, that is, that is there and continues to build is giving us that confidence in that second half growth. And so we continue to invest, here in Q1 and anticipation of that, that growth there in the second half.

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

And I think the only other thing I would say in Q1 here is price costs. We do expect that to, to, to ramp in Q2 and more the back half. So we're seeing a bit of impact there overall, But I would end by just saying overall, we expect Q1 earnings per share at that midpoint to grow roughly 8%. For the full year, our guidance really implies in that kind of flat to up modestly. And maybe one other thing to point out, beyond just the investment profile would just be tracked.

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

The, we do expect with, beginning to lap that and kind of mid July, it's contributing nicely to the top and the bottom line, but from a return on sales perspective, that does have an impact on that overall return on sales. But embedded in the guidance is a good solid drop through on that overall volume growth, and top line growth expected for the year.

Julian Mitchell
Equity Research Analyst at Barclays Investment Bank

That's helpful. Thank you. And then maybe just one follow-up on the revenue side. You've given a lot of very good color on revenue. But just to understand, what's embedded for the non infrastructure pieces, I can see Slide six, the sort of full year laid out there.

Julian Mitchell
Equity Research Analyst at Barclays Investment Bank

Just wondered that improvement because it looks as if the non infrastructure pieces are down year on year in Q1, partly comps and then they're expected to move higher through the year. Just wondered when you're thinking about that, how much of that improvement is comps year on year and normal seasonality, versus some fundamental improvement? And tied to that, I guess, is whether any of that order strength in Q4 was in non infrastructure verticals?

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Yes. So, as we did see our orders improve in Q4, we did see positive orders in non infrastructure. And so as I mentioned, like take industrial, for example, we're seeing, smaller projects CapEx across many different verticals in our funnel, which we believe, over the, you know, will pick up momentum over the course of the year and translate to orders and sales. When it comes to, some of the other areas, you know, we certainly do expect commercial to improve as a vertical over the course of the year. But as we've looked at this, you know, we just think it's a, you know, things start to progress.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Some of it's a comp in Q1, but given backlogs and infrastructure and given momentum in projects that we're working on, we generally see things improving over the course of the year.

Julian Mitchell
Equity Research Analyst at Barclays Investment Bank

Great. Thank you.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Thank you.

Operator

The next question comes from Deane Dray of RBC Capital Markets. Go ahead, please.

Deane Dray
Deane Dray
Managing Director at RBC Capital Markets

Thank you. Good morning, everyone.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Good morning, Dean.

Deane Dray
Deane Dray
Managing Director at RBC Capital Markets

I have a question broadly about potential implications from DeepSeek and just any feedback you've heard from your customers and partners? And really, specifically, what might be the impact on liquid cooling if they can use older generation AI chips? Do the thermal loads and thermal load assumptions change? Or is it binary that once you're using AI chips, you just have to use liquid cooling and the differences in thermal loads don't really matter? But there's a lot to unpack there, but any

Deane Dray
Deane Dray
Managing Director at RBC Capital Markets

color there would be helpful.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Okay. Dean, thank you for the question. I think maybe the first thing I'll start with is recall, we've been doing liquid cooling in data centers before all these GPU chips were even launched. And so therefore we were finding applications in some of these other chips early on because depending on the hyper scaler and their system design and their heat loads, they were trying to get more efficient to be using liquid cooling. So now as we go forward, there's going to be different ways and more efficient ways around AI.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

But our view is liquid cooling is still very important. It also drives energy efficiency. And what we've heard from our customers is that the commitment to, CapEx investments is there and not slowing down. So we feel that there is going to continue to be demand for liquid cooling solutions. As you know, the demand for power with these data centers is significant and liquid cooling is one way to offer energy efficiency.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

So we believe there's, continued strength and opportunity here as we go forward. And if anything, the innovation that we see with AI, I think will drive further adoption and scale, which again will imply that that infrastructure is so important to be built out and liquid cooling plays a really key role.

Deane Dray
Deane Dray
Managing Director at RBC Capital Markets

That's great to hear. That's exactly what I was looking for, especially the feedback from the your customers and partners. And just a related follow-up question. So you've gone through this process to quadruple capacity in liquid cooling last year finishing that. Do you still need to add test capacity?

Deane Dray
Deane Dray
Managing Director at RBC Capital Markets

Because there was some question that you hadn't quadrupled it there. And could you give us any sense directionally what your utilization rates entering 25 are on your liquid cooling capacity?

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

So Dean, I would say this, we're continuing that expansion because remember when we 4X the capacity, some of that was the space that we needed and we're continuing to invest in the lines and building that out. Our lab and testing capability was progressing after that. And we're in that, in that phase right now, building that out. So we're continuing to make investments in that capacity expansion and we're continuing to make investments in innovation. And this is going to be a very strong year of new product launches in that data solutions area.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

So, a lot of investment going in here and we just see the opportunity and the growth in front of us. So we're very excited about it.

Deane Dray
Deane Dray
Managing Director at RBC Capital Markets

Thank you for all that color.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Thank you.

Operator

The next question comes from Nicole DeBlase of Deutsche Bank. Go ahead please.

Nicole Deblase
Nicole Deblase
Lead Analyst at Deutsche Bank

Yes, thanks. Good morning.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Good morning.

Nicole Deblase
Nicole Deblase
Lead Analyst at Deutsche Bank

Maybe just starting with a little bit more color around what you saw with respect to channel inventory, Beth. You mentioned that that was a factor in 4Q relative to your initial expectations. How do you feel current channel inventory stands today relative to what's needed for next year?

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Well, I think as we progress through Q4, we certainly saw the order patterns drop off in that third month of the quarter. And in a way that, that was really the adjustments in inventory as everyone was managing working capital, etcetera. But our orders, you know, have, picked up, you know, through January. And I think that we'll start to see, things, because our sellout has been positive. I think we'll start to see, you know, improvements as we go through this year.

Nicole Deblase
Nicole Deblase
Lead Analyst at Deutsche Bank

Okay. Got it. Thank you. And then with respect to tariffs, I know a lot up in the air right now, but could you help us a little bit by maybe sizing your exposure from a COGS perspective to Mexico, Canada and China? Thank you.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Well, let's first start with China. You know, we, have very little that, you know, that we import from China. And so in our view with the announced tariffs, it's really minimal impact and we have it covered. We have a plan when it comes to looking at Mexico and Canada. Certainly we've got a good track record and how we've managed tariffs pre previously through supply chain management and through, pricing actions.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

And I think all of those things are, you know, actions that we're currently working. And I'd like to say really, with Canada that's minimal and for Mexico that's in the low teens when we look at our COGS structure.

Nicole Deblase
Nicole Deblase
Lead Analyst at Deutsche Bank

Thank you very much. I'll pass it on.

Operator

Our next question comes from Jeff Sprague of Vertical Research. Go ahead please.

Jeffrey Sprague
Founder and Managing Partner at Vertical Research Partners

Good morning everyone. Thank you.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Good morning Renee.

Jeffrey Sprague
Founder and Managing Partner at Vertical Research Partners

Good morning. I was wondering if we could dig a little bit more into the order commentary, upload teens, I think in Q4 is nothing to sneeze at. And then Beth, you said that this continued into January. I think the comps were relatively easy. But can you sort of unpack that a little bit, what the comp was?

Jeffrey Sprague
Founder and Managing Partner at Vertical Research Partners

And anything in particular in terms of the sub verticals that stand out driving that growth?

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Well, certainly as we looked at Q4, we saw some good infrastructure orders, but we also saw orders across the board, right? So it wasn't just all infrastructure, it was across the board. And I think as we get into, Q1, again, we're seeing some good broad based orders across the portfolio.

Jeffrey Sprague
Founder and Managing Partner at Vertical Research Partners

And then just thinking about maybe a little bit follow-up to Nicole's question. Is there a way to kind of quantify the top line headwind in Q4 by sizing the magnitude of the difference in the sell in versus the sell out?

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

No, we don't normally, comment on that. But I would say this, we the what we saw in terms of, the inventory reductions or just adjustments, I want to say in our distribution channel was more than what we expected. Because as you know, we expected to see some positive growth and we're just slightly negative to flat. And so that really was the impact that we saw in the quarter.

Jeffrey Sprague
Founder and Managing Partner at Vertical Research Partners

Okay. And then just maybe one last one for me on price. So a little bit negative again here in Q4, but you're expecting it to go positive. I'm just wondering if the Q4 weakness or I don't know if you call it weakness, but slightly negative is still kind of in enclosures. And what drives it positive in 2025?

Jeffrey Sprague
Founder and Managing Partner at Vertical Research Partners

Is it just sort of blanket beginning of the year sort of price increases? Or how are you managing price in the current environment?

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

Yes. So Joe, I would say in terms of Q4, we continue to see pricing, slightly negative in enclosures, and slightly positive in an overall EFS standpoint. And that's for the year. But I would say that to point out, even as we saw modest, price, you know, declines in enclosures, we saw good Ross expansion. So the team has done a really nice job managing, you know, some of our product simplification, you know, programs and efforts and productivity to continue to show that nice, you know, Ross expansion overall.

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

You know, clearly as we walk into 2025 and we do expect 2025 to be another inflationary year, labor continues to be a big portion of that. But as Beth mentioned, we also are working through the China tariffs. It's minimal for us, but nonetheless, it's something that we've got to work to help offset here. And so with some of that inflation as a backdrop, as we would customer really do, you know, we continue to look for pricing actions to help to offset that. I'd probably end by saying, look, we're, we continue to look at the price plus productivity to offset that inflation.

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

And I think we've got a nice, productivity funnel as we entered into the year. That's broad based, you know, covers factories, DCs, transportation. We're putting an extra focus on indirect spend as well. And again, some of our continued simplification efforts around business transformation. So, we're going to work the combination of that price plus productivity to offset that inflation as we have historically.

Jeffrey Sprague
Founder and Managing Partner at Vertical Research Partners

Great. Thank you. I'll leave it there.

Operator

The next question comes from Nigel Coe of Wolfe Research. Go ahead please.

Nigel Coe
Managing Director at Wolfe Research, LLC

Thanks. Good morning everyone.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Good morning.

Nigel Coe
Managing Director at Wolfe Research, LLC

Good morning. I just want to go back to maybe a question that was asked earlier on and really just trying to delineate between Infrastructure and the rest of the portfolio because it feels like Infrastructure is driving all the growth. And just want to make sure that when we look at the Industrial, Residential and Commercial verticals, it feels like your plan is flat to maybe low single digit growth. I just want to make sure that's how to think about it.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Well, as you look at our Q4 performance, certainly infrastructure was a big driver of our growth. So that if you look at the breakout by what we said on Slide 10, right? However, we did see industrial grow in the quarter for our electrical and fasting solutions business. Now some of this is also what we're seeing that impact of, orders coming through distribution. But as we go forward and we look at our outlook, we expect low double digit growth in infrastructure.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

So yes, infrastructure is certainly the strongest growth driver for us going forward. However, we do expect both industrial to grow low single digits to mid single digits is the vertical outlook and commercial is low single digits. And so infrastructure for us and where our backlogs are will certainly contribute more strongly to growth than the other areas.

Nigel Coe
Managing Director at Wolfe Research, LLC

Okay. And I'm guessing residential, which is obviously very small for you guys, will be down probably mid single digits. Okay. That's really helpful. Then maybe just double click into TrackD because it feels like no, certainly the contribution to 4Q from acquisitions was a bit better.

Nigel Coe
Managing Director at Wolfe Research, LLC

So I'm just wondering I know TrackD isn't organic until the second half of the year, but maybe just double click into what you're seeing in Tracke in terms of growth, for 2025 and perhaps just, talk about some of the verticals where you're seeing that growth?

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

All right. So as we often like to say, Tracke is a new growth platform for us with controlled buildings. And we've seen nice continued backlog growth and certainly the strength of sales there. And much like we've thought about enclosures and you think about our ability to provide enclosures for various applications and specifications, specifications. This is how we think about control buildings that, it plays in utilities, it plays in data centers, it supports backup power, there's, it supports energy storage.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

There's various opportunities for us to expand this control buildings platform. So we're seeing, you know, we see, good momentum in this platform and think it will be a strong, contributor and driver to us in that broader infrastructure vertical.

Nigel Coe
Managing Director at Wolfe Research, LLC

Okay, great. Thank you.

Operator

The next question comes from Jeff Hammond of KeyBanc. Go ahead please.

Jeffrey Hammond
Jeffrey Hammond
Managing Director at KeyBanc Capital Markets

Hey, excuse me. Good morning.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Good morning.

Jeffrey Hammond
Jeffrey Hammond
Managing Director at KeyBanc Capital Markets

Just on the liquid cooling business, a lot of dynamic movement there and a lot of new entrants. So I'm just wondering as you look near term, what are you seeing in terms of win rates, pricing in the backlog and any kind of early traction from this NVIDIA collaboration you announced?

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Well, maybe I would just speak more broadly to what we're seeing in liquid cooling. So we continue to build out our portfolio of solutions, including where we have offerings that, we're working with, Nvidia, that has, you know, certainly for some customers, they want to have that Nvidia and Nvidia partnership. And so, that's a positive to us. And I would just say that we're continuing to see the existing customer content grow as well as adding new customers and a big focus for us in 2025 is the launch of several new product offerings, which I think we expand our solutions and application set. So not just hyperscalers, but enterprise and colos, and looking at some integrator type customers as well through we're continuing to see the backlog build and think we have very strong momentum going into 2025.

Jeffrey Hammond
Jeffrey Hammond
Managing Director at KeyBanc Capital Markets

Okay. That's helpful, Beth. Just maybe back to capital allocation, just talk about actionability of the pipeline. And I don't know, what do you have baked in for buybacks? And what's kind of the thought of flexing that if deals don't come through?

Jeffrey Hammond
Jeffrey Hammond
Managing Director at KeyBanc Capital Markets

Thanks.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Well, let me first start on, our acquisition pipeline. I've said this on previous calls. I think we have a very robust pipeline and opportunities. And I also have said you never can control the timing of deals. But I do believe that, you know, our goal is always to do a couple of deals if we can over the course of the year.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

And I believe our pipeline is strong and healthy and we have a very disciplined approach to, what we go after. And we also look at our ability to execute that well. So, we believe as a priority for capital allocation, the growth, including acquisitions are a key priority for us. And, we'd like to think we're able to execute on that over the course of the year. And I'll turn it over to Sarah to talk about buybacks.

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

Yes. I would just say our outlook that we provided this morning really as a baseline reflects two things. One, an expectation of share buybacks, roughly $200,000,000 which aligns to that guidance of 166,000,000 shares versus our $160.68 in 2024. And then just for modeling purposes, you know, the guidance reflects that lower interest related to the interest earned on the proceeds, as well as the pay down of the track, the acquisition debt and parts. So I think the important thing to point out is that if you just fold in the net proceeds of that 1,000,000,004, with our 2024 EBITDA and our net debt, we are sitting at less than one time in terms of our net debt to EBITDA leverage.

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

So it just emphasizes the point that we have ample capacity to go deploy capital in 2025, and create that shareholder return net value creation.

Jeffrey Hammond
Jeffrey Hammond
Managing Director at KeyBanc Capital Markets

Okay. Thank you.

Operator

Thank you. The next question comes from Brian Drab of William Blair. Go ahead please.

Brian Drab
Equity Research Analyst at William Blair & Company, L.L.C

Hi, thanks for taking my questions. I think that you said for Power Solutions, the expectation is for double digit growth in 2025. I wonder if you could be any more specific on that and remind us what was the growth for Power Solutions for the full year 2024?

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Yes. On our, I think on our chart where we talked about growing in infrastructure and just saying that now Power Utilities is about 10% of our overall sales. Double digit growth is being driven by, and certainly the TrackD acquisition is a very strong contributor to that as we go forward. So we're looking at not only that acquisition, but then some of our core products that are in that utility segment growing as well supported by that.

Brian Drab
Equity Research Analyst at William Blair & Company, L.L.C

Okay. I guess for data I guess I should call it data solutions, that 20% of sales was up how much in 24%? And I'm just wondering, can you say the double digit? I assume you're not thinking like 10% or 11% there. How will that proceed?

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Okay. So we did say that for data solutions that we grew 30% last year and we're expecting double digit growth again in 2025.

Brian Drab
Equity Research Analyst at William Blair & Company, L.L.C

Okay. Okay.

Brian Drab
Equity Research Analyst at William Blair & Company, L.L.C

Trying to get you to get a sense if we're going to continue better than 20% or not, but I won't press you further, I guess, on that. And on TRYCD, just to put a finer point on the contribution from growth and potential contribution, I mean, this is probably what about $300,000,000 revenue business now that's growing very strong double digits. It seems like this is a business that could contribute even, I don't know, 150 basis points or two points to the organic revenue growth in the second half of the year. Am I on the right track thinking of it that way?

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

Well, maybe just to frame it, we had said, coming into 2024 there that it's roughly a $250,000,000 business. So, you can imply that when we say strong double digits, it's contributing nicely to the top line and really exceeded our guidance even in Q4. We expected it to contribute nine points, to 10 points to growth. So we do expect that power utilities data centers as part of that tracky business to continue to be part of that infrastructure vertical that Beth outlined, and contribute nicely to that back half. Maybe one other point, if I just kind of zoom out for a moment and think about the data solutions and the power utilities piece, you know, our backlog will exit 2024 with a backlog of seven fifty million dollars which is up meaningfully from the prior year.

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

Now some of that is the track fee backlog, you know, folding in. But it's also that year over year track fee backlog building, as well as that data solutions, building as well. So again, we have good visibility in that backlog as we look at that back half coupled with the demand that we're seeing, increasing as well that's giving us confidence in that back half growth.

Brian Drab
Equity Research Analyst at William Blair & Company, L.L.C

Yes. Thanks. It just seems like a great I mean, obviously, it's a great acquisition that you've made. And if it's 10% of revenue and growing even 15%, it's 150 bps of growth in the second half of the year. And it seems like it could be even more than that if that business is growing that quickly.

Brian Drab
Equity Research Analyst at William Blair & Company, L.L.C

So as people are just trying to reconcile the acceleration to organic revenue growth, feels material. So I'll follow-up more later though.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Yes. It's a great growth platform, for us and we're very excited about the broad applications and opportunities that we have there. So off to a great start.

Brian Drab
Equity Research Analyst at William Blair & Company, L.L.C

Absolutely. Okay. Thank you.

Operator

The next question comes from Vlad Bosticki of Citigroup. Go ahead please.

Vladimir Bystricky
Vladimir Bystricky
VP & Equity Research Analyst at Citigroup

Good morning, team. Thanks for taking my call.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Good morning, Vlad.

Vladimir Bystricky
Vladimir Bystricky
VP & Equity Research Analyst at Citigroup

So maybe just a couple

Vladimir Bystricky
Vladimir Bystricky
VP & Equity Research Analyst at Citigroup

of quick questions from me. One on the capital deployment front, I think the slide you shared, Slide eight on the core technology platforms is helpful and very interesting, I guess. As I think about incremental capital deployment versus those six core technology platforms, are there particular areas that stand out where you see more potential for M and A or more actionability to layer on to those core platforms through M and A?

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Well, I think the answer to that is yes. And I think but it's a combination for us to look at these technologies and products as well as the high growth vertical overlay because we want to ensure our flywheel is that we acquire companies with a great differentiated product portfolio in a high growth vertical where we can invest and scale to grow. So we look at these plat, these platforms, and we also look at, infrastructure verticals and, and when we can find the two, you know, overlay together, we think that there's a lot of momentum that we can get from that flywheel.

Vladimir Bystricky
Vladimir Bystricky
VP & Equity Research Analyst at Citigroup

Okay. That's helpful, Beth. And then I guess just obviously a lot of focus on liquid cooling and what you're seeing there. Can you just talk about your visibility to the timing of deliveries and whether you're seeing any material movements from customers in terms of when they want liquid cooling product, as they continue to refine their designs and approaches to thermal management?

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

I think what we have seen is that the awareness and interest in liquid cooling in general has increased. And so with some of our customers that we've had for a long time, we continue to talk about, adding capacity, increasing programs, scaling what we do. Then we attract new customers who are in some cases testing out new solutions, trying to understand their system architectures. In general, it's a lot of in general, it's a lot of activity that we're seeing both with existing and new, and, and it expanding from hyper scalers to enterprise and other types of customers. So, it's very busy and active, I guess I would say, and our backlog supports that and the continued growth that we're seeing here.

Vladimir Bystricky
Vladimir Bystricky
VP & Equity Research Analyst at Citigroup

Got it. That's, helpful. Thanks for that. I'll get back.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Thank you.

Operator

Our next question comes from Scott Graham of Seaport. Go ahead please.

Scott Graham
Senior Equity Research Analyst at Seaport Research Partners

Hey, good morning. Thanks for taking my question. I wanted to maybe understand sort of your calculation of the EPS impact from TRACTE in the first quarter and maybe what's bedded in the '25 guide?

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

So we haven't gotten that specific Scott, but I think we gave some guardrails right initially as we acquired track D right. We said, you know, it was roughly a $250,000,000 business and in that kind of 20% plus minus return on sales. So I think you can, do the math that suggests we've got, you know, a bit of carryover here in, in the first half. And importantly, as we look at just the overall, you know, back half contribution from an organic standpoint and the drop through on that, it plays a meaningful part in our overall growth and earnings contribution.

Scott Graham
Senior Equity Research Analyst at Seaport Research Partners

Okay. Well, thank you for that, Sarah. The second question I had for you was, inflation. Is the fourth quarter inflation number that you provided a decent run rate for 25 quarters?

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

I think it's a good baseline starting point, right, to take that Q4 and extend it. Another way you can look at it too is just look at that full year inflation, but I think it's a good starting point. Again, similar to 2024, we expect, it to be an inflationary environment with really labor being the biggest driver of that overall.

Scott Graham
Senior Equity Research Analyst at Seaport Research Partners

Thank you. Appreciate that. Last question. So you talked about the orders maybe starting to spread out vertical wise in January. And I know that your what your organic projections, your ramp in organic is based on, you went through that.

Scott Graham
Senior Equity Research Analyst at Seaport Research Partners

Thank you. What I was wondering was how much of that ramp includes some of these projects that you referred to and whether you think there might be some timing risk around those projects?

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

So I think if you're referring to timing projects in data solutions or TRACK D, I mean, we have a good sense of how those projects execute over the course of the year. And we think that's fairly stable. And I think what we're just seeing is, other things ramp, from Q1 to Q2. But it, it, you know, we've said it's just a slower start to the year. One, because of that comp that we had in Q1 and just as how we see these orders lay in.

Sara Zawoyski
Sara Zawoyski
Executive VP, Interim President of Enclosures & CFO at nVent Electric

Yeah. And maybe just point on the comp too, Scott. And I know you guys see this, but, it was meaningful right in Q1. I mean, our comp is overall at an invent level organic growth of 6% and we're lapping, systems protection growth of 11% in the quarter. So some of it's just timing and comp.

Scott Graham
Senior Equity Research Analyst at Seaport Research Partners

Yes. Thank you for the details around the ramp. That was all very helpful.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Beth Wozniak, CEO and Chair of the Board for any closing remarks.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

Thank you for joining us this morning. We are proud of our strong 2024 performance and believe the electrification of everything, sustainability and digitalization trends are driving demand for our products and solutions. We are excited for 2025 with our portfolio transformation. I'm grateful for the outstanding work of our team to support our customers and execute on our growth strategy. Thanks again for joining us.

Beth Wozniak
Beth Wozniak
Chair & CEO at nVent Electric

This concludes the call.

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nVent Electric Q4 2024
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