Good day, and thank you for standing by. Welcome to Hubbell's Fourth Quarter 2023 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dan Innamorato, Vice President of Investor Relations. Please go ahead.

Thanks, Phoebe. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our results for the fourth 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, considered incorporated by reference to 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.

Great. Good morning, and thank you for joining us to discuss Hubbell's fourth quarter and full year 2023 results. Hubbell delivered a strong finish to an exceptional year. For the full year 2023, we achieved 9% sales growth, over 500 basis points of operating margin expansion, and over 40% growth in operating profit and earnings per share. These results were driven not only by our strong positions in attractive markets but also by the consistent execution of our people and maintaining industry-leading service levels for our customers while driving price and productivity across our businesses. Our strong financial performance also enabled us to invest back into our business and capacity, innovation, and productivity initiatives. We invested $165 million in capital expenditures in 2023, almost double our investment levels from 2021. We are confident that these investments will drive future growth and productivity for our shareholders, and as we will describe in more detail later, we intend to grow profitably off of a strong multi-year base of performance. Turning to the fourth quarter, we delivered strong growth and margin expansion in both segments. Notably, we also returned to year-over-year volume growth in Electrical Solutions. As we noted on our previous call in October, we were confident that the channel inventory management that we had seen earlier in the year had largely normalized. As a result, we saw a stronger seasonal performance in the fourth quarter as well as continued strength across data centers and renewables verticals. We also continued a trajectory of strong margin expansion in the Electrical segment and in the year with adjusted operating margins of 16.6%. We continue to see structural margin expansion opportunities as we make progress in our strategy of competing collectively as an operating segment and we plan to accelerate our restructuring investment in 2024 to drive long-term productivity. In Utility Solutions, fourth quarter trends were largely consistent with the third quarter. Transmission markets were strong and we continued to convert on past due backlog in communications and control as supply chain conditions have improved. Utility distribution markets continue to be impacted by channel inventory normalization as anticipated, though we continue to see visible demand strength in 2024 and beyond. Telecom markets were weak in the quarter and while our long-term outlook here remains positive, we are taking a cautious initial view on 2024 until we have more visibility on timing of investments. We also executed on two important portfolio actions in the quarter as we closed on the previously announced acquisition of Systems Control and announced a definitive agreement to sell our Residential Lighting business, which we expect to close in early February. These transactions reflect our ongoing strategy to create a focused portfolio strategically aligned around grid modernization and electrification. These transactions improved the long-term growth and margin profile of our portfolio and we anticipate that they will be net accretive to 2024 adjusted earnings per share. We will provide more details on our '24 outlook at the end of this call, but we remain confident that Hubbell is uniquely positioned in attractive markets and that we can build off the success of these last several years to drive profitable growth off this higher base of performance. With that let me turn it over to Bill to walk you through the details of the quarter.

Thanks very much, Gerben. Good morning, everybody. Thank you for joining us. I'm pleased to have the chance to discuss our financial performance in the fourth quarter, which was very strong, capping a strong year, and frankly a strong two years. I'm going to start my comments on Page 4 of the slides that I hope you found. So the trends have been in place really for the last year and longer, strong sales growth and operating profit growth, including margin expansion being driven by strong markets, as well as strong pricing and strong cash flow resulting in those fundamental trends are obviously continuing here in the fourth quarter. So, we reported $1.35 billion of sales, 10% growth, 2% of that comes from acquisitions, and 8% is organic. This Utility segment is a little bit stronger than Electrical, but as Gerben noted, it's quite important for electrical volumes to return to growth as a sign that the inventory in the channel is normalized on that side of the house. Interestingly, the fourth quarter is seasonally stronger than is typical, so we think that's a good sign. The operating profit margin side, 19.4%, 3 points of expansion, really being driven by price, cost, and productivity, and creating some source of funding for investments that Gerben had described. Earnings per share of $3.69, 40% increase to prior year, and $284 million in free cash flow helping to fund our CapEx and acquisition investments. So let's double-click on that, on Page 5 and go one layer deeper. So the 10% sales, we said was 8% organic that was comprised of mid-single-digits of price. We think that's good evidence of our quality of service and our brand positioning and low-single-digits of volume, and welcome as I said, the return to Electrical volume growth. The 2% coming from acquisitions were all on the Utility side and we'll talk about those more when we get to the Utility page. On the upper-right, operating profit up 34% to $262 million. The margin expansion of 3 points is really being driven by price as well as materials, which continued to provide a tailwind as they had for each quarter in 2023. So, the inflation that we're experiencing is more on the wage and transportation side, and that's where we're focusing a lot of productivity efforts, as well as we're absorbing some operational productivity investments going on. On the lower left, you see earnings per share, up 42%, a slightly higher growth rate than the operating profit, so below the line we benefited from some tax-rate favorability and on the free cash flow side, you see $284 million, nearly a 60% increase and for the full year, we generated over $700 million of cash flow, and that supported CapEx of around $165 million, which helped drive some footprint restructuring, productivity, and capacity investing. So let's unpack the enterprise into the two segments and we'll start with Utilities on Page 6, and you'll see another excellent quarter from our utility team, double-digit sales growth and 40% operating profit growth. 13% sales growth is comprised of 9% organic and 4% from acquisitions. The acquisitions to remind everybody included EIG, which was our second quarter of ownership there, Balestro, and Systems Control. Systems Control was closed in the middle of December so didn't contribute much yet. And we are reporting both Balestro and Systems Control in our T&D components, and EIG is in the comms and control side. We'll talk more about acquisitions in a minute in the last few years plus this year. As we think about the 9% organic growth, you'll see that it was skewed towards the communications and controls side. If I start with transmission and distribution components, you'll see that organic was at 1% where volume was a drag on price, and if we look inside the components substation and transmission continue to be very strong distribution components. We continue to work through our second quarter of channel inventory management. I think as we had mentioned before, our Electrical side had experienced that quicker and sooner earlier than Utility side. And then, Telecom has been weak, a function of some overstocked inventories as well as potential demand impacts from a combination of high interest rates and some customers who are waiting for stimulus dollars to kick off their projects. You see on the communications and controls, surging growth there. We've got both the Aclara and Beckwith businesses there on the Aclara side. Those chips supply chain opening up has really allowed them to satisfy some existing backlog and so we see some great growth there. Also to remind, we have an easy compare there as last year we had a commercial settlement that was a conscious sales item. And Beckwith as well, which makes protective relays and controls, is up double-digits in sales. So, very strong top-line performance by the segment and even better on the OP side, a growth of 40% to $174 million, over 21% margins, and the price cost story is the same, volume growth contributing as we continue to make investments. So, from a full year - this is obviously our fourth quarter performance, just at the bottom of the page a full-year comment on profit growth of about 60%, so congratulations to Greg and his team on just a really outstanding year. On Page 7, we've got the Electrical segments, and you see mid-single-digits sales growth with 2 points of margin expansion, strong performance from the Electrical team, and of that 6% sales growth, it's comprised of about half of that being price and half volume. That volume, as we said, we thought in October that the channel inventories would be normalized and rebalanced and that did occur in the fourth quarter, which is good news. The volume came from some important verticals. Data centers were a big one. Recall, last year we bought PCX, which is performing really strongly and serving that segment. Burndy, as well, is serving that segment. Burndy is also benefiting from the renewable vertical and a little bit of U.S. reshoring of the industrial side. So some favorable trends there allowing for that volume growth. And on the profit side, you see 20% growth, and 2 points of margin expansion as operating profit reached $88 million. Again, the price cost really helped as well as the return to volume growth. And the full-year comment I'll make on Electrical like I did on the Utility side, we saw 20% growth in operating profit in this segment with 2.5 points of margin expansion. So, I think a very successful year for the Electrical, and looking forward to Mark Mikes and his team continuing to push the segment to compete collectively, where we think there's more growth and more margin available to us there. I mentioned that I wanted to talk about the portfolio management, and on Page 8 we've laid out the last few years of activity just to remind ourselves of our intentions here. And I'll start with the divestitures, where we have three companies divested and a fourth under definitive agreement that we're open to close in early February. And you see, those businesses netted us $500 million of proceeds and our intention here is to make sure we're investing in higher growth, higher margin businesses, and you'll see that that $500 million we rolled into $1.7 billion of acquisitions, numbering about 10 over the last few years. And you can see in the large blue bubble of T&D components, where we added Cantega, Ripley, Armorcast, Balestro. And in the yellow bubble there of connection and bonding adding connector products. So, those very intentionally adding businesses to high margin, high growth areas, as well as in specific growth verticals like substation systems, like grid automation, data centers, PCX that I mentioned, and wireless communications of Acceltex. We think we are enhancing the growth and margin profile of the company. I didn't want to pause because of Systems Control's recent closing as well as its size and the impact on capital structure. So that was a $1.1 billion purchase price that we funded with some cash as well as some CPE and a Term Loan A, provided by our supportive bank group. The result of that is a flexible and prepayable capital structure, which we think gives us some optionality and results in very manageable debt levels of 1.8 times debt-to-EBITDA on a net-debt basis around 1.5. So, we feel like we're improving the portfolio and I'll talk about the specific impacts of the acquisitions on our guidance in another couple of pages. So, if we switched to outlook, let's start on Page 10 with the markets, and then we'll talk about how those markets roll through our earnings expectations. So, we've got the Utility segment on the left, Electrical segment on the right. You can see the different pieces of the pie here, starting with Electrical distribution, they've been in the really two quarters now of managing their inventory relative to the backlog, and we think that's normalizing quickly and expecting a healthy mid-single-digit growth rate there. Transmission, substation, and distribution automation, which is up around noon on the pie. We think those are both high-single-digits. Meters and gas in the mid-single-digits, and Gerben talked about Telecom having a very cautious outlook, waiting for orders to restart there. I will just comment, that's a short-term outlook. We do have a very attractive medium and long-term outlook for Telecom. So, the result on the Utility side is a mid-single-digit growth rate. On the Electrical, you see it nets out at 3% to 4%, so low-to-mid. I think the Industrial outlook, you see, both light and heavy is low-to-mid single digits. We have mid-single-digit growth rates in our verticals and I think non-res, we maybe have a bit of caution at flat to low-single digits. So a constructive market outlook for 2024 and let's go to Page 11 and see how that rolls through our earnings outlook. So, you see the organic of 3% to 5% in our sales growth combined with 5% net from M&A, one going out, one coming in, to create 8% to 10% sales growth. That generates a 10% growth in operating profit, results in 6% earnings and free cash flow at about 90% of net income, affording a continued increase in CapEx. And let's just walk through the bridge to give you a feel for it. So, we're under contract to sell Residential Lighting. That will lose $20 million of OP. Systems Control, EIG, and Balestro be adding about $90 million, so you can see almost $1 coming from those before we pay the interest expense, which we have over on the right. We had for organic 3% to 5%, so we've comprised that of 2% to 4% volume, and one point of price, which is in the next column, providing a nice lift, and we have continued investment, particularly on the Electrical segment side as we compete collectively there and continue to consolidate the footprint under our restructuring programs. You see, on the far right below, OP, an increase in interest expense as a result of the borrowings that we outlined to close on Systems Control, and the result is about 6% of earnings growth to the midpoint of 16, 25. You see some modeling considerations listed there, and I might just add another one on the seasonality for those of you who are modeling. We're anticipating 2024 being quite normal seasonality for the first and fourth quarters, a little bit below the second and third quarters, which are seasonally stronger, and that just compares to last year where the first quarter was very strong and contributing to the full year. So, we think it's a very constructive year in front of us. We feel well-positioned. We're happy to have the return in volumes and we're happy to have made some portfolio net addition to continue to push profitable growth at Hubbell. And with that, I would like to turn it back to Gerben.

Great. Thank you, Bill. And before we turn it over to Q&A, I think it's helpful on the last page to look at our 2023 performance and '24 outlook in a longer-term context. The results we delivered for shareholders not only in 2023 but over the last few years have been very strong. Most notably, we have doubled our adjusted operating profit and adjusted earnings per share over a three-year period while growing sales at double-digit CAGR and expanding adjusted operating margins from the mid-teens to over 20%. We have also doubled our capital expenditures over the last three years to further differentiate our service levels to customers and support attractive long-term growth expectations. As grid modernization and electrification drive the need for more reliable, resilient, and renewable energy infrastructure, Hubbell is uniquely positioned with the right people, solutions, and strategy to meet the evolving needs of our customers and deliver continued value to our shareholders. I'm extremely proud of our over 18,000 employees whose hard work and dedication have enabled us to achieve a new baseline performance. And I am confident that we will build off of this success with continued attractive profitable growth in '24 and beyond. We look forward to hosting an Investor Day later this year on June 4, where we will provide more details on our long-term strategy with updated financial targets. With that, let's turn the call over to Q&A.

And our first question comes from Steven Tusa of JPMorgan.

Hi, guys, good morning.

Good morning, Steve.

Could we just get a little more color on the bridge, maybe what you're expecting on price cost and then any segment margin color for the year and how you expect that to trend seasonally?

Yes, so price cost we've got as flat, Steve. We have effectively one point of rollover on price embedded in there, which we're using effectively to offset commodity inflation and then we've got productivity program that we think can help offset non-material inflation in places like transportation, wages, and things like that. So, it's quite a flat expectation. And I think the way segments - I think as a result of that PCP assumption, our margins by segment are reasonably flattish, and I'd say that applies to both segments, I would say, Steve.

And maybe I would -

Yes, go ahead.

Does the ish on utility kind of skew one way or the other, positive or negative-ish?

Yes, I'd say flat, as you think about.

Okay. Okay, great.

Maybe the two moving pieces on that I'll give you, if you think about the addition of Systems Control that's actually a little bit dilutive to the margin even though it's - we've provided those numbers and very attractive addition. And if you think about volume, it's a little bit accretive. And if you think the net of those with PCP flat, it's roughly flat. If you look at maybe a little bit color on the Electrical because the Electrical I think it's a slight expansion, but that is with a pretty good step-up on the restructuring, so if you take that out, it's actually a nice expansion of that, and Bill referred to it earlier of the opportunity still in that segment as they work through organizing that better, competing collectively, there's more room for margin expansion there.

Got it. Okay. Thanks, guys. Appreciate it.

Thank you. One moment for our next question. And our next question comes from Jeffrey Sprague of Vertical Research. Please go ahead.

Thank you. Good morning, everyone. Just a little - good morning. Still little more color on the Utility margins. Just also thinking about the comms, Aclara business, not sure where the margins are at in that business, but that feels like it's a friction point also to some degree from a mix standpoint. So, I wonder if you could address that. I guess, Gerben you said flattish and you are covering through all that, but still I love some context on the mix effect of Aclara. And can you just give us a little color on how much Telecom was down in 2023? I guess, we're looking for a weak 2024, but we do have sort of at least half a weakness in the base here for 2023, I believe.

Yes. So, maybe let's start with Utility margins first, and I would say for Aclara, you're right to say their margins are below the transmission and distribution component margins, largely because of the amount of R&D investing that we're doing, working on developing the Next-Gen comms package. So, I would say, in '23 and particularly in this fourth quarter where you saw them outgrowing, I would - I think where you're going is, is that create a mix drag and it did in the fourth quarter. I think growth rates next year, we maybe anticipate more balanced, Jeff, so I don't think we'll have a big mix effect in Utility margins in '24. And your second question was on Telecom. Maybe provide a little context there, Jeff, and we really saw that slowing down towards the latter part of the year, particularly the fourth quarter, specifically was down 20%. The first quarter, we still expect that to be down double-digits. And what happened early in the year, we're still working through a lot of backlog in that which kind of shielded us a little bit. So we certainly expect after the first quarter, the second quarter sales to be down, and then we expect that to rebound in the second half and some of that stimulus funding frees up.

Yes, I'd say more to do, Jeff. Some of those projects take time to get some of that equipment in and online. So, if you think about, for example, our transmission and substation markets, particularly strong last year and this coming year as well as you saw, and that requires some capital that still need to come online, and I feel good about our ability to do that. We've done that very well over the last year, so that's going to support some of that growth that we have embedded in our guidance.

And then just one last question - I'm sorry, if you're not done, go ahead, I just had one last follow-up, if I could.

Please go.

I just wanted to kind of come back to the seasonality comment and everything, totally get it and that's sort of what I've been modeling, but given that - given the margin comp in the beginning of the year in particular, are you expecting EPS to actually grow year-over-year in Q1?

Yes. I think that we just aren't - we don't do EPS in the - by the quarterly guide basis. I just would say I'd anticipate our Q1 earnings to be in line with contributing to the full year at our typical seasonality and more so than it did last year so.

Great. Thank you.

Thank you. One moment for our next question. And our next question comes from Tommy Moll of Stephens. Please go ahead.

Good morning, and thank you for taking my questions.

Hi, Tommy.

Hi, Tommy.

I wanted to start on the Utility side of the business. It seems like for most of last year it was more a discussion around availability rather than price. With that said, given some of the inventory destocking, particularly around distribution, has that conversation changed at all? Is price a bigger factor at this point?

I would not say so, Tommy. No.

Good to hear. Thank you. I guess that then begs a follow-up where in your full-year outlook you contemplate, I think you said, Bill, a point of wraparound price, but you did highlight some uncertainty in certain pockets, what are those pockets you were referencing there?

Yes, so I think Telecom would be the first to see a market down. I think just puts a little pressure on that and so that's really the most noteworthy one. I think other areas where things are overstocked, can put a little pressure sometimes, so we've had a very successful pricing tactic over the last really two years, and so it's something that we are; A, very focused on; B, are in very close conversations with our big customers. Gerben and I happen to be visiting with a few of our largest customers over the course of the last couple of weeks and just to your point, none of them are asking about price other than to make sure. We are coordinating with them, giving them enough time to implement price increases, and let them manage that through their systems, but it's a - I would describe price as of this moment, Tommy, is still quite constructive.

And maybe to your point, there may be some headwinds, I'd also say that we built into the guidance to carry over, but we also announced price increases early this year, it's early to tell at this stage, only a few weeks in on to stick rates, but again the conversations that we're having are very positive to those taking hold. So, we have levers against potential headwinds by taking price too.

Thank you, both. I appreciate it and will turn it back.

Thank you. One moment for our next question. And our next question comes from Nigel Coe of Wolfe Research. Please go ahead.

Thanks. Good morning, everyone. So - hi, good morning. So Bill, just wanted to be a bit more specific, typical seasonality for 1Q, it looks like about 20% of full-year, is that about the right zone for your math?

Yes, little. I would have said 21% if you ask me, yes.

Okay. That's great. Thanks for the clarification there. And then just the Electrical performance this quarter is obviously outstanding. The 6% organic growth, pretty flat Q-over-Q in both revenues and margin, so is that mainly a channel impact you're seeing there? I know you called out strength in electrification and data centers, just - I'm just curious in terms of the end-market demand what you saw during the quarter being a bit more specific there.

Yes, I'm not sure - I'm not sure I'm getting the essence of what you're asking. We did find that vertically data centers and renewables were both good that benefited our PCX business and our Burndy business. And I do think we saw from our big customers, if that's - if that's where you're pushing, in areas where they had been managing their inventories we saw a return to growth in those as well. So, I'm not sure if you're getting that customer behavior end-markets there, but we had a kind of a little bit of a mix of both.

Yes, I mean, it wasn't a straightforward question I know, but do you think the channel impact was fairly neutral? So sell-in versus sell-out pretty similar, but I guess that's sort of the essence of my question. But really, then when we think about the margin exit rate for 4Q into 2024, I know you've said flattish impact in '24, restructuring is picking up, so that's obviously a headwind in '24, but just curious about the Lighting impact, because that's coming out, so I think that that would probably drive more of a bias towards expansion in Electrical, so just curious if you agree with that.

I do agree. I do agree; they were sort of at double-digits versus what you see is a better margin at the segment, so I do agree.

And then sell-in versus sell-outs?

Yes, pretty consistent in the quarter, Nigel.

Thank you. One moment for our next question. Our next question comes from Julian Mitchell of Barclays. Please go ahead.

Hi, good morning. Maybe just trying to understand and fully comprehend that you don't give sort of detailed quarterly guidance, but you've got the 4% organic growth guide for the year in revenue, and you have the color around weak start to the year in Telecom, a bit of extra Utility destock, and maybe the last drags of non-Resi Electrical destock, so all of that seems to suggest a stronger second half organic growth rates. Just wondered how much of an improvement year-on-year are you dialing in through the year as we go to get to that 4% for the year as a whole.

Yes, Julian, first of all, welcome to the call, nice to have you, and I would say that the Utility destock we'll see, but we could - if you - we couldn't be at the point of kind of having be done with that as well and I would say on the Electrical side we feel more confident than we are. Your Telecom point is right. I think we do anticipate a weaker start. And as you think about, you're sort of introducing sequential seasonality and how that's going to look VPY compare. And I think what on the VPY basis, some of the second-half compares because of the destocking could actually be a little bit easier; for example, first quarter last year was actually quite strong. And I think seasonality-wise, we upped our investments at the second half of last year, as those wrap around that creates a more consistent and easier second half. So, I think as those things net against each other, that's kind of how we're getting to a more typical seasonal year even though, I hear you, there's obviously puts and takes and forces at work here.

And maybe, Julian, provide maybe a local context on that, and you're right to point out there's still some headwinds, but one way to look at it and I realize it's an early data point, but as we look at how we're starting off the year and we look at our order patterns and trends here in January, it's actually a support to what Bill is somewhat hesitantly saying that we could be exiting our destocking, it's constructive, so I'd say, early reads into the year is that is constructive to kind of this profile of seasonal guidance.

Thanks very much. And then just a quick follow-up, that Slide 10, the non-residential vertical within electrical, the flat to plus low single guide for the year, you understand fully on the channel stocking largely having run its course, but maybe just the market outlook. You use that word uncertain, just any sort of color you could put around that, what you're seeing in different verticals in that non-resi bucket?

Yes, just think maybe the pressure on office just feels like it puts a little bit less certainty, I mean it's quite a constructive pie, so I guess by - I think less certainty puts you in still a growth position, but it just - I think the institutional side probably be stronger, but maybe some of that office could be weaker. So, I think there is some that mix effect just puts it in the low-growth rather than the rest of the pie, which is more medium growth.

That's great. Thank you.

Thank you. One moment for our next question. Your next question comes from Brett Linzey of Mizuho. Please go ahead.

Hi, good morning, all. Just wanted to come back to the investments and you talked about some of the carryover in the first half, just wanted to clarify, are these embedded within the volume portion of the bridge and separate from the footprint? I'm just trying to understand if you could quantify the investment versus restructuring and what those paybacks might look like.

Yes, so if last year it was an investment that continues, i.e., if you added headcount, it would show up, yes, in margins, in volume. So, as we step things up in areas last year, for example, like new product development or people to work on productivity initiatives, that would wrap around higher costs, wouldn't be a new investment, right, it would show up as you're saying, Brett, in margin of that volume.

And then anything you can share in terms of the paybacks on these footprints? Is something embedded this year or is that a little bit longer term?

Yes, I think there is order of magnitude another $10 million of R&R in that bucket that will be invested this year; it's of a footprint nature and I think the paybacks are that we have good ROICs on that. The paybacks tend to be in the 3-ish year range and so we're sort of investing today in those cases with benefits that probably start a year or two from now.

Maybe the other thing that I would say is embedded is some of those investments will drive a higher level of productivity that's embedded in our guidance. So when you look at the construct of flat price cost productivity, it has a higher level of productivity and higher level of inflation in it to offset it. So that's where some of those investments are going.

Okay, great. Yes, thanks for the color there. And then just a follow-up on the price expectations. So it sounds like no incremental actions embedded in the planning, I'd imagine you're seeing some raw non-material inflation, maybe just a little context as to maybe what that potential hedge could look like if you do see it sticking some of these actions that you are out in the marketplace with.

Yes, I mean, you'd be kind of maybe asking a little bit about a speculative sensitivity analysis, right? So, you can see, each point - each point of price gets us north, obviously, of $50 million of price and it's that - that's a lot of leverage if there is no corresponding inflation to that. Conversely, if you have to give a little it equally has kind of this 100% sort of drop-through, and so as Gerben sort of outlined, I think we have because of the investments we made last year, we have a more ambitious productivity target level and we certainly see some inflation on wage transportation area as well as in kind of material-related areas. So, I think getting the rigor that we need to focus on all of those levers to come out even or ahead is sort of a - it's an obsession. We review it really carefully every month at Gerben and my level and continue to push enough initiatives to make sure we stay even or ahead.

Got it. Appreciate the insight.

Thank you. One moment for our next question. Our next question comes from Joe O'Dea of Wells Fargo. Please go ahead.

Hi, good morning. Thanks for taking my questions. First, just wanted to focus on the 2024 bridge and if we think about it, I guess in three buckets with the organic piece, the M&A piece, and then some of the restructuring, is it fair to think about a 25% incremental on the organic piece? And then on the M&A side of things, can you add any detail on what you think interest expense is in '24, just so we get that right in the model, and does that interest expense contemplate the deployment of Resi Lighting proceeds? Thanks.

Yes, so I think we - you could put in about $40 million of incremental interest expense and I think the drop through of 25 on volume is reasonable. I'd rather see that more like 30, but somewhere in that high 20s is reasonable, I think.

And the Resi Lighting proceeds.

Yes, so we've - you see, we have interest income there as a plus and interest expense as a minus, so we sort of built to construct that, it's either cash that's going to earn or, yes, it's going to be available to pay down, and I guess - so I guess the one thing I'd say is, it's explicit that we're not modeling in our guidance any new acquisitions, and so that would be incremental to this guide.

Got it. And then on the Electrical side, can you size roughly what the destock headwind was to top-line growth in '23? And so just kind of the non-repeat of that, what we should think about that kind of contribution to the plus 3 to 4 for '24.

Yes, overall, I would say, sell-through volumes were down kind of in the high-single to low-double-digits most of the year and I think sell-through was flattish to slightly up, so it got better in the fourth quarter, but overall, I think you can think about it as a single-digit impact on a full-year basis.

Okay. And then just a clarification that the fourth quarter 9% organic in Utility, did you give the price and volume split of that?

Yes, the volume was - it was negative, right, so it ate into the price. Volume was slightly positive, Joe, sorry.

Volume was slightly positive.

Yes, I thought you were referring to something else.

Thank you. One moment for our next question. And our next question comes from Nicholas Amicucci of TD Cowen. Please go ahead.

Hi, good morning, guys.

Good morning.

Good morning.

Just had a couple. Wanted to hone in on the Electrical Solutions segment, so obviously, it's going to benefit somewhat this year from the footprint optimization, just wanted to see how much - I mean, how much more headroom do you guys have from an optimization perspective within that segment?

Yes, I mean, I'd say that we still have projects that are - this year it will be consolidating locations, so you'd be absorbing volume in existing locations. And then after you get to that, there's always the chance to keep putting in bigger more scaled facilities. So you can answer your question with a very long perspective, but I think we'll - we go a long way to achieving sort of our desired goals in just a few years.

Sure. That's fair. Then did want to touch upon too, so I think the guidance within the press release, it had indicated about $1.60 of the amortization, that's within adjusted EPS, and so if you do the math, that's roughly $86 million for the year. Within Utilities, I mean, I understand that there is a significant step-up in 4Q probably related to the Systems Control, but just wanted to get a better sense of the timing of that amortization and kind of break down between Utilities and Electrical Solutions.

Yes, so the increment - so we've been running at $1 for a while, so the $0.60 that's new is all in Utility so as you separate them. And when you think about the amortization, a lot of it is going to customer value and in places that have quite a long - by long, I mean like 20-year, so it's a pretty stable - it's a pretty stable run rate.

Got it. Perfect. Yes, that's all I got, so thanks, guys.

Thank you.

Thanks.

Thank you. One moment for our next question. Our next question comes from Christopher Snyder of UBS. Please go ahead.

Thank you. I wanted to ask on Utility margins, and - specifically, I guess the expectation that on an organic margins will be flattish for 2024, I'm just asking because you guys are exiting the year well below where you started, and maybe M&A had a bit of a headwind in Q4, but it feels like organic is, in Q4, down a good deal versus the first half. So is it fair to - does the guide assume that Utility organic margins are down year-on-year in the first half and then return to growth into the back half or should we expect them up year-on-year throughout the year?

Yes, I would assume they're kind of flattish through the - like I don't think there's anything - I think I look maybe at the shape of '23 because I know exactly what you're observing, right? You see a sequential step down in margin, some of that is attributable to some spending investing that we're doing, some of it is attributable to the Aclara mix effect, some of it is attributable to the fact that the volumes inside of Power Systems were going through their destocking work with our customer channels partners. And - so I think, again, we just see that, Chris, returning to a more normal shape, and so I think the volume piece of Power Systems becomes quite important to that. I think we see the mix with Aclara start to balance to equal - more equal contributions. And so I think in a balanced world, we would expect margins in Q1 and Q4 to be below the margins in Q2 and Q3 and that that shape in '24 should feel quite normal.

Thank you. I appreciate that. And then just as a follow-up on Utility margins, so I know they're always down sequentially into Q4, just lower revenue. This quarter came in quite a deal sharper than we expected, is the company starting to feel the impact of higher metal prices? I know steel has been up a lot over the last three, four months, was that starting to come through in Q4 on those Utility margins or is that still more maybe a '24 dynamic? Thank you.

Yes, I mean, we certainly saw starting November, December steel move and I would say the way that works through the supply chain, there's usually a couple of months lag on when we as a LIFO company pay those most recent prices. So I think we'll feel those prices - those costs, if you will, in the first quarter, and maybe mid to end of the first quarter.

Thank you. One moment for our next question. And our next question comes from Scott Graham of Seaport Research Partners. Please go ahead.

Hi, good morning. Thanks for squeezing me in. Just really the question I have is about the portfolio management slide, and particularly now with Systems Control in the fold you have a couple of nice size bubbles under which to acquire, what is the outlook there for - what does the pipeline look like? I mean, you've got 1.4 net leverage, which is a really good number to work off of, sort of what are your aspirations in '24, maybe even by telling us, would you be disappointed without another good-size deal this year?

Yes, it's an interesting way to phrase the question. I had come at it from two perspectives. The first, you already raised, which is we're very comfortable with our leverage levels, so we think financially, we certainly can afford to invest in acquisitions. And I would say, secondly, is kind of the integration perspective, and We'd like to make sure that we have Systems Control well-integrated, we've got a healthy amount of people kind of working together, so off to a great start. Our customers are happy with it. Feels like a good cultural fit. But it still takes work to make sure that it's integrated and we don't want to have too many plates spinning. So, your question maybe, well, revisited three months from now, but I agree with you that strategically we'd love to add businesses in the Northeast and financially - Northeast of this two-by-two matrix of higher-growth, higher-margin. And yes, we feel we have capacity both in - cash flow generation will be up in the $800 million range this year plus, as you pointed out, I think balance sheet capacity. So, we are - so I think let's just revisit that question maybe in three months and see how we feel, but it's a good one, it's a good question.

Well, fair enough. I guess, I was just wondering also what the pipeline itself looks like, and you can put people off a little bit.

Yes, there is - there is a pretty decent pipeline and there's quite a few things we're expecting to at least probe the market in the second half of the year, so that doesn't mean we'll buy any of those or that they'll be attractive, but there is an interesting amount of what appears to be inventory maybe coming to market, so.

Thank you. At this time, I'd like to turn it back to Gerben Bakker for closing remarks.

Great. Thank you. I appreciate all the questions with the quite robust time we put out for that in this call to focus on our outlook. Maybe I'll close by saying that I feel really good about the year and our ability to deliver on our commitments to you to drive profitable growth after a few years of really outperformance. So look forward to our Investor Day later in the year and to our first quarter call, let's talk about how we're doing so far this year, so thanks so much.

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