Conference Transcript - NVT 2026-05-19

Nigel, Analyst — Conference Moderator

Great. So we're going to get rolling in with Nvent. Great pleasure to welcome back to the conference, Gary Krohner, 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 some other remarks.

Speaker 4

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 Invent, we finished last year with a little over $4 billion in revenue. Just under. Thank you. And really finished the year with great growth. with 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 a dollar 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 our 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 Invent. And I'll turn it over to Nigel for the Q&A.

Nigel, Analyst — Conference Moderator

So I think you just joined Invent this time last year. So you had just over a year in the job. So not a bad year to be CFO of Invent. Quite a year.

Speaker 4

Yeah, it's exciting. And when I joined, the team had visibility to this significant acceleration that was about to occur, you know, in the infrastructure vertical. And with our, you know, new exposure, you know, we had, you know, divested our thermal management business and then acquired Tracti and Avail EPG, really reshaped the portfolio and got us more exposure to growth. So, you know, very exciting. You know, we continue to invest to support that growth, you know, 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.

Nigel, Analyst — Conference Moderator

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

Speaker 4

Yeah. So I'll start with the portfolio and the exposure. Exposure to the infrastructure vertical has given us more long cycle exposure. So now we're really balanced between the long and the short cycle. And we really, 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, You know, we feel like, you know, a lot of these verticals have really nice long-term, you know, growth exposure. Starting with power utilities, which we really got into with Tracti and Avail EPG, you know, we see a multi-decade, you know, growth exposure there. You know, in the data centers, you know, we just keep seeing upward revisions. And it's also worth mentioning, you know, the mix that we have between the white space and the gray space in 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. You mentioned backlogs, $2.6 billion.

Nigel, Analyst — Conference Moderator

The queue says majority of that converts in the next 12 months. I mean, are we talking here about

Speaker 4

the vast majority of that? Yeah, I would say the vast majority converts in the next 12 months. And we have some that's north of 12 months, primarily with our power utility customers. But yeah, 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 nice discussions with all of our customers, You know, not just about what's on the books, but what's to come. And, you know, we talked at our at Super Compute Conference about our liquid cooling technology being future proofed out to 2030. And we, you know, we have that really by working with our, you know, working closely with our customers and ensuring that we have good visibility to those roadmaps.

Nigel, Analyst — Conference Moderator

So anything about the grow up data solutions is driving the outsized growth. Power utilities is definitely part of that as well. But if you then sort of double click into data solutions, would you call out liquid cooling or would you call out Avail as disproportionate drivers of that growth?

Speaker 4

I would say, you know, in the quarter, as we said on the call, you know, really almost all of our businesses exceeded our expectations. So really nice, you know, 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, you know, tremendous, tremendous performance.

Nigel, Analyst — Conference Moderator

Yeah. OK. You mentioned future proof in the business. I won't come back on in a second. A couple of important things are happening this year. You've got the the new facility in Blaine, you know, picking up. I think that went live, if I'm not mistaken, earlier this quarter. That seems to be releasing more capacity to to sell. And then we've got the new lineup of products, the modeler, you know, kind of launching real time now. So I'm just wondering, how should we think about the impact of those two items on order rates and maybe growth in the back half this year?

Speaker 4

Yeah. So, you know, 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, you know, in the first quarter. You know, that'll continue to ramp throughout the year. And what we've estimated is that'll double our capacity on liquid cooling. The team has done a great job, you know, going from, you know, signing the lease to getting up and running in around 100 days. You know, so really a great effort there. You know, 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, you know, as we ramp capacity. But there's tremendous interest in those products.

Nigel, Analyst — Conference Moderator

And would they be part of the order book for 1Q, or is that more on the…

Speaker 4

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

Nigel, Analyst — Conference Moderator

So doubling your liquid cooling capacity, that's quite a big number. I mean, we'd estimate $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? Are we going to be in a situation where Blaine is sold out by your end?

Speaker 4

Yeah, what I can say is that we continue to have discussions with customers, and they tell us that they would like more and they would 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.

Nigel, Analyst — Conference Moderator

Okay. And then coming back to the point about feature-proofing through 2030, we're seeing, obviously, NVIDIA 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 NVENC across the different chip manufacturers?

Speaker 4

Yeah, 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.

Speaker 3

Yeah, I mean, as you think about, go back to Supercomputing, that portfolio, you even see how that kind of spreads across, whether it's hyperscalers or the chip suppliers, right? You think of those two large CDUs. There's the Project Issues 5.0, you know, CDU that's on the horizon. You saw that design at Supercomputing November, kind of that hallmark CDU that was next to it, part of that new portfolio. you know that's designed to support as gary mentioned you know the additional chips whether it's you know 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 neoclouds and the multi-tenants you know have a portfolio that supports them okay okay it feels

Nigel, Analyst — Conference Moderator

to me like the the 10 to 13 percent organic growth you put out in march uh for the next three years already feels a bit stale is that fair maybe after another another message second off this year

Speaker 4

well you know what i would say is that uh that we're we were really excited to set those targets a significant increase in trajectory for us as a as a company and uh you know we're thrilled with the start that we're we've gotten off to both in the quarter as well as uh in in 2026 yep yep so So I'm not just ready to set new targets here or us. It's eight weeks in.

Nigel, Analyst — Conference Moderator

I was half joking. And then the decision to disclose backlog on a quality basis, maybe just talk about that. Is that because orders are so massive and lumpy? Is that because you want to refocus investors on backlog as opposed to order growth?

Speaker 4

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

Nigel, Analyst — Conference Moderator

pleasure um first of all any more questions on dear solutions before we move on um okay you do have an industrial and commercial business uh i'd be remiss if i didn't touch on that i think you're guiding for commercial up low singles industrial up mid singles this year that's correct 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 one q might have been pre-buy activity etc etc maybe maybe just touch

Speaker 4

on that as well. Yeah, 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. 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 Not only, you know, I would say the execution from these teams has been solid, and we feel like that sell-in and sell-out was very much in line with expectations, so comfortable with that, and, you know, feel like we're going to have a good year in those businesses.

Nigel, Analyst — Conference Moderator

Yeah. So no concerns that we're seeing a weakening there. And the Middle East, you know, we're getting a situation now where, you know, energy shortages are starting to become a bit more pronounced, perhaps, as a risk. Any concerns in, I don't know, Europe, Asia? I know those aren't big regions for you guys.

Speaker 4

Yeah, they're not big regions for us. You know, in Europe, our business was up low single digits. Honestly, we have higher expectations 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 one 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 go to inflation, but we did incorporate a higher expectation for fuel into our guidance. That combined with copper brought us up just under a point for inflation for the year, and we're offsetting that with a bit of additional pricing.

Nigel, Analyst — Conference Moderator

I guess the other side of the growth ramp is that it does create some investment spending pressures, some margin pressures, maybe just brings up the speed in terms of where we are. on overcoming the inflation tariffs and some of the investment spending?

Speaker 4

Yeah. So, you know, as we came into the year, you know, what we talked about is, you know, the first half would, you know, continue to have a bit more from a headwind perspective, primarily from inflation and tariffs. And the second half would be a little bit better. You know, we'll continue to invest, you know, 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.

Nigel, Analyst — Conference Moderator

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

Speaker 4

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

Nigel, Analyst — Conference Moderator

a very sizable business for us we get questions about the actual kind of the raw margins for the liquid cooling portfolio and you know when we look at say i don't know boyd um you look at um uh you know some of the other acquisitions we've seen out there it seems that there seems that the margins are in the low to mid-20s for some of those uh comparable companies uh is that is that where you see the margins for your liquid cooling portfolio i think what we've said uh historically is that

Speaker 4

you know liquid cooling and our data center business is in line with segment with segment averages for both segments yep so liquid cooling be similar to systems protection yep okay including

Nigel, Analyst — Conference Moderator

all the investments that we're making okay so an EBITDA basis that would be in line yeah okay got it uh EC margins come under a bit of pressure Gary in one queue maybe just talk about that and and the uh you're guiding for a pretty sharp recovery just just confidence in that yeah so um

Speaker 4

you know we saw the inflation really pick up in EC you know primarily driven by copper at the at At the back half of the fourth quarter, you know, that ramped in the beginning of the first quarter and the team took action on on price. 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.

Nigel, Analyst — Conference Moderator

That's great. so price cost uh into q uh fairly neutral uh at this point yeah we feel uh you know we feel good

Speaker 4

about price cost for q2 through q4 um as as i said uh a bit a bit behind in ec and q1 um you know pricing in aggregate in q1 was higher than it was in q4 and it continues to be at a healthy level

Nigel, Analyst — Conference Moderator

Okay, great. M&A, you guys have done a good job with Tracti, Avail, 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?

Speaker 4

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 eight deals, and then in addition, the spinoff of the sale of thermal management, and the team has been very disciplined in the acquisitions that we've made. The last two have been nice, chunky deals that have contributed really well from an accretion perspective, both from the top line as well as EPS. And we're very pleased with Tracti and Availa PG. 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 topspin 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 expect that infrastructure will continue to be a focus.

Nigel, Analyst — Conference Moderator

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

Speaker 4

Yeah, you know, what I would say is that as we think about these deals and fairly sizable deals in the space, you know, it gives us it gives us confidence because of what we've been able to do organically. Um, you know, there's been a lot of interest in the space and in a lot of, uh, you know, very, um, impressive companies and in deep companies technologically, um, you know, that have decided to, to enter via M and a, um, you know, so, uh, so we're not surprised it's a very attractive space. Um, you know, one that, uh, that we see, you know, multi years of growth. So it doesn't surprise us that it's attractive. Um, and, uh, you know, we feel really good about the business that we've built over the past decade plus um you know behind great technology quality and in our ability to scale and the the trend has been power companies buying

Nigel, Analyst — Conference Moderator

thermal management companies so this this consolidation across the you know sort of the uh the whole kind of infrastructure spectrum within data center seems to be where the market is gravitating towards do you do you see that for invent do you think there's logic to to be in a much bigger player, or can you pick your spots in the data center? Yeah, I mean, I'll use your

Speaker 4

term. I haven't used it, but, you know, we like to focus on what we do best, and right now, those are very, you know, discrete product lines that are, you know, differentiated technologically, and, you know, that's been our, you know, that's been our focus. You know, we're not a big power company. That's not what Invent does. And no ambitions to be a big power company. That's not on the roadmap, certainly.

Nigel, Analyst — Conference Moderator

So when we think about the contours of future M&A, what would possibly be prologue? You know, just think about the last few deals.

Speaker 4

Yeah, we like chunky deals that are, you know, that are creative on the top and bottom line. So, yeah, we like the last couple of deals we've done. We like the size and we like that vertical.

Nigel, Analyst — Conference Moderator

Free cash conversion, you're targeting 95% conversion this year, which, given the growth rates, would be pretty darn heroic. quite frankly. I mean, so let me talk about how you're managing working capital given the growth

Speaker 4

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

Nigel, Analyst — Conference Moderator

as cash delivery. Yep. And then CapEx has been stepping up progressively, I think about $130 million this year. Does that continue to step higher next year or do you think we can maintain

Speaker 4

this kind of plateau? Yeah, I mean, we've continued to ramp CapEx as we've needed capacity And while I'm not ready to talk about, you know, 27 and 28 CapEx, we certainly will continue to invest to support growth. You know, and as a percent of sales, again, it's a pretty efficient capital structure from a CapEx investment perspective.

Nigel, Analyst — Conference Moderator

Got a full room here, so just want to make sure there's no questions from the – yeah, there's one in the back here. Can we get Mike to the back, please?

Speaker 1

Yeah, hey, guys. 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.

Speaker 4

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

Nigel, Analyst — Conference Moderator

Good question. Anything else? One more? No. Okay. One question we get a lot, Gary, is, you know, there's a lot of new entrants in the CDU markets. You have the HVAC companies, you know, integrating towards the RAC, and there's some niche players there. Any concerns on competition of capacity in that market?

Speaker 4

Yeah. You know, as I said earlier, it's an attractive market. And, you know, attractive markets attract, you know, competitive entrants. You know, for us, having been in the business for a long time, you know, we feel good about our, what we bring, uh, to, to the market from a capability perspective, um, you know, quality, uh, reliability as, as well as, as well as our scale. Um, so, uh, it's not, it doesn't surprise us and, and, uh, you know, we're, we're feeling

Nigel, Analyst — Conference Moderator

pretty good about our, our position. That's great. Well, uh, Gary, I'll hand it back to you.

Speaker 4

Close remarks. Yeah, no, thank you, Nigel. And thanks for all of, uh, all of you in the room. We'll speak with many of you throughout the day, but we have tremendous momentum at Invent and excited about delivering growth on the top line, on the bottom line, and through cash flow. And thanks for your interest. I look forward to talking more.

Nigel, Analyst — Conference Moderator

That was a great discussion.