Ladies and gentlemen, thank you for standing by and welcome to the Hubbell Incorporated Fourth Quarter 2020 Results Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to Dan Innamorato. Thank you. Please, go ahead.

Thanks, operator. Good morning, everyone, and thank you for joining us. Earlier this morning we issued a press release announcing our results for the fourth quarter and full year 2020. The press release and slides are posted to the Investors section of our website at www.hubbell.com. I'm joined today by our President and CEO, Gerben Bakker; and our Executive Vice President and CFO, Bill Sperry. Please note that our comments this morning may include statements related to the expected future results of our company and are forward-looking statements, as defined by the Private Securities Litigation Reform Act of 1995. Therefore, please note, the discussion of forward-looking statements in our press release and considered incorporated by reference into this call. Additionally, comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures and are included in the press release and slides. Now, let me turn the call over to Gerben.

Good. Thanks, Dan, and good morning, everyone. And thank you for joining us to discuss Hubbell's fourth quarter results on this snowy Tuesday morning. And I suppose if there is such a thing as a positive from COVID, it's that most of us are still at home and don't have to brave snow and difficult commutes at this time. But before we get to the results for the quarter, I want to take a few minutes to reflect on our strong performance for the year and recognize all our employees who made that possible through their tireless efforts and dedication. The COVID-19 pandemic presented us with considerable end market, operational, as well as personal challenges, but our employees consistently rose to the occasion, delivering exceptional performance for our customers and shareholders. Our first priority through this pandemic has always been the health and safety of our employees and we implemented a series of safety protocols to protect employees in our plants, warehouses and in the field. We also recognized our frontline workers with bonus appreciation pay for their efforts and provided generous paid leave policies for all employees. Our next priority was to continue serving our customers with the essential products necessary for the safety and reliability of critical infrastructure. Our employees again proved to be flexible and adaptable in maintaining high levels of productivity while continuing to deliver best-in-class quality and service that the Hubbell brands are known for. Our next priority was to operate with discipline and maintain strong liquidity for our shareholders and despite considerable end market and operational headwinds as a result of this pandemic, the company achieved full year adjusted operating margins, which were essentially flat to prior year, as well as free cash flow generation of $560 million, reflecting 12% growth over 2019 levels.…

Thanks Gerb. Good morning, everybody. Thanks for joining us. We're aware there's, a number of calls this morning. I'm going to start my comments on page 5, which will underscore a couple of points that Gerben made, but you see the 6% decline in sales where Electrical was relatively weaker and Power much more resilient. And as Gerben noted, it was very significant to us to see the inflection in orders. So really starting in December, we started to see orders pickup and turn positive, allowed us to finish year-end with an increased backlog. And encouraged to see the order strength through the month of January, where we had orders up double-digits. So really welcome the growth that that predicts for this coming year. And see our sales expand. Gerben commented on the margins and the impact of the tariff refund from last year. Also you see, earnings per share down at 8%, less than down, the operating profit amount, driven by some favorability on the non-op side, including some favorable tax, interest expense and pension tailwinds that helped us a little bit. I think on the cash flow side, the story is in the year rather than the quarter. And we had a 12% increase in the full year $560 million. Our typical seasonality over the last five years is to have about 30% of the cash flow collected in the first half and 70% in the second half. This year was much more balanced, at 50-50. So you see a negative compare in the fourth quarter, but very good increase for the year. So I'd like to unpack the results and discuss the two segments. And we'll start with the Electrical Solutions on page 6. You see sales down 10%, quite broad-based across the segment. Some of the…

Great. Thanks Bill. Indeed a couple of great acquisitions to bolt-on to the Utility franchise here in the fourth quarter. Before I take you through our 2021 outlook, I want to take a minute to highlight our ESG strategy at Hubbell and some of the progress that we have made recently using page 10. From a portfolio perspective, our businesses are strategically aligned around electrification and grid modernization, both of which we view as important clean energy mega trends where we are well positioned by a leading role. As the economy continues its transition away from fossil fuels and more things that plug into the electrical grid, it creates the need for new solutions behind the meter in front of the meter and at the edge of the grid. And with our leading position across each of these spaces, Hubbell is uniquely positioned to solve these critical infrastructure problems. A good recent example that I want to highlight is the products that we are supplying to construct one of the US's largest wind farms in Oklahoma starting construction later this year. Not only are we supplying transmission materials from our Utility segment, but also grounding connectors and enclosures products across our Electrical segment. In terms of what we are doing internally to demonstrate our commitment to ESG, I would like to highlight a couple of areas today. First, we have established multi-year goals to reduce our water consumption and greenhouse gas emissions by 10%. We also place a high value on ensuring the safety of our employees and we have been effective in making multi-year improvements, including a reduction of about 40% in both the number and severity of safety incidents in the past five years with further improvements to come. We have also recently launched a new sustainability website…

Yes. So, I just wanted to walk everybody through two bridges on page 12. It's a bridge that shows the guidance that Gerben just gave and disaggregates some of the pieces, and then I wanted to show you a two-year walk on the next page. So, for here you see us starting at $7.58 growing roughly 10% to get to that range of $8.10 to $8.50. The first driver is the very welcome return of volume. And so we've got -- as Gerben was highlighting at 6% to 8% sales growth where acquisitions are providing about 3% of that. So, 3% to 5% organic, but with 1% of price which is over to the right. So, this is that balance of 2% to 4% of volume dropping through at 30% to 40%. And again very welcome to see that, very happy to see the order book supporting that growth as we start the year. The acquisitions we've got about $0.25 here in the acquisition bucket. You all had $0.05 already as we had talked about AccelTex back in October, the two new deals that we closed in December, providing an additional incremental $0.20. And then on restructuring we're anticipating lower investment by about $10 million and incremental savings from what we invested last year create a really important lift to our earnings profile and we get to price cost productivity. We're anticipating a year of strong price realization. We've already been to the market. There's not obviously one simple unilateral lever on price. It's brand by brand business-by-business. We've started already pulling those levers in January and throughout the first quarter. Inflation had continued to persist and so it's a very organic process but we need to keep revisiting and make sure we pull price to the extent that we…

Thank you. [Operator Instructions] Your first question comes from the line of Jeff Sprague from Vertical Research. Your line is now open.

Thank you. Good morning everyone. Just wanted to understand a little bit in the bridge. I think Bill you said the underlying incrementals you're expecting as part of the bridge is 30% to 40%. Is it looks like that would be exclusive of the restructuring and other benefits, but wanted to confirm that. That's a very strong number, particularly relative to kind of the decrementals we experienced in 2020.

Yes. I think what we're talking about is the strict drop-through on the volume will be in that range. The decrementals were driven by offsets from things like the restructuring savings as well as the fact that Power Systems was actually growing and providing incremental. So -- but that drop-through we think just purely on the volume can be in that 30%-range-plus.

And on price cost just isolating on that I think you said price up 1%. Does that fully cover the commodity inflation that you anticipate, or are you a little bit upside down on price cost?

Yes. We're going to have to see ultimately what happens in commodities. So it's a little hard to see how persistent they will be. For example, I think there's one view that says that steel capacity can come back online in the second half, which would moderate some of the increases, but it's possible copper keeps going just to pick two big ones for us Jeff. So I think we're going to have to be very nimble and continue to revisit price with our customers continually and watch those commodity costs really carefully.

Yes. And Jeff, maybe just to add a comment to that. I think the timing of the commodities going up late last year was actually good for us because that's the time at which we're naturally going out with price increases. So we did that. Unfortunately, commodities have continued to spike throughout December into January. And as Bill stated, we absolutely need to be nimble. We're already going out with more price increases here in the first quarter, I think the positive is that the price increases that we enacted last year starting in January 1 have generally stuck well. So that gives us confidence that these next tranches of price increases should do okay as well. But definitely, an area of focus for us this year.

And I'm sorry just one other one for me. I'm surprised the Aclara guide is not a little stronger. But I guess you're basically assuming the business stays negative even probably certainly in the first quarter and maybe even lagging into the second quarter. Is that correct?

Well I'd say for the first quarter yes, Jeff, but I think we could see it rebounding by Q2.

Okay. Great. Thank you guys.

Your next question comes from the line of Steve Tusa from JPMorgan. Your line is now open.

Hey, guys, good morning.

Good morning, Steve.

Good morning, Steve.

Good execution on the margin fronts. I agree with Jeff on the incrementals. These deals that you're doing, I don't know it looks to me like they're around like 10x EBITDA. What are some of the multiples you're seeing here for the $230 million you spent in the fourth quarter?

Yes, we spent 10.5x trailing Steve. So that's in a pandemic year. So I'm hoping by the time we own them for a year and operate them, we'll own them at south of that for our first year of ownership. But on a trailing basis it's 10.5x.

Right. So I guess, when you look out the pro forma a couple of years down the road, I mean is that -- are these things growing like mid to high single-digits, or what kind of growth do you expect a couple of years out?

Yes, mid to highs for the areas that we've been investing in.

Right. So that's a double-digit return that you're getting on that capital that you're deploying?

Exactly.

Yes. This Steve is a typical Utility business tuck-in where the other nice thing from it is we get those synergies pretty quickly. Within the first couple of years, we'll see those. So margins kind of within the first few years in line with the rest of the Utility business. So really right down the center for us.

Yes. That's quite a differentiator versus these guys that are chasing the dragon a bit with the 20x plus multiples. Hopefully, you guys don't have plans to try and pivot that way. But -- and then on the -- on kind of a little more color on the first quarter. Anything unusual to kind of call out there? I know you have a tough -- it's obviously the toughest comp, but -- and anything that we kind of have to be aware of when you look at consensus?

No, I think that the most important thing is as you point out, it's the last tough compare of the year, and Q2 becomes the easiest. I think that as we look at -- historically, Steve, if all we did is kind of seasonally behaved normally based on where we exited Q4 there'd be about three points of growth embedded just in things playing out. So that's not even with much recovery. And I think the other guide I'd point out is if you look at our first quarter we tend to get about a 20% contribution to the year something like that. So if you expect the year to improve a little bit, maybe it will be even a little less than that this year. But those are just the considerations I think for Q1.

Okay, great. Thanks for the color.

Your next question comes from the line of Tommy Moll from Stephens. Your line is now open.

Good morning, and thanks for taking my questions.

Good morning, Tommy.

Hi, Tommy.

I wanted to double back to the bridge you gave us there on slides 12 and 13 specifically on price cost, which has generated more than a little attention I think in recent weeks and maybe months. Bill, this may be asking too much, but could you frame maybe in pennies, or nickels, or dimes per share the price and cost impact there as distinct from the cost benefits that you call out, or if you can't give us a number maybe just orders of magnitude here to help us track that as we go forward.

Yeah. I think what we're trying to pull and the actions that we've entertained is to get a point of price as we sit here starting the year. And as Jeff was asking, we're just going to have to monitor commodities closely to see how adequate that has arisen to see ultimately if we're going to need to do more. But there are a lot of pieces that we're not going to get super granular on in that bucket Tommy including some investments that we want to make and including the return of some costs that left last year as a result of working from home and all of that.

Okay. So I think the anchor you want us to be aware of then is embedded in that EPS headwind. It's a point of price on a full year basis. That's the working assumption. Am I hearing that correctly?

That's right Tommy.

Okay. And then moving to non-res and appreciate the end market outlook you gave us with some specific data points to anchor to but on the no-nres side, so 50/50 new construction versus R&R. What additional anecdotes or insight can you give us on how that market has progressed maybe on a month-by-month or quarter-by-quarter? It's something that folks are trying to track in real time. You've done a great job giving us an outlook for the year. What does the potential progression look like there?

Yeah. I think if you stick with the new construction side, it would be worse than our guide would be our expectation. And yet we think the MRO piece can be a little bit better. And maybe the only anecdote that I'd add for you Tommy is just thinking about there's a significant amount of national account business that's in the MRO piece as whether it's a quick-serve restaurant or convenience stores or others or large box retailers manage their own real estate and upgrade it. And those projects are frankly nice to have not must-have. And so that can contribute and help the MRO. In other words you don't need a lot of decision makers to say, hey, let's get back to making our space look better to get that MRO piece re-growing again. So maybe that's the anecdote that I'd add for you.

Yeah. Maybe one comment to add there as we think to 2021, and we look at the two pieces the 50% that's new construction, the 50% that's rental. We're thinking along the lines that the new construction is down in that high single digits and we're correlating that with what others are saying, what we're seeing in some of the data. And then the rental will be in up GDP-ish mid-single digits and that's how we get to our end market projection.

Very helpful. Thanks, Gerben. Thanks, Bill. I’ll turn it back.

Your next question comes from the line of Nigel Coe from Wolfe Research. Your line is now open.

Thanks. Good morning, everyone.

Hi, Nigel.

Just wanted to keep it up on a thread of non-res. We saw the put in place data falling off a cliff in 4Q. I'm just wondering if you saw that deterioration as well. I noticed that Eaton's electrical and airplane business also sort a bit of step back in 4Q. So just curious, how non-res tracked relative to 2% to 4% down in 4Q?

Yeah. I think Nigel that we did experience that on the new construction side. So that's definitely the softer piece of our exposure there for sure.

Okay. And then the 30 to 40% core volume leverage I think to Jeff's comments that's pretty impressive. Anything to think back from a mix perspective impacting us in 2021? It doesn't sound like there is, but I'm just wondering how we should think about Aclara mix as that starts to accelerate from 2Q onwards and maybe some of the lighting mix impact as well through the year?

Yeah. I don't know that, there's anything terribly noteworthy in mix. I do think you're right that, if power outgrows that's mix friendly and as C&I Lighting, which would be in this non-res area that you're talking about is a lower margin part of our portfolio so that lagging is not the biggest contributor through growth. So I'm not sure – those pieces are there, but I'm not sure it's super notable to how we're thinking of the year.

A quick clarification. The tariff credit you booked in 4Q of 2019 obviously created a very tough comp for you in 4Q 2020. Was that a one-timer, or were there more receipts in 2020? Just wondering if 220 is the – sorry, 2020 is a clean comp as we go into 2021?

Yeah. 2020 is not a clean comp. So there was refund that was chunky in the fourth quarter of 2019, but then there were also exclusions throughout the year that rolled off. And so our net tariff rate in 2021 will be higher than 2020. So that's just something else that we have to manage with price and productivity as part of the part of the package, but that's contemplated in that PCP bar that you see in the guidance.

Great.

Your next question comes from the line of Christopher Glynn from Oppenheimer. Your line is now open.

Hey, thanks. Good morning, guys.

Hi, Chris.

Hey, Chris.

I wanted to talk about Beckwith for a minute. It's interesting to see the Power Systems controls getting developed there. I'm just wondering, where exactly in the grid architecture does that sit in? How are you looking at moving more upstream with control systems versus at the kind of assembly or subassembly level? And do you touch on distributed energy resources at all as those get incorporated into the grid 2.0 so to speak?

Yeah, I think you're right on your assessment of that. This is right down what we call distribution automation. And this is a business that even before we acquired Aclara and when I ran that Utility business, we talked about investing it. We actually broke out a group to focus on that. We developed products our recloser products for example what was that. So we'd actually been looking at Beckwith for a number of years already. But this is controls for distribution automation. What the nice thing about it is and on that slide that Bill talked about on the organic development, you see actually a controller there that controls a 3-phase re-closer, which we recently launched with the Beckwith controls. So it's distribution automation that Beckwith supplies, and it fits really well with the components – the other distribution components that we have on the grid.

Okay. And then, I wanted to take a longer-term view of lighting a little bit ongoing challenges with competition and stuff. But are you seeing any prospects for wholesale form factor shifts like to slim for instance, or do you think blocking and tackling will be an effective way to run this business long term?

Yeah. I think that – I wouldn't say that we've seen evidence of near-term form factor changes like ultimately lighting someday maybe a piece of film on the ceiling or something and that doesn't feel to be around the corner per se. And so our approach is to continue to make sure we invest in our product line, make sure we have the proper breadth of quality product. We keep investing in the front end to make sure we have the right agents helping us get to market and we keep taking cost out of the back end. So of that restructuring for example, one of the projects is consolidating a lighting facility into a lower cost facility that we've got. So we think, we can keep doing better with what's there. We were quite encouraged that the lighting industry is asking for price increases in early January. It's too early Chris for me to say, how much that sticks. But our major competitors amongst the conglomerates were all recognizing the need to ask for price. And so that's kind of a good sign, I think and so that's how we're looking at it. We're keen to focus on margin there. We don't want to chase volumes that might have unattractive margins attached to it. So we're not focused per se just on growth for growth's sake. And that's how we'll keep running the business.

Yes. Maybe to add to -- I hear very recently as we engaged with one of our large customers as a result of the Electrical segment consolidation and that coming together, I was part of very robust discussions about how we could increase our lighting exposure with this company. So I think it's -- we're seeing some of the benefits of that Electrical segment coming together. And I think we'll see some of the benefits there in lighting. As Bill stated, we want profitable growth in this business for sure.

Thanks. Appreciate the story. I just had a clarification Gerben. At the beginning you said something about double-digit orders. Maybe that was a December comment, but I didn't quite catch it.

Yes. It was around -- we saw the orders inflect Chris in December. And as January has unfolded we've got a month in the books with a double-digit order book. And there's questions as to is that sustainable for the year. We're not predicting so. There can be reasons why maybe customers are restocking a little bit and maybe they didn't chase volume. They might have been managing their inventories in December. So there can be a reason for it to be a little bit above sustainable level, but we're encouraged to see that after the first 30 calendar days of the year.

Yeah. For sure. Thanks for the clarification.

Your next question comes from the line of Josh Pokrzywinski from Morgan Stanley. Your line is now open.

Hey. Good morning, guys.

Good morning, Josh.

Hey, Bill just a follow-up on that last question maybe ask a bit of a broader one. Thinking about price versus some of the nuance in the environment right now relative to kind of past periods of inflation. You got this kind of secular shift in T&D investment going on. Lighting is certainly kind of a different business profile and it's already seen a good amount of compression so maybe not as much of a structural headwind as much there. You mentioned that folks want to reload on inventories or restarting to. So in theory that should help the discussion. But do you see yourself with, kind of, a better kind of board in front of you in terms of some of those exogenous factors that may help price yield relative to maybe when we were a few years ago going through this the last time?

Yes. I think the last shock that we really had to manage that created a sharp inflection point was the introduction of tariffs and we felt really good about during the course of a couple of years how that was managed through price. And so this is the next one. And would I say that we feel better set up to get price now than we did then? t might be a little more equal footing in the sense that somebody might have had a different supply chain and tariffs could have affected different supply chains differently versus this is really being driven by commodities that we all put into our products. And -- as a LIFO company we recognize the higher cost soon. Is there a FIFO company that can delay I mean that all gets squeezed out over the course of an inventory turn, right? So I think, maybe marginally the fact that we're all facing the pressures makes -- and certainly the early behavior in January of competitors on price suggests that it's broader-based than just Hubbell trying to force it through. So I think the setup feels okay, but we've got to keep watching where commodities go and you always end up worrying about price elasticity ultimately and do you affect demand by adding small increments to the price. But I think it feels like a decent setup to us.

Yes. Maybe one comment to add to that particularly on the Utility business, and again from experience having run that, generally we look at a little bit longer cycles in that business both with getting and giving price long-term relationships with our customers. So we just land up in January. We're not going to be able to wait until the natural renewal of contracts here later this year. But that one probably will tend to lag a little bit more than on the electrical side but we're clearly on top of it and going after it.

Got it. That's helpful. And then just on the timing of what, I guess is pent-up demand in Aclara with not being able to get out there in the field. How long does it take to kind of unwind that? Is that something that just takes a couple of quarters? Is it a full year given that they'll be kind of pent-up for what will be a full year by the end of the day? Gerben, how do you see that kind of unfolding?

Yes. If I understand the question correct is the pent-up demand going to create some increased future demand? And I think there is pent-up demand. I'm not sure though, that it will lead necessarily to a big spike because, one of the things with these projects to put them in is a labor requirement and labor from the utility, labor from the suppliers, and that's hard to just make up in a short time. But I do believe that, there's positive growth beyond what would be normally expected in growth given this slowdown, so that will be all for multi.

Yes. I think, it would spread out Josh, between three to four quarters to get it all out there. So, maybe between what you're asking.

Perfect. All right. Thanks for the color guys.

Your next question comes from the line of Justin Bergner from Gabelli Research. Your line is now open.

Good morning, Gerben. Good morning, Bill.

Good morning, Justin.

My first question relates to the sort of medium-term outlook for Utility T&D components. I guess, you mentioned you were lapping a reasonably strong 2020. But it looks like, the organic growth if I average the quarters was slightly over 3% and you're sort of forecasting something along the lines of the same versus the strong numbers that were delivered in 2018, 2019. Do you see sort of this 3% level, as sort of the medium-term outlook, even with the secular tailwinds for Utility T&D, or do you think, we could see a reacceleration, looking beyond the next couple of quarters, maybe with infrastructure spending or what have you?

Yes, it's good. I mean, I think, you're generally along the right path of that 3% to 4% and only a few years back, we would have been ecstatic with that kind of growth in the Utility business. You could see, it maybe a little bit lumpy and that's mostly related to our transmission portfolio that we have. But you're thinking along the right lines of that 3%, 4% growth on a secular basis.

Okay. Great. And then just two quick ones. The restructuring benefit, is that the $15 million to $20 million of savings plus another $10 million for lower spend? And then, are all the -- is all the M&A revenue anticipated in 2021 already acquired, or are you anticipating more to come?

Yes. The -- that revenue is already acquired for the M&A piece. And yes, on the R&R, you've got both levers working. We anticipate spending a little less and then, we're going to get savings off the $0.43 that we spent this year. So those two are combining for that green bar there.

Great. Thanks for taking my questions.

Thank you.

Your last question comes from the line of Chris Snyder from UBS. Your line is now open.

Thank you for squeezing me in. You talked about all the big lighting players, introducing price increases early 2021. Obviously, there's a looming inflation kind of headwind. So, have you observed any improved price discipline from the many smaller low-cost players who compete on the lighting side? And then, I guess, just kind of following up on that, what gives you kind of confidence that the price increases can stick? Historically, this has obviously been a very price competitive market and now we're in the maybe middle-ish innings of a downturn.

Yes. So, if you lengthen the lens, there had been a period of price competitiveness that for the last couple of years actually, there had been some decent pushback on that and the curtailment of that and we've seen a couple of years of actually getting price in lighting. So, the last quarter or two has been kind of a slip back. And so, it's a good question as to why we would be confident that that would be arrested after half a year. And the reason is really because of the behavior that we saw amongst the players. So -- but you're right to raise the question that we'll need time needs to prove how much of that will stick. And you're asking about kind of the international entrants and I don't think, we'd expect them to be as disciplined as the group that I was referencing and who've asked for price.

I appreciate all that. And then just last one, following up on the Aclara discussion. It seems like this has historically been like you guys say mid-single-digit growth business. And we're coming out of a year where Aclara is down 15%. So, I think you guys said maybe that pent-up demand gets unwound over four quarters. But if the business is kind of running maybe 20% below where it would be, if there was never a pandemic, could that 20% be unwound over four quarters, or is -- was there a piece of this that's maybe just even further pushed to the right and it will take longer to come back?

Yes. I think, the way we're planning this is more akin to the last thing that you said. And yet if you're asking, is it possible that, it is a lumpier business than we're used to with Power Systems and so, it is possible that things get pulled forward. But I think Gerben was highlighting one of the important parts of this, which is that it's not really exclusively a demand question. There's also the installation process and having the people to do that and the crews and the time. And so, we're just anticipating that that comes off. It's not just someone pushing a button and ordering something. It's got to be installed. And so, that's why we're thinking, it's going to be maybe a little smoother than what you're saying which is couldn't it jump up to double digits per year and then taper back to 5%, which is how I'm interpreting your question. I just think it will be a little smoother than that.

Appreciate all the color. Thanks for the time guys.

Okay. Thank you.

Speakers, I'm seeing no further questions in the queue. Please continue.

All right. Thanks, operator. Thank you for everybody for joining us. And I'll be around all day for questions. Thanks.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.