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nVent(NVT) - 2022 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations ITEM 1. Financial Statements (unaudited) This section presents unaudited condensed consolidated financial statements, including income, balance sheets, cash flows, and equity changes, with detailed notes Condensed Consolidated Statements of Income and Comprehensive Income This section presents the condensed consolidated statements of income and comprehensive income for the three and six months ended June 30, 2022 and 2021 Three Months Ended June 30, 2022 vs 2021: | Metric | 2022 (Millions USD) | 2021 (Millions USD) | Change (Millions USD) | Change (%) | | :-------------------------------- | :-------------- | :-------------- | :---------- | :--------- | | Net sales | $727.5 | $601.3 | $126.2 | 21.0% | | Gross profit | $267.8 | $235.2 | $32.6 | 13.9% | | Operating income | $104.7 | $88.3 | $16.4 | 18.6% | | Net income | $79.9 | $66.2 | $13.7 | 20.7% | | Basic EPS (USD) | $0.48 | $0.39 | $0.09 | 23.1% | | Diluted EPS (USD) | $0.48 | $0.39 | $0.09 | 23.1% | | Comprehensive income | $74.4 | $59.7 | $14.7 | 24.6% | Six Months Ended June 30, 2022 vs 2021: | Metric | 2022 (Millions USD) | 2021 (Millions USD) | Change (Millions USD) | Change (%) | | :-------------------------------- | :-------------- | :-------------- | :---------- | :--------- | | Net sales | $1,422.2 | $1,150.2 | $272.0 | 23.6% | | Gross profit | $515.1 | $444.2 | $70.9 | 16.0% | | Operating income | $194.8 | $168.7 | $26.1 | 15.5% | | Net income | $147.7 | $131.6 | $16.1 | 12.2% | | Basic EPS (USD) | $0.89 | $0.78 | $0.11 | 14.1% | | Diluted EPS (USD) | $0.88 | $0.78 | $0.10 | 12.8% | | Comprehensive income | $141.5 | $147.4 | $(5.9) | -4.0% | Condensed Consolidated Balance Sheets This section presents the condensed consolidated balance sheets as of June 30, 2022, and December 31, 2021 As of June 30, 2022 vs December 31, 2021: | Metric | June 30, 2022 (Millions USD) | December 31, 2021 (Millions USD) | Change (Millions USD) | Change (%) | | :----------------------------------- | :----------------------- | :--------------------------- | :---------- | :--------- | | Total current assets | $1,068.3 | $911.5 | $156.8 | 17.2% | | Total assets | $4,765.6 | $4,674.2 | $91.4 | 2.0% | | Total current liabilities | $612.1 | $636.3 | $(24.2) | -3.8% | | Total liabilities | $2,179.6 | $2,178.1 | $1.5 | 0.1% | | Total equity | $2,586.0 | $2,496.1 | $89.9 | 3.6% | Condensed Consolidated Statements of Cash Flows This section presents the condensed consolidated statements of cash flows for the six months ended June 30, 2022 and 2021 Six Months Ended June 30, 2022 vs 2021: | Metric | 2022 (Millions USD) | 2021 (Millions USD) | Change (Millions USD) | | :------------------------------------------ | :-------------- | :-------------- | :---------- | | Net cash provided by (used for) operating activities | $63.9 | $143.3 | $(79.4) | | Net cash provided by (used for) investing activities | $(27.4) | $(250.4) | $223.0 | | Net cash provided by (used for) financing activities | $(19.7) | $86.1 | $(105.8) | | Change in cash and cash equivalents | $6.3 | $(20.7) | $27.0 | | Cash and cash equivalents, end of period | $55.8 | $101.8 | $(46.0) | Condensed Consolidated Statements of Changes in Equity This section presents the condensed consolidated statements of changes in equity for the six months ended June 30, 2022 and 2021 Equity Changes for Six Months Ended June 30, 2022: | Item | Amount (Millions USD) | | :------------------------------------ | :---------------- | | Net income | $147.7 | | Other comprehensive income (loss), net of tax | $(6.2) | | Dividends declared | $(58.3) | | Share repurchases | $(3.9) | | Exercise of options, net of shares tendered | $3.4 | | Shares surrendered by employees to pay taxes | $(4.7) | | Share-based compensation | $11.9 | | Total Equity (June 30, 2022) | $2,586.0 | Equity Changes for Six Months Ended June 30, 2021: | Item | Amount (Millions USD) | | :------------------------------------ | :---------------- | | Net income | $131.6 | | Other comprehensive income (loss), net of tax | $15.8 | | Dividends declared | $(60.0) | | Share repurchases | $(20.0) | | Exercise of options, net of shares tendered | $11.6 | | Shares surrendered by employees to pay taxes | $(2.2) | | Share-based compensation | $6.2 | | Total Equity (June 30, 2021) | $2,492.8 | Notes to Condensed Consolidated Financial Statements This section provides detailed notes to the condensed consolidated financial statements, covering accounting policies, revenue, restructuring, EPS, acquisitions, assets, liabilities, debt, taxes, equity, segments, and contingencies 1. Basis of Presentation and Responsibility for Interim Financial Statements nVent Electric plc, a global provider of electrical connection and protection solutions, presents unaudited interim financial statements, acknowledging COVID-19's uncertain impacts - nVent Electric plc is a leading global provider of electrical connection and protection solutions, with three reporting segments: Enclosures, Electrical & Fastening Solutions, and Thermal Management22 - The COVID-19 pandemic has had and may continue to have an unfavorable impact on the business, with uncertain broader implications on results of operations and financial performance, potentially leading to changes in customer demand or constrained supply27 2. Revenue Revenue is disaggregated by geographic location and vertical for three segments, with Q2 2022 net sales of $727.5 million and increases in contract assets and liabilities Net Sales by Geographic Location (Three Months Ended June 30, 2022): | Segment | U.S. and Canada (Millions USD) | Developed Europe (Millions USD) | Developing (Millions USD) | Other Developed (Millions USD) | Total (Millions USD) | | :-------------------------- | :------------------- | :-------------------- | :-------------- | :------------------- | :--------- | | Enclosures | $252.2 | $81.1 | $43.0 | $4.5 | $380.8 | | Electrical & Fastening Solutions | $152.0 | $33.7 | $9.9 | $5.3 | $200.9 | | Thermal Management | $87.7 | $30.7 | $23.5 | $3.9 | $145.8 | | Total | $491.9 | $145.5 | $76.4 | $13.7 | $727.5 | Net Sales by Vertical (Three Months Ended June 30, 2022): | Segment | Industrial (Millions USD) | Commercial & Residential (Millions USD) | Infrastructure (Millions USD) | Energy (Millions USD) | Total (Millions USD) | | :-------------------------- | :-------------- | :---------------------------- | :------------------ | :---------- | :--------- | | Enclosures | $210.6 | $51.3 | $90.7 | $28.2 | $380.8 | | Electrical & Fastening Solutions | $19.7 | $103.3 | $69.8 | $8.1 | $200.9 | | Thermal Management | $68.9 | $48.6 | $5.8 | $22.5 | $145.8 | | Total | $299.2 | $203.2 | $166.3 | $58.8 | $727.5 | Contract Balances (June 30, 2022 vs December 31, 2021): | Metric | June 30, 2022 (Millions USD) | December 31, 2021 (Millions USD) | Change (Millions USD) | Change (%) | | :---------------- | :----------------------- | :--------------------------- | :---------- | :--------- | | Contract assets | $57.4 | $48.9 | $8.5 | 17.4% | | Contract liabilities | $20.6 | $17.8 | $2.8 | 15.7% | | Net contract assets | $36.8 | $31.1 | $5.7 | 18.3% | - The majority of contract liabilities at December 31, 2021, were recognized in revenue during the six months ended June 30, 202232 - Remaining performance obligations for contracts with an original expected length of one year or more totaled $40.3 million as of June 30, 2022, with most expected to be recognized within the next 12 to 18 months33 3. Restructuring Restructuring initiatives continued to reduce fixed costs, with total costs of $4.3 million for H1 2022, primarily from severance Restructuring Costs (Six Months Ended June 30): | Cost Type | 2022 (Millions USD) | 2021 (Millions USD) | | :---------------------- | :-------------- | :-------------- | | Severance and related costs | $3.7 | $2.7 | | Other | $0.6 | $2.4 | | Total restructuring costs | $4.3 | $5.1 | Restructuring Costs by Segment (Six Months Ended June 30): | Segment | 2022 (Millions USD) | 2021 (Millions USD) | | :-------------------------- | :-------------- | :-------------- | | Enclosures | $2.3 | $3.2 | | Electrical & Fastening Solutions | $0.0 | $0.6 | | Thermal Management | $0.1 | $1.3 | | Other | $1.9 | $0.0 | | Total | $4.3 | $5.1 | Accrued Severance and Related Costs (Six Months Ended June 30): | Metric | 2022 (Millions USD) | 2021 (Millions USD) | | :------------------ | :-------------- | :-------------- | | Beginning balance | $2.4 | $6.6 | | Costs incurred | $3.7 | $2.7 | | Cash payments and other | $(3.8) | $(5.4) | | Ending balance | $2.3 | $3.9 | 4. Earnings Per Share Basic and diluted earnings per share increased for both three and six months ended June 30, 2022, driven by higher net income Earnings Per Ordinary Share (Three Months Ended June 30): | Metric | 2022 (USD) | 2021 (USD) | | :-------------------------- | :--- | :--- | | Basic EPS | $0.48 | $0.39 | | Diluted EPS | $0.48 | $0.39 | Earnings Per Ordinary Share (Six Months Ended June 30): | Metric | 2022 (USD) | 2021 (USD) | | :-------------------------- | :--- | :--- | | Basic EPS | $0.89 | $0.78 | | Diluted EPS | $0.88 | $0.78 | Weighted Average Ordinary Shares Outstanding (Millions, Six Months Ended June 30): | Metric | 2022 | 2021 | | :-------------------------- | :--- | :--- | | Basic | 166.3 | 167.8 | | Diluted | 168.2 | 169.2 | 5. Acquisitions In 2021, nVent acquired Vynckier Enclosure Systems for $27.0 million and CIS Global for $202.4 million, integrating both into the Enclosures segment - Acquired Vynckier Enclosure Systems, Inc. on April 1, 2021, for approximately $27.0 million in cash, adding non-metallic enclosures to the Enclosures segment38 - Acquired CIS Global LLC on June 30, 2021, for approximately $202.4 million in cash, enhancing intelligent rack power distribution and server slides products within the Enclosures segment40 - The Vynckier acquisition resulted in $13.5 million in goodwill and $6.1 million in definite-lived customer relationships39 - The CIS Global acquisition resulted in $83.5 million in goodwill, $78.0 million in customer relationships, and $24.5 million in developed technology41 6. Goodwill and Other Identifiable Intangible Assets Total goodwill decreased slightly to $2,178.6 million due to foreign currency translation, while identifiable intangible assets totaled $1,103.8 million Goodwill by Reportable Segment (Millions USD): | Segment | December 31, 2021 | Acquisitions/Divestitures | Foreign Currency Translation/Other | June 30, 2022 | | :-------------------------- | :------------------ | :------------------------ | :------------------------------- | :------------ | | Enclosures | $420.4 | $0.2 | $(8.0) | $412.6 | | Electrical & Fastening Solutions | $1,052.0 | — | — | $1,052.0 | | Thermal Management | $714.3 | — | $(0.3) | $714.0 | | Total goodwill | $2,186.7 | $0.2 | $(8.3) | $2,178.6 | Identifiable Intangible Assets (Millions USD, June 30, 2022): | Asset Type | Cost (Millions USD) | Accumulated Amortization (Millions USD) | Net (Millions USD) | | :------------------------------ | :----- | :----------------------- | :---- | | Customer relationships | $1,290.7 | $(486.8) | $803.9 | | Proprietary technology and patents | $40.2 | $(13.4) | $26.8 | | Total definite-life intangibles | $1,330.9 | $(500.2) | $830.7 | | Trade names (indefinite-life) | $273.1 | — | $273.1 | | Total intangibles | $1,604.0 | $(500.2) | $1,103.8 | Estimated Future Amortization Expense (Millions USD): | Period | Estimated Amortization Expense (Millions USD) | | :-------------------- | :----------------------------- | | Q3-Q4 2022 | $35.4 | | 2023 | $70.5 | | 2024 | $69.9 | | 2025 | $69.9 | | 2026 | $69.9 | | 2027 | $69.9 | 7. Supplemental Balance Sheet Information This section details various balance sheet accounts, including inventories, current and non-current assets, and liabilities, as of June 30, 2022, and December 31, 2021 Inventories (Millions USD): | Category | June 30, 2022 | December 31, 2021 | | :---------------------- | :-------------- | :---------------- | | Raw materials and supplies | $127.5 | $104.5 | | Work-in-process | $37.6 | $33.3 | | Finished goods | $210.3 | $184.1 | | Total inventories | $375.4 | $321.9 | Other Current Assets (Millions USD): | Category | June 30, 2022 | December 31, 2021 | | :---------------------- | :-------------- | :---------------- | | Contract assets | $57.4 | $48.9 | | Prepaid expenses | $62.2 | $49.6 | | Prepaid income taxes | $11.2 | $2.2 | | Cross currency swap assets | $22.1 | — | | Other current assets | $2.7 | $1.3 | | Total other current assets | $155.6 | $102.0 | Property, Plant and Equipment, Net (Millions USD): | Category | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :-------------- | :---------------- | | Land and land improvements | $38.1 | $39.8 | | Buildings and leasehold improvements | $178.6 | $184.5 | | Machinery and equipment | $495.3 | $488.5 | | Construction in progress | $21.2 | $25.5 | | Total property, plant and equipment | $733.2 | $738.3 | | Accumulated depreciation and amortization | $454.0 | $447.2 | | Total property, plant and equipment, net | $279.2 | $291.1 | 8. Derivatives and Financial Instruments nVent uses derivative financial instruments, including foreign currency contracts and cross currency swaps, to manage market risk, with fair value changes recorded in earnings - The company uses foreign currency contracts to mitigate foreign currency exposure for certain assets and liabilities, with most having a maturity of less than one year and changes in fair value recorded in current period earnings49 - Outstanding foreign currency derivative contracts had gross notional U.S. dollar equivalent amounts of $163.1 million at June 30, 2022, down from $180.1 million at December 31, 202150 - Cross currency swap agreements totaled $342.1 million notional amount at June 30, 2022, used as cash flow hedges for intercompany debt and net investment hedges for Euro-U.S. Dollar exchange rate exposure, with deferred foreign currency gains of $16.3 million in Accumulated other comprehensive loss51 Fair Value of Financial Instruments (Millions USD): | Metric | June 30, 2022 (Recorded Amount) | June 30, 2022 (Fair Value) | December 31, 2021 (Recorded Amount) | December 31, 2021 (Fair Value) | | :---------------- | :------------------------------ | :------------------------- | :---------------------------------- | :----------------------------- | | Variable rate debt | $254.2 | $254.2 | $205.5 | $205.5 | | Fixed rate debt | $800.0 | $745.0 | $800.0 | $866.8 | | Total debt | $1,054.2 | $999.2 | $1,005.5 | $1,072.3 | Recurring Fair Value Measurements (Millions USD, June 30, 2022): | Instrument | Level 1 (Millions USD) | Level 2 (Millions USD) | Level 3 (Millions USD) | NAV (Millions USD) | Total (Millions USD) | | :-------------------------- | :------ | :------ | :------ | :---- | :---- | | Cross currency swap assets | — | $29.7 | — | — | $29.7 | | Foreign currency contract liabilities | — | $(1.6) | — | — | $(1.6) | | Foreign currency contract assets | — | $0.7 | — | — | $0.7 | | Deferred compensation plan assets | $11.7 | — | — | $4.7 | $16.4 | | Total | $11.7 | $28.8 | | $4.7 | $45.2 | 9. Debt Total debt increased to $1,048.2 million due to increased borrowings, with the company remaining in compliance with all financial covenants Debt Outstanding (Millions USD): | Debt Type | Average Interest Rate (%) (June 30, 2022) | Maturity Year | June 30, 2022 | December 31, 2021 | | :-------------------------- | :------------------------------------ | :------------ | :-------------- | :---------------- | | Revolving credit facility | 2.608% | 2026 | $157.9 | $106.7 | | Senior notes - fixed rate | 2.750% | 2031 | $300.0 | $300.0 | | Senior notes - fixed rate | 4.550% | 2028 | $500.0 | $500.0 | | Term loan facility | 2.874% | 2026 | $96.3 | $98.8 | | Unamortized debt issuance costs and discounts | N/A | N/A | $(6.0) | $(6.3) | | Total debt | | | $1,048.2 | $999.2 | | Less: Current maturities and short-term borrowings | | | $(5.0) | $(5.0) | | Long-term debt | | | $1,043.2 | $994.2 | - In November 2021, nVent Finance issued $300.0 million of 2.750% senior notes due 2031 and redeemed $300.0 million of 3.950% senior notes due 202357 - As of June 30, 2022, borrowing capacity under the Term Loan Facility was $200.0 million, and under the Revolving Credit Facility was $442.1 million64 - The company was in compliance with all financial covenants in its debt agreements as of June 30, 2022, with no material uncertainty about its ongoing ability to meet those covenants65 Contractual Debt Obligation Maturities (Millions USD, as of June 30, 2022): | Period | Amount (Millions USD) | | :----------- | :----- | | Q3-Q4 2022 | $2.5 | | 2023 | $5.0 | | 2024 | $5.6 | | 2025 | $7.5 | | 2026 | $233.6 | | 2027 | — | | Thereafter | $800.0 | | Total | $1,054.2 | 10. Income Taxes The effective income tax rate increased to 17.2% for H1 2022 from 13.0% in 2021, primarily due to a prior-year one-time tax benefit Effective Income Tax Rate (Six Months Ended June 30): | Year | Effective Tax Rate (%) | | :--- | :----------------- | | 2022 | 17.2% | | 2021 | 13.0% | - The increase in the effective tax rate was primarily due to a $5.2 million discrete tax benefit related to a foreign subsidiary recorded in the first half of 202168 Liability for Uncertain Tax Positions (Millions USD): | Date | Amount (Millions USD) | | :---------------- | :----- | | June 30, 2022 | $13.4 | | December 31, 2021 | $15.6 | 11. Shareholders' Equity The Board authorized a $300.0 million share repurchase program, with $200.0 million remaining available, and declared quarterly cash dividends - A $300.0 million share repurchase authorization (2021 Authorization) began on July 23, 2021, and expires on July 22, 202471 Share Repurchases (Six Months Ended June 30): | Year | Shares Repurchased (Millions) | Value (Millions USD) | | :--- | :---------------------------- | :--------------- | | 2022 | 0.1 | $3.9 | | 2021 | 0.9 | $20.0 | - As of June 30, 2022, $200.0 million remained available for share repurchases under the 2021 Authorization73 - A quarterly cash dividend of $0.175 per ordinary share was declared on May 13, 2022, payable on August 5, 202274 12. Segment Information Segment performance is evaluated by net sales and segment income, with all three segments showing increased sales and income for Q2 2022 Net Sales by Reportable Segment (Millions USD, Three Months Ended June 30): | Segment | 2022 | 2021 | Change (Millions USD) | Change (%) | | :-------------------------- | :--- | :--- | :---------- | :--------- | | Enclosures | $380.8 | $300.4 | $80.4 | 26.8% | | Electrical & Fastening Solutions | $200.9 | $169.2 | $31.7 | 18.7% | | Thermal Management | $145.8 | $131.7 | $14.1 | 10.7% | | Total | $727.5 | $601.3 | $126.2 | 21.0% | Segment Income (Loss) by Reportable Segment (Millions USD, Three Months Ended June 30): | Segment | 2022 | 2021 | Change (Millions USD) | Change (%) | | :-------------------------- | :--- | :--- | :---------- | :--------- | | Enclosures | $61.5 | $53.7 | $7.8 | 14.5% | | Electrical & Fastening Solutions | $58.8 | $48.9 | $9.9 | 20.3% | | Thermal Management | $28.3 | $24.9 | $3.4 | 13.7% | | Other | $(23.4) | $(17.3) | $(6.1) | -35.3% | | Total | $125.2 | $110.2 | $15.0 | 13.6% | Reconciliation of Segment Income to Income Before Income Taxes (Millions USD, Three Months Ended June 30): | Item | 2022 | 2021 | | :------------------------------------ | :--- | :--- | | Segment income | $125.2 | $110.2 | | Intangible amortization | $(17.7) | $(16.0) | | Restructuring and other | $(2.3) | $(4.3) | | Acquisition transaction and integration costs | $(0.5) | $(1.6) | | Net interest expense | $(7.5) | $(8.1) | | Other expense | $(1.2) | $(0.6) | | Income before income taxes | $96.0 | $79.6 | 13. Commitments and Contingencies The company provides product warranties and indemnifications, with historically immaterial payments, and had $38.5 million in outstanding financial guarantees - The company provides service and warranty policies on its products, with liability based on historical claim experience, and the liability for service and product warranties was not material as of June 30, 202280 Outstanding Value of Bonds, Letters of Credit, and Bank Guarantees (Millions USD): | Date | Amount (Millions USD) | | :---------------- | :----- | | June 30, 2022 | $38.5 | | December 31, 2021 | $38.2 | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and results, covering business overview, recent events, key trends, consolidated and segment performance, liquidity, and critical accounting estimates Forward-looking Statements This report contains forward-looking statements subject to various risks and uncertainties, including global economic conditions, supply chain issues, and regulatory changes - The report contains forward-looking statements subject to risks and uncertainties, including the impact of COVID-19, global economic conditions, restructuring, acquisitions, competition, currency volatility, supply chain issues, and regulatory changes83 Overview nVent is a global provider of electrical connection and protection solutions, operating in three segments: Enclosures, Electrical & Fastening Solutions, and Thermal Management - nVent is a global provider of electrical connection and protection solutions, operating in three segments: Enclosures (52% of H1 2022 revenues), Electrical & Fastening Solutions (27%), and Thermal Management (21%)8485 - The Enclosures segment provides solutions for critical control systems, electronics, data, and electrical equipment across various verticals86 - The Electrical & Fastening Solutions segment offers engineered electrical and fastening products for commercial, industrial, infrastructure, and energy verticals86 - The Thermal Management segment provides electric thermal solutions, including heat tracing and floor heating, for industrial, commercial & residential, energy, and infrastructure verticals86 - In 2021, nVent acquired Vynckier Enclosure Systems, Inc. for $27.0 million and CIS Global LLC for $202.4 million, both integrated into the Enclosures segment8788 Recent Events Updates The COVID-19 pandemic continues to cause economic disruption and supply chain challenges, while the company suspended new business activities in Russia - The COVID-19 pandemic continues to cause economic disruption, leading to supply chain challenges, increased lead times, and inflation of raw materials, logistics, and labor costs in 2021 and H1 20228990 - In response to the Russia-Ukraine conflict, nVent suspended new business activities in Russia, noting that its business activity in Russia is not material to operations but an escalation could have an adverse effect9293 Key Trends and Uncertainties Regarding our Existing Business Ongoing uncertainties include the COVID-19 pandemic's impact, supply chain challenges, inflationary costs, and the company's 2022 operating objectives - Ongoing uncertainties include the duration and severity of the COVID-19 pandemic, its impact on demand and supply chains, and governmental regulations94 - Supply chain challenges and inflationary cost increases for raw materials, logistics, and labor are expected to continue throughout 2022, potentially impacting results despite pricing actions and productivity improvements94 - The company's 2022 operating objectives include executing ESG strategy, enhancing employee engagement, achieving differentiated revenue growth through innovation, optimizing technological capabilities, driving operational excellence, optimizing working capital, and deploying capital strategically96 CONSOLIDATED RESULTS OF OPERATIONS Consolidated net sales increased by 21.0% for Q2 2022 and 23.6% for H1 2022, driven by organic growth and acquisitions, despite gross profit margin declines Consolidated Results of Operations (Three Months Ended June 30): | Metric | 2022 (Millions USD) | 2021 (Millions USD) | Change (Millions USD) | Change (%) | | :-------------------------------- | :-------------- | :-------------- | :---------- | :--------- | | Net sales | $727.5 | $601.3 | $126.2 | 21.0% | | Gross profit | $267.8 | $235.2 | $32.6 | 13.9% | | Gross profit % of net sales | 36.8% | 39.1% | | (2.3 pts) | | Operating income | $104.7 | $88.3 | $16.4 | 18.6% | | Operating income % of net sales | 14.4% | 14.7% | | (0.3 pts) | | Net income | $79.9 | $66.2 | $13.7 | 20.7% | Consolidated Results of Operations (Six Months Ended June 30): | Metric | 2022 (Millions USD) | 2021 (Millions USD) | Change (Millions USD) | Change (%) | | :-------------------------------- | :-------------- | :-------------- | :---------- | :--------- | | Net sales | $1,422.2 | $1,150.2 | $272.0 | 23.6% | | Gross profit | $515.1 | $444.2 | $70.9 | 16.0% | | Gross profit % of net sales | 36.2% | 38.6% | | (2.4 pts) | | Operating income | $194.8 | $168.7 | $26.1 | 15.5% | | Operating income % of net sales | 13.7% | 14.7% | | (1.0 pts) | | Net income | $147.7 | $131.6 | $16.1 | 12.2% | Components of Change in Consolidated Net Sales (YoY): | Component | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :---------------- | :------------------------------- | :----------------------------- | | Volume | 8.7% | 10.8% | | Price | 12.3% | 11.9% | | Organic growth | 21.0% | 22.7% | | Acquisition | 3.8% | 4.1% | | Currency | (3.8%) | (3.2%) | | Total | 21.0% | 23.6% | - Net sales increases were driven by organic sales growth across industrial, commercial & residential, and infrastructure businesses, including selling price increases, and contributions from the Vynckier and CIS Global acquisitions, partially offset by unfavorable foreign currency effects99100 - Gross profit as a percentage of net sales decreased by 2.3 and 2.4 percentage points for the three and six months, respectively, primarily due to supply chain challenges, increased lead times, and inflationary increases in raw materials, logistics, and labor costs101 - Selling, general and administrative (SG&A) expense as a percentage of net sales decreased by 2.1 and 1.5 percentage points for the three and six months, respectively, due to increased sales volume leveraging fixed operating expenses and savings from restructuring, partially offset by inflationary increases in labor and professional fees101 - The effective tax rate for the first half of 2022 increased to 17.2% from 13.0% in 2021, primarily due to a $5.2 million one-time tax benefit recorded in 2021102 SEGMENT RESULTS OF OPERATIONS This section details the financial performance of nVent's three segments: Enclosures, Electrical & Fastening Solutions, and Thermal Management, highlighting sales and income changes Enclosures The Enclosures segment saw significant net sales growth for Q2 and H1 2022, driven by organic growth and acquisitions, despite a decline in segment income margin Enclosures Segment Performance (Three Months Ended June 30): | Metric | 2022 (Millions USD) | 2021 (Millions USD) | Change (%) | | :-------------------------- | :-------------- | :-------------- | :--------- | | Net sales | $380.8 | $300.4 | 26.8% | | Segment income | $61.5 | $53.7 | 14.5% | | Segment income % of net sales | 16.2% | 17.9% | (1.7 pts) | Enclosures Segment Performance (Six Months Ended June 30): | Metric | 2022 (Millions USD) | 2021 (Millions USD) | Change (%) | | :-------------------------- | :-------------- | :-------------- | :--------- | | Net sales | $740.2 | $577.4 | 28.2% | | Segment income | $111.8 | $102.5 | 9.1% | | Segment income % of net sales | 15.1% | 17.8% | (2.7 pts) | Components of Change in Enclosures Net Sales (YoY): | Component | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :---------------- | :------------------------------- | :----------------------------- | | Volume | 13.7% | 13.2% | | Price | 9.2% | 9.9% | | Organic growth | 22.9% | 23.1% | | Acquisition | 7.7% | 8.2% | | Currency | (3.8%) | (3.1%) | | Total | 26.8% | 28.2% | - Net sales increases were driven by organic growth in industrial, infrastructure, and commercial & residential businesses, including selling price increases, and contributions from the Vynckier and CIS Global acquisitions, partially offset by unfavorable foreign currency effects108 - The decrease in segment income as a percentage of net sales was primarily due to supply chain challenges and inflationary increases in raw materials, logistics, and labor costs, partially offset by increases in selling prices and higher sales volume107109 Electrical & Fastening Solutions Electrical & Fastening Solutions reported net sales increases for Q2 and H1 2022, driven by organic growth and price increases, with mixed segment income margin performance Electrical & Fastening Solutions Segment Performance (Three Months Ended June 30): | Metric | 2022 (Millions USD) | 2021 (Millions USD) | Change (%) | | :-------------------------- | :-------------- | :-------------- | :--------- | | Net sales | $200.9 | $169.2 | 18.7% | | Segment income | $58.8 | $48.9 | 20.3% | | Segment income % of net sales | 29.3% | 28.9% | 0.4 pts | Electrical & Fastening Solutions Segment Performance (Six Months Ended June 30): | Metric | 2022 (Millions USD) | 2021 (Millions USD) | Change (%) | | :-------------------------- | :-------------- | :-------------- | :--------- | | Net sales | $388.5 | $317.1 | 22.5% | | Segment income | $105.9 | $88.1 | 20.2% | | Segment income % of net sales | 27.3% | 27.8% | (0.5 pts) | Components of Change in Electrical & Fastening Solutions Net Sales (YoY): | Component | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :---------------- | :------------------------------- | :----------------------------- | | Volume | (1.1%) | 3.9% | | Price | 23.0% | 21.3% | | Organic growth | 21.9% | 25.2% | | Currency | (3.2%) | (2.7%) | | Total | 18.7% | 22.5% | - Net sales increases were primarily driven by organic sales growth in commercial & residential and infrastructure businesses, including selective increases in selling prices, partially offset by unfavorable foreign currency effects111 - The 0.4 percentage point increase in segment income as a percentage of net sales for Q2 2022 was primarily due to increases in selling prices to mitigate inflationary cost increases, partially offset by supply chain challenges and inflationary costs112 - The 0.5 percentage point decrease in segment income as a percentage of net sales for H1 2022 was primarily due to supply chain challenges and inflationary increases in raw materials, logistics, and labor costs, partially offset by increases in selling prices and higher sales volume113115 Thermal Management Thermal Management achieved net sales growth for Q2 and H1 2022, driven by organic growth and price increases, with improved segment income margins despite cost pressures Thermal Management Segment Performance (Three Months Ended June 30): | Metric | 2022 (Millions USD) | 2021 (Millions USD) | Change (%) | | :-------------------------- | :-------------- | :-------------- | :--------- | | Net sales | $145.8 | $131.7 | 10.7% | | Segment income | $28.3 | $24.9 | 13.7% | | Segment income % of net sales | 19.4% | 18.9% | 0.5 pts | Thermal Management Segment Performance (Six Months Ended June 30): | Metric | 2022 (Millions USD) | 2021 (Millions USD) | Change (%) | | :-------------------------- | :-------------- | :-------------- | :--------- | | Net sales | $293.5 | $255.7 | 14.8% | | Segment income | $60.7 | $45.9 | 32.2% | | Segment income % of net sales | 20.7% | 18.0% | 2.7 pts | Components of Change in Thermal Management Net Sales (YoY): | Component | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :---------------- | :------------------------------- | :----------------------------- | | Volume | 10.1% | 14.0% | | Price | 5.3% | 4.6% | | Organic growth | 15.4% | 18.6% | | Currency | (4.7%) | (3.8%) | | Total | 10.7% | 14.8% | - Net sales increases were primarily driven by organic sales growth in industrial and commercial & residential businesses, including selective increases in selling prices, partially offset by unfavorable foreign currency effects and a slowdown in capital spending in the energy business114116 - The increase in segment income as a percentage of net sales was primarily due to higher sales volume and increases in selling prices to mitigate inflationary cost increases, partially offset by ongoing supply chain challenges and inflationary costs117118119 LIQUIDITY AND CAPITAL RESOURCES Liquidity is primarily from operations, with cash flows used for working capital, capital expenditures, debt service, and dividends, while maintaining investment-grade metrics - The primary source of liquidity is cash flows from operations, with expected cash requirements for working capital, capital expenditures, debt service, and dividends120 - Net cash provided by operating activities decreased to $63.9 million in H1 2022 from $143.3 million in H1 2021, primarily due to a $153.4 million increase in working capital122 - Net cash used for investing activities was $27.4 million in H1 2022, mainly for capital expenditures of $20.8 million, a significant decrease from $250.4 million in H1 2021 which included $228.7 million for acquisitions123 - Net cash used for financing activities was $19.7 million in H1 2022, primarily due to $58.4 million in dividends paid and $8.5 million in share repurchases, partially offset by $51.2 million in net receipts from the revolving credit facility124 Free Cash Flow (Millions USD, Six Months Ended June 30): | Metric | 2022 | 2021 | | :------------------------------------------ | :--- | :--- | | Net cash provided by (used for) operating activities | $63.9 | $143.3 | | Capital expenditures | $(20.8) | $(17.9) | | Proceeds from sale of property and equipment | $2.0 | $0.1 | | Free cash flow | $45.1 | $125.5 | CRITICAL ACCOUNTING ESTIMATES No material changes have occurred to the critical accounting policies and estimates previously disclosed in the 2021 Annual Report on Form 10-K - There have been no material changes to the critical accounting policies and estimates previously disclosed in the 2021 Annual Report on Form 10-K144 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk No material changes in the company's market risk occurred during the quarter ended June 30, 2022 - No material changes in market risk occurred during the quarter ended June 30, 2022145 ITEM 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of June 30, 2022147 - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2022148 PART II OTHER INFORMATION This section covers other information including legal proceedings, risk factors, equity sales, exhibits, and signatures ITEM 1. Legal Proceedings No material developments in legal proceedings have occurred since the 2021 Annual Report on Form 10-K - No material developments in legal proceedings since the 2021 Annual Report on Form 10-K151 ITEM 1A. Risk Factors No additional material changes to risk factors have occurred since the 2021 Annual Report on Form 10-K - No additional material changes to risk factors since the 2021 Annual Report on Form 10-K152 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2022, the company repurchased 9,846 ordinary shares, with $200.0 million remaining available under the 2021 share repurchase authorization Share Repurchase Activity (Second Quarter 2022): | Period | Total Shares Purchased | Average Price Paid Per Share (USD) | | :----------------------- | :--------------------- | :--------------------------- | | April 1 - April 30, 2022 | — | — | | May 1 - May 28, 2022 | 6,835 | $34.47 | | May 29 - June 30, 2022 | 3,011 | $32.03 | | Total | 9,846 | | - As of June 30, 2022, $200.0 million remained available for share repurchases under the 2021 Authorization, which expires on July 22, 2024155 ITEM 6. Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including CEO/CFO certifications and iXBRL-formatted financial statements - Exhibits include certifications (31.1, 31.2, 32.1, 32.2) and financial statements formatted in iXBRL (101, 104)158 Signatures The report was signed on July 29, 2022, by the Executive Vice President and CFO, and the Senior Vice President, Chief Accounting Officer and Treasurer - The report was signed by Sara E. Zawoyski, Executive Vice President and Chief Financial Officer, and Randolph A. Wacker, Senior Vice President, Chief Accounting Officer and Treasurer, on July 29, 2022160161