Good afternoon. My name is Devon, and I will be your conference operator today. At this time, I would like to welcome everyone to the nVent Q3 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I will now turn the call over to J.C. Weigelt, Vice President, Investor Relations. Mr. Weigelt, you may begin your conference.

Thank you, Devon, and welcome to nVent's third quarter 2018 earnings call. We're glad you could join us. I'm J.C. Weigelt, Vice President of Investor Relations. And with me today are Beth Wozniak, our Chief Executive Officer; and Stacy McMahan, our Chief Financial Officer. On today's call, we will provide details on our third quarter performance, as well as our fourth quarter and full-year 2018 outlook. Before we begin, let me remind you that 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 today's press release and in nVent's filings with the Securities and Exchange Commission. Forward-looking statements included here 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 can be found in the Investors Section of nVent's website. Any references to non-GAAP financials are reconciled in the Appendix of the presentation. We'll have time for questions after our prepared remarks. And now, I will turn the call over to Beth.

Thank you, J.C. Good morning, and thank you for joining us. nVent delivered strong results during the third quarter with all segments growing organically and nVent's first full quarter post spin. Beginning on Slide 4 of the earnings presentation, sales of $564 million grew over 5% organically, which was above the top end of our prior third quarter guidance. Return on sales was 40 basis points above the midpoint and adjusted EPS was at the midpoint of our previously issued guidance. Robust return on sales expansion in Electrical & Fastening Solutions and year-over-year expansion in Enclosures helped drive third quarter return on sales of 20.4%. Segment income for the quarter grew approximately 1%. However, excluding corporate and other costs, segment income grew approximately 5%. Adjusted EPS of $0.46 was at the midpoint of our prior guidance as the return on sales expansion we experienced was slightly offset by a larger than expected roughly $0.02 headwind from changes in foreign currency. Turning to Slide 5. One of the larger strategic components of standing up the company is our One nVent strategy. We understand our strengths and where we have opportunities to align across the business as One nVent. Our goal is to scale our capabilities across the entire organization, and let me provide examples of where this is working. One example is our channel partner relationships. Historically, these relationships were primarily at the segment level and very few of the larger channel partners knew all of our brands or that they were even part of nVent. In some cases, we are a top 10 supplier, but we never had broad strategic relationships across the portfolio. This is rapidly changing under our One nVent strategy. Today, we have a team that manages these relationships as one nVent. I have met with many…

Thank you, Beth, and good morning, everyone. Please turn to Slide 9, titled Fourth Quarter 2018 nVent Outlook. We expect organic sales for the fourth quarter to increase 2% to 4% and return on sales to be between 19% and 20%. This sales guidance takes into account continued strength within our segments as well as normal seasonality. As a reminder, we grew approximately 5% in the fourth quarter of 2017. We expect to see organic growth in each of our segments with accelerated growth in Thermal Management. We are also introducing adjusted earnings per share guidance for the fourth quarter of $0.44 to $0.48 per share. Turning to Slide 10, titled Full-Year 2018 nVent Pro Forma Outlook. While there are some things that moved within our segments, we view the outlook for nVent to be consistent with our prior guidance and see organic sales growth of 3% to 4%, which is at the high end of our original 2% to 4% guidance. This is driven by strong performance in the third quarter, as well as year-to-date performance in Enclosures, where we have adjusted sales guidance accordingly to reflect 5% to 6% annual organic growth. We continue to see a path to flat return on sales relative to 2017. Given our outlook for the fourth quarter, we are again tightening our full-year adjusted earnings per share range to $1.73 and $1.77. Turning to Slide 11, which lays out our capital allocation philosophy. We paid down $50 million in debt late in the third quarter as we continue to manage our current debt to EBITDA leverage multiple within our target of 2 times to 2.5 times. We do this pay down as a way to manage our net interest expense, while also maintaining flexibility for share repurchases and M&A. Growth has accelerated throughout the year and we are on track to meet or beat the high-end of our original sales guidance. Our renewed focus and execution are paramount as we end this year and look to 2019 to build upon our early successes. Now, Devon, please open the line for questions. Thank you.

[Operator Instructions]. Your first question comes from the line of Jeffrey Hammond with KeyBanc. Please go ahead, Jeffrey. Your line is open.

So, thanks for the good color on the tariffs. Just on price cost, I think you quantified in the productivity bucket $4 million of transaction. What was the investment in that bucket?

Yes. Yes, Jeff, this is Stacy. We basically had about a third of the -- I'm sorry, excuse me, we had -- our investment was largely offset by that $4 million of tariffs. And we should -- excuse me, just a moment.

Yes. I guess what I'm trying to get to is it seems like you had inflation of 2017 price of $11. You've been saying price --

Right.

Was for productivity. You're trying to get to neutral. So, I'm just trying to – if you strip out investments and FX, are you kind of price productivity versus inflation neutral?

Yes, we did see price productivity of sort of the high to mid-single digit million and offset by investments of about half of that and FX of about the other half of that roughly.

Okay. Okay, that's helpful. And then just -- can you just talk about what price actions from here you're contemplating to kind of continue to be able to push price and productivity versus inflation and what else are you doing around kind of supply chain, et cetera to drive that mix neutral?

On a price action, we have had several price increases through the year in Enclosures, EFS, and Thermal Management. So, we have seen across the segments price actions and we'll continue to respond with price going forward. In fact, we just recently announced the price in our EFS business to occur before the end of the year. So, we continue to track inflation and then take inflation-driven price increases. From a productivity standpoint, we are continuing our efforts to enhance productivity, particularly in our new distribution center in the south for our Enclosures business, and that is gaining -- it's gaining traction and then we saw some good successes as we ended the third quarter. So, we expect that to continue as well.

Okay, great. And then, Thermal, can you just talk about order activity in the quarter and it sounds like quoting and ordered activity is picking up in that longer cycle business and just how you think about the setup in the 2019 as that comes together? Thanks.

Yes, the Thermal business is where we expected it to be. And as we look at exiting third quarter, our orders were up high-single-digits and some of that is in that longer cycle business. So, that will show growth in Q4 and put us -- set us up for 2019. We've also seen backlog -- as a result, as you would expect, we've seen backlog also increase.

Your next question comes from the line of Deane Dray with RBC Capital Markets. Please go ahead, Deane. Your line is open.

Thank you. Good morning, everyone, and congrats on a solid quarter and it's nice to see clean results on a new story. So, congrats to everyone.

Thank you, Deane.

Hey, just to follow-up on Jeff's line of questions on the tariffs and you really did cover what we were looking for. But just to make sure, I've got this level set, that $6 million to $8 million annualized, that's a gross number? And then from that, you'll be using productivity and price realization to offset that. Is that the goal?

That is correct, Deane.

Terrific. But that $6 million to $8 million was the direct? And is there any way you can size or maybe qualitatively talk about the indirect effects at this stage?

Yes, at this stage, as we've experienced the inflationary environment ending 2017 and well into 2018, we expect it to be slightly higher in 2019 where our material inflation in 2018 went from -- by what we expected at $32 million to $40 million. So, we expect it to continue to extend into 2019.

Got it. And then just since 2019 has come up a number of times already and I know you're not ready to give anything formal with regard to an outlook, but maybe directionally can you talk about some of the broad targets that you think are meaningful for nVent in 2019 maybe from a sales perspective? Can you talk about free cash flow? You did close to 100% this quarter and you highlighted that that's not even your strong quarter, but what do you think for 2019 in sales and free cash flow, please?

Okay. So, as we look at the trends going into 2019, continuing to see overall strong macroeconomic growth and maybe a slightly slower there this year, we'll see how things go. We have an election coming up, et cetera. Certainly, when we look at our Thermal Management business as I discussed earlier, the order trends and the run rate and as we expected as we get into that longer cycle business, our Thermal segment will accelerate. We still see on the Enclosures side, expected to see some good growth and continued margin expansion. The challenge, managing tariffs and ensuring that we're continuing with our price lock strategy. So, I think we'll see 2019 as another solid year. We're not ready to give specific color on that yet, but we will in due course. When it comes to our cash flow, our goal is the same, 100% of adjusted net income will be our -- what we expect in terms of free cash.

Okay, that's helpful. Just one last question if I could. I know you've had a -- you're holding off on any M&A through the balance of 2018 to show that you can grow what you own, but now you get your balance sheet, I think, arguably below your target range. So, that's in good shape. If you think about where that gets deployed in M&A, would that -- because you started off talking about some of these growth verticals, the data centers and network equipment where Enclosures is well-positioned. Are there some bolt-on opportunities in there given the kind of growth rates and your presence in those markets?

Yes. As we think about M&A, it starts with strategy of course. And so, we look at what is it that we're focused on in terms of mission-critical solutions, in terms of creating value for our customers. So, we start with the core of our business, then we look at the verticals where we think there's opportunity and certainly if there's areas where we can expand there and supporting that data center market, that would be a consideration. But even looking at our business portfolio across all of three segments given – and given in particular how fragmented the space is where we play, we think there's just opportunities across the board.

Your next question comes from the line of Julian Mitchell with Barclays. Please go ahead, Julian. Your line is open.

Hey, good morning, everyone. This is Ronnie on for Julian.

Good morning.

Hi, Ronnie.

Good morning. Back on the Thermal business, I guess could you scale the size of that longer cycle energy business for us and kind of what the margin profile is of that business?

So, the way we'd characterize our Thermal business is, there's a third of that business is roughly in the commercial and residential space. There's a third of it that we look at as more or less MRO, industrial MRO. And then a third of it into that project side, which is both industrial and energy. And when you look at that, there is lower margin as you expect in that project business, but there's a balance there. We're certainly focused one of the changes that we made to our strategy. We work to ensure that as we looked at projects that we've really focused on high-product content and MRO pull-through. So, the mix of projects we've shifted and you can see that in our margin profile over the last two years to those more profitable projects where we get that established installed base. So, as we go forward, I think we'll still see some margin expansion in our Thermal business, but not to the levels we've seen over the last two years certainly.

Got it. And then switching over to Enclosures, I guess the Q4 guide implies a bit of a slowdown there. Is that more or less just a function of the tough comp in the fourth quarter? Is there anything kind of one-off we should be thinking about?

No, that's exactly right. Our Enclosures business, as I mentioned, we've had four very strong quarters and that started last year in fourth quarter. So, it's really just a year-over-year comparison.

Okay. And then one last one on pricing, 2% price in this quarter. I guess with the EFS push-up, is it fair to assume that the tailwind from pricing on the top-line should be a bit higher than that in Q4 from Q3?

I think that's a fair assumption, Ronnie.

Your next question comes from the line of Joe Ritchie with Goldman Sachs. Please go ahead, Joe. Your line is open.

Hi, good morning. This is Evelyn Chow on for Joe.

Good morning Evelyn.

Maybe we can first start, just thinking about Enclosures a little. Obviously, growth has been very impressive in the segment and it sounds like there's some exciting leverage to the data center. Could you just right-size for us, how much of this business actually is sold into data centers and is there opportunity to expand the scope of your participation in that end market?

Yes. For our Enclosures business, it represents, say, about 10% of the overall Enclosures business. And as we go forward, because we've got a focused go-to-market and selling organization on it, there's a couple of things that we're doing. It's really selling more of what we have, and whether that's direct or through channel partners and doing that globally, and then pulling through products from our other two segments. So, leak detection from our Thermal Management segment, for example, or some of our fastening solutions and cable management capability from our EFS business. So, yes, we see opportunities to expand that. It's had really strong growth. This year, we expect it to continue to have really strong growth as we go forward because a lot of the team that we put in place in driving this really just got established this year. So, there's a lot of momentum. And I think that we're going to capitalize on as we go forward.

Makes sense. And then, I just wanted to return to price cost for a moment. I think you noted that, in EFS, price once again offset inflation. So, where else in the portfolio then are your inflationary pressures most acute?

I would say in the Enclosures segment where the steel inflation has hit them hard. And essentially, we had pursued a strategy of locking steel prices out for three, six, nine months. And as those locks roll off, we get an inflationary adjustment in prices, and we experienced some of that in driving the Q3 inflationary number, which was $17 million. Now, I want to stress that the material inflation piece of the inflation reported, we have covered 100% by price across nVent. So, we're able to execute price strategies that cover that material inflation. Where we've seen a lot of inflation is more in the freight and the labor side, and that's what we're really working on our productivity programs to try to offset.

Makes a ton of sense. And then maybe just one last one on capital deployment. It looks like you paid down a bit of debt this quarter. I think your intentions with M&A are pretty clear. How should we think about your framework for the buyback, especially noting that there may be a bit of an opportunity in the market right now?

Yes, we do look at a lot of factors when we assess how to deploy our capital. But, certainly, think the stock is currently a very good buy and recall that we have a $500 million repurchase authorization, so we stand by ready to execute.

Your next question comes from the line of Scott Graham with BMO Capital Markets. Please go ahead, Scott. Your line is open.

Hey, good morning. Nice quarter.

Thanks, Scott.

I just wanted to -- most of my questions have been answered. I just wanted to answer as to which are even kind of partial follow-ups. On the Enclosures in the fourth quarter, that's a business that, as we've talked about, is really kind of right in the wheelhouse of improving industrial economy. I'm just kind of wondering if maybe there's some conservatism baked into that, your fourth quarter thinking.

Well, when we look at Enclosures, again, the one comment was we saw very strong mid- to high-single-digit growth for the last four quarters and it started in Q4. So, part of it is just overlapping that quarter as we see it on the top-line. And then we do expect nice margin expansion for Enclosures because all the productivity and actions we've been taking accelerate going into Q4, and the market is still very robust for our Enclosures. So, I think it will be a solid quarter for us as we look at the performance of that segment.

Got you. Another question is maybe more 40,000 foot. I mean, is there a organic sales growth level, call it 3%, 4%, where you really start to see leverage on the SG&A line?

Good question on that front. Let me answer that for you. Our SG&A is settling out as we have launched the new company and we're settling into a more normal rhythm. And so, once we sort of anniversary the difference between 2017 allocated cost from a corporate level to standalone corporate cost, I think you're going to start to see where we build leverage. We also have in place a very definitive goal to pull down our G&A investment and be able to then leverage some of that into investing in innovation and growth. So, I think you'll start to see leverage as we start to stabilize our cost structure and anniversary the comparables to when we were part of Pentair.

Got it. And maybe kind of the same sort of question on gross margin as well. Can you give me a number there? Does 4% do it for you on the cost of sales line on leverage?

Yes, 4% would be a very -- a nice number to work with for us in terms of getting leverage and productivity.

Got you. And the last question is I know we had some issues several quarters running with the planned consolidation, this kind of thing. Your peep about that this quarter. Can we assume that that is now behind us?

Well, Q4 is where we start to see really a lot of that benefit come through from the actions we took in place. So --

Right.

The last piece that we were optimizing was our logistics and our southern distribution center. We talked about just saying higher inflationary freight. So, as we get into fourth quarter, we think we will have some of those optimization measures in place.

There are no further questions. I'll now turn the call back to the presenters.

Well, thank you for joining us this morning, and you're interest in nVent. We've made tremendous progress during our first six months as a public company. Third quarter performance of over 5% organic sales growth and 20% return on sales are metrics we're proud of. As I noted earlier, there's still plenty of work and opportunity for us. Our teams are energized, they're focused and executing a sound strategy to deliver growth and the financial commitments we made to our shareholders. Thank you again for your interest and support. Operator, you may now conclude the call.