Good day and thank you for standing by. Welcome to the Q3 2022 Hubbell Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to turn the conference over to Dan Innamorato. Please go ahead.

Thanks, Lisa. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our third quarter 2022 results. The press release and slides are posted to the Investors section of our website at hubbell.com. I'm joined today by our Chairman, President and CEO, Gerben Bakker; and our Executive Vice President and CFO, Bill Sperry. Please note 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 considered incorporated by reference on this call. Additionally, comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures ad are included in the press release and slides. And with that, I'll turn the call over to Gerben.

Great. Thanks, Dan, and good morning, everyone, and thank you for joining us to discuss Hubbell's third quarter results. Consistent with the first half of 2022, our third quarter result was solid. Our markets are healthy, our positions in those markets are strong, and we continue to execute effectively from an operational standpoint. Our third quarter results exceeded our initial expectations and we are raising our full year outlook to reflect a continuation of those positive trends throughout 2022. We are well positioned in attractive markets that are supported by long-term trends in grid modernization and electrification, which continue to drive strong demand for our products. Utility customers are proactively replacing aging infrastructure while investing significantly to upgrade, harden and modernize the grid, driving another quarter of strong orders growth and backlog build. The work that we have done to streamline our portfolio and the investments we are making in strategic growth verticals are positioning Hubbell for sustainable GDP plus growth as our economy becomes more electrified. From an operational standpoint, margin expansion in the quarter was driven by volume growth and favorable price cost. We have been active in pricing to address significant material and non-material inflation over the last 18 to 24 months. While general inflation persists throughout our supply chain, we have now started to benefit from easing in the portion of our cost base that is tied directly to certain raw materials. While the operating environment remains dynamic, we are proud of the way our employees have continued to effectively navigate through supply chain uncertainty to deliver on our commitments to customers. As we look to drive continued success on this front, I'm also excited to welcome Akshay Mittal to the senior leadership team as Hubbell's new operations leader. Akshay comes to Hubbell with an extensive…

Good morning, everybody. Thanks for taking the time to be with us. I also want to welcome Akshay to the team. I'm personally excited to partner with him. I think we can add a lot of value by ramping up our operational intensity. So looking forward to that. My comments are going to start on Page 6 and really summarize the very strong financial quarter that Hubbell team turned in, in the third quarter of 2022. So on the upper left, we'll start with sales. You see an increase of 21% to just over $1.3 billion in sales. That -- 21% increase is comprised of 20% organic, 2% from M&A and one-point of drag from FX. The 20% organic is comprised of about a 13% price and approximately 7% volume. So, actually, quite impressive contributions from both volume and price, which will filter through all of our comments around our performance, and those are obviously comparisons to prior year. We find it instructive to track sales on a sequential basis as well. And for sales to be up mid-single digits from the prior quarter where there's kind of equal contributions to that mid-single-digit growth sequentially from both price and volume. I think that's a pretty good sign that we may be seeing some modest easing in the supply chain. In other words, I would say we were trying to operate at capacity in the second quarter, a function of a high backlog and the need to serve our customers who wanted our material -- and for us to be able to grow the volume part of that from second quarter to third quarter sequentially. I think there's a little bit of sign of easing across the availability of staffing, availability materials and transportation as well. So, as we think about…

Yes, Great. Thanks, Bill. And before we turn it over to Q&A, we wanted to provide some initial thoughts on our setup into 2023, and Hubbell is planning to deliver continued attractive results for our shareholders. While the macro environment remains uncertain headed into next year, we are confident that our markets are well positioned to continue outperforming GDP. In Utility Solutions, we believe there is still plenty of runway and above average visibility to continued growth driven by long-term grid modernization trends. In Electrical Solutions, we expect residential markets to remain challenging but we believe that the 20% of segment revenues exposed to our strategic growth verticals in T&D, renewables, data centers and communications should prove resilient to cyclical dynamics. Operationally, while commodity prices have eased, we are planning for general inflationary and supply chain pressures to persist. We will continue to manage price and actively drive productivity to come out net neutral or better relative to our overall cost base. We also plan to continue reinvesting in our business to deliver long-term growth and productivity. In Utility Solutions, we plan to invest in capacity expansion to service a visible long-term growth profile. As we have highlighted in the past, the inflection in T&D markets from a low single-digit growth to mid-single-digit growth over the past several years has caused us to bump against capacity constraints in certain key product lines. Looking ahead, we see a unique opportunity to further strengthen our position and better support visible customer investment plans by executing on high-return expansion and innovation projects. In Electrical Solutions, we plan to maintain elevated investment levels to support footprint optimization projects as we continue our multiyear journey as a unified operating segment with structurally higher long-term margin profile. The net of these early considerations for next year and acknowledging that there remains a lot of uncertainty is that we are expecting to deliver solid performance in 2023 and across a range of macroeconomic scenarios. We plan to provide a more detailed '23 outlook on our typical cadence along the release and discussion of our fourth quarter earnings results. With that, let me now turn it over to Q&A.

[Operator Instructions] Coming to the stage now we have Jeffrey Bradley of Vertical Research Partners. Please go ahead. Your line is open.

This is Jeffrey Sprague from Vertical. That introduction broke up a little bit. Maybe just start big picture, Gerben, actually, just on kind of the operational plan and people you've had some movement at the senior levels with Susan and Peter Lau moving and then Akshay in. Is there a fundamental change in your kind of operational priorities or some kind of change in what you're kind of expecting to deliver relative to maybe some of those longer-term plans that you've put out before?

Yes, I'd say, Jeff, the short answer to that is absolutely not. Certainly, I'm not going to comment on specific personnel matters. But as you look at the environment, generally, it's an environment in our organization, many organizations of higher turnover. And I would say that while we've lost people, we've also attracted very talented people. I think we're actually in a very good position. If you look at the strength of our business where we play the markets that we're in and the potential of this business as we look to bring on people and Akshay is a good example of that, they're very attractive to join a company like Hubbell. So, I'd say it's part of what us and many others are just dealing with, but we are continuing to be able to attract good talent to Hubbell and continue to develop talent within Hubbell. I'd say to the second question of is this somehow an indication on our strategy. The answer is no. And in Akshay's case, it's refilling, backfilling that position. There's a lot of work you heard Bill talk about particularly in the Electrical segment, what we need to do still on our footprint. But equally, in the Utility business as we look to expand capacity, there's a lot of operational execution in those things as well. If you look specifically at the strategy on our two segments, it's something that we started to put in place, if you recall when I was COO. It was a model after the Utility business where we proved that to be very successful in bringing all those brands under a common structure. So, I would say a couple of years into that. I feel really good where we stand. There's still a lot of work to be done. And even as I've spent a little more time with those GMs here, as I kind of overlook at that business, why we look for a new leader there. I'm really impressed with the talent there. And so I'm very bullish on being able to execute that strategy in unifying that segment, and that will lead to a higher margin profile for that business going forward. And I think growth that we're also seeing that we'll be able to get out of that by operating more as a unified segment. So reinforcement to my answer of no.

Okay. I appreciate that. Maybe just then on Utilities, sort of maybe a two-part question really. First, was there a measurable storm impact in the quarter on the top line? And maybe more significantly, just on comms and controls and Aclara. What is the visibility on potentially uncorking this and getting around some of these shortages and driving some growth there? Obviously, it sounds like you expect T&D Components to still be strong in the next year. But your comp is tough, right? It would be nice to see Aclara finally catch a little bit of a tailwind there and begin to kind of fill in the blanks a little bit.

Yes. Yes. Great. Let me answer the first one and maybe hand to Bill the second question. Clearly, there was an impact of storm. I highlighted that in actually highlighting our team that really supports those efforts. If you look at the order impact, it was about $15 million, 1-5 million as a result of those two stores, that straddles a little bit. If you recall, the last one of those hit right at the end of the quarter. So that straddles a little bit -- two quarters. So certainly, there is always an impact to our business when we service that. As I've said, though, in the past, if you look at our overall business, it's less of a driver of growth than it is for us an opportunity to showcase to our customers. Why they do business with us? Why we matter to them? Because that's really where we shine is how we take an even during a time when our capacity is constrained, we really go above and beyond to service those customers with needed materials to rebuild the grid. So, a little bit of an impact to sales, but I'd say, more importantly, an opportunity for us to showcase our capabilities. And Bill, maybe, if you...

The second half of Jeff's question was around Aclara visibility. And I would say, Jeff, the first nine months were challenging for us to see the value proposition of the solution of the smart meter have great resonance with the customer base have so much demand there and yet perhaps the supply chain struggle to support that has been challenging. So your question is now around visibility going forward, and there's kind of two dimensions to it. One is chip supply loosen up here as we've seen some demand for consumer electronics start to slack in and we think that will evidence itself. And secondly, we have been spending a lot of time trying to validate alternative sources for the technology, and we're making progress on that. And so between those two avenues, we're hoping by the time we get together with you in January to talk more quantitatively about 2023. We'll be able to give you a more quantitative assessment of that visibility. But it approves -- it appears to us to be improving. And I agree with your last statement that will be quite welcome to have Aclara a growth and margin contributor.

Thank you. One moment for the next question. I have the next question coming up. The next question will come from Steve Tusa of JPMorgan. Please go ahead.

Congrats on a real bang up year. Great execution in a tough environment for sure. On the -- I guess, on the '23 -- or fourth quarter than the '23. On the kind of basket of costs you guys have and that you measure inflation off of. Maybe just remind us of what's stuff that -- what percentage is a little more sticky and what percentage is like truly variable and moving around with the metals. And then on the pricing side, just remind us of any kind of -- anything that's an index on the metals or anything like that, that's just kind of mechanical that moves around with raws prices?

Yes. So let's maybe start with the pricing half of it, Steve. I think that -- there's a reasonably small percentage that is specifically indexed and it's been much more kind of working with our customers to get the price increases through. And so, I think about your question on stickiness, there's probably a couple of points of price that can wrap around next year and be part of the incremental sales. And I think that's supported by the incremental price experienced in the third quarter. That's maybe an interesting gauge of given some of that stickiness to the price. And certainly, to the extent we come up on year-end and is a typical time we talk to customers about program pricing and blankets and all that. So again, at the start of the year when we get together to give you our formal '23 guidance, I think we can -- we can be finer on what we expect from price. But from the actions and indexing amount that we have in place, I think we see towards a couple of points. And on the basket of costs, if we were to simplistically describe that half of our costs are materials and that the inside of materials, there's a proportion that's raw and we can all see those prices every day. And then there's a proportion that has some bit of value add. At the far end, it would be a purchase for resale item at the skinny year end, it would be some kind of component that's been assembled or has some kind of value add to it. And I think on the raws, to your point, super variable comes right through, we can all track that. I think on the value-add part of materials plus the non-material part…

Right. So that bond on Slide 9. I mean, is that going to be like similar to this year? Or it sounds like it's going to be less year than it was this year?

Yes, I would expect it to be green, but obviously smaller, yes.

Yes. And maybe a couple -- another maybe addition to what Bill said is, we're managing right now in an environment where the magnitude of these changes are just much larger than what they would have traditionally both and how the cost is moving, how the prices are moving. And certainly, as we look forward, that's a little bit challenge. I would say our portfolio is generally well positioned to hold enterprise, right? We're a low percentage of the total cost of ownership, high cost of failure and that is it good for us. But on the other hand, the magnitude by which prices have moved gives us some pause to say that we'll be able to hold on to that no matter what. So it's that dynamic that we're trying to manage. I would say though, if there is some slippage of price, it would be associated with come down in cost, and we would still be able to manage to what kind of Bill said is net neutral or better as a whole. But I would say managing those pieces is a little tougher than it would have been in a low inflation environment for us.

Sorry, one last quick one. What's the fourth quarter embedded margin? And is that normal seasonality? That's my last one for the total company. Thanks.

Yes. The top line Steve, we're envisioning in the normal seasonality range and that's a function of having fewer shipping days -- that tends to be in the mid-single digits, fewer days and therefore, the same effect on sales. And so, I think that the effect of that will be normal seasonal impact on margins. And so, it does -- it is returning for us a little more to normal seasonality.

Thank you. One moment for the next question. For our next question, it will come in to you today, Thomas Moll of Stephens. Please go ahead with your question.

Gerben, the 2023 early preview is helpful and appreciated. And now, we can ask more questions on it, of course. Specifically on the Utility Solutions side, you did a good job framing some of the secular trends, the backlog trends you're seeing. We haven't yet talked about the recession sensitivity there. Can you help frame that for us, though? And is that a business or a segment rather that you can still grow top line even if GDP is down in the U.S. just given some of the positive tailwinds that you've called out?

Yes. I think you're looking at that in the correct way, Tom. And maybe I'll take a step back and first start to say what happened in the last time we saw slow because that's actual data that we have in the business. And what we tended to see in the Utility business compared to Electrical that it lags the Electrical by a quarter or two and then the decline was shallower and it came out quicker. So I would say that, that -- and that was driven at the time, too, by the need to invest in this area, there was infrastructure investments that were coming out as a result of that slow and that really benefited our business. So I would absolutely see that the same way. And I could argue that it's actually intensified the need to continue to invest in this grid, no matter what the macroeconomic conditions are. Of course, I don't think it's immune from it, when there is depending on how deep and how long and whether it's a consumer-led or whether that goes into commercial and industrial eventually, I would expect it to be affected but to a much lesser extent. And I do see the possibility that you kind of explored of can you continue to grow to an environment that there's a scenario that I could see that happening.

And as a follow-up, I just wanted to touch again on personnel, specifically on the Electrical segment leadership. Can you just give us an update on what kind of process you're running and potential timing for when there might be some news there?

Yes. So as we indicated in the press release, I believe this is an area where we're looking both internal and external. These are, of course a very important position on my leadership team. And I'm very pleased, both with the internal and external talent that we're seeing. I think an element of it is what I described earlier of that we're an attractive company. And I would say maybe we haven't always done the best job in describing what we do both to our investors as well as our employees. And I think as we get sharper and really highlighting why it is that were matter and what it is that we do. We find people interested in coming to join us. So, we are very active in this process right now. And I would expect that here in the fourth quarter, we will backfill that position.

Thank you. One moment while we get ready for the next question. I have a next question that's coming from Nigel Coe of Wolfe Research. Please go ahead.

Gerben, I'll send my resume. I'll put my hand in the. So just wanted to -- obviously, the residential down double digits, I think 20%, if I'm not mistaken -- 15%. Can you just maybe delegate between Lighting and Components? Was that largely just lighting or do you see pressure in components as both?

Yes. It is largely lighting, but there are some other components that we sell to the DIY market through big boxes. So, there is some of the other stuff, but majority is lighting.

And then if we then looked at ex-lighting, how are the margins are booked in natural systems?

How are the margins on resi products you're saying?

No, no, no. Well, yes, residential margins, but if we look at the segments and lighting, any sense on how that would look?

Yes, Lighting is a drag on the volume by a couple of points. And certainly, from a margin perspective, it is also a significant drag. So, it -- yes, ex-lighting margins would be larger and would be growing more because the resi margins have suffered as the volumes come down.

Okay. That's helpful. And then just one more for me. The restructuring, the upsize in the destruction, I think $0.10, if not taken. Is that -- should we think of that as a pull-forward from '23 actions?

Yes, no, it's necessarily a pull forward. It's in our restructuring. We have -- and I think we've talked about this drug, the supply chain issues. It's put some pressure on being able to both manage our supply chain and do a lot of these projects. So, I'd say it's more a program -- a multiyear program that we have outlined that we see the ability to do more of as some of those supply chain issues are easing. I would say they're not gone because we're still trying to balance our time between solving those and continue to invest in what will set up this electrical segment well in the future. So, I don't know it's necessarily pulling from '23 that it is a program that we're seeing we're able to accelerate a little bit here as we go through the balance of this year.

Thank you. One moment while we prepare for the last question. Next question is coming from Christopher Glynn of Oppenheimer. Please go ahead with your question.

So T&D, obviously, lots and lots of good commentary and then a little more good commentary. One thing I did want to ask about I think U.S. onshore wind investments down quite a bit this year. Is that a timing benefit to T&D investment where maybe some of the upgrades or front-running revitalization and kind of wind investment? It seems more like an afterthought question given all the positive commentary, but I wanted to ask about that factor.

Look, I do think there's some timing involved in wind deployment, decision-making. Some of the policies are getting involved there. And it kind of gives Chris, I would say, a little bit brighter near-term visibility on solar and yet I do think the wins in the medium term still is quite positive. I don't see that as having any special kind of predictive and I think renewables is an area that's been driving really good growth for us. And for us, it's just a question of -- is there a wind in there? Is there a solar in there? And we would say for the foreseeable future, there's -- we see renewable tailwinds on a combined basis with wind maybe getting -- maybe it's the wrong way to say a little more tailwind for wind in the medium term.

Okay. And a quick follow-up on residential lighting. I think the container costs are a big part of that, and they were super high and come down quite a bit. Are you still flowing through peak container cost in residential lighting?

No. As you observed, I think the costs are changing, coming back a little bit normal. I think they're little bit higher than they had been, but that will work itself through our chain, Chris. And so -- and you're right, it's a big variable to the business.

Okay. So you should see some improvement on that basis on the lag, the flow-through. Okay.

Well, there's benefit to that comes down then I'm not sure if you're looking for a net effect because you also have volumes coming down, which has a decremental effect. So you got -- you got a generally bad top line scenario and that kind of offset is in the COGS that you're mentioning, but the outlook is still is a little challenged.

Thank you. I would now like to turn the call back over to Gerben Bakker for closing remarks.

Great. Thank you, everyone, for your support, your interest and your questions on our third results and the discussion we just had. And we look forward to reconnecting with everyone again in the new year. So thanks again and we will see you in January.

Thank you all for your participation in today's conference call. At this time, you may all disconnect and everyone have a great day.