HUBBELL INC - Quarter Report: 2024 March (Form 10-Q)

Comprehensive income attributable to Hubbell Incorporated$138.5 $191.2 enotes to unaudited Condensed Consolidated Financial Statements.

See notes to unaudited Condensed Consolidated Financial

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Condensed Consolidated Balance Sheets (unaudited)


(in millions)	March 31, 2024	December 31, 2023
ASSETS
Current Assets
Cash and cash equivalents	$	$
Short-term investments
Accounts receivable (net of allowances of $ and $)
Inventories, net
Other current assets
Assets held for sale - current
Total Current Assets
Property, Plant, and Equipment, net
Other Assets
Investments
Goodwill
Other intangible assets, net
Other long-term assets
Assets held for sale - non-current
TOTAL ASSETS	$	$
LIABILITIES AND EQUITY
Current Liabilities
Short-term debt and current portion of long-term debt	$	$
Accounts payable
Accrued salaries, wages and employee benefits
Accrued insurance
Other accrued liabilities
Liabilities held for sale - current
Total Current Liabilities
Long-Term Debt
Other Non-Current Liabilities
Liabilities held for sale - non-current
TOTAL LIABILITIES
Commitments and contingencies (Note 15)
Noncontrolling interest
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY	$	$

See notes to unaudited Condensed Consolidated Financial Statements.

HUBBELL INCORPORATED-Form 10-Q 5

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Condensed Consolidated Statements of Cash Flows (unaudited)


	Three Months Ended March 31,
(in millions)	2024	2023
Cash Flows from Operating Activities
Net income	$	$
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Deferred income taxes		()
Stock-based compensation
Provision for bad debt expense	()
Loss on disposition of business
Loss on sale of assets
Changes in assets and liabilities, excluding effects of acquisitions:
Increase in accounts receivable, net	()	()
Increase in inventories, net	()	()
Increase in accounts payable
Decrease in current liabilities	()	()
Changes in other assets and liabilities, net		()
Contribution to qualified defined benefit pension plans
Other, net	()	()
Net cash provided by operating activities
Cash Flows from Investing Activities
Capital expenditures	()	()
Acquisitions, net of cash acquired
Proceeds from disposal of business, net of cash
Purchases of available-for-sale investments		()
Proceeds from available-for-sale investments
Other, net
Net cash provided by (used in) investing activities		()
Cash Flows from Financing Activities
Payment of long-term debt	()
Borrowings of short-term debt, net
Payment of dividends	()	()
Acquisition of common shares	()	()
Other, net	()	()
Net cash used in financing activities	()	()
Effect of exchange rate changes on cash and cash equivalents	()
Increase (decrease) in cash and cash equivalents		()
Cash and cash equivalents, beginning of year
Cash and cash equivalents within assets held for sale, beginning of year
Restricted cash, included in other assets, beginning of year
Less: Restricted cash, included in Other Assets

HUBBELL INCORPORATED-Form 10-Q 10

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NOTE 3

percent of total annual consolidated net revenue and those service contracts and post-shipment obligations are primarily within the Utility Solutions segment. Revenue from service contracts and post-shipment performance obligations is recognized when or as those obligations are satisfied. The Company primarily offers assurance-type standard warranties that do not represent separate performance obligations and on occasion will separately offer and price extended warranties that are separate performance obligations for which the associated revenue is recognized over-time based on the extended warranty period. The Company records amounts billed to customers for reimbursement of shipping and handling costs within revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of goods sold. Sales taxes and other usage-based taxes are excluded from revenue.

Certain of our businesses require a portion of the transaction price to be paid in advance of transfer of control. Advance payments are not considered a significant financing component as they are received less than one year before the related performance obligations are satisfied. In addition, in the Utility Solutions segment, certain businesses offer annual maintenance service contracts that require payment at the beginning of the contract period. These payments are treated as a contract liability and are classified in Other accrued liabilities in the Condensed Consolidated Balance Sheets. Once control transfers to the customer and the Company meets the revenue recognition criteria, the deferred revenue is recognized in the Condensed Consolidated Statements of Income. The deferred revenue relating to the annual maintenance service contracts is recognized in the Condensed Consolidated Statements of Income on a straight-line basis over the expected term of the contract.

$ Grid Automation Total Utility Solutions$ $ Electrical Products$ $ Connection and Bonding Industrial Controls Retail and Builder Total Electrical Solutions$ $ TOTAL$ $

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$ International Total Utility Solutions$ $ United States$ $ International Total Electrical Solutions$ $ TOTAL$ $

Contract Balances

Our contract liabilities consist of advance payments for products as well as deferred revenue on service obligations and extended warranties. Deferred revenue is included in Other accrued liabilities in the Condensed Consolidated Balance Sheets.

Contract liabilities were $ million as of March 31, 2024 compared to $ million as of December 31, 2023. The $ million increase in our contract liabilities balance was primarily due to a $ million net increase in current year deferrals primarily due to timing of advance payments on certain orders, partially offset by the recognition of $ million in revenue related to amounts that were recorded in contract liabilities at January 1, 2024. The ending balance of contract assets as of March 31, 2024 and December 31, 2023, was $ million and $ million, respectively. Impairment losses recognized on our receivables and contract assets were immaterial for the three months ended March 31, 2024.

Unsatisfied Performance Obligations

As of March 31, 2024, the Company had approximately $ million of unsatisfied performance obligations for contracts with an original expected length of greater than one year, primarily relating to long-term contracts of the Utility Solutions segment to deliver and install meters, metering communications and grid monitoring sensor technology. The Company expects that a majority of the unsatisfied performance obligations will be completed and recognized over the next .

HUBBELL INCORPORATED-Form 10-Q 12

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NOTE 4

$ $ $ % %Electrical Solutions % %TOTAL$ $ $ $ % %

HUBBELL INCORPORATED-Form 10-Q 13

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NOTE 5

$ Work-in-process Finished goods Subtotal Excess of FIFO over LIFO cost basis()()TOTAL$ $

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NOTE 6

$ $

Prior year acquisitions(1)

Foreign currency translation ()()()BALANCE AT MARCH 31, 2024$ $ $

(1) Refer to Note 2 - Business Acquisitions for additional information.

$()$ $()Customer relationships, developed technology and other () ()TOTAL DEFINITE-LIVED INTANGIBLES$ $()$ $()Indefinite-lived: Tradenames and other TOTAL OTHER INTANGIBLE ASSETS$ $()$ $()

Amortization expense associated with definite-lived intangible assets was $ million and $ million during the three months ended March 31, 2024 and 2023, respectively. Future amortization expense associated with these intangible assets is estimated to be $ million for the remainder of 2024, $ million in 2025, $ million in 2026, $ million in 2027, $ million in 2028, and $ million in 2029. The Company amortizes intangible assets with definite lives using either an accelerated method that reflects the pattern in which economic benefits of the intangible assets are consumed and results in higher amortization in the earlier years of the assets useful lives, or using a straight line method. Approximately % of the gross value of definite-lived intangible assets follow an accelerated amortization method.

HUBBELL INCORPORATED-Form 10-Q 15

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NOTE 7

$ Accrued income taxes Contract liabilities - deferred revenue Customer refund liability

Accrued warranties short-term(1)

Current operating lease liabilities Other TOTAL$ $

(1) Refer to Note 22 - Guarantees, in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2023 for additional information regarding warranties.

NOTE 8

$ Other post-retirement benefits Deferred tax liabilities

Accrued warranties long-term(1)

Non-current operating lease liabilities Other TOTAL$ $

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NOTE 9

$ $ $()$ $ Net income— — — Other comprehensive (loss) income— — — ()()— Stock-based compensation— — — —

Acquisition/surrender of common shares(1)

— ()()— ()—

Cash dividends declared ($ per share)

— — ()— ()— Dividends to noncontrolling interest— — — — — ()Directors deferred compensation— — — — — BALANCE AT MARCH 31, 2024$ $ $ $()$ $

Common Stock

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Total Hubbell
Shareholders'
Equity

Non-
controlling
interest

BALANCE AT DECEMBER 31, 2022

()

Net income

—

Other comprehensive (loss) income

—

Stock-based compensation

—

Acquisition/surrender of common shares(1)

—

()

—

()

—

Cash dividends declared ($ per share)

—

()

—

()

—

Dividends to noncontrolling interest

—

()

Directors deferred compensation

—

BALANCE AT MARCH 31, 2023

()

The Company did not have any significant anti-dilutive securities outstanding during the three months ended March 31, 2024 and 2023.

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NOTE 12

$ $ $ Interest cost Expected return on plan assets()() Amortization of prior service cost Amortization of actuarial losses (gains) ()()NET PERIODIC BENEFIT COST$ $ $ $

Employer Contributions

contributions to its qualified domestic defined benefit pension plan and contributions to its foreign pension plans during the three months ended March 31, 2024

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NOTE 13

$ Provision Expenditures/payments/other()()

BALANCE AT MARCH 31, (a)

$ $

(a) Refer to Note 7 – Other Accrued Liabilities and Note 8 – Other Non-Current Liabilities for a breakout of short-term and long-term warranties.

HUBBELL INCORPORATED-Form 10-Q 21

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NOTE 14

million, net of allowances of $ million. During the three months ended March 31, 2024, our allowances decreased by approximately $ million.

Investments

At March 31, 2024 and December 31, 2023, the Company had $ million and $ million, respectively, of available-for-sale municipal debt securities. These investments had an amortized cost of $ million and $ million, respectively. allowance for credit losses related to our available-for-sale debt securities was recorded for the three months ended March 31, 2024 or March 31, 2023. As of March 31, 2024 and December 31, 2023, the unrealized losses attributable to our available-for-sale debt securities were $ million and $ million, respectively. The fair value of available-for-sale debt securities with unrealized losses was $ million at March 31, 2024 and $ million at December 31, 2023.

The Company also had trading securities of $ million at March 31, 2024 and $ million at December 31, 2023 that are carried on the balance sheet at fair value. Unrealized gains and losses associated with available-for-sale debt securities are reflected in Accumulated other comprehensive loss, net of tax, while unrealized gains and losses associated with trading securities are reflected in the Condensed Consolidated Statement of Income.

Fair value measurements

Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The FASB fair value measurement guidance established a fair value hierarchy that prioritizes the inputs used to measure fair value. The three broad levels of the fair value hierarchy are as follows:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly.

Level 3 – Unobservable inputs for which little or no market data exists, therefore requiring a company to develop its own assumptions.

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$ $ $ Available for sale investments Trading securities Deferred compensation plan liabilities() ()Derivatives:

Forward exchange contracts-Assets(b)

Forward exchange contracts-(Liabilities)(c)

() ()TOTAL$ $ $ $ Asset (Liability)Quoted Prices in
Active Markets for
Identical Assets
(Level 1)Quoted Prices in
Active Markets for
Similar Assets
(Level 2)Unobservable inputs
for which little or no
market data exists
(Level 3)TotalDecember 31, 2023

Money market funds(a)

$ $ $ $ Available for sale investments Trading securities Deferred compensation plan liabilities() ()Derivatives:

Forward exchange contracts-(Liabilities)(c)

() ()TOTAL$ $ $ $

(a) Money market funds are reflected in Cash and cash equivalents in the Condensed Consolidated Balance Sheets.

(b) Forward exchange contracts-Assets are reflected in Other current assets in the Condensed Consolidated Balance Sheets.

(c) Forward exchange contracts-(Liabilities) are reflected in Other accrued liabilities in the Condensed Consolidated Balance Sheets.

The methods and assumptions used to estimate the Level 2 fair values were as follows:

Forward exchange contracts – The fair value of forward exchange contracts was based on quoted forward foreign exchange prices at the reporting date.

Available-for-sale municipal bonds classified in Level 2 – The fair value of available-for-sale investments in municipal bonds is based on observable market-based inputs, other than quoted prices in active markets for identical assets.

Deferred compensation plans

The Company offers certain employees the opportunity to participate in non-qualified deferred compensation plans. A participant’s deferrals are invested in a variety of participant-directed debt and equity mutual funds that are classified as trading securities. The Company purchased $ million and $ million of trading securities related to these deferred compensation plans during the three months ended March 31, 2024 and 2023, respectively. As a result of participant distributions, the Company sold $ million of these trading securities during the three months ended March 31, 2024 and $ million during the three months ended March 31, 2023. The unrealized gains and losses associated with these trading securities are directly offset by the changes in the fair value of the underlying deferred compensation plan obligation.

Long Term Debt

As of March 31, 2024 and December 31, 2023, the carrying value of long-term debt, net of unamortized discount and debt issuance costs, including the $ million and $ million, respectively, current portion of the Term Loan, was $ million and $ million, respectively. The estimated fair value of the long-term debt as of March 31, 2024 and December 31, 2023 was $ million and $ million, respectively, using quoted market prices in active markets for similar liabilities (Level 2).

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NOTE 15

HUBBELL INCORPORATED-Form 10-Q 24

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NOTE 16

$ $ $ $ $ Electrical Solutions () ()Total Pre-Tax Restructuring Costs$ $ $ $ $ $

Three Months Ended March 31,

$ $()$ Asset write-downs Facility closure and other costs () Total 2024 Restructuring Actions$ $ $()$ 2023 and Prior Restructuring ActionsSeverance$ $ $()$ Asset write-downs Facility closure and other costs () Total 2023 and Prior Restructuring Actions$ $ $()$ Total Restructuring Actions$ $ $()$

The actual costs incurred and total expected cost in each of our reporting segments of our on-going restructuring actions are as follows (in millions):

Total expected costs

Costs incurred during 2023

Costs incurred in the first three months of 2024

Remaining costs at 3/31/2024

2024 Restructuring Actions

Utility Solutions

Electrical Solutions

Total 2024 Restructuring Actions

2023 and Prior Restructuring Actions

Utility Solutions

Electrical Solutions

Total 2023 and Prior Restructuring Actions

Total Restructuring Actions

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NOTE 17

%2026$ $

Senior notes at %

2027

Senior notes at %

2028

Senior notes at %

2031

Term loan, net of current portion of $ million and $ million, respectively

2026

TOTAL LONG-TERM DEBT(a)

$ $

Term Loan Agreement

In connection with the December 2023 acquisition of Systems Control, the Company entered into a Term Loan Agreement with a syndicate of lenders under which the Company borrowed $ million on an unsecured basis. Borrowings under the Term Loan Agreement bear interest generally at either the adjusted term SOFR rate plus an applicable margin (determined by a ratings based-grid) or the alternative base rate. Currently the loans bear interest based on the adjusted term SOFR rate, which was % as of March 31, 2024. The principal amount of borrowings under the Term Loan Agreement amortize in equal quarterly installments of % of the original outstanding principal amounts in 2024, % in 2025, and % in 2026, with the remaining outstanding principal amount under the Term Loan Agreement due and payable in full at maturity in December 2026. The Company may make principal payments in excess of the amortization schedule at its discretion. During the three months ended March 31, 2024 the Company made $ million of principal payments. The sole financial covenant in the Term Loan Agreement requires that total debt not exceed % of total capitalization as of the last day of each fiscal quarter of the Company. The Company was in compliance with this covenant as of March 31, 2024.

2021 Credit Facility

The Company has a credit agreement with a syndicate of lenders and JPMorgan Chase, N.A., as administrative agent, that provides a $ million committed revolving credit facility (the “2021 Credit Facility"). Commitments under the 2021 Credit Facility may be increased to an aggregate amount not to exceed $ billion.

The 2021 Credit Facility contains a financial covenant requiring that, as of the last day of each fiscal quarter, the ratio of total indebtedness to total capitalization shall not be greater than %. The Company was in compliance with this covenant as of March 31, 2024. As of March 31, 2024, the 2021 Credit Facility was undrawn.

Short-Term Debt and Current Portion of Long-Term Debt

The Company had $ million and $ million of short-term debt and current portion of long-term debt outstanding at March 31, 2024 and December 31, 2023, respectively, composed of the following:

•$ million of commercial paper borrowings outstanding at March 31, 2024, and $ million of commercial paper borrowings outstanding at December 31, 2023, which was used to fund the Systems Control acquisition.

•$ million and $ million of long-term debt classified as current within current liabilities in the Condensed Consolidated Balance Sheets, reflecting maturities within the next 12 months related to borrowing under the Term Loan Agreement at March 31, 2024 and December 31, 2023, respectively.

million and $ million of other short-term debt outstanding at March 31, 2024 and December 31, 2023, respectively, which consisted of borrowings to support our international operations in China and amounts outstanding under our commercial card program.

HUBBELL INCORPORATED-Form 10-Q 26

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Note 18

million shares of common stock to settle awards of restricted stock, performance shares, or SARs. The Company issues new shares to settle stock-based awards. During the three months ended March 31, 2024, the Company's grant of stock-based awards included restricted stock, SARs and performance shares.

Each of the compensation arrangements is discussed below.

Restricted Stock

The Company issues various types of restricted stock, of which the restricted stock awards are considered outstanding at the time of grant, as the award holders are entitled to dividends and voting rights. Unvested restricted stock awards are considered participating securities when computing earnings per share. Restricted stock unit award holders are not entitled to dividends or voting rights until settlement. Restricted stock grants are not transferable and are subject to forfeiture in the event of the recipient’s termination of employment prior to vesting.

Restricted Stock Awards Issued to Employees - Service Condition

Restricted stock awards that vest based upon a service condition are expensed on a straight-line basis over the requisite service period. These awards generally vest either in equal installments on each of the first anniversaries of the grant date or on the third-year anniversary of the grant date. The fair value of these awards is measured by the average of the high and low trading prices of the Company’s common stock on the most recent trading day immediately preceding the grant date (“measurement date”).

In February 2024, the Company granted restricted stock awards with a fair value per share of $.

Restricted Stock Units Issued to Employees - Service Condition

Restricted stock units that vest based upon a service condition are expensed on a straight-line basis over the requisite service period. These awards generally vest in equal installments on each of the first anniversaries of the grant date. The fair value of these awards is measured by the average of the high and low trading prices of the Company’s common stock on the measurement date reduced by the present value of dividends expected to be paid during the requisite service period.

In February 2024, the Company granted restricted stock units with a fair value per share of $.

Stock Appreciation Rights

SARs grant the holder the right to receive, once vested, the value in shares of the Company's common stock equal to the positive difference between the grant price, as determined using the mean of the high and low trading prices of the Company’s common stock on the measurement date, and the fair market value of the Company’s common stock on the date of exercise. This amount is payable in shares of the Company’s common stock. SARs vest and become exercisable in equal installments during the first following the grant date and expire from the grant date.

In February 2024, the Company granted SAR awards. The fair value of each SAR award was measured using the Black-Scholes option pricing model.

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%%% years$

The expected dividend yield was calculated by dividing the Company’s expected annual dividend by the average stock price for the past three months. Expected volatilities are based on historical volatilities of the Company’s stock for a period consistent with the expected term. The expected term of SARs granted was based upon historical exercise behavior of SARs. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the award.

Performance Shares

Performance shares represent the right to receive a share of the Company’s common stock subject to the achievement of certain market or performance conditions established by the Company’s Compensation Committee and measured over a period. Partial vesting in these awards may occur after separation from the Company for retirement eligible employees. Shares are not vested until approved by the Company’s Compensation Committee.

Performance Shares - Market Condition

In February 2024, the Company granted performance shares that will vest subject to a market condition and service condition through the performance period. The market condition associated with the awards is the Company's total shareholder return ("TSR") compared to the TSR generated by the companies that comprise the S&P Capital Goods 900 index over a performance period. Performance at target will result in vesting and issuance of the number of performance shares granted, equal to % payout. Performance below or above target can result in issuance in the range of %-% of the number of shares granted. Expense is recognized irrespective of the market condition being achieved.

The fair value of the performance share awards with a market condition for the 2024 grant was determined based upon a lattice model.

%%% years$

Expected volatilities are based on historical volatilities of the Company’s and members of the peer group's stock over the expected term of the award. The risk free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant for the expected term of the award.

Performance Shares - Performance Condition

In February 2024, the Company granted performance shares that will vest subject to an internal Company-based performance condition and service requirement.

percent of these performance shares granted will vest based on Hubbell’s compounded annual growth rate of Net sales as compared to that of the companies that comprise the S&P Capital Goods 900 index. percent of these performance shares granted will vest based on achieved operating profit margin performance as compared to internal targets. Each of these performance conditions is measured over the same performance period. The cumulative result of these performance conditions can result in a number of shares earned in the range of %-% of the target number of shares granted.

The fair value of the award is measured based upon the average of the high and low trading prices of the Company's common stock on the measurement date reduced by the present value of dividends expected to be paid during the requisite service period. for the awards granted during February 2024.

Jan 2024 - Dec 2026

%-%

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ITEM 2			Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview of the Business

Hubbell is a global manufacturer of quality electrical products and utility solutions for a broad range of customer and end market applications. We provide utility and electrical solutions that enable our customers to operate critical infrastructure reliably and efficiently, and we empower and energize communities through innovative solutions supporting energy infrastructure In Front of the Meter, on The Edge, and Behind the Meter. In Front of the Meter is where utilities transmit and distribute energy to their customers. The Edge connects utilities with owner/operators and allows energy and data to be distributed back and forth. Behind the Meter is where owners and operators of buildings and other critical infrastructure consume energy. Products are either sourced complete, manufactured or assembled by subsidiaries in the United States, Canada, Puerto Rico, Mexico, China, the UK, Brazil, Australia, Spain, Ireland and the Republic of the Philippines. The Company also participates in joint ventures in Hong Kong and the Republic of the Philippines, and maintains offices in Singapore, Italy, China, India, Mexico, South Korea, Chile, and countries in the Middle East. The Company employed approximately 18,400 individuals worldwide as of March 31, 2024.

The Company’s reporting segments consist of the Utility Solutions segment and Electrical Solutions segment.

Results for the three months ended March 31, 2024 by segment are included under “Segment Results” within this Management’s Discussion and Analysis.

The Company's long-term strategy is to serve its customers with reliable and innovative electrical and related infrastructure solutions with desired brands and high-quality service, delivered through a competitive cost structure; to complement organic revenue growth with acquisitions that enhance its product offerings; and to allocate capital effectively to create shareholder value.

Our strategy to complement organic revenue growth with acquisitions is focused on acquiring assets that extend our capabilities, expand our product offerings, and present opportunities to compete in core, adjacent or complementary markets. Our acquisition strategy also provides the opportunity to advance our revenue growth objectives during periods of weakness or inconsistency in our end-markets.

Our strategy to deliver products through a competitive cost structure has resulted in past and ongoing restructuring and related activities. Our restructuring and related efforts include the consolidation of manufacturing and distribution facilities, and workforce actions, as well as streamlining and consolidating our back-office functions. The primary objectives of our restructuring and related activities are to optimize our manufacturing footprint, cost structure, and effectiveness and efficiency of our workforce.

Productivity improvement also continues to be a key area of focus for the Company and efforts to drive productivity complement our restructuring and related activities to minimize the impact of rising material costs and other administrative cost inflation. Because material costs are approximately two thirds of our cost of goods sold, continued volatility in this area could significantly impact profitability. Our goal is to have pricing and productivity programs that offset material and other inflationary cost increases as well as pay for investments in key growth areas.

Productivity programs affect virtually all functional areas within the Company by reducing or eliminating waste and improving processes. We continue to expand our efforts related to global product and component sourcing, as well as supplier cost reduction programs. Value engineering efforts, product transfers and the use of lean process improvement techniques are expected to continue to increase manufacturing efficiency. In addition, we continue to build upon the benefits of our enterprise resource planning system across all functions.

Our sales are also subject to market conditions that may cause customer demand for our products to be volatile and unpredictable, particularly in our Electrical Solutions segment. Product demand can be affected by fluctuations in domestic and international economic conditions, as well as currency fluctuations, commodity costs, and a variety of other factors. Since early 2021, we have experienced significant inflationary pressure across much of our business. As a result, we have taken various pricing actions to cover the higher costs and protect our profitability. Although there has been some mitigation in the rate of inflation starting in 2023, we expect inflation to remain a factor for the foreseeable future and we expect to continue to take these pricing actions subject to demand and market conditions. Accordingly, there can be no assurance that we will be able to maintain our margins in response to further changes in inflationary pressures. In addition, macroeconomic effects such as increases in interest rates and other measures taken by central banks and other policy makers could have a negative effect on overall economic activity which could reduce our customers’ demand for our products, and cause the continuation of relatively high market interest rates that increase our borrowing costs.

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The following is a discussion and analysis of our business, financial condition and results of operations as of and for the three months ended March 31, 2024 and 2023. This discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and notes thereto in Item 1 of this Quarterly Report on Form 10-Q (the "Condensed Financial Statements"), and the audited consolidated financial statements, accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Results of Operations – First Quarter of 2024 compared to the First Quarter of 2023

Overview

First quarter 2024 net sales were $1,399.1 million and grew by 9%, including 2% organic growth from price realization and 6% growth from acquisitions net of divestitures.

Organic growth in the Electrical Solutions segment was strong, where electrification is driving broad-based strength across electrical products and industrial markets, with continued high rates of renewables growth. Organic growth was flat in the Utility Solutions segment as strength in grid automation products and continued backlog conversion in metering products, was offset by continued channel inventory management in distribution markets and weak Telcom markets in the quarter. Price realization continues to be positive in our segments as compared to the first quarter of 2023.

Acquisitions within Utility Solutions contributed to 8% net sales growth driven by our acquisition of Systems Control in the fourth quarter of 2023, while the divestiture of our residential lighting business from the Electrical Solutions segment was completed in the first quarter of 2024 and contributed to a 2% decline in net sales as compared to the first quarter of 2023.

Operating margin in the first quarter of 2024 was 16.3% and contracted by 310 basis points. Adjusted operating margin, which excludes amortization of acquisition-related intangibles and transaction, integration and separation costs, was 19.7% and contracted by 100 basis points. Margin contraction in the quarter was primarily driven by material and other cost inflation, lower volume and our continuing investments in the business. Margins in the first quarter of 2024 also reflect the effect of favorable price realization and benefits from operational productivity. These factors are further described within Segment Results below.

In December 2023, the Company entered into a definitive agreement to sell its residential lighting business for a cash purchase price of $131 million, subject to customary adjustments. The Company concluded the business met the criteria for classification as held for sale in the fourth quarter of 2023. The residential lighting business was reported within the Electrical Solutions Segment. The transaction closed in the first quarter of 2024 and the Company recorded a pre-tax loss on the sale of $5.3 million, which is recorded within Total other expense in the Company's Condensed Consolidated Statement of Income.

In addition, during 2023, the Company completed a number of acquisitions that affect the comparability of current period results of operations to those of prior year periods. For additional information regarding such transactions, see Note 2, Business Acquisitions and Dispositions in the notes to the Condensed Financial Statements.

SUMMARY OF CONDENSED CONSOLIDATED RESULTS (IN MILLIONS, EXCEPT PER SHARE DATA):


	Three Months Ended March 31,
	2024		% of Net sales		2023		% of Net sales
Net sales	$	1,399.1			$	1,285.4
Cost of goods sold	951.4		68.0	%	837.1		65.1	%
Gross profit	447.7		32.0	%	448.3		34.9	%
Selling & administrative ("S&A") expense	219.2		15.7	%	199.5		15.5	%
Operating income	228.5		16.3	%	248.8		19.4	%
Net income	149.1		10.7	%	183.4		14.3	%
Less: Net income attributable to non-controlling interest	(1.3)		(0.1)	%	(1.5)		(0.1)	%
Net income attributable to Hubbell Incorporated	147.8		10.6	%	181.9		14.2	%
Less: Earnings allocated to participating securities	(0.3)				(0.4)
Net income available to common shareholders	$	147.5			$	181.5
Average number of diluted shares outstanding	54.0				53.9
DILUTED EARNINGS PER SHARE	$	2.73			$	3.37

HUBBELL INCORPORATED-Form 10-Q 30

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In the following discussion of results of operations, we refer to "adjusted" operating measures. We believe those adjusted measures, which exclude the impact of certain costs, gains and losses, may provide investors with useful information regarding our underlying performance from period to period and allow investors to understand our results of operations without regard to items that, in management's judgement, significantly affect the comparability of operating results, or we do not consider a components of our core operating performance.

Significant items impacting comparability:

Transaction, integration and separation costs

The effects that acquisitions and divestitures may have on our results fluctuate significantly based on the timing, size and number of transactions, and therefore result in significant volatility in the costs to complete transactions and to integrate or separate the businesses.

Transaction costs are primarily professional services and other fees incurred to complete the transactions. Integration and separation costs are the internal and external incremental costs directly relating to these activities for the acquired or divested business.

The acquisition and divestiture actions taken by the Company in the fourth quarter of 2023 have resulted in a significant increase in current period integration and separation costs. As a result, we believe excluding costs relating to these fourth quarter transactions provides useful and more comparable information to investors to better assess our operating performance.

Gains or losses on disposition of a business

Certain of the Company's adjusted measures exclude these gains or losses because we believe it enhances management's and investors' ability to analyze underlying business performance and facilitates comparisons of our financial results over multiple periods. In the first quarter of 2024 the Company recognized a $5.3 million pre-tax loss on the disposition of the residential lighting business.

Certain of the Company's adjusted measures also exclude the income tax effect directly related to the disposition of the residential lighting business. In the first quarter of 2024, the Company recognized $6.8 million of income tax expense on the sale of the residential lighting business, primarily driven by differences between book and tax basis in goodwill.

Amortization of intangible assets

Adjusted operating measures exclude amortization of all intangible assets associated with our business acquisitions, including inventory step-up amortization associated with those acquisitions. The intangible assets associated with our business acquisitions arise from the allocation of the purchase price using the acquisition method of accounting in accordance with Accounting Standards Codification 805, “Business Combinations.” These assets consist primarily of customer relationships, developed technology, trademarks and tradenames, and patents, as reported in Note 7 – Goodwill and Other Intangible Assets, under the heading “Total Definite-Lived Intangibles,” within the Company’s audited consolidated financial statements set forth in its Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

The Company believes that the exclusion of these non-cash expenses (i) enhances management’s and investors’ ability to analyze underlying business performance, (ii) facilitates comparisons of our financial results over multiple periods, and (iii) provides more relevant comparisons of our results with the results of other companies as the amortization expense associated with these assets may fluctuate significantly from period to period based on the timing, size, nature, and number of acquisitions. Although we exclude amortization of these acquired intangible assets and inventory step-up from our non-GAAP results, we believe that it is important for investors to understand that revenue generated, in part, from such intangibles is included within revenue in determining adjusted net income attributable to Hubbell Incorporated.

Adjusted results also excluded the income tax effects of the above adjustments which are calculated using the statutory tax rate, taking into consideration the nature of the item and the relevant taxing jurisdiction, unless otherwise noted.

HUBBELL INCORPORATED-Form 10-Q 31

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Organic net sales (or organic net sales growth), a non-GAAP measure, represents Net sales according to U.S. GAAP, less Net sales from acquisitions and divestitures during the first twelve months of ownership or divestiture, respectively, less the effect of fluctuations in Net sales from foreign currency exchange. The period-over-period effect of fluctuations in Net sales from foreign currency exchange is calculated as the difference between local currency Net sales of the prior period translated at the current period exchange rate as compared to the same local currency Net sales translated at the prior period exchange rate. We believe this measure provides management and investors with a more complete understanding of the underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, dispositions and foreign currency as these activities can obscure underlying trends. When comparing Net sales growth between periods, excluding the effects of acquisitions, business dispositions and currency exchange rates, those effects are different when comparing results for different periods. For example, because Net sales from acquisitions are considered inorganic from the date we complete an acquisition through the end of the first year following the acquisition, Net sales from such acquisition are reflected as organic net sales thereafter.

There are limitations to the use of non-GAAP measures. Non-GAAP measures do not present complete financial results. We compensate for this limitation by providing a reconciliation between our non-GAAP financial measures and the respective most directly comparable financial measure calculated and presented in accordance with GAAP. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names. These financial measures should not be considered in isolation from, as substitutes for, or alternative measures of, reported GAAP financial results, and should be viewed in conjunction with the most comparable GAAP financial measures and the provided reconciliations thereto. We believe, however, that these non-GAAP financial measures, when viewed together with our GAAP results and related reconciliations, provide a more complete understanding of our business. We strongly encourage investors to review our consolidated financial statements and publicly filed reports in their entirety and not rely on any single financial measure.

The following table reconciles Adjusted operating income, a non-GAAP measure, to Operating income, the directly comparable GAAP financial measure (in millions):


	Three Months Ended March 31,
	2024		% of Net sales			2023		% of Net sales
Operating income (GAAP measure)	$	228.5	16.3		%	$	248.8	19.4		%
Amortization of acquisition-related intangible assets	39.4		2.8		%	17.8		1.3		%

Transaction, integration & separation costs	7.3		0.6		%	—		—		%
Adjusted operating income (non-GAAP measure)	$	275.2	19.7		%	$	266.6	20.7		%






The following table reconciles Adjusted net income attributable to Hubbell Incorporated, Adjusted net income available to common shareholders, and the diluted per share amounts thereof, each a non-GAAP measure, to the directly comparable GAAP financial measures (in millions, except per share data).


	Three Months Ended March 31,
	2024		Diluted Per Share			2023		Diluted Per Share
Net income attributable to Hubbell Incorporated (GAAP measure)	$	147.8	$	2.73		$	181.9	$	3.37
Amortization of acquisition-related intangible assets	39.4		0.73			17.8		0.33


Transaction, integration & separation costs	7.3		0.14			—		—
Loss on disposition of business	5.3		0.10			—		—
Subtotal	$	199.8	$	3.70		$	199.7	$	3.70
Income tax effects(1)	4.6		0.09			4.4		0.08
Adjusted net income attributable to Hubbell Incorporated (non-GAAP measure)	$	195.2	$	3.61		$	195.3	$	3.62
Less: Earnings allocated to participating securities	(0.4)		(0.01)			(0.5)		(0.01)
Adjusted net income available to common shareholders (non-GAAP measure)	$	194.8	$	3.60		$	194.8	$	3.61

Net Sales

Net sales of $1,399.1 million in the first quarter of 2024 increased by $113.7 million compared to the first quarter of 2023. Organic net sales increased by 2.3%, which was composed of a low single digit percentage increase in price realization partially offset by a low single digit percentage decrease in volume. Acquisitions net of divestitures contributed 6.2% to sales growth. The primary drivers of these changes are discussed in more detail in the Segment Results section below.

Cost of Goods Sold and Gross Profit

As a percentage of Net sales, cost of goods sold increased by 290 basis points to 68.0% in the first quarter of 2024, as compared to 65.1% in the first quarter of 2023, resulting in gross profit margin of 32.0% in the first quarter of 2024 as compared to 34.9% in the first quarter of 2023. Approximately six percentage points of margin contraction was driven by higher intangible amortization expense, material and other cost inflation and lower volumes, as well as continued investments in long-term growth and productivity initiatives, which was partially offset by approximately four percentage points of margin expansion driven by favorable price realization and improved operational productivity.

Selling & Administrative Expenses

S&A expense in the first quarter of 2024 was $219.2 million and increased by $19.7 million or 9.9% compared to the prior year period. Approximately two thirds of this increase was driven by the 2023 acquisitions net of divestitures, with the remaining increase being driven by labor and other cost inflation. S&A expense as a percentage of Net sales was 15.7% in the first quarter of 2024, compared to 15.5% in the first quarter of 2023.

Total Other Expense

Total other expense increased by $13.3 million in the first quarter of 2024 to $27.1 million, primarily due to higher net interest expense of $11.4 million in the first quarter of 2024 compared to the same period in 2023, along with the $5.3 million loss recognized on the disposition of the residential lighting business. The increase in interest expense was primarily attributable to higher debt balances (primarily related to debt incurred in connection with the Systems Control acquisition) and higher market interest rates.

Income Taxes

The effective tax rate in the first quarter of 2024 increased to 26.0% as compared to 22.0% in the first quarter of 2023, primarily due to an income tax expense related to the closing of the sale of our residential lighting business that was divested in the first quarter of 2024, partially offset by a stock-based compensation tax benefit.

Net Income Attributable to Hubbell Incorporated and Earnings Per Diluted Share

Net income attributable to Hubbell Incorporated was $147.8 million in the first quarter of 2024 and decreased 18.7% as compared to the same period of the prior year, reflecting the factors described above. As a result, earnings per diluted share in the first quarter of 2024 decreased 19% as compared to the first quarter of 2023. Adjusted net income attributable to Hubbell Incorporated, which excludes amortization of acquisition-related intangibles from both periods and transaction, integration & separation costs and a loss on disposition of a business in the first quarter of 2024, was $195.2 in the first quarter of 2024 and was flat as compared to the first quarter of 2023.

HUBBELL INCORPORATED-Form 10-Q 33

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Segment Results

UTILITY SOLUTIONS


	Three Months Ended March 31,
(In millions)	2024			2023
Net sales	$	894.0		$	781.6
Operating income (GAAP measure)	157.5			177.5
Amortization of acquisition-related intangible assets	35.2			13.3
Transaction, integration & separation costs	2.5			—
Adjusted operating income	$	195.2		$	190.8
Operating margin (GAAP measure)	17.6		%	22.7		%
Adjusted operating margin	21.8		%	24.4		%

The following table reconciles our Utility Solutions segment organic net sales to the directly comparable GAAP financial measure (in millions and percentage change):


	Three Months Ended March 31,
Utility Solutions	2024		Inc/(Dec) %	2023		Inc/(Dec) %
Net sales growth (GAAP measure)	$	112.4	14.4	$	129.8	19.9
Impact of acquisitions	108.5		13.9	5.6		0.9
Impact of divestitures	—		—	—		—
Foreign currency exchange	1.3		0.2	(1.7)		(0.3)
Organic net sales growth (non-GAAP measure)	$	2.6	0.3	$	125.9	19.3

Net sales in the Utility Solutions segment in the first quarter of 2024 were $894.0 million, and increased by $112.4 million, or 14.4%, as compared to the first quarter of 2023. That increase was driven by a 13.9% increase in net sales from acquisitions and a 0.3% increase in organic net sales. The increase in organic net sales was driven by a low single digit percentage increase in price realization, partially offset by a low single digit percentage decrease in unit volume. The decrease in unit volume was largely driven by weakness in the Telcom market that results in lower demand for our enclosure products, and to a much smaller degree by channel inventory normalization in the distribution market. Transmission markets and demand for our protection and controls products were strong, and we continued to convert our backlog of metering products. Favorable price realization was driven by actions to offset inflation, as well as by our service levels.

Operating income in the Utility Solutions segment for the first quarter of 2024 was $157.5 million, a decrease of 11.3% compared to the first quarter of 2023. Operating margin was 17.6% in the first quarter of 2024, as compared to 22.7% in the same period of 2023. Excluding amortization of acquisition-related intangibles and transaction, integration and separation costs, the adjusted operating margin was 21.8% in the first quarter of 2024 compared to 24.4% in the prior year period. The decrease in operating margin includes approximately four percentage points of margin expansion primarily due to favorable price realization and improved operational productivity, but that expansion was more than offset by approximately six percentage points of margin contraction primarily due to material and other cost inflation, lower unit volume and continuing investments in long-term growth and productivity initiatives. The impact of lower unit volume mentioned here includes approximately 150 basis points from weakness in the Telcom market. Operating margin also declined by approximately 260 basis points due to an increase in amortization of acquisition-related intangibles and transaction, integration and separation costs.

HUBBELL INCORPORATED-Form 10-Q 34

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ELECTRICAL SOLUTIONS


	Three Months Ended March 31,
(In millions)	2024			2023
Net sales	$	505.1		$	503.8
Operating income (GAAP measure)	71.0			71.3
Amortization of acquisition-related intangible assets	4.2			4.5
Transaction, integration & separation costs	4.8			—
Adjusted operating income	$	80.0		$	75.8
Operating margin (GAAP measure)	14.1		%	14.2		%
Adjusted operating margin	15.8		%	15.0		%

The following table reconciles our Electrical Solutions segment organic net sales to the directly comparable GAAP financial measure (in millions and percentage change):


	Three Months Ended March 31,
Electrical Solutions	2024		Inc/(Dec) %	2023		Inc/(Dec) %
Net sales growth (GAAP measure)	$	1.3	0.3	$	(0.5)	(0.1)
Impact of acquisitions	—		—	15.1		3.0
Impact of divestitures	(28.1)		(5.6)	—		—
Foreign currency exchange	1.9		0.4	(3.0)		(0.6)
Organic net sales (decline) growth (non-GAAP measure)	$	27.5	5.5	$	(12.6)	(2.5)

Net sales in the Electrical Solutions segment in the first quarter of 2024 were $505.1 million and increased by $1.3 million, or 0.3%, as compared to the first quarter of 2023. That increase was driven by a 5.5% increase in organic net sales and a favorable effect of foreign currency exchange, largely offset by a 5.6% decline in net sales resulting from the disposition of our residential lighting business in February 2024. The increase in organic net sales was driven by a low single digit percentage increase in unit volume and a low single digit percentage increase in price realization. Volume growth was driven by strength in markets for electrical and industrial products on electrification and renewables. Favorable price realization was driven primarily by actions to recover inflationary costs.

Operating income in the Electrical Solutions segment for the first quarter of 2024 was $71.0 million and decreased approximately 0.4% compared to the first quarter of 2023, while operating margin in the first quarter of 2024 decreased by 10 basis points to 14.1%. Excluding amortization of acquisition-related intangibles and transaction, integration and separation costs, which contributed 90 basis points to the decline in operating margin, the adjusted operating margin increased by 80 basis points to 15.8%. That increase is primarily due to approximately four percentage points of margin expansion from favorable price realization, improved operational productivity and higher volume, partially offset by approximately three percentage points of margin headwind driven by, higher material and other cost inflation, and investments in restructuring and related activities.

HUBBELL INCORPORATED-Form 10-Q 35

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Financial Condition, Liquidity and Capital Resources

Cash Flow


	Three months ended March 31,
(In millions)	2024		2023
Net cash provided by (used in):
Operating activities	$	92.2	$	113.7
Investing activities	88.6		(35.1)
Financing activities	(125.3)		(91.8)
Effect of foreign currency exchange rate changes on cash and cash equivalents	(3.5)		2.7
NET CHANGE IN CASH AND CASH EQUIVALENTS	$	52.0	$	(10.5)

HUBBELL INCORPORATED-Form 10-Q 44

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 1, 2024

HUBBELL INCORPORATED

/s/ William R. Sperry

/s/ Jonathan M. Del Nero

William R. Sperry

Jonathan M. Del Nero

Executive Vice President and Chief Financial Officer

Vice President, Controller (Principal Accounting Officer)

HUBBELL INCORPORATED-Form 10-Q 45

HUBBELL INC - Quarter Report: 2024 March (Form 10-Q)

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