Thank you for your patience. Welcome to Hubbell's Third Quarter 2023 Earnings Conference Call. I will now turn the call over to Dan Innamorato, VP of Investor Relations. Please proceed.

Thanks, operator. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our results for the third quarter of 2023. 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 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 consider it 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.

Thanks, Dan, and good morning, everyone. Thank you for joining us to discuss Hubbell's third quarter results. Third quarter results demonstrate continued execution off of strong first half and multiyear performance. Price realization remains strong as prior actions to offset inflation continue to stick in the marketplace, supported by our leading position and service levels in attractive markets. Additionally, improved productivity and lower year-over-year raw material costs also contributed to another quarter of significant operating margin expansion. As anticipated, we accelerated our investments in capacity, productivity and innovation initiatives in the third quarter to drive long-term returns for shareholders. We expect that grid modernization and electrification will continue to drive GDP plus growth in our markets over the next several years, and Hubbell is uniquely positioned to solve these critical infrastructure needs for our customers in front and behind the meter. These investments we are making in the second half of this year will effectively position the company to capitalize on these visible growth opportunities through best-in-class quality and service as well as through the introduction of new products and solutions. More near term, we detailed last quarter how normalizing supply chain dynamics have enabled improved manufacturing lead times and allowed our channel partners to normalize their order patterns in response to more predictable product availability. This process continued into the third quarter. Bill will walk you through more of the details in a few minutes. But overall, we continue to view this as a natural outcome of supply chain normalization. Broadly, our sell through to end markets remains healthy, and our positions with our customers remain strong. We anticipate that we will be mostly through this normalization process as we exit 2023. Our visibility to continued strong operating performance gives us the confidence that we can navigate effectively through the fourth quarter to deliver at the upper half of our prior guidance range. As we look ahead to 2024, we believe we are well positioned to drive profitable growth off of a strong multiyear performance base, and I will share some more color around our early planning considerations for next year at the end of the prepared remarks. Before I turn the call over to Bill, Hubbell announced in a press release yesterday the acquisition of Systems Control for $1.1 billion. And you'll note in today's presentation materials that we've also closed on a bolt-on acquisition of Balestro. Both of these acquisitions are high-quality businesses with strong strategic fits that enhance our industry-leading platform of utility components, communications and controls. Systems Control is a leading manufacturer of mission-critical substation protection and control solutions. The business is complementary to our portfolio and enhances our leading value proposition to our core utility customer base. Substation automation is an attractive space within the utility market as control and relay solutions are critical to upgrading and protecting aged infrastructure while also enabling the integration of renewables and the electrification of the grid. Systems Control has a proven business model and a demonstrated track record of delivering value for customers and financial performance that will enhance Hubbell's long-term growth and margin profile. Balestro is a leading manufacturer of high-quality utility arresters and insulators that bolts on well to our existing portfolio. Importantly, this acquisition also provides us with additional manufacturing capacity that will enable incremental output in a constrained US T&D market. Bill will provide more color on both of these acquisitions in a few minutes, but we are very pleased to deploy capital to acquire attractive businesses like these that will drive strong returns and strong long-term value for our customers and shareholders. With that, let me turn it over to Bill to walk you through the details of the quarter.

Thank you, Gerben. Good morning, everyone. I appreciate your time this morning. I’ll begin my remarks on Page 4 of the materials available on our website, where we highlight our strong performance in the third quarter, which aligns closely with the themes we've discussed throughout the year. To summarize, we've experienced widespread market strength in our key end markets, contributing to significant margin expansion driven by effective pricing strategies while managing channel inventories in response to recovering supply chains post-pandemic. Sales reached approximately $1.4 billion, marking a 5% increase; 4% of this growth was organic and 1% from acquisitions, which is in line with our guidance. Our operating profit margins stood at 21.4%, up 440 basis points from last year, marking a third consecutive quarter in 2023 with margins over 20%. This strong performance has provided us with additional margin to invest in future growth and efficiency improvements. Overall, our earnings and profits were consistent with our expectations, slightly stronger on margins and a bit lighter on sales growth. We reported earnings of $3.95, reflecting a 28% year-over-year increase, driven by robust operational performance. Free cash flow was $159 million, supported by higher income, though offset by increased CapEx and working capital investments. We're confident in reaching $700 million for the year, as the fourth quarter typically shows strong seasonality. In Gerben’s comments, he mentioned trends in cash flow from 2021 to 2023 increasing from $425 million to $500 million, and we are optimistic about the high-quality earnings generating this cash flow for continued investment in our growth. Moving to Page 5, we illustrate our performance compared to the previous year. Sales increased by 5% to just under $1.4 billion, driven by 4% organic growth and 1% from acquisitions. The recent acquisitions are now reflected in our results from EIG and Ripley, which are utility-component manufacturers. The organic growth was primarily driven by price increases of 6%, while unit sales declined by 2%. Two challenging end markets have impacted unit sales: residential, which faced double-digit declines due to rising interest rates, and telecommunications, where we maintain a positive medium-term outlook despite current softness. Channel management to reduce inventories entails normalizing after a pandemic-induced over-ordering cycle, and we anticipate returning to a more typical order pattern starting in 2024. Sales in the utility segment grew by 8% to $838 million, with organic growth contributing 7 points, primarily from pricing rather than unit increases. Our components for transmission and distribution have shown stronger growth in the past couple of years, and we’ve started to see growth in the communications and controls segment as supply chain disruptions ease. The transmission sector remains strong in demand and pricing, while distribution faced some component shortages slowing down growth but has improved in lead times and inventory management. Currently, the telecommunications market has shown temporary weakness, attributed to high interest rates and project timing influenced by stimulus funding. This segment is anticipated to remain a growth area in the medium term. Meanwhile, in the components segment, we've faced supply constraints due to chip shortages, but supply has improved recently, leading to nearly 30% growth in this area. Operating profit for the utility segment reached $200 million with a margin of 24%, reflecting nearly 40% growth in profits. Price costs continue to favorably impact margins, and inflationary pressures from materials have shifted positively over the past year, providing us with confidence for improved guidance moving forward. Turning to Page 7, the Electrical Solutions segment demonstrated strong operational improvements, with operating profit growing 17% despite a 1% decline in sales to $538 million. This decline stems from slight price growth and moderate volume decreases. Notably, we are seeing a sequential increase in volume, which is encouraging, and we expect growth in the fourth quarter as we conclude the inventory management phase. While residential markets have been weak, the industrial sector shows positive growth, particularly in data centers and renewable verticals. On Page 8, I’d like to delve into some strategic acquisitions we've undertaken. The Balestro acquisition, valued at $85 million, brings a local business in Latin America specializing in insulated arrester products. This acquisition is strategic as it enhances our supply chain by boosting capacity for a critical component, ensuring potential growth in high-margin markets. The Systems Control acquisition is significantly larger at $1.1 billion, with $400 million in sales already secured in backlog. We anticipate closing this deal by the end of the year. Funding will come from cash and debt, resulting in an adjusted debt-to-EBITDA ratio that remains manageable. The focus on sales synergies is critical, and although integration costs will be a factor, we expect strong growth post-acquisition. Now, I will hand it over to Gerben to continue.

Great. Thanks, Bill. As we look ahead, we feel well positioned for 2024 and beyond. Grid modernization, electrification megatrends remain intact, and we continue to believe our utility markets can deliver mid-single digit organic growth over the next several years. Our industry-leading utility franchise is uniquely positioned to enable us to serve our utility customers as they invest to make the grid infrastructure more reliable, resilient and renewable. While we anticipate telecom markets to remain weak through the first half of next year, strong demand in T&D markets, particularly transmission and substation, support visible growth. We also anticipate that the deployment of infrastructure stimulus funding will drive further demand for Hubbell Utility Solutions in the second half of next year. In Electrical Solutions, we continue to see significant opportunity to drive further value across the portfolio by competing collectively and operating more efficiently as we bring these businesses closer together. We've made good progress in reshaping this portfolio over the last several years with 25% of segment revenues now tied to growth verticals aligned to mega trends like data centers, renewables, and utility T&D, and we expect continued growth in these areas next year. Industrial markets have been solid with support from US industrial nearshoring and manufacturing project activity, and nonresidential markets have remained stable. We've yet to see the signs of macroeconomic uncertainty or higher interest rate impact in these markets, but this is something we are closely monitoring as we build out contingency scenarios for planning into next year. From an operational perspective, the price/cost productivity equation will be more dynamic to navigate as we enter a more normalized environment, but we have levers at our disposal to manage this effectively. We expect that execution and productivity initiative will become a more important focus area for us moving forward to enable us to offset persisting inflation while maintaining the strong pricing levels we have achieved over the last several years. We'll provide additional color along with our '24 outlook early next year, but overall, we remain confident in our ability to deliver continued profitable growth off of a strong multiyear base of performance. With that, let me turn it over to Q&A.

Our first question comes from Jeff Sprague of Vertical Research.

First, just thinking about Q4 implied kind of a nice acceleration in organic growth. Obviously, the comp is easier. But I just wonder if you could give us a sense of how you see volume progressing in Q4? It sounds like you would expect it to inflect positive in EP and backing into probably a decent volume quarter in utility also. But would love your perspective on just some granularity on the organic as Part 1 here?

I believe you almost answered your own question, but it's important to note that the electrical segment has been dealing with overstock issues for several quarters. We're pleased to see that turning into a growth position, and we expect to return to a normal book and bill situation in the fourth quarter and into 2024. That seems to be the key takeaway.

And then just thinking about margins into next year, Bill or Gerben, obviously, we're coming off a high level. So it sounds like you expect price to be positive. You still have inflation in aggregate, maybe not so much in materials. But maybe just kind of talk about roughly how you would bridge us on an incremental or however you want to frame it, because we're also trying to dial in these investment headwinds? I would assume you're going to continue to invest for growth going forward, but it sounds like maybe it's a headwind in 2023, but is more kind of maybe just in the base than part of sales growth in 2024. But maybe you could just give us a little bit more color on how to think about bridging the margins.

I believe we will provide more detailed information when we meet in January to discuss our guidance. You've highlighted some key points, particularly the expectation that volumes will increase, which will help with fixed cost absorption and improve margins. Regarding investments, we're still fine-tuning the exact amount we plan to invest, but it’s encouraging to see our teams being creative and proactive in generating investment ideas. It’s more about us overseeing that process than lacking ideas on how to enhance the business. Concerning your price comment, there are minor effects stemming from the timing of price increases in 2023, especially when compared to the previous two years. Whether new pricing will come into play is still uncertain, and we'll update you at year-end. We expect to see productivity improvements as we manage inflation. We've been aiming to balance price and material costs with productivity and non-material inflation. When non-material inflation reaches around 5%, it becomes challenging to rely solely on productivity. Nevertheless, much of the investment we've discussed is directed towards enhancing productivity. We will continue to focus on balancing price, cost, and productivity. We will provide clearer and more detailed insights when we meet next time.

And maybe just a quick question for Gerben. This is a nice deal on the utility side. I wonder if you could provide a bit more insight on how you plan to leverage it internally for growth or margin expansion. Bill has suggested we temper our expectations regarding cost synergies, but I'm sure there are some opportunities. How do you plan to integrate this into your operations and leverage purchasing to fully maximize the value here?

And we're obviously very excited to acquire these deals, but obviously, the systems control, the size and the scale that it adds to the franchise we're really excited about. The good news with this business coming in that it's historically been high growth and it's very profitable, as you can see. So that's certainly a nice position coming into the portfolio. As we look and we diligence this business, there are some really nice trends that I think will serve this business right. One is that they've been for 60 years relining control panel manufacturing, but over the last 10 or 20 years, they've moved into more turnkey systems. In essence, what that does is take labor of putting these systems together traditionally in the field to a more controlled environment in the factory where they can not only have a better control environment, they test them and it takes a lot of time out of the field. So this is a trend that we're actually seeing in the business started when we acquired PCX, that similar dynamics, some of the new products that we're developing have those features in place. So it's an area that we believe will see outsized growth coming in. What we can add to it is, we looked at who their customers are; it aligns extremely well with where some of our customers are with the exception that they still have a much smaller share of those customers. I think this is where we really see that with our sales or with our people, we can add to complementing that. So I do believe it's more about the sales growth than probably typical cost synergies that we would see from smaller tuck-ins coming in, but we're really excited about having this in the portfolio on what we can do with it.

Our next question comes from the line of Steve Tusa of JPMorgan.

Can you provide an update on the price cost productivity numbers? Bill, you often have a well-rounded perspective on the macro environment. In the past, you mentioned whether trends were progressing as expected or if they were more erratic in a low growth scenario. How would you describe the demand you're observing today and looking into 2024, particularly in terms of consistency and visibility across your portfolio?

The challenging aspect of your question relates to the demand from our channel to the end user, which has remained stable. However, I'd like to highlight two weak spots in the telco and residential sectors, each accounting for about 10%. This indicates that 80% of the company is experiencing healthy markets in terms of sales. The complexity arises from discerning how much of the demand is being fulfilled from existing inventory versus new shipments from our factory. Currently, we are in a transitional phase; the electrical sector has likely already moved past this transition, while the power side may take another quarter to stabilize. This inconsistency adds a layer of complexity. As for predictability and visibility, we hope that 2024 will be more straightforward, allowing demand to convert into orders and shipments more seamlessly.

And then is price cost and productivity for the year, like what that new number is if there's an update to it?

Driving the majority of the margin expansion, Steve.

Please standby for our next question, which comes from Nigel Coe of Wolfe Research.

Can you just maybe just give us kind of your thinking on what gives you confidence that this utility destock is sort of going to be finished by year-end, because I think that's the key for a lot of folks here, so any metrics on kind of selling the sellouts, backlog burn or days on hand, any intel there would be helpful?

We have been utilizing our backlog, and to simplify your question, Electrical is already in a book and bill position. We’ve leveraged our backlog in the second and third quarters of this year, and currently, it remains higher than our typical levels. Pre-pandemic, we viewed a six-week backlog as normal for our business model. Right now, we are at about a quarter and half of that backlog, approximately 2.5 times the usual size. We still have backlog on the power side. Our analyses indicate that specific businesses are now operating with more normal lead times, and it seems they are shipping more than they are receiving from us. Conversations with our customers and our models suggest that this backlog phase should clear by the end of the year. We are drawing insights from our Electrical operations, as we believe they provide valuable guidance. Overall, this situation involves both analytical and qualitative aspects.

And maybe I'll provide an additional comment here, Nigel, is that while I think Bill correctly points out, there's a lot of moving parts. The good part is we have very strong tie-ins with not just our electrical channel partners but with our utility and customers. So through those discussions, we can have discussion where the inventory sits in that channel because it sits in both places. We see clearly in certain product lines, supported by the order rate and the shipment rates that the inventories come down, and they're telling us when they're getting towards that end of where they want to be. But I'll also remind you that the demand in the utility sector is still very, very strong. And in those same conversations, customers are very optimistic about the increased higher levels of spend. If you look at our CapEx plans going forward, elevated. So while certainly a little bit uncomfortable managing through this time as we look out a little bit, we feel really good about the end demand and that we can continue to grow our business through the cycle.

Regarding the margins in Electrical Solutions, despite the current challenges in the utility sector, we should note that these margins are still reaching record highs, particularly when we take into account that the residential business is likely below average. As volumes are expected to pick up, particularly in the fourth quarter and into 2024, do you believe it's possible to further enhance these margins, or will there be factors that may prevent this? Are you confident that margins can be pushed to higher levels?

Yes. I think you're looking at it the same way we are, which is that this is a new base, and that new volumes should drop at incrementals. And I think the one overlay to all that that gives me maybe even more confidence than you is Mark Mikes spent seems like a lifetime making our Power Systems multi-brand platform compete collectively and act really efficiently. He really is at the early days of him adding what I would just call overall segment efficiencies to how those different silos are running. So there's both the math of growth and incrementals, but also Mark’s experience with us and track record of finding just structural ways to make it cheaper to operate and more efficiently, I should say.

Our next question comes from the line of Brett Linzey of Mizuho.

Yes, I wanted to come back to comm controls up 28% and other strong quarters you catch up on supply chain. I know at one point, you had a $1 billion backlog, $6 billion of pipeline of projects in the funnel. Just curious what the conversion of that funnel has been looking like? And then do you think you can build off some of this catch-up growth this year as we flip the calendar to '24?

Let me start with the second point; I'll allow Gerben to comment on the overall picture. We believe the momentum from having the chip supplies is really helping us reduce some backlog from both the meter side and the AMI side. This positive momentum is certainly expected to carry us through the fourth quarter. Brent, I'll let Gerben discuss the positioning further.

And now regarding the backlog, it still sits around that $1 billion-ish mark. As we look forward, especially with some of the technologies that we are developing to serve some of those new applications of distribution automation, we feel well positioned in this market over the next several years out, and we see it in our quotation activity that's picking up. These are big projects that timing of which tends to be a little more unpredictable than the regular stock and flow part of our business. But we're quite optimistic and bullish about what this business can contribute over the next few years.

And then just a follow-up, I think you noted the additional manufacturing capacity from the two recent deals could be favorable. I guess, how does this change your current capacity plans or what you're thinking in terms of '24 budgeting? And can you absorb some of the acquired capacity; any context there?

I think on the Balestro side, it's really adding to the capacity of our North American insulator arrester business. I think on the systems control side, as I was mentioning, Brad has some ambitious growth plans that we really embrace, so I think we'll be looking to add capacity. As we mentioned, they've been growing double digits for eight years in a row, and so we're looking to help support that.

And I'd say, on the kind of specific to Balestro, helps with the investment needs even into next year because that was one of the areas we were contemplating having them make investments to grow that block or this capacity, but it's not the only one why not constraints in other areas. If you look at our transmission business and other parts of the businesses, we clearly still need to invest in to next year to be able to capture that growth over the next few years.

Our next question comes from the line of Chris Snyder of UBS.

I wanted to just ask about confidence in the ability to hold utility margins at around these levels into next year. Obviously, up a lot year-on-year, and it felt like a big piece of that expansion was obviously on price cost. So kind of just talk about expectations there into next year.

Maybe I'll start, and Bill will fill in. If you look at the margins, particularly to the utility, but I think it's across our business that in '23, we are looking to expand our margins there by 700 basis points, that's quite attractive. Our view is going into '24 is that we can grow profitably on that base. One of the drivers is going to be volume next year. We do expect that business to grow in volume. We expect to manage through this price cost productivity equation that we talked about earlier and we'll continue to invest in the business. So I think as a set up to think of profitable growth on top of this base is the right way in the experience. Certainly, we'll come back in January to provide more color on the different moving pieces and where that may fall with margins more specifically.

Regarding the pricing aspect of utilities, it appears that there has been significant price movement over the last couple of years. The main factors driving this were rising metal and raw material costs, along with supply not meeting the strong demand. However, with recent deflation and some improvements in supply, it seems the market is able to destock. Is there any feedback on price adjustments in the market?

I would say on the utility, we're not seeing it. You mentioned a couple of things that caused the price, but I'd say beyond metals, just general inflation we've seen over the last year, just incredible nonmaterial inflation. I think we talked in the past what the pure commodities is, and it's actually a relatively small part of it. The bigger part is the purchase components, the labor, and all that has inflated pretty well. The other thing that we continue to have discussions with our customer around is the investments that we're making back in our business. You don't always see that reflected in our operating performance or EPS, but the level of CapEx and the elevation that we've done in CapEx and other areas is an area that clearly benefits our customers short term and long term. So I think much more of the discussion continues to be around the value that we can add by the product and the services that we deliver than price first as a lever, not unimportant, but it's not the leading part of the discussion.

Our next question comes from the line of Joe O'Dea of Wells Fargo.

First question, I just wanted to ask if you're seeing higher funding costs factor in the conversations with utilities and their spend plans at all in your sort of comments around ongoing mid-single digit growth that doesn't really seem like it. And then just related to that, I think your kind of outlook for the transmission and substation growth to outpace distribution growth; maybe a little bit more context on sort of what's behind in driving that.

Let me address the second question first. The growth in transmission and substations is significantly influenced by renewable energy and electrification trends. For example, a utility-scale solar farm requires a new substation to generate, transmit, and then step down the electricity, especially when considering large facilities like data centers or battery factories that increase the demand on substations. Moreover, with around 53,000 substations in place, some of the equipment is aging and needs upgrading. It’s not that distribution lacks a positive growth outlook; rather, we anticipate that projects in transmission and substations will grow at a faster pace. We explored this further last quarter because it’s an intriguing area within the sector. Regarding the impact of interest rates on project management, there is certainly some concern about the cost of capital. However, I believe that the returns on these projects remain higher than the cost of capital. Thus far, we haven't seen a reduction in dialogue related to project plans due to interest rates, but we haven't experienced any decline in engagement either.

And the other thing that will help is the infrastructure bills that are starting to come out. We're seeing some of those being released right now. We just recently saw money being released in those areas. A good bit of those are going into transmission projects that we've been following. So that gives us confidence that certainly over the more near term, that area is a little stronger. But possibly even to your interest rate question, I think bodes well for us going into next year, particularly the second half.

And then just on the sequential margin trends in utility. I think clearly a mix impact with the comms and control strength within the power side and anything from a mix side there to be mindful of in terms of the sequential move, or was it really just the comps and controls mix?

Yes, I would say nothing inside of Power Systems would create sequential issues.

Great. Thank you, everyone, for joining us, and we'll be around all day for calls. Thank you.

Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.