nVent Electric plc Ordinary Shares

Good day and welcome to the InventElectric third quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist for pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. Oh, now it's time to cover us over to Tony Ryder, Vice President of Investor Relations. Please go ahead.

Thank you, and welcome to Invent's third quarter 2024 earnings call. On the call with me are Beth Wozniak, our Chair and Chief Executive Officer, and Sarah Zawoisky, our Chief Financial Officer. They will provide details on our third quarter performance, an outlook for the fourth quarter, and an update to our full year 2024 outlook. Please take note. As a result of the previously announced agreement to sell the thermal management business, the company is reporting the results of this business as discontinued operations and has reclassified 2023 and 2024 results for all prior periods. In addition, guidance is now presented on a continued operations basis. All results referenced throughout this presentation are a continued operations basis unless otherwise stated. Before we begin, Let me remind you that any statements made about the company's anticipated financial results are forward-looking statements subject to future risks and uncertainties, such as the risks outlined in today's press release and events filing with the Securities and Exchange Commission. Forward-looking statements are made as of today, and the company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances. Actual results could differ materially from anticipated results. Today's webcast is accompanied by a presentation, which you can find in the investor section of MVIN's website. References to non-GAAP financials are reconciled in the appendix of the presentation. We will have time for questions after our prepared remarks. Please limit your questions to one and one follow-up. With that, please turn to slide three, and I'll turn the call over to Beth.

Thank you, Tony, and good morning, everyone. It's great to be with you today to share our strong third quarter results. We continue to execute on our strategy for growth with a focus on high growth verticals, new products, and global expansion. In the third quarter, we delivered record sales up 9%, both on a continuing operations and total basis. Total adjusted earnings and cash flows were strong, coming in better than expected. And we continued to make investments to expand our data solutions business. Our portfolio transformation is underway with the announced sale of the thermal management business, and we expect the sale of the business to close by early 2025. Our most recent acquisition, Trachty, is off to a good start, growing sales strong double digits, and is a great new platform for Invent. We believe these portfolio moves will make InVent a more focused and higher growth electrical connection and protection leader, and further positions InVent with the electrification, sustainability, and digitalization trends. Now onto slide four for a summary of our third quarter performance. Bills in the quarter were up 1% organically, led by infrastructure. Year to date, new products have contributed over three points to sales growth and we've launched 77 new products. Adjusted operating income grew 4% year over year with return on sales down 120 basis points due to investments and mix. Adjusted EPS was 63 cents. We generated an impressive $143 million in free cash flow Up over 30%. We're on track for another strong year. Looking at sales performance across our key verticals, infrastructure led the way up low double digits organically, with data solutions growing double digits. Industrial was down low single digits. Commercial resi declined mid single digits with continued end market softness. Turning to organic sales by geography, North America was up low single digits, and Asia Pacific had strong broad-based growth. Europe declined low single digits. Lastly, organic orders in Q3 grew mid-single digits year over year. Looking ahead to Q4 from a vertical perspective, we expect infrastructure to have the strongest growth, particularly data solutions and power utilities. Industrial is expected to be flat, commercial resi to remain soft. In addition, macro uncertainty remains with the upcoming elections and interest rates, which has some distributors cautiously managing inventory. Overall, I'm very proud of our InvenTeam and how we continue to execute and deliver for our customers and shareholders while transforming the portfolio. We're on track for another strong year. I will now turn the call over to Sarah for further detail on our third quarter results and our updated outlook for 2024. Sarah, please go ahead. Thank you, Beth. We had a strong third quarter performance with both segments growing better than expected earnings, and record cash flow. Let's turn to slide five to review our results, which as a reminder, are all on a continuing operations basis. Sales of $782 million were up 9% relative to last year, or up 1% organically. Volumes contributed approximately two points to growth, and price was essentially flat. Acquisitions added $59 million to sales or eight points to growth, better than expected. Foreign exchange impact was neutral. Third quarter adjusted operating income was $168 million, up 4%. Return on sales was 21.5%, down 120 basis points year-over-year. This reflected tough prior year comps in corporate costs and electrical and fastening mix in higher investments this year. Inflation was roughly $25 million in the quarter. Q3 adjusted EPS was 63 cents, down 3% due to higher interest and taxes as expected. We generated outstanding free cash flow in the quarter of $143 million, up 33% or 18% of sales, reflecting strong working capital performance. Now please turn to slide six for a discussion of our third quarter segment performance. Starting with enclosures, the team delivered another excellent quarter. Sales of $477 million increased 16% and 1% organically. Acquisitions added 14 points to sales. The Trachte acquisition performed very well, with sales up strong double digits versus a year ago and a growing robust backlog. The integration is off to a great start. From a vertical perspective, infrastructure led, up double digits, with strength in data solutions in both power and cooling. Industrial and commercial resi each declined. Geographically, North America grew low single digits and Asia Pacific grew mid-teens, while Europe was down. Enclosure's third quarter segment income was an impressive $104 million, up 17%. Return on sales of 21.9% increased 20 basis points year over year, driven by strong execution. Productivity and higher margins from new products more than offset inflation and helped fund investments. Electrical and fastening returned to sales growth in the quarter. Sales of $305 million increased 1% organically. Growth was led by infrastructure, including power utilities up high single digits. In addition, industrial grew mid-single digits. Commercial resi remained soft. Geographically, organic sales in North America were flat, and Asia Pacific grew double digits while Europe was down. Electrical and fastening segment income was $93 million, down 5% year-over-year. Return on sales was a solid 30.4%, down 190 basis points, mainly due to tough comps from mix. On slide seven, titled balance sheet and cash flow, we ended the quarter with $137 million of cash on hand and $600 million available in our revolver. Free cash flow is exceptionally strong in the quarter. Year to date, free cash flow of $277 million was up nearly 50% versus a year ago. The fourth quarter is historically our highest cash flow quarter, and we expect continued improvements in working capital. Turning to slide eight, where we outline our capital allocation priorities. We will continue to take a balanced and disciplined approach to capital allocation to deliver strong returns. Growth remains our first priority, both organic and inorganic. In the quarter, we expanded our footprint to increase our liquid cooling capability 4X and support our growing backlog. We completed the acquisition of Tracti, providing a new growth platform. And we have returned $195 million year-to-date to shareholders, including $100 million in share repurchases in the third quarter. Looking ahead, we expect to have a significant optionality for further capital deployment with the sale of the thermal management business, and strong cash flow generation. Moving to slide 9 and our full year outlook on a continuing operations basis. We are updating our full year guidance to reflect the thermal management business moving to discontinued operations and narrowing the range with one quarter to go. For the full year, reported sales are expected to grow approximately up roughly 3%. Acquisitions are expected to contribute approximately 10 points to sales growth and FX is expected to be neutral. Our outlook for full year adjusted EPS is $2.49 to $2.51 which represents growth of 7 to 8%. This includes an 8 cent or 3 percentage point negative impact EPS related to changes in the global tax standards. A few important items to note for the year. First, we expect adjusted operating income to grow 15 to 16 percent. This reflects price and productivity offsetting inflation. In addition, we are making investments in capacity, new products, and digital to accelerate growth and productivity. Second, We are well on track to generate over $400 million of free cash flow with conversion in the range of 95% to 100%. Third, corporate costs are now expected to be approximately $110 million. This includes indirect costs of approximately $15 million previously allocated to the thermal management business. Work is already underway to address these costs. A few additional 2024 assumptions include a tax rate of approximately 23%, net interest expense of approximately $105 million, shares of approximately $168 million, and capex of approximately $80 million. We expect full year 2024 to be another year of strong sales, profit, and cash flow. Moving to slide 10, and our fourth quarter outlook. We expect reported sales to grow 11 to 13% with acquisitions contributing approximately nine points to sales. Organic sales are expected to be up one to 3% with both segments growing. We expect adjusted EPS to be between 58 and 60 cents, up five to 9% year on year. Wrapping up, I am pleased with our third quarter performance and believe we are well positioned heading into 2025. This concludes my remarks and I will turn the call back over to Beth. Thank you, Sarah. Turning to slide 11, let me give you an update on our data solutions business and liquid cooling in particular. As you know, we are a leader in liquid cooling for data centers and have been offering solutions for many years across the cooling continuum. Our differentiation is based on our deep application expertise and our innovative multi-generational design. We continue to expand our product portfolio to serve data center customers across hyperscale, enterprise, multi-tenant, and our distribution partners. Our high-density liquid cooling portfolio includes rack and row coolant distribution units and various manifolds. Our advanced cooling solutions are specifically designed to manage the substantial heat output of cutting-edge AI infrastructure, helping to drive optimal performance and longevity. We are well positioned to support the expansion of AI capabilities, driving innovation and efficiency in high-performance computing environments. We are currently engaged with NVIDIA in the design of liquid cooling products, solutions, and architectures that meet the needs for the GB200, NVL72, and its follow-on next-generation platforms. We will be showcasing our NVIDIA reference design solutions at Super Compute in a few weeks. We are also actively engaged with other chip manufacturers to understand future cooling requirements. In addition to investing in new products, we are expanding capacity in our facilities, building out our advanced lab and testing capabilities, and partnering with our suppliers to ensure they can rapidly scale with us. We continue to see high demand for our data solutions products in cooling, power, and cable management, and now expect 2024 data solution sales to exceed $575 million. We believe we are well positioned to win in this rapidly growing space. Please turn to slide 12. Over the last few years, we have demonstrated our growth strategy is working with strong execution, delivering robust sales and adjusted operating income and earnings per share. Looking ahead to 2025, we are undergoing a portfolio transformation, which we believe will make us a more focused, higher growth electrical connection and protection company. Over 70% of our portfolio is exposed to the secular trends of electrification, sustainability, and digitalization. Infrastructure now represents approximately a third of our portfolio and is expected to grow the most next year. We are well positioned in data solutions and power utilities with robust backlogs. Our outlook for industrial and commercial resi is more positive. New products, again, are expected to be a key driver of our growth. Finally, as part of our portfolio transformation, we have a very healthy M&A pipeline and project nearly $2 billion in available capital to deploy from the thermal management sale and our robust free cash flow generation. In summary, we expect 2025 to be a strong growth year. Wrapping up on slide 13, we had another strong quarter of operational performance, including record cash flow. Our portfolio transformation is underway. We are well-positioned to grow with the electrification, sustainability, and digitalization trends, and our future is bright. With that, I will now turn the call over to the operator to start Q&A.

Yes, thank you. We will now begin the question-and-answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If any time your question has been addressed and you would like to withdraw it, please press star then 2. At this time, we will pause momentarily to assemble the roster. To answer the first question, we have a question from Julian Mitchell with Barclays.

Hi. Good morning.

Good morning.

Good morning. Maybe just the first question around the margin outlook. So it looks like I think margins may be down 100 bps or so operating-wise, sequentially in Q4. Just wanted to check. roughly correct. And when we're thinking more broadly about margins into next year, you have this big investment spend headwind right now in the second half. Does that normalize into next year? And how quickly should that 15 million of indirect unallocated costs get worked down, please?

Okay, Julian, I think that was a three-part question, so let me start with the first one. You know, in terms of that seasonal downtick on margin from Q3 to Q4, it's just that, more seasonal. If you look at, historically, EFS tends to be strongest in Q2 and Q3 and lighter from a sales perspective in Q4 and Q1, and the ROS, right, is commensurate, you know, with that. So you do have some seasonality from a Q3 to Q4 standpoint from a return on sales aspect of things. I think your second question is in regard to investments. I mean, we've been very explicit kind of walking into this year that investments are important to, you know, fuel future growth, particularly around new products and data solutions. We have seen that accelerate here in the back half, bringing some of that liquid cooling capability online here in Q3 and Q4. And I think you can expect us to continue on that new product and some of those commercial data solution investments as we walk into 2025. But those ramp-up costs, you know, should diminish, you know, over time related to just bringing that capacity up online. And I think your third question was around indirect costs. So essentially, you know, as part of that thermal management now going into disc ops, there are some, you know, indirect costs that essentially don't get allocated, if you will, to thermal management. Now that sits within that corporate cost bucket. That's roughly $15 million. And I would say two things. One, work is already underway in terms of reducing those costs. Really focus on driving more efficiencies, accelerating some of our business process transformation efforts that we already have underway. And I would say the second piece of it is, you know, really some of that falling off if you will, you know, with that thermal management, you know, business being divested. But there's got to be targeted actions, and we've got that work underway of renegotiating contracts, you know, et cetera. So I would expect those indirect costs to reduce really throughout, you know, 2025.

That's super helpful. Thank you. And then maybe a very simple or simpler second question would just be on the organic sales outlook. So I think you're growing sort of one to three in the current quarter year on year. Beth, you sounded more enthused about the outlook for, say, industrial and commercial rears in 25. So is it reasonable to assume in 25, based off your comments, that you're not too far off, perhaps as things look today, that medium term sort of growth placeholder of four to six that you talked about last year?

As we go into 2025, look, the portfolio looks different and we've been repositioning it around infrastructure, as I said in my comments, right? And so we can look at our backlog and these higher growth verticals. And so we think that is going to set us up as we go forward. You know, the portfolio is now exposed to those trends. And I think as we sit here today, There remains this macro uncertainty. We've got an election coming up, you know, interest rates where they're at. And I think we've seen our distribution partners just be cautious on inventory and recall a lot of our portfolio is sold through that distribution channel. So we expect as we get into 2025, the outlook there is more positive and the end market outlook as well.

Great.

Thank you.

Thank you.

Thank you. And the next question comes from Jeff Sprague with Vertical Research.

Hey, thanks. Good morning, everyone.

Good morning.

Hey, good morning. Hey, just on the NVIDIA collaboration that you mentioned here, maybe I missed it, but did they press release this name-me-by-name partner ecosystem or something? You know, I'm just wondering. Maybe we're going to hear that at Super Compute, but any color there?

More to come. How about I say that? And, yes, we will be showcasing a lot of our products and collaboration efforts at Super Compute.

In their booth or just in your booth?

In our booth, and I will say we will have other cooling products in other booths as well. I don't want to give away too much there, Jeff, but you will see our Inven product showcase around the Super Compute Show.

Okay. And what was the negative mix effect in EFS that you mentioned?

Yeah, a lot of that, you know, Jeff, was prior year. And we called that out last year, particularly in Q2 and Q3. You know, their return on sales in those quarters was north of 32%. And just based on the mix of sales in those quarters, they were getting kind of an outside impact from positive mix that we didn't expect, you know, to continue as we go forward. So, again, on an absolute basis, their return on sales this quarter was north of 30%. It's just that year over year comp was a tough comp. We do think that that comp gets easier in Q4, you know, based on what that mix looked like a year ago as well.

And how are you thinking about price going forward? Obviously ticked a little negative and it trailed, you know, kind of inflation productivity investments collectively. How do you think you could kind of manage that algorithm as we move into Q4 and 2025?

You know, Jeff, I think we see the price, you know, things are very stable is how we would characterize it. And, you know, in several, in the past several years, we've seen more outsized price than volume. Now we're seeing strong contributions of volume. But we do think that that price will be positive as we go forward into 2025. Great.

Thank you.

Thank you. And the next question comes from Nigel Carr with Wolf Research.

Thanks. Good morning, everyone.

Morning.

So I think, Sarah, this is for you, I think. So the 4Q 1% to 3% core sales, maybe just break that out between the two segments. I'm guessing it's not going to be that different between the two. But I do want to try and understand a little bit better the lumpiness in data solutions and perhaps liquid cooling as well and how that's influencing sort of the kind of 3Q to 4Q because it does feel like the sales – or a bit flatter 3K to 4K than perhaps normal seasonality?

Let me take that first one. Your guess is right, Nigel, in terms of both segments kind of being in that 1% to 3% range. You know, if you look at it just from a vertical standpoint overall, you know, we continue to expect, you know, good growth in infrastructure, industrial mixed, you know, stronger in EFS, a bit softer in enclosures, and continued commercial resi softness overall. And again, I would just reiterate what Beth said in her prepared remarks is what's encouraging is that both segments saw good order growth in Q3 as well, informing that. I think the one caution there is just at the end of the year and given some of these macro uncertainties, we would expect some distributors to manage those inventory levels there at year end. In terms of Q3 and Q4 seasonality from a sales perspective, I think that the biggest seasonality element there that we're seeing is really just EFS, and I think that's pretty consistent with historically. Again, going back, EFS is going to be stronger in Q2 and Q3, and that Q3 to Q4, you're going to see a little bit of that downtick, if you will, on the EFS sales front.

Anything on the phasing of shipments in data solutions?

Not necessarily. No, we talked about data solutions kind of this first half versus second half. We talked about that a little bit last quarter. And some of that is just based on timing of some of these more meaningful customer programs of where that comes into place, but we feel really good about our backlog, orders are strong, and again, making great progress and building that capability. And Beth talked about what we're also underway in terms of building out the testing and the lab capability. So, really excited about the future of data solutions. And now, I know you guys have been asking in terms of what that data solutions number looks like, but kind of characterizing that at $575 million we expect. for this year, so meaningfully higher than what it was a year ago.

That's great. Thanks, Sarah. And then just a quick one on the M&A sort of pipeline development. You've got a lot of cash to deploy, which is obviously good news. But do you expect this to be a series of acquisitions, or do you think there could be one or two sort of large opportunities? And are we sort of set on deploying the bulk of the surplus capital in 2025 on M&A, or could there be some buybacks as well?

Well, as you know, we've always said our first priority with our capital allocation is to grow both organic and inorganic. And as we look at our pipeline, we think that it is very robust. I think we've demonstrated our ability to integrate larger deals. And so as we look into 2025, and I always say this, you never can control the timing of deals, but I think it does give us an opportunity if we want to do a more sizable deal. But again, we're disciplined in, you know, the multiples we pay. But I believe that, you know, we have good opportunity as we go into 2025 to execute on M&A.

Okay. Thanks, Beth.

Thank you.

Thank you. And the next question comes from Dean Dre with RBC Capital Markets.

Thank you. Good morning, everyone.

Good morning.

I appreciate the slide 11 with the portfolio snapshots as well as sizing data solutions. And I know you said up double digits, but can you be more specific on what data center did in the quarter in terms of growth?

We don't necessarily break that out more specifically, but I think if you look at just that $575 million that we're expecting for the full year and look at where that was, you know, last year, that's, you know, in that in excess of 20% from a year-over-year growth perspective. And again, I'll just go back to the order, you know, book has been strong there, you know, with continuing backlog growth as well. So feel good about that heading into 2025. Understood.

And that kind of brings up the question about market share and growth rates and how you stack up versus peers in this space. And so one of the challenges, and we've talked about this with you before, but the idea here is you are in many platforms and partners where you don't see the NVET name. And so it's a bit like you know, in the early 1990s, when Intel went to the Intel inside, that's when people started to see and appreciate how pervasive and what kind of share Intel had. So how are you addressing this in the way of being able to profile your share? I know you're a leader, you've been in it, you know, the first in terms of liquid cooling, but What kind of challenges do you have here in being able to talk about where and how you're in different platforms but not necessarily able to put your name on it?

Well, Dean, I think I would start by saying that in this hyperscale, high-compute community, the event name and capability is well-known and understood. So those who are involved in the design and development And I think we're continuing to expand our offerings and ensuring that we're marketing our capability more broadly, especially as you get perhaps into multi-tenant or more through the distribution channels where the knowledge of what's going on in terms of just the liquid cooling capability, there's still many who are learning about it. So we're working with our distribution partners there. But our view is we're going to continue to invest in new products. We're ramping with many of those customers that we can't speak about. We're on the next generation of designs. We talked about our collaboration with NVIDIA, and I said, stay tuned. There's more that we will be sharing at Super Compute. So, you know, from my perspective, I think we just need to continue to go fast. The space is evolving rapidly, and we're making investments fast. from new products to capacity, to our suppliers, to our lab capability, and expect this to continue to be rapid growth for us.

Great. My follow-up question is exactly on that, the Forex capacity expansion. Can you give us a sense, I mean, if the market is growing in excess of 40%, how much is this capacity expansion, how far does that take you? in the next couple of years. And just remind us how much is actually manufacturing capacity versus the amount of test labs, because that's really how you have proof to your partners that the liquid cooling delivers on the specs that they require.

Yeah so Dean, you know the manufacturing capacity when we refer to that is about a 4x capacity and we think that's going to get us through the next couple of years. At this point that can change. And so we're in the process of building that out. Our lab expansion is going to take us through into 2025. but that more than doubles our lab capability and capacity of what we have today. And by the way, all of that isn't enough, and so I wanted to make that point that we've been working with our supply base because you also have to ensure that they can rapidly scale as well. So there's a lot of different areas that we're investing from an end-to-end perspective to make sure that we can continue on the growth rate that we're at and continue to offer solutions more broadly as we start to see some of these AI chips extend beyond just, say, the hyperscalers.

That's great. Looking forward to seeing the team in Atlanta. Thank you.

Thank you. Thank you. And the next question comes from Joe Ritchie with Goldman Sachs.

Hey, guys. Good morning.

Good morning.

Hey, so maybe following on that thread, and I'm sure, again, we'll hear more in a few weeks, but I'm trying to understand, like, the productivity right now that you have in your data center business and liquid cooling specifically. Maybe just kind of comment. You know, last time we saw the offering, it just seemed like you guys were trying to run as fast as you could. And there's probably is probably not fully efficient at that point. And so I'm just curious to understand the margins and just any any comments you can make around the productivity you have around that business today.

Well, I'll start there, and I'll let Sarah jump in. You know, we've always said that our liquid cooling margins, or sorry, our data solutions margins kind of reflected the products in that portfolio of our segment. So what we do around cable management kind of reflects the margins that we have in EFS. What we do around liquid cooling and power and some of the other products reflect the margin in enclosures. Now, having said that, there's a lot of investment going in. And there's a lot of startup costs to that. And so we do think that over time there's opportunity to drive some more efficiency. So the margins are good today, but we know that over time they will get better as things scale more and more. And I'll let Sarah add anything to that that she wants. Yeah, maybe the only thing else I would add is, you know, I think the enclosures business has just delivered some underlying, you know, strong productivity and seeing some good operating leverage as well as, you know, better mix, you know, on some of these new products, you know, new programs. So even with some of these bringing the capacity online and these investments, we still expanded return on sales in the quarter. So there's some strong underlying productivity there as well.

Okay, good to hear, and then I guess just circling back to the organic growth question and heading into next year, if I kind of pull out your acquisition contribution from this year and the comments that you've made around data solutions, it seems like the rest of the business isn't growing this year from an organic growth standpoint. I'm curious, you know, Beth, as you kind of think about 2025, are there areas that are, you know, kind of really depressed within your business where you could see an inflection that just, you know, spur organic growth? And then just to follow on to that, are there any capacity constraints that you have to be able to meet demand if it were to inflect outside of data solutions, of course?

Okay. Well, I think one of the things, you know, we've said this year is that commercial resi has been soft. And so we do expect that to improve in 2025. The second I would point out to is industrial. And so we've seen some strength in industrial in EFS, and we've seen some weakness in our enclosures business. Some of that also has to do with CapEx investments, interest rates, but it also has to do with our distribution channel. Again, we think that improves going into next year. I would talk about power utilities where, again, we've strengthened the portfolio with that TRACTI acquisition. But earlier in the year, we certainly saw this level of inventory at end customers and the distribution channels. But our EFS business and enclosures in Q3 saw nice growth in power utilities because we believe some of that inventory adjustments have taken place. But looking at 2025, you know, I think some of this macro uncertainty, even tied to elections, gets behind us. And the portfolio, we believe, is strengthened with the things that we've done with acquisitions and new products. And so, you know, our view is positive as we go into and backlog support going into 2025 as a strong growth year.

Okay, great. Thank you.

Thank you. And that next question comes from Robert Strzok with Citigroup.

Hey, good morning. Good morning. Thanks for taking my call. So maybe just following up on the growth question in another way. I mean, if you think about the – you had mid-single-digit orders growth in 3Q, but 1% organic revenue, and you're guiding 1 to 3 organic in 4Q. So I guess, can you talk about when we should see that higher level of orders growth more directly convert to revenue?

Well, I think, yes, you're correct. We're guiding one to three. And I think we have a mix when we look at our orders of short cycle and some backlog we've spoken to that we see with, say, data solutions. But we believe as we get into 2025, Because, again, I think this quarter we see this macro uncertainty that has, you know, again, distributors pausing, for example, or managing inventory. And I think as we get into 2025, we start to see improvements in terms of, you know, how our growth layers in. And maybe I would add just one point to 2024 here. I mean, if you look at just kind of where we're at year to date and some of the context that we've given on Q4, If you look at enclosures, I mean, they're expected to be strong mid-single-digit growth this year, right? And infrastructure has been a big part of that, and that's even with some of the underlying, you know, headwinds around industrial, Europe, et cetera. And then EFS, obviously not as much, you know, but again, in the start of the year, you know, that's where we had some of the infrastructure, the utility, you know, channel inventory dynamics that we were working through and commercial resi headwinds. And, again, so as we flip next year, you know, it's not far off, right, from enclosures being, you know, strong mixed single digits. And then it's the end market dynamics that Beth talked about in terms of turning on the EFS side.

Guys, that's helpful. Appreciate it. And then maybe just – Moving to Tracti for a minute, and you mentioned it's off to a good start as it's coming into the portfolio with double-digit growth, which is great to hear. Can you just talk more about sort of the visibility that you have within their backlog? How far out does their visibility extend?

In some cases, we can see orders that we get like a year of visibility. Some are maybe shorter than that. But, you know, we do have a good backlog as we go into next year. And if you think about what we're doing there, these are control houses that are used to support upgrades for an aging electrical infrastructure as well as with – renewables and with data centers as well. So, we have some nicer visibility there and just see continued strong growth in our outlook.

Appreciate the color. Thanks.

Thank you.

Thank you. The next question comes from Dakota Blaze with Deutsche Bank.

Yeah, thanks. Good morning. Good morning. Maybe just starting on orders and kind of dovetailing with the expectations for 2025 with respect to industrial and commercial and resi. Have you guys seen any sign of improvement in order activity or is it more about, you know, rates coming down and some of the macro dynamics that, you know, gives you conviction that those parts of the businesses can turn positive?

You know, it's... I'd say things have been stable. How about I put it that way? But our view is that interest rates and this macro uncertainty and also just how distributors, you know, are managing through this year, that first, the fact that it's stable is good. Utilities certainly improved. I would make that comment. But our view is that does get better in 2025. Okay.

That's helpful. Thank you. I guess maybe could you talk a little bit about what you're seeing holistically from a channel inventory perspective? It seems like things are kind of going according to plan with less of those headwinds in the back half of the year. But I guess how would you characterize inventory now? Thank you.

Well, I think I would start by saying through the distribution channel, we've actually seen positives sell out. And so the sell-in is a little bit weaker, and so this is why we believe that many of them have talked about managing their cash flow performance and interest rates. And so we think that it's that inventory level. They're just being very cautious. And so as we get into 2025, because they talk about end market demand still being good, so we expect that situation will improve as we go into 2025.

Thank you. I'll pass it on.

Thank you.

Thank you. The next question comes from Jeff Hammond with KeyBank Capital Markets.

Hey, good morning.

Good morning, Jeff.

Hey, just back to capital allocation. I'm just wondering, you know, you did $100 million buyback in the quarter, and I'm just wondering, you know, I know the focus is organic and organic, but just how to think about any earmark for buyback around, you know, the thermal seal.

You know, when we announced the sale, you know, the intent for the sale, we did say our first priority always remains growth, both organic and inorganic. But there is the opportunity to do some buybacks. And so we did that in Q3. And I think as we go into next year, as I like to say, you never can control the timing of M&A. And certainly, you know, if there was no M&A opportunity or the world changed, you know, there's always opportunity to do some buybacks. okay um and then utility um yeah i think that had been kind of a drag and it you know i think you called out high single digit growth is that just a function of comps or are you actually seeing that business start to re-accelerate in our efs business you know this was a challenge for us in the first half of the year and we talked about you know high con you know we had really high growth in 2023 we also had lead times that were extended and they've now come back in line So Q3 for us in our EFS business in that utility segment was very strong. And so we believe that, and we also see the backlog that we have in our enclosures and tracti business. And so we, you know, as we look at a 2025, we think utilities is going to be a key driver of our infrastructure growth.

Okay, great. And then just last one, orders, you know, up mid single digits, I think, You haven't really been calling out orders, so I'm assuming that's a re-acceleration. And I'm just wondering, is that, you know, largely data solutions, or is it more broad-based than that?

It's actually more broad-based. And so, you know, we've seen, you know, strong orders and enclosures, and it's a mix, but data solutions has been good. And we've seen, you know, mid-single-digit orders in EFS as well.

Okay, thanks so much, Chris.

Thank you. Next question comes from Brian Jarvi with William Blair.

Good morning. I was wondering if you could just, I don't know if you're willing to do this or not, give us a little more granularity on that $575 million. In the past, we've talked about, you know, the data solutions category and then within that power and cooling and then within that liquid cooling. And can you just comment on whether power and cooling is, Now maybe more than half of that $575 million. And then, you know, I'm curious what power and cooling is growing at as well.

Yes, you're right. We've always said that cooling and power is about 50%. So I would say it's a little more than 50%. But I also like to say, you know, some of our cable management business has been growing at that same rate because it's all part of the solution as we go forward. So, but, you know, certainly with the growth rates around liquid cooling, we expect that's going to continue to increase as a percentage of that overall data solutions portfolio.

Okay. And then is there, Any way you could give us an update on the expected timing of the thermal deal? And it's going to be a massive amount of cash that you'll have at that point and the interest rate that you expect at least, you know, I know you can't predict interest rates, but like the interest rate that you're getting on your cash.

So, yes, when we announced the sale, we said that we expect the sale of the thermal management business to occur in early 2025, by early 2025. And I'll let Sarah comment on our cash. Yeah, I think you could, you know, think about it in the context of sort of a rate in that 4% to 5% range, depending upon you know, what sits on the balance sheet and, you know, earns interest, you know, from a deposit standpoint, or even looking at, you know, some of our prepayable term, you know, term debt and what we're paying on that, which is, you know, 6%. So if you look at kind of the blend of that, you can think about, you know, in that 4% to 5% range. Right.

Okay. Thank you very much.

Thank you. And the next question comes from David Silver with CL King.

Yeah. Hi. Good morning.

Good morning.

I just wanted to follow up maybe on your comments on the track, the business serving as a new platform. I think you mentioned that a couple of times in your prepared remarks, but you know, you mentioned the business is off to a good start. My sense is, is that it touches on, you know, some different end markets, different customer base. You know, When you did make the deal, I'm sure you had some longer term plans. I mean, do those plans, I mean, maybe if you could just add a little color on where the business might be heading in the next few years, but is this a business you want to scale up? Is this a business where the breadth, you know, adding breadth is more important. And then maybe, you know, since it is quote unquote, a new platform is, is this something that's best managed? within the enclosures, you know, the larger enclosures group, or are there some differences that maybe make you think down the road it could form the basis for a new, you know, third segment? Anyway, just your thinking about it. I know it's very early days, but strategically, you know, what are some of your thoughts about the opportunities there?

Well, as you know, and we publish this, we have this M&A framework, and we always think of great products in high growth verticals that we can invest in and scale. And so for us, as we thought about our enclosure segment and how could we have a stronger position in utilities, we saw this as an offering that was growing with the dynamics of aging infrastructure, data center build out, And effectively, and I'm being very simplistic here, it is a larger type enclosure than what we were doing today. And I also like to say that when you go in these control houses, you see more enclosures and you also see some of the other products that are in the Invent portfolio. And so we saw this as an opportunity for us to extend what we do in enclosures in a more scaled way that we felt that we could have synergies with the rest of the InVENT portfolio and allow us to expand our position in utilities, renewables, and add to what we do in data centers. And I think there's a lot of synergies within the Enclosure's portfolio because you can think of how we purchase materials, et cetera, that at this point we believe that it's a part of that segment and we're going to continue to as per our framework, you know, invest in it and scale it to grow.

Okay, great. Thank you very much. That's it for me. Appreciate it.

Thank you. Thank you. And that does conclude the question and answer session. I would like to turn the conference back over to Beth Walczak for any closing comments.

Thank you for joining us today. I'm very pleased with our performance in Q3. We will continue to focus on our customers, employees, and shareholders by executing on our growth strategy and transforming our portfolio. I'm excited for our future. Thanks again for joining us. This concludes the call.

Thank you. As mentioned, the conference has concluded. Thank you for attending today's presentation.

You may now disconnect.