Good day, and thank you for standing by. Welcome to the First Quarter 2022 Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. And now, it is my pleasure to hand the conference over to your first speaker today, Dan Innamorato, Vice President, Investor Relations. 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 first quarter 2022 results. The press release and slides are posted to the Investors section of our website at hubbell.com. I’m joined today by our Chairman, 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 our 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. And with that, I’ll turn the call over to Gerben.

Great. Thanks, Dan, and good morning, everyone, and thank you for joining us to discuss Hubbell’s first quarter results. Hubbell is off to a strong start in 2022. Our markets remain healthy, with broad-based demand driving strong sales and order growth. In particular, our utility Solutions segment continues to build backlog, even as customer shipments picked up sequentially. Grid modernization initiatives continued to drive robust investment levels from our core utility customers, as they seek to upgrade aging infrastructure and integrate renewables onto the grid. Operationally, supply chain headwinds persist. Inflation and raw materials and labor, tight availability, and higher cost of containers, as well as shortages in key materials such as chips and resins, are leading to higher input costs and manufacturing and transportation inefficiencies across our businesses. However, we are executing effectively through these challenges to serve our customers and deliver strong results for our shareholders. We continue to accelerate our price and productivity initiatives, and we have now turned the corner on price material, which was a net positive in the first quarter. The combination of strong volume growth and positive price material enabled us to return to year-over-year margin expansion a quarter earlier than we had initially anticipated. Overall, we are pleased with the performance in the quarter, and we are confident that we are well positioned to continue executing effectively over the balance of 2022. While the macroeconomic environment remains dynamic, our strong order book, significant price traction, and operational discipline, gives us visibility and confidence to raise our full year outlook today, which now reflects mid-teens adjusted earnings per share growth. We will provide more color on the full year outlook later in the presentation. Before I turn it over to Bill to walk you through the financial results, I'd like to highlight some…

Thanks, Gerben. Good morning, everybody. Appreciate you joining. I'm aware of how busy the day is, and I'll try to keep my comments short and sweet and open with a happy birthday to our own Dan Innamorato today. And as Gerben said, really off to a strong start to the year. And there's really two notable management accomplishments that are driving the results, and you'll hear us comment several times. The first is price. I know you're all aware that we got behind last year, and as inflation persisted throughout the last of the five quarters, we relentlessly kept working with our channel partners to raise price. And I think the fact that we caught up and created a tailwind in the first quarter of ’22, is really the good evidence of the high quality of our products and how well positioned they are, both in front and behind and at the meter where essentially at low-cost relative to the value that they add. The second besides price was our production levels. I think as you know, we've been operating for a while constrained, not by orders, but constrained by supply chain. And so, it was a great sign to see sequential increase from Q4 to Q1, which is typically a decline in output and for us to increase the units there, some evidence that getting better and fighting through some of the supply chain constraints. And when you have both that price and production level raise, and with the backdrop of strong orders, you're going to see very high growth in sales and earnings, which is what you'll see in our results released today. I'm going to start on Page 4 of the materials. You can see sales increase of 21% to $1.16 billion. That 21% was driven by…

Great. Thanks, Bill. And before we begin Q&A, I’d just like to underscore a couple of key points from this morning's presentation. Hubbell is off to a running start in 2022, after strong execution in the first quarter. And while the macroeconomic environment remains dynamic and uncertain, we have strong positions in attractive end market, with long-term growth drivers, and we are executing well in the areas that are within our control. We are confident that we are positioned to deliver on our 2022 outlook, which we raised this morning, and drive strong results for our shareholders over the long-term. And with that, let me turn it over to Q&A.

Thank you. [Operator Instructions]. Your first question comes from the line of Jeff Sprague with Vertical Research Partners. Please go ahead.

Good morning, everyone. Maybe just start off on the volume side of the equation, and the reason I go there, we're seeing a lot of results here recently where companies are posting topline that maybe is almost all priced with little or no volume. These results, therefore kind of stand out in that regard, even though the price is impressive. If you look at in particular what's going on in the utility market, is there anything additional to add around, I don't know, infrastructure spending coming in or other actions? Or is this just really kind of sort of an uncorking of some of the supply chain headwinds, and you're kind of better able to just kind of keep up with the overall pace of demand here?

Yes. Jeff, let me maybe break those down into two sides. One is on the demand side and one is on the supply side. Fundamentally, demand is strong in the utility market, right? We've talked about the need to harden the grid, upgrade the grid. And that's still absolutely fundamentally there. And as Bill stated, we continue to see orders exceed shipments. So, we’re building a backlog. Now, of course, there's an element of lead times extending, and that creates maybe a little bit of a unnatural demand, but it so far exceeds a supply right now that we believe, even if that moderates, that at the levels that we're producing, we can maintain those and continue to see growth. The second part of it is, we were able to increase our productive output. And no small feat, I would say. It’s part of why I'm so proud of the team. We’re being recognized for some of these service awards. Our customers are truly telling us that during this time, we are outperforming in delivering. It's a real focus for us. I would say the things that we are doing on the supply chain side, make us more resilient, right? So, we spend a lot of time approving alternate materials and design, qualifying new suppliers for redundancy, making capacity investments, particularly in the utility business. We’re making some investment there because that business really seemed to grow throughout the pandemic, and automation. So, I would say the investments that we're making into the business are helping us improve in what we've seen, not at the rate we've wanted it to be, but we have seen quarter-over-quarter continued improvement, despite what are still very, very challenging times, whether you look at containers or supply chain or the Omicron that we dealt with in the first quarter. So, I think we're just building a more resilient operation, but still plenty of chance. So, hopefully, I answered both sides of the equation there for you.

Yes. No, thanks. And then just again on utility, there's been a little bit of concern, and I don't know if it's just kind of chatter at this point, but just pressure on the consumer, Bill, from inflation possibly feeding back into some pressure on T&D spending. I mean, obviously, that didn't show up in your results in this quarter. I just wondered, to the extent you could speak to - do you see that creep into the conversation anywhere? Maybe unpack kind of CapEx versus OpEx on T&D and the sort of visibility that you have looking forward kind of 12 to 18 months in that segment?

Yes, I think - I don't know that we have any particularly acute insight into the balance there. I mean, I think it's quite an important question as to how supportive the PUCs can be, and if the consumer starts getting quite pinched here. I do think you're right that utilities have been quite effective in getting a lot of their spend into capital and away from O&M such that they can be - they ultimately would get reimbursed with a return on capital for that. But I think your question is one that we'll have to keep watching because it's not something that's evidencing itself yet in any of our demand profile.

Right. Thanks a lot. I'll leave it there. Thank you.

Your next question is from Steve Tusa with JPMorgan. Please go ahead.

So, I guess my question is really around kind of the second quarter. How do we think about the progression over the course of the year? And is there any lumpiness with this price-cost dynamic that's going on that we have to think about when it comes to either year-over-year sequential performance as we kind of move through the year? Because clearly the year looks conservative here, but I'm just wondering how that plays out seasonally and sequentially.

Yes, I think, Steve, as we look at the second quarter, there is some momentum in the sales side. And I think you're right to point out that the commodities, starting really at the very beginning of March, I think triggered by the invasion, started to reinflect and reinflate, and that creates only the need to keep getting price. And so, we're anticipating getting some more in the second quarter and trying to just navigate through that. But we are just anticipating, Steve, with the visibility that we have in our book and the backlog, that we'll have some similar trends to what we saw in the first quarter. I'd say of note, we usually see a decent sized seasonal pickup from first quarter to second quarter. And because the first quarter was really using some of its backlog to support its levels, I don't think we'll see that same level of sequential pickup up of seasonality. I think that'll feel a little more muted and it'll look a little more like momentum, I would say.

Maybe the only thing to add to that is, as we are one month into the second quarter, the order patterns remain quite robust as similar to what we saw in the first quarter, so.

Right. So, a pickup, but maybe not as much as normal seasonality?

Yep.

Absolutely.

One more question for you. What happens when these draws roll over? Historically, you guys have had some negative pricing in some instances. What's the kind of playbook for when things soften up on the input side?

Yes. I think it's going to start with the dialogue we've been having with our customers in the channel, Steve. And we've been very clear that our price increases are not a surcharge on steel or copper or something like that. It's really part of quite a broad-based inflation profile. So, yes, commodities are a big part of that. Yes, people costs, compensation costs are a big part of that. Transportation costs are a big part of that. Medical is a part of that. So, even if let's say steel or copper were to start to soften, we've, I think, got the right dialogue with our customers that that's not an immediate cause for a price decrease. And so, at the same time, I'm sure those conversations will be had, and we'll just need to make sure we keep reinforcing the value proposition of what our products play in front of the meter, behind the meter, and the solutions they provide. But also, it just feels to us, Steve, like there's still a real shortage in supply. And so, having the supply is really worth something. And that's why Gerben, I think, keeps pointing out the awards that we're getting for serving the customer and trying to keep that as positive a relationship as we can. So, that'll be a battle, but we feel we’ll be up to it.

All right. I hope the Rangers give Dan a win for his birthday tonight, and I'll go figure out my car issues. Thanks.

Your next question is from Tommy Moll with Stephens. Please go ahead.

Morning, and thanks for taking my questions So, backlog up quarter-over-quarter. One gating factor you highlighted is just the chip shortages that have impacted shipments for your AMI meters business. I'd be curious for any context you can provide there, but also more broadly to the overall enterprise, what additional detail can you give us on maybe the magnitude where you’re revenue constrained or the areas of constraint that are most acute? Thanks.

Yes, I think the areas, Tommy, if I were to point to them, on the material side starts with chips. You pointed out the area of our business that that impacts. I would say resins would be an example of another material that's not been consistently available. And that causes some disruption in our enclosures business inside of power systems, as well as our Electrical Products business inside of the Electrical Solutions segment. But I think also other inputs outside of those materials, I do think that our absenteeism continues to be higher than if I air quoted normal going back a couple of years pre-COVID. And so, when you combine sort of a 9% volume increase going through the pipe, and you're staffing at individual sales, it’s kind of uncertain day to day and week to week, and you don't exactly know which materials you're going to have. We just are ending up with spending more inside of our plants and not running as efficiently as we could. And I think the third place to point out is you’ve got materials, you’ve got labor, and the third is transportation. And that's really been most affecting, I would say, our residential business where they've got a purchase for resale model, taking a container in. As those containers prices really spiked, that just really ate into the profitability of that business. So, I'd say those are the most acute contributors to preventing us from being - firing on all cylinders here.

Yes. And I'd say on those two, you're absolutely right, Bill. Those are two that are fundamental. They, in our view, will probably take the rest of this year, with chips probably into next year to solve that. So, one of the things we're spending a lot of time on, as I said at the beginning, is to kind of redesign product, whether it's alternate materials or alternate design with chips. Now, chips are going to be hard to get, no matter what chip you do. So, it's a little more challenging. But what’s really causing so many inefficiencies is that consistency of supply. And that's probably a bigger issue for us right now, is the starts and the stops. And when you're running factories, that's not good for output and even worse for cost. So, that's where we’re perhaps struggling the most in that it's not the most efficient cost on that volume that we're getting. And then you see the fall-through on that volume not being as good as it could be.

Appreciate the context there. Shifting gears for a follow-up, on distribution automation, you talked about some growth-related investment. I wonder if you could frame for us what that entails. What are the opportunities you're chasing down and what's a rough type of timeframe to be able to harvest some benefits from that investment?

Yes. So, you're talking specifically about DA or specifically about the investment that we put in our outlook bridge?

My assumption was the former as a subset of the latter, but ...

It is a subset. It's just not all of it. So, but I think - so let's start with the bigger piece. And I'd say some of that investment has gone into capacity, and as Gerben highlighted in our power system segment. But a decent amount is going into new product development. And Tommy, we've got an Investor Day planned in the next six weeks or so, and we're eager to see some folks there. And we're anticipating doing a little bit deeper dive into some of the new product development that we're working on. But we’re targeting certain applications, certain areas of high growth that we think we've got the right to compete in. And yet your question is a good one, which is, that kind of investment isn't going to pay back this year. We’ll start to see some benefit next year. But I really think you're right to point out that that's got a couple of years before you really start to see that. And yet we think that's a really important part of the story going forward is being able to grow faster than GDP and to really get the gross margin growth by having new products that have a value proposition that can extract a better gross margin. And on the distribution automation side, it just happens to be one of those areas where we think the control and protection of the grid in between the meter and the infrastructure is really an area that's got just a lot of opportunity for growth, given some of Jeff's questions about the need for utilities to keep their O&M down. And it's just a place where we think we've got a right to play and a right to win. And so, that just - you're right to call that a subset of the other.

Thanks, Bill. I'll turn it back

Yes, sir. Our next question is from Nigel Edward Coe with Wolfe Research. Please go ahead.

Thanks. Good morning, guys. So, I was 10 minutes late joining the call, so I apologize if you've addressed this already. But what was the major reason for the divergence between the electrical margins and the performance down margins in Electrical, and obviously very strong in utility? It sounds like logistics and inflation, more impactful there, but any more color there would be helpful.

Yes, I think a couple of things that were specific inside of Electrical, one was the business unit facing off against residential, Nigel, is facing some difficult compares. The first quarter, really the first half of last year saw some extraordinary spending in the home remodeling area because people were essentially trapped in their homes and weren't allowed to get out and about. So, they decided to invest in their nest, as they say. And so, those volumes were down, and then that was exacerbated by the fact that our resi businesses purchased for resale largely. And so, the cost of containers then to bring that product across the ocean, really, really hampered the margin. So, if you - if we had had the same year as last year, you would have seen margins flat in Electrical. We spent an extra half point on restructuring in the segment, and we are excited about the fact that that'll create productivity and margin next year. So, we think a very good investment. But those two things, you would have seen margin expansion without those, but you're right that just the non-material inflation and some of the inefficiencies that Tommy was just talking about, that sort of eats into the tailwind provided by volume and price material tailwind.

Okay. Obviously, lots of questions on price already, but I'm just curious if you - maybe just a bit more definition on how you see the price material balance sort of through the year. And what is your assumption, just to be clear, on commodities here? So, is it flat from here, down for the year? Or are you seeing some modest, I don't know, deflation? That's not the right word, but what are your assumptions on commodities?

Yes. Our assumption is that there's continued to be inflation throughout the year, and that materials are going to cost more than they did last year. And we are priced for that and have actions in the second quarter consistent with that. But it's also important to say that our pricing is informed by more than material, because we certainly, on the transportation side, on the human resource cost side, medical, salaries and wages, benefits, P&E, our sales people are back out on the road. So, there is just non-material inflation, and it’s more, it's overwhelming what you can do with productivity initiatives. And so, I think, Nigel, it puts a little more burden on price. And so, it's maybe to our benefit that we have been so obsessively focused on price as a company for the last five quarters, because we really, really need it.

Yes. Well, 12% price is pretty wild. And then just finally, a quick one on the oil and gas - your oil and gas business. Can you just mark us to market on where that business is right now? I think it used to be mainly an offshore business, but in light of the oil price and the drill baby drill kind of stance from the administration, what are you assuming for that business this year, and where are they tracking relative to kind of 2014 levels?

Yes. So, it's down to about 5% of our sales at this point, Nigel. But it saw a good quarter that's inside - we combine it in our heavy industrial piece inside of the Electrical segment. And we saw good return of margins as the volume came back. And so, we continue - as important as energy is to the economy here, we continue to feel that us providing explosion-proof products, mostly in the upstream part of that process, it's - I think its near-term future with energy prices where they are, looks pretty good. It just is a much - it's quite a small piece of the total at this point.

Yes. Okay. Thanks, Bill.

Your next question is from Chris Snyder with UBS. Please go ahead.

Thank you. So, in the prepared remarks, the company noted that orders outpaced revenue, leading to further backlog build. Can you provide some color on what the 2022 guidance assumes as it relates to this backlog, whether it be released at some point during the year or even just further build over the next three quarters?

Yes, it's a very interesting question, Chris, because I don't know that we have a great crystal ball on - I think we would start with the premise that orders of 25% is probably not the sustainable rate of orders that we anticipate seeing over a prolonged amount of time. And so, I think your question is getting at, when will those orders start to more normalize? And I think the contributors right now continue to be, they're expecting price increases. So, you'd rather put the order in before. The on-time - the promised delivery date is on an extended time, rather than fast. And so, they're ordering more to make sure they get in line. And I think Gerben was saying, on the utility side, there's still quite a bit of fundamental drivers on the volume side. And so, we think as lead times come down - so as the supply chain smooths out, that should bring the orders more in line. I'm not really sure when that happens. And so, we don't really have something explicit, but I think we are saying that we see enough momentum in orders, combined with enough backlog, that gave us the confidence to raise our sales outlook for the year by two points of price and one point of volume. But your question is harder for us to really see, and we're sort of hoping that as that correction happens, we've got the backlog in place to be able to make that a soft landing rather than a dislocation. And that's - at this stage of the game, that's our anticipation.

No, I appreciate that. And I totally understand it's a hard question to answer with a lot of moving parts. So, guess for my follow-up, maybe a bigger picture one on utility. Obviously, this has always been a long cycle resilient business, but with the addition of Aclara, which now presumably has a pretty sizable backlog, and an increased focus on renewables, which appears structural, how's the floor on this business been raised? And when I say floor, I'm talking about it from a growth perspective, just because it feels like these secular drivers are now a bigger piece of the business and it's somewhat hard to see why those secular drivers reverse away from the company. Thank you.

Yes. I would say, Chris, and Gerben may have more to say, but we traditionally have really probably thought about that business, that segment as a GDP grower that had a really high MRO driving base to it. And so, we would have, kind of in a traditional medium range plan, had a low single digit growth rate for that. And I think we've seen that fundamentally shift towards a mid-single digit growth rate. And I think we continue to believe that's the case. So, I totally agree with you. kind of went from a GDP MRO to sort of a secular grower, and that's because we can garner some decent margins in that area. That's a welcome shift from us. And Gerben may have more to say.

Yes. No, I would be bullish on both really sides of that portfolio, because as more renewables come up onto the grid and the grid continues to get older, it just is very, very stressed. So, I'd say on the core business it’s just a lot of hardening going on. That's multi-year projects. I see that business GDP plus as well. And then, certainly on the Aclara side, the automation, the grid automation, the modernization of the grid, making it more efficient, we've talked a lot about that, how that has attractive growth. So, I'm quite bullish on that whole utility business.

Thank you.

Your next question is from Josh Pokrzywinski with Morgan Stanley. Please go ahead.

Hi. Good morning, guys. So, within the new four to six on the volume piece, how should we think about what you guys are sort of holding back as contingency, unable to deliver in backlog because of the supply chain? So, I guess, maybe said differently, like, so if you could get everything you needed to supply chain wise, like what does that four to six look like?

Yes. I mean, I think it's a hard question because if you looked at our order rates, they're so far exceeding out, but if you could miraculously solve everything and have unlimited capacity, it could be much harder, but that's not the reality. I think as we kind of look at the year, I think Bill said it, we do see momentum carrying into the second quarter. Where it gets more uncertain is towards the back half of the year for us, and probably most pronounced in the fourth quarter where we're projecting perhaps a more seasonal - return to a more seasonal level. So, if orders hold up and we can continue to solve for supply chain issues and keep our productive capacities increasing, there could be some upside there. But it’s, I'd say by single digit, small increments, not huge. The order patterns should not be reflective of what the possibilities are.

Got it. Okay, that's helpful. And then on the structuring front, I mean, as much as there's been kind of a multiyear assessment of the footprint, you guys sort of have different challenges today than you might have three years ago. I think for bandwidth purposes, for maybe contingency on where you need to make stuff, like how much has maybe that footprint assessment changed as a result of what we've gone through over the past, call it year? And are you spending that restructuring differently than maybe you had been historically?

Yes, I think that we had, as you pointed out, sort of started out with a multi-year vision, accompanied with a multi-year Gant chart of projects. And we feel really happy with the result of those. I'd say the biggest thing that's changed to inform that, Josh, is not COVID. It's been the creation of Electrical segment and bringing all the businesses on that half underneath a single management team. And I think as they think about competing collectively, they see opportunities to share production and become more efficient with the square footage. So, what we started, I think, has been breathed even a new - some new life into it. And again, we'd anticipate talking to you a little bit about that at our Investor Day in June, if you have the chance to join us. I think you'll hear Pete Lau, who runs the Electrical segment, talk a little more about that. And so, we think that - I'm sort of happy to try to keep the spending sort of flattish so we don't really have to talk maybe about year-over-year. I don't want to kind of distort our performance. And so, I kind of like - I like where we are in terms of the spending and the saves being kind of creating some earnings momentum, but not necessarily creating dramatic headwinds from year-over-year anywhere.

Got it. That's helpful. I'll leave it there. That’s all I’ve got.

Your last question is from Christopher Glynn with Oppenheimer. Please go ahead.

Thanks. Good morning. Congrats on the recognitions and on executing all that price. Curious if there's any sense that the need for incremental pricing is starting to taper, notwithstanding that you have some incremental price coming through in the pipeline. But from a holistic sense, is there any basis now to start to develop that view of a leveling on the horizon?

Yes. Maybe I'd say if we compare it to last year, the magnitude and the frequency is, we clearly anticipate that to be less. However, I think it’s important what Bill pointed out. We're still seeing inflation this year. We saw tapering a little bit towards the end of the year, going into this year, particularly steel, but after the invasion, we've seen not only steel, but aluminum, copper, and then the normal ongoing inflation. I think if you look at the numbers, they're quite robust for inflation. So, we have additional pricing actions that we'll need to take to continue to offset price cost. We've done quite good at it. So, I'd say, more actions are expected, but not at the probably frequency of magnitude that we saw last year.

Okay. And want to go back to Chris's question. We talked about the further - the advance of the organic profile for the Utility Solutions. You're at really high levels right now, and T&D up 30%, 31%, maybe mid-high teens volume on nicely positive comparisons. Is it possible for correction at this point, or is this just the fundamental higher gear shift from connecting renewables and those fundamental secular drivers?

Yes. I think the nature of a correction that we could envision, Chris, would be kind of what Gerben was describing. We had the magic wand that could make as much power systems products as was demanded. And the lead times went down to overnight. I think demand would quite adjust to what's needed. And I would argue though that what's needed still is something in the mid-single digits order of magnitude greater than last year's. So, the correction, I don't really see being in the form of it going to contraction. I see it settling in at that mid-single digits. And the question is, do we get there nice and smooth, or do we get there rapidly? And how do we - do we have enough backlog to bridge that? And those are - that kind of question is just is a little bit difficult for us to predict.

Okay. great. Thanks for those thoughts, Bill.

And that ends the question-and-answer session. I will now turn the call back over to Mr. Gerben Bakker, for closing remarks.

Great. Thanks, everyone, and I appreciate the participation and engagement with us this morning. I'd like to close with reminding you that our investor conference will take place in person again after a few years, a couple of years I think it had been, on June 7 in New York City. And we look forward to sharing further detail on our strategies and our long-term value for customers and shareholders with you there. So, thank you and have a great day.

This concludes today’s conference call. Thank you for participating. You may now disconnect. Stay safe and well.