nVent Electric plc (NYSE:NVT ) Q2 2022 Earnings Conference Call July 29, 2022 8:30 AM ET

Tony Riter - Vice President, Investor Relations

Beth Wozniak - Chief Executive Officer

Sara Zawoyski - Chief Financial Officer

Nigel Coe - Wolfe Research

Jeff Sprague - Vertical Research

Jeff Hammond - KeyBanc Capital Markets

Deane Dray - RBC Capital Markets

Joe Ritchie - Goldman Sachs

Welcome to the nVent Electric Second Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note that this event is being recorded.

I'd like to turn the conference over to Mr. Tony Riter, Vice President Investor Relations. Please go ahead.

Thank you, Nick and welcome to nVent's second quarter 2022 earnings call. On the call with me are Beth Wozniak, our Chief Executive Officer; and Sara Zawoyski, our Chief Financial Officer.

Today we'll provide details on our second quarter performance, provide an outlook for the third quarter, and an update to our full year 2022 outlook. Before we begin, I will remind you that any statements made about the company's anticipated financial results are forward-looking statements subject to future risks and uncertainties. A such as the risks outlined in today's press release and 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 materially from anticipated results.

Today's webcast is accompanied by a presentation which you can find in the Investors section of nVent's website. References to non-GAAP financials are reconciled in the appendix of the presentation. We'll have time for questions after prepared remarks.

With that please turn to slide three and I will now turn the call over to Beth.

Thank you, Tony and good morning everyone. It's great to be with you today to share our outstanding second quarter performance. Our nVent team has done a tremendous job serving our customers, responding to strong demand, and overcoming supply chain challenges.

Our second quarter performance once again exceeded our guidance on sales and earnings. Our strategy to focus on high-growth verticals, new products, and global expansion, combined with strong execution were key to our success.

We delivered record sales in Q2, growing 21% with broad-based growth and strong contribution from both price and volume. Orders grew double-digits in the second quarter and we exited with a solid backlog. Our ROS improved 130 basis points sequentially. Our Q2 EPS grew 14%. Given our strong second quarter results, we are again raising full year sales and adjusted EPS guidance.

Now, on to slide four for a summary of our second quarter performance. Sales in the quarter were up 21% organically with double-digit growth in each segment and vertical. This was well ahead of our Q2 guidance, driven by both price and volume. Our results continue to show we are winning and executing well.

New products added three points to our growth and we're on track to deliver 50 new products again this year. We generated $48 million in free cash flow and our adjusted EPS of $0.57 was up 14% from the prior year.

Overall growth was broad-based across our key verticals each organically growing double-digits. Infrastructure led the way with continued strength in data solutions and power utilities. Commercial and residential grew double-digits driven by North America and Europe. Industrial continued its broad-based growth particularly in material handling, automotive, food and beverage, and chemical. And finally, in energy, we continue to see a nice recovery particularly in MRO.

A driving factor in our strong results continues to be our focus on the electrification of everything. We believe we are one of the best positioned companies to grow with the secular mega trends.

Looking at our geographical sales performance, we continue to see the strongest growth in the North America, up nearly 30% in each of the segments. Europe was up high single-digits and developing regions declined slightly.

Looking ahead, we are raising our full year sales and EPS guidance, reflecting our second quarter performance. Our ongoing strength -- strong orders and backlog gives us confidence in the rest of the year.

While our outlook remains positive, we continue to be cautious given the macro uncertainties and ongoing supply chain challenges. We remain confident in our ability to execute and deliver for our customers and shareholders.

I will now turn the call over to Sara for some detail on our second quarter results and our updated outlook for 2022. Sara, please go ahead.

Thank you, Beth. I'm pleased to share with you another quarter of strong performance with both sales and adjusted EPS above the high end of our guidance.

Let's turn to slide 5 to review our second quarter results. Sales of $728 million were up 21% relative to last year on both a reported and organic basis. Volume was strong, adding nine points to growth with price contributing 12 points. Acquisitions added another four points, which was offset by a four-point FX headwinds.

Segment income was $125 million up 14% on strong sales growth. Return on sales improved sequentially to 17.2%. While down 110 basis points year-over-year, the performance improved compared to Q1 as we indicated it would in April.

Price offset total inflation of approximately $65 million in the quarter. In addition, we continue to make investments in R&D digital and sales and marketing to support our customers and fuel future growth and productivity.

Q2 adjusted EPS was $0.57 up 14%. We generated $48 million of free cash flow in the quarter, an improvement from Q1. This is lower than prior year mainly due to higher inventories to address supply chain issues and support robust demand.

We expect momentum in cash flow in the second half reflecting our seasonal strength and working capital improvements. All-in higher volumes and price cost improvements drove the better-than-expected results in Q2.

Now please turn to slide 6 for a discussion of our second quarter segment performance. Starting with Enclosures. Sales of $381 million increased 27%. Organically, the segment grew 23% with another quarter of strong contribution from both volume and price.

Sales growth was broad-based across all verticals with strength in infrastructure particularly data solutions. Geographically, all regions grew double-digits year-over-year led by North America.

Acquisitions also contributed to perform exceptionally well adding eight points to growth with a standout performance in CIS Global up over 35%. For Enclosures orders were up strong double-digits in the quarter similar to sales growth.

Enclosures second quarter segment income was $62 million up 15% driven by another quarter of tremendous volume growth. Return on sales was down year-over-year, however, improved 220 basis points sequentially to 16.2%. This performance mainly reflects improving price cost.

Global supply chain challenges have eased a bit, but remain a headwind to productivity. In addition, we continue to invest in growth and capacity to position us well for the future. We expect return on sales performance to continue to improve sequentially with better price cost and improved productivity.

Moving to Electrical & Fastening. Sales of $201 million increased 22% organically with strength across all verticals led by commercial. Geographically, North America led the way with strong double-digit growth.

Orders outpaced sales again in Q2. Pricing remained strong demonstrating the value our labor-saving products provide to our customers. Volume in the quarter was impacted by supply chain constraints. However, our improved output in June coupled with strong orders and backlog give us confidence in the second half.

Electrical & Fastening segment income was $59 million up 20%. Return on sales was 29.3%, up 40 basis points relative to last year. Price offset higher-than-expected inflation and we continue to invest to support our customers and drive growth.

Now turning to Thermal Management. Sales of $146 million grew 15% organically driven by strength in industrial. High margin industrial MRO growth continued to be robust for the fifth consecutive quarter up mid-teens. Geographically North America and Europe were both up strong double digits. Overall, orders were up low single digits impacted by China lockdowns and Russia, we continue to see robust orders for longer cycle projects.

Thermal Management segment income was up 14% to $28 million. Return on sales expanded 50 basis points year-over-year to 19.4% driven by volume and positive mix contribution from industrial MRO.

On Slide 7 titled balance sheet and cash flow, we ended the quarter with a cash balance of $56 million. We also have an additional $442 million available on our revolver. Our healthy balance sheet provides us with ample capacity.

Turning to our capital allocation priorities on Slide 8. We exited Q2 with a net debt to adjusted EBITDA ratio of two times at the low end of our target range of two to 2.5. We believe our robust balance sheet and cash generation puts us in a great position to invest in growth and execute on our M&A strategy.

Year-to-date we returned $67 million to shareholders, including a competitive dividend and share repurchases. We expect to continue to deploy capital to drive growth and deliver attractive returns for shareholders.

Now moving to Slide 9 titled 2022 nVent outlook. We are off to a strong start, with sales up 24% and adjusted earnings per share up 15% in the first half. As Beth highlighted earlier, we are raising our full year sales and earnings outlook. This reflects our strong first half performance and higher pricing assumptions, partially offset by greater FX and inflationary headwinds.

A couple of other key points to call out. While we saw a gradual improvement in the supply chain through the quarter, we expect challenges to persist. For the year, we expect pricing plus productivity to offset inflation. We will continue to invest to support our customers and we now expect corporate costs of roughly $80 million mainly to higher investments and inflation.

For organic growth, we now expect a range of 15% to 17% versus our prior guidance of 11% to 13% for the year. Adjusted EPS is expected to be in the range of $2.17 to $2.23 versus our prior guidance of $2.14 to $2.22. This new guidance reflects earnings growth of 11% to 14% on top of the 31% EPS growth in 2021.

For free cash flow, we now expect conversion of adjusted net income in the range of 90% to 100% due to higher working capital to support our strong sales growth and backlog amid the challenging supply chain. We are watching the macro environment closely, which remains dynamic and uncertain, we continue to scenario plan and will be ready to respond as we have done in the past.

Looking at our third quarter outlook on Slide 10. We expect organic sales to be up 13% to 15% and adjusted EPS to be between $0.58 and $0.60. At the midpoint, this reflects 11% earnings growth relative to last year.

Wrapping up, I am pleased with our second quarter performance. We continue to execute well with strong customer demand and demonstrate our ability to manage price costs. Our acquisitions continue to generate great value for customers and shareholders. And importantly, we continue to invest in capacity and growth for the future. With a successful first half, we believe we're set up for another great year.

This concludes my remarks and I will now turn the call back over to Beth.

Thank you Sara. Turning to Slide 11. We've had a consistent strategy since we became a new company that has been driving our success. With the electrification of everything, we believe our growth strategy will continue to drive our performance. Our focus is on high growth verticals, new products and innovation, global growth and acquisitions and partnerships.

Turning to Slide 12. Let me provide some highlights of how we're executing on our strategy. Looking at the high growth vertical of data solutions, which includes data centers, networking and communications, we expect sales to grow approximately 30% this year. This vertical now represents more than 10% of our overall nVent portfolio. We've grown our offerings from networking and server cabinets to liquid cooling solutions, power distribution units, and cable management. We've strengthened our portfolio with acquisitions and technology partnerships. We've had many large multimillion dollar wins with key customers, as a result of our differentiated offerings.

Our liquid cooling solutions for example are more energy efficient and sustainable, reducing power consumption in a data center and improving reliability. New products and innovation is another key tenet of our strategy. Year-to-date, we've launched 20 new products on a path to 50 for the full year.

New products have contributed three points to our overall sales growth in the first half. One of our new products, our FleXbus connection solution enables up to 50% faster installation and introduced total installation costs by 20% or more. We have found it to be safer and easier to install, highly reliable, and easily customizable. This new product has applications across many high-growth verticals from energy storage, to e-mobility, to data centers. We're seeing significant wins with this new product.

On acquisitions and partnerships, I want to share that we recently announced an investment in a company called Iceotope. We are collaborating to offer innovative precision emergent cooling solutions, expanding our cooling portfolio for data center and computing applications. We recently celebrated the one-year anniversary of our CIS Global acquisition.

With its innovative new products and technology and strong customer relations, it has grown over 35% in the first half. We are investing in this portfolio and have opened two new factories, including one in Thailand this quarter. This is key to our global expansion to increase capacity and serve more global data center customers. We're moving with velocity and our results demonstrate that we are winning with our growth initiatives.

Moving to slide 13. Earlier this week, we published our 2021 ESG report. And I want to give you an update on our ESG progress. In the 2020 report, for the first time we outlined goals in each of our three pillars, people, product and planet.

I'm pleased with the tremendous progress we have made in each of these three pillars. On people, we have made great strides in inclusion and diversity, and our safety performance. I'm very proud to highlight 17% of nVent's Board of Directors are diverse.

We believe our culture and our people are a differentiator for invest, and we are now a great place to work certified company. On products, we have set new long-term goals, including increasing the number of new product introductions, with positive ESG impacts. This aligns to our vision of developing innovative solutions that deliver efficiency, safety and reduced resource consumption.

On planet, we've updated our goals to be more ambitious, after making significant progress in 2021, reducing our Scope 1 and 2 CO2 emissions by 15%. Our new goal is to reduce Scope 1 and 2 greenhouse gas emissions by 50% by 2030. With ESG, at the center of our strategy, we are building a more electrified and sustainable world, and I'm excited about what the future holds for nVent.

Wrapping up on slide 14, we delivered another strong quarter. We are executing well and winning with our growth strategy. And that gives us confidence in the future. We've made significant progress on our ESG commitments. We expect double-digit sales and EPS growth for the year, and believe we are well positioned for the electrification of everything. Our future is bright.

With that, I will now turn the call over to the operator to start Q&A.

We'll now begin the question-and-answer session. [Operator Instructions] First question comes from Julian Mitchell, Barclays. Please go ahead.

Good morning. Maybe just a first question on the orders and the top line. So, just wondered on the orders front, what you're seeing in Europe right now? And then more broadly on the Thermal business, do you see the orders picking up there after those headwinds in Q2? And when we look at the revenue line, are you assuming low single-digit volume growth firm-wide in Q4?

Good morning, Julian. So let me just start on the orders. So generally our orders have been in line with our sales. And when you look at -- as we commented we have the strongest sales in North America and that is -- we have the strongest orders growth in North America. And generally our European orders followed what we're seeing in European sales, so less than North America.

On Thermal Management, we've had a couple of disruptions there. Remember Thermal Management is our most global business, and so there we were impacted by some of the lockdowns in China and we work on the longer cycle projects as you know, and also some of our business in Russia as we have chosen not to pursue any new business activities. So -- but as we looked at the beginning of July, orders across all of our segments are very strong as we enter this next quarter.

And then Julian on your question I think in terms of volumes from a Q4 perspective let me give a little bit of color there. So we would expect to continue to see strong contribution from both volume and price in the back half. Now, we'd expect to see a little bit more on the volume side in Q3 than we would in Q4. But again we expect each quarter to contribute from a volume perspective. And that's simply more of the two-year kind of stack lap if you will of the volume that we saw in Q4 of a year ago. But overall we continue to expect both volume and price to contribute nicely across the top line in the back half.

Thank you. And then just my follow-up would be around -- you mentioned a larger inflation assumption in your guidance for the year. When we're looking at that slide 5 with the segment income bridge that net productivity number the $80-ish million figure in Q2 that was a similar figure in the first quarter. How are you thinking about that for the full year?

Yeah. So two things on that front. I'll take the last point first. From a productivity standpoint, we talked about in that $82 million net productivity number in that walk, roughly $65 million of that is inflation. So the balance of that really is a couple of things. One is going to be productivity and that's still showing up negative as we sit here today just given the strong demand that we're seeing, amidst a very challenging supply chain. So we're still seeing those inefficiencies in the factory, getting a bit better right, as we suggested gradually through the quarter.

The other thing are those investments that we continue to make to be able to fuel that growth. I think as you look in the back half, I think the most significant thing I would point out from a year-over-year is just the easier comparison because remember that Q3, Q4 is when we really began to see those supply chain challenges show through in terms of that productivity line.

So we would expect that productivity year-over-year to get better, but from a sequential standpoint it's important to note that we're not counting on if you will that supply chain getting meaningfully better.

I think your question in terms of inflation what we're seeing. And I would say a couple of things. From an overall commodities perspective, from a spot perspective, we are seeing some easing there. It's important to keep in mind that with our locking strategy on much of our metal buys that tends to have a quarter or two lag.

The other piece I would say we're seeing meaningful inflation outside of metals. So what I would call significant broader inflation whether that's wage, health care, logistics significant inflation that we're seeing energy costs. So we're seeing that broad-based inflation. And so that's where we continue to have to manage that price cost equation. As we see it on the material front, but I would say generally as we're seeing more meaningful inflation outside of material.

That’s very helpful. Thanks very much Beth and Sara.

Thank you. Our next question comes from Nigel Coe with Wolfe Research. Please go ahead.

Good details as always. Good morning. So just Sara I just want to pick up on your response on price cost. I think, you mentioned of the $82 million bucket in the margin bridge $65 million of inflation. So it looks like roughly $9 million of project price cost. How do you see that evolving? And, I guess, the real question is how should we think about pricing over the back half of the year? And you mentioned inflation ex-metals. So how would you describe the pricing conversations right now with your customers?

Well, let me start with the pricing piece of that. I think, we're in an inflationary environment. And so our customers and our channel partners are understanding of all because they're experiencing it as well when you look at wage inflation energy inflation logistics all of those things.

So really what it comes down to there is just having good lines of communication so that everyone understands when price increases are coming, but there certainly isn't a question about why are we having price increases. So that has just been an ongoing situation I would say for over the last 12 months to 18 months.

And then just from a numbers perspective, we talked about this in our prepared remarks is that we would expect that price cost equation to improve in the back half. We're going to continue to -- continue to be vigilant managing that price cost equation as we continue to see inflation in some of these costs outside of the material front. But we would expect that to improve in the back half. And Enclosures is a big part of that improvement as we look to Q3 into Q4.

Okay. I do have a follow-on question, but just on that point. So, obviously, the price cost balance is still margin dilutive, but it looks like a low double-digits on the price increases. But -- would you expect that margin kind of to neutralize and by the time we get to the end of this year. So just wondering about that.

But just I wanted to ask a question on data center. A relatively small, but important market for you guys. A lot of debates around data center investments just given the fact that a lot of these tech customers are getting smoked right now. So how do you see DC investments and the outlook for the next 12 months to 15 months?

We're very positive on the outlook. And I think because when we think about data centers, we don't have to serve the hyperscale data centers. We're looking at networking communications. We're looking at the edge and other computing applications. And I think one important point I want to make is we've talked a lot over the years about our liquid cooling capability that we're investing in and expanding.

If you think about liquid cooling it really is a sustainable, more energy-efficient solution and as data centers with a lot of computing power getting hotter it's a retrofitable solution in some cases, but it really is an investment that has a good payback. And so that's where we're seeing this liquid cooling which is a new technology shift really taking off. So from our standpoint we believe we're going to see solid growth in data centers for many years to come.

Great. Thank you very much.

And Nigel, I think, you had started that question in terms of ROS and price cost. A couple of things. I would say that implied in our guidance is margin expansion in the back half. We would expect that to be more so in Q4 with Q3 showing that sequential year-over-year ROS improvement, because you're right that price cost dynamic even as we covered off on our inflation here in Q2 it is having an outsized impact from a year-over-year ROS perspective. But we're confident in getting to ROS expansion during the back half really was improving that price cost equation. And I think the second piece is the productivity element that we talked about a little bit earlier.

That’s great. Thanks very much.

Thank you. Our next question comes from Jeff Sprague, Vertical Research.

Thank you. Good morning, everyone.

Good morning. A couple of things from me. First just on supply chain. Can you elaborate on where the issues are? Is it still kind of tilted towards electronics or is there some other and a bottleneck that's new or different that's emerged?

Yes, I would say we're not -- it's still those same things that we've seen electronics definitely. I would say in our EFS business starting from last year that we had some challenges there just with even some of the material input that we had as well as recall some of China get shut down and so that had some impact across our businesses as well. But it's the same challenges, but it is getting better and electronics is still an area that we're focused on as well.

And then in your prepared remarks you actually mentioned strength in resi. That sounds a lot different than a lot of other things we've heard on resi this quarter. So, I just wonder if you could give a little color on that and maybe the visibility you have there?

And also just looking at Q3 I think your guide implies that Q3 revenues would be down sequentially. It's not clear to me why that would be the case based on kind of seasonality and order trends. Maybe you can give us a little color there also.

Okay. Let me start with -- in my comments I talked about commercial and resi and we sometimes will group them together because really resi for us isn't a significant segment. So, we kind of group that together.

Some of that resi businesses from our thermal management will reduce some underfloor heating. So, when we look at that combined commercial and residential business, it was strong for us not only in thermal management but the commercial side of EFS. So, that's what that comment pertained to.

And then Jeff from a sales perspective, it simply is I think what Beth alluded to earlier from a sequential perspective -- from a Thermal Management perspective. So, typically that seasonal uptick is in the Thermal Management business. We're not seeing that in learning price in that April timeframe.

And things transpired from the Russia-Ukraine conflict and we made the decision to not to spend new business in Russia. So, that you're just seeing that impact there in the back half particularly in Thermal Management. We've talked about Russia being roughly 2% of sales for overall nVent. Most of that is in our Thermal Management business. So, you're just seeing that reflected in that overall guide.

Great. Thanks for the color. Appreciate it.

Thank you. Next question will be from Jeff Hammond, KeyBanc Capital Markets. Please go ahead.

Just back on that Thermal, can you maybe just spike out how you're seeing industrial MRO playing out? And if you still think that's a mix positive driver into the second half. I know you cited a number of moving pieces there.

Yes. And as we've commented industrial MRO has been on an uptick. And usually it's not something as we've seen in previous times that it bounces back all in one year it takes a couple of years. That combined with some focus we have with some of our new products and looking at just how we support services we expect that MRO business to continue to grow for us and provide some strength and have a positive mix impact in the back half of the year.

Okay, great. And then I think you said in the prepared remarks EFS was particularly strong in June and it sounds like broad in July particularly EFS what do you think is driving that inflection? Is that where a lot of the new products are or is it a market dynamic? Just a little more color there.

Yes. When we made that comment EFS had some of those supply chain challenges so great orders and backlog, but our ability to execute that and get that out and we've worked through some of those bottlenecks. So, we saw some strength there through June and July. But I would say what's driving our growth there is a couple of things that portfolio focuses a lot on power and data infrastructure. We've launched a lot of great new products that are labor-saving solutions. So, in times of labor constraints, they do very well.

And as I gave that one example we're finding some new product applications that are -- this electrification of everything that are really well-suited to the growth that we're seeing in building out some of that infrastructure. So, it's really sitting in great high-growth verticals that have some nice secular trends, new products and then our own ability to drive our execution through our manufacturing plants.

Okay. If I could just sneak one last one in on -- back on the data center comment, what's your mix that's -- you said you're kind of maybe underexposed to hyperscale. But if hyperscale were to be the area to slow, do you feel that at all, or just maybe frame that a little bit more?

Yes. I mean, I think, we're fairly well balanced between hyperscale between some of the system integrators network and communication. I mean, we're really trying to provide solutions, whether it's a closet, whether it's an edge, or whether it's all the way to a hyperscale account.

And I think we believe we've got plenty of opportunity to continue to expand with our product. And with power distribution units now and liquid cooling, we're very positive in terms of how we look at growth and it doesn't have to rely on greenfield applications, as I mentioned earlier, because liquid cooling is an energy-efficient solution that can be retrofittable.

Okay. Thanks so much, Beth.

Thank you. The next question will come from Deane Dray, RBC Capital Markets. Please go ahead.

Thank you. Good morning everyone.

Hey, can we start with inventory in the channel. Just give us an update sell-in sell-through where do you think your distributors are today?

Yes. This is something that we track very closely, as we look at this uncertainty and just trying to understand how it's playing out. A couple of things. One or the sell-out and sell-in remains robust in both cases. We believe that we're increasing our position as it has been our strategy to expand with some of our key channel partners, and we believe we're doing that well. And so at this point it's an area that we watch, but I think we're seeing good sell-through of our products at this time and it remains in balance is how I would speak to inventory.

Good. And then for Sara, the trimming of the free cash flow target, look, this -- we've seen this everywhere in the sector. So, could you just -- and we understand the dynamics here. But on the working capital side for inventory build, is there any way you can just parse out how much of the additional inventory is what you would classify as supply chain inefficiencies where you're carrying more buffer inventory? And then how much of it is building inventory ahead of satisfying all that demand and backlog.

Well, here's what I would say, Deane, is we're seeing obviously a little bit of vol, especially coming into the year and some of the supply chain backdrop, we prioritized delivering for our customers. And so with that even in some of our long lead time supply elements, we leaned in from that perspective. And so you saw that in Q1, Q2, I think, the other thing that's probably exacerbating what you see here in Q2 is what was happening in China, actually Ukraine, and some of that getting stuck if you will here in Q2.

I think the other piece of it is that we've been talking about this and you see it converting right into sales, but we still sit with a lot of backlog and the orders continue to be strong. And so those two things coupled right we're seeing higher inventory levels. Now at the same time, right, Deane, we're very focused on our working capital initiatives. Nothing has changed from that standpoint. And so we still continue to see opportunity. So as we -- as the supply chain settles down a bit, we expect to get back to what you guys have counted on us for and what we're driving to and that is that 100% conversion of net income to cash.

That's good to hear. And then just lastly on the Thermal side a lot of discussion about industrial MRO. How about on the energy side and energy projects, we're still kind of waiting for those to kick in. What can you tell us about either front log or quote activity just expectations on how that may play out?

Yes. We are seeing "activity" pick up and globally, right, as everyone looks to have more energy independent, but these are typically longer cycle projects. And so our view is we would expect that got to translate into growth in the outgoing years. So things are picking up, but we're not going to see that conversion into revenue. It's more this longer cycle.

Thank you. [Operator Instructions] Next question comes from Joe Ritchie Goldman Sachs. Please go ahead.

Thanks, and good morning everyone.

Hey hi, just on the price cost dynamics, as we head into 2023, I know we still got a lot of ways to go. But you are you did mention you're seeing some of your base metal pricing come down consistent with what we're seeing across the industry as well.

I'm just curious, how is your pricing mechanism going to work in 2023, if commodities due to flat will you be able to keep most of the pricing you put through? Will some of it go back to your customers? How is that going to work across the portfolio?

Yeah. A couple of comments I would make on that, is one, that as we think about pricing it's not just based on commodity metals. There's, all the other inflationary elements.

And two, I would say as we think about new products in some of our portfolio we look at labor-saving solutions. So as we come out with new products we're creating more new value. Those typically command stronger pricing because in a time of labor shortages there's a real value equation there.

And three, I would just say, even as we think about our distribution partners they hope -- they manage price through to end customers. And certainly their view is the pricing levels hold just because of the inflationary environment that we're in.

So that's our view next year that we're still going to see strong pricing, just as a result of just this inflationary environment. And we believe, we're going to be able to maintain that those pricing levels given all the dynamics that are going on.

That's great to hear that. And I guess maybe just following up on that. For EFS this quarter I don't think I've seen the Q come out maybe it has. But what was the pricing component of the organic growth in EFS?

And then, it's really interesting to see those margins are like really very close to approaching 30% despite what's probably no benefit really from the price cost dynamic. I'm just trying to get an understanding of the trajectory of the EFS margins and the progress that you guys have made there?

Yeah. So from a price cost perspective much of that top line this quarter was contributed from a pricing standpoint. As a volume like we said in our prepared remarks we're seeing strong customer demand, strong volume in orders in backlog and would expect that to contribute both volume and price here in the back half.

From a margin perspective, we said that, we see margin expansion opportunity in this business longer term. We've been able to execute on that. We had I think 180 basis points of margin expansion last year. A lot of that is coming through productivity in the factories.

We said we were in this lean journey in Electrical & Fastening. And I think that team has made a lot of progress there still more progress to make. I think the other piece that he touched upon earlier, is there is strong labor savings attached to a lot of our portfolio their Electrical & Fastening. So the value proposition that that brings to our contractors to our customers is meaningful as well.

Thank you. Well thank you for joining us today. We're very proud of the outstanding performance we delivered in the first half. We will continue to focus on delivering for our people, customers and shareholders.

We're executing on our strategy to make nVent a top-tier high-performance electrical company. We've made great progress on our ESG commitments. We believe nVent is well positioned for the electrification of everything. Thanks again for joining us. This concludes the call.

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