nVent(NVT) - 2023 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements (unaudited) Presents unaudited condensed consolidated financial statements for Q2 2023, including income, balance sheet, cash flow, and equity, with detailed notes Condensed Consolidated Statements of Income and Comprehensive Income Net sales grew 10.4% in Q2 and 8.5% in H1 2023, driven by volume and pricing, leading to increased net income and diluted EPS Consolidated Income Statement Highlights (in millions, except per-share data) | Metric | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $803.0 | $727.5 | $1,543.6 | $1,422.2 | | Gross profit | $331.9 | $267.8 | $635.1 | $515.1 | | Operating income | $146.7 | $104.7 | $270.8 | $194.8 | | Net income | $112.9 | $79.9 | $206.7 | $147.7 | | Diluted EPS | $0.67 | $0.48 | $1.23 | $0.88 | Condensed Consolidated Balance Sheets Total assets increased to $5.92 billion from $4.90 billion due to acquisitions, with liabilities rising to $3.05 billion from $2.17 billion due to increased debt Balance Sheet Summary (in millions) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $138.5 | $297.5 | | Goodwill | $2,543.3 | $2,178.1 | | Intangibles, net | $1,547.5 | $1,066.1 | | Total assets | $5,922.1 | $4,902.2 | | Long-term debt | $1,938.8 | $1,068.2 | | Total liabilities | $3,046.4 | $2,170.5 | | Total equity | $2,875.7 | $2,731.7 | Condensed Consolidated Statements of Cash Flows Operating cash flow more than doubled to $146.6 million in H1 2023, with $1.12 billion used for acquisitions, funded by $811.2 million from financing activities Cash Flow Summary for Six Months Ended June 30 (in millions) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $146.6 | $63.9 | | Net cash used for investing activities | $(1,120.8) | $(27.4) | | Net cash provided by (used for) financing activities | $811.2 | $(19.7) | | Change in cash and cash equivalents | $(159.0) | $6.3 | Notes to Condensed Consolidated Financial Statements Detailed notes disclose revenue disaggregation, the $1.1 billion ECM Industries acquisition, increased goodwill and intangibles, new debt issuance, and segment performance - On May 18, 2023, the company acquired ECM Industries for approximately $1.1 billion in cash, funded primarily through new debt, as part of the Electrical & Fastening Solutions segment[37] - Goodwill increased by $361.5 million due to the ECM Industries acquisition, bringing the total to $2.54 billion, with identifiable intangible assets also rising significantly[39][46] - To finance the ECM acquisition, the company issued $500 million in 5.650% Senior Notes due 2033 and entered into a new $300 million term loan facility, substantially increasing its long-term debt[59][65] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2023 financial performance, highlighting 10.4% net sales growth driven by acquisition and pricing, segment results, liquidity, and increased debt from the ECM acquisition Consolidated Results of Operations Q2 2023 consolidated net sales increased 10.4% to $803.0 million, driven by acquisition and pricing, with gross profit margin expanding and operating income rising 40.1% Components of Net Sales Change (Q2 2023 vs Q2 2022) | Component | Percentage Change | | :--- | :--- | | Volume | (1.6%) | | Price | 5.5% | | Organic growth | 3.9% | | Acquisition | 6.8% | | Currency | (0.3%) | | Total | 10.4% | - Gross profit margin increased to 41.3% in Q2 2023 from 36.8% in Q2 2022, primarily due to price increases and savings from lean initiatives, offsetting inflationary cost pressures[94][98] - Net interest expense increased significantly to $21.7 million in Q2 2023 from $7.5 million in Q2 2022, mainly due to increased debt from the ECM acquisition and higher interest rates[94][99] Segment Results of Operations Q2 2023 saw Enclosures sales grow 5.0% with 6.3 points margin expansion, Electrical & Fastening Solutions sales surge 32.8% due to acquisition, and Thermal Management sales decline 6.5% Segment Performance (Q2 2023 vs Q2 2022) | Segment | Net Sales Change | Segment Income Margin | Segment Income Margin Change | | :--- | :--- | :--- | :--- | | Enclosures | +5.0% | 22.5% | +6.3 pts | | Electrical & Fastening Solutions | +32.8% | 32.4% | +3.1 pts | | Thermal Management | -6.5% | 21.0% | +1.6 pts | Liquidity and Capital Resources H1 2023 operating cash flow was $146.6 million, with the ECM acquisition financed by $500 million senior notes and a $300 million term loan, resulting in $114.5 million free cash flow - Free cash flow for the first six months of 2023 was $114.5 million, compared to $45.1 million for the same period in 2022[134] - The company issued $500 million of 5.650% Senior Notes due 2033 and entered a new $300 million term loan facility to fund the ECM acquisition[120][126] - As of June 30, 2023, the company had $127.3 million available for share repurchases under its 2021 authorization[131] Quantitative and Qualitative Disclosures about Market Risk No material changes in market risk occurred during Q2 2023 compared to the 2022 Annual Report disclosures - There have been no material changes in market risk during the quarter ended June 30, 2023[139] Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2023, and is integrating ECM Industries' internal controls - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2023[140] - The company is currently integrating the internal controls and procedures of the recently acquired ECM Industries[141] PART II OTHER INFORMATION Legal Proceedings No material developments in legal proceedings have occurred since the 2022 Annual Report disclosures - There have been no material developments with respect to legal proceedings previously disclosed in the 2022 Annual Report[143] Risk Factors New risk factors include integration difficulties, failure to realize acquisition benefits, and increased financial risk from higher debt and leverage - The company may not realize the anticipated benefits of the ECM Industries acquisition, and integration could present unexpected difficulties[145] - The company's total debt increased to $2.0 billion as of June 30, 2023, due to financing the ECM acquisition, which increases financial risk and vulnerability to adverse economic conditions[147] Unregistered Sales of Equity Securities and Use of Proceeds Details share repurchase activities for Q2 2023, with $127.3 million remaining available under the 2021 authorization - As of June 30, 2023, the company had $127.3 million available for share repurchases under the 2021 Authorization, which expires in July 2024[153] Other Information No directors or executive officers adopted or terminated Rule 10b5-1 trading arrangements during Q2 2023 - During Q2 2023, no directors or executive officers adopted or terminated any Rule 10b5-1 trading arrangements[154] Exhibits Provides an index of exhibits for the Quarterly Report on Form 10-Q, including acquisition agreements and CEO/CFO certifications