nVent Electric plc (NVT) Earnings Call Transcript & Summary

[Presentation] All right. Well, good morning. Welcome to nVent's 2023 Institutional Investor and Analyst Meeting. I'm Tony Riter, Vice President of Investor Relations. Really pleased to be with you here in New York for those that are in the room. It's our first meeting that we've had in person since pre-pandemic. So it's really great to be here. Just for our agenda for today, as you look at here, we've got full agenda, we expect the presentation portion to be approximately 1.5 hours followed by a Q&A session. And then just quickly, our forward-looking statement. As a reminder, any statements made about the company's anticipated financial results are forward-looking statements, subject to future risks and uncertainties, such as the risks outlined in nVent's filings with the Securities and Exchange Commission. Forward-looking statements are made as of today, and the company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances. Actual results could differ from anticipated results. With that, just a few notes before we get started. This is a hybrid meeting. So we are in person in the room, but we also have people watching live via webcast. The slides have been posted to our Investor Relations website. The Q&A session will feature both live questions in the room, but also questions can be submitted via the webcast. And then lastly, the meeting will be archived on the website for replay and the materials out there. So with that, I'll turn it over to Beth Wozniak, our Chief Executive Officer.

Well, good morning, everyone. And thank you for joining us today. We're really excited to tell you about our story about how we're building a more sustainable and electrified world. And I think what's key about what we do is we are an electrical products and solutions company. And as the world electrifies, as we move to more renewable, sustainable energy solutions, our products are key core, critical, essential to that change. So what you're going to hear today from us is you look at our track record over the last couple of years, we have a strong demonstrated performance and value creation. Our growth has been strong, our cash has been strong, and we're going to continue, and you're going to hear about some new targets today. We think the profile of our company has changed and a significant portion of what we do is tied to the secular trends, and we'll give you some examples of that. We're very confident in our ability to expand our margins. We're very confident that we've got multiple growth levers. And hence, you'll see that we've raised our midterm targets, and Sara will talk about that. So for those of you who know nVent, we're a $2.9 billion company. We like to say we connect and we protect. Last year, we grew our sales 20%, and that's on top of 18% the year before. Our adjusted EPS grew at 22% on top of 31% the year before. So we've got a nice trajectory growing there. And I think we're going to see these trends continue in our favor to be able to grow and deliver great performance. So we're going to talk about how we're going to do that. Let me -- starts with what our value proposition is. We often say, when you look at our portfolio, it is mission-critical solutions for electrification. And I sometimes like to simplify this and just say everything electronic or electrical needs to have an enclosure to protect that content. Similarly, you think about surge protection, grounding, bonding. These are all critical components in electrical system. And our ability to meet any specification to innovate and provide that expertise around the world has us uniquely positioned at where we play. Second, it's about resiliency and safety. So we think about our grid, as we think about the need for power, you want to have assuredness that we are operating well, that transient, disruptions, that we protect against those things. And in fact, if you think about automation, running millions of dollars of output in a factory, we're protecting that with our enclosures. So we're a small part of the bill of materials, but we provide outsized value when it comes to protection. And the last point here is we do a lot of things to drive productivity and savings for our customer. And that's not just in the installation time or in the operations when it gets to energy efficiency, but even with design. Our tools in digital allow our customers to configure our products, saving them engineering time. And so again, that value is what we create for our customers. So I'd like to show this chart because it's our story since spin. We became a public company on May 1, 2018. It seems like a long time ago, we're coming up to our 5-year anniversary, but we've grown significantly. And I think what's very key to see here is our market cap has grown from $3.9 billion to $7.7 billion. And to get there, we had to turn ourselves into a growth company. And we wanted to scale what we had done because we came together as a company from a couple of different acquisitions is how do we build stronger distribution partners, how do we leverage processes and capabilities across the company so that we can accelerate what we do. And we established a strategy to focus on what we call high-growth verticals, areas where we knew the trends were going to drive opportunity to grow faster than GDP. New products and innovation is how we came up with the name nVent because we invented products all throughout our history and decades of our brands. So it was really important for us to ensure that we really invested there and had great capability around our innovation. Acquisitions, another part of that growth story and digital. The world is becoming more digital. And if you look at some of the boxes here, our new product Vitality is now at 20%. New products contributed about 3 points of growth last year, up from where we started. When we talk about high-growth verticals and we'll get into more detail there, infrastructures where there's a lot of electrical investments, that was in the teens previously for us. It's now 1/4 of our portfolio and growing very fast. And $300 million we've added from acquisitions. And last year, our acquisitions, the growth rate of those acquisitions was faster than our core nVent growth. And this chart really shows the performance of where we, as nVent, have performed in total shareholder returns, up from the S&P MidCap 400 Industrials, and it would be up even from the S&P 500. So we want to keep this value creation story going. So let me switch to the future. The world is changing. Things that are really forefront in everywhere are sustainability, more generation of energy from renewable sources, the energy transition to clean fuels. We like to say this, and we said it a couple of years ago that it's the electrification of everything. And so that's creating the need for electrical components in buildings, in automation, in our grid, in e-mobility, in EV charging stations, electrical content is everywhere. And everything is becoming more digital, which requires more data, more data centers, more connected products, all of those which need our components, our solutions. And then we have the infrastructure investments. And I'm going to talk about how we've thought about what that is going to mean for nVent. But if you look, there are some big numbers here in terms of what these trends are going to mean in the build out of infrastructure, IoT, et cetera. And across the bottom here, our products and solutions have a role to play. So this world electrification is going to drive further opportunities for us that we're very excited about. So if you look at some of the legislation and some of these bills that have come out over the last couple of years, in the U.S., we have the Infrastructure Investment and Jobs Act, we've got the Inflation Reduction Act. In Europe, there was the EU Recovery Plan and the more recently EU Green Deal. We spent some time as a team looking at these different bills to try and understand where the funding was going into what types of investments and there are some examples here, obviously, clean energy, wind, solar, renewables, hydrogen, clean fuels. We have a role here to play with all of our segments. Energy efficiency, whether it's sustainable buildings or manufacturing, we have a role to play there as well. The electric transportation from EVs to e-mobility, which could mean electric rail. The infrastructure for that requires our components and solutions. Of course, the grid, a lot of investment there into resiliency and now you have other sources of energy coming on to the grid, whether it's wind or solar. So our ability to drive resiliency there to energy storage is another emerging area that we're very excited about. And then even some of the infrastructure modernization and that could be from airports to ports to waterways, we have products that support just that infrastructure build-out. So when we looked at this funding, it's about $1.3 trillion. And for us, we have opportunity between $250 million to $500 million in sales, it's at best, we understand it. Now how that is going to flow, we don't expect that to happen all at once. It's going to take time. We think there are some constraints, just the ability of labor and just to execute on all of these projects. But I think the point here is that this is going to provide some favorable trends for us for many, many years. So today, we're going to share with you how we're positioned and differentiated in some of these growth areas. So these are a few of what we call verticals that are going to be high growth that are growing with the electrification of everything. We're going to talk about data solutions and how we're positioned well there. We're going to talk about smarter sustainable buildings that requires more power and data content, increasing the number of components and solutions that plays well for us. We'll talk about the energy transition. Some of the green fuels, hydrogen, decarbonization, and we'll talk about industrial solutions, onshoring, automation, IoT. So you're going to hear through each one of our segment presidents, these verticals and where we're positioned to win and the solutions that we provide. So I always like to come back to our strategy because the one thing we have been consistent on is having this as our overriding strategy to drive our growth and performance. And I think it's worked well for us. What I always like to say is we keep working on more elements of this strategy and increasing our capability. So from scaling what we do to the elements of growth around verticals, products, global expansion, acquisitions to how we execute better through digital, better use of our working capital and productivity and velocity. So I'm going to talk to some of these elements and the rest of the team will as well so you can see how our growth trajectory has transformed and where we're seeing the benefits of this execution on our strategy. So first, when you look across the top of this chart, high-growth verticals, across the very top, we're showing you today the percentage of nVent's revenue in each one of these areas. Underneath in the boxes, what we're demonstrating here is the areas where we believe the electrical trends are going to drive high growth. So industrial, we look at automation, digitization, IoT, onshoring. When it comes to commercial, the need for more power and data infrastructure and also labor-saving solutions given some of the shortages that we see. Infrastructure, here's just a few but there's many areas where everything is being electrified for sustainability, digitalization, resiliency. And then on energy, we're going to talk about our opportunity there to provide our heat trace and our control solution with that transition to more greener fuels. We think about 60% of our portfolio is exposed to these secular trends. So I'm going to give you a couple of examples. So in Industrial Solutions, and you'll hear Joe Ruzynski talk about this in the Enclosures section, we have about $830 million of sales today. The last 2 years, we've grown at a CAGR of 23%. It's a huge opportunity with labor shortages, with onshoring, with the need for data, our solutions are well positioned to capture that growth. On commercial, this is another big opportunity for us. Just under $400 million of our sales here today, growing at 15% the last 2 years, a $16 billion opportunity. And the way we think about this is everything in a building is becoming more electric and sustainable. It requires more of our cable management. You're going to see more things around buildings in terms of data centers or whether it's EV charging systems or solar. And we have lots of capability to address the increase in power and data and buildings. When it comes to infrastructure, I'm going to highlight a couple. I'm going to spend a little bit of time here on data solutions because when we spun as a new company, this area represented less than $100 million of our portfolio. Today, it's $375 million, and this spans across nVent, everything that we do from cable management, leak detection, enclosures, cooling, power. This was one of our fastest growing areas. It grew 30% over the last 2 years. This is an area where we put a one nVent team to sell our solutions, to build significant customer relations, to innovate with new capabilities that you're going to hear more about and we believe we're going to see significant growth here for many years to come with everything digitizing and especially with the need to move to more liquid-cooled solutions. A couple more areas, power utilities and renewables. Smaller parts of our portfolio today, but also growing double digits and growing significantly. And when we think about these areas, it's that resiliency and it's the expansion of the grid that requires our solutions. And we provide protection from enclosures to our heat trace solutions. I know you all remember the Texas freeze, it's ensuring that we're able to keep the grid running and the grid harden. And that plays into renewables as well. We're positioned there with our enclosures, with our power connections, all these new sources of energy being electrified require our components that are critical and essential to that uptime. So I want to switch from verticals. Now just to talk about a few other elements of our strategy. And we think global growth is still important for us. Now while North America is an area of a lot of investment and we're very well positioned, we've continued to grow very nicely outside of North America. In Europe, it's been a focus for us because we see the same electrification trends, sustainability, renewable energy. Our position with our distribution partners is allowing us to take some of our portfolio and expand it across Europe. It's about having good strong commercial teams on the ground. And in Asia, we've opened a couple of new factories over the last several years. We believe that we need to have a strong position to be in China for China and to be in APAC to expand our capability there as well. But we're going to be very focused looking at what is the high-growth verticals in those regions, what portfolios do we need to have and how do we position ourselves to win with the partnerships with our distribution partners. So some good capability, and we see some nice potential for outsized growth as we go forward into the next several years. When it comes to our One nVent strategy, we've talked about this from early on that our distribution strategy was to really scale our capabilities. When we first started, we had a good position with those electrical distributors, but we didn't have strategic partnerships. And I'm very pleased to say that something that we've worked on, and you can see some quotes from CEOs to SVPs of some of those top distributors that you know about the value that we've provided. We typically say we're a top 10 supplier in North America. We're a top 15 supplier in the European global distributors as well. And this has been really important because as the world is consolidating in terms of distributors or suppliers are consolidating, and you see the investments that are needed to be made in supply chains and in digital, it's an opportunity for us to expand what we do to have a stronger presence because of the capabilities that we provide. Because it is more difficult for smaller suppliers to build those relationships and make those investments. And our growth has been very significant through those distribution partners. And I'm very proud to say that over the last several years, we've done a great job in helping manage supply chain challenges to become a partner that those distributors can count on. And we're going to continue to keep expanding and adding to our portfolio and building upon that relationship. So these strategic distribution partners represent about 25% of our sales, about 2/3 of what we do in nVent overall goes through distribution. So it's very important to us to have great relationships all the way from end customers through our channel partners, all that continued supply chain. The other area for growth for us is acquisitions. And I want to draw your attention to this flywheel. And we like to say that in the Connect and Protect space, we're almost a $3 billion company, playing in a $75 billion space. Now of course, the electrical world is much larger than that, but where we play is about $75 billion. Very fragmented, a lot of opportunities to grow. When we think about acquisitions, it starts with our strategy, high-growth verticals and great products. So at the top here, you'll see we look for companies that have a differentiated solution that we can then align to a high-growth vertical. We can scale it, whether it's through the distribution channel, whether it's through investments to globalize that product, whether it's taking it through our commercial sales teams, whether it's investing in digital capability, manufacturing capability, we invest and we grow. And if you look at the 4 acquisitions that we've done since spin, they all provided us with a great product capability that we did not have, pointed at high-growth verticals, and we made those investments and we scaled them. $300 million of sales in 2022 was from our acquisitions. It added 2 points of inorganic growth in 2022. All of these deals because of our ability to rapidly scale, exceeded WACC within 2 to 3 years, which is our deal metrics. Our pipeline is strong, we know we have more opportunity in front of us. We've built a great integration capability that can deliver value, and we think we can accelerate our growth through acquisitions as we go forward. Another area for us is our Spark Management System. People, growth, lean, digital, and velocity. Those are core to our processes and our capabilities of what we're building across nVent. We want to have the very best people to build a growth company. And we saw an 8 point increase in our engagement scores since we started, and that's important because there is a war on talent. On growth, we focused a lot on thinking market back, thinking about voice of the customer, how do we have commercial excellence. And that contributed to us seeing 3 points of new sales growth from new products because when you launch a product these days, you have to have the digital assets, you have to partner with your distributors, have inventory, have positioned it. So it's equally as important as having that commercial launch process. When it comes to lean, it's at our DNA. And we look at over the last several years, we looked at any customer complaint. It could be paperwork. It could be a payment issue. It could be a defect, and we reduced customer complaints over 30%. From digital, you'll hear from Aravind about how digital is driving growth and productivity. We think there's about $80 million of sales that have been supported by digital capabilities, how we launch them. And in velocity, our new product cycle time. Since 2018, we've reduced it by 50%, driving agile, driving that integrated commercial process, along with engineering capability. Getting velocity means we can get time to revenue faster. So those are just a few examples of our Spark Management System coming to life. When it comes to ESG, this has been important for us as well. And we think about ESG from people, products and planet. And as I mentioned, we want to have the very best people to work at nVent. Our Board of Directors is 70% diverse. Our executive officers are 44% diverse. We have 1,000 employees in our employee resource groups. I think that just speaks to the culture that we're driving of inclusion and diversity and of performance. When it comes to products, we're ensuring that all of our new products have a positive ESG impact. When it comes to planet, looking at emissions, looking at renewable energy consumption, all the things that you would expect. And we've been recognized. We have not been at this a long time, but we've been recognized for being a great place to work. We've been recognized by EcoVadis that does scoring. We've received for the second year in a row, a silver rating. And in fact, for the companies that they assess in our industry, we're in the top 9%, top 85% of all companies that they look at. And maybe one other that I'll point out here is one of our partners, Rockwell Automation, introduced their first equity and include -- Diversity, Equity and Inclusion Award. And of all their partners, and this just happened about a month ago, nVent received the very first award. So we're very proud, and we're going to continue to build on this because we think it speaks to the type of company that nVent is. And it wouldn't be complete without me saying not only do we think about ESG, about how we perform as nVent but we want to help our customers with their ESG journey. So we're building a more sustainable and electrified world. Our value propositions around energy efficiency, resiliency, protection, labor savings, product serviceability, eco-friendly, are important to our customers. If you look across the bottom here, here are just a few examples of how we provide those benefits, whether it's 40% to 60% reduction in power consumed in data centers because of our liquid cooling solutions, that is significant. Whether it's 50% installation time reduction and we're 20% in total installed cost, so safer, easier, more reliable. And even our hot water maintenance systems that we heat trace can provide 1 or 2 lead points to a commercial building because they're more energy efficient than a recirculation system. So just a few examples of how we think about sustainability and what we do supporting our customers. So I want to close with this. We're excited about the future. The world is electrifying, things are driving to become more sustainable. We're very well positioned with our portfolio. We've demonstrated some strong performance and we have further opportunities in front of us for value creation. We have top-tier margins. We have strong cash flow. You're going to hear from Sara on those numbers. But we believe that the future is bright. We're well positioned for many years of growth as the world changes around us, and we're excited to create value and deliver for our customers, our shareholders and our employees. And with that, I'm going to introduce to you Aravind Padmanabhan, who is our Chief Technology Officer, and Aravind is going to talk about innovation and digital transformation.

Thank you, Beth. Good morning to all of you. My first time presenting live to this group. I want to give you a quick update on 3 different things: new product introduction, innovation and the progress we are making on our digital transformation journey, and how it's already creating value for us. First, let me start with new product introductions. We've launched over 50 new products for 3 years in a row. And as Beth mentioned, these products are directly helping the top line growth of nVent. Last year, they helped drive 3 points of growth. In addition, last year, we hit our previously set long-term vitality target of 20%. All these great results are made possible because of our rich innovation pipeline that's enabled by differentiated technology platforms, differentiated technology and product platforms. Liquid cooling, patented electrical connections, labor-saving fasteners, embedded controls and software. Think of these as building blocks, tools in our toolbox from which we are able to build solutions for our customers across multiple verticals and multiple applications. And sometimes, we get good at, for example, cooling in one applications like data centers, we can take the same technology building block to a new vertical like energy storage. So these are truly allowing us to scale innovation platforms. In addition, as Beth mentioned, we've integrated agile as part of our new product introduction process. And that's not only giving us velocity, but it's also helping us get time to commercial value much faster. And as Beth mentioned, we've got cycle time by over 50% since spin. Given our great results in new product introductions the last several years, today, we are announcing 2 new long-term targets. First, a new long-term vitality target of 25%. And second, new products contributing 2 points of growth for nVent each year. Let me pivot and talk to you about our digital transformation story. Our digital transformation strategy remains the same as what we presented 2 years ago. It is working. Just to refresh everyone, our digital transformation strategy has 4 pillars: digitizing our front-end go-to-market capabilities, digitizing and modernizing our internal systems, processes, operations, including our IT operations, scaling the data platform that we've launched and creating analytics pervasively across the company. And lastly, I'll talk about it on the next slide, launching connected products and solutions. Our digital strategy is working. And I have 3 examples here. On the bottom right, you can see how it's creating value for us. When it comes to e-commerce, we've digitized and simplified the search to order process. We've enabled that using configure, price and quote tools. Think of these as tools that help guide customers to build designs -- optimal designs for their application in a very efficient and very easy-to-use manner. It's a great source of productivity for our customers. It also helps simplify the operations for us on the back-end. Across the enterprise, these CPQ tools have led to a 70% increase in quotes and 80% increase in quote to order conversion, showing commercial value for us from digital. A second example would be, one, how we used our data platform to manage our inventory in a high sales growth year like last year, bringing together diverse sets of data across the company into our enterprise data lake, building models on top of them, giving us the visibility to go look at opportunities to optimize our inventory, supporting our working capital goals. And lastly, I'm excited as a techie to announce that this year, we will be 100% cloud infrastructure company. So what does that mean? It gives us that flexible technology architecture from which we can launch new digital solutions and products with velocity. Our greatest opportunity going forward is with data. As we digitalize, we create a lot of data, and that then gives us the opportunity to further optimize our systems, our processes and our overall operations using that data. There are 3 focus areas I want to highlight that's going to be important for us going forward in digital. Continue to build out our digital engagement with our channel partners and our end customers. This includes expanding things like real-time order and inventory data or completely automated order fulfillment. When it comes to our supply chain, it's all about connecting and integrating the different elements of our supply chain together so we can get that end-to-end visibility to optimize. And lastly, our data and analytics focus is about now building advanced data models that sit on top of the disparate data sets in our enterprise data lake that then allow us to truly make analytics self-service for the large number of users across the company. So we can become that data-driven company that we want to be. To summarize, agile is giving us velocity, platforms help us standardize, drive reuse, they give us scale and data is helping us optimize. I want to shift now to the fourth pillar of our digital strategy, which is how software is connected to our products. As we've described before at the last Investor Day, for us, software is a continuum, all the way from proprietary design and configuration software on the left to data and analytics software on the right and embedded software in between. Software is not new to us at nVent. We've been designing and launching proprietary design software for a long time. Think of these as software that helps our customers design solutions, optimal solutions, system-level solutions for their complex problems. This could include heat tracing solutions in an industrial application, it could include a lightning protection system for critical infrastructure like stadiums or it could be software that guides the workflow of panel builders in a panel shop. Our proprietary design and configuration software is strategic for us, and it's driving over 10% of nVent sales today with a lot more upside going forward. If you go to the right of this picture, it's to the analyze piece, that's where our greatest opportunity lies in software when it comes to connected products. As we create more connected products and solutions, we get a lot of data, codifying our deep domain knowledge into algorithms so we can analyze the data, to create more analytics, insights-based services, recurring revenue streams, if you may, is one of our big opportunities going forward. All in all, software is driving about $500 million of sales for nVent in our product side. That's a 50% increase since when we presented about 2 years ago. I want to wrap up by leaving you with 3 key messages. As you've heard already from Beth and now here, new products and innovation are going to be continuing to be key drivers for our growth going forward. Digital transformation is -- will give us velocity, help us drive growth and give us productivity benefits. And we expect software-enabled products to be an increasingly large part of our portfolio going forward. Thank you so much. And with that, I'll pass it on Joe Ruzynski, President of our Enclosures business.

Thanks, Aravind. All right. Good morning again, everyone. Nice to be able to do this in person and had a chance to reflect over some of our prior meetings and specifically the last one we did in person. And a lot has changed about our Enclosures segment here over these past few years. We still are a leader in our space. But to shore up that leadership position, we've added a lot of new innovation. We've added some acquisitions, new factories. You've seen some of this from Aravind and Beth, but we've also been able to back up that innovation and back up some of those strong products with being able to build them and ship them to our customers. So we've done a lot of work in terms of capacity, supply chain, manufacturing, and these are really strengths of our segment. We crossed $1.5 billion in sales as we exited 2022, which was a big achievement. 21% last year on top of over 23% organically the year before. So a lot of good growth. And what we think has facilitated that rapid growth has been us focusing our resources on the fastest-growing verticals. So we've looked at what parts of our portfolio can really speak to, can address the biggest problems that are out there today, and that's really what I want to talk about. We're at 17% ROS today, and I'm going to tell you about our opportunity to expand that margin, but we expanded 80 basis points last year and have another good year of expansion in front of us this year. If you look at the verticals, that Infrastructure vertical is the one that's changed most since the last I presented in the outlook of our segment, growing over 5 points from where it sat just here a few years ago and largely driven by the Data Solutions business. We've got a strong position in the U.S., but a growing position in Europe. We've made a great acquisition in Europe that we fully integrated here in 2019, 2020, and we expect that to continue to grow. And Beth talked about our focus in Asia. You saw 2 factories, 1 in Bangkok and 1 in Qingdao that are very specific to our customers' needs in those regions, and we're excited about the prospects of growth there -- of growth, not gross. So let me talk about our Enclosures value proposition. We always like to share that the systems we protect, produce multi, sometimes tens and hundreds of millions of dollars of equipment or they protect the most critical infrastructure, and you're seeing that infrastructure get smarter from self-driving cars to smart factories. Everything you hear about what data is driving makes system protection even more critical. So the resiliency that we provide systems is still something that we tout is really a core value but to protect those systems, the innovation that we have to bring has to change. And this is a key part of what we've been able to bring to the industry in the last few years is the innovation for those new solutions. So you've heard us talk about liquid cooling, but smart power management is important. That enclosure itself is a great protection against the environment, but making sure you're protecting from heat and you're managing other key elements of it, Aravind talked about some of the smart controllers are as critical, and our customers are asking for those solutions as well, not just a protection from the environment. What I like most about the innovation space, and I love innovation, I love everything that Aravind talked about. But I think what nVent has been able to do is to show that we can scale those innovations as well. So if you look at some of what we're doing in the data solutions space, Beth talked about how when we started, we were very, very small. One of the reasons that we've been able to grow is there's a market need. We've been able to design some of those products, but also we've been able to build them and to give them to our customers. And what you find is that technology is changing rapidly, and they're looking for people that have that manufacturing DNA that not only can come up with these solutions, but can produce them. And I think that's a strong value proposition for nVent. Finally, we want to make it very, very easy for our customers to buy our products. Historically, and if I think of the last time that I was presenting to you all, we talked about our strong distribution channel, over 4,000 distribution points, making it very simple for our customers to find our product. We're adding further tools to that. So Aravind talked about CPQ. We want to make sure that if our customers need something they can go online, they can design it and we can take that right to the shop floor. So finding new ways to make it easy for our customers is a core tenet, a core value for Enclosures. So we want to solve those tough problems but we want to focus on the fast-growing verticals to make sure that, that reads out in terms of our growth. So next, talking about Data Solutions, we call this business data solutions because it's not just data centers. We support the communication infrastructure build-out. We also support networking in buildings like the one that we're in today, so you'll see Robert, Brad and my products in walls, in basements and closets, but data centers is really the growth engine behind data solutions. And specifically within data centers, we're focused on what we think are the most critical problems in data centers. So a $10 billion opportunity, that $375 million, as Beth said, was under $100 million, not too many years ago. But specifically for cooling and power, it was even much smaller than that. We like cooling because the biggest enemy of electronics is heat. We've got a legacy in a history in conduction cooling and industrial cooling. And I was mentioning this to Julian before we started, we actually have DNA and liquid cooling that goes back almost 20 years. We're based in -- well, we have a strong presence in the Midwest and companies like IBM and [ Cray ] were experimenting this with this years ago, and we actually help them with some of these original solutions. You're finding that it's not just a beta test. It's not just, hey, this would be nice to have. The next generation of the CPUs and GPUs, you have to liquid cool them. Now you can see that only 5% of data centers are liquid cooled today but that's changing. And there's really 2 drivers for it. One is the fact that if you want to scale, if you want to support AI, if you want to support machine learning, if you want to support smart infrastructure, you're going to need those fast processors and they have to be liquid cooled. But the other thing, and this is very important as well, is the energy efficiency and the ability to put these solutions outside in harsh environments in different places, Beth talked about future proofing, we have that ability and liquid cooling is going to be a big driver of that. So many times, we'll hear the data center, we're seeing a softer outlook this year, not for what's going to drive data. So data centers may have some ebbs and flows in terms of some of those expansions, but data is exploding, the need for data, how you process data and data to support industry. I look at how we're -- the solutions that we're bringing to those markets, and we're focusing on the fastest-growing part of that data center space. So finally, we get asked, well, why would customers come to nVent? Why don't other people that have historically had a presence in data centers get in the space. And I -- we answer it this way. We bring a very unique set of capabilities. So we have thought leaders that have been at this, have been solving these cooling and power problems for years, we've won awards for our design. I like to think that we're a good driver of the cycle time improvement because some of those designs, our customers are asking us to solve problems that didn't exist just a few years ago. But this final piece, I think, is important is that we have a strong manufacturing history and legacy. So our ability to scale, I mentioned this just a moment ago, I think, is unique in this space. So thought leadership, the winning and the right designs that can solve those critical problems and the ability to scale. And finally, I think our opportunity is huge here. 40% of our portfolio, and this is rapidly changing and growing is in cooling and power. We see this opportunity continuing here in the near future. And not to overshadow, part of my -- and the Enclosures strong history, but industrial automation is really where our segment got its start and there's been periods in our not too distant past where in the industrial short cycle or industrial automation was maybe looked at is not as important and there's really no shortage of trends that are driving a real renaissance for the foreseeable future in industrial automation. Beth talked about this labor ceiling. We're seeing it in some of our factories in the U.S. We look at this onshoring phenomenon to Mexico, to the U.S., to Canada, but also into Europe. And I think maybe as or as exciting as any of them is this intersection of machines, process and data. So if you go to one of our factories today, where you may have seen one of our enclosures manage a system, line side, control a piece of automation or a piece of equipment. Now you have meadow equipment, you have systems that are supporting that system because you don't have paper anymore. You don't have these manual processes that you hand from one element to the other. Everything is digital. Their systems, there's more systems that require more protection as machine learning, automated warehouses, automated factories become even more important in our space and in our industry. We've designed some global platforms that we're in the process right now of making sure that they're standardized. This was one of our acquisitions we did, Beth pointed out in Eldon. We basically took their global IC design and made it the entire global standard for nVent for those IC enclosures. And it's really allowed customers to buy a product from us. We talk about being able to sell locally and to serve globally. They can buy that same spec anywhere in the world. And then finally, making it easy, the digital solutions that we offer to our customers, both in terms of assembling or building their panels, but also ordering our product. We continue to add to those, to standardize those and to make it easier to do business. So a big market, $830 million today. But if you look at those growth rates, we think there's a tremendous more -- there's a lot more opportunity, not only in the U.S. but globally to continue to help lead that migration to smart factories. So speaking of innovation here, I was -- we were talking about this at dinner last night, and someone said, maybe Enclosures is getting a bit antiquated. When I look at the products that you guys are bringing to market, they don't look like a 6-sided gray box, which are still very important to us, of course, but what we're building to support those technologies involves many different solutions from cooling, electronics, to managing power within those enclosures of those systems. If you look at our enclosure platform, this is an example of basically an edge solution in a box where a customer can build and integrate their edge technology right in our box, easy to access and upgrade and then also some of what we're offering in terms of panel shop innovation. New products are critical to our segment. We launched and delivered $80 million of new product sales, which if you do the math, is closer to 5%. We think this is going to increase. We think new technology is going to force us to get better. Agile has been a great tool that we've brought into nVent here these last number of years, but we have to be faster. Vitality has to continue to increase. It increased dramatically here over the past few years, and we expect it to continue to increase. So we're excited about our opportunity, and you're going to see a lot more exciting new innovations from us in the future. And not to skip over our responsibility to say Enclosures has the most upside of margin expansion in 2023. We had some nice expansion last year. But really, that opportunity is going to come in a few different areas. The simplification of our portfolio is one that's very important. That showed 2 factories and 3 acquisitions that since the last time I spoke to you, we brought into Enclosures. Getting those products standardized, making sure that we make it -- those solutions simple has been important. And we're well underway in that process. There's more to do. Velocity is a word that I use and scale to my team quite frequently but as we simplify our portfolio, it brings capacity, it brings velocity and it improves our margin in our situation. Supply chain is something that we've had some good success in the past few years. But as you go through these hyper growth cycles, it's been a challenge at times. We feel that, that improvement is well underway, and this year is going to bring some more of that improvement in terms of our supply chain and then how we digitize process, taking out some of the labor in simple processes, back office, shop floor, I mentioned the shuffling of paper. If you go to our factories today and if you look at our back office, robotic process automation and digitizing how we manufacture is well underway, and we think that will continue to offer us opportunities. So we are a system protection segment. Those systems are getting smarter, and we're getting smarter as well. We're serving the fastest-growing verticals, and those verticals are continuing to offer good opportunities for us to innovate and bring those solutions to market. And then we have levers to continue to improve margins, not only to improve them today but to support that growth and to support that innovation here in the future. So I think we're positioned well, and I thank you for your time, and I'm excited to introduce my colleague, Mr. Robert van der Kolk, the President of EFS.

Thank you, Joe. Good morning. So let's start with a snapshot of our business. First of all, we're all about power and data infrastructure. And we have really strong brands with leadership positions. And we believe in the U.S., we're the #1 electrical and fastening solution provider out there. We're known for innovation. We actually believe we out-innovate in our industry and we're known for application expertise and the combination of having innovative products and understanding how they work in the applications in the different verticals is how we create value for end users. So our business has been on a strong growth trajectory, and we're approaching $800 million in revenue. As you can see, 2 main verticals: one is commercial with about 50% and the other one is infrastructure approaching 40%, and we have slides on both of them to talk a little bit about what we do there. So we're a leader in our industry, known for innovation. So let's talk about our value proposal. We think we have a really strong value proposal for our end users. As I said, we're all about power and data infrastructure and making that more specific, we make power and data infrastructure more efficient and more resilient. So when we talk about efficiency, I'll take an example out of our cable management solutions that we offer. And we offer cable management solutions that are easy to install, reduce labor on the job site and reduce the need for skilled labor and those are scarce. And we see times up to 30% saving in installation time. That's huge. And then resiliency. Resiliency usually is around reducing or eliminating failure points. So if we think about our power distribution business, we offer solutions where we have conductors with built-in connection points. So that means we're reducing the need to have a secondary operation and connect a [ look ] or something else to a conductor. If you don't have any connections, nothing can grow, nothing can loosen, so you make the system more resilient. And then lastly, application expertise, and I talked a little bit about that. We have people in the field working with our end users day in, day out, helping them to select the right products and implement the right solutions. We have seats in over 200 technical committees worldwide. And we work with contractor councils. And we believe the combination of that makes us ideally positioned to understand where the pain points of contractors and end users are and use innovation to make power and data infrastructure more efficient and more resilient. And that's what we do. So let's talk about infrastructure. Infrastructure is such an exciting vertical for us. If you look at this chart, you'll see we've grown over 20% per year over the last 2 years. And this business is now approaching $300 million for us. And whether it's electrification of everything, whether it's sustainability, whether it's digitalization, all of those trends drive the use of more power and more data. And more power and more data requires more power and data infrastructure. And as you can see, we play in many different applications, whether it's data centers, whether it's renewables, whether that's EV charging stations, all our solutions play there. So let's talk through a couple of examples. In energy storage, a big deal is efficient power distribution. And our solutions are easy to install, they're flexible, and they're adjustable. And that is a big benefit for end users. And we see end users having a 50% saving on their installation time. That's huge. And then in the power utility and renewable side of things, we offer many different solutions. One I chose to highlight on the slide is our active lighting protection system. And our active lighting protection systems are easy to install. They're very easy to maintain. They're very reliable and they're very cost efficient. And this is -- plays a big role in the resilience of power utility systems. And then lastly, our Data Solutions. As I said before, our cable management systems are focused at reducing installation time and reducing the need for skilled labor and we deliver up to 30% savings in installation time. So our innovative solutions are critical and they are for efficiency and resiliency. And then talk about commercial. We're excited about our opportunity in commercial. And as you can see on the slide, we grew 15% over the last 2 years, and this business is now approaching $400 million. And we believe in the next couple of years, we'll be able to grow faster than the vertical itself. And the reason we believe that is that we're focusing on fast growth applications within commercial. And these applications are fast growing because they're driven by trends. So let's take a look at those trends. So first off, buildings are getting more sustainable and they're getting more smarter. And when buildings are more sustainable and more smarter, there is more power and data cable in buildings and power and data cable requires power and data infrastructure. Second, our solutions and these trends play, regardless of whether it's a new construction, a greenfield construction or whether it is a retrofit project. So whether there's money flowing to greenfield or retrofits, our products are necessary and they're being used. And then labor savings within the commercial vertical, the scarcity of skilled labor at job sites is a real big deal. And our solutions focus at reducing installation time and reducing the need for skilled labor. That's a big value proposal. And safety. In commercial construction safety is a focus point. And if you think about reducing the need for labor, then you're reducing the congestion on the job site, which is very positive for safety. If you reduce installation time, you reduce the time that people have to spend that elevation, installing power and data cables, and that's also very positive. And last but not least, codes and code requirements. Not only do we have -- if you think about seismic as an example, not only do we have very efficient systems to install, very labor efficiency to install seismic bracing. We also make it easy for our customers to design and build according to code. So we have fast, safe and easy solutions and we deliver efficiency for our contractors within commercial, and we're excited about this space. And then innovation. Innovation is really at the core of what we do. I talked about the fact that we have a large number of people working side-by-side with our contractors and our end users in the field. We have seats in over 200 technical committees and we work with our contractor councils. So we understand where the pain points are for contractors and our end users, and we understand how to use innovation and make our products and solutions even better. So a couple of examples on the slide here. In our cable pathway management systems, we have discontinuous cable support, and that's the first picture here. And we just innovated how we do that. And there's 2 big innovation. First of all, it's even quicker to install, so that reduces more labor, and second of all, it requires that the contractor has less SKUs on his or her truck when they go to the job site. And we learned through a force of customer that that's a really important thing. And if you think about standard prefab assemblies, this really takes labor savings to a whole new level. So we take already very efficient labor-saving solutions that we have, and we assemble them together, sometimes even pre-wire them and make them available to contractors. And that means that the labor savings get amplified and there are even less labor and certainly less skilled labor necessary at the job sites. And then our FleXbus system. Our FleXbus system is all about power distribution between big pieces of electrical equipment, so I think generators, transformers or switch gear. And traditional systems are mostly rigid conductors. And if you think about job site, you think about 2 big pieces of electrical equipment, sitting on concrete slabs. And the as-built situation is just slightly different from the drawing. Then contractors get into trouble if they have to connect these rigid connectors between those 2 pieces of electrical equipment. So our systems is flexible. It's easy to install, and it's adjustable at the job site. And we see that our end users are saving up to 50% of installation time. And that's huge. And it's not just saving of installation time. It's also taking away the uncertainty of crossing delays at job site, which is really important. So our customer intimacy allows us to really innovate and come up with disruptive solutions. And then as I wrap up here today, couple of messages that I want to leave you with. First of all, the electrification of everything is real and drives more power and data usage, and we drive efficiency and resiliency of power and data infrastructure. Second, skilled labor shortage is real, and it's here to stay, and we save 30% of installation time. And third, innovation is key, and we believe we out-innovate the industry. And then lastly, our solutions are critical for power and data infrastructure, and they are applicable across multiple high-growth verticals. We're excited about the future. And with that, I'd like to introduce Brad Faulconer, President of our Thermal business.

Thank you, Robert. Hello, everyone. Good morning. The world is becoming more sustainable and electrified, and I'm going to share with you how Thermal Management is positioned to win. First, a look at who we are. Our RAYCHEM brand is #1 globally in heat tracing. Over 30% of our revenue comes from our rich, large installed base that's in maintenance, repair and overhaul replacement sales. Last year, we grew over 14% organically, and we expanded our ROS 120 basis points. Our vertical diversification has been a key focus over the last few years. As you can see, industrials is my largest vertical, followed by commercial residential and next energy. Just 5 years ago, the energy vertical was over 31% of my revenue. So you can see a big shift through the focused growth initiatives to diversify our overall portfolio. Having said that, energy represents some exciting opportunities in new energy, which I'll talk about in a moment. Under geographies, over 38% of our business is outside of North America. So we are a very global business, and Thermal Management is a leader in electric thermal solutions. Let me talk about our value propositions. We have very strong value propositions. First, we save our customers on total installed cost. A great example of this is our proprietary TracerLynx software platform. This is a platform that we use to help our customers design complex projects. Over $200 million of our revenue today is enabled through the use of this software. Not only do we help our customers with this tool, develop a bill of materials for our products, but it also helps design the electrical layout of an entire heat trace system. It also helps our customers optimize the power distribution which can lower the amount of power cabling and the associated labor that's required to install an entire heat trace system. We also prevent downtime. And a great example of this is our high-power retention technology that we launched just 2 years ago. This extends the life of our self-regulating heat tracing cables up to a 30-year design life at maximum maintaining exposure temperatures far exceeding that of our competition. A restricted pipe flow in an industrial facility can shut down an entire process causing millions of dollars of lost production each and every day. So reliability, performance, quality, that really matters to our customers. We also save on operating costs. So many of our customers are working to reduce their carbon footprint. An example here is our Elexant controls that helps our customers save on energy with an electric heat tracing system. Our controls families range from simple single-circuit electronic devices up to very complex full-scale control and monitoring systems for a large industrial facility. We are growing with the energy transition. We deliver mission-critical electric thermal solutions that enable sustainability. As you can see over the last couple of years, we delivered over double-digit growth. And at this transformation has a significant opportunity for us. And I'm going to touch on 3 of these subverticals within energy. First, natural gas. Natural gas is considered the transition bridge fuel. It's much cleaner burning than oil or coal. Right now, there are significant investments happening in the U.S. and in the Middle East to support the energy transition and needs of Europe as Europe transitions away from Russia' natural gas. In the U.S., for example, in Texas and Louisiana, the customers are expanding with capabilities for natural gas liquefaction and export facilities. And in Europe, places like Germany, Poland, Italy, they're investing in receiving terminals and tank storage. We support mission-critical, electric heat tracing across the entire LNG value chain, and we have executed some of the world's largest LNG projects. In clean fuels, refineries around the world are retrofitting for a new feedstock, a feedstock away from traditional oil to vegetable oils, soybean, corn oil, recycled cooking oils. And this is a major transformation that's happening around the world. We provide our mission-critical heat tracing systems in these applications. Many refineries around the world were built initially with steam heat tracing powered by fossil fuels, as these refineries are converting, they are moving to energy-efficient electric tracing. Also, these refineries have to be able to cope with different feedstocks, all that may have different maintain temperature requirements. Another reason that electric tracing is the best solution. We're finding that these applications are much more intense and controls needs as monitoring and setting the control points are very critical to ensure the process flows as needed. Next, carbon capture. We're seeing significant government stimulus support carbon capture opportunities. This is all about industrial processes that produce carbon dioxide. Removing that carbon dioxide from air and reusing it or putting it into storage. These processes to remove the carbon dioxide, they operate at high temperatures and they need high-temperature mission-critical electric heat tracing. We're seeing investments in a range of industries to invest and install carbon capture from refineries, from chemical industries, cement plants, ethanol -- ethanol, when produced the fermentation process creates a lot of CO2 and hydrogen, blue hydrogen specifically produces CO2, and it needs carbon capture. These applications are also rich in controls technology and a great fit for our high-temperature heating cables and our Elexant controls family. So we see significant opportunities to support this energy transition. Moving to commercial and infrastructure. This has also been a key part of our diversification over the last 5 years, as I mentioned, double-digit growth over the last 2 years. We have differentiated solutions to support safety and sustainability trends here. Just taking some examples in infrastructure and data centers. We have low-smoke, zero-halogen, self-regulating heat tracing cables that are preferred and specified by building engineers. Our products are used in tunnels, as an example, to protect fire protection systems. In data centers, data centers need a lot of water for cooling. And when these data centers are in cold regions, all of the outdoor cooling systems need to be protected by our heat tracing and controls technology. In buildings, we're seeing that increased focus on sustainability and safety standards. Beth mentioned on one of her slides, our RAYCHEM HWAT system that provides hot water maintenance all the way to the tap in a large commercial building. This provides energy savings over traditional recirculating plumbing system and provides lead points for energy and water savings. So we have a number of different differentiated solutions that fit well into these fast-growing applications. And we are -- our RAYCHEM brand is the #1 specified heat tracing brand by building architects and engineers. Let me talk a moment about innovation. Innovation is becoming a key part of our growth. We're innovating across our heating technologies, across our controls platforms and across software. I mentioned our HPR high-power retention technology that we first introduced a couple of years ago and our HTV high-temperature cables. This we're extending that technology into new product families. In controls, we have a wide range of control systems to handle that simple application to that advanced process control. We're adding new products this year to our Elexant family, all connected, IoT-enabled control systems, not only for industrial but also for the commercial and infrastructure applications. And third, software. I talked about design software, but we are launching SaaS IoT-connected software. We see real value and our customers see the value by us delivering insights in order to make sure that they have an optimized performing solution. An example here is, last year, we launched our RAYCHEM pipeline supervisor which is used to monitor critical temperature-sensitive pipelines. And most recently, we installed this solution on a pipeline in Texas that's feeding biofuels feedstock from a tank farm to one of those converted refineries that I mentioned. And our customers saw real value in our pipeline supervisor in order to provide those insights to ensure that they always have a flowing solution. This year, we're launching additional SaaS offerings to expand our range of applications. Today, in Thermal, over 40% of our engineers are software engineers. So this is a big growing space for us. In the electrification of everything trend, we're seeing many customers expand their controls and aging facilities. They're taking old infrastructure, maybe our controls, our competitors' controls or even systems that had very inadequate simple control systems. And we are providing a bundled solution with our controls technology, our software and a life cycle services approach. Many of our industrial customers, they don't have the skilled workforce to support, install and maintain some of this new technology. And so our customers will see real value in our life cycle services offering that we've recently introduced to help enable and support the system upgrades. So just to leave you with a summary, the electrification of everything has significant opportunities for our mission-critical electric thermal solutions. Our solutions are essential to the energy transition and enabling decarbonization and we're winning through innovation. Thank you. And I'll now hand it over to Sara Zawoyski, our CFO.

Thank you, Brad, and good morning. I am pleased to be here today to share with you our strong financial performance and our plans for continued value creation. And before I jump into the numbers, I just wanted to highlight some key messages. First, we are changing the growth trajectory of nVent. And I believe our 2022 performance is a great proof point of that. We are confident in our ability to continue to expand margins, we generate robust, resilient cash flows, and we're raising our midterm targets to reflect our opportunities. So jumping into the numbers, I look back to our financial performance of nVent since spin, we grew the top line 7%, 6% organically, and importantly, our sales are approaching $3 billion. Earnings, we're growing even faster and earnings per share up 38% since spin. And cash flow, our average conversion of net income to cash is 100%, enabling us to deliver $1.6 billion of cash since spin. And since our last Investor Day, March 2021, you can see here on the slides that we are changing the growth trajectory of nVent. So let's take a quick snapshot of our results in 2022. We saw tremendous growth in nVent, with sales up 20% and importantly, 7 consecutive quarters of double-digit growth. Acquisitions added incrementally 2 points to the top line. And as Beth laid out, those acquisition sales are growing even faster than the overall nVent growth rate. We expanded margins despite the fact that we saw over $200 million of inflation, and we delivered record earnings per share as well as cash flow. All in, a fantastic year for nVent, and we saw those results play out in a very strong shareholder return metric. So as we look ahead, we believe we're well positioned for continued growth and value creation. You've heard from Beth and the nVent team, the many investments we're making to fuel nVent's future growth. On the left hand of the slide here, you see our R&D investments. They're up 22% in 2022 and up 32% since spin. And these investments are paying off. You see here, they've contributed greater than $150 million of revenue from new products since spin. And we're targeting, as Aravind laid out, 2 points now of contribution each year from new products. And we see R&D at roughly 30% of sales over time. Now moving to capital expenditures, really, this is focused on growth and high-return investments. More specifically, we're focused on investing in digital as well as capacity related to these high-growth verticals like data solutions. On average, we expect to spend roughly 2% of our -- of sales in regards to capital expenditures. We believe these investments are driving strong returns driving growth and outperformance for nVent. Now pivoting to margins, we believe that the growth, coupled with our lean enterprise and very deep rooted continuous improvement culture to enable us to drive nVent margins greater than 20% over the long term. And really, we see 3 big areas of levers to drive this margin performance. First is growth. Electrification of everything, more sales in high-growth verticals as well as margin-accretive new products will drive margin expansion. The second is operational excellence. And this plays a key role in expanding margins across all 3 of our segments. From optimizing our logistics with an improved transportation system, from bringing more digital, more automation in our factories to also driving simplification efforts that not only improve margins but also throughput of our products, this will also play a key role in expanding margins for nVent. And last, but certainly not least, is functional excellence. So when we think about a broad digital platform and really leveraging that to drive end-to-end process improvements, driving more self-service, more analytics, more insights, that's going to allow us to be more efficient from an SG&A perspective as well as we grow, have a lower percentage of overall SG&A as we move forward. We are confident in our ability to continue to expand margins over time and get that nVent margin at greater than 20% over the longer term. So let me pivot for a moment to working capital and free cash flow, which remains a top focus for nVent. And I'll start with working capital. You'll see here on the slide that working capital as a percentage of sales saw a modest uptick in 2022, really reflecting the strong demand against the backdrop of challenging supply chain. But you'll also note that it represented a marked improvement from where we were at in 2019, which was 23% of sales. Over the long term, those same things that are driving that margin expansion. So lean enterprise, simplification, those are also going to help us drive improvement on the working capital side. And over time, we continue to see opportunity to drive that working capital as a percentage of sales to less than 20%. Now moving to free cash flow. We believe the working capital efficiencies that we're so focused on as a team as well as higher margin expansion should drive those free cash flow margins to greater than 15% over time. If you look at since spin, we've averaged roughly 14%. So again, growth plus margin expansion plus those working capital efficiencies should drive nice free cash flow improvement as we go forward. We believe the significant cash flow that we're generating is enabling us to significantly deploy that for growth as well as value creation. So let me pivot to a moment to capital allocation. Our strong cash generation puts us in a very good position to continue to invest in growth as well as execute our M&A strategy, which is our top priority at nVent. You can see here, we ended the year in 2022 with a net debt-to-EBITDA ratio at 1.4x. So we have ample optionality and significant cash to deploy for value creation. And you see here from an acquisition standpoint, we continue to target return on invested capital greater than WACC in that 2- to 3-year time frame. And importantly, we're going to continue to return cash to shareholders through a combination of dividends as well as share repurchases. Dividends, we continue to target a competitive dividend and we expect to repurchase shares to offset dilution at a minimum. We are deploying capital to drive growth and deliver attractive returns. So let me pivot to a moment to return on invested capital. We are increasing return on invested capital. And you see here, since spin, we've increased it 280 basis points and this really reflects the investments we're making in R&D, digital capacity and acquisitions that are paying off. I'll note for a moment here that return on invested capital is greater than 30% indicative of our high margins if you exclude goodwill. So just as a quick reminder, 2 out of our 3 segments, Thermal Management and Electrical & Fastening Solutions were part of acquisitions pre-spin. So we kind of launched, if you will, as a new company with an outsized goodwill balance of roughly $2 billion related to these 2 segments. All in all, we're going to continue to increase return on invested capital with growth, margin expansion as well as high return investments. So let me pivot to a moment to talk about our value creation model. And importantly, I'll start by saying these are midterm targets, so roughly 3 years. Sales growth, we expect sales to grow at plus 4% to 6% organically. We expect acquisitions to grow on top of that, so greater than 1 point each and every year. And segment margins were targeting roughly 20% for nVent and this reflects margin expansion across all 3 of our segments. And as Joe pointed out, the largest opportunity we see in Enclosures, targeting at 19% to 20%; Electrical & Fastening, targeting 28% to 29% in 2025; and Thermal Management at 24% to 25%. From an adjusted EPS perspective, this growth and expansion, and importantly, the 30-plus percent incrementals on this growth, we expect to deliver EPS within this time range of 8% to 10% plus. And on cash, last but certainly not least, we expect to convert roughly 100% of net income to cash. So all in, we're increasing our midterm targets, really reflective of the opportunity we see around the electrification of everything. Before I wrap up, I just wanted to quickly confirm Q1 and full year guidance that we gave in our February 7 earnings call. From a Q1 perspective, we are seeing orders continue to be up year-over-year through February. We're also seeing positive price/cost as well as that continued supply chain improvement. And for the full year in 2023, we're reiterating our organic growth targets of plus 4% to 6% and our adjusted EPS of $2.51 to $2.61. So all in, we're expecting another good year of sales growth and margin expansion. And so to bring things to a wrap here, I'd like to make a couple of key points here and leave you with these thoughts. One, at nVent, we are building a strong track record of growth, margin expansion and generating and cash generation; two, we have industry-leading positions with strong value propositions that you heard from Beth and the 3 presidents; three, our products and our solutions play a key role in the electrification of everything; number four, tremendous growth opportunities. As we execute our strategy around new products, high-growth verticals, global growth, we see tremendous growth opportunities ahead of us for nVent; and number five, we generate a lot of cash, and that really enables us to put that to use to be able to outperform on the growth side as well as seeing that in returns. So I'll leave you with this. We are confident in our plans and our ability to continue to deliver shareholder value. And with that, we are going to transition to Q&A, and I'm going to hand it over to Tony.

Great. Thanks, Sara. I invite all the presenters back up to the stage here for the Q&A portion. [Operator Instructions] With that, we'll open up questions starting here in the room.

Thanks, Tony, and thanks for the presentation, everybody. So my first question really could be to Joe, Robert or Brad or maybe all of you want to answer this. You guys talked a lot about innovation. You provided helpful schematics around how your products address a particular opportunity. I guess I'm curious, as you have continued to introduce new products, how important has scale been in terms of gaining share of wallet for your customers? And then additionally, given that we're still really early stages on the electrification of everything, I'm curious to hear what your customers are asking you for today that you might not have in your portfolio.

Go ahead, Joe, start.

Yes. So maybe the first part about how important is scale. I think one benefit that we have as a company is we're starting from a position where most of our customers even that are getting into data electrification in these new areas already know us. So they're already usually buying products from us. And I think how we serve them, there's always a little bit of an intimacy that helps related to scaling new products and innovation. I think it's been important. I think it's been a key part of our success. It's also been painful coming through 2 years of the worst chip shortage in the history of trying to scale in an environments like that. But I think that we've been able to demonstrate that a history as a manufacturing and supply chain organization, I think, has helped us there. One thing for me that they're asking for is just as we look at solutions selling maybe in the data space, customers that are getting wind of this in the industrial, and Robert pointed out in the battery storage or the charging space, the same problems exist in industrial, in energy that exist in data. So we're getting asked for those, bring those solutions to other verticals. And I think that's -- it's a good opportunity for us. We didn't talk much about it today, but I think it's there for us.

Yes. I agree, of course, Joe, I think that's all very true. I think in terms of scaling, one of the important advantages that we bring is we have a really good distribution footprint, and we have good relationships with our big distributors and smaller distributors, too. So as we bring out new products, we're able to make them available to end users very quickly to our distribution channel. That's a big positive.

Just to add to that, the scaling -- we spend a lot of time not just improving our new product process with agile, but we spend a lot of time on the commercial process. How do we ensure that we've got the right tools to the sales team, channel partners so we can go fast in presell before the product is out the door so that we can quickly get traction. And as far as our customers on my side, customers are asking us for more services, as I mentioned in my presentation, that the skilled labor and industrial facilities is not what it used to be. And so they're asking us to come do more value-added services, and that's the thing that we're focused on.

Okay. I can maybe just follow on 1 more for Beth. Interesting to hear the positions are now growing faster than the legacy portfolio. Obviously, that begs a question, like why not run faster on the M&A side. And so any color you can provide on the pipeline, where you're really focusing the opportunities. That would be helpful.

I think it's what I had said on that chart that our pipeline is very rich. We've confidence we can do larger acquisitions because the 4 that we've done, we've done so well. And it comes down to just ensuring great products aimed at high-growth verticals and our aim is to get some acquisitions done every year, and we have a really good pipeline, and it's a great value creation mechanism for us. So expect us to do more.

Thank you. Appreciate all the color this morning, putting this together and having it be in person and so forth. So that's great. I'd love to stick with that new product theme because -- and that really has stood out among our coverage in terms of the pipeline and the commitment. And you're seeing it in the results and you're boosting the target, which is meaningful. We appreciate that. I'd love to hear just a little more specifics around the vetting of how you decide which of the 50 that make the list. What are the criteria? Is it return, scalability. I saw ESG ranking. So there's got to be an entire vetting scoring process, I would imagine. And could you also share is that a net number? Is there any cannibalization when you launch a new product? Does it impact any existing products? And is that a net number?

Let me start, Deane, and then I'll turn it to Sara and whoever else wants to jump in. So when we launched a new product, we have some financial metrics. And a couple of things. We now that it's a differentiated product. So we talk about how is this going to create value, and if it's differentiated, that it should be at a higher accretive margin because it is a value to the customer, and we're creating that value. And then we want to look is it scalable? So we always look at what is the potential for growth? Would we get a significant share position because we want to invest in areas where we can really accelerate our growth. So those are some of key things that we're looking at when we just step back and say, why these new products? And Sara, I'll turn it over to you.

Yes. To address your question on the, is it net of cannibalization, yes. So that we look at a couple of different metrics. We look at the net new revenue contribution from products launched in the last 2 years. That's that new revenue contribution that we talk about each and every year in terms of incremental growth on the top line. The other thing look at is vitality. And that's the mix of our portfolio of products launched in the last 5 years. So that's kind of that refreshed look. And I think the other thing that Beth alluded to is the accretiveness of the margin. I mean that's important because it is indicative of that value proposition to that end customer. And so as we would launch new products, we'd expect them to not only kind of boost that top line, but also help our margins as well.

And just as a follow-up for Robert, on that 30% improved installation savings. That's a huge number. And that has been part of the selling proposition. Maybe share for us what that algorithm is that allows you then to get a pricing premium for those products because it is net saving electrician time, which is probably the most expensive craftsman on the job site. So just how does that work? And how does your pricing power fit into that as well?

Yes. Now I think it's a great question Yes, it is a big number. And again, we start with working with our contractors in the field, understanding how things can be better. And then we try to understand, okay, how much value are we creating? And Beth just alluded to it. Our model is all about creating value for end users and creating value for ourselves. So balancing those 2, is it...

Maybe a question for Joe. Back to the liquid cooling dynamics. Has there been some kind of technological hurdle that's been overcome recently that might uncork the adoption. If it is as efficient as it is, it's a little surprising the adoption isn't greater. So maybe kind of talk about that and is there still kind of an aversion to fluids in the cabinet? Or what needs to happen to really get this going a little bit more quickly?

Well, it's -- I mean that technological advance is happening all the time. So if you look at liquid cooling, it's been around for a little while, but some of it has been more liquid to air. So if any of you kids have gaming computers, they've been slapping these liquid to air units on their PCs for 5 or 10 years. What's changing though in terms of hyperscale, in terms of AI, in terms of machine learning is all the chip manufacturers are making liquid-ready chips, which basically means you have a way to pull that heat right from the chip. And our expertise is kind of not necessarily right at the chip, but it's basically moving that heat then and exiting it, so it can be then cooled and then brought back in. And that's transforming at a very, very quick clip. A few other things, though, that are changing related to that is if you look at immersion cooling solutions, so we're partnered with a company to bring immersion solutions. They're basically, the components are being made now ready to be immersed or ready to be cooled. And that's changing, and that's coming at a fairly quick pace. Right now, the hyperscalers are on the forefront because they've been doing some of their own internal design they're ready for it. But I think the beauty of it is, if you look at Edge Solutions outdoor, the scalability of this for high-performance computing in small places is really what we're excited about in the future. And that's -- as these chips come to market, you're going to see more and more of them in smaller situations, the basements of buildings because you can increase density of computing in smaller spaces.

And who would your competitors be there? Would it be kind of the big data center electrical guys that us in the room know? Or is there an emerging set of competitors in this space?

In the space we play in, there are still smaller competitors that are doing this in smaller locations, more R&D type. But you're see some bigger players that are trying to partner with smaller, I would say, [indiscernible]. There's not really a big natural competitor, I would call out, but some of the big names that you may know, they're trying to find out who and how they would partner be able to scale. I think we've been fairly early of trying to bring some of that in-house and hence, our ability to scale it a bit faster.

Maybe just a short-term question on the orders. First, any particular region or geography that's driving that improvement? Or is it just kind of the end of that destock that you've had in Q4 a little bit. And then kind of any specific color on residential and data center markets. I think, Joe, you'd mentioned some sort of ebb and flow element in data center, anything to flesh out on that and then resi as well what you're seeing?

Yes. On the orders, so as we talk about on our earnings call, we did expect as it is with our distributors that they would reduce some inventory in Q4. So orders picked up in January, and they've continued. And that's broadly across all of our segments. And I would say, starting to see some of that increase also in Asia because I think that's where we've seen most of the impact China and COVID where things have been slower to return. I think we're seeing some nice, broad order growth at this time. And then on resi. That is the one area which represents less than 5% of our portfolio that is softer. And on the data side, that's continuing to be strong. And I think it's a matter of where we're positioned. And we've got great opportunities, not only from hyperscalers and some of the new emerging technology. But what we've done with our portfolio is we've really addressed it through how do we work with system integrators, how do we go with distributors, how do we support the commercial contractor doing a data center. So our data center growth continues to be very strong.

That's great. And then maybe just a follow-up question around the data solutions piece. I don't know if you could scale at all how much is liquid cooling roughly.

Well, cooling and power is about 40% of our overall 375.

We'll stay on liquid cooling. Just around, I guess, the adoption rate. Like is this -- is liquid cooling all going in new? Or what's kind of the aftermarket dynamic? And kind of back to the adoption, is it really all about getting these liquid-ready products in or something else to drive that?

Yes, it's a mixture. So starting at the end there, one of the growth areas we see is in these liquid-to-air solutions, which basically, and I was asked this question as we started, what about -- you heard this term precision cooling maybe 5 or 10 years ago. And that's really -- that was about cold aisle containment, which means you're trying to get cooling in a smaller space to be more effective. The next generation of that is this liquid-to-air, which is basically saying, you can use liquid solutions in legacy data centers. So if you have a big legacy install, but you need more computing power and a city like New York is a good example, you could apply those solutions to get at the rack level or row level, more cooling. And those are kind of intermediate solutions. Where you see a lot of the advancement happening though is on these greenfield hyperscalers, where they're -- basically they're ready made for liquid, in some cases, right into the utility system of a city or a town or a well. And those are driving a lot of the technology advances, but you're going to see the miniaturization standardization and that brought kind of roadside basement, institutional airports, et cetera, type solutions in the near future.

Okay. And then battery storage was a new market you mentioned. Just kind of come back to what the opportunity is across the portfolio.

So we think of it as energy storage more broadly. And we look at the things that we're doing, everything from enclosures, to power and cooling, to some of the electrical connection solution. So similar to how we think about data centers, some of those same solutions are going to apply there as well.

Sara, you talked about 3 steps in getting to your higher margins. One of them was the functionality side, including data analytics. Can you unpack that a little bit for us, what that means for SG&A where you have traction right now? Then I've got a follow-up.

Yes. Maybe I'll give you 2 examples. So one of the things that we recently finished up here in the last year is to take everything that we were doing in our EMEA region from a controlling standpoint and put that and build on the beach that we had in Romania actually from our earlier Eldon acquisition. So what that does is that, that gives them that team great visibility to the opportunity to further standardize our processes as well. So that's one example from where we're going to get cost efficiencies. And then from a data analytics standpoint and what I will even say go as far as saying self-service, I mean, when you think about it today, for example, our finance organization spends a lot of time extracting data and then putting that in the hands of business partners to make better decisions. The data lake that Aravind talked about, that's allowing us to really bring all of this data together to organize that data to actually move into self-service model, which then allows our finance business partners to spend more time business partnering and making better decisions and really allowing us to scale without adding a lot more costs. So those are just 2 examples of how we're going to go drive SG&A efficiencies going forward.

The other one is for Enclosures. Joe, when the company immediately upon the spin, I remember back then, there were issues with something in the factories and what have you, and then you inherited that, unfortunately, and then supply chain hit everybody. I'm just wondering with the largest opportunity to drive margins in Enclosures. Do you have everything behind you now? And has the supply chain been more of a -- are you converting that into a learning tool to improve your margins forward?

Yes. From a supply chain standpoint, it's a little bit of a pig in a python where we think the worst of it getting worse is kind of starting to work its way through. And as Sara talked about, I think you're going to see that continue to improve. From a supply chain and an efficiency standpoint, so we did go -- we had a number of new factories that weren't quite that well when we started, and I remember that well. I think that we learned a lot in terms of how to quickly ramp up and improve those. We regionalize a lot of our supply chain before COVID and part of it was because of those issues. And I think we benefited from that through COVID. But also what we're finding is one of the benefits when we acquire companies, and Sara talked about how they're growing faster than our legacy organization, quickly scaling a new integration or new acquisition has been, I think, something we've learned from as we've inherited some of these, gone through some hypergrowth, not perfect. We're not done. I think there's a lot more opportunity there. And one is because we continue to grow and add capacity, and we're in the process, Brad and I right now in Mexico of adding more capacity to support our North American business. So it's a never ending -- it's continuous, continuous improvement.

Okay. Maybe I'll just quick weave in a question from the Q&A online. Probably target to Sara, as we look at commodity prices come down and you look at the 4% to 6% growth target over the next few years, how do you think about price and price versus volume in that goal?

Yes. I mean in that 3-year time frame, I'll just talk a moment about 2023 because that's the year we're in. And despite the fact that we see some easing on the metal side of the equation, I'd like to remind people that our total cost structure. So from sales to operating margin, that metal buyer, that metal cost is less than 20% of that overall cost structure. So we continue to expect to see inflationary environment here in 2023, and with that, we're going to continue to be vigilant on managing that price cost equation as we've done over the last 2 years. I think over time, we would expect that inflation to model back to where it would be more typically and thus, our price would as well. But we continue say that pricing, any part of our cost equation is going to have some sort of inflation, whether that be labor, logistics or otherwise each and every year. So it's something that we're going to have to continue to be vigilant on over time is managing that price cost equation.

Actually, I wanted to pick up on that and I had another question. Sympathetic is probably not the right word, right, but are your customers sympathetic to -- I got inflation in the other 80%, right? I mean what are those discussions actually like? Is it starting to get a little testier about being able to push price? And maybe just any evidence of demand destruction because of inflation. .

Well, I don't think we've seen demand destruction because of inflation because there's also been this challenge of availability, right? The demand is -- there's been a lot of demand and lead time, and we've been fairly good at managing that. But Robert, maybe why don't you start just on pricing, just what you're seeing?

Yes. I think benefits it's well known. So it's not something that we have to explain, really. I think everybody understands we've been talking about inflation of everything for a while and other companies have as well and the newspapers have. So it's not like we're bringing like a new story. Obviously, it's always discussion, you have to be measured, but we're not seeing major concerns on that front at this point.

Right. And then I just had a specific question for Brad, actually. Just don't think of -- I think of cryogenic and everything when I think LNG, right? I don't think heat tracing. So where is it on LNG actually that you would play in your business? And is that actually a sizable opportunity? And then just definitionally, I think energy is down to 14% of the segment, as you define it now. Is there a redefinition in there on what energy is relative to maybe how you define energy in 2018 when it was kind of in the 30% range or so?

Sure. First, on LNG, there is a lot of freeze protection on the process of liquefaction to keep the process pipes free from restricted flow. And then on the receiving terminals, the storage tanks, their cryogenic tanks and so there's heating and foundation to prevent frosty. And so those are 2 of the biggest applications. So in the Gulf Coast, we see freeze protection and certainly back in '21 with winter storm, Uri, we're seeing specs at industrial facilities far south in the Gulf Coast now for winter protection is quite common. From an energy perspective, there hasn't been a reclassification from 5 years ago today. But as far as some of the new energy opportunities, clean fuels some of that does show up in our chemical vertical, which is in the industrial space.

Okay. I think my first question would be for Aravind and I think it's sort of an observation as much as a question. But the acceleration in the new product development, roughly doubling from 32 to 59. I'm struck by the fact that it happened during the pandemic okay. So not only did you have to ramp up the production or the rollout, but you had to change maybe some internal processes and have people working in different locations. From your perspective, how much of that roughly doubling in new product introductions was by your design? And how much would you say was forced upon you by necessity or how much was happy coincidence. Sorry to jumble question, but just your thoughts on that and by extension, how sustainable will that growth be going forward -- 50% reduction in the cycle time for instance?

Yes, 2 things, right? The pandemic is an interesting time stamp for us because that's about the time where we started ramping up agile inside the company. So we made Agile. We are 100% agile in digital and just about the middle of the pandemic, we started bringing Agile into our new product introduction process. And it's a hybrid agile process, right? There are elements of it, there are not agile, the elements that are. And that gave us velocity in cycle time. There are 2 other areas that happened. One is in the portfolio selections itself, the types of products we are working on. We are more platform focused, right? These are big parent products from which you can spin off a lot of child products, so to speak, and we can take technologies from which we develop expertise in 1 area -- application area like data centers and bring it into other areas. So multiple factors give us that velocity benefit once you have technology building blocks and then you combine that with Agile. And of course, some of that is demand as well. There was a lot of demand for our products in some spaces. So allowed us to focus more on those to get them out faster.

And I would add to that, our cross-functional and commercial teams really engaged. So I made the point that you cannot just launch a product without having the digital assets available to be able to sell it through distribution without having the inventory positioned at your distribution and channel partners without having the market collateral. So in addition to the work that the engineering team did, the commercial teams were partnered in the supply chain teams, and it is that cross-functional end-to-end approach to new product introduction that really got us faster time to revenue and got the develop cycle times down as well.

And maybe if I could add just 1 additional point to that. In that COVID year, we had to make some tough choices, right? We manage those decrementals. But 2 things we did not do. We did not make any changes to our new launches, and we continue to stick to our CapEx investment of $40 million that year. I think that's helping, right? And we're seeing the benefits of those investments as we sit here today.

And just on that last one, I remember many conference calls go. I think Beth commented about shifting to online product demonstrations where you were getting 1,000, 1,000 people signing up. Okay. The next question real quick. I was hoping you could size up your EV opportunity, okay, as you see it. So high-growth area, of course, but there's all kinds of competition. Like where is -- where precisely do you think nVent will play most directly in taking advantage of this broad transition to electric vehicles. Are we going to see a RAYCHEM cable in every house? Or is it more -- and I always get the tears mixed up, but the high-speed charging stations. So where -- and maybe across 1 or 2 of your groups, but where is it? And can you size it?

So here's what I would say. We're playing -- as we talk about a lot of our capabilities expanded across multiple applications and verticals. So we've got some closure opportunities. We've got some power connection opportunities. And so one of the things we've been working on is partnering with others, we're trying specced in because we don't want to be a full integration provider in this case. We've decided we want to provide some of the subcomponents and some systems. So I think we've got tens of millions of dollars of opportunities in that scale or can be even more, but that's where we're starting today.

Okay. Just going to take a couple of questions here from online, and then we'll move back into the room. Just a quick -- a couple of quick follow-ups. One, Joe Richard asked about kind of M&A. One additional online is, given the how well we've performed and integrated the deals and the sizes that they've been to date. And the balance sheet flexibility that we currently have, what do you think about in terms of deal sizes going forward with that?

Well, it really comes down to -- we always start with our strategy, so we want great products and high-growth verticals. But what I would say is the biggest deal we did was $100 million of revenue. So we have confidence we could do several hundred million dollars of revenue just because we believe we've got integration playbook and this flywheel worked out. And it's also got to hit our deal hurdle metrics, but we believe we could do some larger deals and have the capacity to do that given our balance sheet.

Okay. And then just a quick clarification question around -- as you look at the stimulus bills in the U.S. and Europe, we talked about, Beth, the $250 million to $500 million new opportunities, is that an annual opportunity? Or is that over a growth opportunity over that 5-plus year time frame that you're looking at?

Yes, it is over multiple years. And it could even extend beyond that 5 years. So it is not annual, all of that spend, right? It's going to take time, just there's going to be constraints on how that money flows and the projects, but we're going to see some benefit of that over multiple years.

Okay. Julian?

Yes. Maybe, Beth, just a follow-up on that point. If there was any kind of high-level view you could give us of how you got to those numbers or if it's easier. Tony can send me the spreadsheet afterwards. And then Aravind, maybe a question for you. You talked a lot about digital specifically and on how it's helping speed up internal processes and innovation. But I wondered more on the customer-facing side, I think you mentioned in the deck some enabled revenue from it, but I wondered if there was any kind of new specific business models you're trying to develop pricing changing, anything like that with the customer as you're launching some of these more digitized products?

And maybe I'll start it off and then others will add. So in terms digital capabilities, facing our channel partners and end customers, right, 3 different things: first is digitizing the product data and making it available. So that's 1 area. And multiple of people -- multiple of us spoke about configuration price in quote tool which is an e-commerce capability, both on our property as well as on distributor property, right, to enable customers to easily configure products and then drive sales from that. We also have pricing tools that we have brought into our company, and that's basically helping us automate some of the process, giving guidance for the pricing processes. So on the front-end, we've also cleaned up the website. So you can see all of that collectively is giving us a better front end when it comes to our customers.

Maybe just 1 to add. A big customer segment for us or integrators or panel shops as we call them. We made an announcement this fall and you'll see more. But we've made in what we call panel shop automation. So tools to help panel shops, be able to integrate easier. They're struggling with labor as well. So with those tools, with some of the modification centers that we put out there and the different pieces of hardware, we're also launching some software to allow them to bring some of those together to make it much easier than some of the old manual schematic based ways of doing things so it's an example of additional tool that we're bringing to market here this year.

Maybe one thing on business, right? Getting to the recurring revenue model is a key focus. I think Brad mentioned that he's got some products launching in that area. That's area of focus for us is to use the data to create more analytics and recurring revenue type, revenue streams.

My question relates to your organic growth sort of past, present, future, how should I think about the level of outgrowth that those numbers imply versus the market? I mean I sort of back out low single digit, maybe a little bit higher than low single-digit volumetric growth. I'm not sure if that's accurate, but maybe are you also, in addition to driving growth in the high verticals, also triaging certain lower parts of the portfolio as well, and that's constraining the volume outlook somewhat?

Well, I would say a couple of things. So one, that growth outlook of plus 4% to 6% is over the next 3 years. Number two, we do expect that to be a combination of price plus volume. And we would expect that to have points of outperformance from an overall market standpoint. Even in the context of this year, we talked about some uncertainties in the back half, for example. And so it has some of that baked in overall from an overall growth standpoint. But we believe that those organic growth targets over that 3-year time horizon to be well within our reach from what we see here today based on our growth plans for nVent.

And maybe as a follow-up, my perception was that over the last year or 2, while you've struggled with supply chain challenges like a lot of companies, you've been able to better meet customer demand. Has that been an advantage over the last year too for nVent? Will some of that carry forward in terms of stronger relationships with distributors or end customers?

Yes. And we -- and I think the team mentioned is that a couple of years ago, even pre-pandemic, we had a strategy to develop more regional supply chains. So manufacturing in region where we can, especially for Joe's business because you don't want to ship Enclosures around the world, having more regional suppliers. So we were working well through that over the last several years. And then when the pandemic hit, I think that served us well. Now there's always some supplier and there's always some issue. But I think we learned how to invest in capacity, we learned how to build stronger supplier relationships. Certainly, our distribution partners have shared with us that we have performed better than many others, and I believe that's allowed us to see the -- have the growth numbers that we did over the last year, and I think it also allowed us to access some new customers.

Could you maybe address the sweet spot you see, for lack of a better term, in Asia. So broadly distributed in North America. Obviously, I don't know if you feel like you have the right to play everywhere in Asia, perhaps you do. But is it following your global customers? Is it a particular void in how the market is served that you're looking to exploit, maybe how you prioritizing the effort there?

Yes, I think it's 2 things, and I'll let maybe Brad and Joe comment here. As we've rethought -- we thought our strategy because certainly you would constraints turn COVID and we couldn't travel to different places. We thought about 2 things. One, serving customers. That is clearly a big strategy for Joe because many of his customers are global OEMs that want to have the same spec and solution anywhere in the world. And we can do that regionally with how we're set up. But the second really comes down to key verticals. So we may focus on different verticals in China, for example, than we are in Europe. And that, we believe, is going to be a winning approach. So maybe Joe and Brad comment from there.

Yes. The key verticals, I think, it is a great point. Our success in China as an example has been there's a few key verticals. We don't do all -- we're not all things to all people the way we are in other regions in our markets or our space. So we picked a few areas of mid- to high-tier high-value add, where we focus on getting on specifications, finding those right opportunities and it's paid dividends. Just in terms of those verticals, too, I mean it's -- you think China it's transportation, it's data, it's smart infrastructure. So there are areas that we can choose where can we be most successful and it gives us that opportunity. We're not huge there, but we're sizable and we're smart about how we apply those resources. So...

Just to add to that. So for thermal, many years ago, we did follow customers to China in the chemical industry. I spent some time living there myself in that period, working with BASF, Dow, DuPont as they built their infrastructure in China. Since then, we've seen a big shift in investment in local Chinese chemical companies. And so being local for local has been a big focus of ours. Our connection systems build in labor savings like Robert's products, but that's not a big value that people are going to pay extra money for in China. So we have more localized products to fit the local customer needs. And we're currently investing in more local products and we see big opportunities. It's in chemical industry, it's in infrastructure, and it's in some of the smart buildings.

Deane?

Yes. Maybe just some color on the One nVent sales initiative because there were slides early in the deck that Pages 17 and 19. I just saw where you had multiple verticals where there were several segments represented selling into the same facility. And if you could just talk us through how the sales team has incentives to do the cross-selling. Are they -- is it 1 team and selling regardless of what segment it happens to be in? And just to clarify that, please?

Yes. I think the area where that comes together, we use the example is data centers because of the access that we have, that we have 1 commercial team that happened to pull through from all of the segments, the different products really based on the opportunity and they're incentivized to sell the nVent portfolio. Then the other -- we've looked at other areas while we may serve the same customers from different segments, sometimes it may be a different integrator versus an OEM, but we also bring things together through our distribution channel. And so we've got strategic account leaders that are also incentivized to sell the full nVent portfolio. So where it makes sense, we bring those relationships together. We look at the whole channel, manufacturers reps, all of those things and are on a continuous journey to just align where it makes sense for us. So we've got the best partnerships.

So this next question would be about labor acquisitions. So you've talked a lot about how you help your customers be more productive, save their time. But your company is growing at a certain rate. And this question has been asked I think I've heard Beth discuss it many times, maybe on a shorter term or what you're doing this year. But if it's the 2027 Investor Day in Europe here, will you say that the strategies that you're employing now will be sufficient to meet your skilled labor needs? Or do you think you have to do some different things, so medium to longer term?

Yes. I mean, look, the world is changing. Everything is becoming more digital. I believe we need to ensure that the capabilities of our team and whether it's training folks in our operations to understand how to run more digital equipment, everyone probably needs to get more trained on data. So I do think that the expectations of our workforce are changing and evolving as the world electrifies and becomes more digital. And I'm sure we'll always have some capacity constraints in different areas that will cause us just like we talk about the opportunity for our customers to automate. We're doing the same thing to ourselves as well. So I think investing in our workforce is critical for us.

Okay. Last question is about your dividend. And one of my New Year's resolutions is to not use the word optics so much. But you're coming up on your fifth anniversary as a public company and the dividend is now what it was upon spin. Your stock price is very different. So what was above-market dividend yield is now much closer, I think, to the industrial average. How do you think about within your capital deployment priorities, how do you think about the benefit, the signaling effect there, my MBA professor would like that work better. But the signaling that an increase in your dividend would do rather than maybe topping up your share buyback program at the current valuation.

Why I would start by saying our dividend continues to play an important role in our overall capital allocation strategy. If you remember the pie chart in the capital allocation slide, if you looked at dividends, it was one of our biggest percentage of deployment on capital over the last 2 years at 31%. And it's something that we continue to look at. Remember that when we spun, we said we kind of spun with sort of an outsized dividend, and that was going to take some time for us to go into. Certainly, we've grown meaningfully over the last 5 years, and it's something that we'll continue to take a look at. I would just end by saying we've been also very clear that we continue to prioritize growth from an organic perspective as well as inorganic, and we believe that, that has great returns for shareholders as well.

Scott?

I was a little bit surprised at the more than 5% of sales software. And I just want to maybe get underneath that a little bit. And I also noticed that there were a lot of bullet points in your presentations about the percentage of engineers that are actually software engineers. So it looks like there's something going on there where you guys are trying to push this a little bit. Could you talk a little bit to that?

Yes, I think maybe [indiscernible] comment further. When you think about some of our products, some of them don't have software in them. Some of Robert's products will never have software in them because once they're installed, you want to forget about them. But the tools that are required to help our customers select for seismic loading, or for light a really critical, and the tools for helping a panel builder build a product very efficiently. So we think of software as a continuum that is important to drive efficiency of the design, installation or build a process. Now having said that, we are moving everything that Brad does as a controller associated with it. And everything is becoming connected and to enable some of his services, he needs to have embedded software and some of Joe's on the data solutions side with some of his power distribution units. So I think we believe we're going to -- there's more and more software requirements, right? Just as this discussion, we have to have more digital savvy people. And so those investments are really critical as we think about the future where everything is headed.

Joe?

A lot of discussion on growth today. It's interesting that we haven't really talked much about recurring growth, and I'm curious what kind of emphasis if your emphasis has changed at all over the board on trying to have stickier growth across some of the different offerings that you have today?

Well, we certainly do think about it. Now in Brad's business, his chart, he showed that 1/3 of his business is MRO and from an installed base because he has very direct customers and large systems. For Joe and for Robert, it's more about getting that repeat customer. Remember, most of what Joe and Robert do goes through distributors. So sometimes it's in an enclosure or those fasteners, they last for a long time. But having said that, we look at opportunities where there is more recurring revenue. And Joe, maybe just about that from your business.

Well, there's a statement that we talk about of innovation that drives adoption, which is bring the solution to the market, and then you'll create that stickiness and that awareness. And I think that's important. Here you've seen a shift in our business. We're probably not the only 1 from the shorter cycle as a part of our business to a longer cycle, where they're looking at projects, next gen, next gens, next gens. And that's a part of our business that upon spin. We didn't see a lot of that. So that's a key part of the stickiness to your point or the long-term life cycle of you work on install A, but you're on install 400 at the end of a couple of years, and we work with them in that journey through innovation. So yes, I mean, it's an important part of our strategy.

Makes sense. And 1 other quick 1 for Brad. Going back to the LNG opportunity, a lot of discussion right now and how much MTPA is coming out there over the next decade. I'm curious if you guys size what your content per new LNG plant is?

So we have a lot of data on past projects, and it depends where you are in the world for the level of the Delta-T and how cold it is and how much heat is needed to put in the pipe. So in extreme cold, polar environments, Northern Canada, it's -- the total opportunity is roughly 0.3% of CapEx from a total -- it doesn't mean that whole scope would be ours, but that's the total heat management system. And then in the Gulf Coast, it's 0.1% to 0.2% of total CapEx. And again, it's the total and then we would play in different parts of that depending on the value.

Great. Thanks, Brad. That will conclude the Q&A portion of the program. Thank you for all those in attendance in person and those following online for the meeting. We very much appreciate it. We very much believe our future is bright, and that will conclude the meeting. Thank you.