nVent(US:NVT)2023-04-28 20:28PART I FINANCIAL INFORMATION Item 1. Financial Statements Q1 2023 unaudited financials report strong net income growth, stable assets, improved cash flow, and a major acquisition Condensed Consolidated Statements of Income and Comprehensive Income Q1 2023 vs Q1 2022 Income Statement Highlights | Metric | Q1 2023 (in millions) | Q1 2022 (in millions) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $740.6 | $694.7 | +6.6% | | Gross Profit | $303.2 | $247.3 | +22.6% | | Operating Income | $124.1 | $90.1 | +37.7% | | Net Income | $93.8 | $67.8 | +38.3% | | Diluted EPS | $0.56 | $0.40 | +40.0% | Condensed Consolidated Balance Sheets Balance Sheet Highlights (Mar 31, 2023 vs Dec 31, 2022) | Account | Mar 31, 2023 (in millions) | Dec 31, 2022 (in millions) | | :--- | :--- | :--- | | Cash and cash equivalents | $303.1 | $297.5 | | Total current assets | $1,251.8 | $1,229.2 | | Goodwill | $2,180.5 | $2,178.1 | | Total assets | $4,916.4 | $4,902.2 | | Total current liabilities | $601.3 | $649.5 | | Long-term debt | $1,064.6 | $1,068.2 | | Total equity | $2,789.9 | $2,731.7 | Condensed Consolidated Statements of Cash Flows Q1 2023 vs Q1 2022 Cash Flow Summary | Activity | Q1 2023 (in millions) | Q1 2022 (in millions) | | :--- | :--- | :--- | | Net cash from operating activities | $69.4 | $6.5 | | Net cash used for investing activities | ($16.9) | ($9.2) | | Net cash (used for) provided by financing activities | ($50.8) | $5.9 | | Change in cash and cash equivalents | $5.6 | $1.6 | Notes to Condensed Consolidated Financial Statements - On April 1, 2023, the company entered into a definitive agreement to acquire ECM Industries, LLC for a purchase price of $1.1 billion, with the acquisition expected to close in the second quarter of 202331 - To finance the ECM Industries acquisition, the company arranged a $300.0 million senior unsecured term loan facility and a public offering of $500.0 million in 5.650% Senior Notes due 20333334 Q1 2023 Revenue by Segment | Segment | Q1 2023 Net Sales (in millions) | Q1 2022 Net Sales (in millions) | | :--- | :--- | :--- | | Enclosures | $391.0 | $359.4 | | Electrical & Fastening Solutions | $205.7 | $187.6 | | Thermal Management | $143.9 | $147.7 | | Total | $740.6 | $694.7 | Q1 2023 Segment Income | Segment | Q1 2023 Segment Income (in millions) | Q1 2022 Segment Income (in millions) | | :--- | :--- | :--- | | Enclosures | $82.5 | $50.3 | | Electrical & Fastening Solutions | $61.3 | $47.1 | | Thermal Management | $30.9 | $32.4 | | Total | $148.0 | $110.2 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management reports net sales growth, expanded gross margin, strong segment performance, a key acquisition, and robust liquidity Overview and Key Trends - The company operates across three segments: Enclosures (53% of Q1 2023 revenue), Electrical & Fastening Solutions (28%), and Thermal Management (19%)79 - A definitive agreement was signed on April 1, 2023, to acquire ECM Industries for $1.1 billion, which will be integrated into the Electrical & Fastening Solutions segment upon closing81 - Key trends include moderating supply chain challenges, continued cost inflation, economic uncertainty, and strategic objectives focused on growth, the ECM acquisition, digital transformation, and supply chain resiliency82 Consolidated Results of Operations Components of Net Sales Change (Q1 2023 vs Q1 2022) | Component | Percentage Change | | :--- | :--- | | Volume | +0.3% | | Price | +8.1% | | Organic Growth | +8.4% | | Currency | -1.8% | | Total | +6.6% | - Gross profit margin increased by 5.3 percentage points to 40.9%, primarily due to higher selling prices and productivity savings offsetting inflationary labor costs8487 - SG&A expense as a percentage of net sales increased by 1.5 percentage points to 21.9%, driven by inflation, higher restructuring and acquisition costs ($6.3 million in Q1 2023 vs $2.3 million in Q1 2022), and growth investments8892 Segment Results of Operations - Enclosures: Net sales grew 8.8% (10.7% organic), driven by strong price realization (+8.5%) and volume growth (+2.2%), expanding segment income margin by 7.1 percentage points to 21.1%929395 - Electrical & Fastening Solutions: Net sales increased 9.6% (10.9% organic), primarily from strong pricing (+10.8%), with segment income margin growing by 4.7 percentage points to 29.8% due to pricing and favorable product mix9699100 - Thermal Management: Net sales decreased 2.6% (-0.2% organic) due to a 4.0% volume decline offsetting 3.8% price increases, primarily in commercial & residential business, leading to a slight 0.4 percentage point segment income margin contraction to 21.5% from inflation, lower volume, and unfavorable mix101103104 Liquidity and Capital Resources - The company ended Q1 2023 with $303.1 million in cash and cash equivalents and $600.0 million available under its Revolving Credit Facility107119 Free Cash Flow Reconciliation (Q1 2023 vs Q1 2022) | Metric (in millions) | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash from operating activities | $69.4 | $6.5 | | Capital expenditures | ($17.1) | ($11.1) | | Proceeds from sale of property | $0.2 | $1.9 | | Free cash flow | $52.5 | ($2.7) | - During Q1 2023, the company repurchased 0.3 million shares for $13.2 million and paid dividends of $29.3 million126127 - As of March 31, 2023, $127.3 million remained available for share repurchases under the 2021 Authorization, expiring in July 2024126 Item 3. Quantitative and Qualitative Disclosures about Market Risk The company reports no material changes in its market risk during the quarter ended March 31, 2023 - There have been no material changes in market risk during the quarter ended March 31, 2023133 Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2023 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2023134 - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting135 PART II OTHER INFORMATION Item 1. Legal Proceedings There have been no material developments in legal proceedings since the disclosures in the 2022 Annual Report on Form 10-K - No material developments have occurred with respect to legal proceedings previously disclosed in the 2022 Annual Report on Form 10-K138 Item 1A. Risk Factors The company has identified new risk factors related to the pending acquisition of ECM Industries, including integration challenges and increased financial leverage - New risk factors have been introduced related to the acquisition of ECM Industries139 - Key risks include challenges in integrating ECM's operations, which could delay or prevent the realization of expected synergies and cost savings140 - The company's indebtedness is expected to increase materially by approximately $800.0 million to finance the acquisition, potentially harming its financial condition and reducing flexibility142 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2023, the company repurchased 512,422 shares, with $127.3 million remaining for future repurchases Share Repurchases in Q1 2023 | Period | Total Shares Purchased | Average Price Paid | Shares Purchased as Part of Plan | | :--- | :--- | :--- | :--- | | Jan 1 - Jan 28, 2023 | 349,133 | $38.60 | 342,830 | | Jan 29 - Feb 25, 2023 | 4,784 | $40.69 | — | | Feb 26 - Mar 31, 2023 | 158,505 | $45.83 | — | | Total | 512,422 | | 342,830 | - As of March 31, 2023, the company had $127.3 million available for share repurchases under the 2021 Authorization, which expires on July 22, 2024148 Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including key agreements and officer certifications - Key exhibits filed with this report include the Loan Agreement dated April 26, 2023, and the Merger Agreement for the ECM Industries acquisition dated April 1, 2023151