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Thank you for standing by and welcome to the Hubbell Incorporated First Quarter 2023 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] As a reminder today's program is being recorded. And now I'd like to introduce your host for today's program Dan Innamorato, Vice President, Investor Relations. Please go ahead sir.

Thanks operator. Good morning everyone and thank you for joining us. Earlier this morning we issued a press release announcing our results for the first quarter of 2023. The press release and slides are posted to the Investors section of our website at hubbell.com. I'm joined today by our Chairman, President, and CEO, Gerben Bakker; and our Executive Vice President and CFO, Bill Sperry. Please note our comments this morning may include statements related to the expected future results of our company and are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Therefore please note the discussion of forward-looking statements in our press release and 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 first quarter 2023 results. Hubble is off to a strong start to the year. Our first quarter results exceeded our expectations, driven primarily by three factors: stronger stick rates and realization on incremental price actions, effective ramp-up of recent capacity investments, and improved operational productivity. We are raising our full year outlook this morning to account for this outperformance, while maintaining a balanced view of risks and opportunities as we navigate a more uncertain second half. Our investments in capacity, innovation, and productivity are yielding strong returns and enabling us to effectively serve strong customer demand for Hubbell's critical infrastructure solutions. Most notably utilities continue to actively harden and upgrade aging infrastructure, while also investing to facilitate renewables and electrification through new interconnections and enhanced smart grid applications. We achieved double-digit sales growth in the first quarter as improved production output enabled continued volume growth, while leading service levels supported continued demand strength and price realization. Operationally, we achieved over 600 basis points of adjusted operating margin expansion in the quarter, driven by favorable price cost and productivity in addition to volume growth. While Utility Solutions continued to perform exceptionally well in a strong market environment, we are also very pleased with the operating performance of Electrical Solutions, which achieved strong margin expansion in a more modest market backdrop. We're executing well in our strategy to compete collectively as a unified HUS operating segment and we'll talk more about that later. Before I turn it over to Bill to give you more details on the financial performance in the quarter, I want to highlight a few recent accomplishments which demonstrate that our strategy and the investments we are making into our business are driving value for all our key stakeholders. First, Hubbell Power Systems and Burndy are proud to have been named Supplier of the Year by two of our largest electrical distributors in 2022 with strong demand and tight supply chains in the utility, T&D, and industrial markets, delivering on commitments to get customers the product they need when they need it, while maintaining consistent quality, reliability, and service is critically important. While the supply chain environment remains challenging, our ability to execute and our willingness to invest in production capacity and working capital has helped strengthen our long-term relationships with major customers. In our electrical segment, we're also pleased to have been recognized with Product of the Year award by major trade publication for two innovative product launches. EdgeConnect Screwless Termination wiring devices is a product line we launched last year which innovate on a 100-year-old product design, eliminating the need for installation tools and delivering 80% labor savings for installers. Burndy's Quickshear bolt is a new product for solar and wind markets, which eliminates the need for compression tooling and manual torque wrenches, simplifying conductor installation and saving the contractor time in the field. These are just a couple of examples of the investments we are making into innovation to accelerate Hubbell's organic growth profile in core markets, as well as strategic growth verticals. And finally, for the third consecutive year, Hubbell was named one of the world's most ethical companies by Ethisphere, a distinction that recognizes all of our employees for their dedication in upholding our core values each and every day. One aspect of those core values is our commitment to sustainability and as many of you will have seen in March, we released our annual sustainability report with refreshed multiyear goals to substantially reduce greenhouse gas emissions, water usage and hazardous waste by 2030. These new goals supercede our initial 2025 goals, which we achieved ahead of schedule. Sustainability is a core component of our business strategy, not just in our own manufacturing and operations, but through the impact of our products in making critical infrastructure safer, more reliable and more efficient. We continue to accelerate our investments in areas like T&D infrastructure, renewables, utility automation, electric vehicles and broadband communications, each of which offer attractive growth opportunities for our shareholders, while enabling Hubbell to further its mission to energize and electrify our economy and our communities in front and behind the meter. Now, let me turn it over to Bill to give you some more details on our performance.

Thank you, Gerb and good morning everybody. I appreciate your interest in Hubbell. I wanted to start by reminding us, when we were together in January, talking about our full year outlook. We established a couple of important components of a framework of that outlook. First was that, we were confident in our end markets that they would outgrow GDP, a function of some of the key electrification megatrends. We were confident that we were well positioned in those end markets with brands and solutions and people processing technology to continue to satisfy and service the customer. We felt that our pricing which is in response to a couple of year impact of some inflation had us set up well for 2023 with a couple of points of wraparound. And we also stated that our visibility to the first half was better than the second half and so it's important for us to get off to a good start and we were trying to be explicit that we had a front half-loaded outlook as a result of that second half uncertainty. And as Gerben had said my comments, I'm starting on page five of the materials we exceeded our expectations significantly in the quarter. You see sales of $1.29 billion, 11% growth was the sixth consecutive quarter of double-digit growth in sales for us. I think pretty good indication of solid demand out there. Right now that, demand is notably skewed towards the utility side of our business versus the electrical and we'll talk a little bit more about that as we unpack the results. OP margin of 20.7% that 20% level kind of a milestone achievement for us and really driven by some of the price cost drivers that -- and productivity that Gerben had mentioned. Earnings up 70% to $3.61, nearly $1.50 almost of new earnings generated versus the prior year period end. Cash flow this is typically a seasonal low for us at the very beginning first quarter, but a nice amount of cash being generated because of the income that we generated. So on page 6, let's drill down a layer into that strong performance. Starting in the upper left with sales, the 11% growth is comprised of high single-digit price increase and low single-digit volume increase. The volume varied by segment where it was quite flat in electrical and very strong growth in utility. The OP on the upper right, you see an increase to $267 million of OP, a 66% increase over the prior year. And again, at that 20% benchmark level. Earnings per share grew just a little bit more than the operating profit driven obviously by that profit, but also taxes were just slightly lower this period. And on the net interest expense line we have our interest cost in the form of our bonds are fixed versus the cash we have earns variable rates. And with rates rising, we earn more income so reduced the net interest expense. So you got a little bit favorability below the line and inside of earnings. And the cash flow there you can see the compare to last year. Right above it you see the amount of income becoming more cash flow. And quite important for us to have the cash to leave us in a position where we're poised to support our investment. We are keen to continue to increase CapEx. We think there's excellent growth opportunities for us on the utility side and continues to be good productivity opportunity on the electrical side, as well as to have more capital to support investing in acquisitions and we'll talk about a couple of the acquisitions we've done and how they're doing since we've brought them on. Let's unpack those results by segment, and you'll see different profile here as we go through. Utility right now is the engine driving the Hubbell enterprise. We find ourselves with a very constructive set of market dynamics coupled with a really excellent positioning and a best-in-class leading franchise that we've constructed over the decades here with components, communications and controls really from the backbone to the edge and a really, really strong franchise that's performing really well in these market conditions. So starting with sales, the 20% growth in sales to $782 million is comprised roughly half from price increase and half from volume gains. The volume was skewed more towards the transmission and distribution component side versus the comms and control side. We feel that the CapEx that we've been investing to add capacity has allowed us to grow sequentially and year-over-year. And that's been really helpful. I think besides helping us grow, it's helped us manage service levels. And the feedback we keep getting from customers is that, service level is beating that of the competition. And I think, those service levels in turn are reinforcing our value proposition and help us support a pricing environment as well as we believe leading to some share gains on the volume side. On the Communications & Controls you see 4% growth there. You'll recall that through much of last year that was bumping along flat. And so we may be starting to see a little bit of buying in the supply of chips, allowing those meters to get built and installed. And we're looking forward to more of that as we go forward. On the operating profit side, 87% growth to $191 million, you see almost $90 million of new profit generated by the segment, just a really impressive financial performance for them. You have lots of things going right. You have price and material being positive. On the pricing side, that's a multi-quarter trend that you all have seen. On the material side, actually a little bit new to see that there was actually some tailwind that came from materials as opposed to we had been facing inflation all of last year on that side, so both of those contributing tailwinds which as you see pushed up margins impressively. The volume that we enjoyed dropped through at attractive incrementals that helps push the margin up. And we've been talking to you about the impact of disrupted supply chains on -- impairing our productivity last year. And we're seeing some return to normalcy in some of those dimensions where that productivity is starting to come back and be positive, so a lot of drivers really helping lift the margin and propel the results of the utility segment. We thought it would be helpful on Page 8 to maybe give a multiyear view of how the demand pattern has looked and we've shared with you here a picture of the backlog. And what you can see is starting really at the beginning of 2021, a very significant and sustained increase in the backlog on the utility side of distribution and transmission components. It's obviously driven by the fact that the demand exceeded our ability to be able to make and ship a like amount of material. And one of the reasons we wanted to show you the page is we feel that that level of demand is not the norm and would not be a sustainable level over the long time. Essentially, I think we see their pattern was responding to longer lead times and the fact that we were in an increasing price environment both of those phenomena I think caused people to put their orders in earlier than they otherwise might, and that's evidenced and supported by the fact that there's quite a bit of content in this backlog that's dated longer than 90 days. And so what we expect is that as we start to get the supply chain normalized, get our lead times normalized and bring those factors down, we think we'll be enabling our customers to get their orders put in with the anticipation that get the material much faster. And so our anticipation is that the order rate can come down and we'll be reducing this backlog to get it back into balance and what we feel over the medium and long-term is a mid-single-digit sustainable book-and-bill order and ship rate. And so we really wanted to show you this page. It's part of what gives us the conviction to raise our guidance that Gerben mentioned at the top. We think this momentum you start to create visibility through the better part of this year. And so it gave us the confidence that we could give you that increase in guidance. On Page 9, we switch to the electrical segment. And you'll see very strong profit performance an increase of 30% to 15% margins, $76 million of OP on flat sales. That flat sales includes an acquisition of PCX, which just to remind you was a very intentional increase in our exposure to the data center space. That business is based down in Raleigh. And Gerben and I and some of our partners had the opportunity to go visit the team last week in Raleigh and it's great to see them fly in the Hubble flag at their facility and see how excited they are to be part of the Hubbell family and the greater resources that we have, which they believe is going to enable them to be a more capable competitor. So welcome those folks to our family. The counter is that the organic part of electrical was down a little bit. We saw softness in residential at the double-digit level. We had strength in our industrial markets and notably some of the verticals we've been calling out in renewables and data center and telecom. And I think one way in a time like this, besides the compare to prior year is to also look at the sequential trend in demand and sales. And typical seasonality for us is to have the fourth quarter lead to a slight decline in the first quarter of a couple of points. That would be typical seasonal progression. And the fact that it's flat this year is a favorable compared to that typical season and leads us to believe that demand is in fairly healthy shape there. But I think more impressive for us on the electrical side was the margin performance and similar to utility, very good price material performance, same improved productivity where the plants are becoming more efficient after dealing with some of the inefficiencies forced on them by the pandemic. We also thought on page 10, it would be worthwhile to show you how we are building around some of these identified verticals. And you'll remember at Investor Day and Gerben mentioned in his comments, we're trying to compete collectively in the electrical segment. And at Investor Day we shared some of the benefits of transitioning from a three vertical silo segment to a single segment. We think there's efficiency gains, but also importantly effectiveness gains. This is an example of the ability to be more effective. So we organize around the renewable in this example, the renewable vertical. And again to remind you, so this is solar and wind applications. We're not making solar panels. We're not making wind turbines. Our approach is around the balance of system of components that those applications require. And those balance of systems, can come from different business units across our electrical segment. So, the trick is to get the sales force to be very effective at cross-selling to get the marketing team, focused on helping to solve customer problems to get the capital flowing toward new products development that can come out of that improved voice of customer that the newly organized sales force get. And Gerben mentioned, a couple of these products but good examples of us being able to serve a vertical more capably when we compete collectively as an electrical segment. We thought it noteworthy to show you that in just three years at the bottom, we've been able to double our performance in the vertical to about $100 million of exposure and we anticipate similar amount of growth as we move forward. I think also think of this as a model of other verticals that we're intending to become more vertically oriented around, including data centers, telecom and electric vehicles, all of which we're using similar techniques to become better and more effective. So how does this performance and all that we're doing how does it compare to what we said when we were together in January and where does it take us as we look out? And to us important for us to share with you where do we see improvement, where do we see things the same and what is still uncertain. And on the improvement side, it clearly starts with the pricing actions. So actions that we were contemplating at the end of the year and implemented in the new year had stick rates far above historical averages and far above our expectations. I think it's an example of the channel really endorsing and embracing these pricing actions and that created a big improvement. Additionally, you recall our CapEx has gone from about $100 million to the ballpark of $130 million last year. We're anticipating taking it up to $160 million this year. Those big improvements in CapEx are paying off and our ability to ship more volume. And certainly the productivity that was impaired a little bit last year by our labor being not available on a consistent basis, materials not being available on a consistent basis and transportation likewise not being available on a consistent basis made it very difficult to plan and execute inside our plants. And we're seeing those conditions improve and we're seeing as a result productivity improvement. So all of that is causing us to raise our sales and margin outlook. What's the same is utility demand and the market strength we see continuing. We showed you evidence of that order pattern in the backlog page. The electrical markets continue to trend. And as we said, having a favorable compare sequentially to the fourth quarter, we think is a good sign of demand. And we still believe that we have a significant part of the portfolio is going to show resistance to consumer-led recession effects that includes both utility side transition and distribution components, but it also includes elements on the electrical side where both industrial and some of those verticals inside renewable telecom and data centers we expect to grow through any macro. But on the uncertain side on the right, we still have uncertainty in the second half. We think we see good momentum to the second quarter, which gives us some confidence. We still are working through channel inventory levels and making sure that what our customers have on the shelves is aligned with what they know they can move and making sure they have the confidence to keep putting orders in with us to sell through. I think the non-res end markets whether they're impacted by any macro uncertainty, again, we don't see signs of that yet. But we read the papers just like you all and know there are concerns out there. So that's causing us to have some conservatism as we think about the second half. In other words our guidance that Gerben is about to talk through is not the first quarter seasonally extrapolated through the year. It involves good momentum into the second and then some caution around the second half. So I'll turn it to Gerben to quantify our outlook for you.

Great. Thanks Bill for those additional insights on our results. Hubbell is raising our 2023 outlook to an adjusted earnings per share range of $13 to $13.50, representing approximately 25% adjusted earnings growth at the midpoint. This outlook now assumes 8% to 10% total sales growth and 7% to 9% organic growth for the full year consisting of approximately equal contributions from price realization and volume growth. We continue to expect full year free cash flow conversion of 90% to 95%. This updated outlook incorporates a continuation of strong fundamental performance from the first quarter, while also maintaining a balanced view of risks and opportunities. It also enables us to accelerate our investment levels to support high-return capacity, footprint and innovation projects over the balance of 2023. We believe this balanced view should enable us to achieve our outlook in a range of macroeconomic scenarios. Not only is this updated outlook well ahead of our expectations coming into 2023, but it also puts us on the path to achieve our 2025 targets, which we laid out for you during Investor Day last summer two years ahead of schedule, all while accelerating investments back into our business and without substantial benefit from capital allocations. I am proud of our employees for the results that they are driving for our customers and shareholders and we remain committed to delivering differentiated results over the near and long-term. With that let me turn it over to Q&A.

Certainly. [Operator Instructions] One moment for our first question. And our first question comes from the line of Jeffrey Sprague from Vertical Research. Your question please.

Hi. Thank you. Good morning, everyone.

Good morning, Jeff.

Good morning, Jeff.

Hey, just a couple of things. First just on utility. Is your remark about mid single-digit kind of the continuation off this new hire base, or do you foresee a time frame pick a year maybe next year where revenues actually have to sag a bit to kind of normalize things?

I mean, we're anticipating it's off of the new base Jeff, but it's certainly something where we'll continue to be watching that graph we shared with you comparing orders to shipments. But there does appear to be adequate backlog to -- in order to continue to grow off that base level.

And then just on electrical margins are we beginning to see also some of the kind of restructuring and plant realignment coming to bear here in these margins, or is it just really more kind of a very favorable price cost dynamics and maybe...

Yes, I would say -- I would say Jeff it's more the latter i.e. more of the price cost and productivity that I would call being driven by the normalizing of operations inside the plants. I think that some of the efficiency that we'll get through integrating into a single segment is actually still in front of us.

And I'll leave the utility question to someone else. Gerben, lighting. This would seem like an ideal time to execute an exit of lighting, while you're just crushing it in utility. I just wonder your thoughts on that how important the business is? Is there kind of a way to at least make it less important even less so important than it's been recently?

Yes. A lot of thoughts in that one, and let me just maybe give a couple of comments on it. First, maybe just set the perspective on that business. It's single digits revenue part of our business. So quite small. It operates at the lower end of our margins and margin expectation. It's been particularly challenged the last year plus when container rates which this business depends heavily on escalated 3x, 4x, 5x. The good news is while volumes are down and the markets clearly and resi are down the business is recovering quite well with costs coming back in line. But all that said, we take the responsibility to look at our portfolio quite seriously and you saw that we executed the C&I lighting business. I would say that in our portfolio was much more of a challenge in what our strategy was going forward. But we're active on this Jeff not just in the example that you may get of a resi lighting, but other product lines skew actions. As a matter of fact part of what drove the electrical margin slightly better this quarter was a conscious decision to exit some low-margin business switched that partially to higher. So it had a net revenue hit by the net margin accretion. So I don't ever say, this kind of consideration is off the table. We talked about some of the areas that it does help us particularly with our digital strategy. But if this business is more valuable to somebody else, we would certainly consider our options.

Great. Thanks. Much appreciate it.

Thank you. One moment for our next question. And our next question comes from the line of Steve Tusa from JPMorgan. Your question please.

Hi, guys. Good morning.

Good morning, Steve.

Good morning.

Can you just maybe give me us an update on some of the absolute numbers embedded in the bridge for the year price cost and productivity or anything else that on the quarter maybe just this quarter just absolutes.

Well, let's -- so let's start maybe with your first half, which was thinking about the bridge to the year. We had started in January thinking that there would be about two points of wraparound price. That's obviously improved. And as Gerben said about half of our new sales guide is price. So that's a step-up from a couple to more in the single-digit of absolute. And I think that's a pretty big thing. As long as -- it's been interesting watching the cost curves where we basically we follow steel the most closely, Steve, and copper and aluminum have behaved a little bit like it where you saw a peaking back in the fall 2021 and a troughing at the end of 2022 and then a kind of reinflating now in the new year. And that's kind of coming through now finally, as actual tailwind. But it's possible ultimately that that could -- as we're seeing inflation, that could kind of inflect a little bit. So, it's easy for us to isolate price, little harder to nail down price cost because of that cost dynamic. But I think that's the biggest, absolute piece that's in there.

So, like I thought before, we had like a negative 90 of cost or something like that. I don't know, where -- if that was a number you guys put out there or not. But – so, are you saying that that's like basically price cost or the cost side of that is, now like just basically modestly positive for the year?

It's -- we got it positive in Q1. The way we're looking at it, we're anticipating a reasonably flat and benign contribution, from the cost. So, it makes the price a little more drop-through rather than being absorbed. Now, you still have other inflation obviously, in nonmaterial places like wages and things like that. But the material and pricing equation has really improved, quite a bit.

Your understatements are legendary, at this stage a little more I think, it's a little more than a little more. But the last question, just on the electrical volumes. Were they down like high singles year-over-year, in the quarter? And I guess, that's obviously, not all resi. What else would have been down to drag that down, or maybe it, was all resi.

No. Resi – yes, your calculation is right, resi at double digits and being the percentage of the segment that it is, represents a couple of points plus of that. But that still leaves others. And so there was spots inside the commercial business Steve, where we started to reduce our lead times. And we started to see our customers managing their inventory. And kind of that sort of relates to I think Jeff's first question, right, where as the customer gets their inventory normalized, is there a period where you see maybe an underordering of a couple of weeks that affects things. And I think, that's what we saw in some of our commercial businesses.

Makes sense. Okay. Thanks.

Thank you. One moment for our next question. And our next question comes from the line of Tommy Moll from Stephens. Your question, please.

Good morning and thanks for taking my question.

Good morning, Tommy

I wanted to start on your revised revenue outlook, so up several hundred basis points from when we spoke last quarter. If we look at it by segment, last quarter the call on the utility side was for mid-singles plus, for the year and on the electrical side, low singles both on an organic basis. You well exceeded that on the utility side and came in light on the electrical side, at least for the first quarter. So could you just refresh us on, what the full year framework is like on either side of your business?

Yes, we've been quite careful to not reparse this framework into the two segments. But between them, we're thinking that volumes can be mid-singles. And I think that will be, obviously, skewed towards utility being the heavy contributor there.

Okay. May get a similar answer here, but I'll try anyway. Just specifically for your non-res exposure in electrical, if volumes there were down in the first quarter, it sounds like there's incrementally more caution in the second half of this year. So my assumption would be that your base case is for the volumes there to trend pretty consistently negative through the year. But if you could just comment there and also, just anything that's changed versus last quarter.

Yes. We're not -- I'd say, let me just restate a couple of things. One is, I don't think we are increasingly cautious on the second half. I don't think we have that. Secondly, I think that one of the interesting elements of seeing the electrical contract a little bit in Q1 is a function of the fact that they grew quite dramatically in the first quarter 2022. And their sequential ramp up from the fourth quarter, which, as I said, typically comes down, was up significantly last year. So we had this really hard compare, Tommy. And so, to answer your question, to me, it starts to get a little more reliant on sequential analysis and the fact that, we were flat from 4Q to 1Q suggests to me some favorability. But as the compare won't be as hard as we go forward. So, I think, that informs sort of our outlook. But I wouldn't say we've increased our caution in the second half.

And maybe adding to that a little bit, just to give you some insight into the complexities that we're working through and the thought process that we are -- for this, as supply chain normalizes again and we're now seeing that in parts of our business, specifically in some of the non-res businesses, you're really dealing with a couple of things. One is, just by the fact that lead times coming down should allow customers to not place orders for a little while and then place them again. The second component that's going on at the same time is, when these lead times are coming down, the supply chain becomes more predictable. Customers and distributors don't need to have the inventory levels that they needed when there was a lot of uncertainty. So at the same time, we're seeing some of the inventories coming down. And managing both those dynamics is what creates some challenges for us to fully understand at what level is each distributor doing this; some are, some aren't. Are they really following the lead times down, or are they still nervous and placing out? So there's a lot of complexities in it, which is why we're taking a more cautious approach, kind of, going into the second half for these dynamics.

I appreciate it and I'll turn it back. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Josh Pokrzywinski from Morgan Stanley. Your question, please.

Hi. Good morning, guys.

Good morning, Josh.

So, apologies, I missed a little bit in the prepared remarks, the call kept dropping. But I just want to dig a little bit more on the utility side. I think even at the start the year there was some signaling that maybe things could be a little bit better. You saw like the EEI CapEx forecast looks pretty healthy, which is seasonally atypical. But just trying to get maybe my arms around how much of this is customers kind of preparing to do work and maybe building up some inventory. How much of this is maybe stimulus-related something like IRA. Because we've been in this environment of grid hardening and grid investment for a while and this is just a big step function change. So trying to pin down how much of this is kind of episodic versus run rate?

Maybe I'll start Bill and add -- I would say, if you look at the underlying demand in the utility, it's still very strong. And we've seen that throughout the last couple of years ramp up. And we believe that that fundamental longer-term demand what Bill talked about mid single-digits is still very much intact. Our improvement has been truthfully more driven by our ability to bring up our production capacities with some of these investments that we're making we're not able to ship more. You can see that despite all of those efforts with the chart that Bill showed you that backlog has still not come down, it's actually flattening a little bit and that's something we are expecting as we ramp up production in this lead times come back. And so I would say, we're still very bullish on the fundamentals here. I think the infrastructure builds are actually very early. We would expect more of that impact to come into next year and the next couple of years. So yeah, I don't think the increase is unusual by the actions that we're taking. It's just coming up a little faster than we anticipated with some of these investments that we're making.

I think Josh if you -- we were thinking it should be mid-single. If you take price out this is sort of high single to double-digit volume. So I do think can't prove this, but I think we have a little share gain involved in this. So partially, I think we're outperforming the market just because our service levels and our capacity is a little bit better because we've supported it with the investments that we needed to. You asked about projects which is an interesting question, because I do think the transmission side is quite healthy. Transmission tends to be more project-driven. It has a more forward look to it. But net-net, do I think utilities are like stockpiling long-term project partial inventories before they install it? We don't really see any evidence of that. So I think it's -- I guess I would say -- I'm not sure if this is -- but I would respond to your question saying I think the demand is a little bit stronger than the mid-single that we think is the long run. I think we've got a little bit of share and that's kind of working out to our advantage and is frankly compelling us to continue to invest the CapEx in the business because the margins are there to generate really good returns for this incremental volume that we can get.

Got it. Super helpful. And then just with kind of all the consternation around commercial construction. I know it's hard to follow every cable gland all the way to the job site. But any sense for what percentage of the business we should think about as kind of true new non-res construction versus something that may be kind of away from the commercial element or more I'll call it retrofit and maybe not as dependent on something like they verified.

Yeah, I think the answer to that is it's about two-thirds new and the balance is rental. And I agree, yeah, that's an estimate on our part.

Got it. Okay. Thanks all. I leave it there. Best of luck guys.

Thank you. One moment for our next question. And our next question comes from the line of Joe O'Dea from Wells Fargo. Your question please.

Hi, good morning.

Good morning Joe.

Hi. I want to start on margins. It looks like the guide is implying that margins for the full year would be lower than where you were in the first quarter. It doesn't sound like any of the commentary about the second quarter would suggest that we'd see something like that. So one just to clarify that? And then two, what you're thinking about in terms of the back half of the year and what could contribute to margins maybe coming in a little bit lower than where you were in the first quarter?

Yeah, Joe, so let's start with your first point, which is that we do see momentum into the second quarter that we think is first quarter-like in terms of that, so yes. Secondly, the way this guide works, you're right it's not just seasonally taking the first half and using the typical growth in margins off of that. So we've injected caution just because we don't know. One of the things we're expecting is to invest more in the second half and that will be a combination of growth investing in and productivity investing. But just I think we felt, we have decent visibility to the second quarter. And it feels like it gets more opaque to us. I think if I were to maybe rephrase your question and say if the trends continue as they are in the first half into the second, we would actually do better than this guide. So the guide is just has a cautious second half. We think out of prudence, we don't want to get our cost structure out too far ahead at the same time. If there is growth in volume there, we're going to -- we feel very confident we can get our share and more than that. So I think your observations are very accurate.

Yeah. And I think as Bill stated during his prepared remarks, a little bit of the first quarter is a lot of things going in the right direction for us both the pricing that carryover the new pricing that we implemented at the same time that we saw some of the commodities actually going down. Some of that is reversing. So we're seeing commodities actually going up and that would be certainly a slight headwind for the second quarter. The other one is around pricing. And our view on pricing is that we've generally been able to hold on to it longer rather than shorter. I think in this environment that's particularly going to be true. But the magnitude of some of those price increases has us a little bit cautious too there. If materials stay down can you hold on to those prices longer term? And then the last part is around what I talked about of as supply chains come back in what happens on a more shorter-term basis with inventory levels and how to manage through that. So just a little more uncertainty going into that second half with some of these variable that has us a little more cautious. But, yes, it could be better.

I appreciate all those details. And then also just wanted to ask about, sort of, maybe more opportunities on the cost side when you talk about commodities getting a little bit better obviously monitoring that, but also just smoother operations. Presumably your suppliers are seeing some of the same types of benefits. And so just wondering how you're approaching that dynamic if you see opportunities to, sort of, go to your suppliers and sort of look for a little bit better kind of cost profile.

Yes, absolutely. We're active in that I would say not just with the supply chain, but we're increasing our focus. And this will be throughout this year this will go into next year on productivity to bring that to a higher level. We've really struggled throughout the pandemic with productivity. The factories weren't running smoothly and our supply chain was disrupted. So we're focused. And one of those focuses is exactly what you said it's going back to our suppliers and looking for cost out. The other thing that I will say in this goes in part of the investments and could go -- will partially go counter to what I'm just saying is we're also spending a lot of time to improve the resiliency of our business resiliency of supply chain. It's at the end what earns us a slight premium in the market. It's our delivery and our ability to service our customers. And we're doing quite a bit of work to strengthen that supply chain in cases reshoring it in other cases finding duplicates sources of supply. And that at times has a cost actually increase to us to do certainly investment with tooling, but it's one that will serve us well in the longer term and will help us taking some of that premium in the market. So a lot of work and works going on.

Thank you. One moment for our next question. And our next question comes from Nigel Coe from Wolfe Research. Your question please.

Hi. Good morning. Thanks, guys. Thanks for the question.

Good morning, Nigel.

Good morning.

I want to probably rethread some of the -- maybe re-ask the seasonality question in a slightly different way. Obviously, utility margins were gang busters. When you go back in time you'll see the 1Q margin utilities is normally the low point for the year. Clearly, the guide doesn't embed that. So just curious what could basically happen to materially break that trend in the margin? Is there anything funky or onetime issue in the 1Q margin utilities? Just really curious what are you seeing on the margin line for utilities as we go through the year?

Yes. I would say Nigel, we really don't have a lot of noise or one-timers in those margins. I would say if you took a typical four-quarter Hubbell year seasonality-wise there's less activity installation of our material in the first and fourth quarter, and more in the second and third as a result of weather. And those volume changes typically drive incremental drop-through such that you get the pattern that you just mentioned. So part of what's different is we're operating at capacity right now, right? It's -- there's no -- there's going to be no seasonality in the sense of as the weather gets better we'll be able to ship more because we're kind of cranking away. I think the second is again thinking about price/cost as a net number. And we sort of had both variables break right here in the first quarter with price being very strong as we said the channel being very supportive. And materials a combination of commodities and components and PFR actually being for the first time in the last few years actually being a tailwind. And we're not anticipating that tailwind to continue Nigel. So, as we saw the commodities pick up starting in the new year we're thinking that will be inflation to us. So, it is -- I know what you're saying when you look at a typical year it has that seasonality and you think things are getting better from here to us. We may be just in a little more of a sequential kind of analytic framework than BPY because we're kind of building off the first quarter.

No, I agree with that. Thanks for the color Bill. And then we talked about residential and commercial. Data center is a relatively small market for you guys but it's growing and obviously will continue to grow. What are you seeing in that market? Because there's a lot of chatter about weakening trends. Just curious what your perspective is on data center?

Yes, I mean I think maybe because -- maybe because we're small we still -- even if the FANGs are firing people, we don't -- you can read that as, oh man, they're not going to invest in data centers. And we just think they were maybe in the pandemic overstaffed themselves as the war on talent kind of made them all hire each other's people a little bit. So, we're sort of looking more as they're specking out these new data centers. I'd say they continue to revisit designs and they really are focusing on speed. And that's what they're saying to us. And it's possible Nigel that because we still are kind of enhancing our footprint here through better vertical sales force better balance of systems with products this new acquisition is giving us quite a lot of visibility at the front end of projects. So, I'm not sure if I'm saying we're bullish because maybe we're coming from a small share but it just feels to us like we see years of runway still and that may not be as much a market commentary as it is our franchise maybe.

Thank you. And our next question comes from the line of Chris Snyder from UBS. Your question please.

Thank you. The company produced a very strong 35% gross margin in the quarter. I know that there is some seasonal impact and obviously very strong price/cost. So, I do just kind of curious what you guys think is like normalized gross margin for the business. And I also believe you said that relative to February, the expectation is for a bigger price cost tailwind this year. And that comes despite metal reflation over the past couple of months. So just kind of curious for more color on that. Thank you.

Yes, Chris. So maybe let's start with your price cost. Yes so, the pricing actions that we were taking at the end of the year that we didn't have insight into their stickiness, when we shared our full-year outlook at the end of January, it was a much better take-up than we expected and much better than historical average on price increase take-up. So the price side of that is quite a bit bigger. And then it really does dominate and overwhelm what will happen from the amount of inflation that we've seen in the New Year on the materials side. And as I think, Joe was asking beyond materials, we've got to do a really good job of working our suppliers and making sure that any lower material cost they got in 2022 that we're – that's getting passed through to us. So we've got to do a really good job to make sure that that cost side is managed Chris. But I do think – I do think that the price cost, which we had two of price when we last talked about this we've added a couple of points to that and that's quite meaningful.

Thank you. I appreciate that. And then if I could just ask one more quick one. For T&D, the expectation that there's long-term mid-single-digit sustainable growth. So I was just kind of curious, when do you think the business will kind of compress back to that level? Is that like a 2024 expectation or do you think you could still realize outsized growth even through next year as well? Thank you.

Yes. I think the – Josh had asked about stimulus and we're not seeing a ton of direct impact of the stimulus. Yes there's lots of planning around it. I think it is true that our customers are feeling that there's funding there. And so maybe in the absence of the stimulus Chris, we might see that mid-single digits maybe materialize in 2024. It's also possible stimulus will give us a little lift for a couple of years. But that's a – that's a little bit outside of our crystal ball right now.

Thank you. One moment for our final question for today. And our final question for today comes from the line of Christopher Glynn from Oppenheimer.

Thanks for squeezing me in and congrats on rocking start to the year. So just had a follow-up on the accelerated price realization in the quarter, particularly in Utility Solutions. There's a long-term dynamic where the utilities get rate increases to fund regulatory required CapEx imperative. So, I'm curious you're talking about expanding capacity a lot there. Is that dynamic starting to shift to you where utilities are kind of goading you in a sense to continue that capacity investment?

I would say encouraged, I would use rather than goaded, but we have strong to violent support from them that they're eager that we do that. I would say, they're backing that up I think by giving us a little more share in the short term, such that that's encouraging us further. But for sure, they -- there's even a case where Gerben can tell you, where he wanted Gerben to get into some lines of business that we don't even have, just because they're looking for the lead time management to get better and they're thinking that we could do a better job. And so, yes, there's a lot of what you're saying going on.

Yes, absolutely. And the nice thing about our position in this is that, we have direct engagement with a lot of the end users, right? So we have firsthand insights and Bill mentioned an example of a CEO. That actually happened a couple of weeks ago in the conversation, but we have many of these conversations. So our insight into where the demand is up and how sustainable or not that is quite good. And that's why we're making the kind of levels of investments that we are right now in that -- particularly in the utility business, so.

Thanks, talk soon.

Thank you. This does conclude the question-and-answer session of today's program. I'd now like to hand the program back to Dan Innamorato for any further remarks.

Dan may be having a technical difficulty. So he would like to close the call and tell you all that he's going to be around all day and all week to answer questions as you may have them. So, appreciate your interest. Thanks for attending.