nVent(US:NVT)2023-10-27 20:31PART I FINANCIAL INFORMATION This section presents the unaudited financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures for the period Financial Statements (unaudited) The unaudited financial statements for Q3 2023 reflect significant growth in sales and net income, driven by acquisitions, alongside increased assets and debt Condensed Consolidated Statements of Income and Comprehensive Income This statement details the company's revenues, expenses, and net income for the quarter and nine months ended September 30, 2023 Consolidated Income Statement Highlights (in millions, except per-share data) | Metric | Q3 2023 | Q3 2022 | YoY Change | Nine Months 2023 | Nine Months 2022 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Sales | $858.8 | $745.2 | +15.2% | $2,402.4 | $2,167.4 | +10.8% | | Gross Profit | $353.2 | $290.0 | +21.8% | $988.3 | $805.1 | +22.8% | | Operating Income | $156.2 | $120.5 | +29.6% | $427.0 | $315.3 | +35.4% | | Net Income | $105.5 | $93.4 | +13.0% | $312.2 | $241.1 | +29.5% | | Diluted EPS | $0.63 | $0.55 | +14.5% | $1.86 | $1.43 | +30.1% | Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity as of September 30, 2023, highlighting acquisition impacts Consolidated Balance Sheet Highlights (in millions) | Metric | Sep 30, 2023 | Dec 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $113.3 | $297.5 | -62.0% | | Goodwill | $2,559.8 | $2,178.1 | +17.5% | | Intangibles, net | $1,538.4 | $1,066.1 | +44.3% | | Total Assets | $5,925.7 | $4,902.2 | +20.9% | | Long-term debt | $1,831.5 | $1,068.2 | +71.4% | | Total Liabilities | $2,980.6 | $2,170.5 | +37.3% | | Total Equity | $2,945.1 | $2,731.7 | +7.8% | - The significant increases in Goodwill, Intangibles, and Long-term debt are primarily attributable to the acquisition of ECM Industries during 20231337 Condensed Consolidated Statements of Cash Flows This statement summarizes cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2023 Consolidated Cash Flow Highlights (Nine months ended Sep 30, in millions) | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $291.6 | $199.8 | +$91.8 | | Net cash used for investing activities | $(1,144.1) | $(37.4) | -$(1,106.7) | | Net cash provided by financing activities | $672.1 | $1.2 | +$670.9 | - Investing activities in 2023 were dominated by $1.12 billion used for acquisitions, net of cash acquired, which was funded by $800.0 million in proceeds from long-term debt16 Notes to Condensed Consolidated Financial Statements These notes provide detailed information on revenue, significant acquisitions of ECM Industries and TEXA Industries, and the associated financing and debt increases - On May 18, 2023, the company acquired ECM Industries for approximately $1.1 billion in cash, a leading provider of electrical connectors and tools, now part of the Electrical & Fastening Solutions segment37 - On July 10, 2023, the company acquired TEXA Industries, an Italian manufacturer of industrial cooling applications, for approximately $34.8 million in cash, which is part of the Enclosures segment45 - To finance the ECM acquisition, the company issued $500.0 million of 5.650% Senior Notes due 2033 and entered into a new $300.0 million unsecured term loan facility6268 Net Sales by Segment (in millions) | Segment | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Enclosures | $412.7 | $387.7 | $1,203.7 | $1,127.9 | | Electrical & Fastening Solutions | $302.3 | $209.2 | $774.7 | $597.7 | | Thermal Management | $143.8 | $148.3 | $424.0 | $441.8 | | Total | $858.8 | $745.2 | $2,402.4 | $2,167.4 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q3 2023 sales growth driven by acquisitions and pricing, improved gross margins, and the financial impact of recent acquisitions on debt and segment performance Consolidated Results of Operations Consolidated net sales increased 15.2% in Q3 2023, primarily due to acquisitions and pricing, leading to improved gross and operating margins despite volume declines Components of Net Sales Change (vs. Prior Year Period) | Component | Q3 2023 | Nine Months 2023 | | :--- | :--- | :--- | | Volume | (3.4%) | (1.6%) | | Price | 3.6% | 5.7% | | Organic Growth | 0.2% | 4.1% | | Acquisition | 14.0% | 7.1% | | Currency | 1.0% | (0.4%) | | Total | 15.2% | 10.8% | - Gross margin increased by 2.2 percentage points in Q3 and 4.0 percentage points in the first nine months of 2023, primarily due to increased selling prices and productivity improvements, partially offset by inflationary labor costs and $11.8 million of inventory step-up expense in Q3 related to the ECM acquisition100102 - Net interest expense increased significantly to $25.5 million in Q3 2023 from $8.1 million in Q3 2022, mainly due to increased debt from the ECM Industries acquisition and higher variable interest rates95101 Segment Results of Operations Segment results show strong sales growth in Enclosures and Electrical & Fastening Solutions (driven by acquisition), while Thermal Management experienced a sales decline - Enclosures: Q3 sales grew 6.4% (3.7% organic) driven by pricing, with segment income margin increasing by 3.2 percentage points to 21.7% due to pricing and productivity105106107 - Electrical & Fastening Solutions: Q3 sales grew 44.5%, driven by a 47.0% contribution from the ECM acquisition, while organic sales declined 3.7%, with segment income margin increasing by 3.2 percentage points to 32.3% due to pricing and favorable product mix from the acquisition109110113 - Thermal Management: Q3 sales decreased 3.0% (3.4% organic decline) due to a 6.1% volume drop, particularly in commercial & residential, with segment income margin flat at 24.2% as pricing actions offset lower sales volume and cost inflation114115117 Liquidity and Capital Resources The company's liquidity is supported by operating cash flow, with significant cash used for acquisitions funded by increased debt, while maintaining a revolving credit facility Free Cash Flow Reconciliation (Nine months ended Sep 30, in millions) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $291.6 | $199.8 | | Capital expenditures | $(48.9) | $(30.8) | | Proceeds from sale of property and equipment | $7.3 | $2.0 | | Free cash flow | $250.0 | $171.0 | - The company repurchased 0.3 million shares for $13.2 million in the first nine months of 2023, with $127.3 million available for future repurchases under the current authorization expiring in July 2024137138 - As of September 30, 2023, the company had $113.3 million of cash on hand and $600.0 million of borrowing capacity under its Revolving Credit Facility118132 Quantitative and Qualitative Disclosures about Market Risk The company reports no material changes in its market risk during the quarter ended September 30, 2023 - There have been no material changes in market risk during the quarter147 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2023 - The CEO and CFO concluded that disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2023148 - The company is in the process of reviewing and integrating the internal controls and procedures of ECM Industries following its acquisition149 PART II OTHER INFORMATION This section covers legal proceedings, risk factors, equity security purchases, and other relevant disclosures Legal Proceedings There have been no material developments in legal proceedings since the company's 2022 Annual Report on Form 10-K - No material developments have occurred with respect to previously disclosed legal proceedings152 Risk Factors The company has added new risk factors related to the acquisition of ECM Industries, including integration challenges, new liabilities, and increased debt leverage - New risk factors have been introduced related to the ECM Industries acquisition, including153 - Integration Risk: Challenges in integrating ECM's operations could adversely affect financial results and delay or prevent the realization of expected synergies154 - New Risks and Liabilities: The acquisition exposes the company to potential undisclosed liabilities and other risks that could be more costly than anticipated155 - Increased Leverage: A material increase in total debt to $1.9 billion as of September 30, 2023, may harm financial condition by increasing cash requirements for interest payments and reducing financial flexibility156 Issuer Purchases of Equity Securities During the third quarter of 2023, the company repurchased a total of 6,552 ordinary shares, including those surrendered by employees for tax obligations Share Repurchases in Q3 2023 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 1 - July 29, 2023 | 2,538 | $53.88 | | July 30 - August 26, 2023 | 3,069 | $54.67 | | August 27 - September 30, 2023 | 945 | $55.57 | | Total | 6,552 | N/A | - As of September 30, 2023, the company had $127.3 million available for share repurchases under the 2021 Authorization, which expires on July 22, 2024162 Other Information During the third quarter of 2023, no directors or Section 16 officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No directors or Section 16 officers adopted or terminated any Rule 10b5-1 trading arrangements during Q3 2023163 Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including CEO and CFO certifications and iXBRL data files