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12-02-2025
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Q4 2024 Fidelity National Information Services Inc Earnings Call
George Mihalos; Senior Vice President, Head of Investor Relations; Fidelity National Information Services Inc Stephanie Ferris; President, Chief Executive Officer, Director; Fidelity National Information Services Inc James Kehoe; Chief Financial Officer; Fidelity National Information Services Inc Will Nance; Analyst; Goldman Sachs & Company, Inc Tien-tsin Huang; Analyst; J.P. Morgan Securities LLC Darrin Peller; Analyst; Wolfe Research Dan Dolev; Analyst; Mizuho Securities USA Jason Kupferberg; Analyst; BofA Global Research (US) Ramsey El-Assal; Analyst; Barclays Vasundhara Govil; Analyst; Keefe, Bruyette & Woods North America John Davis; Analyst; Raymond James Operator Good day, and welcome to the FIS fourth-quarter 2024 earnings call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. George Mihalos, Head of Investor Relations. Please go ahead. George Mihalos Thank you, operator. Good morning, everyone. Thank you for joining us today for the FIS fourth-quarter 2024 earnings conference call. This call is being webcasted. Today's news release, corresponding presentation and webcast are all available on our website at me on the call this morning are Stephanie Ferris, our CEO and President; and James Kehoe, our CFO. Stephanie will lead the call with a strategic and operational update, followed by James, who will review our financial to slide 3. Today's remarks will contain forward-looking statements. These statements are subject to risks and uncertainties as described in the press release and other filings with the SEC. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Please refer to the Safe Harbor throughout this conference call, we will be presenting non-GAAP information, including adjusted EBITDA, adjusted net earnings, adjusted net earnings per share, and adjusted free cash flow. These are important financial performance measures for the company but are not financial measures as defined by GAAP. Reconciliation of our non-GAAP information to the GAAP financial information is presented in our earnings now, I'll turn the call over to Stephanie. Stephanie Ferris Thank you, George, and thank you, everyone, for joining us. 2024 was a year of continued progress at FIS. We made significant strides executing on the strategy we laid out at Investor Day, to drive commercial excellence across the enterprise, refocused sales on key growth vectors and extend and complement our portfolio of solutions with targeted M& committed to doing this while also focusing on continued profitability and increasing total returns to shareholders. While there is still much work to do. The actions we've taken to refocus the company are driving improved financial outcomes and delivering greater value to all of our focus on commercial excellence continues to increase the momentum we are seeing in new sales across core banking and our key growth vectors of digital, payments, and commercial lending positioning us for accelerated growth going forward.I want to thank the entire FIS team for their commitment and dedication to moving the company forward through this period of rapid change. Overall, we delivered a solid set of financial results in 2024, leveraging our strong position across the money life cycle. Revenue growth accelerated from 3% to 4% in 2024. And while this was slightly below our expectations due to some onetime items, growth in new sales, including a 10% increase in Amplify cross sales and improved commercial excellence across our client base, leave us confident in further acceleration in are pleased with the early returns on our sales transformation, driving new wins and higher margin recurring revenue. For example, we've hired more quota-carrying specialists focused on specific solution sets in key verticals such as payments, digital and treasury and risk. We are confident the specialized sales approach will allow us to better cross-sell solutions into our clients and position us to capitalize on our most attractive and growing focus on profitable growth and business simplification translated into strong margin expansion of 64 basis points for the year. This exceeded our original outlook of 20 basis points to 40 basis points. We are poised to drive further margin expansion in 2025, in line with our Investor Day targets as we execute on the pillars of our future forward strong execution this year resulted in adjusted EPS growth of 18% on a normalized basis, again, exceeding our full year outlook. Lastly, we returned $4.8 billion to shareholders across share repurchases and dividends, including $1.2 billion in the fourth into 2025, we are well positioned to return $2 billion of capital and deliver double-digit total return to shareholders, including 9% to 11% adjusted EPS growth. Turning to slide 6 for a discussion on new sales, key client wins and partnerships.I'm pleased to report that we ended the year on a high note with the sales momentum we generated over the first three quarters of the year continuing into the fourth quarter. The strong close reaffirms our confidence in accelerating revenue growth over the course of 2025 and will provide a solid foundation for continued growth into with money at rest. We had a record year of core wins with success across all of our strategic banking platforms. This included several competitive takeaways with our core platforms resonating across regional, community and de novo banks.I'm excited to announce that Centennial Bank, a growing regional bank with over $20 billion in assets will be moving to our IBS platform. And as part of this strategic migration, they've also selected our B1 Studio digital bank offering, which will be replacing their current provider. We're thrilled to be working with Centennial and look forward to growing alongside IBS platform was also selected by a leading Midwest based community bank. The bank will be migrating FIS from a competitor's solution that have been servicing the bank for to digital. New sales of digital solutions grew 70% year-over-year in 2024. Demand was primarily driven by cross-sales into FIS's core clients. Additionally, we are seeing early traction bundling our digital solutions with new core wins, reducing complexity and cost for banks. We expect the strong digital sales momentum to continue in 2025, aided by the recent Dragonfly acquisition and specialized sales to money in motion. We signed a number of new wins across domestic and international banks and premier fintech companies. First, I'm pleased to announce that we entered into a strategic partnership with Affirm, enabling our debit processing clients to have access to a firm's market-leading buy now pay later represents one of the fastest-growing markets in the changing payments landscape, with over 86 million Americans having used the service in 2024. Our partnership with Affirm, the first of its kind to bring together debit processing with pay overtime capabilities demonstrates FIS's commitment to innovation and unique positioning to unlock financial technology across the money life the quarter, we also expanded our relationship with NatWest, a leading UK financial institution. NatWest will utilize several new products across both payments and lending. And we've continued to gain traction beyond financial institutions having signed several new network and processing deals with emerging technology providers. This is a significant opportunity to further diversify our payments business, leveraging our loyalty network and issuing to money at work. We had another strong sales quarter with continued demand across trade processing and commercial lending. In the fourth quarter, one of the largest regional banks in the US opted for FIS's transfer agency solution. This is another example of how our cross-sell initiative Amplify is resonating with also continue to see benefit integrating our strategic acquisitions into our global distribution network. During the quarter, Torstone, a specialized SaaS post-trade platform acquired in early 2024, signed one of the largest deals in its history, leveraging FIS's brand and track record in the market, Torstone was able to sell its back-office services to a leading digital brokerage the fourth quarter, we also signed a number of new engagements with both traditional and alternative lenders and our pipeline of opportunities remains large. Commercial lending remains a key growth vertical for us with double-digit revenue growth in the quarter and strong new sales. FIS's products and solutions were once again recognized by a number of prestigious advisory and expert firms across the Horizon banking platform was recognized by Celent winning in the advanced technology category. While IDC recognized FIS as a leader in MarketScape's North American digital core banking platforms, and for its outstanding customer satisfaction and treasury Gartner placed Horizon in IBS in the Leaders quadrant of their Magic Quadrant for retail core banking systems. And Affirm also recognized MVP in the Visionaries quadrant. We are pleased to see so many of our products and solutions continue to be recognized as leaders in the market, reaffirming the momentum we are seeing in sales activity.I'll conclude on slide 7 with an overview of how FIS is capitalizing on the unique market of the office of the CFO. Leveraging our reach across the full money life cycle, FIS is uniquely positioned to tap into one of the most attractive opportunities in enterprise software, helping CFOs turn finance from a cost center into a growth center for their role of the CFO across large enterprises is expanding. Finance leaders are being tasked with improving and automating processes while simultaneously lowering costs and navigating complex tax and regulatory environments. To achieve these goals, CFOs are leaning on trusted technology providers like FIS for office of the CFO represents a global market of over $25 billion with double-digit growth and significant runway to further grow our business with enterprise corporate clients. The fragmented competitive landscape in this space works to our advantage. While competitors might be able to offer clients one or two delivers a comprehensive suite of end-to-end capabilities across money at rest, in motion and at work. This suite includes award-winning solutions across payments, supply chain management, digital enhancements, and fraud prevention. And we are further extending our lead with the launch of next-generation solutions, such as Treasury GPT, a new tool launched in partnership with AI, corporate treasurers are able to access and synthesize large pools of data, helping them improve their cash management activities. We are also expanding our reach with strategic M&A, including the recent acquisition of UK Fintech Demica, positioning FIS as a leader in supply chain finance mix of organic and inorganic investments reinforces how we are effectively allocating capital across the company to capitalize on growth opportunities. The office of the CFO is just one example of an attractive and growing market where FIS's unique set of assets, positions the company to win.I stepped into the CEO role at FIS two years ago, a company I am honored and privileged to lead. During this time frame, we initiated one of the largest transformational strategies in the company's history to improve our profitability and financial foundation, enabling us to drive key client outcomes of simplification, innovation, and client centricity as well as investor outcomes of enhanced shareholder organic and inorganic investments we are making are delivering tangible results. We have successfully completed five acquisitions, driving positive financial returns and extending our solution capabilities in key growth areas such as digital, payments and commercial lending. We established new commercial partnerships with industry leaders like Microsoft, Affirm, and Worldpay, among partnerships have enabled us to extend innovative new capabilities to our clients and their customers. We had our strongest year ever in core banking with record new wins, sales momentum across our key growth vectors, including 70% growth in digital sales and continued demand for our commercial lending new sales increased a solid 9% in 2024, showing progress in our commercial excellence transformation and providing us with visibility into future growth as signings convert into revenue over the next few quarters. Our solutions have received dozens of new awards and third-party accolades from prestigious organizations, recognizing us as leaders and visionaries. We are on the right path to accelerate growth expand profitability and increase shareholder while progress is in to straight line, and we still have more work to do, I'm extremely pleased with the momentum we have and excited about our prospects going with that, I'll turn it over to James for a review of our financials. James? James Kehoe Thank you, Stephanie, and good morning. As Stephanie mentioned earlier, we made continued progress in 2024, laying a strong foundation to achieve our Investor Day goals. The separation of Worldpay was a landmark event, allowing us to increase our growth investments while returning significant cash to financial results in 2024 coupled with strong growth in new ACV sales and improved commercial excellence give us great confidence for the year ahead. Turning now to our share quarter results on slide revenue growth was 4% in the quarter. We outperformed again in capital mortgage coming in above the high end of our guide. Banking delivered a strong ACV sales quarter but revenue growth lagged expectations due to some onetime items. While these items pressured our fourth quarter results, overall, they will have a positive impact on our 2025 banking revenue growth with a meaningful acceleration beginning in the second adjusted EBITDA margin came in well ahead of our expectations, expanding more than 100 basis points year-over-year, driven by capital markets and lower corporate costs. Adjusted EPS increased 49% or 9% on a normalized basis, led by strong EBITDA growth of 6%. Total debt was $11.3 billion, with a leverage ratio of 2.65 times, better than our stated goal of 2.8 the fourth quarter, we returned $1.2 billion of capital to shareholders, including share repurchases of $1 billion. And for the year, we fully delivered on our $4 billion target. Free cash flow was $700 million in the quarter, with a cash conversion rate of 110%.While our cash conversion in the quarter was strong, it did fall short of our expectations due to less favorable working capital performance. This led to a full year cash conversion of 77% and we are taking action to improve our working capital conversion going now to our segment results on slide 11. Adjusted revenue growth was 4% and with recurring revenue growth at 2%. Banking grew 2% in the quarter, coming in slightly below our outlook; three, unexpected items hit us late in the negatively impacted revenue growth by around 2 percentage-points. Recurring revenue growth of 1% includes a negative impact of approximately 1% and from a contract recognition adjustment. As a reminder, we are growing over an unusually strong 7% recurring growth in the prior year. Non-recurring revenue declined 3%, including two unexpected items. First, a large license deal pushed out of the fourth quarter and is now expected to close later in the results include the reversal of a $20 million termination fee related to an announced bank merger, which was subsequently abandoned due to regulatory scrutiny. While the reversal of this termination fee was a sizable headwind in the quarter, the retention of this client will benefit recurring revenue in services advanced 16% and in line with our prior expectations for acceleration over the second half of 2024. Banking EBITDA margin declined 120 basis points entirely due to unfavorable product mix. Turning now to capital markets, which had another very strong revenue growth came in ahead of expectations at 9%, with strong recurring revenue growth of 7%. Other non-recurring revenue advanced 16%, fueled by very strong license sales and professional services increased 5%. Adjusted EBITDA margin expanded 190 basis points reflecting strong growth in high-margin license revenue and favorable operating now to our full year results on slide 12. Adjusted revenue and recurring revenue grew 4%. Banking revenue grew 2% with recurring revenue growth of 3% and inclusive of the share quarter headwinds we discussed related revenue was $140 million for the year compared to $31 million in 2023. And this was more than offset by the loss of $150 million of revenue from federally funded pandemic release. On a normalized basis, Banking's underlying growth was above 3% for the year. And the cost savings and operating leverage led to margin expansion of 88 basis Capital Markets business had a banner year with 7% growth in both adjusted and recurring revenue, margins expanded 73 basis points benefiting from growth in higher-margin license sales, cost savings and continued operating now to slide 13 for 2025 outlook. Our outlook is fully aligned with the goals we set at Investor Day. We expect revenue growth to accelerate to 4.6% to 5.2%, in line with our Investor Day commentary of accelerating revenue expect margin expansion of 40 basis points to 45 basis points consistent with our prior guide of 2025 being at the lower end of the 40 basis points to 60 basis points reach. Adjusted EPS growth is projected at 9% to 11%, within our two-year target of 9% to 12%. This is a strong EPS performance given the higher 2024 jump-off we provided the guide back in May of last year, 2024 EPS was projected at 10% to 12% growth on a normalized basis. We delivered 18% growth in 2024 and absolute EPS was $0.24 higher than the upper end of our range. Our target leverage is unchanged at 2.8 times, and we expect cash conversion to improve from 77% in 2024 to 82% to 85% in recently increased our dividend by 11% and we expect to deploy $1 billion of capital toward M&A. Importantly, we are raising our share repurchase goal from around $800 million to $1.2 billion, and this reflects our commitment to return excess cash to summary, our 2025 outlook is fully aligned with the mid-term goals we set at Investor Day. Let's turn now to our more detailed projections on page 14. We are projecting full year revenue of $10.4 billion to $10.5 billion. This includes an expected $50 million currency headwind as well as the wind-down of a non-strategic business within the Corporate and Other these items will reduce reported revenue by approximately $100 million for the year with no impact on adjusted revenue growth. Full year revenue growth of 4.6% to 5.2% is projected to accelerate over the course of the year. Banking growth is projected at 3.7% to 4.4%, consistent with our midterm targets. And we are expecting another year of strong revenue growth from capital markets with a full year range of 6.5% to 7%.We do, however, anticipate a somewhat slower start to the year with first quarter revenue growth projected at 2.5% to 3.5%. While capital markets will have a strong start to the year with 7% to 8% growth, banking is facing a tough go over of 200 basis points of non-recurring revenue due to exceptionally high license and termination fees in the first quarter of last this impact, our banking and outlook of 0.5% to 1.5% growth would be closer to 2.5% to 3.5%. Banking growth will accelerate over the course of the year, as we benefit from very strong 2024 recurring ACV sales and the ramp-up of previously signed our third quarter call, we highlighted some client requested implementation delays. While these contracts are already signed, the requested delays shifted revenue out of both the fourth quarter of 2024, and the first quarter of this has shifted over a point of growth from the first quarter into the second quarter. In summary, while the first quarter will be softer than the full year, we expect an immediate pickup in the second quarter. We have good visibility into the drivers, and we are confident our second quarter banking growth will be within the full year outlook range of 3.7% to 4.4%.As I mentioned earlier, we anticipate full year margin expansion of 40 basis points to 45 basis points. Strong execution of our established cost management capabilities and favorable operating leverage will more than offset the roll-off of TSA's cost increases and a less favorable revenue summary, accelerating revenue growth continued margin expansion and strong management of below-the-line items will drive adjusted EPS growth of 9% to 11%. Let me now walk you through our revenue building blocks on slide 15. We have clear line of sight into accelerating banking growth over the course of the ACV sales, higher retention and deferred implementations will drive 150 basis points of incremental revenue growth. The recent Dragonfly digital acquisition adds an additional 60 basis points of growth. These improved growth trends will be modestly offset by declining non-recurring revenue. leading to banking adjusted revenue growth of 3.7% to 4.4%. For capital markets, we are projecting consistent high-quality revenue growth of 6.5% to 7%.The growth will be driven by ongoing expansion into faster-growing adjacent verticals with a similar M&A contribution in 2025 as compared to 2024. Let me now cover the below-the-line assumptions on slide 16. We expect interest expense and tax rate to be in line or better than our Investor Day targets. Interest expense will increase to $120 million to around $370 million, reflecting increased leverage and lower interest income. We will reduce our effective tax rate to 12% to 12.5% from above 15% in 2024. And diluted shares outstanding will decline 5%.Lastly, we anticipate a Worldpay EMI contribution of around $550 million well ahead of our Investor Day outlook and increasing around 7.5% over 2024. Let me now wrap up on slide 17. In summary, our 2025 financial outlook is fully aligned with the goals we set at our Investor Day last year. Banking revenue growth will accelerate to around 4% with recurring revenue growing at a faster Markets will continue to grow at around 7% and we are targeting margin expansion of 40 basis points to 45 basis points, underpinned by a strong track record on cost management. Lastly, we are targeting $2 billion of capital return in 2025, and we will deliver total returns of 11% to 13%.With that, operator, could you please open the line for questions? Operator Thank you. (Operator Instructions)Will Nance, Goldman Sachs. Will Nance Hey guys, appreciate you taking the question today. I wanted to follow up on some of the commentary around the cadence of banking revenue growth. I hear you on some of the moving pieces in the first quarter and some of the deals you referenced last quarter.I was just wondering if you could kind of put a finer report on the expectations for the acceleration in recurring over the course of the quarter -- sorry, over the course of the year? And anything that you will call out in terms of cadence of some of the non-recurring headwinds throughout the year. Thanks. Stephanie Ferris So thanks, Will, maybe I'll kick off at a high level, and I'll let James add on some of the knits around the numbers. I think in third quarter, you heard us talk about some of our strong new sales wins that we had experienced at the end of '23 and the beginning of '24 moving at client request into second half or Q2 and beyond in you'll recall, we talked about that. And so that move, which is about 100 basis points in terms of signed deals where we have clear visibility is going to really start to take hold, they're implementing in the first quarter, and then you'll see the revenue from those in the second the move of those contract implementations, which we previewed in the third quarter is impacting our fourth quarter and our first quarter numbers in terms of being a bit lighter than you would expect. So I would say that. And then also in terms of visibility, as we think about the cadence of quarterly growth and James can talk about the nits and nats in terms of Q4 and also feel really good about our commercial excellence, both in terms of the sales wins we have in 2024 signed our commercial excellence program, giving us a lot of visibility into client retention, core organic wins, and so as we come into 2025 and those implement again, remember, these are core wins, this is digital, et cetera. Those are longer see and feel really confident in terms of visibility coming into Q2 and beyond. So with that, maybe I'll give it over to James in terms of talking about quarters and the difference between recurring and non-recurring. James Kehoe Yeah. Will, yeah, so we did say quite clearly that Q1 will be the low point of the year at 2.5% to 3.5%. And I'll come back to that in a second. And then we were pretty clear that the second quarter will sharply increase to basically in line with the full year growth. And then if you look out to the second half, probably a slight acceleration versus that full year growth I really want to emphasize that we're kind of working our way through this Q1 were actually, if you strip back the pieces is decently positive. So here's one way to think about it. If you take the high end of the guide in Q1 for banking, it's [1.5%]. We did say there were large termination and license headwinds versus prior year, call it, 200 basis points. On top of that, we also said you got 100 basis points that's basically shifting contract closures between Q1 and we kind of get to -- and if you take out M&A out of the number and try to get to a clean number on what the core business is doing on a run rate, we got to around 4%. And that's why we're pretty confident that we can ramp up to that kind of full number on a reported basis in the second not -- this is not a second half story at the second quarter. And unfortunately, the first quarter is held back by these contract delays we'll work through those. I think the thing I feel best about here is, it's what Stephanie said in the prepared comments, the ACV sales were up 9% on the as we look into the 2025 year and the new sales we're counting on in the income statement, and a little over 80% of the new sales are already signed. So this gives us decent visibility, particularly on the quarterly cadence. Will Nance Appreciate that. That's clear. I appreciate the -- some of the math in the first quarter as well. That's a helpful bridge. And then maybe following up a different topic.I wanted to ask about the technology outage in 1Q. Is there any impact from this in the numbers here, either in top line revenue loss or in terms of incremental spending on business continuity. And in practice, just how are you dealing from the fallout of that event? Thanks. Stephanie Ferris Yeah, thanks, Will. So yeah, we did experience a partial system outage temporarily disrupted operations. To be clear, it was not a cyberattack or malicious conduct and no data breaches, et cetera. We did get our clients back up and running really quickly and have been working with don't believe the incident will have a material impact on FIS results or our operations. So feel fine about the fallout of that in terms of -- we were back online very quickly and don't believe there's any material impact for us either now or going forward. Operator Thank Huang, JPMorgan. Tien-tsin Huang Hey, thank you so much. Just on the ACV question, it was up 9% in '24. Stephanie, what are you thinking for '25? Can you do better than that? Is the composition going to be more larger deals or could we see a bigger contribution from shorter projects, that kind of thing? Stephanie Ferris Yeah, great question, Tien-tsin. Of course, it's more than 9%, absolutely. We think we are on a growth trajectory here. And if you remember from Investor Day, we talked about how we were going to focus on we were getting back to our knitting in terms of core and our base business. We had record core wins in 2024. We're on the same track in 2025. We're really getting our mojo back there, I feel really good about that, both in terms of wins and client excellence. As we think about our 2025 sales consistent with Investor Day, we're focused on digital sales, we're focused on payment focused on lending sales, the places where we really plan to accelerate growth because of the size of the TAM, our product set and how much growth is there. Really pleased with the digital growth we saw in '24, but lots of runway there. We talked about 10% growth in Amplify. So I still think we're in early innings in terms of our sales growth. And as we said on the call, we have increased the number of sales folks in the field for feel like we've got our mojo back in core, but we are increasing specialty in these high-growth areas, whether it's commercial lending, digital, we see demand. We also see big demand in office of the CFO. So that's where you're seeing us focus significantly this year, and we would expect to see incrementally more growth in sales in terms of 2025. Tien-tsin Huang Yeah, so I thought that office of the CFO -- my follow-up as office of CFO news and hearing some of the wins that you've talked about. Is there an impact on -- specifically within banking, is there an impact on EBITDA margin that we can expect for some of the upcoming ACV and deals that are converting because I heard in the fourth quarter that there was unfavorable product mix. So what can we expect there? Stephanie Ferris Yeah, I'll do high level and James can hit me a little bit. I think the margins we're expecting is continued focus on all of our cost programs. I think we've been largely successful there, which is across the entire business. So we expect to see banking margins expand I think the product mix he was referring to was really the reversal of the termination fee. So if you think about that, that comes straight out of revenue and profit is more around what he was talking about with respect to product I think from a margin standpoint, we're continuing to be focused on very strong cost discipline. As you know, we're battling through the Worldpay dissynergies as they come off and feel really good about where we ended in '24. And we feel like our guide for margins in 2025 is right in line with what we said at Investor Day, which is us significantly focusing on both top line and bottom line. Operator Thank Peller, Wolf Research. Darrin Peller Hey, thanks guys. James, maybe just a financial question to start off. Can you just remind us of the moving parts on the free cash conversion side from the trend line of what occurred throughout the last year. I know we talked about some of the vendors. But more importantly, just the conviction in the trend getting going in the right way for the next few quarters and into the end of '25 and where you really look to see that exit rate going forward? James Kehoe Yeah, so we come in at [77], and that was below our target of about [85]. You'll recall on the last call, we called out a number of unusually aggressive suppliers. And just as you look forward over an 18-month period, that generates about 50 basis points of pressure on capital expenditures, so call it, $50 million a that's the first bit of pressure we had. The second pressure is we've seen probably we haven't been attentive enough on net working capital. We spend an awful lot of time on capital allocation. We spent a lot of time on governance around capital budget, return on investment, return on the acquisitions. We're shifting the guns now to -- we are, frankly, painter suppliers too terms are down in the 40s, and many companies are running at [90s]. And then two is, we did over the last six months, see some extension on payment terms with customers. We need to get a little more vigilant on that. And to our collection has not been in line with my expectations. So the slippage towards the end of the year is we understand it, and we've set up going through contract by contract overdue by over dues. We will be extending payments. And I want to be crystal clear on this. We have clear line of sight to the guide we've given you the [82 to 85]. The only reason there is a range is just we saw this volatility at the end of the year.I'm trying to target to the higher end of that. I believe in 2016, we're back to business as usual and the 90%-plus we've got a bunch of opportunity here. The CapEx is going to run at 9% in 2025. So as I mean, that's about a percentage point higher than the guide that we would have given 12 months ago. So we said about 8% or running at this 9%, and that's what's given us the pressure on the 85% versus 90%. So you have our conviction here will be back on 90% in 2026. Darrin Peller Okay. Very helpful, James. Stephanie, just a quick one. The -- again, understanding there's been delays, but the specific types of contracts and revenue that you're seeing demand for in the banking side to show the -- on just the timing dynamic, what are you seeing the most excitement for customers right now on the banking side for new business? Stephanie Ferris Definitely continue to see a lot of demand around our core. We've made some significant investments. You heard us highlight IBS. Digital, digital, digital, digital, every financial institution is focused on their digital experience, which is why we continue to invest very significantly both organically and then from an acquisition standpoint, so we can serve everybody commercial lending continues to be a very big demand across the board, not just with banks but with private credit -- and asset managers, et then the last one, which is what we highlighted office of the CFO. We think we're uniquely positioned there. We see a huge amount of demand, and we see mainly niche players. And we think bringing together our products and putting them into an office of the CFO solution is we're taking the market by storm there. Again, winning a lot of awards in that think that's just early days, and that's a place we're really carving out for ourselves. So overall, I would say that's where I see a significant amount of demand. Thanks Darrin. Operator Thank Dolev, Mizuho. Dan Dolev Hey guys. Great job here on capital markets. hopefully, you guys will get credit for that performance. I do have a question about unpacking 4Q banking growth. So starting at 2%, there's Worldpay. Like can you unpack, James, for us what's the underlying growth, we think for M&A, Worldpay dis-synergies, and all the factors that you called out like all in? And then I have a quick follow-up. Thank you. James Kehoe Yeah. Okay. So hopefully, this won't come across as too complicated. But Worldpay, yeah, that contributed in the quarter, that was about $34 million. So call it about 200 basis points. M&A and then dis-synergies. We see M&A and dis-synergy as the same bucket. And the net positive impact was 30 basis points. So the result in the fourth quarter had a positive contribution coming from those you'll recall from the prior calls, the negatives against this pandemic revenue 160 basis points. It almost entirely offsets the contribution in the quarter from Worldpay Commercial Services. And then the final one, I would add is the contract recognition items in the quarter pulled down the revenue by above -- because the term fee is a switch between the third quarter and the fourth these recognition items pulled down the result by about 180 basis points. So we step back from this and we look at the positives from Worldpay and M&A negatives from pandemic dis-synergy and the contract we're getting to a core growth, if you want to call it, like core growth of around 3% in the quarter. So -- and then if you look at the recurring, that was growing slightly ahead of that, probably a little north of 3%. Dan Dolev Got it. And maybe Stephanie, a little more strategic question. Like how do you feel about the portfolio today? Obviously, there's been a lot of like cheddar about potential changes in the competitive landscape. So if you think about your two businesses, how happy are you with the current portfolio? And what else do you think you could need to boost client overlap et cetera? Thank you. Stephanie Ferris Yeah, so I think we're very pleased with how we are executing against what we set out at Investor Days, which is getting back to focusing on our core business wins there. You're seeing that in trading and processing growth as well as core banking growth. Then we are focusing both organically and inorganically in the places we think there's a lot of growth opportunity for us. Digital payments, lending, treasury and so as we look at those and think about where we can position ourselves uniquely where no one else is, and so we have a bit less competition is really think about commercial lending as a big space, again, like I said, taking advantage of opportunities in private credit, hedge funds, et cetera and then office of the CFO, where we've pulled together a set of products across banking and capital markets where we think we're uniquely positioned, and you don't see a lot of our I think that what you're seeing us do with the company post Investor Day and the separation of Worldpay, while we're still very much going to market in conjunction with Worldpay and the commercial agreements there, and we think that will continue to be strategic for us. You're seeing us really carve out a niche with the assets we have that are really differentiated from everybody else that you would normally compare us to. We're not a payments company that isn't what we're have large amounts of payments capabilities. We're not in SMB payments. That's not what we do. We're in -- we serve large corporates across the globe, and we serve large financial institutions. And we're looking to take advantage of that scale, global distribution, and marquee product set in a different way. And you're going to continue to see us with our M&A strategy, put the assets down that we think can help us grow in those high-growth areas. Operator Thank Kupferberg, Bank of America. Jason Kupferberg Good morning guys. I just wanted to start on the banking outlook for '25 again. I know we've got the 3.7% to 4.4%. James, can you just put a finer point on the recurring versus the non-recurring growth rate for '25 and just what the Worldpay revenues and banking look like in '25 versus 2024. James Kehoe Yeah. So as we said, we're accelerating to 3.7% to 4.4%. It's mostly coming from the 150 basis points of acceleration coming from a strong sales and execution. And I said earlier that about 80% of the new sales is already signed, sealed and delivered. When you think about recurring, we want to avoid start getting into a guide on I think, will generally be in line with our prior comments. Now recurring will be slightly ahead all the adjusted. So you can assume as you build out your models, your recurring and banking will be growing slightly ahead of the adjusted and the sum of the professional services and non-recurring will be growing slower. So not by much. So it will be a percentage point or you get into Worldpay, the growth of the core business ex Worldpay would be faster. So said another way, of the $140 million of Worldpay business this year, some of that was non-recurring, and I'll get the numbers wrong. We didn't give the split. So I think we're currently projecting the Worldpay next year will be slightly -- will be below the [$140 million]. So actually, Worldpay will be a slight headwind in next year as opposed to a tailwind, not by much, not by much, 20 basis points, 30 basis points kind of Worldpay is not contributing next year. In fact, it's actually pulling the banking growth rate down slightly. Stephanie Ferris I would also add, just to put a finer point on this, because I think there was a lot of hub up about this after the third quarter. The way to think about the Worldpay revenue is, it is a commercial strategic partnership. We talked about it when we were separating the business. We will continue to have a commercial relationship, just like we do with the firm, just like we do with Microsoft, we go to market, it's very important. It has not been a growth driver in 2024 because it's completely offset by the pandemic it will not be a growth driver in 2025 because it's -- we're expecting it to be slightly down. So Worldpay revenue, while very important from a market standpoint is not contributing to growth in either 2024 or 2025. Jason Kupferberg Okay. That's really clear and helpful. And then I just wanted to ask on the capital markets side, nice solid outlook there for 2025, although I do think it's a touch below the Investor Day target. So just curious if there's any call out there? And if you can just clarify the Demica acquisition contribution to cap markets this year? Thanks guys. James Kehoe Yeah, I think I'll cover the last piece first. The total contribution of acquisitions in Capital Markets in '24 was about 140 basis points. And we're expecting, including that, Demica, we're expecting roughly the same number. So call it, [140] next if you look at the guide, that's slightly below because we were calling out about 150 bps to 200 bps coming from acquisitions on an ongoing basis. So the plan as currently constructed only has [140] in there. So that explains some. But also, I would say, at the end of the year, capital markets came in quite a bit stronger than we expected. Like it's not a huge $10 million that was kind of was mostly licenses, very profitable licenses at the last minute. It pulled up the base year, if you like, and we didn't adjust the license target for 2025, because we said, okay, we have a line of sight to a license started for '25. So call it, the base came in higher by 40 bps and a pull down year-on-year growth rate. It could signal a little bit of opportunity we love the capital markets business. It is entirely consistent over a multiyear period. This is a business that is growing 7%. It's starting the year strong. I hope you saw that it's running at 7% to 8%. You could almost put it across the next three quarters and it will grow almost the same amount each quarter, very predictable quarter in, quarter around high-quality revenue industry-leading we're very happy with this. So -- and by the way, just to point out to everybody on the call, we haven't built in any unannounced acquisitions in the guide. Operator Thank El-Assal, Barclays. Ramsey El-Assal Hi, thanks for taking my question. It feels like the 2025 banking guide is pretty contingent on getting that deal backlog implemented on schedule, could the timing shift further at this point? I guess, how much visibility or confidence do you have that these deals will get turned on now when you expect? Stephanie Ferris Yeah, Ramsey, great question. I'll take that. So it's about 100 basis points we're really confident. The only thing that moves is potential acquisitions closing in first quarter versus second quarter as an example of one of them. And then we're already starting to see another one implementing in the back half of first quarter. So we're very, very confident. These aren't signings. These are implementations. And so feel really good about that 100 basis might an acquisition close in terms of when regulatory approval goes because it's very large, possibly --but at this point, we're feeling very good. And if it does, it might cross a quarter. But we feel really good about those implementations. Like I said, one of them is already in motion as we speak. Ramsey El-Assal Got it. Okay. Super helpful. And then a follow-up for me. The 2025 free cash flow conversion guidance definitely higher than '24, a bit below the medium-term guide set out at Analyst Day. What are the levers that you have, James, to basically get that into the longer-term range from where it will sit in 2025, if all goes as planned? James Kehoe I think the number one is -- what I said before, capital in 2025 is projected at 9% of revenue and the long-term goal is 8%. So that will drive about $100 million of improvement versus the $85 million range going to $90 million. And then accounts payable, we pay too early. We should be running at 90 days, and we're down at [45] to [50] depending on the type of supplier. And then third one is we have some late collections that, in reality, we shouldn't have at this is just -- we have a lot of improvement opportunities in end-to-end process on the collection side. So we see good line of sight and obviously, EBITDA. So the number one driver of cash flow in any company is the quality of earnings and the quality of EBITDA. And we have good line of sight to the flow of EBITDA over the next three years. Operator Thank Govil, KBW. Vasundhara Govil Hi, thanks for taking my question. I guess the first one I had was on the EMI contribution from Worldpay. It's a pretty healthy number despite the outperformance this year. And just wanted to see how you've guided to that for '25 and if there's room for upward bias this year as well or were done with the easy upside at this point? And I know Worldway revenues were also better this quarter. So any color on that would be helpful as well. James Kehoe Worldpay had a very good fourth quarter. I believe the revenue was up 7% or something. So the beat we had in the base here versus the last guide we gave was pretty much all coming from EBITDA. So they had a strong finish. As we're giving a 7.5% guide, that's obviously agreed with Worldpay management.I think most of the forecast in the upside and a lot of the upside in the base here was at a strong start in Q1, good finish through the end of the year. They refinanced debt once last year. They have refinanced again this year, that is built into the just in general, some of the upside last year came from building out -- they didn't build out all the stand-alone structure in line with the original plans, and that's a bit of a headwind in 2025. So we're pretty comfortable with the guide that the business is doing very, very well, and we have good line of sight to it. Vasundhara Govil Thank you. And just a quick one for you, Stephanie. I know bank M&A seems to be picking up and wanted to get your temperature check. On that, I know in the past, you've said it's a net positive for you guys. Just any additional thoughts around that? And if anything related to that is baked into the outlook today? Stephanie Ferris No. I would say in terms of outlook, it's -- we have normal M&A contributions. We've baked in what we know. We don't bake in what we don't know. We have an unknown number, of course, but we have a lot of visibility into that at this view M&A like everybody does in terms of being an opportunity. Some go our way, some don't. But generally, we serve larger financial institutions who tend to be consolidated tours. So we feel really good about that. Operator John Davis, Raymond James. John Davis Hey, good morning guys. Just on the buyback, good to see the $1.2 billion, but I thought it might be a little bit bigger given the lack of M&A last year. So is that more a function of conservatism or there's something bigger in the pipe, is there any comments there? James Kehoe So I think when we -- at Investor Day, we said the range will be $800 million to $1.2 billion with 2025 at the --we basically said it was going to be $800 million. So we've scaled up by about $400 million, which effectively is pretty close to the underspend in 2024. We anticipate '24, [$1 billion]. I think we came in at $550 million -- $550 million, $600 million roughly. So we see that we almost gave back all of it. John Davis Okay. And then just as a quick follow-up. Obviously, we've talked a lot about the banking guide and the shape of the year. But you do need a further acceleration beyond 2Q in the back half. And Stephanie, is that really just all the new wins you've been talking about implementation? And then is there any risk that those implementations slip similar to what happened in Q4 of '24. Stephanie Ferris Yeah, it's a great question, John. So like I said, I think there were really three large implementations that moved one related to an M&A, one related and then two others at client requests. One of those is already starting to implement. The M&A is very close to closing. So we feel good about I'm never going to tell you could it slip again. But again, these are signed deals these -- we are working on the implementations as we speak. So I feel very good about those. We also -- as we come into 2025, feel much stronger about the overall sales. So that's implementations of 100 basis points.I feel really good about that. We have 80% like we said in our prepared remarks of the overall [150], where we've already sold these clients, and we need to implement -- so very -- feeling very good about that, have a high line of visibility there. These are less around being very large. So it's more of a big pipeline of implementation, and we've done a really nice job with that. Again, these are the record core wins we keep talking so our pipeline for implementation is really full in '25 and '26. We have room for more. We'll always take more, but those are longer to implement. So in terms of -- I know the frustration in terms of fourth quarter, first quarter were equally as frustrated but we feel really good about the Q2 and back half acceleration. It's a Q2 story to James's point, and we don't have to do a lot of selling to hit will continue to sell and accelerate a lot but we feel really confident about our line of sight into hitting our numbers in 2025. Operator Thank you so much for that. This concludes today's program. Thank you all for participating. You may now disconnect. Sign in to access your portfolio
Yahoo
07-02-2025
- Business
- Yahoo
Q4 2024 nVent Electric PLC Earnings Call
Tony Riter; Vice President, Investor Relations; nVent Electric PLC Beth Wozniak; Chairman of the Board, Chief Executive Officer; nVent Electric PLC Sara Zawoyski; Chief Financial Officer, Executive Vice President; nVent Electric PLC Joseph Ritchie; Analyst; Goldman Sachs & Company, Inc. Julian Mitchell; Analyst; Barclays Capital Inc. Deane Dray; Analyst; RBC Capital Markets Wealth Management Nicole DeBlase; Analyst; Deutsche Bank Securities Inc. Jeffrey Sprague; Analyst; Vertical Research Partners LLC Nigel Coe; Analyst; Wolfe Research, LLC Jeffrey Hammond; Analyst; KeyBanc Capital Markets Inc. Brian Drab; Analyst; William Blair & Company, L.L.C. (Research) Vladimir Bystricky; Analyst; Citi Investment Research (US) Scott Graham; Analyst; Seaport Global Securities LLC Operator Good day, and welcome to the nVent Electric Fourth Quarter 2024 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Tony Riter, Vice President of Investor Relations. Please go ahead. Tony Riter Thank you, and welcome to nVent's Fourth Quarter 2024 Earnings Call. On the call with me are Beth Wozniak, Chair and Chief Executive Officer; and Sara Zawoyski, 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 are on a continued operation 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 nVent's filings with the Securities and Exchange Commission. Forward-looking statements are made as of today, and the company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances. Actual results could differ materially from anticipated results. Today's webcast is accompanied by a presentation, which you can find in the Investors section of nVent'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. Beth Wozniak 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 nVent 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'm very proud of our nVent team 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'm very excited with how we are repositioning the nVent 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 manage their inventory positions. Importantly, sell-out 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 2 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 nVent team 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 nVent as a more focused, higher-growth electrical connection and protection company. Approximately 70% of our portfolio is exposed to secular trends, and [1/3] 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 & Fastening segment will be known as Electrical Connections to represent the expansion of this portfolio to power connections along with Electrical & Fastening Solutions. This segment offers products and solutions that make electrical systems safe, efficient and resilient. Turning to slide 6 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 in 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 7. 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 trade, for example, and extending our power distribution offering. Also in infrastructure, power utilities now represent approximately 10% of our sales. The acquisition of Trachte 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, the 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, et cetera, expanding our technical capabilities. Looking at 2025, we expect to launch over 75 new products, helping to drive over 2 points of sales growth in the year. In addition, we expect new product vitality to be above 22%. At our core, nVent 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 Sara for details on our results as well as our 2025 outlook. Sara, please go ahead. Sara Zawoyski 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 9 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 year-over-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 a 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 Trachte 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 in data solutions. 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 21.5% increased 40 basis points year-over-year, driven by strong execution. Moving to Electrical & 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. Now turn to slide 11 for a 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 in capacity. In summary, 2024 was a year of strong performance and execution. Now turning to slide 12 titled Balance 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 was 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 sale 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 5 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've paid down a portion of the Trachte 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 impact of potential tariffs and have not yet reflected them in our guidance. A couple of 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 million to $80 million. Moving to slide 15 and our first quarter outlook. We expect organic sales growth in the range of flat to 2%, and for earnings per share, we expect adjusted EPS in the range of $0.65 to $0.67, up 7% to 10% year-over-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. Beth Wozniak Thank you, Sara. Key to our success has been our people and our culture and making nVent 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 time last year, we were recognized as one of the world's most ethical companies by Ethisphere. We also earned a silver sustainability rating from EcoVadis, 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 nVent 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 nVent 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. Operator (Operator Instructions) Our first question comes from Joe Ritchie of Goldman Sachs. Joseph Ritchie So maybe why don't we just start off with just the organic growth expectations? So a little bit of a slower start to the year on that 0% to 2% but then ultimately accelerating as the year progresses. I know the comps certainly get easier. But Beth, maybe you can just kind of walk us through your expectations, and I'm particularly interested in looking at slide 6 on the industrial and commercial businesses and what you're seeing in those businesses today that gives you confidence that you will see organic growth accelerate as the year progresses. Beth Wozniak Okay. Thank you, Joe, for the question. So you are correct. Last year, our strongest quarter was Q1 so we're lapping 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 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, and 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're seeing that pervasive across many different industrial applications and verticals. So it's 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've always talked about. We're a little later in the cycle, but we believe those, we start to see momentum there. And we expect commercial resi to improve over the course of the year. Joseph Ritchie That's helpful. I should have clarified also, just in terms of pricing for the year as well, what's embedded in your assumption? Beth Wozniak Yes. Joe, I would say, late 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. Joseph Ritchie Okay, great. And then just one last one. Slide 8, love the breakout of the core technology platforms. Also great that you're in a position now to be very front-footed with capital deployment. So as you're 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? Beth Wozniak Yes. So the slide 8 was meant to be a look at how we're 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're 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 verticals. And so we're going to continue to be applying discipline within that framework. Operator The next question comes from Julian Mitchell of Barclays. Julian Mitchell 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 flattish for the year as a whole. Wanted to check if that was roughly correct. And any main divergences between the margin performance year-on-year of the two segments that we should be aware of? Sara Zawoyski 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 of 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 to 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 so 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 Trachte. We do expect with beginning to lap that in 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. Julian Mitchell That's helpful. 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 6, 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 strength in Q4 was in non-infrastructure verticals. Beth Wozniak Yes. 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 over the -- 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 it's -- things start to progress. Some of it's a comp in Q1, but given backlogs and infrastructure and given momentum in projects that we're working on, we generally see things improving over the course of the year. Operator The next question comes from Deane Dray of RBC Capital Markets. Deane Dray I have a question broadly about potential implications from DeepSeek 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. Beth Wozniak Okay. Deane, thank you for the question. I think maybe the first thing I'll start with is recall, 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 trying to get 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. Deane Dray 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 add 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? Beth Wozniak So Deane, I would say this, we're continuing that expansion because remember, when we [4x] 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. Operator The next question comes from Nicole DeBlase of Deutsche Bank. Nicole DeBlase Maybe just starting with a little bit more color around what you saw with respect to 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? Beth Wozniak Well, I think as we progressed 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 sell-out has been positive, I think we'll start to see improvements as we go through this year. Nicole DeBlase Okay, got it. And then with respect to tariffs, 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? Beth Wozniak 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 on 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. Operator Our next question comes from Jeff Sprague of Vertical Research. Jeffrey Sprague I was wondering if we could dig a little bit more into the order commentary up low 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? Beth Wozniak 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 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. Jeffrey Sprague And then just thinking about maybe a little bit of a 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? Beth Wozniak 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 expect to see some positive growth and we're just slightly negative to flat. And so that really was the impact that we saw in the quarter. Jeffrey Sprague Okay. And then just maybe one last one for me on price. So a little bit negative again here in Q4 but you're expecting it to go positive. 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? Sara Zawoyski Yes. 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 ROS 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 ROS 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 customarily 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. Operator The next question comes from Nigel Coe of Wolfe Research. Nigel Coe 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 I 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. Beth Wozniak Well, as you look at our Q4 performance, certainly, infrastructure was a big driver of our growth. So that -- 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 & Fastening 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. Nigel Coe 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 double clicking to Trachte because it feels like -- well, certainly, the contribution to 4Q from acquisitions was a bit better. So I'm just wondering, I know Trachte isn't organic until the second half of the year, but maybe just double click into what you're seeing in Trachte in terms of growth for 2025, and perhaps just talk about some of the verticals where you're seeing that growth. Beth Wozniak All right. So as we often like to say, Trachte is a new growth platform for us with control 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 various opportunities for us to expand the control buildings platform. So we're seeing -- we see good momentum in this platform and think it will be a strong contributor and driver to us in that broader infrastructure vertical. Operator The next question comes from Jeff Hammond of KeyBanc. Jeffrey Hammond Just on the liquid cooling business, a lot of dynamic movement there and a lot of new entrants. So I'm just wondering, as you look near term, what are you seeing in terms of win rates, pricing in the backlog? And any kind of early traction from this NVIDIA collaboration you announced? Beth Wozniak 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 -- 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 the launch of several new product offerings, which I think we expand our solutions and application 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 I think we have very strong momentum going into 2025. Jeffrey Hammond Okay. That's helpful, Beth. Just maybe back to capital allocation, just talk about actionability 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? Beth Wozniak Well, let me first start on our acquisition pipeline. 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 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 we believe, as a priority for capital allocation, the 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 Sara to talk about buybacks. Sara Zawoyski Yes. I would just say our outlook that we provided this morning really as a baseline reflects two things: one, an expectation of share buybacks. Roughly $200 million, which aligns to that guidance of 166 million shares versus our 168 million in 2024. And then just for modeling purposes, the guidance reflects that lower interest related to the interest earned on the proceeds as well as the paydown of Trachte acquisition debt in part. So I think the important thing to point out is that if you just fold in the net proceeds of about $1.4 billion with our 2024 EBITDA and our net debt, we are sitting at less than 1x in terms of our net debt to EBITDA leverage. So it just emphasizes the point that we have ample capacity to go and deploy capital in 2025 and create that shareholder return and that value creation. Operator The next question comes from Brian Drab of William Blair. Brian Drab I think that you said for power solutions, the expectation is for double-digit growth in 2025. I wonder if you could be any more specific on that and remind us what was the growth for power solutions for the full year '24. Beth Wozniak Yes. On our -- I think on our chart where we talked about growing in infrastructure and just saying that now, power utilities is about 10% of our overall sales, double-digit growth is being driven by -- and certainly, the Trachte 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 utilities segment growing as well supported by our backlog. Brian Drab Okay. I guess, for data -- I guess, I should call it data solutions, that 20% of sales was up how much in '24? And I'm just wondering, like can you say that double digit? Or I assume you're not thinking like 10% or 11% there. How will that proceed? Beth Wozniak Okay. So we did say that for data solutions that we grew 30% last year and we're expecting double-digit growth again in 2025. Brian Drab Okay. I'm trying to get you -- get a sense of if we're going to continue better than 20% or not but I won't press you further, I guess, on that. And on Trachte, just to put a finer point on the contribution from growth and potential contribution. I mean, this is probably, what, about a $300 million revenue business now that's growing very strong double digits. It seems like this is a business that could contribute even, I don't know, 150 basis points or 2 points to the organic revenue growth in the second half of the year. Am I on the right track thinking of it that way? Sara Zawoyski Well, maybe just to frame it, we had said coming into 2024 there that it's roughly a $250 million business. So you can imply that 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 9 points, it contributed 10 points to growth. So we do expect that power utilities and data centers as part of that Trachte business to continue to be part of that infrastructure vertical that Beth outlined and contribute 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. 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 Trachte backlog folding in, but it's also that year-over-year Trachte 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. Brian Drab Yes, this 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 bps of growth in the second half of the year. And 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 the acceleration of organic revenue growth feels material. So I'll follow up more later though. Beth Wozniak Yes, it's a great growth platform for us, and we're very excited about the broad applications and opportunities that we have there. So off to a great start. Operator The next question comes from Vlad Bystricky of Citigroup. Vladimir Bystricky So maybe just a couple of quick questions from me, one on the capital deployment front. I think the slide you shared, slide 8, on the core technology platforms is helpful and very interesting. I guess as I think about incremental capital deployment versus those six core technology platforms, are there particular areas that stand out where you see more potential for M&A or more actionability to layer on to those core platforms through M&A? Beth Wozniak Well, I think the answer to that is yes. And I think -- 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 overlay together, we think that there's a lot of momentum that we can get from that flywheel. Vladimir Bystricky Got it. That's helpful, Beth. And then I guess, just obviously, a lot of focus on liquid cooling and what you're seeing there. Can we just talk about your visibility to the timing of deliveries and whether you're seeing any material movements from customers in terms of when they want liquid cooling product as they continue to refine their designs and approaches to thermal management? Beth Wozniak No, 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 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 supports that and the continued growth that we're seeing here. Operator Our next question comes from Scott Graham of Seaport. Scott Graham I wanted to maybe understand sort of your calculation of the EPS impact from Trachte in the first quarter and maybe what's embedded in the '25 guide. Sara Zawoyski So we haven't gotten that specific, Scott, but I think we gave some guardrails, right, initially as we acquired Trachte, right? We said it's roughly a $250 million business and in that kind of 20% plus/minus return on sales. So I think you can do the math. It suggests we've got a bit of carryover here in the first half. And importantly, as we look at just the overall 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. Scott Graham Okay. The second question I had for you was on inflation. Is the fourth quarter inflation number that you provided a decent run rate for '25 quarters? Sara Zawoyski 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 labor being the biggest driver of that overall. Scott Graham Appreciate that. Last question. So you talked about the orders maybe 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? Beth Wozniak So I think if you're referring to timing projects in data solutions or Trachte, 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 from Q1 to Q2. But we've said it's just a slower start to the year, one, because of that comp that we had in Q1 and just how we see these orders lay in. Sara Zawoyski Yes, and maybe 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 nVent level, organic growth of 6%, and we're lapping systems protection growth of 11% in the quarter. So some of it is just timing and comp. Operator 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. Beth Wozniak 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. Operator The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
