Q4 2019 Earnings Call

gross margin

Declined in the quarter driven partly by business makes as well as the time lag required to pass through the higher levels of supplier price increases that we experienced last year. They will take you through our margin drives in more detail in a few moments. We continue to focus on effectively managing our operating cost and delivered adjusted operating. Margin that was in line with our expectations free cash flow would also strong in the quarter and our financial leverage ended the year at 2.8 times net debt-to-ebitda without I will now turn the call over to Dave to provide further details on our fourth quarter and full-year results as well as our full-year financial outlook for 2020 Dave. Thank you John and good morning everyone. I'll start with an overview beginning on page five page reported sales in the quarter were up 4.4% above are implied outlook for growth of approximately 3.5% that we provided in October .

Recall that we issued a press release stating that quarter-to-date sales through December 23rd were up approximately 5% in the last week of December . We saw a step down in daily sales. This result was driven by higher than normal slow down in year-end activity due to midweek timing of the holidays and customer shutdowns particularly in Canada.

for the quarter

U.s. Sales rep 4% with growth of 15% and 11% in our c i g and utility and markets respectively.

Construction crew 2% in the US and Industrial Sales were down approximately 2% sales in Canada were up 2% with our industrial and see IGN markets up 6% and 5% respectively.

Construction sales in Canada were flat with the prior-year utility sales were down 7% partly due to the contract non-renewal mentioned in previous quarters that we lapped during the divorce and partly due to slow sales in the second half of December International sales rep 13% on an organic basis driven by growth of more than 20% in both construction and Industrial.

Sg&a expenses were approximately 1% higher than the prior-year after adjusting for costs associated with the Anixter acquisition.

Increase was driven by the SLS acquisition excluding the SLS acquisition sg&a expenses were down from the prior year due to a reduction in variable compensation expense Factory results below incentive targets for 2019.

Adjusted operating profit excluding cost associated with the Anixter acquisition was approximately $87 in the quarter or 4.1% of sales, which was slightly below our improved Outlook of approximately 4.2%

The effective tax rate for the quarter was 22% slightly higher than our expected rate of 21%

Our effective tax rate is typically impacted by the tax effect of intercompany financing foreign tax rate differences, non-deductible expenses and state income taxes. The effective tax rate was above our outlook for the quarter primarily due to the full application of the international provisions of tax reform.

Turning to slide six gross margin was 18.6% in the quarter flat sequentially with the prior quarter and down 80 basis points versus the prior-year.

Relative to the prior-year gross margin is quarter was impacted by two primary factors price cost headwinds and business mix on the right side of the slide. You see an overview of historical differences in gross margin by sales type starting first with the Market's growth in the quarter was primarily driven by utility and see IG Markets which are either below or in line with a couple on average for Wesco while our industrial and Market which is typically generates above-the-line average gross margin experience the lowest growth rate in the quarter.

The influence of this disparity in the growth rates of these end markets contributed to a mixed drag too gross margin.

The same was true true on a geographic basis as sales and our higher gross margin Canadian business grew less than in the US in our International markets.

last

The market impact from the mix of direct-ship stock and special order sales was approximately neutral to gross margin.

Regarding supplier price increases we are aggressively working to pass through increases to our customers in 2019. The number of supplier price increases were moderately lower than 2018, but the percent increase amount was higher than those seen in 2018 tariffs were cited as a significant driver for approximately half of all increases magnitude of supplier price increase is slowed in the fourth quarter an average mid-single digits in the quarter, but High single digits for the year.

We made progress in passing through a greater proportion of increases to customers will continue to be impacted by the time lag of working the increases through the value chain that we have experienced with your quarters. We expect to see the positive effects of our efforts in the coming quarters with January month-to-date billing margin up sequentially compared to Q4.

Moving to the diluted EPS walk on page seven. We reported adjusted diluted earnings per share of a dollar 32, which was 5% above the prior-year level this reflect combined Seventeen percent benefit from core operations and a lower Share account partly offset by -11 cents combined due to the unfavorable foreign exchange rates off higher tax rate and the impact of the SLS acquisition. We've also provided you the reconciliation of organic and reported sales growth foreign exchange was a guy who reported sales but more than offset by the benefit of the SLS acquisition turning to slide eight on a four-year basis adjusted diluted earnings per share was $5.50 or record result in up 8% from the prior-year this reflected a 12% increase from core operations and a $0.41 benefit from lower Share account.

partially offset by

$0.04 combined do the foreign exchange tax rates to excuse me for an exchange tax as well as an eleven Cent negative from SLS.

This was obviously a disappointing result from the SLS acquisition that we made last March the earnings loss was attributable to a significant Revenue miss that was unexpected and inconsistent wage higher Revenue levels of the business.

We have initiated an aggressive business Improvement plan and expected SLS will be accretive to West Coast earnings in 2020.

On the right side of the page, you will see that organic sales grew 2.6% in 2019 with 170 basis points attributable to growth in the US and sixty basis points G30 basis points attributable to growth in Canada and international respectively also one less workday in 2019 had a 40 basis-point impact on reported sales moving to our end market results beginning on page nine Industrial Sales were up approximately 1% overall, which represented our third consecutive quarter of organic growth with Canada up 6% in local currency and us down 2%

consolidated

October and November sales were up 2% and 6% respectively from the prior-year. However, December was down 4% driven primarily by a high number of plant shutdowns, which impacts sales demand in the last part of the month.

Technology and petrochemical were the strongest performing verticals during the quarter while OEM was down versus the prior-year.

For the full year industrial sales rep 2% with growth in every geography.

Although they had moderated macroeconomic indicators still support solid production levels and capacity utilization rates in the US and Canada RFP quotations and wage levels are strong.

During the quarter. We were awarded multiple contracts with $18 in aggregate from a petrochemical refiner to provide electrical equipment for a plant expansion in US Gulf region turning to page ten sales in the construction and Market were up 1% in the quarter reflecting sales are up 2% in the US and flattened Canada in local currency sales were down 1% sequentially from the third quarter in line with typical seasonality.

as we make

The last quarter we have seen some project delays with industrial contractors due to skilled labor constraints and overall uncertainty related to the macroeconomic environment and international trade concerns these challenges persisted in the quarter. However, project activity levels are still high.

Let's go is known for Supply Chain management Services. We provide to drive value for our customers. If you continue to help our customers navigate their challenges by reducing supply chain complexity and increasing construction jobsite productivity.

Backlog and constant currency was down versus prior year and sequentially reflecting typical seasonality. We were pleased that margin or a backlog. Although flat sequential was above prior-year levels as an example of our recent success this quarter. We were awarded a multi-million dollar contract to provide electrical switchgear lighting and other materials for the expansion of the food distribution facility in Canada moving to page eleven. Our utilities sales continued to be strong sales were up 10% in the quarter with the us up 11% and Canada down 7% partly related to the non-renewal of a contract that we exited in late 2018.

for the full year

Sales rep 4% representing our ninth consecutive year of organic growth despite a 26% decline in Canada due to the contract non-renewal.

Let's go is continuing to benefit from secular Trends in the utility sector including grid hardening and reliability projects construction market growth hire industrial output and increased demand for renewable energy. In addition. We continue to expand our scope of services with investor-owned utility Public Power and utility contractor customers.

We expect to continue to grow in this market in 2020 getting activity will levels remain high and we continue to have a robust opportunity pipeline.

This quarter we expanded our scope of service with a public utility as we were awarded a multi-year contract to provide lighting Products and material management with the value of $25 million dollars off finally turning to commercial institutional government or c i g on page twelve.

sales rep

11% with the 15% and Canada up 5% in local currency sequentially sales rep 4% sales to datacomm and Security customer or up double-digits on a 2-year stack basis. See IG sales rep 23% in the quarter and 13% for the full year. This performance was again driven by our chef and capabilities and value-added services for data center construction LED lighting renovation and retrofit applications fiber to the X deployments Broadband build-out in Canada and network and Security Solutions, as an example of the continued strength. We are seeing in c i g this quarter. We were awarded a multimillion-dollar contract provide TurnKey Edge lighting retrofit materials and services to upgrade a Convention Center facility in the US.

Turning the page thirteen The company generated free cash flow of $94 million dollars or 178% of net income in the quarter and $180. Eighty 1% of net income for the 4 year.

We were disappointed to fall short of our free cash flow generation Target of 90% of net income for the full year.

The primary driver was an increase in inventory including an inventory Bill to support the ramp-up of new utility Alliance contracts as well as lower than expected sales in the back half of December due to the timing we did not see the corresponding offset two accounts payable resulting in procurement being a net cash draw in the quarter.

that leverage net of cash was approximately 2.8 times trailing 12-month see the top down from the prior quarter driven primarily by an $89 down option in outstanding debt Leverage is effectively at the midpoint of our target range of 2 to 3.5 times trailing 12-month even.

We maintain strong liquidity to find us available Cash Plus committed borrowing capacity of $823 at the end of the quarter are weighted average average borrowing rate is 4.3% for the quarter are fixed rate debt is approximately 66% of total debt consistent with historical averages Capital expenditures worth $14 in the quarter reflecting Investments to digitize our business including Information Technology, tools and digital applications for the full year Capital expenditures were $40 approximately eight million dollars higher than the prior-year. This increase is consistent with our expectation that moving forward capex will represent a slightly higher proportion of operating cash flow. Then it has historically as we accelerate our investments and digital tools.

Not make any share repurchases during the fourth quarter between signing and closing of the Antics demerger. Our Capital allocation priority will be to invest in organic growth opportunities and repave with the increase in debt expected to fund the NX demerger. We expect leverage of about 4.5 x pro forma Eva. Closing and expect to return that are targeted range of 2 to 3 and 1/2 times ebitda within 24 months of closing the annex or transaction.

Turning to slide fourteen. You will recall that last quarter. He provided our preliminary outlook for 2020 sales growth. And today we are confirming that Outlook is unchanged overall. We expect that the softer demand environment that we experienced in the second half of 2019 will continue this year this software demand environment coupled with economic uncertainties provide less certain D for industrial and construction end markets. So we are maintaining our wider range for these end markets and expect them to be either up or down low single-digits.

we have

Visibility pertaining to our utility and see IGN markets and expect these markets to be up low-single digits and flat to up single-digits respectively.

Our Outlook includes outperforming the end markets by one to 2% by leveraging our full range of West Coast services and solutions investing in our people and digital capabilities in maintaining our cost and cash management discipline as a result. We continue to expect sales growth in the range of flat to plus 4% for 2020.

Turning to our outlook for the full year. We expect this Revenue growth to translate into operating margin of 4.1% to 4.4% off turning per share a $5.10 to $5.70 with an effective tax rate of approximately 22%

We continue to expect to generate free cash flow of at least ninety percent of net income. We expect an average share count of approximately 42 million shares for the year.

This Outlook does not include any impact from the Anixter acquisition Additionally the $100 termination fee that we paid on behalf of the Anixter in which was funded by a draw off. Our bank facilities will be treated as part of the purchase consideration and will therefore not have an impact on our income statement.

For the first quarter. We are expecting sales growth of 2% to 5% with operating margins of 3.4% to 3.6% approximately in line with a year and typical seasonality with that. Well now open the call to your questions. Yes. Thank you will now begin the question-and-answer session to ask a question. You may press * then 1 and your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys to enjoy your question, please press * then two at this time pause momentarily to assemble the roster.

and

The first question comes from David mathey with Baird.

Hi. Good morning guys. Good morning, Dan.

First off a lot of observers out there thinking that there's an upward bias to commercial industrial and markets as we look to the back half of this year and I'm wondering John , how are you thinking about the complexion of twenty-twenty and what are some of the factors that inform you on that Outlook?

Okay, great question. Well, you you saw one we provided and we you know that Outlook was provided the last quarter's earnings call Dave wage. And then we we've kept that Outlook the same you look at the nature of first first talked about some of the supporting factors and then give the Outlook and we talking about kind of the nature and mix of our backlog and how that's performed around 2019 particularly in the second half if they're really solid backlog and you know and you feel good about the backlog the mix of the backlog and it's performing more consistent with normal seasonality. So and the margin rates in the backlog around your rear, so that's that's a a good strong name. I think is we as we enter 2019 Buy in Market as Dave outlined, you know, we've got kind of Greater visibility I think into the utility and birth.

utilities supported by

You know the pipeline of opportunities that were working what we did and what we expect a bit as we moved through the first part of 2028 and we got really good momentum and you can see how utility performed in the fourth quarter. I think that's very supportive of that and the backlog already healthy and see I see. Really solid momentum in our data, a security categories and and that that was re-established and built momentum throughout 2019. And that's against it in Market backdrop that even even particularly Revolt for those applications overall, but relatively stable and consistent with what we're seeing now. So I think that that performance and a performance we expect to continue on a move into industrial and and construction. I think that's where they're they're there is more variability. I would say that the indications around industrial Not Dead

standings

Some of the overall weakness that was seen in the end markets and as reflected by others in their initial report of results for the understanding that I think you've given the macroeconomic conditions are outlook for industrial and twenty twenty years. We should relatively stable or what we can seeing with the potential to improve as we move through 2020. And I think that represents really an excellent opportunity as we move through the year business spending.

Is upon is a potential stabilizing and Factor adding an accelerating factor to demand as we move through 2020 and I think some of the trade uncertainty that are getting resolved and we'll see how the next chapter that plays out. So that that is looking like we're potentially facing improving demand curve. I'm hopeful that that's the case that was obviously be very very supportive of of our accelerating sales growth and Industrial and construction, you know, there's a there's a series of of pluses and minuses overall. We expect construction to be relatively consistent and Margaret Weis in 2020 to 2019. I will say that we had we had really solid growth in the fourth quarter in construction, which gives us some, you know gives us some confidence as we move into twenty-twenty the majority of birth.

geographic regions

In the US grew into construction or grew into the construction and Market in the fourth quarter. And what's also important to note in this is not something we've talked about I think for several quarters, you know, we bought a lot of times we'll we'll do the mix and construction of industrial oriented contractors versus commercial contractors and Industrial oriented contractors wage had declined in q1 and Q2. It's part of construction in the in 2019, but returned to growth in Q3 and Q4 and obviously we have that commercial contractors or any contractors and into two three and four of two one, two, three and four of 2019. So and then when you move to Canada we've seen we've seen real strength and BC in construction also in Quebec Atlantic Ontario is solid we have seen some weakness in the prairie dog.

It's not unexpected.

We're seeing that focus on the west coast side in pockets of the of the Prairies and on the ecole side. And that's in our two four numbers aren't really I think what what works off your number down a little bit over all wheel and gas sales were flat in the quarter all in but we and we we had Jose International growth in in the office today. I guess was down a bit in the quarter. So say that that's kind of the composite. I wanted to kind of go through by a market. I know it's a long answer but our daily activity levels are backlog and it'll end on this note the opportunity pipeline that we have that we measure and save gated is it very large for Global account said it's just the highest level of we've ever seen. And so that doesn't give us some some encouragement. I think in terms of what the potential is as confidence improves off.

As we move for twenty twenty and confidence being customer confidence.

That's great color John . Thank you. All the best. Yep. Thanks, Dave. Thank you. And the next question comes from DeAndre with RBC Capital markets.

Thank you. Good morning. Everyone. Good morning. Hey, I think you've explained the Knicks issue this quarter we get that and maybe provide some more color on page cost. So when you reference the time lag in putting through supplier price increases overall, you like the conditions and Rising prices. So and you're should be prepared for that. So were these lags system issue or procedural issue or was it customer resistance? Cuz that I saw that second bullet about the lack of environment. So maybe if you could just tie those together price cost. You know what the Dynamics are there. The environment wage was challenging and you're you're saw that someone else reported this morning a few other reports were with prior to today and you get a sense of what what those authors.

Distributors are saying in terms of customer pricing environment. So I think overall the

Environment was a bit challenging that's on the customer pricing side that call that market deem on the supplier side Dave Dave outlined. That's why I wanted to specifically point that out prepared comments about the number in the magnitude of the price increasing number there a little bit lower in nineteen and eighteen but the magnitude of the increases were substantially larger in nineteen and eighteen. So that's the other end of our value chain with suppliers is that that's the market in that continued through a few for was a little different for rest goes and we've talked about at length, you know over the years is our mix them. So, you know, it takes us some time to work it through with our Global account customers are in great Supply customers and suction in that time lag we've seen time and time again, we're working with that. I think we've got good Traction in terms of how we're pushing those through. The timeline now is we should start seeing the other side of that as we move through 2020 and birth

You know, we're encouraged with with the start of of January . January is not done yet. But you know months today. We we've seen a step up in our daily Transit.

Action margins billing margins sequentially versus the fourth quarter, which is encouraging data point.

Yeah, I probably should have added that. We have seen Industrial Distributors this quarter one reported today that had negative price for the first time in years. So yeah, we understand. This is the environment that you're that you're renting. It's not a Wesco specific pressure there and then second question. Could you give some caller around the SLS issue was this execution and degree of confidence in addressing? The the problem is quarter not execution. I would say off the the there's an excellent and very strong pipeline of opportunities and we actually cited you know, we always try to site wins by the market to in the winds that we cited this quarter of lighting LED retrofit renovation update retrofit related project. The real challenge was

was some delay of the project that they had been working in their pipeline opportunities and

Well as projects that were underway, so there's been a a bit of a delay on on some of those projects which move things to the right and and how would you read that or translate thag translates into for retrofit renovation and upgrades?

Those types of projects there's a you could there's a discretionary aspect to those in terms of when they get launched. So if if someone certainty around the environment by customers, they can Kick the Can out a quarter to the economics and the rli in terms of lower energy save a lower energy consumption which translates to Energy savings and sustainability benefits. Those business cases are intact and led retrofit project are providing very compelling business cases to do the retrofit. But the decision on making those can get kicked out, you know, a month or quarter or two depending on what that particular customer view of the market environment is and what their particular situation is on spending. So that's that's what happened being I still lighting is one of our big growth in, Georgia.

engines we still very bullish on our prospects in lighting and

The you know, we have an excellent set of end-user customer relationships the opportunity pipeline a very large and robust and we expect that to be a strong contributor, you know, I remove through 2020 and beyond for West Coast.

Thank you. Thank you. And the next question comes with Raymond James. Good morning, John . Good morning, Dave. How are you? Good morning, two questions. If I could first they've last week standard and Poor's disclosed that it doesn't it's not going to be considering the nine and a quarter per month as an equity instrument when determining their ratings their debt ratings. How does this or does this affect your thoughts on the amount of or the what what constitutes the equity end or debt issuance going forward? I think there's a fair amount of confusion or concern and in terms of whether this actually means that there would be more of an equity dilution or an equity issuance because of it.

Yes.

I'm so that's obviously something that we're still working our way through but you know as just to give you a little bit of the background on this, you know, as we put together the offer consideration for the annex or combination and we we worked with our advisors to structure the preferred to receive Equity treatment. And that was based on the guidelines that are established by by both agencies that were using you may have seen that Moody's has issued the note stating that they expect to assign full Equity Credit to the preferred S&P placed R rating on on watch negative and in their preliminary note may press the need for more information. So we're going to continue to work with S&P to provide them with the information that they need and hopefully reach a the conclusion that we were planning for when we put up under the consideration mix with the preferred as we think about it, you know right now, there's still a lot of situations that we're working our way through as a relates to this so, you know as soon as we have more details on that and yep

Back to inform the market, you know particularly when it comes to the capital structure to complete the acquisition.

And again right now, there's just a lot of moving pieces on that. But you know, we're expecting from an accounting treatment perspective. The prefers not change. We intend to recognize the preferred as Equity. We're waiting to see how the the agencies will also view that going forward to be clear the 4 and 1/2 x leverage that you expect considers the preferred as Equity that that's the consideration. That is correct. Okay, and then thank you. And then the the last question I have there is a fair amount of question as to Potential accretion from the deal, especially your three years a obviously a huge range out there that we've seen from both the sales side and by side and any thoughts or quantification arrange that you might be able to provide at this point.

We expect to provide an estimate of the accretion during the first quarter. So right now we are still working through several factors that will inform and influence that accretion calculation now, obviously the timing of the close the amount of cash that's generated by both companies between signing and clothes and how that will impact the capital structure, you know, and obviously we're still doing quite a job evaluation work as it relates to the intangibles on the purchase price. So there's a lot of variables that we're still working our way through but we fully expect that during the first quarter. We will be informing the market of our faith estimate of accretion at least for year 3

Sounds terrific. Thank you. Gentlemen. Thanks.

Yeah, thank you. And the next question comes another car with wolf research morning everyone. This is Christian Ramos filling in for for Nigel Christian Georgia. So I just wanted to to touch back on an extra and and you know, we've been getting questions on whether or not.

You know the management team would consider issuing the equity a little sooner just given the overhang that exists in stock today any any color thoughts there. Thanks God.

Yeah Christine, it's Dave Schultz. Again. We're still working our way through the capital structure decisions. I would tell you that you know, we're clearly focused on ensuring that we get a two or three-day close of the deal. We're working through, you know, all the appropriate regulatory approvals that are required. We're working through the the specifics on the the capital structure wage. And I would tell you that it's not going to be influenced as much by our stock price as much as it's going to be influenced by the timing of those approvals and then when we can get out and and begin racing the appropriate number of shares outstanding, so we're working on it.

Got it.

It's actually very helpful. Thanks. And then just if I could squeeze another one on price on Gross margins really. Um, could you guys parcel out how much of the decline was driven by Price costs versus the next thank you. Yeah, I would tell you that in previous quarters. We we said that it was approximately half and half half mix half price cost. I would tell you that am in in this environment in the fourth quarter. We saw a little bit more of an impact on price cost. But again our our gross margins were sequentially flat with Q3 off and and again, we we saw a little bit more of an impact from Price cost in Q4 as we think about our operating margins going forward, you know, we fully expect as as is often shown in our guidance that we're going to see operating margin Improvement in 2020 that includes improvement in our gross margins as well. So again for the fourth quarter, yep.

More on the price cost is an impact and we saw in Q3.

Okay, thank you. And the next question comes up hands on Missouri with Jeffries.

Hi, this is Mario Cordova cheese filling in for Hamza. So kind of question on the deal. I believe one of the reasons why you wanted to do a transformational deal is to get better wage concessions and I think the largest supplier for for you and and if there are different, so I'm just curious to know I guess how hard how tough those negotiations tend to be and and how long do you think it'll take before you get better rebates?

So first, I think a construct to your questions that kind of signs around a point. You're making on the rationale for the deal. That's not the bulb. So let me kind of take you back through that. I think it's incredibly important. You know, I spoke at this at length in our investor Day last year in June so long I encourage you to go back and go back through that we spend, you know, we had a four plus our investor day. We were very clear about our views of the nature of the beetle distribution value chain how that's evolving the impact of digital what's happening in terms of the customer end of our value chain and says customers are looking at consolidating a supplier base what's happening in the supplier end of our value chain where suppliers have been coming together the Via Acquisitions and combinations over the last decade and it was an imperative birth.

distribution that is still very highly fragmented particularly in North

America but you guys in Canada to to to consolidate if you Consolidated a faster rate and I swear shattered that I expected that The Bigs would come together quote unquote the big the bigger distributors in the corps and in the distribution portion of value change would come together. And and I also said the imperative was that each of these would be given the opportunity for them to have a transformational combination that does several things you have greater scale with an enhanced footprint Geographic footprint and Ed are fulfilling the Supply Chain Services that absolutely is the case with the Let's go ask the combination it also the combined platform would provide significant growth and cross-selling out. Absolutely is the case for the West Chester combination the opportunity to generate significant synergies in the first three years.

After combination that absolutely is the case with the let's go answer the combination and and for their strong.

Paslode both of these suffering number well-run distribution companies the cash flows are very strong across All Phases of the economic cycle the counter-cyclical when the economy slows down and took strong combined cash flows enhanced margins as a result of the combination and ETS accretion in the First full year of ownership is is the compelling Financial rash finally most importantly the combined business would be in a much better position to invest in digital capabilities and to take a leadership role in transforming their business in the context of them or digitize value chain indeed to be distribution, like what exists in PDC the value chains and that Evolution has occurred Everlasting package. So so very compelling Center rationale. I mean another short the short summary would be in terms of growth one plus one is going to be dead.

much greater than to putting these two together in terms of cost 1 + 1 is less than 2 and then that is

Increased margin allows us to to deliver a significant portion to our investors in this form of accretion and also invests to a greater degree in the business to drive and leave the digital information. So that that's the rationale the deal.

Great appreciate it and just one follow-up and I'll turn it over. Just curious to know I guess how do you thinking about structuring your sales force or the combined sales force. Once the deal is closed off in terms of of of specific integration planning and and those details look we're we're early in our integration planning preparations and discussions page. So look, we're very focused on getting through the activities between sign and clothes and you know, as we move forward in the process, we get the deal successfully closed, you know, we'll have a lot of static a denigration team and be working aggressively to to take the best of the best of both companies and drive what I said the Top Line opportunities the Costco cheese and and and through that process will be very clear as we as we you know, make decisions and and integrate the the two large leading distribution for

companies

Thank you. And the next question comes from Steve Barger with keybanc capital markets. Good morning morning Thursday to start the call. I just want to make sure I understand the one key Revenue guide. I believe you said you expect softer demand environment in the first part of the year. But the one key Revenue guide of two to 5% is above the full years of 0 to 4. So, can you just talk through the assumptions that went into that specifically? Yeah, certainly see if it's Dave Schultz. So, you know clearly as we take a look at at q1 and see what we have in our backlog what's expected to ship in q1, you know clearly we're we're comfortable with the range that we put out. There also is demonstrated by our results in the month of January . So we talked about you know, January month-to-date being up low single-digits. We're we're right around the midpoint of the guide of 2 to 5 in the month of January to date and so we feel good about wage.

225 remember that last year

Q1 was also probably our softest, and we have one extra day in the quarter this year versus last year.

Got it. Thank you. And I I understand Dave the comment on how the secondary won't be influenced by stock price but more the timing of approvals, but just as you've gotten more to the planning process, is there any updated thought on the size of the plan secondary and just in general do you think that's a 1 Q or a 2 Q event when you when you go to market Steve? We we haven't been able to Define that size, you know more definitively. Yeah, we talked about it being greater than four hundred million dollars in equity or Equity content Securities that we would issue. We're still working through the timing obviously a lot of that will be dependent upon them. You know, when we receive regulatory approval, you know, as we've got a file the registration statement with the SEC we're working through all of that so that will obviously influence the timing of when we're out there marketing the office.

good. I appreciate it.

Understood. Thank you.

Some research. Hey guys, good morning. Good morning. You don't like to get into specifics and talking about guiding gross margin, but just given, you know, the pressure seems to be continuing and when you look at the expectations for growth by End Market, it does suggest some continued mixed pressure on gross. Margin this year. Just is it fair to assuage know that in that 41244. Margin Outlook that you have contemplated. I know some decent amount of gross margin pressure in there.

Hey Rob, it's Dave Schultz. Yeah, we we have that included in and how we think about 20 20 and the progression of the gross margin in 2020, you know, so very clearly looking at the outlook for for 2020 with you know, a midpoint of 2% on Sales Plus inflation on the sg&a in order for us to get that margin Improvement at the midpoint. You know, we do have gross margin Improvement. That's what we've been working on. We've talked about being able to recover that price cost lag as we progress through 2020. So again, we do have the gross margin movement built into our expectations for this year.

Thank you. And the next question comes from Robert Barry.

so

I'm sorry just to clarify you think that the gross margin will be up in 2020 you're over here. That is correct.

Okay. Yeah, I was actually suggesting the opposite it just seems like you know given the comments about price costs and given the outlook for growth is better in the lower gross margin and markets. Um that in fact the gross margin would be down but sounds like I don't know you have some confidence that they'll be some offsets there or pricing will improve we do and very clearly we've we've been seeing that lag particularly the last six months on, you know, getting priced cost and we've been able to push through on a dollar for dollar basis, but we've seen the erosion of the gross margin rate which is just the math. Our team is working very diligently to continue to pass through price increases from suppliers off and restore the gross margin rate. And so that's something that we're focused on we understand and you know, it is clear that based on the mix of our Outlook with the end markets for twenty.

You know, we do have clearly some hi.

Growth in like the utility business has collected that wolf create a slight impact on a mixed line, but we are laser focused on driving through a price to our customers and and again, I'm not showing that we get full value for the products and services that we can provide. So we do have that assumption built into our 2020 Outlook.

Got it. Got it. And then I guess I just wanted to get a little more clarity and what was going on in c i g i mean the growth rate really stepped up dramatically against actually what was also the toughest couple of the year. So any kind of big projects happening there or timing of anything or anything to say about just that significant step up and growth package. I already alluded to that I think in they've they've had in his prepared commentary and I hit it earlier with an answer to a question data, data, very very strong pro-life Democrats 2019 feel very good about the execution. We're doing with those with that those categories with those customers.

Got it. Got

Just a lastly from me a quick went on the deal. This may also be a question. You don't can't answer at the moment yet. But any thoughts initially on what you'll amortization might look like and and if it's significant wage war and considering going to a cash EPS number.

Rob that's one of the things that we're still working our way through is the valuation of the purchase price allocation to the intangibles and what what impact that would have on amortization, you know, clearly. This is work that we were only really able to start after we had signed the agreement. So we're still relatively early in this where that is something that you know, right now we don't have an answer. That's also one of the key reasons why you know, we're just not at that stage where we're able to provide you with that full accretion estimate. Once we nail that down along with the capital structure will be able to provide you with more details.

All right. We'll stay tuned. Thank you.

Thank you, and this concludes our question-and-answer session. I would like to turn the conference back over to John angle for any closing remarks. Thank you all for your time this morning Brian and will be available to take your questions and we look forward to seeing any one of our investor marketing events with everyone participating in during the first quarter including the Raymond James 20/20 institutional investors conference in early, March. Have a great day. Thank you. See you conference has now concluded. Thank you for today's presentation email disconnect your lines.