Q2 2023 nVent Electric PLC Earnings Call
Speaker 1: Good day and welcome to the Inven Electric second quarter 2023 earnings conference call. All participants will be in election only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
Speaker 1: To ask a question, you may press star then one on your touch tone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Tony Reiter, Vice President of Investor Relations. Please go ahead, sir.
Speaker 2: Thank you and welcome to NVIN's second quarter 2023 earnings call. On the call with me are Beth Wozniak, our Chair and Chief Executive Officer, and Sarah Zawozki, our Chief Financial Officer.
Speaker 2: They will provide details on our second quarter performance, provide an outlook for the third quarter, and an update to our full year 2023 outlook.
Speaker 2: Before we begin, let me remind you that any statements made about the company's anticipated financial results are forward-looking statements subject to the future risks and uncertainties such as the risks outlined in today's press release and evidence filings with the Security and Exchange Commission.
Speaker 2: Four looking statements are made as of today and the company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances.
Speaker 2: Actual results could differ materially from anticipated results.
Speaker 2: Today's webcast is accompanied by a presentation which you can find in the investors section of Enven's website.
Speaker 2: References to non-GAAP financials are reconciled in the appendix of the presentation.
Speaker 2: We'll have time for questions after our prepared remarks.
Speaker 2: With that, please just turn to slide three and I will now turn the call over to Beth.
Speaker 3: Thank you, Tony, and good morning everyone. It's great to be with you today to share our strong second quarter results.
Speaker 3: We continue to execute on our strategy for growth with a focus on high growth verticals, new products, acquisitions, and geographic expansion.
Speaker 3: In the second quarter, we delivered record sales up 10% and adjusted EPS up an impressive 35%.
Speaker 3: Our strong execution resulted in another quarter of robust margin expansion and free cash flow.
Speaker 3: Highlights for the quarter include the acquisition of ECM Industries, expanding our electrical power connection and grounding solutions portfolio. We also published our 2022 EST report, which highlighted significant progress on our goals around our people, products, and services.
Speaker 3: and planet pillars. Overall, we are very pleased with our strong first half performance and are raising our full year sales and adjusted EPS guide.
Speaker 3: Now on to slide 4 for a summary of our second quarter performance.
Speaker 3: Sales in the quarter were up 4% organically, on top of 21% a year ago.
Speaker 3: with all verticals growing, led by infrastructure.
Speaker 3: New products contributed approximately three points to sales growth.
Speaker 3: We've launched 33 new products in the first half and are on track to launch 50 plus for the full year.
Speaker 3: We closed on the ECM acquisition and are excited to welcome the team to Invent. In Q2, ECM added 7 points to sales and was accretive to overall Invent margins.
Speaker 3: Segment income grew 45% year over year with return on sales up an impressive 540 basis points.
Speaker 3: Adjusted APS grew 35% on top of 14% a year ago.
Speaker 3: We generated $62 million of free cash flow, up 29%. We are on track for another strong year.
Speaker 3: I am very proud of our results and the great work being done by our InvenTeam.
Speaker 3: I want to share some recent awards and recognition to highlight this.
Speaker 3: Invent was named a top 10 data solutions provider by CIO applications for the second year in a row.
Speaker 3: This recognition is for companies at the forefront of providing data center solutions and transforming businesses.
Speaker 3: We also were named by the Minneapolis St. Paul Business Journal as the 2023 Large Manufacturers of the Year, based on our contributions to the regional economy and community.
Speaker 3: This award recognized our performance, innovation, and manufacturing excellence.
Speaker 3: And Invent is one of four finalists in the Mid-Cat category for the 2023 Diversity, Equity, and Inclusion Award by the National Association of Corporate Directors.
Speaker 3: This award recognizes forward-thinking boards that leverage the power of DE&I to enhance their governance, create long-term value, and build innovative and inclusive workplaces and boardrooms.
Speaker 3: Looking at performance across our key verticals, all grew organic sales in the quarter.
Speaker 3: Infrastructure led the way up 10%, including data solutions growing double digits and power utilities up over 40%.
Speaker 3: Industrial and energy each grew low single digits and commercial and resi was also positive.
Speaker 3: Turning to organic sales by geography, we continue to see broad-based growth in North America, up high single digits.
Speaker 3: Europe declined low single digits primarily due to our wind down in Russia and Asia Pacific declined due to a slow recovery in China.
Speaker 3: Lastly, organic orders in Q2 grew low single digits year over year, on top of high teens' orders growth a year ago.
Speaker 3: As expected, we saw distributors adjusting their inventories in Q2, with improving supply chains and lead times.
Speaker 3: Importantly, we continue to see positive distributor sell through.
Speaker 3: Looking ahead, I am excited for both the ECM acquisition and TEXA acquisition, which we just announced, and how they further position Invent with the electrification of everything.
Speaker 3: We are raising our full year guidance reflecting our strong first half and the addition of our two acquisitions.
Speaker 3: We expect electrification, sustainability, and digitalization to drive demand.
Speaker 3: Specifically, we expect continued strength in infrastructure, including data solutions, power utilities, and renewables. In industrial with the trends of automation and onshore, and in energy with the energy transition.
Speaker 3: We continue to expect the commercial Resi vertical to be soft.
Speaker 3: Lastly, artificial intelligence is driving demand for our liquid cooling solutions.
Speaker 3: leading us to increase investments in the back half of the year to drive future growth in our data solutions business.
Speaker 3: Overall, I am very proud of our InvenTeam and how we continue to execute and deliver for our customers and shareholders.
Speaker 3: We're on track for another strong year. I will now turn the call over to Sarah for some detail on our second quarter results and our updated outlook for 2023. Sarah, please go ahead. Thank you, Beth. We had a strong second quarter with robust margin expansion and free cash flow.
Speaker 3: Let's turn to slide 5 to review our second quarter results.
Speaker 3: Sales of $803 million were up 10% relative to last year, or up 4% organically. Rights contributed more than 5 points to growth and volumes were down 2 points.
Speaker 3: ECM added $50 million in sales or 7 points to growth.
Speaker 3: Second quarter segment income was 181 million dollars up 45%. Return on sales was 22.6% up 540 basis points year-over-year.
Speaker 3: Our strong performance was driven by price cost, continued productivity improvements, and favorable mix in the quarter.
Speaker 3: Price more than offset the impact from inflation of roughly $25 million.
Speaker 3: In addition, ECM contributed meaningfully to the corridor and was accretive to overall Inven return on sales.
Speaker 3: Q2 adjusted EPS was 77 cents, up 35 percent, and above the high end of our guidance range.
Speaker 3: This included a two-cent contribution from the ECM acquisition.
Speaker 3: We generated robust free cash flow in the quarter of $62 million, up 29%. This includes higher capex investments for growth and capacity.
Speaker 3: Now please turn to slide 6 for discussion of our second quarter segment performance.
Speaker 3: Starting with enclosures, sales of $400 million increased 5% organically with both price and volume contributing.
Speaker 3: Infrastructure led with continued strength in data solutions.
Speaker 3: Industrial was also a solid contributor driven by the trends in automation.
Speaker 3: Geographically, North America led up high single digits.
Speaker 3: Enclosure's second quarter segment income was $90 million, up 46%. Return on sales of 22.5% increased an impressive 630 basis points year-over-year, driven by price, cost, and productivity.
Speaker 3: We are expanding our data solutions business rapidly and stepping up investments in CapEx and OpEx in the second half to support our strong orders and future growth.
Speaker 3: Moving to electrical and fastening, sales of $267 million increased 33% with the ECM acquisition contributing 25 points to sales.
Speaker 3: Organic growth was 8% driven by strong price.
Speaker 3: All verticals grew, led by infrastructure of low double digits with strength in power utilities and data solutions.
Speaker 3: Commercial RES-E grew mid-single digits.
Speaker 3: Geographically, sales growth was led by North America and Europe .
Speaker 3: Electrical and fasting segment income was $86 million, up 47%. Return on sales was a notable 32.4%, up 310 basis points relative to last year on price cost and favorable next.
Speaker 3: Turning to thermal management, sales of $136 million were down 5% organically.
Speaker 3: Price contributed four points to growth while volumes were negative.
Speaker 3: The decline was driven by commercial RESI and industrial, both declining high single digits, partially offset by infrastructure and energy.
Speaker 3: Industrial MRO demand remains solid.
Speaker 3: Geographically, North America was flat with declines in China and Europe , including our wind down in Russia.
Speaker 3: Notably, orders were up mid single digits and backlog grew sequentially.
Speaker 3: Thermal management segment income of $29 million was up 1%, and return on sales of 21% was up 160 basis points year-over-year on strong execution. Slide 7 titled Balance Chief and Cash Flow.
Speaker 3: We ended the quarter with $139 million of cash on hand and $500 million available in our revolver. We added approximately $900 million in debt to our balance sheet in the quarter to finance the ECM acquisition.
Speaker 3: Turning to slide 8 where we will outline our capital allocation priorities.
Speaker 3: We believe our robust balance sheet in cash generation puts us in a strong position to continue to invest in growth, return cash to shareholders, and deliver great returns.
Speaker 3: We had strong free cash flow in the quarter with the first half growing more than 150% compared to a year ago.
Speaker 3: We exited Q2 with a net debt to adjusted EBITDA ratio of 2.8 times.
Speaker 3: With our strong cash flow generation, we believe we are on track to get back to our targeted range of 2 to 2.5 times.
Speaker 3: In the first half of the year, we've returned approximately $73 million to shareholders, including dividends and share repurchases.
Speaker 3: So moving to slide 9, we are raising full year reported sales and adjusted EPS guidance reflecting our strong first half performance and the impact of acquisitions.
Speaker 3: Reported sales growth is now expected to be in the range of 13-15% versus our prior guidance of 4-6%.
Speaker 3: We continue to expect organic sales to grow 4-6%.
Speaker 3: We now expect adjusted EPS to be in the range of $2.85 to $2.91, up 19 to 21%, versus our original guidance of $2.65 to $2.73.
Speaker 3: This new guidance reflects our strong first task, increased investments in data solutions, and 8 to 10 cents for acquisitions.
Speaker 3: A couple of modeling assumptions to note. First, acquisitions are expected to add approximately nine points to sales growth in the year.
Speaker 3: Second, with acquisitions, full year net interest expense is now expected to be approximately $80 million and depreciation and amortization are expected to be approximately $140 million.
Speaker 3: Third, we now expect our tax rate to be 19.5% versus 18.5% due to geographical mix and the ECM acquisition.
Speaker 3: And lastly, we are raising our CapEx expectations of $15 million to a range of $70 to $75 million to reflect the impact of acquisitions and investments to expand capacity for a data solutions business. Thank you very much.
Speaker 3: Looking at our third quarter outlook on slide 10.
Speaker 3: We expect reported sales to grow 16 to 18 percent with acquisitions contributing approximately 14 points to sales.
Speaker 3: Organic sales are expected to be up 1 to 3 percent.
Speaker 3: We expect adjusted EPS to be between 72 and 74 cents, which at the midpoint reflects 11% growth relative to last year.
Speaker 3: Wrapping up, I am pleased with our second quarter performance. We delivered robust margins in cash flow and are well positioned for another great year.
Speaker 3: This concludes my remarks and I will now turn the call over to Beth.
Speaker 3: Thank you Sarah.
Speaker 3: Turning to slide 11, I would like to share a few highlights on Invenc.
Speaker 4: First.
Speaker 3: I would like to talk about our opportunity for data solutions.
Speaker 3: The acceleration of AI, greater data consumption, rising heat densities, and growth in edge computing are all drivers of demand for our data solutions offerings, including liquid cooling. We view the total opportunity in data solutions.
Speaker 3: to be approximately $10 billion, growing at roughly 10%.
Speaker 3: Our data solutions business was $375 million last year, growing 30% the last two years. And we believe we're in a position to win and outgrow the industry.
Speaker 3: Today, only about 5% of data centers are liquid cooled. When compared to conventional cooling, we believe liquid cooling is growing three times faster and providing up to a 50% savings in energy.
Speaker 3: What differentiates us is our leading technical expertise, our innovative designs, and our ability to manufacture at scale.
Speaker 3: We have been partnering with major data center players for many years, some going back pre-spin, and have developed high quality solutions.
Speaker 3: We provide a broad range of cooling offerings for both Greenfield and Retrofit.
Speaker 3: We are building out a portfolio of standard products to drive scale, broader adoption, and access through distribution channels.
Speaker 3: To serve the increasing demand, we're making significant investments in the back half of the year and next year to expand our operations and capacity.
Speaker 3: We believe our data solutions business is well on its way to over $500 million.
Speaker 3: Moving to slide 12.
Speaker 3: Last month we published our latest ESG report and I'm proud of the meaningful progress we've made on our goals in our three pillars of people, products and planet.
Speaker 3: In our people pillar, we increased diverse representation in our employee population and continue to build on our programs to develop, recognize, and support our employees.
Speaker 3: We believe our culture and our people are a differentiator for InvenT.
Speaker 3: We were certified again as a great place to work and received the highest recognition by 50-50 women on boards.
Speaker 3: In our products pillar, we continue to build on our efforts to deliver innovative products that make a positive ESG impact in one or more of our three ESG categories. Eco-friendly materials, eco-friendly designs, and end user safety.
Speaker 3: 76% of the products in our new product pipeline at the end of 2022 met at least one of these criteria.
Speaker 3: In our planet pillar, we reduced our scope 1 and scope 2 greenhouse gas emissions and increased our renewable energy consumption to 13%.
Speaker 3: We remain focused on environmental stewardship, achieving our planet goals, investing in renewable energy, reducing water consumption, and reducing and diverting waste.
Speaker 3: We will continue to build on the progress we've made across our people, products, and planet pillars. At Invent, we are building a more sustainable and electrified world.
Speaker 3: Turning to slide 13.
Speaker 3: We continue to execute on our strategy for growth, which includes acquisitions, and have now completed six deals since then.
Speaker 3: We expect a lot of future value creation from these acquisitions and continue to have a strong pipeline of opportunities.
Speaker 3: Our acquisition framework starts with finding companies that have great products aligned to high growth verticals with the ability to scale and invest for growth. The ECM and Texas acquisitions squarely fit this framework. ECM is a leader in power connections and grounding solutions, tools and test instruments and...
Speaker 3: Texas, much like our Eldon acquisition in 2019, has an innovative product portfolio which we plan to expand through our distribution channels and globally.
Speaker 3: Texas provides innovative industrial air conditioners and chillers.
Speaker 3: With increasing heat loads, cooling is critical inside an enclosure to ensure performance and uptime.
Speaker 3: Combined with our expertise in liquid cooling, Texas strengthens our ability to provide global cooling solutions in demanding environments such as industrial automation and energy storage.
Speaker 3: Both acquisitions are a great fit for Invent, expanding our Connect and Protect portfolio. We believe they have significant growth potential and long-term value creation with the electrification of everything.
Speaker 3: We completed two acquisitions and have made significant progress on our ESG goals. We are raising our guidance and expect another year of strong sales and EPS growth. We believe we are well positioned with the electrification, sustainability, and digitalization trends. Our future is bright. With that, I will now turn the call over to the operator to start Q&A. We will now begin the question and answer session.
Speaker 1: To ask a question, you may press star then one on your touch tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. And at this time, we'll pause momentarily to assemble our roster.
Speaker 1: And the first question will come from Julian Mitchell with Barclays. Please go ahead. Frust Temperature
Speaker 5: Thanks very much and good morning everyone.
Speaker 5: Morning. Maybe just the first question around the orders trends and what you're seeing in kind of distributor and channel partner behavior. So I think you said orders are up.
Speaker 5: low single digit in Q2. I just wondered what you're expecting for the third quarter in terms of the order intake and how would you characterize the state of the de-stocking right now? Is it sort of episodic? Every few months it comes in and out and then how do you assess the?
Speaker 3: is that, you know, as we expected in Q2, we expected inventory adjustments to occur. And one of the positive points is that when we continue to look at distributor sell-through, we're positive. And so we think that some of those actions took place in Q2 and we would...
Speaker 3: you know, some actions I think will continue in Q3. As we go forward, we think that we're going to see a growth with respect to infrastructure. A lot of the infrastructure bill and, you know, Inflation Reduction Act is going to drive growth in areas such as
Speaker 3: particularly for our liquid cooling solutions and we see that accelerating.
Speaker 5: That's helpful, thank you. And then just my follow up would be trying to understand a little bit better how you're thinking about the second half sort of split in organic sales between price and volumes. You know, in the second quarter volume was down two, I think, when price was up five. So, in terms of your second...
Speaker 3: I think that's important given the fact that we continue to see 2023 as an inflationary environment. In Q3, embedded in that organic guide of up 1 to 3%, we do see that predominantly priced and I think a big piece of that is just reflective of some of those inventory level adjustments continuing to happen.
Speaker 3: in the third quarter, as well as thermal management. And thermal management specifically in relation to some of that commercial resi softness, but also the wind down in that Russia business is more acute there in that Q3 and Q4 timeframe. It's having roughly a four point impact on thermal management.
Speaker 3: there in the back half and that winds that down to roughly near Russia sales as we go into 2024. I would say that from a Q4 perspective we do expect things to ramp a bit from a volume and overall growth standpoint and the biggest contributor there is just going to be the
Speaker 3: what we see in the data solution space. And Beth talked a little bit about that order book building, the funnel opportunities building, and we're really focused on making those investments here in Q3 and Q4 to capture that growth.
Speaker 5: That's great. Thank you.
Speaker 1: The next question will come from Dean Dray with RBC Capital Markets. Please go ahead.
Speaker 6: Thank you. Good morning everyone. Good morning.
Speaker 6: Hey, I'd like to stick with a liquid cooling if we could. We did a deep dive report this quarter on the whole market and what I find fascinating is that Enven has such a first mover advantage in direct-to-chip cooling and remarkably most of your competition are startups.
Speaker 6: So what's your expectation competitively with so many other startups in this space? Do you expect to see consolidation? I like seeing your adding capacity in this. Do you need to add any new technologies?
Speaker 6: in this side. From our perspective, immersion and rear door heat exchangers are probably less efficient. So we'd rather see you in direct to chip. But just how do you see the industry playing out in terms of consolidation and where and how do you need to add either capacity or technologies in the space.
Speaker 3: Well, Dean, thank you for the question. And so we are very excited about liquid cooling. And as you know, we have been doing liquid cooling even before we spun in some industrial applications.
And over the years have developed great relationships with data center providers. And I would say it takes time, you know, the test cycle and scaling manufacturing and the quality and the requirements that you have, it takes time to build that out. And we feel that we have done that for several years now and in fact are in test with many new customers as well.
I think the good news is that we have partnerships across various of those areas as well as a strong product portfolio ourselves. As I mentioned, data centers are only roughly cooled by liquid cooling 5%. That's where we're at today. I think there's plenty of room for questions.
There's plenty of opportunity for growth and it may take a while before we see some consolidation because there's various cooling technologies and they all have a role right now.
And you know, as we go forward, we think about how liquid cooling, especially around energy storage or battery management, has a role to play there. And I think those are solutions that will come into play in the future. But overall, we just see that's part of the strength in the infrastructure build out and part to the execution by our team with our supply chains.
That's great to hear. Thank you. The next question will come from Jeff Hamman with KeyBank Capital Markets. Please go ahead.
Hey, good morning. Good morning.
So, I really wanted to just cover kind of the margin sustainability and enclosures and EFS into the second half. It looks like by our math.
you know, margin step down a point. Maybe you can speak to, you know, how ECM, you know, plays into that. It just seems like, you know, the margin step downs.
Maybe more than we would have thought, and particularly given thermal seasonally steps up. Yes, Jeff, let me take that one. I would just say first, we expect again another quarter of margin expansion in Q3 from a year over year perspective. That really is reflective of continued price cost management as well as the overall cost
underlying margin expansion in electrical and fastening. And you're right to point out that ECM, while it's a creative to overall invent, as expected, it is dilutive to that EFS margin. So that's in part what you're seeing. Thermal, we expect that margin performance to be a bit more flattish from a Q3 perspective.
bit more reflective of what's going on in the top line, you know, versus anything else, but they continue to, you know, work, you know, good price-cost actions as well as just overall cost actions to work that to margin expansion, you know, for the full year. Maybe two other things I would just point out from a sequential standpoint, Jeff, is one.
One, we are investing incrementally in data solutions in Q3 and Q4. So overall, you know, you're seeing that.
kind of fold in if you will to that enclosures margins as well as to the overall invent margins when you look at Q2 to Q3. And I think the other thing I would just point out is that price cost narrowing. This is nothing new. This is something that we expected coming into the year.
So we're seeing that play out in the back half versus first half. And we do expect a bit of a sequential uptake in metals specifically in Q3 from where we're at in those favorable first half positions just based on our lock strategy.
Okay, very helpful, Sarah. Thanks. Just back on liquid cooling, we've been getting a ton of questions, as I'm sure you are. Just wondering if you could put a finer point on the size of the business today within that Data Solutions, what that business has been growing at relative to the 30% growth in the earthquake of 2005 button. I'm going.
and data solutions overall and then how it impacts margin mix and then maybe just speak to the specific investments you're looking at in terms of capacity. Thanks
Well, back in our investor day, you know, we talked about our data solutions business being $375 million in sales and 40% of that being cooling and power. And certainly, our liquid cooling business is one of the fastest growing parts of that business. And so this is why, you know, the takeaway on that one chart is we expect to be over 5...
we do in Data Solutions.
And maybe just to add, I think you asked a question, Jeff, on margin. We see it generally in line with our overall enclosures margin and something that we can improve that going forward. I think just here in the back half, as we significantly invest around the OpEx as well as what's going on in the system,
And then just the capex investments, I think you were moving some stuff around and creating some capacity to speak to that. Yes. So our initial phase one of this is we opened a new manufacturing facility in Mexico and really some of our...
expanded some of our core enclosures products there so that we could optimize our ANOCA facility which is here just outside of Minneapolis so that we could expand our liquid cooling capacity, some of our lab capability, engineering capability. There's other facilities across the US that we're also expanding for some of those core product offerings.
The next question will come from Joe Ritchie with Goldman Sachs. Please go ahead.
Thanks. Good morning, everyone. Good morning. Good morning.
Hey, I just wanted to maybe get a little bit more clarification on Julian's question on the B stocking. So I think, you know, Beth last quarter, you guys had mentioned that it was really broadly impacting your business. And then this quarter, it seems like it's been a little bit more so on the commercial and resi side, but I clearly don't want to put words in your mouth.
their inventories for two reasons. One, you just take a look at lead times coming in and supply chain challenges. And second, you know, I just want to emphasize again, our sell through the distributors has been positive. And so as we've seen, where the supply chain has improved or where areas have been softer like commercial resi, that's where we saw some of that adjustments take place.
But even now, as you start to see, more so with industrial, we're seeing some of those adjustments take place there as well. And I would say areas where, you know, their strength continues to be infrastructure. And, you know, we think this is gonna play out as expected. And again, we're very...
we feel very confident because of the positive sell-through that we see at our distributors. Got it. That makes a lot of sense. And then I know, you know, AI and liquid cooling is going to be a hot topic for a long period of time. I guess just two quick questions there. In terms of the R&D investments that you're making, maybe I missed it, but how much are you stepping up R&D?
Well, I guess I would say, first of all, the investments that we're making in cash and off-ex, those investments are both in R&D, in operations, in just across the board. I mean, we're investing in that business across all functions just as we see the growth and opportunity.
So, and what we're doing specifically when we think about R&D is we, you know, I mentioned how we were building out a more standard portfolio that would allow us to scale some of the capability and, you know, scalable products through distribution.
So, you know, that's how we think about all of those investments to support the current customers.
new customers, the testing required for these solutions, sometimes it takes a year, as well as developing these standard products. So it's really all of that. And when it, you know, and again as we mentioned, we think there's various cooling solutions. So whether it's Greenfield or Retrofit, whether it's Hyperscale or Enterprise, there's a suite of, you know, a suite of products that we're working on developing.
kind of what you are seeing in Resi and commercial and obviously you're really not that big in Resi right but so I guess the question is a little bit more commercial. Sounds like it's primarily in the thermal business but maybe if you could again just drill down a little bit on what you're seeing and
you know, kind of the top line trajectory in that part of the business. So our Resi business is predominantly, you know, is thermal. And we've seen that be softer, right, and expect that to continue. On the commercial side, commercial is across all of our businesses, a little bit softer in thermal.
But I would say we were positive in our enclosures. Overall, as in Benton, we were positive in commercial, particularly in EFS and enclosures for that matter. So as we go forward, we think we're commercialist strongest in our EFS business because of our labor-saving solutions.
because of the focus that we have around more power and data infrastructure. We expect that to trend positive for us. And again, it's different applications. You know, we look at industrial construction as an area that's very strong, right, which is driving demand for our EFS and our enclosures products. And then just on the kind of the topic of volume, right,
You guys are not alone here, you know, printing top lines that are mostly or even more than all price. I think the difference though as I look at it, you guys had very strong volume growth in 21 and 22.
many in my group didn't. So the comps are different, but really the essence of my question is
you know, if as we look forward into 24 and 25 and kind of, you know, assume the economy is clicking along here, okay, how are you capacities to be able to drive volume growth looking forward? Obviously, you talked about CapEx and
data solutions but I'm just wondering it kind of the state of your capacity and ability to kind of facilitate volume growth you know across the portfolio.
We have also invested in new automation and new capex for both our EFS business as well as enclosures so that we could improve throughput. So we feel we're in a good position. I would say the biggest – I mean we're going to continue to invest in digitization and automation. That's just an ongoing part of our strategy. But I think the real focus just because of the significance we're going to see in liquid cooling is where a lot of our investment is going. And maybe just to add a point to that, and I think Beth talked about the fact that we're not going to be able to do that.
of supply chain and where that shows up in the top line is going to be on the volume side of the equation.
Yep, okay, got it. Thank you.
The next question will come from Nigel Coe with Wolf Research. Please go ahead.
Thanks good morning everyone. Good morning.
So Beth, every time you mention AI and liquid cooling, the stock ticks higher, so keep it going, alright?
your impressions are as you've taken control of the business? I mean, how's your perspective on the channel opportunities, synergies, change of tools? Well, let me start because we're 60 days in and we're very pleased with the ECM acquisition. And as we said, when you look at that portfolio, it builds out our power connections and grounding solutions. So very complimentary to what we do, and we see opportunity there to be able to take those products through the strength of our distribution channel and globalize it. And that will take some time, but we're working on it. One of the things I would say, you know, there's other products that we believe are essential things that...
but we've got a great experience team that we're working on that so that we address that so we can really drive capacity and accelerate our growth there.
And just in terms of the EPS and the cost energy part of the equation, we do continue to see the EPS contribution in this year being 8 to 10 cents on the EPS line for ECM. Two cents of that came a bit early here in Q3, but the balance of that we would expect in that to be a reasonable assumption of that.
kind of running through half and half, you know, Q3 and Q4. From a cost energy standpoint, we estimated roughly $10 to $15 million by year three and, you know, as Beth said, even on the growth side, you know, on the cost side, you know, 60 days in we have high conviction, you know, here in good visibility and it's...
million dollars related to that step up in amortization for the next 10 to 15 years.
Okay, that's great. And that's two cents in Q2, not Q3, right? Two cents in Q2? Two cents in Q2, correct. With the balance of that really being in that Q3, Q4 timeframe. Right, that's great. Obviously, volumes are a big kind of area of conversation right now. And you talked about the sell-through is positive. I'm sure you mean volumes.
When we look at, it really, what we're seeing is adjustments based on as different supply chains were covered or even in some of the vertical areas. Where we saw softness first or inventory adjustments was more around commercial resi and then we started to see some industrial. Again, it's more of a reflection.
of overall supplier and supply chain lead times improving. And so, as expected, we saw that happen in Q2, expect some of that to still occur in Q3, but as we start to see infrastructure bill, acceleration of, you know, a lot of the electrification investments, you know, we expect.
the strength there and things to ramp as we get through to the back half of the year. Okay, quick one on liquid cooling if I can. This capacity expansion that you're investing in, does that allow you to double your sell through there or triple it? Any qualification on the capacity expansion will be great.
We believe Invent is a top-tier high-performance electrical company well positioned for the electrification of everything, sustainability, and digitalization trends. Thanks again for joining us. This concludes the call. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.