Q4 2024 nVent Electric plc Earnings Call
Good day and welcome to the infant electric fourth quarter 'twenty 'twenty four earnings conference call all participants will be in listen only mode.
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Speaker Change: I would now like to turn the conference over to Tony writer, Vice President of Investor Relations. Please go ahead.
Walt: Thank you Walt.
Tony Writer: And welcome to <unk> fourth quarter 2024 earnings call.
Beth Wozniak: On the call with me are Beth Wozniak Chair, and Chief Executive Officer, and series of Waikiki, Chief Financial Officer.
Today, we will provide details on our fourth quarter and full year performance.
Beth Wozniak: Outlook for 2025.
Beth Wozniak: As a reminder, starting in Q3 2024, the company began reporting the results of the thermal management business as discontinued operations.
Beth Wozniak: 2023, and 2024 results for all prior periods, along with guidance are presented on a continuing operations basis.
Beth Wozniak: All results reference throughout the presentation on our continuing operations basis, unless otherwise stated.
Beth Wozniak: Before we begin let me.
Beth Wozniak: I'll remind you that any statements made about the company's anticipated financial results are forward looking statements subject to future risks and uncertainties.
Beth Wozniak: Such as the risks outlined in today's press release, and <unk> filings with the Securities and Exchange Commission.
Beth Wozniak: 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.
Beth Wozniak: Actual results could differ materially from anticipated results.
Beth Wozniak: Today's webcast is accompanied by a presentation, which you can find in the investors section of <unk> website.
Beth Wozniak: References to non-GAAP financials are reconciled in the appendix of the presentation. We will have time for questions. After our prepared remarks.
Beth Wozniak: With that please turn here. So please turn to slide three and I will now turn the call over to Beth.
Beth Wozniak: Thank you Tony and good morning, everyone. It's great to be with you today to share our fourth quarter and full year results.
Beth Wozniak: 2024 marked a pivotal year for us, but with our strong performance and portfolio transformation.
Beth Wozniak: Q4 had 9% reported sales growth margin expansion and adjusted EPS growth of 7%.
Beth Wozniak: The full year, we had 13% reported sales growth continued margin expansion and strong earnings growth and outstanding cash flow I'm very proud of that team and everything we have accomplished.
Beth Wozniak: We have made great progress on transforming our portfolio.
Beth Wozniak: Last week, we closed on the sale of the thermal management business.
Beth Wozniak: We expect to have nearly $2 billion in capital available to deploy in 2025.
I'm very excited with how we are repositioning the investment portfolio to be more focused around the trends of electrification sustainability and digitalization.
Beth Wozniak: 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.
Beth Wozniak: Slide four summarizes our Q4 and full year performance.
Beth Wozniak: Fourth quarter sales were up 9% organic sales were slightly down.
Beth Wozniak: Sales to our key distribution partners were down more than expected as they manage their inventory positions.
Beth Wozniak: Importantly, sellout remained positive.
Beth Wozniak: Segment income grew 12% year over year with return on sales up 50 basis points.
Beth Wozniak: <unk> EPS grew 7%.
Beth Wozniak: And we generated $150 million of free cash flow.
Beth Wozniak: Looking at sales performance across our key verticals infrastructure led up low single digits organically industrial was flat.
Beth Wozniak: Commercial <unk> declined mid single digits with continued softness finally energy was up mid teens.
Beth Wozniak: Turning to organic sales by geography, North America declined low single digits and Europe was up slightly.
Beth Wozniak: Pacific grew in the mid teens with solid growth in China.
Beth Wozniak: Lastly, organic orders were up low teens in the quarter, including double digit order growth in data solutions.
Beth Wozniak: For the full year, we had sales of $3 billion, an increase of 13% and 2% organically segment income grew 15% with margins expanding 50 basis points.
Beth Wozniak: <unk> EPS was up 7% for.
Beth Wozniak: For the full year, we had strong free cash flow of $427 million growing 20%.
Beth Wozniak: Let me share a few more highlights.
Beth Wozniak: First we launched approximately 90, new products in 2024 contributing more than two points to our sales growth.
We have great momentum in our innovation pipeline.
Beth Wozniak: Second organic growth was led by the infrastructure vertical.
Beth Wozniak: Within infrastructure data solutions now represents approximately $600 million in sales and grew approximately 30% in 2024.
Beth Wozniak: Overall I'm proud of our <unk> team and the strong results. We delivered in 2024, we believe 2025 will be a Europe strong growth and value creation.
Beth Wozniak: Moving to slide five.
Beth Wozniak: We have been on a journey to transform our portfolio in 2024 was a pivotal year.
Beth Wozniak: The divestiture of thermal management positions and that is a more focused higher growth electrical connection and protection company.
Beth Wozniak: Approximately 70% of our portfolio is exposed to secular trends.
And one third of our sales are in the infrastructure vertical.
Beth Wozniak: From low teens, when we spun as a company nearly seven years ago.
Beth Wozniak: We also have done seven acquisitions to date, adding significantly to the offerings of our business segments.
Speaker Change: Now is the right time to rename our segments to better reflect what they do for our customers.
Speaker Change: Beginning in Q1 2025, the enclosures segment will be known as systems protection.
Speaker Change: This segment includes enclosures, but it's 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.
Speaker Change: In addition, the electrical <unk> fastening segment will be known as the electrical connections to represent the expansion of this portfolio to power connections along with electrical <unk> fastening solutions.
Speaker Change: This segment offers products and solutions that make electrical systems safe efficient and resilient.
Speaker Change: Turning to slide six and our outlook for the verticals in 2025.
Speaker Change: Infrastructure is expected to grow the fastest up low double digits.
Speaker Change: Data Center Capex is expected to continue to increase.
Speaker Change: Also electrical infrastructure is expected to continue to expand in power utilities renewables and energy storage given the increasing electrical demand.
Speaker Change: <unk> is expected to grow low to mid single digits with improving Capex investment in North America <unk>.
Speaker Change: Commercial razee is expected to be up low single digits as commercial improves with electrification demand for both new construction and existing buildings.
Speaker Change: Now onto slide seven.
Speaker Change: I would like to talk more about how we are growing in the infrastructure vertical.
Speaker Change: Overall, we have expanded our product portfolio, both organically and Inorganically and infrastructure.
Speaker Change: Data solutions is approximately 20% of our sales with products and liquid cooling power distribution units and closures and cable management.
Speaker Change: 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 train for example.
Speaker Change: And extending our power distribution offering.
Speaker Change: Also in infrastructure power utilities now represent approximately 10% of our sales.
Speaker Change: The acquisition of truck D last year more than doubled our exposure to power utilities and creates an entirely new growth platform of control buildings.
Speaker Change: The demand for control building is increasing with an aging electrical infrastructure that needs upgrading and 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.
Speaker Change: Power utilities this year.
Speaker Change: Moving to slide eight.
Speaker Change: New products and innovation are a core part of our strategy and a strong contributor to our sales growth.
Speaker Change: We're focused on six core technology platforms. These include cable management control buildings equipment protection liquid cooling power connections and power management.
Speaker Change: We are prioritizing innovation on these platforms to drive differentiation.
Speaker Change: 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&D capability from design modeling simulation et cetera, expanding our technical capabilities looking.
Speaker Change: At 2025, we expect to launch over 75, new products, helping to drive over two points of sales growth in the air.
Speaker Change: In addition, we expect new product vitality to be above 22%.
Speaker Change: At our core and that is a products and solutions company. So our strong focus on products and innovation are key to our growth strategy and our customer experience.
Speaker Change: This wraps up my remarks, I will now turn the call over to Sarah for details on hours on our results as well as our 2025 outlook. Sir. Please go ahead. Thank you you bet.
Speaker Change: 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.
Speaker Change: Sales of $752 million were up 9% compared to last year organic sales were down 1% with price and volume each slightly down Act.
Speaker Change: Acquisitions added a meaningful $66 million to sales or 10 points to growth.
Speaker Change: Fourth quarter, adjusted operating income was $158 million up 12%.
Speaker Change: Return on sales was 21% up 50 basis points year over year.
Speaker Change: Our performance was driven by acquisitions and strong productivity, partially offset by higher investments and inflation of approximately $25 million.
Speaker Change: Q4, adjusted EPS was <unk> 59 up seven.
Speaker Change: And at the midpoint of our guidance range.
Speaker Change: We generated robust free cash flow of $150 million.
Speaker Change: Now please turn to slide 10 for a discussion of our fourth quarter segment performance.
Speaker Change: Starting with enclosures now systems protection sales of $466 million increased 16% and down 1% on an organic basis.
Speaker Change: The track the 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.
Speaker Change: From a vertical perspective infrastructure grew with continued strength in data solutions.
Speaker Change: Industrial and commercial ready each declined.
Speaker Change: Geographically organic sales in Europe grew low single digits and Asia Pacific grew over 20%, while North America declined low to mid single digits.
Speaker Change: Fourth quarter segment income was $100 million up 18% return on sales of 21, 5% increased 40 basis points year over year, driven by strong execution.
Speaker Change: Moving to electrical <unk> fastening.
Speaker Change: Now electrical connections sales of $287 million or flat organically.
Speaker Change: Industrial and infrastructure each grew in the quarter.
Speaker Change: This was offset by a decline in commercial ready.
Speaker Change: Geographically organic sales were flat in North America and Europe.
Speaker Change: Fourth quarter segment income was $84 million down 1% return on sales was 29, 4% down 20 basis points, mainly due to mix.
Speaker Change: I'll turn to slide 11 for a recap of our full year 2024 result.
Speaker Change: We ended the year with sales of $3 billion up 13% or 2% organically.
Speaker Change: Acquisitions contributed 10 points to growth for the year.
Speaker Change: Adjusted operating income grew 15% to $652 million.
Speaker Change: Overall return on sales expanded 50 basis points to 21, 7%.
Speaker Change: Adjusted EPS for the full year was $2 49 up seven.
Speaker Change: 7%.
Speaker Change: Free cash flow was $427 million.
Speaker Change: 20% with 102% conversion of adjusted net income this.
This included higher capex investments for growth and capacity.
Speaker Change: In summary, 2024, it was a year of strong performance and execution.
Speaker Change: Now turning to slide 12, titled balance sheet, and cash flow, we exited the year with $190 million of cash on hand, and $600 million available on our revolver, putting us in a very strong liquidity position even prior to the proceeds from the thermal sales.
Speaker Change: Our debt stands at just under $2 $2 billion, and we paid down approximately $100 million in the fourth quarter.
Speaker Change: Our strong free cash flow was driven by improvements in working capital, particularly inventory.
Speaker Change: 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.
Speaker Change: Turning to slide 13, where we outlined our capital allocation priorities.
Speaker Change: We continue to prioritize growth and execute a balanced disciplined approach to capital allocation to deliver strong returns we.
Speaker Change: We invested $74 million in Capex in 2024 up 13%. This included expanding our footprint to increase our liquid cooling capacity Forex and support our growing backlog.
Speaker Change: We returned $227 million to shareholders in 2024, including share repurchases of $100 million.
Speaker Change: And we increased our quarterly dividend 5%.
Speaker Change: Looking ahead, we have significant optionality for further capital deployment. This year, we expect to have nearly $2 billion in available capital to deploy including the net cash proceeds from the thermal sale and our strong cash flow.
Speaker Change: Moving to slide 14, and our 2025 outlook.
Speaker Change: We forecast another year of strong sales and earnings growth.
Speaker Change: Reported sales are expected to grow 8% to 10% with organic growth in the range of 4% to 6%.
Speaker Change: Acquisitions are expected to contribute approximately five points to growth.
Speaker Change: Our outlook for full year, adjusted EPS is $2 98 to $3.08, which.
Speaker Change: <unk> growth of 20% to 24%.
Speaker Change: And we expect free cash flow conversion to be between 95 and 100%.
Speaker Change: A few other important items to note for the year.
Speaker Change: First we are assuming shares of $166 million, which includes share buybacks beyond dilution.
Speaker Change: And second for modeling purposes for now we are assuming net interest expense of approximately $60 million. This assumes the net cash proceeds from the thermal management sale or an interest and we pay down a portion of the track the acquisition debt.
Speaker Change: As we have said, we intend to use these proceeds for acquisitions and share repurchases.
Speaker Change: And third we expect our adjusted tax rate to now be approximately 22% versus 23% in 2024.
Speaker Change: And lastly, we continue to evaluate impact of potential tariffs and have not yet reflected them in our guidance.
A couple of additional 2025 assumptions of notes.
Speaker Change: Corporate costs are forecasted to be approximately $100 million. 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 it to come down through the year.
Speaker Change: And finishing up we expect capex of $75 million to $80 million.
Speaker Change: Moving to slide 15 in 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 65 to 67 cents up seven 7% to 10% year over year.
Speaker Change: Wrapping up our team delivered a strong here and I believe we are well positioned for a great 2025 with that please turn to slide 16, and I will now turn the turn the call back to that.
Speaker Change: Thank you Sarah.
Speaker Change: Key to our success has been our people and our culture and making invent a great place to work.
Speaker Change: We are focused on delivering for our customers and having a positive impact on our communities.
Speaker Change: 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.
Speaker Change: For the first time last year, we were recognized as one of the world's most ethical companies by Ethisphere.
We also earned a silver sustainability rating from Eagle Bottas.
Speaker Change: And we were certified as a great place to work for the third consecutive year.
Speaker Change: These are just a few of the many awards and recognitions. We have received I'm extremely proud of our debt team and everything we have accomplished.
Speaker Change: And there's always more that we can do.
Speaker Change: Wrapping up on slide 17.
Speaker Change: 2024 was another year of strong performance foreign debt, while transforming the portfolio, we are well positioned with the electrification of everything sustainability and digitalization trends.
Speaker Change: 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&A.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
Speaker Change: If you were using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: Is that any time. Your question has been addressed and you would like to withdraw your question.
Speaker Change: Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Our first question comes from Joe Ritchie of Goldman Sachs Go ahead. Please.
Joe Ritchie: Thank you good morning, everybody good morning, Andrew.
Joe Ritchie: Hi, so maybe.
Speaker Change: Why don't we just start off with just the organic growth expectations.
Joe Ritchie: No.
Joe Ritchie: Bit of a slower start to the year on that zero to 2%, but then ultimately you know.
Joe Ritchie: Accelerating as the year progresses.
Joe Ritchie: The con certainly certainly get easier.
Speaker Change: But maybe you can just kind of walk us through your expectations and I'm, particularly interested in looking at slide six.
Speaker Change: On the industrial and commercial businesses like <unk> and what Youre seeing in those businesses today that gives you confidence that you.
Speaker Change: You will see organic growth accelerate as the year progresses.
Speaker Change: 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.
Speaker Change: 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 growing and it is ramping which we believe will also progressed through our sales over the course of the year.
Speaker Change: The next thing I would point out is when we are certainly we ended the year with less organic growth than we were expecting as I commented that is given the distribution effect of management of inventory through here at now orders have continued to be positive, but we see.
Speaker Change: Things ramping as we go through the year.
Speaker Change: And I will say as we talk to our sales teams and our channel partners. One thing. We are seeing is our funnel 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 are.
Speaker Change: So we look at infrastructure continuing to be the strongest for us and backlogs that had been growing industrial improving our 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 to residential.
Speaker Change: Improve over the course of the year.
Speaker Change: Alright, Thanks for that that's helpful. I should have clarified also I just just in terms of pricing for the year as well what what's embedded in your assumptions.
Speaker Change: 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.
Speaker Change: Okay, Okay, Great and then just one last one slide eight.
Speaker Change: Yeah, let loved the breakout of the core technology platforms also great that youre in a position now to be very front footed with capital deployment.
Speaker Change: I think as you're thinking about M&A is it logical to think that these are kind of like the areas that you would admit you potentially invest in or are you looking at potentially other platforms. Other ways, maybe to just increase the breadth of your portfolio. Thank you.
Speaker Change: Yeah. So on the slide eight was meant to be a look at how we're investing organically in our new product areas to drive differentiation, but as we think about our M&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.
Speaker Change: In that infrastructure vertical and so as you know we have a flywheel that has 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 you know applying a disciplined within that framework.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: The next question comes from Julian Mitchell of Barclays Go ahead. Please.
Julian Mitchell: Hi, good morning.
Good morning, maybe just to start with the operating margin.
Julian Mitchell: Guidance.
Julian Mitchell: So it looks maybe is 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.
Julian Mitchell: And then he main divergences between the margin performance year on year of the two segments that we should be aware of.
Julian Mitchell: Yeah. 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 Julian one would just be our corporate costs do tend to be at our highest if you will in Q1 and as we talked about.
Speaker Change: Our prepared remarks, you know we do have some indirect costs are they didn't go with that thermal sales. 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.
Speaker Change: Or 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 in anticipation of that that growth there in the second half and I think the only other thing I would say in Q1 here is price cost, we do expect that to two to ramp in Q2.
Speaker Change: And more of 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 that midpoint to grow roughly 8%.
Speaker Change: For the full year, our guidance really implies in that kind of flat to up modestly.
Speaker Change: And maybe one other thing to point out beyond just the investment profile would just be track D. We do expect with beginning to lap that in kind of mid July is contributing nicely to the top and the bottom line, but from a return on sales perspective, yeah that does have an impact on that overall return on sales, but embedded in the guidance.
Speaker Change: Is a good solid drop through on that overall volume growth and topline growth expected for the year.
Speaker Change: 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.
Speaker Change: But just to understand what's embedded so the known infrastructure pieces I can see slide six the sort of full year laid out there.
Speaker Change: Just wanted to add that the 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.
Speaker Change: Just wanted to win.
Speaker Change: Youre thinking about that.
Speaker Change: How much of that improvement is comps year on year with normal seasonality.
Speaker Change: There's some fundamental improvement and tied to that I guess is whether any of that or the strength in Q4 was in non infrastructure verticals.
Speaker Change: Yeah. 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.
Speaker Change: Over the you know will pick up momentum over the course of the year and translate to orders and sales that 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.
Speaker Change: We just think it's a you know things start to progress some of it is up a.
Speaker Change: Our 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.
Speaker Change: Great. Thank you thank.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: The next question comes from Deane Dray of RBC capital markets go ahead. Please.
Deane Dray: Thank you and good morning, everyone.
Speaker Change: <unk>.
Speaker Change: A question broadly about potential implications from deep seek and just any feedback you've heard from your customers and partners and really specifically.
Speaker Change: What.
Speaker Change: Might be the impact on liquid cooling if they can use older generation AI chips.
Speaker Change: The thermal loads.
Speaker Change: Thermal load assumptions change or is it binary that once you're using.
Speaker Change: AI chips, you just have to use liquid cooling and the differences in thermal loads don't really matter, but there's.
Speaker Change: There's a lot to unpack there, but any color there would be helpful.
Speaker Change: Hey, a J and thank you for the question I think.
Speaker Change: Maybe the first thing I'll start with is recall, we've been doing liquid cooling in datacenters before all these GPU chips, where even launched and so therefore, we were finding applications in some of these other chips early odd because depending on the hyper scaler and their system does.
Speaker Change: Syed and their heat loads, they were afraid 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 the AI, but our view is liquid cooling is still very important it also drives energy efficiency and.
Speaker Change: What we've heard from our customers is that the commitment to <unk>.
Speaker Change: Capex investments is there and not slowing down so we feel that there is going to continue to be demand for liquid cooling solutions.
Speaker Change: As you know the demand for power with these data centers is significant and liquid cooling is one way to offer energy efficiency. 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 draw.
Speaker Change: I further adoption and scale, which again will imply that that infrastructure is so important to be built out in liquid cooling plays a really key role.
Speaker Change: That's great to hear that's exactly what I was looking for especially the feedback from the 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.
Speaker Change: Do you still need to add test capacity because there were some question that you hadn't quadruple that there and could you give us any sense directionally what your utilization rates you know entering twenty-five are on your liquid cooling capacity.
Speaker Change: So Dean I would say this you know we're continuing that expansion because remember when we forex the capacity some of that was the space that we need it 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.
Speaker Change: 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. So a lot of investment going in here.
Speaker Change: And you know, we just see the opportunity and the growth in front of us. So we're very excited about it.
Speaker Change: Thank you for all that color.
Speaker Change: Thank you.
Speaker Change: The next question comes from Nicole to place of Deutsche Bank Go ahead. Please.
Speaker Change: Yeah. Thanks, good morning, good morning.
Speaker Change: Maybe just starting with a little bit more color around what you saw with respect to channel inventory bass.
Speaker Change: You mentioned that that was a factor in <unk> relative to your initial expectations. How do you feel current channel inventory stands today relative to what's needed for next year.
Speaker Change: Well I think as we progressed through Q4, we certainly saw the order patterns drop off in that third month of the quarter.
Speaker Change: And in a way that that was really the adjustments in inventory as everyone was managing working capital et cetera, but our orders have picked up and you know through January and I think that will start to see things because our sell out has been positive I think we'll start to see improved.
Speaker Change: <unk> as we go through this year.
Speaker Change: Okay got it. Thank you and then with respect to tariffs I know you know a lot up in the air right now, but could you help us a little bit by maybe you're sizing your exposure from a Cogs perspective to Mexico, Canada and China. Thank you.
Speaker Change: Well, let's let's first start with China, you know, we have very little debt, yet that we import from China and so in our view with the announced tariffs, it's really minimal impact and we haven't covered.
Speaker Change: We have a plan when it comes to looking at Mexico, and Canada, certainly we've got a good track record in how we manage terrorists previously through supply chain management and through our pricing actions and I think all of those things are you know.
Speaker Change: Actions that were 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.
Speaker Change: Thank you very much I'll pass it on.
Speaker Change: Our next question comes from Trust, Jeff Sprague of vertical research go ahead. Please.
Jeff Sprague: Good morning, everyone. Thank you good morning.
Speaker Change: Good morning, I was wondering if we could dig a little bit more into the order commentary up low teens I think in Q4 is nothing to sneeze at and then Beth you said that has continued into January.
Speaker Change: I think the comps are relatively easy, but can you sort of unpack that a little bit what the comp was.
Speaker Change: And anything in particular in terms of the sub verticals that stand out driving that growth.
Speaker Change: 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 you know all infrastructure. It was across the board and I think as we get into our Q1 again, we're seeing some good.
Speaker Change: Broad based orders across the portfolio.
Speaker Change: And then just thinking about maybe it's a little bit follow up to Nicole's question.
Speaker Change: Is there a way to kind of quantify the topline headwind in Q4.
Speaker Change: By sizing the magnitude of the difference in the sell in versus the sell out.
Speaker Change: No. We don't normally comment on that you know, but I would say this you know we at the.
Speaker Change: What we saw in terms of Ah the inventory.
Speaker Change: <unk> or just adjustments I wanted to say in our distribution channel with 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 that really was the impact that we saw in the quarter.
Speaker Change: Okay, and then just maybe one last one for me on <unk>.
Speaker Change: 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.
Speaker Change: What what drives it positive in 'twenty to 'twenty five is it just sort of blanket beginning of the year sort of price increases or.
Speaker Change: How are you managing price in the current environment.
Speaker Change: Yeah, So Joe I would say in terms of Q4, we continued to see pricing slightly.
Speaker Change: Slightly negative in enclosures and slightly positive in an overall EFI standpoint, and that's for the year, but I would say that to point out even as we saw modest price declines in enclosures. We saw good Ros expansion. So the team has done a really nice job.
Speaker Change: Managing you know some of our product simplification programs and efforts and productivity to continue to show that nice you know Ross expansion overall, you know clearly as we walk into 2025, you know we do expect 2025 to be another inflationary year labor contingent change to be a big portion of that but it's.
As mentioned, we also are working through the China terrorists, 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 customarily do you know we continue to look for pricing actions to help to offset that.
Speaker Change: Probably end by saying look we're we continue to look at the price plus productivity to offset that inflation and I think we've got a nice productivity funnel as we enter into the year. That's broad based you know covers factories D. CS transportation were putting an extra focus on indirect spend as well and again.
Speaker Change: Some of our continued simplification efforts around business transformation. So we're gonna work the combination of that price plus productivity to offset inflation as we as we have historically.
Speaker Change: Great. Thank you I'll leave it there.
Speaker Change: The next question comes from Nigel Coe of Wolfe Research go ahead. Please.
Nigel Coe: Thanks, Good morning, everyone.
Speaker Change: Morning, I just want to go back to maybe a question that was all studio on I'm really just trying.
Speaker Change: 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 vehicles.
Speaker Change: Looks like your plan is flat to maybe low single digit growth. It does just want make sure that that's how to think about it.
Speaker Change: Yeah.
Speaker Change: Well you know as you look at our Q4 performance certainly infrastructure was a big driver of our growth. So you know that that if you look at the breakout by what we said on flight pattern right. However, we did see industrial grow in the quarter for our electrical <unk> fastening solutions business now some of this is also what we are.
Speaker Change: 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. So yes.
Speaker Change: 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 as the vertical outlook and commercial is low single digits, and so infrastructure for us and where our backlogs are will certainly contribute more.
Speaker Change: Strongly to growth than the other areas.
Speaker Change: Okay, and I'm guessing residential which is obviously very small for you guys will be down probably mid single digits. Okay. That's that's really helpful. And then maybe just double click into attractive because it feels like milk cities' contribution to full queue from acquisitions was a bit.
Speaker Change: Better so I'm, just wondering and I know of attractive organic until the second half of the year, but maybe just double click into what you're seeing.
Speaker Change: In fact in terms of growth between two five and perhaps just a.
Speaker Change: Talk about some of the verticals, where you're seeing that growth.
Speaker Change: Alright, so as we often like to say it frankly as a new growth platform for us with control buildings.
Speaker Change: 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 and closures for various applications and specifications. This is how we think about control buildings that at play.
Speaker Change: And utilities that plays in Datacenters. It supports backup power. There's it's supports energy storage, there's various opportunities for us to expand this control buildings platform. So we're seeing we see good momentum in this platform.
Speaker Change: And think it will be a strong contributor.
Speaker Change: Contributor and driver to us in that broader infrastructure vertical.
Speaker Change: Okay, great. Thank you.
Speaker Change: Yeah.
Speaker Change: The next question comes from Jeff Hammond of Keybanc go ahead. Please.
Speaker Change: Hey.
Speaker Change: Good morning.
Speaker Change: Morning.
Speaker Change: Just on the liquid cooling business a lot of dynamic.
Speaker Change: Movement there.
Speaker Change: So a lot of new entrants so I'm just wondering.
Speaker Change: As you look near term what are you seeing in terms of win rates.
Speaker Change: As seen in the backlog and any kind of early traction from the same video collaboration you announced.
Speaker Change: 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 are we're working with Nvidia a that has a you know certainly for some customers they want it.
Speaker Change: Have that in video and the video partnership and so that's a positive to us.
Speaker Change: 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.
Speaker Change: Not just hyperscale theirs, but enterprise and Carlos.
Speaker Change: And and looking at some integrator type customers as well through distribution. So we're continuing to see the backlog build and think we have very strong momentum going into 2025.
Speaker Change: Okay, that's helpful but.
Speaker Change: Maybe back to the capital allocation just talk about action ability of the pipeline.
Speaker Change: I don't know what have you baked in for buybacks and what's kind of the.
Speaker Change: The thought of flexing that if if if deals don't come through.
Speaker Change: Well, let me first start on our acquisition pipeline.
Speaker Change: I've said this on previous calls I think we have a very robust pipeline and opportunities.
Speaker Change: 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 and I believe our pipeline is strong and healthy and we have a very disciplined approach to our what we go after and we are.
Speaker Change: Also look at our ability to execute that well. So you know we believe you know as a priority for capital allocation to 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 yeah.
Sarah: Would you say our outlook that we provided this morning really as a baseline reflects two things one an expectation of share buybacks, you know roughly $200 million, which aligns to that guidance of 166 million shares versus our 168 in 'twenty 'twenty four and then just for modeling purposes, you know the guidance.
Sarah: It reflects that lower interest related to the interest earned on the proceeds as well as the pay down of the track the acquisition debt in part. So I think the important thing to point out is that if you just fold in the net proceeds of that 1 billion for them with our 2020 for EBITDA and our net debt we are sitting at <unk>.
Sarah: Less than one times in terms of our net debt to EBITDA leverage. So it just emphasize the point that we have ample capacity to go deploy capital in 2025 mm and create that shareholder return that value creation.
Sarah: Yeah.
Speaker Change: Okay. Thank you.
Sarah: Thank you.
Speaker Change: The next question comes from Brian Drab of William Blair Go ahead. Please.
Sarah: Hi, Thanks for taking my questions.
Speaker Change: I think that you said for power solutions, but the expectation is for double digit growth in 2025, I'm wondering if you could be.
Speaker Change: Any more specifics on that and remind us what what was the growth for power solutions for the full year 'twenty four.
Yeah on our I think on our chart, where we talked about growing and in infrastructure and just saying that you know now power utilities is about 10% of our overall sales.
Speaker Change: Double digit growth is being driven by.
Speaker Change: And certainly the track the acquisition as 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.
Speaker Change: Supported by them.
Speaker Change: Okay. Thanks, Curt I guess for data.
Speaker Change: Guess I should call it data solutions.
Speaker Change: That 20% of sales.
Speaker Change: Was up how much in 'twenty four and.
Speaker Change: I'm just wondering can you say that double digits.
Speaker Change: I assume you're not thinking like 10 or 11% there like how.
Speaker Change: Will that proceed okay. So we did say that for data solutions that we grew 30% last year and we're expecting you know.
Speaker Change: Double digit growth again in 2025.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Trying to get you to that.
Speaker Change: To get a sense if that's you know.
Speaker Change: We're going to continue better than 20% or not but I won't I won't press you further I guess.
Speaker Change:
Speaker Change: And on track D.
Speaker Change: Just to put a finer point on the contribution from growth and potential contribution I mean. This is this is probably what about $300 million revenue business now.
Speaker Change: It's growing very strong double digits. It seems like this is a business that could contribute.
Speaker Change: Even I don't know 150 basis points or two points to the organic revenue growth in the second half of the year.
Speaker Change: On the right track thinking of it that way.
Speaker Change: Well, maybe just to frame. It we had said you know coming into 'twenty 'twenty four there that it's roughly a $250 million business. So you you can imply that you know when we say strong double digits, it's contributing nicely to the top line and and really exceeded our guidance. Even in Q4, we expect it to contribute nine points of Katrina 10 points to growth and so.
Speaker Change: We do expect that power utilities data centers as part of that track the business to continue to be part of that infrastructure vertical that that's outlined and contribute nicely to that back half.
Speaker Change: Maybe one other point, if I, just kind of zoom out for a moment and think about the data solutions in the power utilities piece, you know, our our backlog will exit 'twenty 'twenty four with a backlog of $750 million, which is up meaningfully from the prior year now some of that is the track the backlog you know folding in.
Speaker Change: But it's also that year over year track the backlog building as well as that data solutions are 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 are increasing as well, that's giving us confidence in that back half growth.
Speaker Change: Yes. Thanks. So this seems like a great I mean, obviously, it's a great acquisition that you made and if it's 10% of revenue and growing even 15% to 150 bps of growth in the second half of the year.
Speaker Change: It seems like it could be even more than that that business is growing.
Speaker Change: That quickly.
Speaker Change: So as people are just trying to reconcile the acceleration in your organic revenue growth.
Speaker Change: It feels material so I'll follow up more later, though yeah, it's a great growth platform for us and we're very excited about you know the broad applications and opportunities that we have there so off to a great start.
Speaker Change: Absolutely okay. Thank you.
Speaker Change: The next question comes from flood by striking of Citigroup go ahead. Please.
Speaker Change: Good morning team. Thanks, Thanks for taking my call.
Speaker Change: Good morning, Brad.
Speaker Change: So maybe just a couple of quick questions for me.
Speaker Change: One on <unk>.
Speaker Change: On the capital deployment front.
Speaker Change: I think the slide you showed slide eight on the core technology platforms is helpful and very interesting I guess as I think about incremental capital deployment versus those <unk>.
Speaker Change: <unk> core technology platforms are there.
Speaker Change: Particular areas that stand out where you see.
Speaker Change: You know more potential for M&A or more.
Speaker Change: Action ability.
Speaker Change: To layer onto those core platforms through M&A.
Speaker Change: Well I think the answer to that is yes, and I think you know, but it's a combination for us to look at.
Speaker Change: 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 and our high growth vertical where we can invest in scale to grow. So we look at these plots these platforms.
Speaker Change: We also look at infrastructure verticals in and when we can find the two you know overlay together, we think that there's a lot you know a lot of momentum that we can get from that flywheel.
Speaker Change: Got it that's helpful and then I guess just.
Speaker Change: Obviously, a lot of focus on liquid cooling and what youre seeing there.
Speaker Change: Can you just talk about your visibility to the timing of deliveries and whether youre seeing any material movements from customers in terms of when they want liquid right.
Speaker Change: Liquid cooling product.
Speaker Change: They continue to.
Speaker Change: Refine their designs and approaches to thermal management.
Speaker Change: No 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 continued to talk about that adding capacity increasing programs scaling what we do then we attract new.
Speaker Change: Customers, who are in some cases testing out new solutions trying to understand their system architectures in general it's a lot of activity that we're seeing in both with existing and new and and it expanding from hyper scaler to enterprise and other.
Speaker Change: Other types of customers. So its very busy and active I guess I would say in our backlog supports that and the continued growth that we're seeing here.
Speaker Change: Got it that's helpful. Thanks, I'll get back in queue.
Speaker Change: Thank you.
Moderator: Our next question comes from Scott Graham of Seaport go ahead. Please.
Speaker Change: Hey, good morning, Thanks for taking my question.
Speaker Change: We have.
Speaker Change: Maybe understand.
Speaker Change: Sort of your calculation of the EPS impact contract in the first quarter and maybe what's bad you did in the twenty-five guide.
Speaker Change: So we haven't gotten that specific Scott, but I think we gave some guardrails right. It initially as we acquired track D. Right. We said you know it was roughly a $250 million business and in that kind of 20% plus or minus return on sale. So I think he can.
Speaker Change: And do the math. It suggests we've got you know a bit of carryover here in the first half and importantly, as we look at just the overall 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.
Speaker Change: Well. Thank you for that Sir 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.
Speaker Change: You know 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, you know similar to 2024, we expect it to be an inflationary environment with really.
Speaker Change: You know labor being the biggest driver of that overall.
Speaker Change: Thank you I appreciate that last question.
Speaker Change: So you talked about the orders may be starting to spread out vertical wise in January and.
Speaker Change: I know that your what your organic projections youre ramping organic is based on you went through that thank you. When 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.
Speaker Change: Yeah.
So I think if you're referring to timing projects and data solutions or attract 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 up you know from Q1 to Q2.
Speaker Change: But it is 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 late in.
Speaker Change: Yeah.
Speaker Change: A point on the comp to Scott and I know you guys see that space and it.
Speaker Change: It was meaningful right in Q1, I mean, our comp is overall than in vet level organic growth of 6% and we're lapping a sips systems protection growth of 11% in the quarter. So some of it's just timing and comp.
Speaker Change: Yes. Thank you for the details around the ramp that was all very helpful.
Speaker Change: This concludes our question and answer session.
Speaker Change: Would like to turn the conference back over to Beth Wozniak, CEO and chair of the board for any closing remarks.
Beth Wozniak: Thank you for joining us. This morning, we are proud of our strong 2020 for performance and believe the electrification of everything sustainability and digitalization trends are driving demand for our products and solutions.
Beth Wozniak: 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. This concludes the call.
Beth Wozniak: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.