Ladies and gentlemen, thank you for standing by, and welcome to the fourth quarter 2019 results Conference call. [Operator Instructions]. I would now like to hand the conference over to your host, Mr. Dan Innamorato. Please go ahead, sir.

Thanks, operator. Good morning, everyone, and thank you for joining us. I'm joined today by our Chairman and CEO, Dave Nord; and our Executive Vice President and CFO, Bill Sperry. Hubbell announced its fourth quarter results for 2019 this morning. The press release and slides are posted to the Investors section of our website at www.hubbell.com. Please note that our comments this morning may include statements related to the expected future results of our company and are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Therefore, please note the discussion of forward-looking statements in our press release and consider it incorporated by reference into this call. In addition, 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 Dave.

All right. Thanks, Dan. Good morning, everybody. Thanks for joining us this morning to discuss our fourth quarter and full year results. You can see from our press release, it was another quarter of strong free cash flow generation and solid execution across Hubbell. Not just for the quarter, you really step back and look at our performance over the full year, and we're certainly pleased with the way our businesses and our employees executed and navigated through. We're really sort of mixed in uncertain markets to generate value for shareholders. We'll walk you through the details of the full year results later, but we certainly generated exceptional growth in free cash flow and significantly expanded our full year operating margins despite softer volumes across lot of our key end markets, and all this while we doubled our investment in restructuring activities. When I reflect on a year ago, we said that we were going to do EPS with a midpoint of $8 on an adjusted basis, and we delivered $8.12. We said we're going to do free cash flow at 95% of adjusted net income, and we delivered 112% of adjusted net income. All of that, in light of this time last year, the big uncertainty was tariffs, what was that going to do? But we've done a lot of other things along the way. We sold the business, we bought a couple of businesses, we got a significant pension obligation behind us. We've had more than we had anticipated, restructuring and related costs, trying to drive productivity and cost reduction going forward. And we've also had some organizational changes. So all of that going on and still delivering above what we committed to a year ago. I couldn't be more pleased with how the organization has responded. We…

Thank you, Dave, and good morning, everybody. Appreciate you taking the time to join us here. Like Dave, I'm going to use the slides to guide my comments, and I'm starting on Page 4. Just the overview of results of $1.1 billion of sales. Operating margin -- adjusted op margin of 14%, an increase of 70 basis points. Adjusted diluted EPS of $1.91, which is a $0.07 increase over prior year. And Dave mentioned, the strong free cash flow, $185 million in the quarter and nearly $500 million for the year. Let's dig into the markets and the sales performance on Page 5. You see at $1.1 billion, that's 4% below last year. I'll remind everyone that when Dave mentioned that we've been selling and buying businesses, so we sold our high-voltage test equipment business based in Switzerland, and that cost us 1 point in sales growth. So the organic is highlighted here at 3% and, essentially, the lion's share of that is the impact of Lightings' challenging quarter on volumes. And so on balance, the rest of the company is actually quite flat. And so I'll walk through now kind of the individual end markets and show you that we're really starting to see some bifurcation between our -- some of our electrical-facing markets versus our utility-facing markets. So starting with the Electrical side and where we're seeing some of the softness. On oil end markets, which is where our Harsh & Hazardous businesses face, we saw a double-digit declines in the quarter. On heavy industrial, we also saw high single-digit declines there. And in renovation and relight on our Lighting business also saw a double-digit softness there. So those are notable points of weakness and they're in quite strong contrast to the electrical transmission and distribution end markets…

All right. Great. Thanks, Bill. I'm on Slide 11, talk first about the end markets and our outlook there. When we look into next year, sort of we continue to see some mixed trends in our end markets, a few puts and takes, netting overall to modest growth. Starting in the upper right, our Electrical T&D continues to be a strong market, up 3% to 4%, continue to see strong demand in that environment with solid growth even off difficult compares. The residential market up 2% to 4%. Market indicators more recently have gotten positive -- more positive, and we're pretty confident in being able to deliver some nice growth here in 2020. The nonresidential, we've got it at 1% to 2%. Continue to expect growth in nonres new construction. But this section of pie chart also embeds what we anticipate to be some continued softness on the renovation side of the Lighting, which could last through the first half of the year. Industrial. That's plus or minus 2%. Markets softened through the back half of 2019, particularly on the heavy industrial. We haven't yet seen signs of a material pickup. So our base case is plus or minus couple of points with the heavy industrial remaining softer, light and industrial holding up. On the oil side, right now, it's plus or minus 2%. Markets are weak throughout 2019. I think oil prices have come down. We've seen somewhat stable for now off the low levels with some smaller project activity, but no signs of an inflection. So that will continue to be a challenging market. And gas distribution, plus 1% to 3%. Market drivers remain strong. We expect some moderation to low single-digit growth after a multiyear period of strong growth. So turning to Slide 12. So all that…

[Operator Instructions]. First question is from Jeff Sprague from Vertical Research Partners.

Can we just dig a little deeper into the utility side of the equation and -- particularly, kind of the Aclara versus the base business? First, on Aclara, there's been some chatter of kind of AMI deployment delays out there. I was wondering if that was either part of the issue in the quarter. Or does that, in any way, affect your outlook? And obviously, you didn't have Aclara in the organic base last year, but can you give us an idea of the magnitude of the comp you were going against in this particular quarter?

Yes, Jeff. So starting with the comp, it actually grew about 50% in the fourth quarter last year. So a very dramatic growth last year and a testament to some of the lumpiness of the projects that they work on. As far as the regulatory items, nothing that affected us in the quarter. We did enjoy some AMI order strength in the quarter and does not affect our medium-term outlook either.

Hey, Gerben, maybe you want to add some color?

Yes. On the question specifically on the AMI delays, delays in regulatory approvals are common in the industry. These are generally very large and complex projects, both technically and commercially. The degree of regulatory difficulties can also vary significantly based on the geography, as these are often set at state and municipal levels. So there -- while there certainly may be references in the market to delays, we are really not seeing evidence that the overall regulatory landscape has changed. We do encounter the delays ourselves in our business, but we do not see them to be material for us right now. And certainly, for us, geographical diversity helps as does the multiutility. So we serve both the IOU as well as the co-op and municipals. And we also serve both electric, gas and water. So it's pretty spread that can help offset some of these lumpiness that you can see with some of these larger products that are subjected to regulatory scrutiny.

Could you also speak to the Aclara backlog? You had a big starting backlog when you acquired the company. Have you been able to keep that topped up along the way? Or are you actually drawing on backlog now?

Yes. And that backlog will certainly shift as some of these larger projects come on and off. But fundamentally, we feel the backlog still is a little bit short of that billion dollars that we have talked about. More importantly, though, what we look at is the qualified pipeline and that we're actually seeing growing right now. We feel we are very well positioned to realize this growth. We had recent wins with our RF-synergized AMI platform, including a major utility co-op as well as a couple of pilot programs that we've launched with large IOUs. And this gives us confidence that we're well positioned to serve the significant opportunity in the next several years, really as the IOU customers upgrade their first-generation AMI systems to the next generation.

Great. And just one other, if I could. Just in general. I'm sorry if I missed it in the opening remarks, but what are you anticipating in your guidance for kind of the carryover benefits from the restructuring actions you took in 2019? And any benefit that you might get from the planned 2020 actions?

Yes. So we think we've got $15 million of benefit, Jeff, of real savings in 2020 that are coming off the spending that we've done recently, and most of that was from investment spend in '19.

Next question is from Steve Tusa from JPMorgan.

This is actually Pat Baumann on for Steve Tusa. Just curious on the end markets for the fourth quarter. What did they look like from a growth perspective versus the 1% to 3% you expect for 2020? And then along those lines, how do you expect the profile to look first half versus second half for this year for the end markets?

Yes. So the end markets netted out ex Lighting to be very flat in the fourth quarter. And we're expecting that to be in that 1% to 3% range for next year. And so I think you're right to point out that we do anticipate having some easier compares in the second half versus the first half as a result of that.

Is there anything from a first quarter perspective we should be aware of other than the incentive comp? I think you said is a $0.10 of headwind. Anything else for the first quarter we should be aware of?

I don't think there's anything that stands out specifically. I do think that some of this Lighting volume can carry into some softness on the Electrical side. I think we'd expect the utility strength to carry through. And so I think despite that headwind from the LTI, I do think we should be able to grow earnings -- absorb that and grow earnings slightly in the first quarter year-over-year.

Okay. And then following up on Jeff's question, I don't think you answered this part of it. I'm not even sure yes, this part. But what's your expectations for Aclara growth in 2020 versus the core T&D business? I think you said 3% to 4% for the end markets. I'm just curious how those two parts of Power shake out versus one another in terms of the guide.

Yes, we're expecting Aclara to be able to grow mid-single digits.

Okay. Okay, great. And then one last quick one for me. What was price in the quarter year-over-year contribution to revenue?

Yes, we've got a couple of points of price.

Next question is from Nigel Coe from Wolfe Research.

Yes. Patrick just took some of my questions, so I think I have quite a few left over there. So going back to Aclara, so just to be clear, obviously, you had a very tough comp in 4Q. So you expect to grow -- to be back to growth in 1Q? And then the comments on the corporate backlog still up. How does your backlog kind of coverage for 2020 compared to last year, say?

Yes. So there's really two components of the funnel that Gerben was referring to, right? The very near term is the backlog. And then if you go slightly farther back, you get into the pipeline. And so as Gerben was saying, the activity at the front end of that funnel on pipeline continues to grow. And then what enters into qualified backlog that can get consumed or added to depending. And so I think we are -- the near-term backlog is down just a little bit, but it certainly doesn't dim our expectations for 2020 or beyond.

Okay. And the 1Q, you think this impacted growth in 1Q? I mean the put together, the points now?

Yes. I think we've got -- we've still got a tough comp in the first quarter for Aclara. And then I think the remaining three quarters will be where we see the growth.

Okay. And then the performance in Electrical during the quarter, I think you said flattish across the end markets ex Lighting. So Lighting, obviously, down kind of mid-teens. Would that be the right number?

Yes, a little bit less than that, but double digits, yes.

Yes. Okay. Can you just talk about the impact of channel inventories, not just for Lighting, but across the spectrum there? And what's your perspective in terms of where they currently sit versus normal levels?

I didn't understand that what the question is?

Yes, the channel inventories. So to what extent are we suffering -- still suffering from channel headwinds -- inventory headwinds?

Yes. I mean, I think that at the beginning part of the year and with some of the tariffs and the pricing that was going in, Nigel, I think you're right to point out that we thought there was probably some buildup in the channel of inventories. And there's evidence of some of that persisting a little bit, but that sounds almost like an excuse, Nigel. So I think we feel that, that's straighten itself out for the most part.

Yes. I think the other side of that is going into 2019. I think the channel was a little bit more cautious and was concerned about a downturn. We had a lot of conversation that tariffs were going to cause recession and, therefore, they wanted to get their inventory levels down. And the conversations that I've had with our channel partners, generally optimistic, positive on 2020. So I think that has taken a lot of that pressure off, at least broadly. There's still pockets of those who might want to be shifting some of their inventory and getting the same focus on cash flow that we have. But I don't see anything in there that's meaningful.

Great. And there's a quick one on price -- 2 points of price, obviously, very strong. How does that look in 2020? Do you think you'll still get positive price?

Yes. I think as it wraps around, Nigel, it'll taper off. And so we're not expecting that to be a steady state of 2 points of price.

[Operator Instructions]. Your next question is from Deepa Raghavan from Wells Fargo Securities.

A question on your residential market expectations. I mean your expectations, 2% to 4% end market, better than fiscal '19 of flat 0% to 1%. Now that end market is Lighting business in there as well, right? I mean just curious how you're thinking about how would -- how the Lighting business trends in fiscal '20 and how residential in -- rest of residential ex Lighting actually feeds into the 2% to 4% expectations?

Well, I'll take that. First of all, the residential component of our business is substantially Lighting. So that's the big driver to it. As you know, a lot of that -- some of the positive outlook is based on housing starts. And I think most recently at the home builders show, the really positive sentiment on home builders. But for us, obviously, that has a little bit of a lag to it. We're typically a 2-quarter lag to the starts. So I think some of that will start to see its way through to the business in the second half of this year. So...

Okay. All right. So you are expecting Lighting to do better in fiscal '20. All right. My follow-up would be on your price. I mean you said it's 2% of price, you're guiding to for fiscal '20. It fades away. Last year or 2, you got -- I think you were guiding to 2% of price, and most of that was end markets, right? Just 1% to 3%. As your end markets -- so your volume expectations are still flattish within your end market expectations this year versus last year as well. Is that right?

No. I'd say, our end market volume expectations are mostly a volume expectation. It encompasses very little price, just kind of the wraparound effect.

Okay, got it. So it's 1% to 3% end markets, plus 2% price. And that's how to think about it?

It's not plus 2% price. We said, pricing wraparound is limited. So we're not letting it right now.

Right.

Next question is from Robert McCarthy from Stephens Research.

Congratulations on the strong execution on cash. I guess the first question I would have is just around Lighting, more of a broader question. Clearly, this is a business that you've been invested in and acquired over the last 20 years, I think starting with LCA back in '02. But over the course of time, it's -- there's been a lot of promise for the business for a variety of reasons. But right now, it seems you've had a competitor sell the business. I think you've had some leadership lead the company to run a different Lighting business. What's kind of the state of play strategically for that business going forward for you? And do you think you have to have a higher bar for a return profile for a business? And would you consider some form of separation or divestment in the near term?

A lot in there, but we go way back. So we share the history on this. Certainly, Lighting business has always been challenging and nothing changes -- nothing has changed there. I think we've done some good things to continue to improve that business. There is a level of frustration that I certainly have because the market is tough. But I think that some of the things that we've done have strengthened that business, and it's well positioned to continue to improve. I think we've made some -- some of the management changes have allowed us to do some things differently. And I think we're going to be prepared to talk about some of those things next month at Investor Day. It certainly is not one of our higher-margin businesses, yet it's still providing a decent return. And I think it's adding value to shareholders. I think as with all the businesses, but certainly, with the changes going on in the Lighting industry. If there was an opportunity to create shareholder value, that was more valuable for us than running it. That always has to be considered. But right now, we think it has a lot of opportunity to continue to add value and to improve. And so we're going to continue to do that.

Okay. Turning to probably a more attractive topic, which would be the solid outlook for transmission and distribution spend. And looking at long-term growth rates and growth rates as a whole, it sounds like the traditional legacy business is very well positioned for continued growth. And the more AMI smart metering, certainly, it has a great runway for growth, maybe on a market basis, a little bit lower than that. But I guess from your comments, you're actually suggesting Aclara is going to grow mid-single digit this year now that there should be penetration with some IOUs and probably some secular growth tailwinds with Aclara. But could -- I mean despite the fact that you already have 3% to 4% growth there, do you think there's even upside to that number? Do you think you could be growing, given the trends that you're seeing now in mid- to high single digits for a sustainable growth rate over a longer period of time? In other words, do you see the potential for an inflection point there for growth over a 3 to 4 year period?

Yes, Rob, I'd say, yes, we do. Remember, what we've said is, particularly on the AMI, it's a much longer sales cycle. It's a little lumpier. Getting the acceptance of the AMI systems takes time. The good news is that we've had some good success there. And with proven capability with some meaningfully-sized utilities, and that provides a sound basis for -- on a run rate basis. Certainly, I think we could see mid- to high single digits over time. But as Gerben mentioned, it's a lumpy business because it's got that project orientation. Until you get a broad enough portfolio that makes that sort of smooth out, we're going to see that. But certainly, I think there's really good upside in the future based on the investments being made.

Next question is from Josh Pokrzywinski from Morgan Stanley.

Dave, just to follow up on Rob's question on the T&D space or kind of utilities at large, we've been in this outsized environment. I'm wondering how much of this is kind of catch-up for years of underinvestment versus a structural change in the way utility spend money or kind of view the investment cycle. So is there any way to parse out how much of what you're seeing today is just kind of making up for kind of decades of underinvestment versus something it's a little bit more proactive and sustainable?

Well, I think it's -- I can't argue that there's been decades of underinvestment. I mean that's a fact. The question is, what are they then -- when it comes time to invest, is it investing in replacing legacy products? Or is it going to the next level of new technology? And that's a little harder to split out and identify which way it's going. I think what is clear is that there is a recognition of a need to invest more. And that's positive, and it's positive for all parts of our business. So we want to make sure. And quite honestly, that was one of the strategic basis for the Aclara acquisition to give us the opportunity and the capability to participate more effectively on the automation side.

And just I would add to what Dave said, I certainly think prior underinvestment in it. But the other thing that's adding to this is the integration of renewables and that's certainly putting a lot of strain on the existing grid. So what the utilities are looking for is how to better operate the grids that they have and maintained, and that's where some of the Aclara technology and even, more importantly, when we bring together the legacy portfolio with Aclara, that we can help serve that need to modernize the grid and really run the grid more efficiently.

Got it. That's helpful. And then just one quick follow-up for Bill. Can you remind us -- sorry, if I missed that already. How much of the tariff relief is ongoing versus what was kind of recaptured from earlier in '18 and '19 in the fourth quarter?

Yes, I would describe the exemptions as capturing roughly 6 quarters of activity. And so the majority of that carries forward through 2020, they technically expire in October. So we'll be recognizing that benefit kind of evenly throughout 2020. And then there's about 1/3 of the total that was associated what that actually happened in '18 so that, that would be the nonrecurring piece.

Next question is from Justin Bergner of Gabelli Research.

Just a couple of clarification questions. On the transmission and distribution end market view, if Aclara is growing mid-single digit, does that mean that your legacy T&D business, you have a view towards it growing below mid-single digit to sort of average out to that 3% to 4%? Or am I missing something?

No. I mean that you've got it right. The distribution piece, if you unpack it, is about 2/3 of our volumes and transmission about 1/3. And we've expected that D over the long term has been kind of grows in GDP line. So I think Josh and Rob's questions about it's doing stronger than that, which is some underspending from past and as Gerben was saying, some new automation areas. So I think that if you disaggregate those pieces, you've got it right. The T&D part of our Power segment is significantly larger than the Aclara piece. So you can't just average the two growth rates. You have to apply a higher weighting, obviously, to the Power Systems piece.

Okay, great. And then on the tariff piece, I'm just to fully understand it. You said it expires in October. Does that mean that, I guess, is $0.025 per quarter benefit that you will enjoy in 2020 will not repeat come 2021?

Well, it would be subject to whether or not the exemptions are regranted or not. And that starts to off fit in the background noise of how we're managing price cost.

Right.

Got you. All right. And then lastly, on the restructuring side, so it looks like you expect it to come in this year around $0.40 of restructuring, but you ended up around $0.50, and that offset the $0.15 benefit in the fourth quarter. Is my math sort of in the right ballpark?

Yes. We spent more than we had planned by about $0.11. And that was all happened in the fourth quarter. Some of which was -- continued to be footprint realignment that we've been focused on all year and will continue to be focused on, and some of which was a little bit shorter term, headcount related that was in response to some soft volumes we experienced in Q4.

Okay. I am showing no further questions at this time. I would now like to turn the conference back to Mr. Dan Innamorato.

Thanks, everyone, for joining us. And I'll be around all day for follow-up calls if you need me. Thank you.

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