nVent Electric plc (NVT) Earnings Call Transcript & Summary

That's completely understandable. I was looking at the kind of questions I wanted to ask, and I noticed I didn't really have an enclosure question, and there's a bias here having covered the parent company Pentair for so long that Enclosures typically acts so well in a recession, at least it's more resilient. So maybe just tell us where and how the Enclosures business has responded in this downturn.

Yes. So I think when you look at our Enclosures business, and we've often talked about as you follow the trends, look at some of the last recession. Although this pandemic is a little different, right, than the last recession, but typically, because 2/3 of our business, well more than that in Enclosures, goes through distribution. You see this destocking and then it starts to come back. When it comes back, it comes back stronger. And we've always shown in the Enclosures business that we've been able to manage our decrementals, and we've had good cash generation. So I don't think there's any reason to think that it wouldn't be different. In fact, I would argue that when things come back, and I would still say that industrial is a little slow right now, just -- I mean improving, but it's going to take more time for it to come back. But I think we're in a better position than ever. Having done the Eldon acquisition, which has gone very well, we now have a stronger global footprint. Some of the capacity constraints that we had when we first launched, I think, have largely been addressed, and we've been investing in digital platforms that will allow us to serve our customers well. And you put that on top of the fact that we started focusing on areas like data and networking solutions, that -- just everything becoming more electric requires an enclosure. I think the long-term prospects for this Enclosures business are terrific. And we've strengthened the portfolio, so it's really as the growth -- or when we get back to growth there, Enclosures is going to be really strong for us, a strong part of the growth story for nVent.

And very specifically, one of the megatrends that we're expecting in the -- and we've written a report about the post-COVID landscape, that there will be bigger investment in automation and especially edge computing, and all of this is going to need -- all the equipment is going to need enclosures. Just frame for us what's the exposure, broadly for data center, but then on this kind of edge computing opportunity, and just kind of growth expectations, if you could.

Yes. When you look for data and networking solutions, I mean, we've grown that double-digit over the last couple of years. And it's not just Enclosures, it's also EFS and Thermal, too. But you think about -- everything needs an enclosure. And when you look at more edge computing, especially if you want to get controls closer to -- in a factory floor, in harsh environments, whether it's 5G and you've got towers or the -- an exposure to environment, that's part of our strength, right, because we can meet any type of environmental requirement and whether it's NEMA or IEC. So when I talk about Enclosures just being so well positioned as we -- as the long-term prospects there are just great for that business because we really can enclose everything, and we've extended that protection with cooling capabilities, so when it comes to data and networking solutions, having a liquid cooling capability as well as air. So we're -- the Eldon deal really added capability that would have taken us 7 years, right, to do organically. And so we talk about emerging stronger, and I think all the investments that we've made, that we're going to be really well positioned. And I think just to characterize it, the data and networking space for us across nVent is about $150 million, and it's been growing double-digits.

Good. And then switch over to EFS for a moment. The big worry that investors have is what's on the other side of this current project backlog that is being worked off. Is -- are new projects getting greenlighted? Or is there going to be a big air pocket? From your perspective, what EFS is being, where does that stand?

Yes. I think a couple of things. Remember, the EFS portfolio, while it is commercial, it also plays in these other spaces. And I know maybe we don't talk about that enough, but with the ERICO brand, we play in utilities. We've extended what we do with CADDY and the WBT acquisition more broadly into the data and networking solutions space. We play in infrastructure with that ERICO brand, right, with -- and so energy storage, 5G, and those are areas, again, that have largely relatively had strength. And so what we think about a lot is right now with commercial, we're seeing job sites open up, right, and we've seen improvement there. I think the way we think about things is we're going to continue to launch new products. We know that our position relative to some of the distribution channels even globally was not where we wanted it to be, and we're looking at where are those areas of growth going to be. So even if things -- and we don't know yet, but even if things get softer in commercial, right, as we get into next year, we're thinking about these growth spaces where our products play and how do we continue to build up the momentum that we've had with all these new product launches that we're doing this year. So the same value proposition that we have around labor savings plays really well into these other spaces as well. So I think we've seen nice momentum in those verticals outside of commercial, and I think that's just how we're going to look to the future is that we've got plenty of other places that we can go with that portfolio.

Got it. And maybe just touch briefly on that point about new product launches. I found it really interesting how resourceful your sales and marketing people have been in terms of kind of reinventing ways to launch new products and hold virtual demos. And just kind of give us that example because I think it's really telling.

Yes. We -- I think -- so first of all, this is going to be a record year. And every year, we've been improving our new product vitality, and we're getting better at driving velocity in that new product development process and even in digital with using an agile approach and just gaining a lot of steam. But once you launch those new products, we wanted to ensure that we got them into the hands of our contractors or customers or channel partners, and so we started to do virtual launches. And I would say for the EFS portfolio, in particular, we've been able to -- some of our key channel partners and our key contractors, ship them a product in advance and then have a virtual training session. In fact, with our new WBT acquisition, the team did that with me where they actually shipped me the product, and you could -- it's very tactile. And you can see -- physically see and hold the ease of installation. And so we found we're doing things digitally. We found some unique ways to get product into the hands of our customers. We've also done some great training videos to just show the robustness of the product. The EFS guys are just known for taking our product and throwing it on the ground. And if you dropped it from a ladder and showing how resilient it is, and we've had record attendance when we -- with these types of sessions right now. So we really move forward to say, let's not miss a beat in the launch. Let's get these products seeded out there. And we're getting great reception, record attendance at some of these training courses we're offering.

That's really remarkable given the COVID backdrop and how everything has been dislocated, that you're having a record year of new product launches, but that's -- congrats to the team.

Thank you.

One of the investment -- I'm -- J.C., I'm going to drag you into this. One of the whole investment themes that is taking on greater, greater importance in industrials overall is ESG, and we're seeing it having a big influence on a number of the companies that we follow. And I also recognize that as a new company, there's still multiple steps you need to take in order to have all of the ESG, like core requirements before you have full appeal to both active and passive investors. But J.C., just give us an update as to where does that stand today. And because you all are right in the sweet spot where ESG should have all kinds of interest in nVent, but what can you add to that for us today, please?

Sure. Well I think first off, I just want to recognize that we did launch our first social responsibility report in mid-July, so very excited about that opportunity. And it really opens up a lot of opportunities for us to go out there and start talking about the things we're working on, have it be from a people standpoint, diversity and inclusion standpoint or even products. The governance stuff has always been out there, but the social responsibility report gives us another avenue to talk about these other aspects of great things that we're doing. And so with that report, myself, I'm working with all these different surveys and making sure that they have the appropriate information now that we've disclosed some new things, correcting some things that maybe they didn't have or pointing them in the direction, so that's a task upon itself with dozens of these out there. And then as we have launched this, we're starting to begin an outreach program, which, Deane, you and I, have already talked about, with some of these ESG investors and just making sure that they're aware of who we are, what we've been doing and what we want to become and launch, et cetera. So it's a brand-new initiative for us from a public outreach standpoint from my chair, but a lot of things you read about in social responsibility are things that we've had from the beginning since launch, like diversity amongst our Board, 67%, renewable energy, diverting waste to landfills, et cetera. So these are things that have been here since day 1, and this just gives us another avenue to start talking about that.

Are there any other major steps that have to report internally that you have to have completed before you are fully eligible for the ESG investor?

Well I mean, that's -- I think everyone has their own type of disclosures and requirements. From what I've learned, some of them have their own in-house, check-the-box type of things, others rely on these types of surveys that I did mention. And so everyone seems to be a little bit unique, and so we are going to have to do a grassroots effort to go out there and meet with these folks individually and answer their questions and maybe bring some of that back and see how we can become stronger from a disclosure standpoint and move forward with building that relationship out. So it's not something that, I would say, literally happens overnight, where we launched this report, and we are an ESG favorite company. There's some labor work and some education we have to do at the same time.

That's great to hear. All right. So I want to get back to Beth on this question. Is the idea that these -- typically, industrial companies have an operating system. And part of nVent has been this One nVent framework that you've talked about from day 1. And the idea here is how has this translated in terms of your responses during COVID? I'm sure it has something to do also with your ability to have a record year of new product launches. But just make it real and tangible for us in terms of the go-to-market with this One nVent framework.

Yes. All right. So the One nVent framework, we said when we launched our -- as a new company, the strategy is how do we unify what we did across these businesses that had come together through a series of acquisitions. And so we thought of it in different ways, including our management system we call Spark, but on -- which is under the One nVent umbrella, but it was everything about from having vertical marketing teams or strategic account channel teams that could really drive sales of all of our products. So if you think to, we use data and networking solutions, we've seen nice double-digit growth having 1 team to go and market and sell our portfolio and find solutions. On the channel side, we grew through electrical channels over the last several years. And even though we were a top provider in the electrical -- top supplier in the electrical channels, we weren't always represented that way. So building strategic relationships, and so finding places where we could improve our position, both in North America and globally, and so again, we saw nice growth from that. Then when you think about the other operational aspects, and I'll touch upon a couple here, similar just the way we run our business. So take digital, right? We wanted to ensure as we go forward and we looked at how do we drive the improved customer experience along the customer journey and putting in place common platforms, be it a CRM system or be it how our websites or even some of the things that we do in the back office side of things, and so having a digital architecture to do that and driving an agile approach, I would say. And we have a new technology leader that joined us last year, we probably made more -- we were making a lot of progress, and we've made more progress in the last 6 months as a result of that. And the way we think about that is we're scaling what we do. And you mentioned safety, I really believe that -- and our employees, through surveys, have just responded to us that they feel very safe working in nVent. And we learned from what was being done in China and implemented a 42-item checklist across every plants and our sites to ensure the safety and well-being of our employees. And so really at One nVent is how do we drive some commonality and scale what we do, everything from growth to how we just drive an operational discipline, whether it's lean or agile, to just other things like world-class safety programs.

That's fabulous. And like you wrapped up that whole answer right at the bell that says this presentation is coming to a close. So we do appreciate the whole nVent management team being here, Beth, Sara and J.C. Thank you very much. Best of luck with your -- the rest of your investor meetings. And just thank you again for participating.

Thank you, Deane.

Thanks, Deane.

Thanks, Deane. Take care.

Everyone, be well. This concludes the presentation by nVent. Thank you.

Bye.