Ladies and gentlemen, thank you for your patience and holding. And welcome to the Eaton Fourth Quarter of 2020 Earnings Call. At this time, all of your participant phone lines are in a listen-only mode and later there'll be an opportunity for your questions. Just a brief reminder, today's conference is being recorded. I'm now happy to turn the conference over to Senior Vice President of Investor Relations, Yan Jin.

Hey, good morning. I'm Yan Jin, Eaton's Senior Vice President of Investor Relations. Thank you all for joining us for Eaton's fourth quarter 2020 earnings call. With me today are Craig Arnold, our Chairman and CEO; and Rick Fearon, Vice Chairman, our Chief Financial and Planning Officer. Our agenda today includes opening remarks by Craig, highlighting the company's performance in the fourth quarter. As we have done in our past calls, we'll be taking questions at the end of Craig's comments. The press release today and the presentation we'll go through today have been posted on our website at www.eaton.com. Please note that both the press release and the presentation include reconciliation to non-GAAP measures. A webcast of this call is accessible on our website, and we will be ready for replay. I would like to remind you that our comments today will include statements related to the expected future results of the company and are therefore forward-looking statements. Our actual results may differ materially from our forecasted projections due to a wide range of risks and uncertainties, which are described in our earnings release and the presentation. They are also outlined in our related 8-K filing. So with that, I will turn it over to Craig.

Great. Thanks, Yan. Appreciate it. And we'll start on Page 3, and we naturally have a lot of good news to talk about today. But I'd say we'd be remiss if we didn't begin by at least acknowledging Rick Fearon and his upcoming retirement. As most of you know, Rick will reach mandatory retirement age of 65 in March and will retire on March 31st, and so I'd like to extend a sincere thanks to Rick for his 19 years of service to Eaton. Rick has obviously played an instrumental role in the transformation and shaping of our company and the company that we have today, and he has been a trusted partner to the management team, to our Board, and certainly to me personally. Looking back, Rick has participated in more than 75 of these earnings calls, and this will be his last one. We certainly wish Rick and his family well as he makes this transition onto life after Eaton, if there is life after Eaton, I'm not sure, Rick. But Rick will also be around for another couple of months and will attend the Investor Meeting on March 1st. Moving to Page 4, I'd also like to welcome Tom Okray in as well. Tom becomes Eaton's CFO effective April 1st. He was previously the CFO at W.W. Grainger and joined the team in January. Throughout his career, he has served in various leadership positions at Advance Auto Parts, Amazon, and GM. Tom is a seasoned CFO with a strong track record of success, and we anticipate that he will bring a very unique perspective and set of skills to the role here at Eaton. He is operational, he's growth-oriented, and he just has outstanding knowledge of distribution channels. Like Rick, Tom is also a global leader, who has lived around the world, including several countries in Europe, as well as Korea. So we're very happy to welcome Tom to the Eaton team as well and look forward to his contributions in the future. Now, moving to Page 5, we summarize a number of recent noteworthy accomplishments. I'll begin with the recent announcement to acquire Tripp Lite for $1.65 billion and Cobham Mission Systems for $2.8 billion—two very strategic acquisitions that improve the profitability, and quite frankly, the growth outlook for our company. The acquisition of Tripp Lite will enhance the breadth of our edge computing and distributed IT product portfolio, and it will also expand our single-phase UPS business in the United States. We're paying approximately 12 times 2020 EBITDA, 11 times estimated 2021 EBITDA, and we expect this transaction to close in the middle part of 2021. Yesterday, we also announced the acquisition of Cobham Mission Systems. Cobham is a leading manufacturer of air-to-air refueling systems, environmental systems, and actuation. Cobham also has highly complementary products to our company and has a strong position, importantly on growing defense platforms. We're paying approximately 14 times 2020 EBITDA, 13 times estimated 2021 EBITDA, and we expect this transaction to close in the early part of Q4. Moving on to Q4 specifically, we certainly had a stronger than expected quarter, and we're pleased with our solid results. Our team continued to execute well despite the pandemic. Q4 earnings per share were $1.18 on a GAAP basis and $1.28 on an adjusted basis. Our Q4 revenues of $4.7 billion were down 5% organically, which was at the high end of the range that we provided, and it is up 3% versus Q3. Our decremental margins were 21%, also better than the guidance of 25% that we provided. I'm also very pleased with our very strong free cash flow. Our operating cash flows were $943 million, and our free cash flows were $845 million, both of which exceeded prior-year levels. For 2020, we generated $2.6 billion of free cash flow, which was at the top end of our guidance range and an all-time record for free cash flow to sales at 14.3%. A lot of really positive things to talk about there as the business and the company teams executed well. Turning to Page 6, we summarized our Q4 financial results, and I want you to note a few items on this page. First, acquisitions increased sales by 2%, which was more than offset by the divestiture of Lighting and Automotive Fluid Conveyance, which reduced sales by 8%. Second, our segment margins, up 17.4%, were very strong, only 40 basis points below prior year despite lower volumes. And just as a reminder, we record all of our charges related to acquisitions, divestitures, and restructuring at corporate instead of at the segment level, which makes it easier to model the company going forward. Moving to Page 7, we summarized our Electrical Americas segment. Revenues were down 18%, made up of a 1% decline in organic revenues, and 17% mainly due to the divestiture of Lighting. We saw strong growth in data centers and residential markets, offset by weakness in industrial and commercial markets. Operating margins increased 120 basis points to 21.1%, and this very strong margin performance was due to effective cost containment actions and also aided by the divestiture of Lighting. This combination resulted in very strong decremental margin performance of 15%. While orders were down 1% on a rolling 12-month basis, data center orders were particularly strong and actually up double-digit. Our backlog grew by 12%, driven by strength in both residential and data center markets. Lastly, as I mentioned at the beginning, we are very pleased to announce the acquisition of Tripp Lite. This business is a tremendous strategic fit with our existing Electrical franchise and will allow us to continue to capitalize on this digitalization trend that requires edge computing. Future estimates suggest that some 75% of enterprise generated data will be created and processed via edge computing, and we expect this rapid growth to continue for some time to come. Next on Page 8, we show the result of our Electrical Global segment. Revenues declined 5%, with a 7% decline in organic revenues partially offset by 2% positive currency. This was better than the midpoint of our expectations for the quarter. The lower organic sales were driven by weakness, not surprisingly, in oil and gas and industrial markets. Excluding oil and gas and industrial business, which is more project-driven, Europe was down slightly, and Asia-Pacific was actually up low single-digit. Operating margins declined 40 basis points on a year-over-year basis, and here, once again, decremental margins were well managed at 25%. Our orders declined 6% on a rolling 12-month basis, with continued weakness in oil and gas and industrial markets. Excluding oil and gas and industrial markets, orders were down 1%, but we saw strength in data centers and residential markets, with data centers actually up some 30%. We also continued to expand our backlog, which was up 14%, driven once again by strength in residential and data center markets. Lastly, we were pleased to announce, in mid-December, an agreement to buy 50% of HuanYu High Tech, based in China. HuanYu manufactures low voltage circuit breakers and contactors in China and throughout Asia-Pacific. This investment will provide us access to a strong portfolio of products and will open up significant growth opportunities for our company in Asia-Pacific. We expect this transaction to close sometime in Q2. Turning to Page 9, we summarize our Hydraulics segment. Revenues were up 2%, which was all organic. This was much better than the down 7.5% at the midpoint of our guidance as markets continued to recover faster than anticipated, especially in China and Europe. Operating margins were 10.5%, up 70 basis points from Q3. The momentum in this segment continued throughout the quarter, resulting in a 25% increase in Q4 orders, with strength in both agricultural and construction equipment markets. We're working towards closing the Hydraulic transaction by the end of the first quarter. That said, given the time needed to complete all of the regulatory approvals, we wouldn't be surprised to see the slip into the early part of the second quarter. Next on Page 10, we have the results for our Aerospace segment. As expected, revenues declined 13%, down 25% organically, partially offset by an 11% increase from the acquisition of Souriau and 1% positive currency. The organic revenue decline was primarily driven by the continued downturn in commercial markets, partially offset by double-digit growth in military sales. Operating margins declined to 18.3%, but we still see these at very healthy levels of performance. Lastly, yesterday, we announced the acquisition of Cobham Mission Systems. Cobham is a technology leader in important defense and aerospace product lines and will add a number of complementary capabilities to our Aerospace business. This acquisition will significantly increase our exposure to growing defense platforms, enhance our Fuel Systems business, and strongly position our Aerospace business for future growth. Moving to Page 11, we summarize our Vehicle segment. Revenues here declined 7%, including a 1% organic decline, a negative 5% from the divestiture of our Automotive Fluid Conveyance business, and a 1% headwind from negative currency. The 1% decline in organic revenues was much better than the 8.5% decline at the midpoint of our guidance, as both light motor vehicle and truck markets have continued to rebound more quickly than we anticipated. We had particular strength in South America and Asia-Pacific. NAFTA Class 8 production was down 6% in Q4, but once again, this was better than expected. We're happy to see the rebound in operating margins of 16.6%, down just slightly versus prior year and up 260 basis points sequentially. Our decremental margin performance here was once again solid at 23%. Turning to Page 12, we show the results of our e-Mobility segment. Revenues increased 13%, including 11% organic growth and a 2% currency tailwind. Organic growth was much higher than the 1.5% growth at the midpoint of our guidance. We experienced solid growth across all regions, driven by both high-voltage electrical solutions for passenger cars and low voltage solutions for commercial vehicles. Operating margins were a negative 5.9%, reflecting that we continue to invest more in R&D and program implementation in this fast-growing segment of the company. We have a robust pipeline of opportunities, and we continue to see electrification as a significant growth opportunity into the future. Before we turn our attention to 2021, I'd like to summarize our results for 2020, which are shown on Page 13. While the pandemic caused unprecedented economic volatility and downturn, we remained focused on delivering for all of our stakeholders. We kept our employees safe, delivered for our customers, and supported our communities. We're proud of how we performed for our shareholders. We took appropriate cost reduction measures to ensure solid decremental margins of 20% and resilient cash flow of $2.6 billion. Our free cash flow to adjusted earnings conversion was very robust at 149%, and free cash flow to sales was 14.3%, 90 basis points over 2019, and another all-time record. We launched a $280 million multi-year restructuring program to reduce fixed costs, targeted mostly in those businesses that have been impacted by the pandemic, and these actions will yield $200 million of mature year benefits and make us certainly stronger in the long run. We also continued to transform our portfolio, announcing or completing divestitures valued at $4.7 billion. We acquired Power Distribution, Inc., and announced our intention to acquire 50% of HuanYu High Tech. Additionally, we returned $2.8 billion to shareholders via buyback and dividend payments. Lastly, we delivered very strong shareholder returns, results that were 20 basis points above the median of our peer group, and we are certainly proud of our performance. Overall, we are proud of the team and even more encouraged by our prospects for the future. As we continue to transform Eaton into a company of higher growth, higher margins, and more consistent earnings, we feel that in 2020, we took an important step forward demonstrating that it is, in fact, a different company and we're well on our way to delivering against that goal. Moving to Page 14, we list our revenue and margin guidance for 2021. Overall here, we expect organic growth between 4% and 6%, with weakness in Q1 followed by strength thereafter, and strong comparisons particularly in Q2. In both our Electrical segments, we expect organic growth to be 3% to 5%. Starting with the Americas, we expect continued strength in residential, data center, and utility markets, solid growth in industrial control markets, and ongoing weakness in commercial construction markets. In Electrical Global, we anticipate strengthening in residential, data centers, utility and industrial control markets, similar to the Americas, offset by softness in commercial construction and the oil and gas market. For Hydraulics, we expect organic growth to be between 4% and 6%, with broadly improving markets around the world. In Aerospace, we expect organic growth of 2% to 4%, with strength in military offset by continued weakness in commercial markets. For Vehicle, we anticipate strong organic growth of 10% to 12% with strength in both light vehicle and truck markets. Just as a reminder, our Eaton-Cummins joint venture will consolidate the revenues associated with this joint venture. Thus, much of this growth will show up in the joint venture, not in Eaton's revenue. In e-Mobility, organic growth is expected to be up 14% to 16% driven by strength in electric vehicles globally. Turning to segment margins, we expect Eaton to be between 17.8% and 18%, at the midpoint, a 140 basis point improvement over 2020; and importantly, 20 basis points over the pre-pandemic levels in 2019. If we could turn to Page 15, before we discuss the rest of our guidance for 2020, we’d like to show you the math behind our new definition of adjusted EPS. In 2020, we're revising our definition of adjusted EPS to add back amortization of intangibles. We believe this will provide investors with a more accurate measure of performance and make it easier for you to compare our performance with our peers. The table shows adjusted EPS using our current and new definitions for both 2020 and for our guidance range for 2021. It's important to note here as well that the applicable tax rate for intangibles is 23.5% based upon the tax jurisdictions where the intangibles are located. For 2021, we expect full-year adjusted EPS to be between $5.40 and $5.80, including $0.70 from the after-tax impact of intangibles, $0.25 of accretion from the addition of Tripp Lite and Cobham, which is reduced by $0.15 due to lower-than-planned share repurchases and additional financing costs. So, on a net basis, the two acquisitions are expected to add $0.10 to our expectations for earnings for 2021. We're assuming Tripp Lite closes at the start of Q3 and Cobham closes at the start of Q4. Turning to Page 16, we cover the balance of our 2021 guidance. Organic growth, as we mentioned, expected to be up 4% to 6%, with divestiture subtracting 8% and positive currency adding $200 million. Adjusted operating cash flow is expected to be between $2.3 billion and $2.7 billion, and CapEx will be approximately $500 million. On an adjusted free cash flow, this is projected to be $1.8 billion to $2.2 billion, with a midpoint of $2 billion. I would consider 2021 for us as really a transition year with several unusual items impacting cash flow, including approximately $200 million due to the sale of the Hydraulics business, an increment of roughly $125 million related to our multi-year restructuring plan, and approximately $125 million due to the repayment of the CARERS Act payroll deferral from 2020. There's also a $110 million increase in capital spending we expect to see as a return to more historical levels prior to the COVID-19 driven reduction. I'd like to note that the increase in capital spending will support strategic growth, and we're pleased to put dollars to work here. For example, in Q4, we announced a $100 million investment to expand our North America Electrical manufacturing and distribution centers. Excluding these items, as I consider this a transition year, the midpoint of our guidance would be approximately $2.6 billion. Lastly, our Q1 guidance expects earnings between $1.17 and $1.27 with revenues down 3% to 4% and segment margins between 15.7% and 16.1%. Consistent with the full year, we expect our tax rate to be between 15.5% and 16.5%. Finally, I'd like to conclude on Page 17, summarizing why we think Eaton remains a very attractive long-term investment. First, we're an intelligent power management company. We believe we are well-positioned to take advantage of what we think is the most important secular growth trend we'll experience in our lifetime—an energy transition driven by climate change and increasing electrification. And it's also helpful to remind you that we've been at it for some time, being a leader in ESG practices, which is increasing in importance globally. Eaton's commitment to sustainability is deeply embedded in the belief that what's good for the planet is also good for Eaton, and that environmentally friendly solutions will create growth opportunities for our company. As you know, our commitment to improve our business portfolio with a focus on high growth, higher earnings, and more earnings consistency is ongoing, and that's exactly what we've been doing over the last several years and will continue to do. Today, about 85% of our segment profits come from Electrical and Aerospace, and that percentage will grow with the announced acquisitions. While not complete, it's clear to say that our strategy is working. Our operating margin guidance for 2021 at 17.8% as a midpoint is an all-time record, and 20 basis points above 2019. Additionally, our cash flow continues to be a real differentiator. As we demonstrated in 2020, it is not only strong but also resilient under all economic conditions, and you can expect this differentiation to continue. Lastly, we expect to deliver 8% to 10% EPS growth over the 5-year planning horizon, including 14% in 2021. With that, I will turn it back to Yan for Q&A.

Hey, thanks, Craig. Before we begin the Q&A session of the call today, I appreciate if you can limit your opportunity to just one question and one follow-up. Thanking you for your cooperation. With that, I will turn it over to the operator for instructions.

We will now take a question from Nicole DeBlase of Deutsche Bank. Your line is open.

Yes, thanks. Good morning, guys.

Good morning, Nicole.

Hi.

And Rick, best of luck in retirement. It was great working with you.

Great. Thanks, Nicole.

So maybe starting with some of the order trends that you saw within Electrical. I'm not sure that the trailing 12 months trend really tells the story here, especially since we are seeing improvement into next year with your organic growth guidance. So Craig, maybe you could talk a little bit about what you're seeing in real-time in the end markets and what's starting to show or what's continuing to show sequential improvement in the fourth quarter and into early Q1?

Yes, Nicole. Appreciate the question. That's obviously the big one that we're all spending a lot of time focusing on. If you think about our Electrical Americas business in the fourth quarter, it continued to be impacted by the spread of COVID-19 and some intermittent shutdowns and supply chain issues we experienced, principally here in the US market. If you think about the areas that have been strong and continue to be strong, driving the increase in backlog, residential markets continue to perform extraordinarily strong, to the point where we're still trying to fulfill this increasing backlog in that business. Residential continues to be extremely strong. You heard me talk about the data center market, which is exhibiting double-digit growth in the Americas, and up 30% globally. Thus, the data center market is driven by the insatiable appetite that we all have for data. Utility markets continue to do well. There has been a lot written about what is happening today in commercial construction, and we are also watching that closely. It's important to note that for Eaton specifically, commercial construction is under 20% of our total Electrical business in the Americas; about one-third of it caters to retrofit and upgrades, which tend to be more predictable. There are markets like warehousing that are part of commercial construction, which have a much higher electrical intensity than, say, retail, and are doing quite well. By and large, we are comfortable with the guidance provided for our Electrical businesses in the Americas and globally, 3% to 5% very much consistent with the trends that we saw during the course of Q4, assuming we don’t have these supply-chain-related disruptions we experienced. We're encouraged by the fact that we built backlog, which, as you know, typically ships in 12 months or less, giving us confidence in our ability to deliver those revenue numbers.

Got it. That's very helpful color, Craig. For my follow-up, can we just talk a little bit about unpacking the outlook for margins, what you guys have embedded for underlying decrementals relative to other puts and takes like temporary costs coming back, some of the restructuring payback you will start to see this year, or maybe some M&A impact? If you could provide some color there?

Yes, the margins that we guided to, 17.8% at the midpoint, reflect that incremental margins in 2021 are going to be quite attractive. We will start to see some benefits associated with the $280 million restructuring program that we implemented, yielding $200 million in mature year benefits; while we expect most of our costs to come back in 2021, including expenses related to temporary cost containment measures we took during the course of 2020. Notably, we will continue to see benefits in travel and entertainment expenses, as we're not spending nearly as much on travel and related hospitality. Although the other costs we managed throughout 2020 are expected to return to business levels in 2021. So, for the most part, the plan is well-conceived and thought-through. The margins we've articulated for our businesses are consistent with current operations, simply adding increments and decrements for cost-containment measures plus restructuring benefits. Therefore, we’re comfortable with the numbers.

Thanks, Craig. I'll pass it on.

Next, we have Andrew Obin from Bank of America. Your line is open.

Yes, good morning.

Hi, Andrew.

First, I want to extend my congratulations and thanks to Rick. You probably don't remember it, but you and Sandy were at my first meeting at the Senior Analyst in London years ago. So, thank you for all the help.

You're welcome. I do remember that, Andrew. You've been a loyal commentator over the years.

No, thanks. Maybe you can follow Sherlock Holmes and write a monograph on these or something before you get on to better and bigger things. But just a broader question, noting the significant changes at Eaton with new appointments, including Katrina Redmond Rogers as CTO. Can you discuss the strategic direction these changes signal about the company over the next couple of years? That's my first question.

I appreciate your commenting on the changes because we have, like every company, gone through a period of refreshment. Sometimes these are additions to the team bringing strategic direction or two, and sometimes people just time out like Rick. If you think about the additions we've made, for example, adding Aravind Yarlagadda to our team, he is now our Chief Digital Officer. This reflects the fact that I talk about the three big trends we're witnessing—energy transition, connectivity, and climate change. It positions the organization to capitalize on these trends inside of our markets. We are thrilled with these changes and believe they align strategically with where the company is heading, ensuring Eaton capitalizes on future growth opportunities.

As a follow-up, looking at your e-Mobility business—it's still in the investment stage for a while, but could you share insights into your customer base? Are you focusing on North American players, or players in Asia or Europe as this sector emerges over the next few years?

I appreciate the question on e-Mobility. It's a hot space with a lot going on. For us, our focus is less geographical and more on technology solutions like power electronics, power conversion, inverters, converters, and onboard charging. We aim to be a global player serving both light vehicle markets and notably the commercial vehicle market where we have a strong footprint today. Thus, we're positioning ourselves around the world, focusing on particular technologies and products where we can deliver unique solutions and acceptable returns for the company.

Great, thank you very much.

Next, we have the line of Nigel Coe from Wolfe Research. Your line is open.

Thanks. Good morning.

Good morning, Nigel.

Rick, retirement is not bad. Congratulations on a great career, and we will miss you.

Great. Thank you, Nigel.

I want to clarify the guidance on Hydraulics. Is it included for one quarter in your Q1 guidance?

Yes, it's in for one quarter and included in guidance for Q1.

The market growth rate we gave for Hydraulics applies for Q1.

Thank you for that clarification. Can you provide context regarding the performance of the Americas during Q4? Did we see channel destocking, and was the sequential Q-to-Q margin in that segment heavier than expected?

In the US, we experienced second waves and additional supply chain-related constraints that impacted business. By the end of the quarter in December, performance improved as we sorted through some of these supply constraints. There have been significant issues at major ports which affected smoother supply chain operations. Nevertheless, the Americas business performed in line with expectations relative to these disruptions. On the question of channel destocking, no, we didn't see that at this juncture; inventory levels in the channel are in line with expected revenue, except in residential where we believe there's still some stocking to do.

Thanks, I’ll leave it there.

Next to go is Jeff Sprague from Vertical Research. Your line is open.

Thank you. Good day, everyone, and congrats to Rick. I don’t think this is your last earnings call; I think you’ll dial in next quarter to make it 76. You're not letting go that easily.

You can bet on that, Jeff.

I just wanted to dig into Cobham a little if we could. Tripp Lite looks like a total slam dunk from my vantage point. However, there are some questions around Cobham that I hope you could address. The PE firm disclosed EBITDA of GBP95 million in 2019, and that’s about $124 million, so your acquisition multiple implies it's running around $210 million. I’m getting fair questions regarding any potential disconnect in the EBIT of that business relative to its cash flows.

If you looked at that unit, it had a lot of inter-company relationships with other parts of Cobham. You need to unpack that information to get to the standalone Cobham Mission Systems EBITDA, which we refer to—the appropriate standalone Cobham Mission Systems EBITDA.

So, there are no extraordinary growth factors or accounting changes driving that between 2019 and 2021?

No.

And how about the cash flow equation?

We're not expecting to own it until much of '21. We indicated the expected close in Q4, so there will only be a modest effect on cash flow this year.

If I can just add, Jeff, we are every bit as excited about Cobham Mission Systems as we are about Tripp Lite. Both acquisitions are highly strategic, with Cobham providing a significant level of continuity and predictability to our Aerospace business.

To elaborate on my earlier point, the EBITDA margins for this business are between 20% and 25%. So that’s attractive from a business standpoint.

Could you also comment on how you will utilize the tax benefit in the deal?

The benefit comes from a 338(h)(10) election, which allows us a tax deduction for the asset value. Typically, in a situation like this, we would pay the seller for that because we can deduct that value.

I see. Thank you, and good luck with the deals.

Appreciate it.

Next, we have Scott Davis from Melius Research. Your line is open.

Hi, good morning, guys. Congrats, Rick.

Thanks.

Hate to ask about minutiae here, but what is the full amortization effect of these two big deals once they close?

The way to think about it is, the gross accretion is approximately $0.70 per share.

While Rich is looking that up, if you have a second question, feel free to ask.

I do. Going back to e-Mobility, I know the question was asked and kind of a different way, but I will ask it again—do you expect the growth rate to match the penetration of electric vehicles? I think the forecasts suggest something like 50% growth in EVs in 2021, but should it be higher growth given your increasing content per vehicle?

So much of it will depend on which platform we are on and when that platform launches into the marketplace. Much of the growth today in EVs is influenced by existing platforms, including companies like Tesla. However, our e-Mobility initiatives also encompass the legacy business, involving all electrical content we have in vehicles—not just high-voltage solutions. We have fairly good visibility into things but results might differ slightly but depend quite heavily on the platform.

And to answer your question, the full-year intangible amortization for both deals is about 15%. Okay, good. I'll pass it on. Thank you, guys, and good luck.

Thanks, Scott. Appreciate it.

Next, we have Joe Ritchie from Goldman Sachs. Your line is open.

Thanks. Good morning, everybody. And I’ll pass along my kudos and congratulations to you as well, Rick. Really enjoyed working with you throughout the years.

Okay, thanks, Joe.

Starting with the two acquisitions, can you share a bit about the history you have with both of these companies? How long have they been on your radar? Also, what can you tell us about how they performed during the pandemic?

For us, considering today’s strategic fit, both companies have been on our radar for some time. Establishing long-term relationships with companies and management teams increases the likelihood of success. Both businesses performed extremely well through the pandemic. Cobham’s military business held up very well, reflecting the consistent nature of military business, while Tripp Lite, which serves enterprise and data solutions, also performed better than peers because of its exposure to the growth in 5G.

That’s helpful, Craig. Just following up on cash flow, recognizing it will not impact until 2021, how should we view FD9337 and cash flow margins or conversion?

From the perspective of cash conversion, expect both businesses to be high—given their healthy EBITDA margins and the fair amount of intangible amortization.

Okay. I’ll leave it there. Thank you, guys.

Next, we go to Ann Duignan from JP Morgan. Your line is open.

Hi. Good morning, everybody. And Rick, I see you more likely playing golf in Ireland than sitting on a beach, but hopefully both.

You know him well.

I guess my question to you, Rick, is on the Tripp Lite acquisition. For a long time, you said that the single-phase market wasn’t very attractive—it was lower margin and more commodity-type business. What changed regarding Tripp Lite that makes you think this is different?

I don’t know where you got the impression of single-phase being lower margin. It has never been lower margin and historically, the power quality market splits equally between three-phase and single-phase. We're already a significant participant in single-phase, particularly in EMEA and APAC, and this acquisition adds necessary exposure to the Americas.

I’m taking this back too far in memory; I apologize for that. Can you provide more color on Electrical Global, particularly on its Q4 performance, including supply chain issues and copper prices? Are you concerned about input costs in 2021?

The global sector did better than anticipated and showed similar trends observed in the US. Residential, utility, and data center markets were strong. However, our Electrical Global business did experience delays due to factors in oil and gas, specifically Crouse-Hinds. With respect to supply chain, yes, we are experiencing inflationary pressures on copper and steel, along with availability issues in microprocessors. We have plans to mitigate this impact, aware that pricing and costs will be subject to expected increases. So while significant commodity increases suggest market strengthening, we expect to balance costs through pricing.

Thank you for that context. I'll get back in line. I appreciate it.

Next, we have David Raso from Evercore ISI. Your line is open.

Hi, thank you, and congratulations, Rick. I have two calculations; I hope you can sanity check them for me. At the end of '21, on a pro forma basis after all the companies you sold or acquired, is the net debt to EBITDA around 2.5 times?

Yes, it has gone up with EBITDA having come down somewhat in 2020, but roughly, you are correct when looking at 2021 EBITDA.

In the second calculation regarding accretion from the deals, should we anticipate an accretion range of $0.50 to $0.60 EPS in the first full year post-acquisition?

That’s probably up in gross accretion terms, around $0.70, around $0.25 in 2021, and approximately an additional $0.45 in 2022.

And that excludes any short-term debt lost opportunity on the $4.5 billion?

Correct.

After these moves, should we expect the company to transition more into digestion mode through the end of '22?

Yes, I'd say that deals are opportunistic. We continue to have capacity to pursue more acquisitions. Thus, while you might expect some digestion post the new acquisitions, we’re still actively having other conversations.

Alright, terrific. Thank you.

Next, we have John Inch from Gordon Haskett. Your line is open.

Yes, thank you. Good morning, everyone. Rick, we are all jealous, so congratulations.

Thank you.

I want to follow up on the guidance regarding project backlog and margins. How much visibility do you have; are there any clauses that could impact the margins based on raw input costs?

We are carrying a large backlog in our Electrical sectors, and all factors, including commodity inflation, have been factored into the guidance. We have some contracts that allow pricing adjustments based on commodity costs. Therefore, the guidance we provided already includes considerations for these. We're proactive about planning to offset any inflation we might experience this year through cost reductions.

Are you raising prices in anticipation of raw material increases? I know you mentioned it could take a quarter or two, but what is your stance on requiring price adjustments?

Yes, we have planning underway, and some actions are being taken currently across the company. It will vary by customer and market, but we are preparing for price adjustments where necessary.

Thanks, Craig. Good luck, Rick.

Thanks.

Thank you all. We are reaching the end of our call. We appreciate everybody's questions. Chip and I will be available to answer any follow-up questions. Thank you for joining us today, and have a great day.

Ladies and gentlemen, that does conclude the presentation for this morning. Again, we thank you very much for all of your participation and using AT&T's Teleconferencing Services. You may now disconnect.