nVent Electric plc Ordinary Shares

After today's presentation, there will be an opportunity to ask questions. If you ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Tony Reiter, Vice President of Investor Relations. Please go ahead.

Thank you. Welcome to Inven's fourth quarter 2024 earnings call. On the call with me are Beth Wozniak, Chair and Chief Executive Officer, and Sarah Zawoiski, Chief Financial Officer. Today we'll provide details on our fourth quarter and full year performance and our outlook for 2025. As a reminder, starting in Q3 2024, the company began reporting the results of the thermal management business as discontinued operations. 2023 and 2024 results for all prior periods, along with guidance, are presented on a continuing operations basis. All results referenced throughout the presentation on our continuing operations basis unless otherwise stated. Before we begin, let me remind you that any statements made about the company's anticipated financial results are forward-looking statements subject to future risks and uncertainties, such as the risks outlined in today's press release and Inven's filings with the Security 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 Inven'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. With that, please turn to slide 3, and I will now turn the call over to Beth.

Thank you, Tony, and good morning, everyone. It's great to be with you today to share our fourth quarter and full-year results. 2024 marked a pivotal year for Inven with our strong performance and portfolio transformation. Q4 had 9% reported sales growth, margin expansion, and adjusted EPS growth of 7%. For the full year, we had 13% reported sales growth, continued margin expansion, strong earnings growth, and outstanding cash flow. I am very proud of our InvenTeam and everything we have accomplished. We have made great progress on transforming our portfolio. Last week, we closed on the sale of the thermal management business. We expect to have nearly $2 billion in capital available to deploy in 2025. I am very excited with how we are repositioning the Inven portfolio to be more focused around the trends of electrification, sustainability, and digitalization. Our 2025 guidance at the midpoint reflects approximately 9% sales growth and 22% adjusted earnings per share growth. We are well positioned for strong sales and earnings driven by our focus on high growth verticals, new products, and acquisitions. Slide 4 summarizes our Q4 and full-year performance. Fourth quarter sales were up 9%. Organic sales were slightly down. Sales to our key distribution partners were down more than expected as they managed their inventory positions. Importantly, sellout remained positive. Segment income grew 12% year over year with return on sales up 50 basis points. Adjusted EPS grew 7%. And we generated $150 million of free cash flow. Looking at sales performance across our key verticals, infrastructure led, up low single digits organically, industrial was flat, commercial resi declined mid-single digits with continued softness. Finally, energy was up mid-teens. Turning to organic sales by geography, North America declined low single digits and Europe was up slightly. Asia Pacific grew in the mid-teens with solid growth in China. Lastly, organic orders were up low teens in the quarter, including double-digit order growth in data solutions. For the full year, we had sales of $3 billion, an increase of 13% and 2% organically. Segment income grew 15% with margins expanding 50 basis points. Adjusted EPS was up 7%. For the full year, we had strong free cash flow of $427 million, growing 20%. Let me share a few more highlights. First, we launched approximately 90 new products in 2024, contributing more than two points to our sales growth. We have great momentum in our innovation pipeline. Second, organic growth was led by the infrastructure vertical. Within infrastructure, data solutions now represents approximately $600 million in sales and grew approximately 30% in 2024. Overall, I'm proud of our InvenTeam and the strong results we delivered in 2024. We believe 2025 will be a year of strong growth and value creation. Moving to slide 5. We have been on a journey to transform our portfolio and 2024 was a pivotal year. The divestiture of thermal management positions Inven as a more focused, higher growth electrical connection and protection company. Approximately 70% of our portfolio is exposed to secular trends and one third of our sales are in the infrastructure vertical, up from low teens when we spun as a company nearly seven years ago. We also have done seven acquisitions to date, adding significantly to the offerings of our business segments. Now is the right time to rename our segments to better reflect what they do for our customers. Beginning in Q1 2025, the enclosure segment will be known as systems protection. This segment includes enclosures, but is far beyond that with power distribution units, cooling solutions, both liquid and air and control buildings. We provide our customers with products and solutions that protect electronics, systems and data. In addition, the electrical and fastening segment will be known as electrical connections to represent the expansion of this portfolio to power connections, along with electrical and fastening solutions. This segment offers products and solutions that make electrical systems safe, efficient and resilient. Turning to slide six and our outlook for the verticals in 2025. Infrastructure is expected to grow the fastest, up low double digits. Data center CAPEX is expected to continue to increase. Also, electrical infrastructure is expected to continue to expand and power utilities, renewables and energy storage, given the increasing electrical demand. Industrial is expected to grow low to mid single digits with improving CAPEX investment in North America. Commercial resi is expected to be up low single digits as commercial improves with electrification demand for both new construction and existing buildings. Now on to slide seven. I would like to talk more about how we are growing in the infrastructure vertical. Overall, we have expanded our product portfolio both organically and inorganically in infrastructure. Data solutions is approximately 20% of our sales with products in liquid cooling, power distribution units, enclosures and cable management. We have seen strong growth across the portfolio and expect another year of double digit growth in 2025, supported by a growing backlog. We are investing in new products and expanding our offerings in liquid cooling, but also in cable management with innovation in our wire basket tray, for example, and extending our power distribution offering. Also in infrastructure, power utilities now represent approximately 10% of our sales. The acquisition of TrocD last year more than doubled our exposure to power utilities and creates an entirely new growth platform of control buildings. The demand for control buildings is increasing with an aging electrical infrastructure that needs upgrading and need to expand the overall grid to move to more renewable energy and the increase in data centers. We continue to see the backlog grow in this business, supporting our forecast for double digit growth in power utilities this year. Moving to slide 8. New products and innovation are a core part of our strategy and a strong contributor to our sales growth. We are focused on six core technology platforms. These include cable management, control buildings, equipment protection, liquid cooling, power connections and power management. We are prioritizing innovation on these platforms to drive differentiation, modularity for flexibility and velocity and are actively expanding our global certifications. Last year, we opened a new technology center in Bangalore to allow us to build more R&D capability from design, modeling, simulation, etc. Expanding our technical capabilities. Looking at 2025, we expect to launch over 75 new products, helping to drive over two points of sales growth in the year. In addition, we expect new product vitality to be above 22%. At our core, Invent is a products and solutions company. So our strong focus on products and innovation are key to our growth strategy and our customer experience. This wraps up my remarks. I will now turn the call over to Sarah for details on our results as well as our 2025 outlook. Sarah, please go ahead. Thank you, Beth. I am pleased to share another quarter of solid sales and earnings growth, margin expansion and robust free cash flow. Let's begin on slide nine with our fourth quarter results. Sales of $752 million were up 9% compared to last year. Organic sales were down 1% with price and volume each slightly down. Acquisitions added a meaningful $66 million to sales or 10 points to growth. Fourth quarter adjusted operating income was $158 million, up 12%. Return on sales was 21%, up 50 basis points -to-year. Our performance was driven by acquisitions and strong productivity, partially offset by higher investments and inflation of approximately $25 million. Q4 adjusted EPS was $0.59, up 7% and at the midpoint of our guidance range. And we generated robust free cash flow of $150 million. Now please turn to slide 10 for discussion of our fourth quarter segment performance. Starting with enclosures, now systems protection, sales of $466 million increased 16%. And down 1% on an organic basis. The track the acquisition contributed 16 points to sales and continues to perform very well, up strong double digits versus a year ago and backlog continues to grow. From a vertical perspective, infrastructure grew with continued strength and data solution. Industrial and commercial resi each declined. Geographically, organic sales in Europe grew low single digits and Asia Pacific grew over 20%, while North America declined low to mid single digits. Fourth quarter segment income was $100 million, up 18%. Return on sales of .5% increased 40 basis points -to-year, driven by strong execution. Moving to electrical and fastening, now electrical connections, sales of $287 million were flat organically. Industrial and infrastructure each grew in the quarter. This was offset by a decline in commercial resi. Geographically, organic sales were flat in North America and Europe. Fourth quarter segment income was $84 million, down 1%. Return on sales was 29.4%, down 20 basis points, mainly due to mix. I turn to slide 11 for recap of our full year 2024 results. We ended the year with sales of $3 billion, up 13% or 2% organically. Acquisitions contributed 10 points to growth for the year. Adjusted operating income grew 15% to $652 million. Overall, return on sales expanded 50 basis points to 21.7%. Adjusted EPS for the full year was $2.49, up 7%. Free cash flow was $427 million, up 20%, with 102% conversion of adjusted net income. This included higher capex investments for growth and capacity. In summary, 2024 was a year of strong performance and execution. I'm turning to slide 12, titled Bound Sheet and Cash Flow. We exited the year with $190 million of cash on hand and $600 million available on our revolver, putting us in a very strong liquidity position, even prior to the proceeds from the thermal sale. Our debt stands at just under $2.2 billion, and we paid down approximately $100 million in the fourth quarter. Our strong free cash flow is driven by improvements in working capital, particularly inventory. We believe our healthy balance sheet and strong cash position provides us with ample capacity to execute on our growth strategy and create shareholder value. Turning to slide 13, where we outline our capital allocation priorities. We continue to prioritize growth and execute a balanced, disciplined approach to capital allocation to deliver strong returns. We invested $74 million in capex in 2024, up 13%. This included expanding our footprint to increase our liquid cooling capacity 4X and support our growing backlog. We returned $227 million to shareholders in 2024, including share repurchases of $100 million. And we increased our quarterly dividend 5%. Looking ahead, we have significant optionality for further capital deployment. This year, we expect to have nearly $2 billion in available capital to deploy, including the net cash proceeds from the thermal sales and our strong cash flow. Moving to slide 14 and our 2025 outlook. We forecast another year of strong sales and earnings growth. Reported sales are expected to grow 8 to 10%, with organic growth in the range of 4 to 6%. Acquisitions are expected to contribute approximately five points to growth. Our outlook for full year adjusted EPS is $2.98 to $3.08, which represents growth of 20 to 24%. And we expect free cash flow conversion to be between 95 and 100%. A few other important items to note for the year. First, we are assuming shares of $166 million, which includes share buybacks beyond dilution. And second, for modeling purposes, for now, we are assuming net interest expense of approximately $60 million. This assumes the net cash proceeds from the thermal management sale earn interest, and we pay down a portion of the trock the acquisition debt. As we have said, we intend to use these proceeds for acquisitions and share repurchases. And third, we expect our adjusted tax rate to now be approximately 22% versus 23% in 2024. And lastly, we continue to evaluate impacts of potential tariffs and have not yet reflected them in our guidance. A couple additional 2025 assumptions of note. Corporate costs are forecasted to be approximately $100 million. These costs include some indirect costs that didn't get allocated to the thermal management sale that we are actively working to reduce and expect to come down through the year. And finishing up, we expect capex of $75 to $80 million. Moving to slide 15 in our first quarter outlook, we expect organic sales growth in the and for earnings per share, we expect adjusted EPS in the range of 65 to 67 cents, up 7 to 10% -to-year. Wrapping up, our team delivered a strong year, and I believe we are well positioned for a great 2025. With that, please turn to slide 16, and I will now turn the call back to Beth. Thank you, Sarah. Key to our success has been our people and our culture, and making InVent a great place to work. We are focused on delivering for our customers and having a positive impact on our communities. On this slide, you can see numerous awards and recognition that we've received as we focus on our people and building a more sustainable and electrified world. For the first last year, we were recognized as one of the world's most ethical companies by Ethisphere. We also earned a Silver Sustainability Rating from EcoVotus, and we were certified as a great place to work for the third consecutive year. These are just a few of the many awards and recognitions we have received. I'm extremely proud of our InVent team and everything we have accomplished, and there's always more that we can do. Wrapping up on slide 17, 2024 was another year of strong performance for InVent while transforming the portfolio. We are well positioned with the electrification of everything, sustainability, and digitalization trends, and we expect 2025 to be another year of strong sales, earnings, and cash flow. Our future is bright. With that, I will now turn the call over to the operator to start Q&A.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Joe Ritchie of Goldman Sachs. Go ahead, please.

Thank you. Good morning, everybody.

Good morning.

Hi. So maybe why don't we just start off with just the organic growth expectations. So, you know, a little bit of a slower start to the year on that zero to 2%, but then ultimately, you know, accelerating as the year progresses. I know the cons certainly get easier, but Beth, maybe you can kind of walk us through, you know, your expectations. And I'm particularly interested in looking at slide six on the industrial and commercial businesses, like, and what you're seeing in those businesses today that gives you confidence that you will see organic growth accelerated as the year progresses.

Okay. Thank you, Joe, for the question. So you are correct. Last year, our strongest quarter was Q1. So we're laughing some strong growth from a year ago. A couple of things when we think of our outlook is first, we have growing backlogs in both our data solutions and power utilities verticals. And so we see that backlog growing and it is going and it is ramping, which we believe will also progress through our sales over the course of the year. The next thing I would point out is when we certainly we ended the year with less organic growth than we were expecting, as I commented, that is given the distribution effect of management of inventory through year end. Now, orders have continued to be positive, but we see things ramping as we go through the year. And I will say, as we talk to our sales teams and our channel partners, one thing we are seeing is our funnels build and particularly with small capex type projects. And so we are seeing that pervasive across many different industrial applications and verticals. So it is those areas that we look at infrastructure continuing to be the strongest for us and backlogs that have been growing, industrial improving, a funnel supporting that, mega projects as we have always talked about, we are a little later in the cycle, but we believe we start to see momentum there and we expect commercial to improve over the course of the year.

Thanks, Beth, that is helpful. I should have clarified also, just in terms of pricing for the year as well, what is embedded in your assumption?

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

Okay, great. And then just one last one, slide 8. Love the breakout of the core technology platforms. Also great that you are in a position now to be very front footed with capital deployment. So as you are thinking about M&A, is it logical to think that these are kind of like the areas that you would potentially invest in or are you looking at potentially other platforms, other ways to maybe just increase the breadth of your portfolio? Thank you.

Yes, so the slide 8 was meant to be a look at how we are investing organically in our new product areas to drive differentiation. But as we think about M&A, we always say we look at high growth verticals and great products. So we could add to this product portfolio. We are very focused on growing in that infrastructure vertical. And so as you know, we have a flywheel that is great products that we can scale and invest in to grow pointed in that high growth vertical. And so we are going to continue to be applying and discipline within that framework.

Thank you.

Thank you.

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

Hi, good morning.

Good morning.

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

Yes, so let me start maybe with Q1. So overall from a Q1 perspective, you're right, embedded in that overall Q1 guide, we do see return on sales down modestly. And a couple things I would point out, Julian. One would just be our corporate costs do tend to be at our highest, if you will, in Q1. And as we talked about in our prepared remarks, we do have some indirect costs that didn't go with that thermal sale. So that's just going to take us a little bit of time to work that down through the course of the year. I think the second thing I would say, we are and continue to invest in our infrastructure vertical, particularly data solutions and power utilities. And as Beth said, our backlog that is there and continues to build is giving us that confidence in that second half growth. And so we continue to invest here in Q1 in anticipation of that growth there in the second half. And I think the only other thing I would say in Q1 here is price cost, we do expect that to ramp in Q2 and more the back half. We're seeing a bit of impact there overall. But I would end by just saying overall we expect Q1 earnings per share at that midpoint to grow roughly 8%. For the full year, our guidance really implies in that kind of flat to up modestly. And maybe one other thing to point out beyond just the investment profile would just be track fee. We do expect with beginning to laugh at and kind of mid July, it's contributing nicely to the top and the bottom line, but from a return on sales perspective, that does have an impact on that overall return on sales. But embedded in the guidance is a good solid drop through on that overall volume growth and top line growth expected for the year.

That's helpful. Thank you. And then maybe just one follow up on the revenue side. You've given a lot of very good color on revenue. But just to understand what's embedded for the non-infrastructure pieces, I can see slide six, the sort of full year laid out there. Just wondered that improvement, because it looks as if the non-infrastructure pieces are down year on year in Q1, partly comps, and then they're expected to move higher through the year. Just wondered, when you're thinking about that, how much of that improvement is comps year on year and normal seasonality versus some fundamental improvement? And tied to that, I guess, is whether any of that order's strength in Q4 was in non-infrastructure verticals.

Yeah. So as we did see our orders improve in Q4, we did see positive orders in non-infrastructure. And so as I mentioned, like take industrial, for example, we're seeing smaller projects, capex, across many different verticals in our funnel, which we believe will pick up momentum over the course of the year and translate to orders and sales. When it comes to some of the other areas, we certainly do expect commercial to improve as a vertical over the course of the year. But as we've looked at this, we just think things start to progress. Some of it's a comp in Q1, but given backlogs in infrastructure and given momentum in projects that we're working on, we generally see things improving over the course of the year.

Great. Thank you.

Thank you.

The next question comes from Dean Dre of RBC Capital Markets. Go ahead, please.

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

Okay. Dean, thank you for the question. I think maybe the first thing I'll start with is, Mark Hall, we've been doing liquid cooling in data centers before all these GPU chips were even launched. And so therefore, we were finding applications in some of these other chips early on because depending on the hyperscaler and their system design and their heat loads, they were finding it more efficient to be using liquid cooling. So now as we go forward, there's going to be different ways and more efficient ways around AI, but our view is liquid cooling is still very important. It also drives energy efficiency. And what we've heard from our customers is that the commitment to CapEx investments is there and not slowing down. So we feel that there is going to continue to be demand for liquid cooling solutions. As you know, the demand for power with these data centers is significant and liquid cooling is one way to offer energy efficiency. So we believe there's continued strength and opportunity here as we go forward. And if anything, the innovation that we see with AI, I think will drive further adoption and scale, which again will imply that that infrastructure is so important to be built out and liquid cooling plays a really key role.

That's great to hear. That's exactly what I was looking for, especially the feedback from your customers and partners. And just a related follow-up question. So you've gone through this process to quadruple capacity in liquid cooling last year, finishing that. Do you still need to test capacity? Because there was some question that you hadn't quadrupled it there. And could you give us any sense directionally what your utilization rates entering 25 are on your liquid cooling capacity?

So Dean, I would say that we're continuing that expansion. Because remember, when we Forex the capacity, some of that was the space that we needed. And we're continuing to invest in the lines and building that out. Our lab and testing capability was progressing after that. And we're in that phase right now, building that out. So we're continuing to make investments in that capacity expansion. And we're continuing to make investments in innovation. And this is going to be a very strong year of new product launches in that data solutions area. So a lot of investment going in here. And we just see the opportunity and the growth in front of us. So we're very excited about it.

Thank you for all that color.

Thank you.

The next question comes from Nicole de Blayze of Goja Bank. Go ahead, please.

Yeah, thanks. Good morning. Good

morning.

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

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

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

Well, let's first start with China. We have very little that we import from China. And so in our view with the announced tariffs, it's really minimal impact and we have it covered. We have a plan when it comes to looking at Mexico and Canada. Certainly, we've got a good track record how we've managed tariffs previously through supply chain management and through pricing actions. And I think all of those things are actions that we're currently working. And I'd like to say really with Canada, that's minimal. And for Mexico, that's in the low teens when we look at our COGS structure.

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

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

Good morning, everyone. Thank you.

Good morning.

I was wondering if we could dig a little bit more into the order commentary. Upload teens, I think in Q4 is nothing to sneeze at. And then, Beth, you said that this continued into January. I think the comps were relatively easy, but can you sort of unpack that a little bit, what the comp was and anything in particular in terms of the sub verticals that stand out driving that growth?

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

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

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

Okay. And then just maybe one last one from me on price. So a little bit negative, again, here in Q4, but you're expecting it to go positive. I'm just wondering if the Q4 weakness or I don't know if you call it weakness, but slightly negative is still kind of in enclosures. And what drives it positive in 2025? Is it just sort of blanket beginning of the year sort of price increases or how are you managing price in the current environment?

Yeah. So Joe, I would say in terms of Q4, we continue to see pricing slightly negative in enclosures and slightly positive in an overall EFS standpoint. And that's for the year. But I would say that to point out, even as we saw modest price declines in enclosures, we saw good Ross expansion. So the team has done a really nice job managing some of our product simplification, programs and efforts and productivity to continue to show that nice Ross expansion overall. Clearly, as we walk into 2025, we do expect 2025 to be another inflationary year. Labor continues to be a big portion of that. But as Beth mentioned, we also are working through the China tariffs. It's minimal for us, but nonetheless, it's something that we've got to work to help offset here. And so with some of that inflation as a backdrop, as we would customer really do, we continue to look for pricing actions to help to offset that. I'd probably end by saying, look, we continue to look at the price plus productivity to offset that inflation. And I think we've got a nice productivity funnel as we enter into the year that's broad based, covers factories, DCs, transportation. We're putting an extra focus on indirect spend as well. And again, some of our continued simplification efforts around business transformation. So we're going to work the combination of that price plus productivity to offset that inflation as we have historically.

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

The next question comes from Nigel Ko of Wolf Research. Go ahead, please.

Oh, thanks. Good morning, everyone.

Morning.

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

Well, as you look at our Q4 performance, certainly infrastructure was a big driver of our growth. So if you look at the breakout by what we said on slide 10, right? However, we did see industrial grow in the quarter for our electrical and fasting solutions business. Now, some of this is also what we're seeing that impact of orders coming through distribution. But as we go forward and we look at our outlook, we expect low double digit growth in infrastructure. So yes, infrastructure is certainly the strongest growth driver for us going forward. However, we do expect both industrial to grow low single digits to mid single digits is the vertical outlook, and commercial is low single digits. And so infrastructure for us and where our backlogs are will certainly contribute more strongly to growth than the other areas.

Okay. And I'm guessing residential, which is obviously very small for you guys, will be down probably mid single digits. Okay. That's really helpful. And then maybe just click into Tracti because it feels like well, certainly the contribution to 4Q for micro positions was a bit better. So I'm just wondering, I know Tracti isn't organic until the second half of the year, but maybe just double click into what you've seen in Tracti in terms of growth for 2025. And perhaps just talk about some of the verticals where you've seen that growth.

All right. So as we often like to say, Tracti is a new growth platform for us with controlled buildings. And we've seen nice continued backlog growth and certainly the strength of sales there. And much like we've thought about enclosures and you think about our ability to provide enclosures for various applications and specifications, this is how we think about control buildings, that it plays in utilities, it plays in data centers, it supports backup power, it supports energy storage. There's control buildings platform. So we're seeing, you know, we see good momentum in this platform and think it will be a strong contributor and driver to us in that broader infrastructure vertical.

Okay, great. Thank you.

The next question comes from Jess Hammond of KeyBank. Go ahead, please.

Hey, excuse me. Good morning.

Good

morning.

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

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

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

Well, let me first start on our acquisition pipeline. You know, I've said this on previous calls. I think we have a very robust pipeline and opportunities. And I also have said, you never can control the timing of deals. But I do believe that, you know, our goal is always to do a couple of deals if we can over the course of the year. And I believe our pipeline is strong and healthy. And we have a very disciplined approach to what we go after. And we also look at our ability to execute that well. So, you know, we believe, you know, as a priority for capital allocation, that growth, including acquisitions are a key priority for us. And we'd like to think we're able to execute on that over the course of the year. And I'll turn it over to Sarah to talk about buybacks. Yeah, I would just say our outlook that we provided this morning really is a baseline reflects two things. One, an expectation of share buybacks, you know, roughly $200 million, which aligns to that guidance of 166 million shares versus our 168 in 2024. And then just for modeling purposes, you know, the guidance reflects that lower interest related to the interest earned on the proceeds as well as the pay down of the TROCV acquisition debt in part. So I think the important thing to point out is that if you just fold in the net proceeds of that $1.4 billion with our 2024 EBITDA and our net debt, we are sitting at less than, you know, one time in terms of our net debt to EBITDA leverage. So it just emphasizes the point that we have ample capacity to go deploy capital in 2025 and create that shareholder return and that value creation.

Okay, thank you.

Thank

you.

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

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

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

Okay, I guess for data, I guess I should call it data solutions. That 20% of sales was up how much in 2024 and, you know, I'm just wondering, can you say that double digit, or I assume you're not thinking like 10 or 11% there.

Will

that proceed?

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

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

Well, maybe just to frame it, you know, we had said, you know, coming into 2024 there that it's roughly a 250 million dollar business. So you can imply that, you know, when we say strong double digits, it's contributing nicely to the top line and really exceeded our guidance even in Q4. We expected it to contribute nine points, it contributes 10 points to growth. So we do expect that power utilities, data centers as part of that TROCV business to continue to be part of that infrastructure vertical that Beth outlined and contributes nicely to that back half. Maybe one other point if I just kind of zoom out for a moment and think about the data solutions and the power utilities piece, you know, our backlog will exit 2024 with a backlog of $750 million, which is up meaningfully from the prior year. Now, some of that is the TROCV backlog, you know, folding in, but it's also that year over year TROCV backlog building as well as that data solutions building as well. So again, we have good visibility in that backlog as we look at that back half, coupled with the demand that we're seeing increasing as well that's giving us confidence in that back half growth.

Yeah, thanks. It just seems like a great, I mean, obviously it's a great acquisition that you made and if it's 10% of revenue and growing even 15%, it's 150 bits of growth in the second half of the year and, you know, it seems like it could be even more than that if that business is growing that quickly. So as people are just trying to reconcile, you know, the acceleration of organic revenue growth feels material. So I'll follow up more later though.

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

Absolutely. Okay, thank you.

The next question comes from Vlad by Stricke of Citigroup. Go ahead, please.

Morning, Jean. Thanks for taking my call.

Good morning, Vlad.

So maybe just a couple of quick questions from me. You know, one on the capital deployment front. You know, I think the slide you shared, slide eight on the core technology platforms is, you know, helpful and very interesting. I guess, as I think about incremental capital deployment versus those, you know, six core technology platforms, are there particular areas that stand out where you see, you know, more potential for M&A or more, you know, actionability to layer onto those core platforms through M&A?

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

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

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

That's helpful. Thanks, Beth. I'll get back to you.

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

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

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

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

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

Thank you. Appreciate that. Last question. So you talked about the orders may be starting to spread out vertical wise in January. And I know that your organic projections, your ramp in organic is based on you went through that. Thank you. What I was wondering was how much of that ramp includes some of these projects that you referred to and whether you think there might be some timing risk around those projects.

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

a

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

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

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

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

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.