nVent Electric plc Ordinary Shares

At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be an answer session. To ask a question during this time, you will need to press star, then 1 on your telephone keypad. If you require any further assistance, please press star, 0. I would now like to hand the conference over to your first speaker today. JC Weigel, please go ahead.

Thank you, Amy, and welcome, everyone, to Inven's first quarter 2021 earnings call. I'm J.C. Weigel, Vice President of Investor Relations, and on the call are Beth Wozniak, our Chief Executive Officer, and Sarah Zawoisky, our Chief Financial Officer. Today, we'll provide details on our first quarter performance and provide an outlook for the second quarter, as well as an update to our full year 2021 outlook. Before we begin, let me remind you that 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 InvenS filings at 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 InvenS' website. References to non-GAAP financials are reconciled in the appendix of the presentation. We'll have time for questions after our prepared remarks. And now I will turn the call over to Beth.

Thank you, JC. And good morning, everyone. Our first quarter performance was ahead of our expectations on sales, earnings, and cash. This was a result of stronger than anticipated demand, as well as channel restocking, both of which were particularly strong in March. Execution was another highlight as we saw good price realization, met increased customer demand while delivering strong productivity, and continued to make progress on our growth initiatives. I am so proud of how well our teams are executing in this challenging environment. Overall, it was a great start to the year. Beginning on slide three, titled Executive Summary, our employee safety and well-being remains our top priority. And we continue to execute on our priority to emerge stronger. We return to growth in the quarter, and our financial results are well ahead of the guidance we provided in February, as well as ahead of the update in early March. We saw particular strength in enclosures, with strong sales within the industrial and infrastructure verticals. For Invent, we saw a pickup in sales globally, reflecting the broader recovery. Return on sales for the quarter was 17.7%, marking an increase of 210 basis points. And we generated $40 million in cash flow. We believe a faster global recovery and our strong execution were the main drivers to our overperformance this quarter. Our adjusted EPS of 43 cents was up 26% year over year. Given the strong start to the year, we are raising our full year guidance. Now on to slide four of our first quarter performance. Sales during the quarter were $549 million, up 5% reported or 2% organically. This was well ahead of the down 9% to down 4% we originally guided you. Incrementals were robust at 56%. We believe a number of factors drove our top-line performance. One of those is the accelerated recovery of the global economy. Recall our expectation was that enclosures would recover first, and that is playing out. Enclosure sales were up 4% organically, and industrial sales within enclosures were up 7% organically. Another factor was channel restocking, where we saw a meaningful improvement in March. We believe that this restocking activity was due to a combination of low inventory levels, the uncertainty around supply chains, and the buy ahead of inflation. While this likely pulled some sales into the first quarter, we still believe the underlying global economy continues to recover and we are optimistic about further strength as we progress through 2021. One more factor driving our strong results is our focus on higher growth verticals around the electrification of everything, where we believe we are one of the best positioned companies to grow with this mega trend. Infrastructure was up mid-single digits, as data center and networking solution sales were up 20%. A number of other sub-verticals saw strong growth, including telecom, 5G, and renewables. Rounding out the vertical discussion, we continue to see weakness in energy, particularly in North America and MRO, which remain on double digits. In commercial and residential, electrical and fastening saw modest growth, and thermal management saw strong growth driven by fire-rated wiring and pipe freeze protection. Turning to our geographical performance, sales within North America were down modestly, although ahead of expectations. Europe continued to improve with sales up almost 4% organically year over year and high teens growth within European distribution, which is a focus area for us. Emerging geographies such as China saw strong double digit growth as they continue to lead the recovery. Looking ahead, we are raising our full year guidance. This reflects the strength we saw in the first quarter and our order momentum. While our outlook is positive, we remain cautious given by chain constraints and the fact that regions of the world are still struggling with COVID-19. Regarding inflation, we've raised our outlook for the year around input costs and are executing well on a number of price increases with strong realization thus far. Over the last several years, we've invested in capacity and resiliency in our supply chain and have been able to respond well to the increased demand. I'm proud to say that due to our new products, strong execution, and product availability, we are converting customers and emerging stronger. I will now turn the call over to Sarah for some detail on our first quarter results and our updated outlook for 2021. Sarah, please go ahead. Thank you, Beth. It is exciting to begin the year with such great performance. Let's turn to slide five to review first quarter performance. Sales of $549 million were up 5% relative to last year, or 2% organically. We saw strong price realization, adding approximately a point and a half to growth. March was our strongest month during the quarter, particularly in enclosures and electrical and fasting. Orders in the quarter turned positive and outpaced sales across all three segments with particular strength and enclosures. Price plus productivity more than offset inflation and we delivered incrementals of 56%. Segment income increased 19% driven by top line strength, good operational execution and productivity from the cost actions we took in 2020. Adjusted EPS of 43 cents increased 26% and was above our original guidance range of 32 to 36 cents. Free cash flow during the quarter was a positive $40 million. In summary, this was another quarter of strong execution and a return to growth. Now please turn to slide six for discussion of our first quarter segment performance. Starting with enclosures, sales of $277 million grew 4% organically. We saw volumes increase, driven by a broad-based recovery in industrial and accelerated growth in infrastructure. In particular, data and networking solution sales returned to strong double-digit growth, and our expanded IEC portfolio grew high single digits. Enclosure segment income increased 19%, with return on end sales expanding 180 basis points to 17.6%. Incrementals of 43% reflected strong operational productivity. Now on to electrical and fastening. Sales of $148 million were up 1% organically, demonstrating the continued strength and resiliency of this portfolio with double-digit growth in industrial, low single-digit growth in commercial, and as expected, modest declines in infrastructure due to difficult comps. Global sales outperformed expectations with strength in Europe and APAC, order growth and power utilities, and data center and networking solutions, all critical areas in the electrification of everything, gives us confidence our infrastructure vertical sales can improve as we progress through the year. Electrical and fasting segment income was up 17%, and return on sales was 26.5%, up 290 basis points relative to last year. Incrementals were very strong at 94%. the team continues to perform at a high level, focusing on fast-growing verticals, new products, channel and contractor conversions, all while improving in return on sales relative to last year. Moving to thermal management, sales of $124 million declined 1% organically. While orders improved sequentially in industrial MRO, sales remained down double digits due to continued spend reductions. Commercial and residential sales were up low double digits with particular strength in fire rated wiring, and we continued to see the benefit from longer cycle projects globally. Thermal management segment income was up 3%, and return on sales expanded 10 basis points, as the structural changes we made last year are reading out. The business continued to see a negative mixed impact to margins due to declines in industrial MROs. On slide seven, titled balance sheet and cash flow, we ended the quarter with a cash balance of $105 million. We have an additional $565 million available on our revolver. We continue to make progress on our working capital goals and we're pleased with robust, positive free cash flow during the quarter versus our typical usage. This was the result of strong operational performance as well as working capital improvement. Turning to slide eight, titled Capital Allocation Update, we exited the first quarter with a net debt to adjusted EBITDA ratio at 2.1 times, which remains at the low end of our target range of two to two and a half times. We completed the bolt-on acquisition of Bankier early in the second quarter, which expands our enclosures portfolio further into infrastructure. We also repurchased $20 million in shares earlier in the quarter to help offset dilution. We believe our strong balance sheet and cash generation puts us in a good position to invest in growth and execute our M&A strategy. Moving to slide nine, titled 2021 Invent Outlook. We are raising our full year guidance for the following reasons. First is our strong sales performance in the first quarter, which reflected a faster recovery, particularly in the industrial vertical. Second, our order book gives us confidence that the global economy continues to recover. Third is our strong operational performance, which we believe is a competitive advantage with our ability to service increased demands. Offsetting some of these positives is an updated view on inflation, which has meaningfully increased. We have successfully executed multiple price increases in enclosures and electrical and fastening. We continue to monitor inflation and evaluate our pricing and productivity actions with a goal of protecting profits. We are off to a strong start and are confident in our team's ability to execute, but it is still early in the year. We now expect to grow sales 8% to 11% versus our prior guidance of 4% to 8%. And now expect adjusted EPS to be in the range of $1.67 to $1.75 versus our original guidance of $1.58 to $1.68. This new guidance reflects earnings growth of 11% to 17% versus 2020. From a segment perspective, we expect the stronger recovery in the industrial verticals to benefit our enclosure segment the most. Strength in infrastructure and industrial is expected to drive electrical and fastening sales with continued resiliency in commercial. For thermal management, we are encouraged given positive order trends in commercial and sequential improvements in industrial MRO and continue to expect this to be a more gradual recovery. On currency, we now expect a two-point tailwind to sales this year. We expect another year of strong cash flow and conversion of adjusted net income at or above 100%. And lastly, we expect corporate costs to increase relative to our initial guidance by approximately $5 million. This is related to higher compensation accruals in response to such a strong start to the year, some temporary costs coming in sooner, along with continued strategic investments. Looking at our second quarter outlook on slide 10, we expect organic sales to be up 14% to 17% as we lap a quarter that was significantly impacted by global shutdowns in the peak of the pandemic. This outlook is supported by high single-digit organic growth in the first quarter with particular strength in March. We expect adjusted EPS to be between $0.36 and $0.40, which at the midpoint reflects 31% growth relative to last year. Recall the second quarter of 2020 included actions around furloughs and salary reductions during the peak of the pandemic, causing a headwind this quarter. Still, we expect margin expansion and attractive incrementals due to strong execution, the benefit of structural actions taken in 2020, and increasing volume. Wrapping up, I'm pleased with our first quarter performance. We executed well to meet strong customer demand. We believe we have a good handle on price cost in this inflationary environment and expect to take the necessary actions to protect profit. With a successful first quarter in order momentum, we believe we are set up for a great year with strong sales growth, margin expansion, and robust cash generation. This concludes my remarks, and I will now turn the call back over to Beth. Thank you, Sarah. Turning to slide 11, I would like to review the progress we've made on our 2021 priorities. Our first priority remains the safety and well-being of our employees. We continue to engage in regular conversations with our employees to ensure they feel safe and supported as we continue to navigate through this crisis. Growth remains a priority for us, both organic and inorganic. We've recently seen a marked improvement in global sales with particular strength in Europe and other global geographies. Our strategic initiative to build stronger relationships with European distributors is paying off with high teens growth during the quarter. We saw 20% plus growth in our focused verticals, such as data networking solutions and rail, as well as high single-digit growth amongst our strategic distribution alliances. We launched nine new products during the quarter across the business. These include connected solutions in thermal management, as well as a universal freestand portfolio of enclosures. We are on track to launch over 50 products this year. Recall, we are tracking our progress by measuring new product vitality, which continues to rise into the high teens. And we are seeing a strong revenue and margin contribution from these products. On the digital front, we continue to launch new capabilities on go-to-market, automation, and digitization of our back office functions and factories. We're expanding our use of data and intelligence, helping us drive insights to support our growth. We also expect this to drive productivity and working capital improvements. On M&A, we completed the Vinci acquisition earlier this month, which strengthens our enclosure segment, providing us with an expanded non-metallic portfolio positioned in high-growth verticals such as solar, utilities, and 5G. We also formed a strategic partnership with Cool IT Systems. They are a leader in cooling solutions for data center and networking, and we see this further strengthening our cooling capabilities. Our M&A strategy is to build upon our great brands, leading positions, and to expand globally. We are very pleased with the successful integration of Eldon and WBT. Both are performing very well with orders up double digits in the quarter. We have robust integration playbooks and believe we are capable of delivering value through acquisitions. We see ourselves competing in a highly fragmented space and have a strong M&A pipeline around the mega trend of the electrification of everything. We believe M&A continue to play a key role to grow our business and create shareholder value. The global recovery is underway and even a little earlier than anticipated. We said we would see the recovery first in enclosures and that is what transpired here in the first quarter. Since SPIN, we have invested in our capacity and improved the planning and management of our supply chain across all segments and believe we are well positioned to meet a continued increase in global demand. We have a healthy balance sheet and continue to look for attractive M&A opportunities that deliver high returns. Over the past year, we've made decisions to put us in a position to emerge stronger. Our first quarter results, as well as our order book, give us the confidence that we are indeed emerging stronger. Our outlook for the year has improved, and we're executing at a high level to deliver both sales and income growth, as well as improved cash generation. Wrapping up on slide 12. We have a strong foundation with many bright growth prospects. Because of the macro trends toward the electrification of everything, we believe we can drive more demand for our products and solutions. With our strong brands, our spark management system, and our momentum on marketing and sales excellence, new products and digital, we believe we are well positioned to benefit from these trends. Our future is bright as we continue to gain traction within high growth verticals, global growth, and strategic and alliances. In addition to growth, we're executing at a high level to deliver margin expansion and strong cash flow generation. We are emerging stronger and are on a path to making Invent a high performance electrical company. With that, I will now turn the call over to the operator to start Q&A.

At this time, ladies and gentlemen, if you would like to ask a question, please go ahead and press star then the number one on your telephone keypad. Again, that's star one to ask a question. Your first question today comes from the line of Jeff Straub with Vertical Research. Please proceed with your question.

Thank you. Good morning, everyone. Morning. Morning, morning. Maybe just a little bit more on price cost, if we could. So you shared that price was up 1.5% in Q1. What are you anticipating for the full year on price, and would that be – you know, dollar for dollar covering the cost pressures that you anticipate at this point?

Yeah. Hi, Jeff. I'll take that. So, I mean, I would just start by saying, you know, we've got a good track record in terms of realizing price, especially in these inflationary periods. And I think, you know, Q1 is evident of that. It's a good start to the year with pricing strong at a point and a half. We do anticipate sequentially as we move into Q2 that inflation will increase. If you recall, we've got a locking strategy that gives us a bit of a lead time in terms of when that inflation kind of rolls in. So we are anticipating inflation to uptick sequentially here from Q1 to Q2, sort of in that $10 million magnitude. But at the same time, we would expect pricing to increase as well as our productivity initiatives. So for the full year, we expect to manage sort of that price cost and cost defined by that material side of the equation to run sort of neutral to positive. And I think the last point I would just leave you with is overall, even with these temporary costs coming in, as well as the more inflationary environment, we continue to expect modest Roth expansions for the year. And I think that really is more of a testament of the volume that we're seeing surely held from a productivity standpoint, but also the cost structure work that we did last year, along with the execution on price and the operational execution. So price-cost is something that we're going to continue to progress during the year here.

And on the channel side, the behavior you saw in enclosures, is there any indication that that's unfolding in EFS on kind of pre-ordering? And just how would you describe kind of the level of channel inventories relative to, you know, what looks like it's unfolding on the demand side?

Yeah, so we did in March, we started to see some improvements across the channel also in EFS. So Enclosure's first thing strong, but then EFS. And I think a couple of dynamics there, the recovery starting a little bit earlier. I also think that some of the distributors were trying to take a position because They're seeing that some other components or suppliers are at allocation. We're not. So I think they're trying to ensure that they've got stock. But I think it's still going to continue to improve. I wouldn't say that they have fully restocked. I think it's improving as they see global demand. So I think there's still some runway there in terms of the channel globally.

Great. Thanks. I'll pass it on.

Thank you.

Your next question comes from the line of Nigel Cole, Bristol. Please proceed with your question.

Oh, thanks. Good morning, everyone. Good morning. So, good details on thermal. I'm just, obviously, still, MRO still remains to burn the water, but wondering, you know, maybe if you could just talk about what you're seeing in a bit more detail on the movement pieces going forward on thermal. And... Specifically with MRO, I mean, obviously we're running into much easier comps now, so I presume we get back to growth in 2Q. But would you expect sequential growth, 1Q to 2Q, in thermal? Thanks.

Yes. On the MRO, you know, that was – A significant impact was in 2020, and we saw that improving every quarter, including into this first quarter. We would expect a return to growth across all of thermal in Q2, but it's an area where I would say we have seen activity and quoting, and we're seeing some of those projects and some of that spend getting released. So I think we're going to see it continue to improve throughout 2021. Great.

And this quarter, we've seen much stronger commercial construction trends pretty much across the globe, but particularly in North America. And you've got some pluses and some minuses here across the portfolio. But just generally speaking, what do you see in commercial construction? And again, expectations for this year would be improving growth. I mean, are you more confident now in that air market?

Yes, I would say that we are. You know, we had our investor day. We talked about commercial being down slightly, and I think we see it improving. So it could be flat to down, maybe a slight positive. One thing that I think we're watching very carefully, and it's what I've heard through our distribution channel, is that there are supply constraints, not on our products, but products even just lumber. And so that may change the timing of when some of these commercial projects get executed. So we feel that we're in a good position. We feel that we have launched new products, in particular from our EFS business, that is allowing to us to convert customers and contractors. And I think it's going to be commercial will definitely be healthier, just some timing based on some of the other supply chain constraints is what we're just being cautious about.

I agree with that.

Thank you.

Your next question comes from the line of Jeff Hammond with QBank. Please proceed with your question.

Hey, good morning, everyone. Good morning. Just on the revenue guide, is it fair to say that the increase is just largely in closures and you're leaving the other, you know, unchanged? And, you know, if not, you know, where are you kind of upping it in the other two segments? And then just give us what you're putting in there for Venky A., you know, from a contribution standpoint within the guide.

Yeah, so let me just kind of walk the top line first. You know, that increase in guidance, so all in was that 4% to 8%, and now it's 8% to 11%. That includes almost a point for Vinci, another point for currency, and again, that's going to predominantly show up here in the first half, and then roughly two points of organic growth. And that really reflects the stronger start to the year that's mostly industrial, mostly enclosures, but I would also say we're also seeing some strength on the infrastructure side, which would benefit EFS as well. And I think from an... Yeah, and then from an EPS perspective, it's probably on the smaller bolt-on size for us. We see it having a more meaningful contribution next year from an EPS perspective. It's really focused on integrating that acquisition this year, but believe that it really sets us up nicely in terms of additional presence there in the infrastructure space.

Back on price-cost, the incrementals in price and productivity versus cost in 1Q was pretty exceptional. When do you think, which quarter is most challenging for you? If any, are you seeing any pushback on price?

So I'll take the first question first, and then maybe comment upon the price comment. I would say from an incremental perspective, clearly Q1 we feel great about the execution and being able to deliver incrementals at 56%. We do expect that to ease in Q2. The biggest factor there is just going to be the temporary cost. If you remember, a lot of our temporary cost actions sort of peaked, if you will, in Q2 and Q3. of last year in concert where the pandemic was at its peak in terms of impact to our business. So as those temporary cost headwinds kind of fold in here in Q2 and Q3, and as some of our temporary costs begin to fold in as well as it relates to you know, T&E and some of our more discretionary spend and also the corporate costs, we'll expect that to more show up here in Q3. So from an incremental standpoint for Q2, we still feel like those incrementals are going to look pretty good just because of the contribution from the overall volume and probably expect Q3 to be our most challenged just because of the lack of those temporary costs as well as some of the temporary costs coming in this year. And I don't know if... I would say this. Again, recall that the majority of our products are sold through distribution, and the distributors completely understand the inflationary environment that we're in. Now, we have to give them due notification so that they're able to then adjust their pricing and pass it along. But that process I think we've got down very well. And a smaller portion of our business may go direct, and usually we have some material clauses in there that we're able to adjust some pricing. So I would say we're not seeing any pushback. It's more just timing of how we manage, especially when we see rising inflation quickly. It's just the timing and our ability to manage that.

Okay. Excellent. Thanks so much.

Thank you.

Your next question comes from the line of Dean Doug with RBC Capital Markets. Please proceed with your question.

Thank you. Good morning, everyone.

Morning morning.

Hey, like to circle back on in closures for the quarter and Beth you in your prepared remarks said there may have been some pull in. Is there any way you can quantify that and just kind of indications? Is it just, you know, the inventory in the channel that gave you that insight that there might have been some Poland, but any color and quantification there would be helpful.

Yeah, Dean, it's hard to quantify that exactly because we've got multiple factors going on. First, when I said pull-in, I referred to that because our initial view was that we were going to see return to growth in Q2, and that happened in Q1. So as far as our planning and phasing was, that happened earlier. And so what we had thought would be restocking in Q2 seemed to happen in Q1. The second point I would make is because we are hearing about significant changes supply chain challenges in other parts of the electrical world. We're actually responding really well and have been managing demand. So we think that there are distributors that are taking a position to ensure that they have access, given that they've got constraints in other areas. And the third, I would just say, with this inflationary environment, we usually see this behavior that distributors sometimes want to stock in advance of some of that inflation. So it's that It's the compounding of all those factors is why we actually think we saw some strength in Q1 that we anticipated more in Q2.

All right. That's really helpful, and I appreciate that additional color. And then in terms of the guidance boost for the year, I see you're leaving free cash flow unchanged, even though you've got higher earnings. Yes. Yes, it's 100% free cash flow or better, but just, you know, how are you thinking about the drop through reading into free cash flow for the year?

Yes, so, Dean, we would expect those free cash flow dollars, right, to increase, right, along with the better net income performance. And so while the percentage of net income, you know, we still see at or above, right, the dollars would increase in concert with that. I think Q1 is a good indication there of just a great start. I mean, you see the positive impact by way of just the stronger performance and that flowing through to free cash flow. And we're really pleased with some of the early reads of our working capital initiatives, some of that being even carried over from last year activity.

Good. Just last question. And Sarah, you were one of the first in the sector that we heard using the term feathering back in temporary costs. And so you've given good visibility in terms of how these come back into the P&L. You did say that there's some additional temporary costs are starting to come back sooner. Could you frame for us what those are and the timing and the impact?

Yeah, so we talked about temporary costs last year being roughly $30 million, and a lot of that really was, again, concentrated in Q2, Q3. Roughly a third of that was T&E. Roughly a third of that was just salary reductions, and then a third of that was more discretionary spend. I think what you're seeing is that T&E, that will begin to drop, I think, in Q2, but more from a Q3 perspective. And I think what we're seeing is that if the volume, you know, continues to recover, we're going to invest in the business and return in some of those more discretionary costs. So it's a matter of some of these strategic investments that is investing kind of in the here and now as well as in that future growth. I think the other piece maybe just to keep in mind too, Dean, is just the higher compensation accruals that would come with a stronger performance.

Of course. That's great, great color there. Thanks.

Your next question comes from the line of Julian Mitchell with Barclays. Please proceed with your question.

Hi, good morning. Maybe I just wanted to circle back to the margin guide. So I think the margins in the first half of the operating level are guided to be up maybe 150 bits or so. Looks like the full year is not up very much. So the second half margins implied, I think, a down year on year. Just confirm whether that's correct. And if so, understood the temporary costs aspect, but obviously your organic growth should also be stronger, I guess, in the second half versus Q1. So is there anything else kind of in the moving parts that are weighing on those second half margins year on year that we haven't yet discussed?

No, I think they're really going to be, you know, the things that we've already highlighted. I mean, I think I pointed to Q3 probably being our most difficult quarter just from an incremental standpoint already. And then just as you look at that back half, you are going to have more of – we're anticipating more of that inflationary environment coupled with these temporary costs and not necessarily – you know, still seeing strong growth, but not necessarily the year-over-year growth that we're seeing here in Q2 just because – wow. I think there continues to be some moving pieces here, but what I'm confident in is we continue to run the scenario, continue to take actions quickly and execute well. So we're going to continue to manage all these levers to get to that Roth expansion for the year, despite some of the inflationary and temporary costs that we're seeing.

Understood. Thank you. And then on a segment of this, when we look at the margins being up for the full year, company-wide, is there anything to call out on the segments where we should see a bigger increase or smaller increase perhaps relative to that firm-wide average?

Yeah, so consistent really with how we entered the year, you know, we continue to see – the largest ROS expansion in enclosures as well as in thermal enclosures really because of that industrial cart recovery that we're seeing and really the team doing an excellent job managing the price cost as well as productivity on the operational side. You know, thermal, you know, part of this is just kind of bouncing off the lows that we had and, again, seeing the benefit from the cost structure that the team executed in last year, as well as anticipating some recovery in the back half with MRO. EM beds, a little bit more flattish in part because they had a great – Ross performance last year, and they continue to manage that price-cost equation very well as well. So really, in closures, we'd expect the most Ross expansion, and then thermal and a bit more muted on the EFS side.

Great. Thank you.

Your next question comes from the line of Joe Ritchie with Goldman Sachs. Please proceed with your question.

Thank you. Good morning, everybody.

Good morning. Good morning.

Hey, guys, when you think about the 2Q guide, the organic 14% to 17%, and you think through the different segments, maybe provide a little bit of color on what your expectation is on a sub-segment level. And also, if there's any color to provide from April trends at this point, that would be helpful as well.

Just from a top-line perspective for Q2, obviously we're expecting strong double-digit growth at an invent level, and really that flows through to each one of the segments. We would expect enclosures to be leading the pack, if you will. Part of this, again, is due to an easier comp, but it really is more indicative of that industrial recovery that we're seeing. And I think the order rate in Q1 helps point to that. But we'd expect to see strong electrical and fasting and thermal management growth as well. Maybe the other comment I would make, thermal, we do expect a more gradual recovery here. And so we see that kind of playing out here in the first half. From an April perspective, it becomes a little less helpful from a year-over-year perspective because April last year was probably one of our lowest months in terms of sales per day. But what I will tell you is that it does continue to point to that underlying recovery. If we look at it just on a per-day basis for Invent, It might not be at the March levels because we do think that that benefit is from some of the restocking and pre-buys, but it's ahead of January and February. And it's particularly that way in enclosures. So, again, as we look at it from a per-day basis, it puts us well on track to the Q2 guidance.

That's helpful. And I guess my follow-on question, just sticking with maybe thermal for a second, you've seen Brent Oil now sitting there, the high 60s, and you're not the only company that hasn't really experienced a recovery yet on oil and gas spending. I guess maybe just some color on what your customers are saying. Do you think that the second half of the year is going to be much better? Commentary on that would be helpful.

We do think that we're going to see a continued gradual recovery. And we base that on, you know, the discussions that we've had with our customers, but also the activity that we have on quoting opportunities. And so it seems like, you know, kind of as we planned it, that it's just going to improve over the course of the year. And remember, we were at, you know, lows last year. So that's the expectation. We're going to see that gradually recover.

Thank you.

And again, ladies and gentlemen, to ask a question, press star then one on your telephone. Your next question comes from the line of David Silver with CL King. Please proceed with your question.

Yeah, hi, good morning. Thank you very much. Morning. Yeah, hey, my first question would just be to kind of get your, I'm going to just touch on maybe some cost or logistics issues that may challenge you to meet your guidance. Personally, I was just wondering, beyond steel, I was just wondering if you might highlight what are your other principal raw materials or purchased inputs? In particular, beyond cost, is there anything that might be a customized or processed product that just might have a naturally limited number of suppliers? And then along those lines, freight has been an issue. I'm more thinking about availability of freight, maybe airborne freight going overseas. I mean, is there, from your perspective, any risk to the availability there that you'd need? And maybe just the last point, are you sensitive at all or dependent at all in any meaningful way to the semiconductor type of shortages that have been prevailing in autos and maybe a couple of other niches within the industrial sector? Thank you.

Okay. Well, the majority of our products use steel, copper, nickel, right? There are some resins and some electronics in what we do. But we feel we've got very good positions when it comes to our sources of metal. And over the last several years, even before we were a public company, we always had really good supply relationships there. And I would say some of the other secondary suppliers, we've done a lot to ensure we've got regional supply chains, that in some cases we've got dual sources. So as we sit here today, you know, I think we've managed that and planned for that very well. And as we've talked with, as I've said, we've talked with our distribution partners and they've said many other electrical suppliers are in allocation. That is not the case for us. And we are responding and, you know, I think driving some convergence as a result. When it comes to your comment around what's going on with semiconductors and electronics, again, for us, we've been able to manage that. It's not as big of a spend item for us, but obviously we do have controls and we do have some electronics in some of our products, but I think that we've managed that very well. Our bigger concern is what happens if something else in the supply chain is a disruptor. So you might be able to get the enclosure and the fastening solutions, but if there's another product, maybe it's wiring cable or maybe it's that it may slow things down, for instance, in terms of just... some capital projects or it could slow things down in terms of some construction. We even hear lumber. I think we're well positioned to convert and I think we're managing our supply chain really well and that's the feedback that we get from our distributors, but I think this is the cautiousness that we have in terms of the rate or pace of recovery given these other disruptions. And then I think your other comment was around logistics and freight. And I would say, yeah, earlier in the year, like many other companies, we had issues in just terms of containers. But I believe we've been able to work through all that. And our product availability remains very high. And so it's not without a lot of work because our teams have worked really hard to do that. But I'm very pleased with how we've been able to respond to the demand that we're seeing and confident that we're going to be able to continue to respond as demand improves.

Thank you for that, and I'll apologize in advance. This next question might be a little wordy. But I was hoping, Beth, you could provide some perspective from your perch. What parts of the company are you thinking? This is a 2019 versus 2020 question. Which parts of the company, as you look out in 2021 and beyond, are going to maybe revert back to a pre-pandemic strategy or operation method? and which parts of the company operations and which functions may take the lessons from the pandemic-era environment and continue them on into the future. On the last point, one thing I would say was you talked about the success with the virtual new product demonstrations. My sense is that's something that's probably going to persist long into the future and might even be enhanced. But I'm thinking in a rising price environment, managing customer relationships, restoring a certain amount of business travel. I mean, I think some things you're going to keep from how you've been operating during the pandemic and some things I think to hit your growth targets, you know, you're going to have to, you know, open up or revert back to pre-pandemic operations. So I was just wondering if you might call out, you know, one or two highlights in each area where you think, you know, significant change to get back to pre-pandemic versus things that you're doing in the pandemic era that'll persist. Thank you.

All right. Well, we talk a lot about emerging stronger and looking forward and going forward. And by that, I think we've become digitally agile. And so as we think about what we needed to do this year in terms of we have embraced the agile methodology to how we drove all our digital programs, that's now extending into how we launch our new products. it allows us to reduce our cycle time get velocity and um you know i would say as we go forward all of that digital capability that we've built to launch new products to move with velocity to market digitally to have our information available to and do training digitally that is not going away now i would see us in some cases having to supplement because we will get customers or channel partners who will ask for face-to-face meetings There will be times when that's very important, but I think the level of that will be reduced because we found we can be more effective operating in a very digital way. I think the way forward is really to have a flexible working environment. We think that is a competitive advantage for a company. Importantly, we found that we can be even more productive. We had more new products and more digital launches operating in this way. I really don't see us going back. I see us going forward. I think it's the digital approach and agile approach to everything that we do that we're just going to continue to build momentum on.

Okay, great. Then I had just one last one for Sarah. In the first quarter, you spent $20 million on buybacks, and I believe your comment was that it was targeted to offset share creep or share dilution. And I'm just wondering if you could maybe – and I'm sorry if I missed this, but is that $20 million spent in the first quarter sufficient to offset a full year of share creep or – Might there be $20 million per quarter this year to offset the creep or something in between? Just capital deployment to offset share creep would be helpful. Thank you.

Yeah. I mean, I think it puts us in a pretty good spot, right? So we exited Q4 with a diluted share count of roughly 169 million shares. And with what we did in Q4, along with what we've done here in Q1, we sit at an exit rate for Q1 in that 169 million shares. So it's something that we're going to continue to monitor, right, from a dilution perspective. We'd expect us to continue to offset any dilution. But again, I think what we did in Q4 and what we did in Q2 here puts us in a good spot.

Thank you very much.

Thank you. Your next question comes from the line of Justin Bergner with G-Research. Please proceed with your question.

Good morning, Beth. Good morning, Sarah. Nice start to the year.

Thank you.

I had just a couple questions around sort of price, cost, and volume. I guess of the 200 basis point increase in your organic sales guide, how would you break that out between incremental price and incremental volume or, you know, maybe just how much is priced within your organic revenue guide now?

Yeah, so in terms of that incremental guide, you could probably think about, you know, a point of that being volume and a point of that being price. I think from a full-year, you know, guide on price, I think that's going to be somewhat dependent upon, you know, again, how inflation unfolds because it's still relatively fluid and we're going to continue to monitor and accurate. upon that, right, as we see that inflationary pressure. But, you know, again, I think Q1 gives you a good indication of kind of the start, and that's not even, you know, getting fully realized, if you will, in terms of the pricing actions that we took here in Q1. So we would expect pricing overall for the year to be over, you know, two points. And, again, some segments are going to be higher than that just based on some of the inflationary pressures that they're seeing.

Okay, that makes sense. I mean, I'm impressed with your ability to forecast positive price cost. I guess some of your competitors are not forecasting positive price cost. And maybe this is hard to answer, but I guess it's on a FIFO inventory accounting system and not all your competitors are. And I was just wondering, you know, is any of that positive price cost in your opinion, sort of aided by this FIFO inventory accounting, or what do you think you're doing better than your competitors to put you in that positive camp versus the slight negative camp that some of them are in?

Well, let me respond to just, you know, we always think that price isn't – both it offsets inflation, but it's also a matter of value. We teach our salespeople to sell on value. One of the things I commented on is, when we launch new products, particularly in our EFS business, we look at how do we take out labor, which is value, and so therefore we launch new products with stronger margins or higher price points as a result of that value equation. I think that's one of the things that we do very well as a company, is think about value, And so therefore, that gets reflected in how we manage price. And I'll let Sarah talk about the FIFO comments. Yeah, I mean, I think what that does is it just gives you some time period rights and visibility in order to make the right pricing actions. But I think for us, it comes back into the value creation as Beth just talked about and just capability. I mean, we have good capability here in regards to pricing and the analytics. I also think it comes down to just a testament to our brand strength, our channel strength, our customer service. We're servicing the increased demands well right now. So I think all of that, you know, combined, you know, puts us in a good spot here. It's not without a lot of hard work to manage, you know, the pricing side of the equation, you know, along with productivity. But again, I think we've got a good track record here and we're going to continue to manage it going forward.

Okay. And then maybe just to wrap up that line of questioning on a more positive note, you mentioned that some of, the distributor suppliers are an allocation. Do you see this environment as giving you incremental outgrowth opportunities because some of your competitors are constrained in terms of what they can bring to market and you're less constrained?

We do believe there is that opportunity because we're able to supply that. When I talk about conversions at distributors or conversions at contractors, that is one of those factors because we can respond.

Okay, thank you.

All right. Well, thank you, and thank you for joining us today. We are pleased with our first quarter performance and believe we are executing at a high level. Our outlook has improved, and we're continuing to invest and focus on growth, which remains a top priority. Investments in people, R&D, digital manufacturing capability, and social responsibility are critical for our long-term success. We believe we can make Invent a top-tier, high-performance electrical company. We hope you remain safe and look forward to speaking to you again. Thanks for joining us. This concludes the call.