nVent Electric plc ($NVT)

Great. So we're going to get rolling again with events. Great pleasure to welcome back to the conference, Gary Croner, CFO of nVent. And we also have Tony Ritter, Head of IR, on stage as well. So Gary, thank you very much for being here, and I'll hand over to you for smoke remarks. Thanks, Nigel. .

Thrilled to be here actually my second conference with you and the team. It's been an exciting year for InVent, tremendous growth acceleration that we've had as a company. Just for those of you who don't know nVent, we finished last year with a little over $4 billion in revenue. Just under. -- just -- and really finish the year with great growth. organic growth over 10% and both sales, EPS and cash flow at 30% or higher. We finished up a great Q1 with revenue over 40% and organic over 30, EPS at 60 and $1 of adjusted EPS for the quarter, which is the first time that we were able to do that. . Our strategy has been very consistent, which is about gaining exposure to more high-growth verticals, particularly the infrastructure vertical of data centers and power utilities. And we finished Q1 with over 55% exposure to that vertical. We've made a lot of progress reshaping the portfolio since our spin, where we were about $2 billion in revenue and industrial was by far our largest vertical. -- and actually infrastructure are smallest. That's completely flipped to where we were in the first quarter where we had infrastructure, like I said, over 55%. -- we had an Investor Day where we essentially doubled our targets from an intermediate growth perspective after doing a great job of over delivering what we said we were going to do in our last Capital Markets Day. So thrilled to be here, thrilled to have your interest in nVent. And I'll turn it over to Nigel for Q&A.

So I think you just joined nVent last -- this time last year, so just over a year in the job. So not a bad year to be CFO amendment. .

It's exciting. And when I joined, the team had visibility to the significant acceleration that was about to occur in the infrastructure vertical and with our new exposure, we had divested our Thermal Management business and then acquired trace in ALP really reshaped the portfolio and got us more exposure to growth. So very exciting. We continue to invest to support that growth. not just for the short term, but also in the intermediate term. So thrilled to be part of the team and excited to have a chance to talk about it.

So when you think about the sustainability of this extraordinary growth, I mean 20% -- more than 20% this year. You just put up a couple of 30% organic growth numbers. When you look at the pipeline or the negotiations or how are you going to frame it, I mean, what gives you confidence that this sustains not just for this year but beyond?

Yes. So I'll start with the portfolio and the exposure exposure to the infrastructure vertical has given us more long-cycle exposure. But so now we're really balanced between the long in the short cycle, and we really like that. We finished the quarter with a $2.6 billion backlog -- so we have nice visibility to the next 12 months. And as I think about the long term, we feel like a lot of these verticals have really nice long-term growth exposure starting with power utilities, which we really got into with trace and a we see a multi-decade growth exposure there. In the data centers, we just keep seeing upward revisions. And it's also worth mentioning the mix that we have between the white space and the gray space and data centers where we really feel like that white space, which is approximately 80% of our portfolio has a long-term growth as not only we build new data centers, but we turn over the tech inside them. And that certainly leverages a lot of our portfolio. We supply both, but really feel good about that exposure.

And you said you mentioned backlog is $2.6 billion. The Q says majority of that converts in the next 12 months. I mean, are we talking to you about the vast majority of that.

I would say the vast majority converts in the next 12 months. And that's -- we have some that's north of 12 months, primarily with our power utility customers. But -- but yes, we've got nice visibility to both the short and intermediate term. It's worth mentioning, both in power utilities and data centers, we have a nice -- nice discussions with all of our customers, not just about what's on the books, but what's to come. And we talked at our -- at Supercompute conference about our liquid cooling technology being future-proofed out to 2030. And we have that really by working with our -- working closely with our customers and ensuring that we have good visibility to those road maps.

So you think about the group data solutions is driving the outsized growth, power utilities is definitely about that as well. But if you then sort of double click into Data Solutions. Would you call out, I mean, liquid cooling or would you call out Aval as disproportionate drivers of that growth? .

Yes. I would say in the quarter, as we said on the call, really almost all of our businesses exceeded our expectations. So really nice growth certainly, data centers leading the way in both the gray space and the white space and then the white space certainly anchored by liquid cooling, where we've seen tremendous performance. .

Yes. Okay. You mentioned Fisher proof in the business. I want to come back in a second. So a couple of important things that happened this year. You've got the new facility in Blaine picking up. I think that went live, if I'm not mistaken, earlier this quarter, that seems to be releasing more capacity to sell. And then we've got the new lineup of products, the model are kind of launching real time now. So I'm just wondering, how should we think about the impact of those 2 items on order rates and maybe growth in the back half of this year? .

Yes. So we're really excited about the new factory that we have up and running in Blaine it opened. We cut the ribbon just a few weeks ago, but it's been producing product in the first quarter. That will continue to ramp throughout the year and what we've estimated is that I'll double our capacity on liquid cooling. The team has done a great job going from signing the lease to getting up and running in around 100 days. So really a great effort there. From an innovation perspective, we showed a lot of new products at the Super Compute show. Those will really start to hit in the middle of this year. as we ramp capacity. But there's tremendous interest in those products.

Okay. And would they be part of the order book for 1Q? Or is that more on the .

No, it's more on the horizon as we look to Q2 and Q3. .

Okay. So doubling your liquid cooling capacity, that's quite a good number. I mean, we had about, I don't know, $3 million, $4 million of capacity. I don't know if you can confirm or deny that. But would you expect to be sold out on that capacity by year-end? I mean are we going to be in a situation where Blain is sold out by year-end? .

Yes. What I can say is that we continue to have discussions with customers, and they tell us that they would like more and they like more faster. And I'm sure you're hearing that pretty broadly. As this builds out, certainly, we are already looking at what comes next and when we're ready to make those decisions, and we'll certainly let you know. .

Okay. And then coming back to the point about future-proofing through 2030, we're seeing obviously is the big gorilla in the market right now, but you've got Google with its TPUs and others. I mean, how well positioned is invent across the different ship manufactures? .

Yes. And I'll start, maybe I'll ask Tony to pick up. And we work with all the chip manufacturers in a broad variety of customers. And many of them have very bespoke solutions and work with us very closely, and we're pleased with our partnership and certainly work with them to develop those solutions. .

Yes. I mean, as you think about -- go back to supercompute in that portfolio, you even see how that kind of spreads across whether it's hypescalers or the chip suppliers, right? You think of those 2 large CDs. There's the project to shoot 5.0 CDU that's on the horizon. You saw that design in supercomputeNovember, kind of that hallmark CDU that was next to it. part of that new portfolio, that's designed to support, as Gary mentioned, the additional chips, whether it's coming from NVIDIA, AMD out to 2030. So really kind of having that breadth of that portfolio both for the hyperscalers, but then also as you think of -- as it moves more and more into the neo clouds and the multi-tenants have a portfolio that supports them.

Feels to me like the 10% to 13% organic growth you put out in March for the next 3 years or it feels a bit stale -- it does -- maybe after another message. -- off this year.

Well, what I would say is that we were really excited to set those targets, a significant increase in trajectory for us as a company. And we're thrilled with the that we gotten off to both in the quarter as well as in 2026.

Yes. So not just ready to set new targets CRS is 8 weeks in. .

I was half joking -- and then the decision to disclose backlog on a quarterly basis. Maybe just talk about that. Is that because orders because the orders are so massive and lumpy, is that because you want to focus investors on backlog as opposed to order growth .

Yes. Really, it came in 2 ways. One is the change in the portfolio and the the change where we're much more long cycle than we were before. And our previous disclosure, we feel, I wasn't giving a clear picture on on what that looked like from a backlog perspective. So that's what we decided is to give visibility to that. And worked with the accounting experts, and that's where we landed. .

Yes. I think that's great disclosure. First of all, any more questions on dissolutions before we move on? Okay. You do have an industrial and commercial business. I'd be remiss if I didn't touch on that. I think you're guiding for commercial Industrial up mid-singles this year. How is that looking right now? I mean -- and I ask it in the context of there's concerns that maybe some of the strength that we saw in 1Q might have been pre-buy activity, et cetera, et cetera. Maybe just touch on that as well. .

Yes, sure. I'll start by saying we came into the year with a guide of mid-singles for industrial and low singles for commercial. -- we had a very good Q1, and we feel good about the performance of those businesses. And at the quarter, while we had a good Q1 we kept our guidance in line, but we feel really good about the performance of those businesses. They're not only, I would say, the execution from these teams has been solid, and we feel -- we feel like that sell-in and sell-out was very much in line with expectations. So comfortable with that and feel like we're going to have a good year in those businesses .

So no concerns that we're seeing a weakening there. And the Middle East, we're getting the sure now where energy shortages are starting to become a bit more pronounced perhaps as a risk any consents in Europe, Asia? And I know those are big regency guys.

Yes, they're not big regions for us. In Europe, our business was up low single digits. -- honestly, we have higher expectations for that, for that region. But certainly, it was impacted modestly by what was going on in the region. Certainly, from a supply chain perspective, globally, our teams are working on a variety of challenges as they always are. And this is 1 of them that we feel like we can manage. But certainly, it's not making it any easier for us to operate. I also talked a bit, you probably would get it go to inflation, but we did incorporate a higher expectation for fuel into our guidance. That, combined with copper brought us up just under 1 point for inflation for the year and we're offsetting that with a bit of additional pricing.

Yes. I guess the -- the other side of the growth ramp is that it does create some investment spending pressures, some margin pressures. Maybe just bring us up to speed in terms of where we are on overcoming the inflation, tariffs and from the investment spending. .

Yes. So as we came into the year, what we talked about is the first half would continue to have a bit more from a headwind perspective, primarily from inflation and tariffs in the second half would be a little bit better. We'll continue to invest pretty consistently across the year to support -- to support our growth. The first half has our incrementals about 20%, and the second half will be around mid-20s, very much in line with our intermediate term guidance. So we feel good about the growth and the returns that we're delivering on the business.

Okay. then how does Blame filter into the SP margins? Does that cause a little bit of pressure as you ramp it up and then you absorbed some of that .

Yes, exactly. And that will -- that investment will pick up in the second quarter and then start to really contribute to. They had a great quarter in Q1 on margin. and that helped us balance out the overall margin performance for the firm. But yes, Blaine will continue to ramp. We'll continue to invest, not just behind capacity, but also capability as we as we look to support what is now a very sizable business for us. .

Yes. We get questions about the actual kind of the raw margins for the liquid cooling portfolio. And when we look at, say, I don't know, Boyd, you look at some of the other acquisitions you've seen out there, it seems that the margins are in the low to mid-20s for some of those comparable companies. Is that -- is that where you see the margins for your liquid cooling. [Audio Gap] EC margins come under a bit of pressure, Gary, in 1Q. Maybe just talk about and the -- you're guiding for a pretty sharp recovery, just confidence in that. .

Yes. So we saw the inflation really pick up in primarily driven by copper at the back half of the fourth quarter, that ramped in the beginning of the first quarter, and the team took action on a and that pricing began to roll in towards the end of the first quarter. So we saw the margins really improve in EC as we got to the back half of the first quarter, and we expect those to bounce back to where EC has been traditionally in the high 20s in the balance of the year. .

That's great. So price cost in 2Q fairly neutral at this point? .

Yes. we feel good about price cost for Q2 through Q4, as I said, a bit a bit behind an EC in Q1. Pricing in aggregate in Q1 was higher than it was in Q4, and it continues to be at a healthy level.

Okay. Great. M&A. You guys have done a good job of with Tractebel, others as well. How does the pipeline look at this point for future deals? And are we still going to be concentrated very much in that data solutions power utility Infrastructure segments. .

M&A is a big part of capital allocation. As we talked about our capital allocation strategy at our Investor Day, we made it very clear that the first priority is growth organic growth, and you're seeing that on the CapEx side from us. And then as we think about M&A, the team has done 8 deals include -- and then in addition, the spin-off of the sale of thermal management and the team has been very disciplined in the acquisitions that we've made. The last 2 have been nice chunky deals that have contributed really well from an accretion perspective, both from the top line as well as as well as EPS, and we're very pleased with tracking of LPG. Again, the initial strategy there was to get us more exposure into power utility, a subvertical that we are really excited about and then had some data center exposure that kind of top spin that growth and has helped us exceed expectations. As we look forward, we've got a full pipeline. We'll continue to be very disciplined on M&A. Certainly, it's competitive, as you can see from what folks have announced. But we're pleased we'll continue to be disciplined. And we expect that infrastructure will continue to be a focus.

Have you been surprised by the extent of deal flow amongst your competitors in the thermal management space? .

Yes. What I would say is that as we think about these deals and fairly sizable deals in the space, it gives us confidence because of what we've been able to do organically. There's been a lot of interest in the space and a lot of very impressive companies and deep companies technologically that have decided to enter via M&A. . So we're not surprised. It's a very attractive space, 1 that we see multiyears of growth. So it doesn't surprise us that it's attractive and we feel really good about the business that we've built over the past decade plus behind great technology, quality and our ability to scale.

And the trend has been power companies buying some management companies. So this consolidation across the sort of the whole kind of infrastructure spectrum within data center seems to be where the market is grouting towards. Do you see that -- and then, do you think that logic to being a much bigger player? Or can you pick your spots in the data center? .

Yes. I mean I'll use your term, I haven't used it, but we like to focus on what we do best. And right now, that those are very discrete product lines that are differentiated technologically. And that's been our focus. We're not a big power company. That's not what it's not what event does. .

And no ambitions to be a big power company .

That's not on the road map certainly. .

So when we think about the controls of future M&A would pass be Prolog, -- just think about.

Yes, we like chunky deals that are accretive on the top and bottom line. So yes, we like the last couple of deals we've done. We like the size, and we like that vertical. s. .

Free cash conversion, you're targeting 15% conversion this year, which given the growth rates would be pretty darn heroic, quite frankly. I mean so maybe talk about how you're managing working capital given the growth pressures. .

Yes. I mean we delivered north of 100 last year with tremendous growth, especially in the second half. our CapEx will be elevated and we're we will -- we had cash flow was up certainly in the first quarter. So we feel good about cash and being efficient with our cash. It's a bit of a capital-light business for us. And -- so we'll -- the team has traditionally done a very nice job on cash conversion. We're focused on earnings and profit delivery as well as cash delivery.

Yes. And then CapEx has been stepping up progressively, I think, about $13 million this year. Does that continue to step higher next year? Or do you think we can maintain this kind of plateau? .

Yes. I mean we've continued to ramp CapEx as we've needed capacity. And well, I'm not ready to talk about 27 and 28 CapEx we certainly will continue to invest to support growth. And as a percent of sales, again, it's a pretty efficient capital structure from a CapEx investment perspective.

We got a full room here. So I just want to make sure there's no questions from the yes, there's 1 in the back here. Can we get a mic to the back, please. .

I was just wondering if you could talk a little bit. I think on the Q1 call, you guys talked a little bit about European expansion potential as sort of data centers and things take off there. Maybe if you could just give a little more color around kind of the broad strokes of what you're thinking about Europe?

Yes, sure. The growth for us in data centers has been almost exclusively in North America, and there's been tremendous growth. However, going forward, we do see nice growth opportunity in Europe. And we're investing behind capability as well as capacity as we think about that market. So an attractive market that we expect to grow, but more in the future as North America has really driven our growth as a company here recently.

Good question. Anything else? One more? Perhaps. No. Okay. One question we get a lot, Gary, is this -- there's a lot of new entrants in the CD market, the HVAC companies integrating towards the rack and there's some niche plays there. Any concerns on competition of capacity in that market? .

Yes. As I said earlier, it's an attractive market. And there are attractive markets attract competitive entrants for us, having been in the business for a long time, we feel good about our -- what we bring to the market from a capability perspective, quality, reliability as well as our scale. So it doesn't surprise us, and we're feeling pretty good about our position.

Well, Gary, I'll hand it back to you for closing remarks.

Yes. No, thank you, Nigel, and thanks for all of you in the room. We'll speak with many of you throughout the day. But we have tremendous momentum at nVent and excited about delivering growth on the top line, on the bottom line and through cash flow. And thanks for your interest. Look forward to talking more. Thanks Gary. Thanks, C.

Thank you.