Ladies and gentlemen, thank you for standing by, and welcome to the nVent Q4 and Full Year 2019 Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, J.C. Weigelt, Vice President of Investor Relations. Please go ahead. J. C. Weigelt: Thank you, Ted, and welcome, everyone, to nVent's Fourth Quarter and Full Year 2019 Earnings Call. We're glad you could join us. I'm J.C. Weigelt, Vice President of Investor Relations. And with me today are Beth Wozniak, our Chief Executive Officer; and Sara Zawoyski, our Chief Financial Officer. On today's call, we will provide details on our fourth quarter and full year performance as well as our first quarter and full year 2020 outlook. 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 can be found in the Investors section of nVent's website. References to non-GAAP financials are reconciled in the appendix of the presentation. We'll have time for questions after our prepared remarks. And now I will turn the call over to Beth.

Thank you, J.C. Good morning, and thank you for joining us. I would like to begin today's call on Slide 3 of the presentation, summarizing our fourth quarter and full year performance. Overall, we are pleased with the progress we made during the quarter in a difficult macro environment. Every segment expanded margins, and our adjusted EPS of $0.47 grew 4%. We had very strong free cash flow generation in the quarter, well over 100% conversion. And our recent Eldon acquisition is performing ahead of plan. Across events, we are executing well. Notably, we had another solid quarter in Electrical & Fastening Solutions or EFS, with 3% organic growth and 130 basis points of return on sales expansion reflecting operational improvements. While enclosures continue to see a weak industrial vertical, the team performed well and expanded return on sales. The integration of Eldon is progressing with velocity with 2/3 of our detailed integration plans completed. We've held executive meetings with many of our key customers and channel partners and have received a very positive response to our extended product offering and our goal to be the easiest to do business with globally. Eldon sales grew organically in the quarter, and synergies are on track. Finally, Thermal Management organic sales declined 4% during the quarter, with return on sales expanding 80 basis points. We are encouraged by another quarter of order and backlog growth. In total, nVent reported sales of $567 million or flat during the quarter or down 3% organically. The biggest variance to our guidance heading into the quarter was a more pronounced slowdown in December, particularly in the industrial vertical and distribution channels. Turning to Slide 4. I want to share with you how we performed against our 2019 priorities. First, on organic growth. We saw positive growth in our One nVent initiatives, including key verticals, fast growth regions, new products and strategic channel partnerships. However, this was offset by softer demand in the second half of the year due to a number of broader macroeconomic factors. Second, on margin expansion. We expanded return on sales 20 basis points through price and productivity. We improved our operational performance across our segments with higher product availability and improved customer service levels. Lastly, on capital allocation. We completed our first acquisition, paid just under a 3% dividend and bought back approximately 5% of our outstanding shares. We put over $480 million to work over the year with strong cash flow generation and a healthy balance sheet. Turning to Slide 5. At nVent, our mission is to connect and protect. We continue to be excited about the global macro trends that we believe position us well for long-term growth. We see the electrification of everything and increase in safety and security standards globally, and the shortage of skilled labor as trends that increase the demand for our products. With our Enclosures segment, we see our role as providing protection for electronics and data everywhere. We now have one of the broadest portfolios in the world with both NEMA and IEC certified enclosures. We can design, manufacture and distribute products globally. We've extended our global footprint with the state-of-the-art manufacturing facility in Romania and a new manufacturing facility in India. We can provide customers with solutions from data centers to explosion-proof enclosures to highly regulated food and beverage environments to the build-out of 5G and more. Our vertical focus in data centers and networking solutions, commercial and rail land transit is driving growth, and we expect to build this vertical focus more broadly across this portfolio. Thermal Management connects and protects to optimize total cost of ownership and to deliver safety and security for people and infrastructure. Our new RAYCHEM ELEXANT smart controls platform provides advanced heat tracing control and monitoring in industrial and commercial applications. Our thermal business has the largest installed base in the world that provides us with MRO opportunities, and our connected solutions are trusted to protect infrastructure in some of the most demanding environments. EFS connects and protects with trusted and innovative solutions that are cost efficient and provide labor savings. We are accelerating our new product development efforts and expect to launch about 20 new products in EFS this year that build upon an already innovative portfolio. Some of the more recent additions include seismic and prefab solutions that are expected to grow at attractive double-digit rates this year. Putting all this together, our One nVent initiatives and our Spark management system allow us to scale these efforts, all while delivering our solutions with trusted brand names to customers around the world. To summarize, we believe long-term macro trends are in our favor. We have strengthened our position in 2019 with the acquisition of Eldon and investments in R&D, digital and people. I am pleased with the way our segments executed in a more challenging environment. With that, I will turn the call over to Sara for more detail on the fourth quarter and full year results and 2020 outlook. Sara, please go ahead.

Thank you, Beth. Let's turn to Slide 6 titled fourth quarter 2019 nVent performance. Sales of $567 million were flat relative to last year on a reported basis and declined approximately 3% organically. Notably, all segments expanded return on sales as price plus productivity more than offset inflation and investment spending. We realized the $25 million in productivity and cost actions we had planned in the second half and pricing was up over 1 point. All in, segment income for the quarter was $109 million, up modestly as we expanded return on sales 10 basis points despite lower sales. Adjusted earnings per share was $0.47 in the quarter, up 4% versus prior year. This exceeded our previously guided range of $0.42 to $0.46, reflecting, in part, a lower-than-expected tax rate. We generated strong free cash flow of approximately $170 million in the quarter, positioning us well going into 2020. Looking at the full year on Slide 7. Sales of $2.2 billion were flat relative to 2018 on both a reported and organic basis and at the lower end of our guidance range. Return on sales expanded 20 basis points as price and productivity more than offset inflation and investments for the year. We were pleased with our 100% free cash flow conversion and believe we have plenty of runway to improve working capital efficiencies to build upon our track record of strong cash flow generation. Now please turn to Slide 8 for a discussion of our fourth quarter segment performance. Starting with Enclosures. Sales of $256 million grew 2% with the addition of Eldon and declined 6% organically compared to a strong quarter a year ago. As we expected, the industrial vertical was slow during the quarter but with more of a marked drop in December, particularly in our distribution channels. While the macro environment was challenging, we continue to be focused on growing in key verticals and expanding globally. Notably, Eldon grew in the quarter despite broader headwinds in the Eurozone and continues to be an important part of our growth strategy. We also saw growth in our One nVent and vertical initiatives led by data centers and networking solutions, and we continue to build upon the success of our HOFFMAN on Demand and HOFFMAN Express program. Enclosures segment income grew modestly on lower organic sales with return on sales expansion of 10 basis points. Our team delivered solid price and productivity gains that outpaced inflation, and we continue to actively manage costs to align to the current business condition. Moving to Thermal Management. Sales of $169 million declined approximately 4% organically, mainly reflecting lower project sales. Industrial MRO sales showed modest growth, while commercial sales were down low single digits. Importantly, order and backlog continued to grow versus prior year. With backlog up strong double digits, we believe this business can return to growth in 2020. And importantly, return on sales expanded 80 basis points as the team executed on cost actions and realized 1 point of contribution from price. Now on to EFS, which had a strong finish to the year. Sales of $142 million grew 3% organically, with positive contributions from both price and volume. This, combined with the productivity gains, translated to a strong return on sales expansion of 130 basis points. This is the second quarter in a row with strong return on sales expansion, resulting in 7% segment income growth in the second half. Turning to Slide 9. I would like to make some comments on our full year 2019 segment performance. Beginning with Enclosures, sales were up 1% on a reported basis and flat organically versus a year ago, and return on sales expanded 40 basis points. While we saw softer industrial demand in the second half, we continue to focus on diversification and higher growth verticals like commercial and data centers and networking solutions. We extended our global reach and product offerings with the Eldon acquisition. Importantly, Enclosures made a marked improvement in operational performance and expanded return on sales while investing in global growth. Switching to Thermal. Sales for the year of $591 million were down almost 3% organically versus last year. We were encouraged by the order and backlog growth during the year, which we believe positions us well for 2020, and we made investments in R&D to drive future growth. At the same time, the team executed cost actions to align the business conditions, with return on sales contracting only 10 basis points. EFS finished the year strong with 3% organic growth for the full year and more than 100 basis points of return on sales expansion in the second half. We have improved return on sales and product availability while investing in R&D with an exciting new product launch calendar in 2020. Turning to Slide 10, titled balance sheet and cash flow. For the year, we generated over $300 million in free cash flow, delivering on our target of 100% conversion of adjusted net income to cash. We completed our first acquisition and returned over $350 million back to shareholders in the form of share repurchases and dividends. We finished the year with a 2.1x net debt-to-EBITDA ratio and a strong balance sheet. Our capital allocation strategy continues to be: maintain investment-grade metrics, invest in our core businesses, look for attractive bolt-on acquisitions and return cash to shareholders. We expect to continue to drive the same rigor and focus in 2020 on growth, protecting margins, cash generation and capital deployment. So moving to Slide 11, titled full year 2020 nVent outlook. We are introducing full year guidance and forecasting reported sales to be flat to up 5%. This includes organic sales in the range of down 2% to up 2%, a currency impact of approximately flat to down 1% and an acquisition contribution of approximately 3%. Breaking this down into segment level. Enclosures sales are expected to be up 3% to 7% on a reported basis, including an approximate 6% contribution from the Eldon acquisition. While we expect the trend of a weak industrial vertical to continue in the first half and specifically Q1, we expect our initiatives in key verticals and geographies to help offset some of the softness. In Thermal Management, we expect sales to be down 1% to up 3% organically. Sales growth is expected to be weighted towards the back half of the year as the order book begins to read out. We made great strides last year expanding our coverage with global channel partners. And internationally, we have invested in the localization of products and expect this to fuel global growth this year. Turning to EFS. We expect organic sales to be flat to up 3%. While the macroeconomic indicators are pointing to growth moderating, we have a strong product launch calendar, and we are expanding sales coverage in Europe and the Middle East to drive growth. For nVent overall, return on sales is expected to be flat to up 30 basis points. We are targeting price plus productivity to more than offset inflation and investments. Corporate costs are expected to be approximately $55 million. And as we've discussed, we expect $10 million to $15 million of cost out carryover from our 2019 actions to help offset softer demand, inflation and help fund growth investments. And we will continue to execute cost actions to align the business conditions to help protect return on sales. Our adjusted EPS guidance for the year is $1.85 to $1.95, representing year-over-year growth of 4% to 10%. A couple items to note here. Eldon is expected to add approximately $0.03 to adjusted EPS and our repurchase activity in 2019 is expected to result in an approximate $0.02 tailwind this year. So turning to Slide 12 and our first quarter guidance. We expect sales to be down 1% to up 1% or a decrease of 4% to 2% organically. We anticipate the softness from the fourth quarter to linger within the industrial vertical, and we are taking additional cost actions. While Thermal Management is expected to grow full year, we still expect projects to be down in the first quarter. EFS sales are expected to continue to grow in line with recent quarters. Overall, EPS is expected to be flat to prior year at the midpoint. This concludes my comments on guidance, and I will turn the call back over to Beth to provide some more detail on our growth initiatives and additional priorities in 2020.

Thank you, Sara. Turning to Slide 13. I would like to walk you through our top priorities for 2020, beginning with organic growth. We continue to demonstrate with our One nVent initiatives that where we focus, we win, and we want to accelerate and expand these initiatives in 2020. As an example, we've expanded our commercial initiative to cover more territories in North America. We continue to expect growth in data centers and networking solutions as we expand globally and strengthen our portfolio of innovative products for hyperscale, edge and on-site solutions. We also see opportunities for growth outside of North America. India is a great example. We opened up a new manufacturing facility last year in Bangalore and have seen strong demand for our products. One of our biggest opportunities to grow globally continues to be Eldon with its strong portfolio of IEC products. Lastly, we expect to introduce a record 50 new products this year across all segments with a strong start to the year. In 2019, our new product vitality score improved 1 point, and we plan to continue this momentum in 2020. Our next priority focuses on improving our financial performance. We are looking at streamlining end-to-end processes with our lean enterprise focus and digital efforts. We expect this to help expand margins and drive working capital improvements. We continue to look for ways to build, market and sell products more efficiently and improve the customer experience along this journey. We expect these productivity gains plus price can lead to margin expansion. Specifically on working capital, we see opportunity to reduce inventory while continuing to improve velocity and customer service levels as well as harmonize terms and programs with our One nVent approach. On capital allocation, we were active in 2019 and expect that to continue this year with our healthy balance sheet. Our capital allocation strategy remains consistent, focusing on growth and returning cash to shareholders seeking the best return. Looking ahead, our strategy remains sound, and we have plans to accelerate and expand many of the initiatives we started before spend to drive growth at nVent. We are committed to making nVent a top-tier performance company. With that, I will now turn the call over to the operator to start Q&A.

[Operator Instructions]. Deane Dray with RBC Capital Markets.

Maybe we can start with the macro in Enclosures and the fall off they saw in December. Can you give us a sense, is this the same short-cycle industrial weakness that has persisted throughout 2019? So in the fourth quarter, comment on the distributors, is that destocking or was the sell-through actually weak as well? So maybe if we can start there. And any comments about January would be helpful, too.

Okay. So yes, I mean, we saw in December that I think distributors just wanted to manage their inventory positions and so orders were very soft. And I think we saw that as the start to January. And we shared with you before that our Enclosures business is always one that when we go through these cycles, always has a more pronounced destocking and then restocking effort. That combined with just overall global industrial weakness, those are the 2 things that really saw us -- that drop, particularly in December. And I would make a point too. When you look at a year ago, we did have some tough comps. So remember, Enclosures in the end of 2018 grew about 9%. So I think what we're seeing is consistent with patterns that we've seen in the past.

That's really helpful. And then any initial comments on exposure to China? I think it's about 5% of sales, but also supply chain risk. You have dual suppliers. Just how prepared are you for any choppiness there?

So as we've shared previously, when we commented on tariffs, our total procurement spend out of China is only $25 million. So from that standpoint, it's a lower impact for us based on supply chain and based on sales in China. Our first priority, Deane, of course, is to make sure that we're taking care of our employees. We do know that the government over there has extended the shutdown period by about a week. I think it's still too early for us to tell, but we're evaluating it on a daily basis.

Okay. That's helpful. And then for my follow-up, I'd love to hear from Sara a bit more around the working capital improvements that you're targeting for 2020. I heard Beth say that inventory is one of the focus, but if you could be a little bit more specific in terms of as a percent of working capital, as a percent of sales and some places where you're targeting improvements. That would be helpful.

Yes. So thanks, Deane. So working capital as a percentage of sales is a real focus for us. Overall, just strong free cash flow generation has been a hallmark of nVent. But as we look at our working capital today at sitting north of 20% of sales and as we benchmark that and look at our entitlement, we think over time, we're targeting in that kind of high-teens range. We see the biggest opportunity being inventory. I mean, today, we sit at days of inventory on hand, north of 75 days. That's a key focus for us. And specifically, in 2020, we're targeting over 1 point of working capital improvement as a percentage of sales. Specifically on the inventory side of things, we're looking at it, as you might expect, from the factory and the operational side, looking at [indiscernible], looking at lead time of our supply base. But more importantly, we're also looking at it more broadly even within the commercial side, looking at vendor-managed inventory and just leveraging our overall strength of our distribution channel with the HOFFMAN on Demand and the HOFFMAN Express programs as well. So inventory is our biggest focus, but at the same time, we're also looking at the other working capital elements as well as we look just to harmonize against our One nVent terms and programs across the 3 segments.

And just can you clarify, will that improvement be linear for 2020? Or do you think the readout on those initiatives will be more second half weighted?

I would say, overall, it's probably going to be more in the second half. And this is a journey that we're on to really drive to working capital excellence. At the same time, we've got teams right out of the gate here, working our plans and driving it hard.

That's really helpful. I should have prefaced that question with your free cash flow target right on the nose. So we'd always like more, but that's good to see you hitting the target.

Joe Ritchie with Goldman Sachs.

So maybe just kind of starting off on Thermal. So really nice to see the order and backlog improvement. I think this has been going on now for a couple of quarters, but it hasn't translated into growth yet. They're most still down this quarter. I guess, maybe talk a little bit about how you see that backlog translating into growth in 2020? And if you could just give us a flavor for the types of projects or works that you're doing in Thermal that's going into backlog? That would be helpful.

Okay. So as we look at the projects and the order backlog, we see that translating into growth in the second half. And we shared with you last year, that's everything from a large LNG win that we had over in Europe to petrochem activity to some pipelines that we're working on. So I mean, I think it's fairly broad. So we're very encouraged by what we see with orders and backlog up significantly when we look at it year-over-year, but it is going to translate more into the second half when we see those projects being executed.

Okay. Fair enough. I appreciate that, Beth. And then, I guess, look, it's nice to see the improvement also in EFS now a couple of quarters of the margin improvement. So an update on just how that facility is going, the productivity improvements there? And I think I heard in your prepared comments that you're looking to expand into different regions. Is that going to be produced outside of the U.S.? Or do you have localized manufacturing to help with the expansion plans?

Yes. So let me take the first part of that question with -- as we commented all year, our first requirement in EFS was to ensure that we had product availability because, as you know, we were challenged in 2018. So all of the things that we put in place, starting with building a stronger team, adding some capacity with respect to some capital investments and bringing that online, looking at our supply base, looking at operational improvements, applying lean enterprise, we just continue to see that progress occurring quarter-over-quarter, and we believe we're in a good position to sustain it and still have opportunity to do even better. And we've shared this many times that EFS being the most newly acquired part of our business, there is a lot of end-to-end process work that we can do. The second part of your question was around globalizing EFS, and it is our most North American-centric business of the 3 segments. We do have manufacturing capability in Europe. And as we look to expand more in Europe and the Middle East, it's a combination of us having some products distributed and some other products doing late assembly over in Europe as well as some products that, if it makes sense for us just based on scale and manufacturing efficiencies, will continue to come from North America. So it's a little bit of both. I think over time, our strategy generally is to be in region, localizing our supply chain, but that's a journey as well.

Jeff Sprague with Vertical Research Partners.

First, just a follow-up on EFS, if I could. I was wondering if you could just give us a little bit more detail on volume there. You did slip slightly positive in Q3. This Q4 similar. And it does feel like maybe you've outgrown the market a little bit the last couple of quarters, but do you think there's some kind of channel refill kind of driving that kind of given the maybe lack of product availability you had earlier in the year?

Well, this is -- okay, great question. And let me share some views on that. We had about 1 point of volume in fourth quarter. And I do think we started to get some momentum as we started to have better product availability. But I would say this. Our EFS business has really been around driving cost efficient and labor-saving solutions. So as we go forward and expect to launch all these new products with a strong start to the year, we believe that's going to continue to drive our growth as we go forward. I would say this, much like Enclosures that distribution channel weakness in December, we saw that also in EFS as well. And so I think part of that is looking at Q1 and saying, a little bit slower start. But we're very positive on EFS and the trends that we're going to see for the year, especially with all the new products and having the ability to now execute and deliver in a much more efficient way.

And then just on Thermal, everyone's understandably looking at kind of the later cycle energy stuff with some positive anticipation here, but kind of commercial keeps popping up every other quarter or so as maybe a little squishy. Can you comment on what is going on in that part of the business? And do you have any visibility here in the early part of the year on commercial?

Yes. So our commercial business has a couple of different elements to it that we've discussed. We have our under floor heating business, which has been steadily improving. And in fact, we're expanding our channels and just announced a partnership that takes us more into the tile area, just the electrical area. Our heat trace business has continued to grow. And where we've just seen some lumpiness, if you like, is in some of our fire-rated wiring business because that tends to be more aligned to some commercial projects. So we expect over the year that as we continue to expand our channel partnerships that we're going to see that commercial business in line with what we see in EFS, for example. But we just had some lumpiness. But a lot of momentum with the initiatives that we're driving.

And if I could just squeak in one more, you did mention kind of dealing with inflation and productivity, but you should have some materials cost deflation going on, I would think, in 2020. What's your view on that? And how do you see that playing out?

Yes. So overall inflation for Q4, just if you look at our net productivity walk, was roughly $11 million. And we believe that's a good run rate going into 2020. So that does reflect a marked improvement in inflation year-over-year. Just overall, we continue to expect wage inflation. We do see some easing on the material side, and we do expect some impact from a tariff perspective, but it's small. It's roughly $2 million, and that has to do with what Beth talked about earlier, just a more local-for-local strategy and a relatively small amount of China imports. So we -- overall, we are expecting material inflation to ease going into 2020.

Jeff Hammond with KeyBanc Capital Markets.

Just, Beth, I think you mentioned Eldon exceeding expectation. Can you just talk about where you're finding the upside surprise? And as you kind of integrate it into the core, what do you think the growth can be in that business?

Great. We're very excited about Eldon. I mean, this was a great acquisition, a perfect complement and so synergistic with what we do. I think what we were very pleased with is the Eurozone is very weak right now and yet the Eldon business continues to grow. And as I mentioned, we're off to a great start in terms of the integration. We've already integrated our sales organizations within Europe, within India, within the Middle East. We've been aligning our product road map. A couple of areas, specifically. We're going to keep driving sales momentum here is, as we looked at the Eldon portfolio, it wasn't as broadly distributed as we are. So we're looking at how we distribute that further. With the broader portfolio between IEC and NEMA, we're out with customers talking about specification position and how we can serve them more globally. So I think we feel that the sales synergy opportunity is very strong for us. And it takes some time. I would share one other point. Recall that our Enclosures business manufactures everywhere around the world. So we're working plans to take the Eldon product into North America, into Asia. So it takes a little bit of time to get our production line set up, but that is going to allow us to distribute that product very efficiently and effectively. So that's one of the things we're really pleased about. And I would just say this. On the cost synergy side, certainly, it's all the things that you typically expect looking at sourcing, looking at back-office operations and just how we align there. And again, those are all things that -- we're in this business. We understand how this business operates. So our ability to execute here and be successful, we have very high confidence.

Okay. Great. And then just back on the Enclosures destocking. Just you mentioned kind of it's sharper destock and then sharper restock. So just where do you -- as you talk to your distributors and you saw the incremental softness in December, where do you think you are in that destock process?

I think we're still going to see a weak Q1, right? And I think part of that is, as they did some destocking at the end of Q4 and then with some of this macro uncertainty, January looked to be soft to us. So I just think in that context, Q1 is going to be softer Enclosures with the global industrial weakness and macro uncertainty.

And then just last one, maybe just talk about what you're seeing in data centers. Some have talked about kind of slowing in hyperscale. And just how you think growth shapes up for that business in 2020?

Yes. So data centers for us, as we started that initiative 2 years ago, has just been growing at a double-digit pace. In our first year and our second year, we think it's going to be mid- to high-single digits. This year, we've got more new products. We really just got started in this. So we're expanding globally as well. I think there -- sometimes there is timing of some different projects. We look to -- I think maybe Q1 for us is a little bit softer there. But for the full year, we have confidence that we're going to continue to perform really well here.

Julian Mitchell with Barclays.

Maybe just starting with Slide 7. So you have the segment margin bridge for 2019. Margins grew about 20 bps last year. You're guiding for a similar increase in 2020. So aside from FX, which is probably very small again this year, how do you see those other three pieces of that bridge being similar or different to the figures for '19 in terms of the margin contribution rather than the dollar amount?

Yes. So I think from a price-cost perspective, we're continuing to expect price to more than offset material inflation. Like I mentioned earlier, our exit Q4 price is roughly 1%. We expect that to continue into 2020, and we've had now several years of good price performance. On the cost side and specifically on the inflation side, we do expect that to ease, as I talked about a bit earlier. Mostly, that's reflecting sort of a more easing material environment, still expecting some of that wage inflation. On the productivity side, we expect another strong year of productivity. So we're pleased with our back half cost out and productivity, delivering $25 million of cross-sell -- cross productivity here in the back half of 2019. That sets us up for a strong start to 2020 with roughly $10 million to $15 million of carryover from those 2019 actions. And as I mentioned earlier, based on the industrial weakness, we're looking at additional cost actions here. On top of that, we've got some good productivity funnels coming into the year based on our operational efficiencies, rigor, focusing on logistics and even some of our just broader end-to-end processes as well. So we look to manage price cost favorably in 2020 and drive to a strong productivity improvement.

I see. So just sort of drawing it to the items, as you called them out on Slide 7, net productivity was minus 70 bps in 2019. You're saying that, that number is a slightly smaller headwind, but still a headwind in 2020, is that fair?

Correct.

And then my second question just around buyback and capital deployment. Just wanted to understand if that share count guidance you have provided for 2020, does that embed some level of share buyback spend this year? Or it's simply a function of the spending in the first half of '19? And then related to that, your year-end leverage was about 2.1x. Should we expect you to maintain that level for the medium term?

So on the buybacks, we had guided to a share count of roughly 169 million to 170 million, and we're exiting Q4 at 170 million shares. So that does assume some buyback in part just to offset natural dilution that we would see in 2020. And from an exit rate, I mean, we're exiting at a 2.5 -- or 2.1 net debt-to-EBITDA ratio. I think that squarely within our targeted range of 2 to 2.5x. So that gives us some good optionality by way of further capital deployment. And you can continue to expect us to take a very balanced approach to capital deployment and focusing on delivering what we believe are the best returns to shareholders.

Robert Barry with Buckingham Research.

I just actually wanted to get a little more color on Enclosures in the margin there. Even though the sales was down quite a lot, you held the margin. Actually, it grew a little bit. I was just curious what the dynamic was there, and if you expect that to continue also in the first quarter?

So from a Q4 perspective, we are very pleased with the Enclosures in the margin performance because we expanded it even with some of the acquisition impact headwind in the quarter. I think that's a function of a couple of things. One, managing on that price cost. They had good price performance in the quarter. We saw some of that material easing, which we would have expected. And the Enclosures' team continues to align their cost structure to what the current business conditions are. I think moving into Q1, we do expect a bit of pressure on the return on sales. In part, we expect that industrial weakness that we saw in Q4 to bleed into Q1. And we're taking additional cost actions accordingly in that industrial space just to align to the current market conditions. But some of those cost actions, we think, are going to read out more so in Q2 and in the back half.

Got it. And Sara, when you mentioned earlier, the $11 million in inflation in 4Q as good run rate going forward, does that imply that just annualizing that about $45 million inflation for the year is what you're expecting? And then kind of...

Sure. Yes, that's...

Quarter how much...

Yes, that's correct. Yes, taking that $11 million in annualizing that. I would say, with probably a little bit lighter in the first half versus the second half. But overall, pretty ratably over the year.

Got it. And then, I guess, just lastly on EFS. I guess, the guide flat to 3% or so, 1.5% to the midpoint. What's the expectation there for the -- just the dynamics? Are you assuming the end market is flat to down slightly, and you're outgrowing and you're getting a point of price that's for all segments, but it implies that the volume would be really quite modest? Just curious the moving piece there.

Yes. I think with EFS, we -- and what we have seen is the commercial -- overall commercial vertical has moderated. We expect it still to grow. So I mean, that's really how we ranged it. As we always expect to get a point of price and get at least -- try and get at least 1 point of volume or be better than what that overall vertical growth rate is. And I think the key thing, as we mentioned, we're in better shape than we've ever been before, given our product availability. We had all those operational efficiencies. That with new products, which has always been how EFS has been, it's the hallmark of that business. We feel that there's lots of opportunity for us here to grow, and we'll see what the market does. But that's how we looked at that guidance range.

Justin Bergner with G. Research.

Just a couple of cleanup questions. Most of my questions have been answered. With respect to the China sourcing, it's obviously very small for nVent. Is it larger for any of your competitors such that you may actually be seeing a strategic advantage from any disruptions over there?

No. I think that's very hard for us to gauge. I mean, we have so many different -- we're in a very fragmented space. We've shared this many times. So there's a lot of different players. I think there's some that are more local. There's some that certainly would be importing in from China. I think, for us, regardless, we're just trying to build -- as we've talked about, that's one of our initiatives, building those strategic channel relationships. Second, we're focused a lot on velocity and product availability. So all the things that we're doing is to make sure that we're supporting our channels with digital, with velocity, with new products. And I think those are the elements for us that are going to position us well for growth.

Okay, understood. You mentioned new products in EFS, I think it was 20 new products. And I think you mentioned another number for new products, maybe that was for the overall business of around 50?

Yes. Correct.

How do those numbers compare to sort of 2019 and 2018, just to understand sort of the general cadence there?

Yes, significantly more. And as we shared as we launched nVent, we said this is an area for us that we wanted to continue to invest more in R&D, and we wanted to take a look at from what were the opportunities where we really could scale what we do and differentiate. So this has been an area for focus. Not only are we looking at launching more new products that will scale that are highly differentiated, but we're also looking at our velocity in that process. And so that's one of the other things that you're seeing is as we've worked to reduce cycle time in new product development, we're able to get more products launched faster as well. So this is a step up. And one of the ways that we measure that is our new product vitality, which is our revenue from new products developed over the last 5 years. That improved 1 point last year. We're mid-teens, and it's improving another point again this year. And so that's our measure of the effectiveness here.

Okay. Great. And then maybe lastly, are you seeing anything interesting on the M&A front? Or are you sort of going to take a pause, given all the macro and political uncertainty in the coming quarters?

From an M&A standpoint, we've been very active with our pipeline. And I think we look at Enclosures and EFS, where it's a very fragmented space that there's lots of opportunity for us to do bolt-on M&A. We have some discipline around our ability to execute. That's one of the things that we look at or our segments and the ability to execute because we want to be very successful on it, just like Eldon being our first deal. And so as we think about our capital allocation strategy, certainly, we're prioritizing some growth. And if the opportunity is there for us to generate value and a good strategic fit, then we certainly would execute on M&A this year, if it's the right opportunity.

There are no further questions at this time. I would now like to turn the call back over to the presenters for closing remarks.

Well, thank you for joining us this morning and your interest in nVent. I'm proud of the way our team closed out 2019. Even though we experienced softer demand in the second half, we executed well to expand margins and deliver strong cash flow, while investing in many initiatives to grow future sales. Growth is a priority for us. And the investment in manufacturing capability, R&D, digital and most importantly, people are key for our future. Combine that with M&A opportunities like Eldon and other bolt-on acquisitions in the highly fragmented space that we play, we believe we can expand our connect and protect portfolio. Prior to spin, we launched our One nVent strategy to help make us a top-tier growth company. And today, we have many examples that show where we focus, we can win. Our customer and channel partners across the globe tell us they see positive changes, but we know we have a lot of opportunity to get even better. We look forward to delivering a successful 2020. I thank you again for your support. And operator, you may now conclude the call.

This concludes today's conference call. We thank you for your participation. You may now disconnect.