Q2 2020 Hubbell Inc Earnings Call

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Thank you for sending buying walk on today.

Second quarter 2020 results call.

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Dan in number Righto. Thank you. 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 nor are president and Chief operating Officer, Gerben, Bakker, and our executive Vice President CFO Bill Sperry.

But one of the second quarter results for 2020. This morning, the press release, a size or post at the Investor section or website at Www Dot Hubble Dot com.

Please note that our comments. This morning may include statements related to the expected future results of the company that 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.

In addition comments May also include non-GAAP financial measures those measures are reconciled the comparable GAAP measures that are included in the press release in the slides now let me turn the call over to Dave.

Thanks, Dan and good morning, everybody. Thanks for joining us to discuss our second quarter results for everybody taking the time.

It's certainly been an interesting 90 plus days since we were last in front of yet and I think there's a lot to cover today. So I'll start my comments on slide three with a brief summary, or what you know I think is another strong quarter of operating performance and free cash flow generation for us.

No. We clearly saw the impact of covert 19 on the economy, our end markets in our operations.

But we continue to focus on what we can control and we effectively navigated through a quarter of significant volume declines down 21%.

But still ended up with margin expansion and very robust free cash flow.

You'll note that our free cash flow is at this point from the year more than halfway to our full year goal, which those of you. Following us know that that's not our typical trend.

And Bill will talk more about that a little while.

Our operational transformation continues to provide benefits with attractive savings on the investments we've been making in our footprint optimization.

We continue to execute on price cost.

We were proactive in managing our cost structure in the second quarter.

Looking ahead, while things continued to show signs of improvement you know we continue to see some uncertainty in our volume outlook for the second half.

With the timing and magnitude of recovery still to be determined.

So we think our utility facing end markets will remain resilient as critical grid infrastructure needs to be upgraded it maintained.

And electrical markets, while challenging continued to improve.

Overall, despite continued market volatility.

We're well prepared to manage through a range of scenarios, you'll recall, we walk you through our recession playbook last quarter.

And talked about how we've historically performed well through past downturns, given the less cyclical nature of our utility business and our ability to execute on margins and free cash flow.

Saw evidence of that in the second quarter, and we feel well positioned for the second half.

Turning to slide four I think it's important to look back on our approach to navigating through covert 19.

And revisit the commitments, we made to our employees our customers and our shareholders.

We successfully implemented a rigorous set of protocols to keep our employees safe, while we continued to provide our customers with the essential products they needed to operate critical infrastructure safely reliably and efficiently.

And I can say, even from my own experience being in our offices since the beginning of June I think our protocol as I feel very safe and I think our employees should feel very safe when they come back into the office.

We did experience disruption or supply chains in the second quarter as expected, but all of our facilities are currently operational.

And were able to continue providing customers with the save low quality and reliability they've come to expect from hobble over decades long relationships.

Importantly, we're also committed the proactive actions to manage our cost structure.

As possible employees across the enterprise made sacrifices recall in reduced compensation and other cost reductions.

Finally, we committed to preserving our strong liquidity position and after another strong free cash flow quarter. We believe we're well positioned with approximately half a billion dollars in cash sitting on our balance sheet at quarter end.

While we laid out our second quarter financial framework, we believe that a detrimental margin in line with our gross margins at around 30% would have reflected solid performance and we did significantly better delivering decrementals of only 14% in the quarter.

Looking ahead, while the impact of covert 19 is significant we believe there is still a long way to go before this pandemics behind us.

We're proud of our employees for the way they stop adapted to a new environment.

Some people say normal environment, but the new normal but this is far from normal. It really is just a different environment that we're working through.

And we're doing that while still delivering strong execution and performance.

We're going to continue to take steps to effectively mitigate the near term impacts of the pandemic, while preserving long term value for should publish our shareholders.

Before I turn it over to Gerben to talk about in more detail the segment results and our financial performance I want to give some additional color on the press release from last night.

Announcing a change to our operating structure and the consolidation of our three operating group groups within our electrical segment into a unified electrical solutions segment.

It over the last year Gerbrand I have been working closely and as he has got more insight into the rest of the businesses.

East identified opportunities for us to continue to streamline and and address our organizational structure.

And we agree that there's significant opportunity in better optimizing our scale across our electrical offerings to develop integrated solutions for our customers.

The formation of a unified electrical solutions segment will benefit our channel partners and customers through increased ease of doing business as well as improved innovation and development of integrated solutions.

It's also going to generate a more streamlined organizational structure, which we expect to generate productivity benefits.

Certainly in evaluating our portfolio. We believe this operating structure best positions us to fulfill our purpose as a company, which is to enable our customers to operate critical infrastructure safety safely reliably and efficiently.

We're uniquely positioned to solve these problems as the only company with leading positions across the energy infrastructure, including behind the meter in front of the meter and at the edge of the grid.

You'll recall that on on page five a slide that we showed at our Investor day back in March gives us the unique opportunity to leverage our installed base to generate insights from the transmission and distribution of energy consumption of energy and the ability to collect analyze and control energy data similarly to our.

Our integrated operating structure in our utility solutions segment, which we described at our Investor day back in early March.

The next phase in our evolution. We believe is in the unified electrical solution segment, it's going to allow us to more effectively target attractive new market segments.

And develop differentiated offerings for our customers with increased speed as the markets evolve.

At a faster pace through this pandemic environment.

Importantly, weve identified a named a leader who we think is uniquely capable of delivering on that vision and Peter Lau. Peter has extensive leadership experience in a strong track record across other multi industry companies, particularly in the commercial building space and we're confident he's the right person to help lead this business into the future.

With that I'll turn it over to Gerbrand to walk you through some more details and then Bill will walk you through.

Some of our working capital cash flow and margin analysis Durbin, great. Thank you, Dave and good morning, everybody and before I go into our second quarter results I would like to provide a couple of additional comments on the new electrical solutions segment.

As I have transition into my role about a year ago I spent a lot of time in the electrical businesses, obviously coming out of the utility business.

Got great insights into the strength of our brands, our leaders and the attractive markets and customers we serve.

But what I also found but that it was more difficult to navigate I was spending more time on internal alignments, coordinations and realizing that a more consistent approach could better serve us and our customers driving more efficiencies.

We moved over the last year to more disciplined operating rhythm I think we talked about a that to you at the Investor day, and we have seen incremental benefits uncertainty that has served us tremendously while managing through this discovered pandemic.

But knowing the value that that we had created in the utility business. It became clear that the electrical businesses could benefit from a seminar structure I worked with Dave in the executive team over the past several months and I'm really excited that we're executing this change right now we're going to be driving better customer experience.

And solutions faster and more efficient processes, and then the end I would say incremental growth and value.

I'm confident in the addition of feet on Dave just gave a little bit of background I spent quite a bit of time.

Talking with him.

Before we hired him.

And also in our leadership and I'm very confident that we'll see a successful transition to this new reorganization.

So now turning to slide six and starting at the top line.

We saw significant economic headwinds as a result of covert 19, which cost decline across a number of our end markets, though demand in the utility facing market was more resilient as where our residential markets.

We also experienced supply chain disruptions as a result of regulatory closures, primarily in Mexico, and impacting our utility business and I'll talk a little bit about that when we get to the segment review.

This was effectively navigate and result resolve it into quarter as expected.

Despite the volume challenges, we achieved operating margin expansion in the second quarter to strong execution.

Our investment in footprint optimization are continuing to pay off at attractive and sustainable savings.

We also continued to realize the benefits of positive price cost across the portfolio.

And while we faced operational disruptions and then and then efficiencies as a result of cobot. This was more than offset with the cost management, we took proactive compensation actions that Dave highlighted earlier, we realize lower operating cost and Bill will talk about that in a later margin bridge that he'll cover.

And finally, we realized another quarter of strong free cash flow.

As we continue to execute our working capital initiative will walk you through our liquidity position in detail later, but obviously very encouraging to see our second quarter and year to date performance here, which supports our liquidity position as we continue to manage tradition. This this period of uncertainty.

Turning to page seven.

You basically see what I just talked about in graphical form and again you see the sharp decline in sales, but offsetting that is margin improvement of 300 basis points with strong execution.

And you also see significant growth in free cash flow.

Now turning to page eight and provide some additional comments into each of the segments.

Electrical sales declined 26% in the second quarter with.

Really broad based weakness across most of our end markets. We did see some pockets of relative strengths the residential market, particularly in the E com and retail channels as well as certain light industrial verticals.

However, we didn't see much differentiation across the rest of our electrical end markets, which are similar levels of decline throughout the quarter.

And then we also had to manage through to the supply chain disruption primarily in our lighting business with the factories located in Mexico and disaffected both the electrical as well as the power businesses, particularly two main facilities into Mccullough Doris.

But bode well results within the quarter.

When looking sequentially, we saw may be in our weakest month from an order and shipment perspective, while June started to show some stabilization a sequential improvements and we've continued to see that and through July.

Turning to operating profits, we faced headwinds from lower volumes.

As well as operational inefficiencies as a result of covert 19.

These include absorption and productivity challenges.

Appreciation faded, we put in place for our factory workers.

And operating expenses particular related to cleaning protocols protective equipment, and Dave talked earlier about feeling safe coming into the office I think our our employees would say date feel safe coming into all of our facilities in factories, but there was a cost obviously related to dose.

However, we delivered strong margin performance with Decrementals below 20%, we took proactive actions to reduce compensation into second quarter and we also benefited from broader cost management across the enterprise and Bill will cover. This later in his slides.

Price cost was a positive tailwind for us as we hung onto the carryover benefit of prior year pricing action.

Commodities were modestly favorable for us.

And as I mentioned earlier, we continue to realize the benefits of our investment in restructuring actions and we see plenty of runway here for sustainable savings over a multiyear period as we continue our operational transformation.

Turning to page nine and the utility solutions business, we saw sales decline of 13% in the second quarter.

Power system sales were down mid single digit.

But this was all due to the supply chain disruption in our Mexico facility, which we talk to you about in April.

We're able to restart and ramp up that facility again within the quarter as expected.

Demand for the income.

Andy components.

Was resilient as utility customers continue to invest to modernize the grid as well as the ongoing investments in renewable generation, which is supporting strong transmission project activity for us.

This market I would say as an immune to the macro and typically lag saw electrical businesses by couple of quarters.

But I'd also tell you that we're exiting the second quarter with a good backlog and optimistic that we can grow this business into third quarter.

Aclaris sales were down 25% as this business was significantly impacted by the projects and installation delays as a result of covert 19 regulatory restriction on.

And this limited really access for us into home and commercial buildings.

Demand for smart grid solutions remain solid, but with social distancing measured and government mandated locked down it's been very difficult for us to access the properties to complete installations.

Oh pay for this segment was down modestly while margins were up significantly expanding 170 basis points and driving strong decrementals.

Similar to our electrical segment, the lower volume and covert inefficiency were offset by cost management and positive price cost.

We also benefited in this segment from positive mix in the quarter and really two sources here.

First is to power systems.

As a higher margin business held up stronger than Aclaris, I talked about and secondly, within eclair at the lower margin installation business. What's the one most affected by the regulatory delays and project to impact.

So let me now turn it over to Bill on Slide 10 Bill.

Good morning, everybody. Appreciate you taking time to join us and hope you're being safe.

Gerben described for you our margin expansion.

On page 10, we thought it would be informative or to go through a bridge because there really are an awful lot of puts and takes and.

Theres more to the performance here than just the volume and there's some structural elements as well as some temporary volume days variable cost moves. So I wanted to just untangle that and ER and walk everybody through it. So I'm just started on the rate side of the page you see we.

Ended at 15.8% operating profit margin, a 30 basis point improvement over the same period last year.

The two green bars to the right really represent.

The work that we do quarter in quarter out year in year out to help work on improving our margins. The first is price cost, we're constantly evaluating where costs are and making sure we're getting adequate price to ensure we get margin expansion.

From that activity that was a nice contributor again this quarter.

Into the right of that you see the restructuring footprint optimization.

And you see a very healthy contribution there.

The two of those combined to give us about two points of lift in margin.

Which in a flat volume quarter would have been.

I really significant standout contributor.

Unfortunately, this quarter you see all the volume related things to the left which absorbed.

All that 30 basis points to that benefit I think it's worth pausing on the restructuring just for second.

You'll see that.

HM.

During the first half of 2020, we've we've invested a comparable them out to what we invested in first half last year.

But we continue to see and we're increasingly encouraged by the savings that are coming out of these projects.

We now are experiencing a run rate, we estimate to get about $25 million savings are running through.

2020.

You will recall last year, we invested about 37 million so our payback, they're very attractive and very nice returns I'm. So.

If you go to the left of the page you'll start to see the impacts of volume.

The first Red bar there is the markets, we experienced as Durbin described to a 15% decline in demand.

And as you lose the profit from that volume drags margins down.

The next bar, we think we lost an additional 5% to 6% of sales with the supply chain disruption that urban mentioned.

I'm in Mexico.

We lost similarly, the margins from those sales, but also there are cost in their of absorption from temporary closures and furloughed factories theres appreciation pay theres emergency paid leave and there's extra PDP.

Expenditures all of that contributing a drag.

But the next Green bar is really the business models variable response to that lower volume.

We took salaries down.

We imposed furloughs that reduced.

Compensation expense T. any spending way down is no one was getting on airplanes medical down as people were delaying their visits to doctors and and we spend less money on supplies. So.

You see the very natural variable response of the business model.

But I think the real story of the margin bridges the two points.

That we got through price costs as well as as restructuring.

Yes thing that we've done.

On page 11.

No we've put the two quarters together here and showing you. The first half the two quarters are remarkably different a pre koby quarter and a cobot quarter.

But I still thought it was instructive.

To put them together and show you, where we are on a summary basis that half time. So you see our net sales down double digits to just over 2 billion.

The utility business.

Doing better than the electrical in terms of sales growth and within utility the power system actually growing in the first half.

The margins on operating profit or our comparable and so you see a profit decline in line with the sales level of decline.

And the resulting earnings per share of that of $3.51.

Dave is going to walk you through our guidance in just a minute.

And as the utility business is giving us some strength and the confidence to give you the guidance you'll see that that we've achieved about half the earnings we anticipate here at half time, Similarly, with cash flow and I'll go in to cash flow as we turn more deeply as we turn to page two.

Well.

So you see we generated in the first half just under $270 million of free cash flow.

66% increase over the comparable period last year.

And the despite having a lower contribution of income.

Because of the sales decline.

We had a lower demand and requirement on working capital investments. So I think we manage quite well the inventory side. We recognize very early in March that we were headed to volume decline quarter in that.

Sector that how we looked at raw material purchases.

And so inventories were very well managed in a source of cash in the quarter. Additionally, receivables. Our collection experience has been quite positive. We think the industry is is behaving quite.

Quite responsibly vendors are paying.

And customers are paying us.

And so.

That's all managed to the point of allowing us to get to a point as Dave highlighted that's greater than half of our target of half a billion of free cash flow for the year and we typically have a some seasonality in the fourth quarter that allows us to have a large collection. So we're feeling.

Quite good about.

The cash flow in the right side of the page and the look at liquidity.

Helps describe why that's so important to us. So you see there the cash build up to 485 million.

And you see our debt levels.

Hum, we typically rely for our short term and and floating rate debt, we typically rely on the commercial paper market.

That market for a moment dried up on us in the quarter and so.

We relied on our banking relationships, we borrowed from our revolver 100 million dollar tranche and then a second of 125.

I'm happy to say the CP market has has come back in a very liquid and responsive way and we have paid back the banks and our back to our more normal arrangement a funding ourselves in the short term in the CP market. So we.

We we feel very comfortable with our credit stats you see the net debt to capital improving in the first half the year to 32%.

Our debt to EBITDA on an adjusted debt basis, net debt basis being less than two times and so we feel like that's doing a good job of supporting our capital allocation ambitions, which is worth taking through quickly. So on the dividend side, we continued to be focused.

On a a payout ratio in that 40% to 50% of net income so as we can grow our income we'd like to keep growing dividends.

On capital expenditures side.

The second quarter with an abundance of caution.

We tamped down our capex a little bit.

But for the second half of the year and you'll recall last year. We were at about 100 million of Capex. We think the second half will return to about a $50 million run rate.

Very happy with the projects and the returns that we get on those capital projects in terms of of productivity.

Share repurchasing a we still are authorized to be.

In the market and continually look to be opportunistic there and on the acquisition side.

We see that pipeline starting to fill up so we're happy that the balance sheet is repaired itself as we look back last year to the acquisitions. We did we invested about $70 million in three different deals.

It's interesting to see those deals are performing.

And contributing more than the sales and hope he than we originally estimated in model to justify their valuation so performing very well through the through the pandemic and provides good underlying support for our acquisition does that there are opportunities out there to add to our brands.

We continue to invest the two most significant contributors from last year one is.

On the power side.

The other on on the Burndy on the connectors in grounding side. So so their end markets that are doing well and performing well.

So we're looking forward to in the second half getting a few typical hubbell size acquisitions done.

And with that I'll turn it back to Dave to talk about outlook and guidance from here.

All right great. Thanks, Bill So turning to page 13 of give you just some of our you know.

Insights to the extent or the way we're looking at some of our end markets. You started at the upper right on the on the pie there the electrical transmission distribution markets certainly been resilient for PND components.

Particularly on the transmission side, that's continued investment in renewable.

Renewable generations, creating the need for transmission projects.

The PND is not immune to some macro near term, but all of the secular drivers around grid hardening.

Aging infrastructure, certainly remain intact and support our continued multi year runway for solid growth.

Now moving down to the utility comes in meters now obviously as Gerben talked about some headwinds near term from restrictions on installations, which require access to homes and buildings you.

Other than an emergency situations.

Return utilities continue to demand smart grid technology, the modernize the grid, so there's plenty of opportunity there.

Gas distribution side gas utilities continue to replace their aging infrastructure.

Replacing components in the system that carry gas from Maine to meter.

Can be limited in some cases near term because that same access issue when homes and buildings.

The oil side.

Markets continue to be week, there with limited activity off an early low base obviously that's.

A good margin business for us, but fortunately, it's a smaller proportion of our business. So we can navigate through that the residential side as Gerben mentioned, you know some bright spots in the second quarter, you've seen some very strong results on the housing front.

And we've experienced some of that on the E commerce on retail.

Side.

On the industrial.

We've continued to see weakness in the heavy.

Some pockets of resilience in the light industrial.

Second half trends, obviously be dependent on timing.

And shape of the economic recovery.

And of course last is the non residential markets continue to follow broader reckoning economy out a lag.

And while we've seen some projects or get completed some that were put on hold as things were shut down.

We're certainly cautious on the near term outlook, there, but the level of activity.

Seems to be positive.

Okay.

I mean, what does all that mean, well, let's turn to page 14, and we can talk about our our outlook than a framework you know reported our first quarter results in April we withdrew our annual guidance. There was so much uncertainty around the covance situation.

But you know as Weve navigated the second quarter with our strong execution and at least what now looks like the be some stabilization in volumes, even even though they're down.

As well as some of the supply chain dynamics.

We thought it would be helpful to not only walk you through our framework for expectations, but how we're managing through this.

And also give you our best thinking on how that rolls up into an annual earnings per share range.

Certainly on the macro economics environment remains volatile and these expectations going with the obvious caveats versus a higher level of uncertainty around them.

But as of now we see ourselves being able to deliver in the range of $7 to 725.

S and adjusted basis, we look talked about a markets on the prior page continue expect pressure in electrical and markets for the balance of the second half.

We are seeing stabilization in orders are with sequential improvement from May to June and into July, but certainly know tangible signs that might support a V shape recovery, but at least there's improvement.

Order so far in July are down about 15% and our base case is that the balance of third quarter looks somewhat similar to what we've seen on the on the order front.

Certainly opportunity to if things continue to improve.

Well, we're going to plan conservatively right now.

On the utility solution side, we exited the second quarter with a strong backlog position or power systems business.

Opinion to see the resilience in the TNT demand, particularly transmission gives us confidence that we can see some modest growth here in the third quarter.

Clear as a little more dependent on when some of their projects can get fully ramp back up we continue to see delays in certain projects as we've talked about.

These are moderating our base case assume we'll probably see low double digit declines here in the third quarter.

Overall, our third quarter base case is down about 10%.

On the margin from our facilities are all currently operational we certainly.

I have learned a lot and or continue to navigate through.

Pockets of challenge, whether it be an individual who test positive that may require a 24 hours 72 hour or and worst case, a 14 hour quarantine.

And so there's pockets, we've we've been able to manage that into specific.

For the most parts specific cells or departments.

So weve navigated that.

Well, we continue to expect some productivity challenges as we manage through it.

And we felt we expect the inefficiencies we experienced in the second quarter to improve in the second half.

We certainly see sustainable savings from the restructuring actions, we've taken and expect the full year savings of 25 million, which is above.

The 20 million, we were targeting as of last quarter as we've taken some additional actions in the second quarter.

We also expect price cost to remain positive in the second half, although at a more modest level than the first half as we you know you know we're going to lap some of our prior year price compares.

The compensation reductions that bill and Gerbrand referred to that we took in the second quarter, obviously won't repeat in the second half.

We've committed to take those off and get back to normal.

We also expect some of the operating costs, which we think we're at unnaturally low levels in the second quarter to return.

However, we do have control over some of these costs than we've taken some actions to appropriately manage based on our order patterns and volume low.

The net of all these moving part as we expect our decremental margins to pick back up into the 25% to 30% range in the second half.

Still below our gross margin levels and on the cash front, we're actively managing our capex.

But with the strong liquidity position as bill referred.

Having seen the benefit our recent investments in productivity, we continue to invest and things like automation within our factories to drive future productivity.

Terms of working capital continue to manage our inventories down prudently obviously one of the things we've learned in the supply chain challenges to make sure. Some of the critical components, we might have to have some additional inventory.

But we're contemplating that in our working capital management.

To that of all of that is expect free cash flow for 2020 to be a you know at the $500 million or better that we generated in 2019. So all at all I I'm I think we're all very pleased.

To tell you when you think about where we were 90 days ago. We were just heading into the store we had been through most of April.

But the worst was yet to come as we found out in May.

It was it's a daily challenge to to slug, your way through it but I couldn't be more proud of how the organization. The leadership team all the way down to the factory floor has really navigated the.

And I think Thats, what gives us confidence.

Matt.

Despite the volatile markets.

We're going to find our way and fight our way through to perform at the levels and execute at the levels that we are expecting.

So with that let me turn it over through the operator open it up the acuity.

[laughter].

Hi, My <unk> growth, assuming your lobby bar Juan Pablo.

Your next question Frank.

The biological father <unk> <unk>.

Hi, Thanks <unk>.

Yes.

Your line open.

Thank you good day everyone.

Hey, Jeff real well.

A couple of things first just on the.

Why disruption on the topline the five point.

I'm sure on the electrical side of it was.

Probably a centered on lighting, but the question is really what would that have impacted both segments.

Really.

They lost five to six points on the topline in both.

Yes, roughly it was.

Made to order products inside of lighting, so couldn't be serviced out of inventory, Jeff and for the.

For the power business also on made to order product, so and affecting both segments as you said.

And just on the order front you see.

The order still sounds like the somewhat depressed build there's not a.

Kind of refill catch up element or or maybe there is that it's just there's there's other pressures that are kind of math that.

I think as Dave said the shape that we've seen was.

And in April that deteriorated in May and some improvement since then so.

And that's carried a into July month to date.

It's obviously something we're watching closely daily.

And Thats, where orders are now in July it's really the basis for how we've guided to second half.

Great and then for Gerben Gerben since you.

Spearheaded this kind of reevaluate, even though the electrical structure and how the assets are.

<unk> performing.

What's the what do you think is the biggest opportunity is that just kind of a law claw style opportunity around inefficiencies. It does sound like you're suggesting there is some cross sell that then left on the table.

And I guess that make it a further multipart question.

Was there kind of a further evaluation of how lighting in the puzzle as part of this exercise.

Yeah. So let me start with your first part Oh, Jeff Good morning, the a I was indeed, a highly involved in this and I would say the primary motivation for this actually wasn't cost, but more of the efficiency of running this business and and how we could better serve our customers a in and.

Just just servicing them, which was a lot of times.

No we would go to the same customer to different branch.

Rather than taking a more holistic approach and going to a customer representing all available, but we see cross selling absolutely and we saw some of these benefits already when we put in play and we talked about days, our VP of strategic accounts of our very largest economy, we put people in place that represent all up.

Hobble, but there's still a lot of customers beyond the a the 10 largest and that's really where the opportunity lies so our primary driver for this was really to service to customers and to drive incremental future growth of course, there's a efficiency related to this as well that.

But.

We can benefit from I would also say.

We're absolutely look into reinvest BARDA dose efficiency back in our business. If you look what were trying to achieve from a technology perspective, and innovation perspective, and what we want to accomplish a with a digital commerce going forward those things are absolutely needed, but they also require investments into business. So we see there.

That's an opportunity to to fund some of those efforts as well.

And your second question was regarding lighting, we see for lighting.

Absolute opportunity to fold in what this electric segment as well, we see benefits I mean, if you just again look at we sat lighting in in two out of the three groups today and you know certainly I think lighting can help the others as well with what dose product, there's again common cost.

The March there.

You know worst structuring this segment very similar to what we've done into power business with markets focused or product focused groups under neat.

I'm, so that you still have.

A level of intimacy with your customers because the one thing that I always feared when I ran the power business that as I got larger and larger that that would I eventually become slower and lose.

That's what our customers and so there's a structure in place that where we would retain.

Pieces of the based and I see lighting folding in under that so you know we always look at at our portfolio's I'd say our focus right. Now is is to improve the performance of our lighting business.

Great. Thank you good luck.

Our next question comes from <unk>, <unk>, <unk> FTP, Mike <unk> <unk>.

Hey, guys good morning warning.

Can you just maybe talk about where you stand on as we kind of turned the corner into next year assuming.

You know some degree of recovery, what you have from a kind of temporary or structural cost perspective, and then is the cash this year.

Would you would you plan to be able to grow that cash next year that 500 million dollar plus based on more or is there. It's kind of similar to this temporary cost dynamics and you know temporary working capital benefits that kind of flip back the other way.

Hi, Scott I I would say.

The the couple of things one yeah, you're right. There are some temporary cost things that are contributing to this year, but as we've mentioned as those the.

Some have come back you know the the salary adjustments that we specifically limited to the second quarter because of the severity of the second quarter.

You know those come back, but offsetting that with you know ongoing productivity things that we have been focused on.

Continually around or our staffing levels, making sure that we're driving a level of productivity.

I think some of that will be a function of how the market.

Recovers and at what level and we certainly don't have any visibility into next year, but one of things. We're prepared for is to continue to take whatever actions are necessary to rightsize our cost structure.

Around that so that's the cost side Bill maybe you want to comment on.

The cash so yes, Steve I think that you're right that that AD sales growth comes back we're going to need to invest in inventory and receivables to support that.

But I do think the restructuring work that we're doing and getting our footprint and square footage down.

Is.

Going to help us be better at inventory management and I still think there are opportunities for us to improving days.

Across our system and as we benchmark ourselves. It appears evident that that we do have opportunity. So I think you're right that there is naturally going in the requirement to invest a little working capital in that growth but.

We will work hard to offset that by being more efficient sailing days.

Right, but I mean that 500 million, we should think about that is kind of a base.

Yeah, you know a performance not not like some one time you know I think.

You know like.

Benefit they I'd just want to kind of make sure that I understand kind of all the moving parts. Yeah. I think you understood I think you understand it right. So we achieved that in 19.

We do better than 500 million in 20, and I agree there's some working capital tailwind in that but you we should be better than that still.

In 21, that's absolutely you're looking at sustainable night, the animal Grace, we're improving upon that 2019 base, yes, right make me I kind of sounds great. Thanks, guys. Good execution a in on the margin.

Right.

Great. Thanks.

Good.

Operator next question.

Operator.

I know, that's cool Bom Bom Bom <unk>, well I don't think <unk>. Your line is open.

Hi, good morning.

Good morning, Hi, good morning to date.

Is it your view of non Red cure slightly more optimistic in the context of weapons appear that noted you, especially called out improvement in activity level can you. Please expand on that and perhaps even off or yield you.

It could be no Andreas youre, not just business at least in chronic yeah, or even bottom yet and have a funnel.

Yeah, I believe I I'm not sure that you may interpret my tone versus the substance of what's underneath that I I don't.

And some of it and I've I've said it internally to our team you know the one thing that didn't this new environment is you declare victory when things are down 18% versus an expected 20 like wow. It that that's access so improvement is relative.

We still think that there is work to be done.

Particularly as I said some of the things that we've seen have been as a result of projects getting restarted or completed not new projects.

Think the question is gonna be what happens when I think well I think we would all agree that.

The uncertainty is around new projects, what new projects might occur.

The one area that you.

You know I've talked to a couple of people on particularly in the commercial space. That's interesting they refer to they have a reference to what had been a vertical move.

Has now become a horizontal move meeting and others might describe it as the de urbanization.

Of of America, with everybody moving out of the city's you've seen that in a residential real estate market well, if that's a long term trend and it happens meaningfully.

There needs to be some investment in those communities around non residential construction, whether its retail whether its hospitals.

That's still a big uncertainty you know to see how that dynamic plays out, but I I don't know that I would say that I'm more optimistic than the market.

Got it.

Oh, Hey.

And you manage Hello.

And how did you.

In the finding that some of your business is there more recently and then hot and perhaps not so much and and as you can also if you can also talk to any if you discovered any new areas of opportunity. There you could consider organic or inorganic growth opportunities going forward that.

Well thank you.

Well I'd I'd have to say that all our businesses are resilient at least our people addressing the the some of the really volatile markets they've been they've been very resilient I don't know that there's any.

Particular market or business that I would point to that.

That has been surprisingly weak.

At best have either been as expected or maybe slightly better.

You know other than some of the implications as Gerben talked about you think about the a utility business and where it requires you to get into a home.

You know that that's not you know something that we can control and that's something that's unique to this environment.

So what what's otherwise a resilient.

Business.

You know deals with some other implication.

I mean, thats terms as future growth opportunities I I like book to Bill or Gerben to comment on that.

Because there's a lot of areas that.

I know they're working on.

I think deeper we continue to see a good opportunity in the utility markets.

We continue to think that Ah that infrastructure it requires a upgrading and strengthening.

We continue to believe that making the grid smarter is going to allow utilities to run.

Those power grids more efficiently and more safely I think the.

So it's kind of reinforced this this last 90 days is reinforced the essential nature of what we do there.

I also think that inside of buildings.

You see different pockets you know distribution our.

Retail has been an interesting <unk> bright spot as people have.

Been forced to living at home or be at home more frequently than there used to and.

So they are kind of investing in their homes and as Dave said does that does that have a longer tail to it as people's behavior changes I think.

Will be interesting you know on on a commercial side datacenters in the role data and information are playing and all of our lives. We think is going to continue to drive opportunity.

For us to connect and we continue to think that we have.

A unique positioning across the utility grids of electrical gas and water and how that crosses through the meter into buildings and how that gets used and and so we feel really good about that anything some of the or design that carbons talking about is looking to take any.

Manager that unique positioning that we see.

Got it wasn't one question for their up and if I need.

Given that you've been working through that we are definitely did you end up finding there were there any businesses that did not fit with the overall hobbled portfolio.

Actually the short answer to that is no but that said a we absolutely have a focus in our business on evaluating our portfolio one of the big things and we've actually gotten great success out of that is what we called our SKU rationalization or optimization evaluate.

Patient and what we literally do as we put it in four quadrants of of how to contribute to growth in how to contribute to margin contribution.

And then to focus is on those that don't contribute.

Well to either to either move them up or rationalize them out so we've seen actually a trimming our bar skew portfolio.

And we're doing that on a skew on a product line and even a.

At a different level, so I'd say well continue to see that.

Going forward I do believe that these businesses and what the.

He is you know that they have a common customers that they have common markets and if you look at the Pie chart that we have you know we have some diversification, but but we're still pretty focused on on a few attractive end markets. So I'd say the short answer probably no, but I would expect as we have seen over the last couple of years.

Catching continue trimming, where where it doesn't make sense and and additions as well and that's the other thing I would say that in a market like this and bill talked about the second half.

Perhaps seeing some some more activity in.

Deals and I would say you know a lot of these deals, especially the size that that fit hobbled. These days you know 30 to 50 million.

Privately owned businesses a lot of those owners through cobot are really reevaluating their their continued interest and to run those businesses and then we become more attractive as a as an acquirer for self I'd say, that's pretty active for US right now to to add to the portfolio on the other side.

Thanks for that make color and great alright. Thank you.

Thanks.

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There are no further questions. Please continue.

Alright, if no other questions that I'll conclude today's call I'll be around all day for fall offs and thanks for joining us.

Thank you very much.

Thank you.

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

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Thank you for standing by welcome to date.

Second quarter 2020 results call.

At this time, all participants are not listen only mode.

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I would now like to kind of conference over to your speaker today.

Dan Marotta. Thank you. 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 nor our President and Chief operating Officer, Gerben, Bakker, and our executive Vice President CFO Bill Sperry.

Second quarter results for 2020. This morning, the press release on slides or post at the Investor section of our website at Www Dot Hubble Dot com.

Please note that are talking about this morning may include statements related to the expected future results of the 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 and so this call.

In addition, Thomas May also include non-GAAP financial measures those measures are reconciled the comparable GAAP measures that are included in the press release of the slides.

I'd turn the call over to Dave.

Thanks, Dan Hi, good morning, everybody. Thanks for joining us to discuss our second quarter results wish everybody a taking the time.

It's certainly been an interesting 90 plus days since we were last in front of yet and I think there's a lot to cover today. So.

I'll start my comments on slide three with a brief summary, or what you know I think is another strong quarter of operating performance and free cash flow generation for us.

Yeah, we clearly saw the impact of go with 19 on the economy, our end markets in our operations.

But we continue to focus on what we can control and we effectively navigated through a quarter of significant volume declines down 21%.

But still ended up with margin expansion and very robust free cash flow.

You'll note that our free cash flow is you don't at this point in the year more than halfway to our for your goal, which both of your following us know that that's not our typical trend.

And Bill will talk more about that a little while.

Our operational transformation continues to provide benefits with attractive and savings on the investments we've been making it our footprint optimization.

We continue to execute on price cost.

We were proactive in managing our cost structure in the second quarter.

Looking ahead, well things continue to show signs of improvement you know we continue to see some uncertainty in our volume outlook for the second half.

With the timing and magnitude of recovery still to be determined.

But we think our utility facing end markets will remain resilient, that's critical grid infrastructure needs to be upgraded it maintained.

And electrical markets, while challenging continued to improve.

Overall, despite continued market volatility.

We're well prepared to manage through a range of scenarios, you'll recall, we walked you through our recession playbook last quarter.

And talked about how we've historically performed well through past downturns, given the less cyclical nature of our utility business and our ability to execute on margins and free cash flow.

I saw evidence of that in the second quarter, and we feel well positioned for the second half.

Turning to slide four I think it's important to look back on our approach to navigating through covert 19.

Revisit the commitments, we made to our employees our customers and our shareholders.

We successfully implemented a rigorous set of protocols to keep our employees safe, while we continued to provide our customers with the essential products they needed to operate critical infrastructure safely reliably and efficiently.

I can say even from my own experience being in our offices since the beginning of June.

I think our protocols I feel very safe and I think our employees should feel very safe when they come back into the office.

We did experience disruption or supply chains in the second quarter as expected, but you know all of our facilities are currently operational.

We're able to continue providing customers with the same level quality and reliability they've come to expect from hobble over decades long relationships.

Importantly, we're also committed to proactive actions to manage our cost structure.

Thats helpful employees across the enterprise make sacrifices recall and reduced compensation and other cost reductions.

Finally, we committed to preserving our strong liquidity position and after another strong free cash flow quarter. We believe we're well positioned with approximately half a billion dollars in cash sitting on our balance sheet at quarter end.

While we laid out our second quarter financial framework, we believe that a decremental margin inline with our gross margins at around 30% would have reflected solid performance and we did significantly better delivering decrementals of only 14% in the quarter.

Looking ahead, while the impact of covert 19, a significant we believe there is still a long way to go before this pandemics behind us.

We're proud of our employees for the way that top adapted to a new environment.

Some people say normal environment, but the new normal but this is far from normal. It really is just a different environment that we're working through.

And we're doing that while still delivering strong execution and performance.

We're going to continue to take steps to effectively mitigate the near term impacts of a pandemic, while preserving long term value for should help on our shareholders.

Before I turn it over to Gerbrandt to talk about in more detail the segment results and our financial performance I want to give some additional color on the press release from last night.

Announcing a change to our operating structure and the consolidation of our three operating were groups within our electrical segment into a unified electrical solutions segment.

It over the last year Gerbrand I've been working closely and that's he's got more insight into the rest of the businesses.

He's identified opportunities for us to continue to streamline and and address our organizational structure.

And we agree that there's significant opportunity and better optimizing our scale across our electrical offerings to develop integrated solutions for our customers.

The formation of a unified electrical solutions segment will benefit our channel partners and customers through increased ease of doing business as well as improved innovation and development of integrated solutions.

Also going to generate a more streamlined organizational structure, which we expect to generate productivity benefits.

Certainly and evaluating our portfolio. We believe this operating structure best positions us to fulfill our purpose as a company, which is to enable our customers to operate critical infrastructure safety safely reliably and efficiently.

We're uniquely positioned to solve these problems as the only company with leading positions across the energy infrastructure, including behind the meter in front of the meter and at the edge of the grid.

You'll recall that.

On page five a slide that we showed at our Investor day back in March gives us the unique opportunity to leverage our installed base to generate insights from the transmission and distribution of energy consumption of energy and the ability to collect analyze and control energy data similarly to our integrated operating structure.

In our utility solutions segment, which we described at our Investor day back in early March.

The next phase in our evolution. We believe is in the unified electrical solutions segment, it's going to allow us to more effectively target attractive new market segments.

Developed differentiated offerings for our customers with increased speed as the markets evolve.

At a faster pace through this pandemic environment.

Importantly, weve identified a named a leader who we think is uniquely capable of delivering on that vision and Peter Lau. Peter has extensive leadership experience in a strong track record across other multi industry companies, particularly in the commercial building space and we're confident he's the right person to help lead this business into the future.

With that I'll turn it over to Gerbrand the walking through some more details and then bill a walk you through.

Some of our working capital cash flow and margin analysis Bourbon great. Thank you, Dave and good morning, everybody and before I go into our second quarter results I would like to provide a couple of additional comments on the new electrical solutions segment.

As I transition into my role about a year ago I spent a lot of time in the electrical businesses, obviously coming out of the utility business.

Got great insights into the strength of our branch our leaders and the attractive markets and customers we serve.

But what I also found but that it was more difficult to navigate I was spending more time on internal alignments coordination.

And realizing that a more consistent approach could better serve us and our customers driving more efficiencies.

We moved over the last year to more disciplined operating rhythm I think we talked about a that to you at the Investor day, and we have seen incremental benefits uncertainty that has served us tremendously while managing through this discovery pandemic.

But knowing the value that that we had created in the utility business. It became clear that the electrical businesses could benefit from a seminar structure I worked with Dave in the executive team over the past several months and I'm really excited that we're executing this change right now we're going to be driving better customer experience.

And solutions faster and more efficient processes, and India, and I would say incremental growth and value.

Im confident in the addition of beat on Dave just gave a little bit of background I spent quite a bit of time.

Talking with him.

Before we hired him.

And also in our leadership.

I'm very confident that we'll see a successful transition to this new reorganization.

So now turning to slide six and starting at the top line.

We saw significant economic headwinds as a result of covert 19, which cost decline across a number of our end markets.

Demands in the utility facing market was more resilient as where our residential markets.

We also experienced supply chain disruptions as a result of regulatory closures, primarily in Mexico, and impacting our utility business and I'll talk a little bit about that when we get to the segment review.

This was effectively navigate it and result resolved within the quarter as expected.

Despite the volume challenges, we achieved operating margin expansion into second quarter strong execution.

Our investment it footprint optimization are continuing to pay off at attractive and sustainable savings.

We also continue to realize the benefits of positive price cost across the portfolio.

And why we faced operational disruptions and then and inefficiencies as a result of Goldman.

This was more than offset what the cost management, we took proactive compensation actions that Dave highlighted earlier, we realize lower operating cost and Bill will talk about that in a later margin bridge that he'll cover.

And finally, we realized another quarter of strong free cash flow.

As we continue to execute our working capital initiatives will walk you through our liquidity position in detail later, but obviously very encouraging to see our second quarter and year to date performance here, which affords our liquidity position as we continue to manage tradition.

Period of uncertainty.

Turning to page seven.

You basically see what I just talked about in graphical format again, you see the sharp decline in sales, but offsetting that is margin improvement of 300 basis points with strong execution.

And you also see significant growth in free cash flow.

Now turning to page eight and provide some additional comments into each of the segments.

Electrical sales declined 26% in the second quarter.

Really broad based weakness across most of our end markets. We did see some pockets of relative strengths the residential market, particularly on the E com and retail channels as well as certain light industrial verticals.

However, we didn't see much differentiation across the rest of our electrical end markets, which are similar levels of decline throughout the quarter.

And then we also had to manage through to the supply chain disruption primarily in our lighting business with the factories located in Mexico and this effect that both the electrical as wireless power businesses, particularly two main facilities into Mccullough duress.

But bode well results within the quarter.

When looking sequentially, we saw may be in our weakest Mumford order and shipment perspective, while June started to show some stabilization of sequential improvement and we've continued to see that and through July.

Turning to operating profits, we faced headwinds from lower volumes.

As well as operational inefficiencies as a result of Gulf at 19.

These include absorption and productivity challenges.

Appreciation fade that we put in place for factory workers.

Operating expenses, particularly related to cleaning protocols protective equipment, and Dave talked earlier about feeling safe coming into the office I think our our employees would say that feel safe coming into all of our facilities and factories, but there was a cost obviously related to dose.

However, we delivered strong margin performance with Decrementals below 20%, we took proactive actions to reduce compensation in the second quarter and we also benefited from broader cost management across the enterprise and Bill will cover. This later in his slides.

Price cost was a positive tailwind for us as we hung onto the carryover benefit of prior year pricing action.

Commodities were modestly favorable for us.

And as I mentioned earlier, we continue to realize the benefits of our investment in restructuring actions and we see plenty of runway here for sustainable savings over a multiyear period as we continue our operational transformation.

Turning to page nine and the utility solutions business, we saw sales decline of 13% in the second quarter.

Power system sales were down mid single digits.

But this was all due to the supply chain disruption in our Mexico facility, which we talk to you about in April.

We're able to restart and ramp up that facility again within the quarter as expected.

Demand for the income.

Andy components.

As resilient as retail the customers continue to invest to modernize to grid as well as the ongoing investments in renewable generation, which are supporting strong transmission project activity for us.

This market I would say as an immune to the macro and typically lags on electrical businesses by couple of quarters.

But I'd also tell you that we're exiting the second quarter with a good backlog and optimistic that we can grow this business into third quarter.

Aclaris sales were down 25% as this business was significantly impacted by the projects and installation delays as a result of cobot 19 regulatory restrictions.

And this limit that really access for us into home and commercial buildings.

Demand for smart grid solutions remain solid, but with social distancing measured and government mandated lock down it's been very difficult for us to access the properties to complete installations.

Okay for this segment was down modestly while margins were up significantly expanding 170 basis points and driving strong decrementals.

Similar to our electrical segment, the lower volume and covert inefficiency were offset by cost management and positive price cost.

We also benefited in this segment from positive mix into Florida, and really two sources here.

First is the power systems.

As a higher margin business held up stronger than Aclaris I talked about as secondly, within eclair at the lower margin installation business was to one most affected by the regulatory.

Delays and project impacts.

So let me now turn it over to Bill.

On slide 10 Bill.

Good morning, everybody. Appreciate you taking time to join US and hope you are being safe.

Gerben described for you our margin expansion.

On page 10, we thought it would be informative.

To go through a bridge.

Because there really are an awful lot of puts and takes and.

Theres more to the performance here than just the volume and there's some structural elements as well as some temporary volume days variable cost moves. So I wanted to just untangle that and.

And walk everybody through it so I'm going to start on the right side of the page you see we ended at 15.8% operating profit margin, a 30 basis point improvement over the same period last year.

The two green bars to the right really represent.

The work that we do quarter in quarter out year in year out to help work on improving our margins. The first is price cost.

Constantly evaluating where costs are and making sure we're getting adequate price to ensure we.

We get margin expansion from that activity that was a nice contributor again this quarter.

And to the right of that you see the restructuring footprint optimization.

And you see a very healthy contribution there.

The two of those combined to give us about two points of lift in margin.

Which in a flat volume quarter would have been.

I really significant standout contributor.

Unfortunately, this quarter you see all the volume related things to the left which absorbed.

All that 30 basis points of that benefit I think it's worth pausing on the restructuring just for a second.

You'll see that.

During the first half of 2020, we've we've invested a comprehensive amount to what we invested the first half last year.

But we continue to see and we're increasingly encouraged by the savings that are coming out of these projects.

We now are experiencing a run rate, we estimate to get about $25 million a savings.

Running through.

2020.

And you will recall last year.

We.

Invested about 37 million, so our payback, they're very attractive and very nice returns.

So.

If you go to the left of the page you'll start to see the impacts and volume.

The first Red bar there as the markets, we experienced disturbing described to a 15% decline in demand.

And as you lose the profit from that volume drags margins down.

The next bar, we think we lost an additional 5% to 6% of sales with the supply chain disruption that curve and mentioned.

In Mexico.

We lost similarly, the margins from those sales, but also there are cost in their absorption from temporary closures and furloughed factories theres appreciation pay there's emergency paid leave and there's extra pp.

Expenditures all of that contributing and drag.

But the next Green bar is really the business models variable response to that lower volume.

We took salaries down.

We imposed furloughs that reduced compensation expense.

Any spending way down is known was getting on airplanes.

Medical down as people were delaying their visits to doctors and and we spend less money on supplies. So.

You see the very natural variable response of the business model.

But I think the real story of the margin bridges, the two points that we got through price costs as well as restructuring investing that we've done.

On page 11.

We've put the two quarters together here and shown you the first half.

The two quarters are remarkably different a pre toby quarter and akovaz quarter.

But I still thought it was instructive.

To put them together and show you, where we are on a summary basis at half time. So you see our net sales down double digits to just over 2 billion.

The utility business.

Doing better than the electrical in terms of sales growth and within utility the power system actually growing in the first half.

The margins on operating profit our comparable and so you see a profit decline in line with the sales level of decline.

And the resulting earnings per share of that.

$3.51.

Dave is going to walk you through our guidance in just a minute.

And as the utility business is giving us some strengths.

And the confidence to give you the guidance you'll see that we've achieved about half the earnings we anticipate here.

Uptime, Similarly, with cash flow and I'll go in to cash flow as we turn more deeply as we turn to page 12.

You see we generated in the first half.

Just under $270 million of free cash flow.

66% increase over the comparable period last year.

And despite having a lower contribution of income.

Because of the sales decline.

We had a lower demand and requirement on working capital investments. So I think we manage quite well inventory side. We recognize very early in March that we were headed to volume decline quarter in that.

Sector, how we looked at raw material purchases.

And so inventories were very well managed in a source of cash in the quarter. Additionally, receivables.

Collection experience has been quite positive we think the industry is is behaving quite.

Quite responsibly vendors are paying.

And customers are paying us.

And so.

That's all managed to the point of allowing us to get to a point as Dave highlighted thats greater than half of our target of half a billion of free cash flow for the year and we typically have a some seasonality in the fourth quarter that allows us to have a large collection. So we're feeling.

Quite good about.

The cash flow and the right side of the page and the look and liquidity.

Helps describe why that's so important to us so you see there.

The cash build up two to 485 million.

You see our debt levels.

We typically rely for our short term and floating rate debt, we typically rely on the commercial paper market.

Market for a moment dried up on us in the quarter and so.

We relied on our banking relationships, we borrowed from our revolver $100 million tranche and then a second of 125.

Happy to say the CP market has has come back in a very liquid and responsive way and.

We have paid back the banks and our back to our more normal arrangement a funding ourselves in the short term in the CP market. So we.

We we feel very comfortable with our credit stats you see the net debt to capital improving in the first half of the year to 32%.

Our debt to EBITDA and adjusted debt basis, net debt basis being less than two times and so we feel like thats doing a good job of supporting our capital allocation ambitions, which is worth taking through quickly. So on the dividend side, we continued to be focused.

On to a payout ratio in that 40% to 50% of net income. So as we can grow our income we'd like to keep growing dividends.

On capital expenditure side.

The second quarter with an abundance of caution.

We tamped down our capex a little bit.

But for the second half of the year and you'll recall last year, we were at about $100 million of Capex. We think the second half will return to about a $50 million run rate.

Very happy with the projects and the returns that we get on those capital projects in terms of productivity.

Share repurchasing, we still are authorized to be.

In the market and continually look to the opportunistic there and on the acquisition side.

We see the pipeline starting to still up so we're happy that the balance sheet is repaired itself as we look back last year to the acquisitions. We did we invested about $70 million in three different deals.

It's interesting to see those deals are performing.

And contributing more than the sales in LP.

Than we originally estimated in model to justify their valuation so performing very well through the through the pandemic and provides good underlying support for our acquisition thesis that there're opportunities out there to add to our brands continue to invest the two most significant contributors.

From last year one is.

On the power side.

And the other on on the Burndy connectors and grounding side. So their end markets that are doing well and performing well.

So we're looking forward to in the second half getting a few typical hubbell size acquisitions done.

And with that I'll turn it back to Dave to talk about.

Outlook and guidance from here.

Alright, great. Thanks, Phil So turning to page 13 that give you just some of our.

Insights to the extent or the way we're looking at some of our end markets. You started at the upper right in the on the pie there the electrical transmission distribution markets certainly been resilient for DMD components.

Typically on the transmission side, that's continued investment in renewable.

Renewable generations, creating the need for transmission projects.

But PND is not immune to some macro near term, but all of the secular drivers around grid hardening.

Aging infrastructure, certainly remain intact and support our continued multiyear runway for solid growth.

Now moving down to utility comes in meters, obviously as government talked about some headwinds near term from restrictions.

Installations, which require access to homes and buildings.

Other than an emergency situations longer term utilities continue to demand smart grid technology that modernize the grid, so theres plenty of opportunity there.

On the gas distribution side gas utilities continue to replace their aging infrastructure.

But replacing components in the system that carry gas from Maine to meter.

Can be limited in some cases near term because of that same access issue with homes in buildings.

On the oil side.

Markets continue to be week, there with limited activity often early low base, obviously thats.

A good margin business for us, but fortunately, it's a smaller proportion of our business. So we can navigate through that the residential side as Gerben mentioned, some bright spots in the second quarter I've seen some very strong results on the housing front.

And we've experienced some of that on the E commerce at retail.

Side.

On the industrial.

We continue to see weakness in the heavy.

Some pockets of resilience in the light industrial.

Second half trends, obviously be dependent on timing.

And shape of the economic recovery.

And of course last is the non residential markets continue to follow broader economic economy on a lag.

While we've seen some projects.

Get completed some that were put on hold as things were shutdown.

We are certainly cautious on the near term outlook, there, but the level of activity.

Seems to be positive.

Okay.

I mean, what is all let me and well, let's turn to page 14, and we can talk about our our outlook than a framework.

Part of our first quarter results in April we withdrew our annual guidance. There was so much uncertainty around the covance situation.

But as we've navigated the second quarter with our strong execution and at least what now looks like there'd be some stabilization and volumes, even even though they're down.

As well as some of the supply chain dynamics.

Are we thought it would be helpful to not only walk into our framework for expectations, but how we're managing through this.

And also give you our best thinking on how that rolls up into an annual earnings per share range.

Certainly on the macro economics environment remains volatile and these expectations going with the obvious caveats, there's a higher level of uncertainty around them.

But as of now we see ourselves being able to deliver in the range of $7 to 725.

EPS on an adjusted basis, we look.

Talked about a markets on the prior page continue to expect pressure and electrical end markets for the balance of the second half.

We are seeing stabilization in orders with sequential improvement from May to June and into July.

No tangible signs that might support a V shaped recovery, but at least there was improvement.

Order so far in July are down about 15% and our base case is that the balance of third quarter looks somewhat similar to what we've seen on the on the order front.

Early opportunity to if things continue to improve but we're going to plan conservatively right now.

On the utility solution side, we exited the second quarter with a strong backlog position or power systems business.

Continuing to see the resilience in the TNT demand, particularly transmission gives us confidence that we can see some modest growth here in the third quarter.

A clear as a little more dependent on when some of their projects can get fully ramp back up there. We continue to see delays in certain projects as we've talked about.

These are moderating our base case assume we'll probably see low double digit declines here in the third quarter.

Overall, our third quarter base case is down about 10%.

On the margin from our facilities are all currently operational we certainly.

I have learned a lot and our continued to navigate through pockets of challenge whether it be an individual who test positive that may require a 24 hour 72 hour or and worse case of 14 hour quarantine.

And so there's pockets, we've we've been able to manage that into specific.

For the most parts specific cells or departments.

And so we've navigated that.

But we continue to expect some productivity challenges as we manage through it.

And with but we expect the inefficiencies we experienced in the second quarter to improve in the second half.

We certainly see sustainable savings from the restructuring actions, we've taken and expect the full year savings of 25 million, which is above.

The 20 million, we were targeting as of last quarter as we've taken some additional actions in the second quarter.

We also expect price cost to remain positive in the second half, although at a more modest level than the first half as we.

We're going to lap some of our prior year price compares.

The compensation reductions that that bill and Gerbrand referred to that we took in the second quarter, obviously won't repeat in the second half.

We've committed to.

Take those off and get back to normal.

We also expect some of the operating costs, which we think we're at unnaturally low levels in the second quarter to return.

However, do have control over some of these costs than we've taken some actions to appropriate advantage based on our order patterns and volume low.

Net of all these moving part as we expect our decremental margins to tick back up into the 25% to 30% range in the second half.

Well below our gross margin levels and on the cash front, we're actively managing our capex.

But with the strong liquidity position as bill referred.

Having seen the benefit our recent investments and productivity, we continue to invest and things like automation within our factories the drive future productivity.

Terms are working capital continue to manage our inventories down prudently obviously one of the things we've learned in the supply chain challenges to make sure. Some of the critical components, we might have to have some additional inventory.

But we're contemplating that in our working capital management.

Over that of all of that as expect free cash flow for 2020 to be.

At the $500 million or better that we generated in 2019.

So all at all.

I think we're all very please.

The tell you when you think about where we were 90 days ago. We were just heading into the store we had been through most of April.

But the worst was yet to come as we found out in May.

It is it daily challenge to to Slogged your way through it but I couldn't be more proud of how the organization. The leadership team all the way down to the factory floor has really navigated that.

At I think Thats, what gives us confidence that.

Despite the volatile markets.

We're going to find our way and fight our way through to perform at the levels and execute at the levels that we are expecting.

So with that let me turn it over.

The the operator open it up the acuity.

I'm, sorry, Mike Berry.

You're welcome.

Juan Pablo.

Your next question Frank.

Thank you.

Right.

Our first question comes from.

Yes, Rob your line is open.

Thank you good day everyone.

Jeff.

Well.

A couple of things first just on the.

Why disruption on the topline to five point.

I'm sure on the electrical side of it was.

Probably.

Centered on lighting, but the question is really what would that have impacted both segments equally.

They lost five to six points on the topline in both.

Yes, roughly.

It was.

Made to order products inside of lighting, so couldn't be serviced out of inventory, Jeff and for the.

For the power business also made to order product, so and affecting both segments as you said.

And.

On the order front.

I mean, the orders still sounds like this somewhat correct bill there's not a.

Kind of a refill catch up element or or maybe there is that it's just there is up theres other pressures that kind of map that.

I think as Dave said the shape that we've seen was.

In April that deteriorated in May.

And some improvement since then so.

And that's carried into July month to date.

Obviously, something we're watching closely daily.

And that's where orders are now in July it's really the basis for how we guided to second half.

Great and then Gerben gerben too.

Spearheaded this kind of reevaluate in of the electrical structure and how the assets are.

Ill performing.

What what do you think is the biggest opportunity is that just kind of a raw call style opportunity around inefficiencies. It does sound like you're suggesting there is some cross sell that than left on the table.

And I.

I guess that make it a further multipart question.

Was there kind of a further evaluation of how lighting than the puzzle as part of this exercise.

Yes, So let me start with your first part to Jeff Good morning.

The I was indeed, a highly involved in this and I would say the primary motivation for this actually wasn't cost, but more the efficiency of running this business and how we could better serve our customers a in and.

Just just servicing them, which a lot of times.

We would go to the same customer to different branch.

Rather than taking a more holistic approach and going to a customer representing all available.

We see cross selling absolutely and we saw some of these benefits already when we put in play and we talked about days, our VP of strategic accounts are far very largest economy. We put people in place that represent all of hobble, but there's still a lot of customers.

The that then largest and that's really where the opportunity lies so our primary driver for this was really to service to customers and to drive.

Incremental future growth of course, there's a efficiency related to this as well that.

We can benefit from I would also say.

We are absolutely look in to reinvest BARDA dose efficiency back in our business. If you look what were trying to achieve from a technology perspective, and innovation perspective, and what we want to accomplish with digital commerce going forward those things are absolutely needed, but they also require investments into business. So we see this.

As an opportunity to to fund some of those efforts as well.

And your second question was regarding lighting, we see for lighting.

Absolute opportunity to folding would this electrical segment as well we see benefits I mean, if you just again look at we sat lighting in two out of the three groups today and certainly I think lighting can help the others as well what what dose product.

Again common customers there.

You know were structuring this.

Segment very similar to what we've done into power business wit.

Market focused or product focused groups under neat.

So that you still have.

A level of intimacy with your customers because the one thing that I always feared when I ran the power business that as I got larger and larger that that would I eventually become slower analyst.

That's what our customers and so there's a structure in place that where we would retain.

Pieces of the basin I see lighting folding in under that so you know we always look at our portfolio's I'd say our focus right. Now is is to improve the performance of our lighting business.

Great. Thank you good luck.

Our next question comes from.

Thank you Michael Your line is open.

Hey, guys good morning.

Right.

Can you just maybe talk about where you stand as we kind of turned the corner into next year assuming.

Some degree of recovery.

What you have from.

Kind of temporary.

Or structural cost perspective, and then is the cash this year.

Would you would you plan to be able to grow that cash next year that $500 million plus base.

Or is there is kind of similar to this temporary cost dynamics.

Temporary working capital benefits that kind of flip back the other way.

I would say.

Steve a couple of things one.

There are some temporary cost.

Things that are contributing to this year, but as we've mentioned as those.

Some have come back you know the the salary adjustments that we specifically limited to the second quarter because of the severity of the second quarter.

Those come back, but offsetting that with ongoing productivity things that we have been focused on.

Continually around our staffing levels, making sure that we're driving a level of productivity.

I think some of that will be a function of how the market recovers and at what level and we certainly don't have any visibility into next year, but one of things. We're prepared for is to continue to take whatever actions are necessary to rightsize our cost structure around.

Around that so that's the cost side Bill maybe you want to comment on.

The cash so Steve I think that you're right that that AD sales growth comes back we're going to need to invest in inventory and receivables to support that.

But I do think the restructuring work that we're doing and getting our footprint and square footage down.

It is.

To help us be better at inventory management, and I still think there are opportunities for us to improving days.

Across our system and as we benchmark ourselves. It appears evident that we do have opportunities. So I think you're right that naturally going to.

Requirement to invest a little working capital in that growth but.

We will work hard to offset that by being more efficient in days.

Right, but I mean that 500 million, we should think about that is kind of a base. Yes, you know a performance not not like some one time you know I think.

Definitely like.

Benefit they just want to kind of make sure that I understand kind of all the moving part, yes, I think lenders I think you understand it right. So we achieve that in 19.

We do better than 500 million in 20, and I agree there's some working capital tailwind in that but you we should be better than that still.

In 21, that's absolutely you're looking at attainable night Damon Grace, we're improving on that 2019 base, yes, right make me I kind of 10 point. Thanks, guys. Good execution in on the margin.

Congrats.

Great. Thanks.

Operator next question.

Hi, good Tim.

I'll have Ron Coff Wells Fargo.

Your line is open.

Hi, good morning.

Good morning, and good morning to date.

Is it your view of non res cure slightly more optimistic in the context of less than.

Noted.

You, especially called out improvement in activity level can you please expand on that and perhaps even off.

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It could being Nonres your non does that leave and go next year or even bottom yet.

Hello.

Yes, the by I'm not sure that you may interpret my tone versus the substance of what's underneath that I don't.

And some of it.

Said internally to our team you know the one thing that in this new environment as you.

You declare victory when things are down 18% versus an expected 20, likewise thats excess.

So improvement is relative.

We still think that there is work to be done.

Particularly as I said some of the things that we've seen have been as a result of projects getting restarted or completed not new projects.

I think the question is going to be what happens when I think we're I think we would all agree that.

The uncertainty is around new projects, what new projects might occur.

The one area that.

I've talked to a couple of people on particularly in the commercial space. That's interesting they refer to they have a reference to what had been a vertical move.

Now become a horizontal meeting and others might describe it as the de urbanization.

Of of America, with everybody moving out of the city's you've seen that in the residential real estate market, although thats a long term trend at it happens meaningfully.

There needs to be some investment in those communities around non residential construction, whether its retail whether its hospitals.

Thats still a big uncertainty to see how that dynamic plays out, but I don't know that I would say that I'm more optimistic than the market.

Got it.

My follow up.

And you manage.

That's helpful you.

And the finding that some of your businesses more recently and that quite a lot and perhaps not so much and you can also if you can also talk to any.

Discovered any new areas of opportunity that you could consider organic or inorganic growth opportunities going forward that would be helpful. Thank you.

Well I'd I'd have to say that all our businesses are resilient and at least our people addressing the.

Some of the really volatile markets they've been they've been very resilient.

I don't know that there's any.

Particular market or business that I would point to that.

That has been surprisingly weak.

At best they've either been as expected or maybe slightly better.

You know other than some of the implications as Gerben talk about you think about the.

Utility business and where it requires you to get into a home.

You know thats thats not something that we can control and that's something that's unique to this environment.

So what what's otherwise it resilient.

Business.

Deals with some other implications.

I mean as terms as future growth opportunities.

Look to bill or Gerben to comment on that.

Because there's a lot of areas that.

I know they're working on.

I think people we continue to see.

Good opportunity utility markets.

We continue to think that that infrastructure that requires upgrading and strengthening.

We continue to believe that making the grid smarter.

Is going to allow utilities to run.

Those power grids more efficiently and more safely.

I think the.

So it's kind of reinforced this this last 90 days is reinforced the essential nature of what we do there.

Also think that inside of buildings.

You see different pockets distributions are.

Retail has been an interesting bright spot as people have.

Been forced to live at home or be at home more frequently than there used to and.

So they are kind of investing in their homes as Dave said does that does that have a longer tail to it as people's behavior changes I think.

We will be interesting on the commercial side datacenters in the role of data and information are playing and all of our lives. We think is going to continue to drive opportunity.

For us to connect and we continue to think that we have.

A unique positioning across the utility grid of electrical gas and water and how that crosses through the meter into buildings and how that gets used in and so we feel really good about that enhancing some of the fourq design. The curve is talking about is looking to take advantage.

Manager that unique positioning that we see.

Got it one question for therapy, and if I may.

Given that you've been working through this we are definitely did you end up finding there were there any businesses that did not fit so we're all public portfolio.

Actually the short answer to that as you know, but that said.

We absolutely have a focus in our business on evaluating our portfolio one of the big names and we've actually gotten great success out of that is what we called our SKU rationalization or optimization.

Evaluation and what we literally do as we put it in four quadrants of of how to contribute to growth and how to contribute to margin contribution.

And then to focus is on those that don't contribute.

Well to either to either move 'em up or rationalize them out.

We've seen actually a trimming our bar skew portfolio.

And we're doing that on a skew on the product line and even.

Yes.

A different level, so I'd say well continue to see that.

Going forward I do believe that these businesses and what the.

Key is that they have common customers that they have common markets and if you look at the Pie chart that we have we have some diversification, but but we're still pretty focused on on a few attractive end markets. So I'd say the short answer probably no, but I would expect as we have seen over the last couple of.

Catching continued trimming, where where it doesn't make sense and and additions as well and that's the other thing I would say that in a market like this and bill talked about the second half.

Perhaps seeing some some more activity in.

Deals and I would say you know a lot of these deals, especially the size that that fit publish the 30 to 50 million.

Privately owned businesses a lot of those owners through Govan are really the reevaluating their their continued interest and.

To run those businesses and then we become more attractive as a as an acquirer for ourselves I'd say, that's pretty active for US right now to add to the portfolio on the other side.

Thanks for that color and alright. Thank you.

Thanks.

Again to asked a question you will need to press star one on your telephone.

And that will be star then in number one on its helpful.

But anything else coming in operator.

There are no further questions. Please continue.

All right no other questions that will conclude today's call.

On the all day for follow ups and thanks for joining us.

Thank you very much.

Thank you.

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