Q4 2023 WESCO International Inc Earnings Call

Operator: Hello, and welcome to Wesco's fourth quarter and full year 2023 earnings call. I would like to remind you that all lines are in listen-only mode throughout the presentation. If you would like to ask a question, please press a star followed by one on your telephone keypad.

Hello, and welcome to West Coast fourth quarter, and full year 2023 earnings call.

I would like to remind you that all lines are in listen only mode throughout the presentation, if you'd like to ask a question. Please press star followed by one on your telephone keypad.

Operator: Please note this event is being recorded. I would now like to hand the call over to Scott Gaffner, SVP, Investor Relations. To begin, please go ahead. Thank you, and good morning everyone.

Please note. This event is being recorded I would now like to hand, the call over to Scott Geffner SVP Investor Relations to begin. Please go ahead.

Thank you and good morning, everyone before we get started I want to remind you that certain statements made on this call contain forward looking information.

Scott Louis Gaffner: Before we get started, I want to remind you that certain statements made on this call contain forward-looking information. Forward-looking statements are not guarantees of performance and, by their nature, are subject to inherent uncertainties. The actual results may differ materially.

Scott Louis Gaffner: We're looking statements are not guarantees of performance and by their nature are subject to inherent uncertainties.

Actual results may differ materially.

Scott Louis Gaffner: Please see our webcast slides and the company's SEC filings for additional risk factors and disclosures. Any forward-looking information related to this call speaks only as of this date, and the company undertakes no obligation to update the information to reflect changed circumstances. Additionally, today we will use certain non-GAAP financial measures. Requirement information about these non-GAAP measures is available on our webcast slides and in our press release, both of which you can find on our website at wesco.com. On the call this morning, we have John Engel, Wesco's chairman, president, and CEO, and Dave Schultz, Executive Vice President and CFO. Now, I'll turn the call over to John.

Scott Louis Gaffner: Please see our webcast slides as the company's SEC filings for additional risk factors and disclosures.

Scott Louis Gaffner: Any forward looking information relayed on this call speaks only as of this date and the company undertakes no obligation to update the information to reflect the changed circumstances.

Scott Louis Gaffner: Additionally, today, we wont use certain non-GAAP financial measures.

Scott Louis Gaffner: Required information about these non-GAAP measures is available on our webcast slides and in our press release.

Scott Louis Gaffner: Both of which you can find on our website at Wesco dotcom.

Scott Louis Gaffner: On the call. This morning, we have John Engel West Coast, Chairman, President and CEO and.

Scott Louis Gaffner: And Dave Schulz Executive Vice President and CFO.

Scott Louis Gaffner: Now I'll turn the call over to John.

John J. Engel: Thank you, Scott. Good morning, everyone, and thank you for joining the call today. As you saw in our earnings release earlier today, we had a very disappointing fourth quarter to close out 2023, with results well below our expectations. These results are unacceptable.

Thank you Scott good morning, everyone and thank you for joining the call today.

You saw from our earnings release earlier today, we had a very disappointing fourth quarter to close out 2023 with results well below our expectations.

John J. Engel: These results are unacceptable, they're unacceptable to me and they're unacceptable to the entire Wesco management team.

John J. Engel: They're unacceptable to me, and they're unacceptable to the entire Wesco management. We understand the issues that drove our fourth-quarter results, and we're already taking steps to address them. Dave will take you through this in detail shortly, but first, I'll summarize the three key issues we had in the fourth quarter. First, reported sales declined 2% versus our expectation for flat to slightly positive sales. This was due to a market downshift and reduced purchases with some customers. Additionally, we experienced higher SG&A expenses. This was due to higher than anticipated benefits and healthcare costs, along with higher costs to operate our facilities and IT-related expenses. And finally, our free cash flow generation was below our expectations. This was due to a lower accounts payable balance related to the timing of the purchase.

John J. Engel: We understand the issues that drove our fourth quarter results and we're already taking actions to address them.

John J. Engel: He will take you through this in detail shortly but first I'll summarize the three key issues, we had in the fourth quarter.

John J. Engel: First reported sales declined 2% versus our expectation for flat to slightly positive sales.

John J. Engel: This was due to a market downshift in reduced purchases with some customers second we experienced higher SG&A expenses. This was due to higher than anticipated benefits and health care costs, along with higher close to operate our facilities and it related expenses.

John J. Engel: And finally, our free cash flow generation was below our expectations. This was due to a lower accounts payable balance related to the timing of purchases.

John J. Engel: On a full-year basis last year, certain sectors, including utility, data centers, industrial security, and network infrastructure, continued to grow, somewhat consistent with our expectations, while others underperformed, including broadband and specific OEM and construction-related sectors. As a leading global provider of business-to-business supply chain solutions, the Wesco team effectively navigated through this mixed economic environment last year. And this was all done while managing changing customer buying patterns as supply chains healed. I'm pleased that our team delivered 5% revenue growth in 2023 following two years of double-digit increases given these market challenges. We finish the year with our backlog near a historical high level and stable versus the end of September. Our free cash flow generation was higher in the second half, and then we returned one-third of our full-year free cash flow to common shareholders through dividends and share repurchase.

John J. Engel: On a full year basis last year, a certain sectors, including agility Datacenters industrial security and network infrastructure continues to grow.

John J. Engel: Somewhat consistent with our expectations, while others underperformed, including broadband and specific OEM and construction related sectors.

John J. Engel: As a leading global provider of business business supply chain solutions. The wesco team effectively navigated through this mixed economic environment last year and this was all done while managing changing customer buying patterns as supply chain heel.

John J. Engel: I'm pleased that our team delivered 5% revenue growth in 2023, following two years of double digit increases given these market challenges.

John J. Engel: We finished the year with a backlog with our backlog near our historical high level and stable versus the end of September.

John J. Engel: Our free cash flow generation was higher in the second half and we returned one third of our full year free cash flow to common shareholders through dividends and share repurchases.

John J. Engel: So as we move into 2024, and we take a look for the long term secular growth trends that we have consistently described will continue to provide us with the opportunity to outperform the market and our competition.

John J. Engel: So as we move into 2024 and we take a look forward, the long-term secular growth trends that we have consistently described will continue to provide us with the opportunity to outperform the market and our competition. While I view the general economic conditions in 2024 as favorable, I'm mindful of the uncertain backdrop that the election cycle, easing inflation, geopolitical upheaval, and short-term barring rates may have on demand. Regardless of these near-term impacts, as a market leader, we expect to benefit from our global capabilities, our leading scale, and our expanded portfolio of products, services, and solutions. Our investment and commitment in our digital transformation are expected to magnify those benefits as we roll out that program over the next 36 months.

Speaker Change: Well I'll give you the general economic conditions in 2024 as favorable I'm mindful of the uncertain backdrop that the election cycle easing inflation geopolitical upheaval in the short term borrowing rates may have on demand.

Speaker Change: Regardless of these near term impacts as a market leader, we expect to benefit from our global capabilities, our leading scale and our expanded portfolio of products services and solutions.

Speaker Change: Our investment and commitment and our digital transformation are expected to magnify those benefits as we roll out that program over the next 36 months.

John J. Engel: The substantial cash flow that Wesco generates has supported that investment over the last two years while allowing us to return capital to our shareholders. I am confident that Wesco will outperform our markets again this year, and we are positioned to deliver profitable sales growth and continue toward our long-term EBITDA margin expansion goal. Finally, I want to take a moment to provide you with two important First, I'm very pleased to announce that we are narrowing and lowering our target leverage range for the first time since the company went public 25 years ago. You will recall that we have historically had a target leverage range of 2.0 to 3.5 times net debt to even. Based on our size and scale and upsized cast generation, we believe it is the appropriate time to update this important target.

The substantial cash flow that wesco generates has supported that investment over the last two years, while allowing us to return capital to our shareholders I'm confident that wesco will outperform our markets again this year and we are positioned to deliver profitable sales growth and continued toward our long term EBITDA margin expansion goal.

Speaker Change: Finally, I wanted to take a moment to provide you with two important updates first I'm very pleased to announce that we are narrowing and lowering our target leverage range for the first time since the company went public 25 years ago.

Speaker Change: You'll recall that we had historically had a target leverage range of two point out at three five times net debt to EBITDA.

Speaker Change: Based on our size and scale and Upsized cash generation. We believe it is the appropriate time to update this important target.

John J. Engel: Moving forward, our target leverage range is 1.5 to 2.5 times net debt to EBITDA, and this represents a reduction of three quarters of a turn at the midpoint compared with our prior. Second, we are increasing our cash return to shareholders in 2024. Our board of directors intends to increase Wesco's dividend by 10% beginning in the first quarter of this year.

Speaker Change: Moving forward our target leverage range is 1.5 to two five times net debt to EBITDA and this represents a reduction of three quarters of a turn at the midpoint compared with our prior range.

Speaker Change: Second we are increasing our cash return of cash to shareholders in 2024, our board of directors intends to increase wesker's dividend by 10% beginning in the first quarter of this year. We are also continuing our share repurchase program and we expect our share repurchases this year to outpace lab.

John J. Engel: We are also continuing our share repurchase program, and we expect our share repurchases this year to outpace last. Now turning to page four, I want to take a brief word and a brief minute to summarize the successful completion of our three-year integration of Attica. The acquisition of Annexer literally transformed Wesco.

Last year.

Speaker Change: Yeah.

Now turning to page four I want to take a brief a brief word in brief minute to summarize the successful completion of our three year integration Baxter.

Speaker Change: The acquisition of Anixter literally transform Wesco this acquisition not only established Wesco is the clear leader in several of our business segments, but it also mix shifted our business to higher growth and higher margin end markets, reducing our cyclicality and increasing our resilience across all phases of the economic cycle.

John J. Engel: This acquisition not only established Wesco as the clear leader in several of our business segments, but it also mixed shifted our business to higher growth and higher margins and markets, reducing our cyclicality and increasing our resilience across all phases of the economic cycle. If we look at our performance metrics since the acquisition, they underscore the extraordinary performance and commitment of the entire Wesco team. We exceeded all our initial operational and synergy targets set at the time of the annexure acquisition.

Speaker Change:

Speaker Change: If we look at our performance metrics since the acquisition they underscore the an extraordinary performance and commitment of the entire wesco team.

Speaker Change: We exceeded all our initial operational synergy target set at the time of the Anixter acquisition.

John J. Engel: Sales increased 30% and adjusted EBITDA increased 89% versus the 2019 performance of the standalone company, and even the margin expanded by 240 basis points. We did all this while rapidly delevering our balance sheet by three turns one year ahead of schedule. Most importantly, since closing the Annexer merger in June 2020 through the end of 2023, total shareholder return was 353% compared to 62% for the S&P 500. As we sit here today, Wesco is much more than a traditional distributor who is a critical partner to both our suppliers and our global set of customers. The combination of Wesco and Annexer has created a new paradigm.

Speaker Change: <unk> increased 30% and adjusted EBITDA increased 89% versus the 2019 performance of the Standalone companies and EBITA margin expanded 240 basis points.

Speaker Change: We did all of this while rapidly delevering our balance sheet by three turns one year ahead of schedule.

Speaker Change: Most importantly, since closing the anixter merger in June 2020 through the end of 2023 total shareholder return was 353% compared to 62% for the S&P 500.

Speaker Change: As we sit here today wesco is much more than a traditional distributor.

Speaker Change: We're a critical partner to both our suppliers and a global set of customers.

Speaker Change: The combination of Wesco and Anixter has created a new paradigm. The digital transformation that we committed to at the time of the acquisition is designed to take that new paragraphs paradigm and create the west go up tomorrow.

John J. Engel: The digital transformation that we committed to at the time of the acquisition is designed to take that new paradigm and create the Wesco of tomorrow, which further empowers us to capitalize on our long-term secular trends from which we are uniquely positioned to benefit compared to our competitors. I'll now hand it over to Dave to take you through our fourth quarter and full year 2023 results, as well as our outlook for 2020, and Thank you, John.

Speaker Change: That's further empowers us to capitalize on our long term secular trends from which we are uniquely positioned to benefit compared to our competitors.

Speaker Change: I'll now hand, it over to David to take you through our fourth quarter and full year 2023 results as well as our outlook for 2024.

Speaker Change: Dave.

David: John Good morning, everyone and appreciate your joining the call today.

David S. Schulz: Good morning, everyone, and I appreciate your joining the call today. As John mentioned, we had a disappointing quarter with sales, margin, and cash flow below our expectations. On slide five, you see a summary of our fourth-quarter results. Reported sales were down 2% year over year.

David: As John mentioned, we had a disappointing quarter with sales margin and cash flow below our expectations.

David: On slide five you see a summary of our fourth quarter results reported sales were down 2% year over year.

David S. Schulz: Like the third quarter, growth in utility, industrial, data centers, and enterprise network infrastructure was more than offset by declines in broadband, security, OEM, and construction. We experienced customer destocking in our shorter cycle businesses in the second and third quarters. In the fourth quarter, we saw a step down in demand versus our expectations, particularly in December. On an organic basis, sales were down approximately 3% as a 2-point positive contribution from price was offset by a 5% decline in volume.

David: Like the third quarter growth in utility industrial data centers and enterprise network infrastructure was more than offset by declines in broadband security OEM and construction.

David: We experienced customer destocking in our shorter cycle businesses in the second and third quarters in the fourth quarter, we saw a step down in demand versus our expectations, particularly in December.

David: On an organic basis sales were down approximately 3% as a two point positive contribution from price was offset by a 5% decline in volume.

David: While our stock and flow sales were down in the fourth quarter. We continued to see strong project demand with direct shipment sales up versus the prior year.

David S. Schulz: While our stock and flow sales were down in the fourth quarter, we continue to see strong project demand, with direct shipment sales up versus the prior year. Project Backlog continues to be at historically high levels, supporting our outlook for growth in 2024. In total, backlog was down 10% year-over-year and down approximately 1% sequentially from the end of September.

David: Project backlog continues to be at historically high levels supporting our outlook for growth in 2024.

David: In total backlog was down 10% year over year and down approximately 1% sequentially from the end of September.

David S. Schulz: We expect backlog to continue to moderate in 2024, as lead times improve for most product categories. Gross margin was 21.4%, down 20 basis points sequentially. Relative to the prior year quarter, the 50 basis point decline in gross margin was driven by the anticipated reduction in supplier volume rebates, as well as the impact of business. We continue to prioritize profitable top-line growth and, as an industry leader, intend to protect the progress we've made on gross margin with our enterprise-wide margin improvement program. Adjusted EBITDA was down 15% year over year, primarily reflecting the impact of lower sales and gross margin, as Adjusted diluted earnings per share for the quarter was $2.65, $1.48 lower than the prior year, primarily due to lower sales and margins. The impact of higher interest expense and a higher effective tax rate was a combined headwind of approximately 40 cents in the quarter.

David: We expect backlog to continue to moderate in 2024 as lead times have improved for most product categories.

David: Gross margin was 21, 4% down 20 basis points sequentially.

David: Relative to the prior year quarter, the 50 basis point decline in gross margin was driven by the anticipated reduction in supplier volume rebates as well as the impact of business mix.

David: We continue to prioritize profitable topline growth and as an industry leader intend to protect the progress we've made on gross margin with our enterprise wide margin improvement program.

David: Adjusted EBITDA was down 15% year over year, primarily reflecting the impact of lower sales and gross margin as well as higher SG&A expenses, which I'll discuss on the next slide.

David: Adjusted diluted earnings per share for the quarter was $2.65 one.

David: $1.48 lower than the prior year, primarily due to lower sales and margins.

David: The impact of higher interest expense and a higher effective tax rate were a combined headwind of approximately <unk> 40 in the quarter.

David: As part of our commitment to return more capital to shareholders, we repurchased $25 million of common stock in November.

David S. Schulz: As part of our commitment to return more capital to shareholders, we repurchased $25 million of common stock in November, as we start 2024. However, preliminary sales per workday in January were down approximately 5% from the prior year, with CSS down low single digits and EES and UBS down mid-single digits. This decline reflects the continued weakness in broadband, construction, and OEM that we saw in the fourth quarter, and a slow start in utility against a strong base period comparison. Of note, January backlog kicked up slightly compared to December. Turning to slide 6, on this page, we want to provide you some additional insight into the sales miss in the quarter. As you can see, the exceptionally strong growth that we experienced in 2022 continued into 2023 but slowed materially in the second quarter as pricing benefits and volume growth moderated. In the second and third quarters, volume was relatively flat, with price contributing about three points to the top line.

As we start 2024.

David: Preliminary sales per workday in January were down approximately 5% from the prior year with.

David: With CSS down low single digits and E S and UBS down mid single digits.

David: This decline reflects the continued weakness in broadband construction and OEM that we saw in the fourth quarter.

David: And a slow start in utility against a strong base period comparison.

David: Of note January backlog ticked up slightly compared to December.

David: Turning to slide six on this page we want to provide you some additional insight to the sales miss in the quarter.

As you can see the exceptionally strong growth that we experienced in 2022 continued into 2023, but slowed materially in the second quarter as pricing benefits and volume growth moderated.

David: In the second and third quarters volume was relatively flat with price contributing about three points to the top line.

David: As we moved into the fourth quarter and as we mentioned on the earnings call. In early November we expected to see an acceleration of sales from October to November and again, its a December primarily driven by the shipment of projects from the backlog.

David S. Schulz: As we moved into the fourth quarter, and as we mentioned on the earnings call in early November, we expected to see an acceleration of sales from October to November and again into December, primarily driven by the shipment of projects from the backlog. Instead, we experienced a further slowdown in our stock and flow sales, along with some project delays, primarily within our CSS. We were expecting organic sales to remain flat, and instead, they were down approximately 3%. Turning to page 7.

David: Instead, we experienced a further slowdown in our stock and flow sales along with some project delays primarily within our CSS business.

We were expecting organic sales to remain flat and instead they were down approximately 3%.

David: Turning to page seven.

David S. Schulz: As I mentioned a moment ago, organic sales were down approximately 3% versus the prior year, reflecting a 2% benefit from price offset by lower volume. Market volumes declined and were only partially offset by share gains as cross-sell was positive versus the prior year. On the right side of the page, you can see the adjusted EBITDA impacts of lower sales, gross margin headwinds, and higher SG&A in the fourth quarter. The year-over-year increase in SG&A was primarily due to higher salaries and benefits, higher costs to operate our facilities, and higher costs related to our digital transformation. These increases were partially offset by cost reduction actions taken in June.

David: So I mentioned, a moment ago organic sales were down approximately 3% versus the prior year.

David: Reflecting a 2% benefit from price offset by lower volumes.

David: Market volumes declined and were only partially offset by share gains as cross sell was a positive versus the prior year.

On the right side of the page you can see the adjusted EBITDA impacts of lower sales gross margin headwinds and higher SG&A in the fourth quarter.

David: The year over year increase in SG&A was primarily due to higher salaries and benefits higher cost to operate our facilities and higher costs related to our digital transformation.

David: These increases were partially offset by the cost reduction actions taken in June.

David S. Schulz: In total, Adjusted SG&A represented 14.6% of sales, up 60 basis points from the prior year. And I'll provide you more details on SG&A later in the call. Now moving to slide eight to review our full-year results. Sales in 2023 were up 5% over the prior year, representing a full-year record. Organic sales were up 3%, largely due to the benefits of carryover pricing.

David: In total adjusted SG&A represented 14, 6% of sales up 60 basis points from the prior year I will provide you more details on SG&A later in the call.

David: Now moving to slide eight to review our full year results sales in 2023 were up 5% over the prior year, representing a full year record organic sales were up 3% largely due to the benefits of carryover pricing.

David S. Schulz: We are disappointed by the weaker-than-expected results in the board. It's important to note that the growth we delivered in 2023 is a direct reflection of the power of our significantly diversified and market exposure from the Annexer acquisition. We delivered record sales in CSS due to strong data center demand and share gains in security. Sales in UBS, also a record, were driven by strong growth in utility and integrated supply, partially offset by weaker broadband demand throughout the year. EES organic sales were up 1% on a like-for-like basis as strong growth in industrial was offset by weakness in OEM and construction. However, adjusted EBITDA was relatively flat in 2022.

David: We are disappointed by the weaker than expected results in the fourth quarter.

David: It's important to note that the growth we delivered in 2023 is a direct reflection of the power of our significantly diversified end market exposure from the anixter acquisition.

David: We delivered record sales in CSS from strong data center demand and share gains in security.

Sales in UBS also a record were driven by strong growth in utility and integrated supply.

David: Partially offset by weaker broadband demand throughout the year.

David: EES organic sales were up 1% on a like for like basis as strong growth in industrial was offset by weakness in OEM and construction.

David: Adjusted EBITDA was relatively flat with 2022.

David S. Schulz: Gross margin was down 20 basis points due to the impact of lower supplier volume rebates as a percentage of sales, as anticipated. EBITDA margin further contracted due to higher S&A, and we did not get the operating leverage we expected as sales moderators, consistent with our commitment to return a greater proportion of capital to Wesco shareholders. We will return more than $150 million to common shareholders between share repurchases and dividends. Turn to page 9.

David: Gross margin was down 20 basis points due to the impact of lower supplier volume rebates as a percentage of sales as anticipated.

David: EBITDA margin further contracted due to higher SG&A and we did not get the operating leverage we expected our sales moderated.

Consistent with our commitment to return a greater proportion of capital to Wesco shareholders, we returned more than $150 million to common shareholders between share repurchases and dividends.

Turning to page nine.

David S. Schulz: On this slide, you can see the relatively balanced contribution to our sales growth in 2023 from the markets, including price, the benefit of share gains in our cross-sell program, as well as the acquisition of Rahi, as well as the acquisition of Rahi in late 2022. Each of these growth drivers contributed 1.5 to 2% of growth for the full year, a portion of which was offset by having one fewer workday and a net foreign currency head. On the right side of this page, you can see the relatively flat year-over-year EBITDA as the benefit of the 5% sales growth was offset by higher SG&A. Moving to slide 10, we have shown the quarterly cadence of SG&A by quarter. You can see that the step up in second quarter SG&A was mostly driven by our annual merit increase.

David: On this slide you can see the relatively balanced contribution to our sales growth in 2023 from the market, including price the benefit of share gains in our cross sell program as the acquisition of raw heat as well as the acquisition of raw he in late 2022.

David: Each of these growth drivers contributed 1.5% to 2% of growth for the full year, a portion of which was offset by having one fewer workday and a net foreign currency headwind.

David: On the right side of this page you can see the relatively flat year over year EBITDA as the benefit of the 5% sales growth was offset by higher SG&A.

David: Moving to slide 10, we have shown the quarterly cadence of SG&A by quarter.

David: You can see that the step up in second quarter, SG&A was mostly driven by our annual Merit increase.

David S. Schulz: In 2023, the merit increase was up mid-single digits versus a normal year in the low single digits. However, at the same time, we reduced our top-line forecast for the full year and took $25 million of annualized cost actions in June and an additional $20 million of actions in the third quarter. These structural cost reductions, along with lower discretionary spending, were the primary drivers of the sequential decrease of $32 million in the third quarter. In the fourth quarter, adjusted S&A increased $23 million sequentially.

David: In 2023, the Merit increase was up mid single digits versus a normal year in the low single digits. However at the same time, we reduced our topline forecast for the full year and took $25 million of annualized cost actions in June and then an additional $20 million of actions in the third quarter.

David: These structural cost reductions along with lower discretionary spending were the primary drivers of the sequential decrease of $32 million in the third quarter.

David: In the fourth quarter, adjusted SG&A increased $23 million sequentially.

David S. Schulz: Approximately one-third of this increase was due to higher-than-anticipated benefits in health care costs, and the balance was due to higher costs to operate our facilities and IT-related expenses. Given the downshift in fourth-quarter sales and the slow start to 2024, we are taking actions to address these higher costs. Turning to slide 11, fourth quarter organic sales in our EES business were down approximately 4% year-over-year and down 2% on a like-for-like basis. Construction was down high single digits, reflecting continued weakness in wire and cable, as well as weaker solar demand against a strong base period comparison.

David: Approximately one third of this increase was due to higher than anticipated benefits and health care costs and the balance was due to higher cost to operate our facilities and it related expenses give.

Given the downshift in fourth quarter sales and the slow start to 2024, we are taking actions to address these higher costs.

David: Turning to slide 11 fourth quarter organic sales in our EES business were down approximately 4% year over year and down 2% on a like for like basis.

David: Construction was down high single digits, reflecting continued weakness in wire and cable as well as weaker solar demand against a strong base period comparison.

David S. Schulz: Industrial sales continue to be strong and were up mid-single digits over the prior year, driven by automation and the oil and gas sector. OEM sales were down mid-single digits. Backlog was down 2% sequentially and down 5% from the prior year, reflecting the continued reduction of supplier lead time. EES backlog remains at a historically high level as a percentage of sales.

David: Industrial sales continued to be strong and were up mid single digits over the prior year, driven by automation and the oil and gas sectors OEM.

David: OEM sales were down mid single digits.

David: Backlog was down 2% sequentially and down 5% from the prior year, reflecting the continued reduction of supplier lead times E. S backlog remains at a historically high level as a percentage of sales.

David S. Schulz: Adjusted EBITDA was down from the prior year, with the adjusted EBITDA margin down 120 basis points, which reflects gross margin headwinds from lower supplier volume rebates and higher operating expenses. For the full year, organic sales were down 1%, but up 1% on a like-for-like basis. Similar to the fourth quarter, this reflects weakness in construction OEM, partially offset by continued strength in industrial, which was up mid-single digits in 2023. Turning to slide 12.

David: Adjusted EBITDA was down from the prior year with adjusted EBITDA margin down 120 basis points, which reflects gross margin headwinds from lower supplier volume rebates and higher operating expenses.

David: For the full year organic sales were down 1%, but up 1% on a like for like basis.

David: Similar to the fourth quarter. This reflects weakness in construction OEM, partially offset by continued strength in industrial which was up mid single digits in 2023.

David: Turning to slide 12.

David S. Schulz: Fourth quarter sales in our CSS business were up 2% on a reported basis and down 1% organically versus the prior year. Additionally, certain large projects with technology companies shifted out of the fourth quarter into 2024. Additionally, we experienced a slowdown in stock and flow sales to contractors. Enterprise network infrastructure, which comprises structural cabling, along with sales to Internet service providers, was up low single digits in the quarter, as wireless growth was offset by declines with Canadian Internet service providers.

David: Fourth quarter sales in our CSS business were up 2% on a reported basis and down 1% organically versus the prior year.

David: Certain large projects with technology companies shifted out of the fourth quarter into 2024. Additionally, we experienced a slowdown in stock and flow sales to contractors.

David: Enterprise network infrastructure, which comprises structured cabling, along with sales to Internet service providers was up low single digits in the quarter as wireless growth was offset by declines with Canadian Internet service providers.

David S. Schulz: Security sales were down low single digits versus 2022, which was up more than 20% as small and mid-sized contractors were negatively impacted by lower construction spending. We saw the overall security market contract over the past couple of quarters, but believe we are well positioned and gaining share. Datacenter sales were up low double digits driven by strength with hyperscale customers. CSS backlog has returned to normal levels due to significant reductions in supplier lead times and increased product availability. Backlog at the end of December was down 26% from the prior year and down 6% sequentially from the September level. For the full year, CSS fails were a record, up 12% on a reported basis and up 5% organically.

David: Security sales were down low single digits versus 2022, which was up more than 20% as small and midsized contractors were negatively impacted by lower construction spending.

David: We saw the overall security market contract over the past couple of quarters, but believe we are well positioned and gaining share.

David: Data center sales were up low double digits, driven by strength with Hyperscale customers.

GSS backlog has returned to normal levels due to significant reductions in supplier lead times and increased product availability.

David: Backlog at the end of December was down 26% from the prior year and down 6% sequentially from the September level.

David: For the full year CSS sales were a record up 12% on a reported basis and up 5% organically we.

David: We experienced solid growth in data center, including the benefit of the Rocky acquisition and share gains in security.

David S. Schulz: We experienced solid growth in data centers, including the benefit of the RAHI acquisition and share gains in security. Enterprise network infrastructure was also up versus the prior year, driven by strength and wireless applications. Profitability was also strong, with record-adjusted EBITDA and record-adjusted EBITDA margin of 9.6%, up 20 basis points, driven by cost controls and operating leverage on higher sales. Turning to slide 13.

David: Enterprise network infrastructure was also up versus the prior year driven by strength in wireless applications.

David: Profitability was also strong with record adjusted EBITDA and record adjusted EBITDA margin of nine 6% up 20 basis points, driven by cost controls and operating leverage on higher sales.

David: Turning to slide 13.

David S. Schulz: UBS sales were down 2% in the quarter, but sales and utility were up low single digits versus a strong 20% plus comparison in the prior year. We continue to benefit from the secular trends of electrification, green energy, and grid modernization in our project business. However, as expected, we did see a slowdown in our stock and flow sales with customers more tightly managing inventory. Integrated supply was up mid single digits versus the prior year, consistent with the strength we experienced with other industrial customers within our portfolio. However, broadband sales were down over 30%, which represented an unexpected incremental step down in demand as customers continue to work through inventory and pause purchases until government funding is released. Backlog was down 5% from the prior year and up 4% on a sequential basis. However, backlog remains at a historically high level as a percentage of sales.

David: UBS sales were down 2% in the quarter sale.

David: Sales and utility were up low single digits versus a strong 20% plus comparison in the prior year.

David: We continued to benefit from the secular trends of electrification green energy in grid modernization and our project business.

David: As expected, we did see a slowdown in our stock and flow sales with customers more tightly managing inventory.

David: Integrated supply was up mid single digits versus the prior year consistent with the strength, we experienced with other industrial customers within our portfolio.

David: Broadband sales were down over 30%, which represented an unexpected incremental step down in demand as customers continue to work through inventory and pause purchases until government funding is released.

David: Backlog was down 5% from the prior year and up 4% on a sequential basis backlog remains at a historically high level as a percentage of sales.

David: Adjusted EBITDA was down approximately 100 basis points versus the prior year, driven by lower supplier volume rebates, a mix impact and higher SG&A as a percentage of sales.

David S. Schulz: Adjusted EBITDA was down approximately 100 basis points versus the prior year, driven by lower supplier volume rebates, a mixed impact, and higher SG&A as a percentage of sales. For the full year, sales were a record and up 8% organically, reflecting double-digit growth in utility, cross-sell revenue, and scope expansion, including with our integrated supply customers, partially offset by weakness in broadband. UBS posted record-adjusted EBITDA and record-adjusted EBITDA margin despite the significant sales decline in broadband. Turning to page 14.

David: For the full year sales were a record and up 8% organically, reflecting double digit growth in utility.

David: Cross sell revenue and scope expansion, including with our integrated supply customers, partially offset by weakness in broadband.

David: UBS posted record adjusted EBITDA and record adjusted EBITDA margin. Despite the significant sales decline in broadband.

David: Turning to page 14.

David S. Schulz: Pre-cash flow generation in 2023 totaled $444 million, which was below the $500 to $700 million range that we provided in November. Relative to the assumptions in our outlook, the primary drivers were lower net income due to the decline in fourth-quarter sales and a lower payables balance. On the payables front, we quickly aligned our purchases of inventory to the lower sales environment, which drove our payables balance down versus the third quarter. However, purchases were stable in the second and third quarters. As stock and flow sales were below our expectations in the fourth quarter, purchases were lower, resulting in a lower payables balance. The decrease in accounts payable in the fourth quarter represented a use of cash of $233 million and a use of $320 million for the full year.

David: Free cash flow generation in 2023 totaled $444 million, which was below the $500 million to $700 million range that we provided in November.

David: Relative to the assumptions in our outlook. The primary drivers were lower net income due to the to the.

David: Klein and <unk> fourth quarter sales and a lower payables balance on the payables front, we quickly aligned our purchases of inventory to the lower sales environment, which drove our payables balance down versus the third quarter.

David: Purchases were stable in the second and third quarter.

David: Stock and flow sales were below our expectations in the fourth quarter purchases were lower resulting in a lower payables balance.

David: The decrease in accounts payable in the fourth quarter represented a use of cash of $233 million and a use of $320 million for the full year.

David: Days payable decreased by approximately one day compared to the end of 2022.

David S. Schulz: Days payable decreased by approximately one day compared to the end of 2022. Moving to slide 15. As John mentioned at the start of the call, we are revising our target leverage range to 1.5 to 2.5 times net debt to EBITDA. This is an important milestone for the company as we have operated with the same two to three and a half turns of leverage since our IPO in 1999, and we will work to reduce leverage to our new range over time. Additionally, we will maintain the flexibility to go above the target range to fund acquisitions, similar to what we did with Ecole in 2012 and Annexer in 2020. Our strong free cash flow generation allows us to quickly move back within the target range.

David: Moving to slide 15.

David: As John mentioned at the top of the call. We are revising our target leverage range to one five to two five times net debt to EBITDA.

David: This is an important milestone for the company as we have operated with the same two to three and a half turns of leverage since our IPO in 1999.

David: We will work to reduce leverage to our new range over time. Additionally, we will maintain the flexibility to go above the target range to fund acquisitions similar to what we did with equal in 2012 and anixter in 2020.

David: Our strong free cash flow generation allows us to quickly move back within the target range.

David S. Schulz: We remain focused on a balanced capital allocation strategy and plan to opportunistically utilize our cash for debt reduction and share repurchases going forward. We will also return capital to shareholders via the dividend initiated during 2023. As John mentioned, we intend to raise the common stock dividend in the first quarter of 2024. On share repurchases, we will continue to be opportunistic based on market conditions. We are committed to executing against our $1 billion share repurchase authorization.

David: We remain focused on a balanced capital allocation strategy and plan to opportunistically utilize our cash for debt reduction and share repurchases going forward.

David: We will also return capital to shareholders via the dividend and initiated during 2023.

As John mentioned, we intend to raise the common stock dividend in the first quarter of 2024.

David: On share repurchases, we will continue to be opportunistic based on market conditions.

David: We are committed to executing against our $1 billion share repurchase authorization. However, we will continue to be balanced between share buybacks and debt reduction considering the significant rise in interest rates over the past year.

David S. Schulz: However, it will continue to be balanced between share buybacks and debt reduction, considering the significant rise in interest rates over the past year. Now moving to page 16 for the key sales drivers of our strategic business units. We provided the details on the quarterly calls and want to summarize how we perform during the full year 2023, along with our expectations for 2024. I'll start with EES as this is our largest segment.

David: Now moving to page 16 for the key sales drivers of our strategic business units.

David: We provided the details on the quarterly calls and want to summarize how we performed during the full year 2023, along with our expectations for 2024.

David: I'll start with EES as this is our largest segment.

David S. Schulz: As you can see, we faced headwinds in both construction and OEM in 2023 that more than offset significant growth in industrialization. As we move into 2024, we expect EES reported sales growth to be flat to up low single digits as construction and markets remain pressured in total, despite an increase in large project activity. Industrial is expected to again benefit from continued growth from customers in many of the end market verticals we support. However, OEM is expected to be roughly flat.

David: As you can see we face headwinds in both construction and OEM in 2023 that more than offset significant growth in industrial.

David: As we move into 2024, we expect EES reported sales growth to be flat to up low single digits as construction end markets remain pressured in total despite an increase in large project activity.

David: Industrial is expected to again benefit from continued growth from customers in many of the end market verticals, we support.

David: OEM is expected to be roughly flat.

David S. Schulz: Looking at our CSS segment, we generated strong double-digit growth in Wesco data center solutions in 2023, along with significant share gains in security that allowed us to outgrow the mark. However, enterprise network infrastructure, which is focused on service providers and data communication applications, including structured cabling products, experienced softness due to the slowing of 5G build-outs in construction-specific markets. Enterprise network infrastructure is the largest business for CSS and makes up approximately 40% of segment revenue. In 2024, we again expect strong double-digit growth in data center and share gains in security, but some of the weakness that we saw in enterprise network infrastructure is expected to remain. That said, we expect a strong volume growth year for CSS, with sales up low to mid-single digits. Lastly, looking at UBS, we generated double-digit growth in utility and mid-single-digit growth in integrated supply during 2023. This growth was partially offset by an approximately 20% decline in broadband due to customer destocking and delays of purchases until government dollars were spent.

David: Looking at our CSS segment, we generated strong double digit growth in Wesco datacenter solutions in 2023, along with significant share gains in security that allowed us to outgrow the market. However, enterprise network infrastructure, which is focused on service providers and data communication applications.

David: Including structured cabling products experienced softness due to the slowing of five G build outs and construction specific markets.

David: Enterprise network infrastructure is the largest business for CSS and makes up approximately 40% of segment revenue in.

David: In 2024, we again expect strong double digit growth in data center and share gains in security, but some of the weakness that we saw enterprise network infrastructure is expected to remain that said, we expect a strong volume growth year for CSS with sales up low to mid single digits.

David: Lastly, looking at UBS, we generated double digit growth in utility and mid single digit growth in integrated supply during 2023.

David: This growth was partially offset by an approximately 20% decline in broadband due to customer destocking and delays of purchases until government dollars are spent.

David: We expect growth in utility and integrated supply in 2024, but at a more moderate pace as we lapped strong comparisons significant 2023 price increases and as utility customers more tightly manage inventory and projects.

David S. Schulz: We expect growth in utility and integrated supply in 2024, but at a more moderate pace as we lap strong comparisons, significant 2023 price increases, and as utility customers more tightly manage inventory and projects. In addition, based on customer and supplier input, we don't expect to see a recovery in broadband until late 2024 before turning to growth in 2025. Despite these factors, we expect strong volume growth for UBS in 2024, with sales up mid-single digits.

David: In addition, based on customer and supplier input, we don't expect to see a recovery in broadband until late 2024 before turning to growth in 2025. Despite these factors, we expect strong volume growth for UBS in 2024 with sales up mid single digits.

Speaker Change: Moving to slide 17, I'll summarize our outlook for 2024.

David S. Schulz: Moving to slide 17, I'll summarize our outlook for 2024. Based on our view of growth rates for each of the businesses, we expect total revenue to be up 1% to 4%, with organic sales flat to up 3%. From a quarterly perspective, we expect to see normal sequential patterns as we move throughout 2024. However, given the tough comparison in the first quarter, normal sequential trends would translate to a low to mid-single-digit decline in revenue year over year, with growth rates improving in subsequent quarters.

Speaker Change: Based on our view of growth rates for each of the businesses. We expect total revenue to be up 1% to 4% with organic sales flat to up 3%.

Speaker Change: At the midpoint of the range prices expected to contribute about 1% to the top line with volumes relatively flat.

Speaker Change: From a quarterly perspective, we expect to see normal sequential patterns as we move throughout 2024.

Speaker Change: However, given the tough comparison in the first quarter normal sequential trends would translate to a low to mid single digit decline in revenue year over year with growth rates improving in subsequent quarters.

Speaker Change: At the midpoint of our revenue outlook sales would be up two 5%, including approximately one point of carryover pricing from 2023.

David S. Schulz: At the midpoint of our revenue outlook, sales would be up two and a half percent, including approximately one point of carryover pricing from 2023. On adjusted EBITDA margin, while we do not provide an outlook for gross margin, we expect to see improvement in 2024. Our transactional margins were stable in 2023.

Speaker Change: On adjusted EBITA margin, while we do not provide an outlook for gross margin, we expect to see improvement in 2020 for art.

Speaker Change: Our transactional margins were stable in 2023.

David S. Schulz: We expect improved mix and flat supplier volume rebates as a percentage of sales, along with the benefits of our margin improvement program, to drive higher results in 2024. On SG&A, there are headwinds related to our annual merit increase, along with a return to target payouts for incentive compensation. These items combined represent an approximately $100 million cost headwind in 2024 and are expected to be only partially offset by the cost actions we took in the second and third quarters of 2023. We plan to take additional actions to protect our margins and will be more specific regarding the cost actions when we report first quarter earnings. Bringing this all together from a P&L perspective, we expect the adjusted EBITDA margin to be in a range of 7.5% to 7.9%, with approximately $1.75 billion of EBITDA at the midpoint.

Speaker Change: We expect improved mix and flat supplier volume rebates as a percentage of sales along with the benefits of our margin improvement program to drive higher results in 2024.

Speaker Change: On SG&A there are headwinds related to our annual merit increase along with a return to target payouts for incentive compensation.

Speaker Change: These items combined represent an approximately $100 million cost headwind in 2024, and our expected only to be only partially offset by the cost actions. We took in the second and third quarters of 2023.

We plan to take additional actions to protect our margins and we'll be more specific regarding regarding the cost actions. When we report first quarter earnings.

Speaker Change: Bringing this all together from a P&L perspective, we expect adjusted EBITDA margin to be in a range of seven 5% to seven 9% with approximately $175 billion of EBITDA at the midpoint.

Speaker Change: Based on our range of sales growth and margin improvement combined with the underlying assumptions that you can find on this slide we expect adjusted earnings per share of $13 75.

David S. Schulz: Based on our range of sales growth and margin improvement combined with the underlying functions that you can find on the slide, we expect adjusted earnings per share of $13.75 to $15.75 and free cash flow of between $600 million and $800 million. This free cash flow outlook of $700 million, at the midpoint, would represent the highest free cash flow in our history. As I discussed a moment ago, we are focused on reducing our working capital days and expect to see an improvement in 2024. Now, moving to page 18.

Speaker Change: $15, 75, and free cash flow of between $600 million and $800 million.

Speaker Change: This free cash flow outlook of $700 million at the midpoint would represent the highest free cash flow in our history.

Speaker Change: As I discussed a moment ago, we are focused on reducing our working capital days and expect to see an improvement in 2024.

Speaker Change: Now moving to page 18.

Operator: Despite the multi-speed economy in 2023 and 2024, our long-term secular trends are intact. This slide shows the uniquely strong position of our company to drive growth and profitability in the years ahead. The end-to-end solutions that we provide to our global customer base are directly aligned with the six secular growth trends shown on the left side of this page. Our participation in these trends, coupled with increasing public sector investments in infrastructure, broadband, and partnerships with the private sector, positions Wesco exceptionally well. Our long-term financial framework is for Wesco to grow 2% to 4% above the market due to the combined benefit of secular growth trends and increasing share. With that, operator, we can now open the call to questions. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone.

Speaker Change: Despite the multi speed economy in 2023, and 2020 for our long term secular trends are intact. This slide shows the uniquely strong position of our company to drive growth and profitability in the years ahead.

Speaker Change: The end to end solutions that we provide to our global customer base are directly aligned with the six secular growth trends shown on the left side of this page.

Speaker Change: Our participation in these trends coupled with increasing public sector investments in infrastructure broadband and partnerships with the private sector positioned wesco exceptionally well.

Our long term financial framework is for wesco to grow 2% to 4% above the market due to the combined benefit of secular growth trends and increasing share.

Speaker Change: With that operator, we can now open the call for questions.

Speaker Change: We will now begin the question and answer session, if you'd like to ask a question. Please press star followed by one on your telephone keypad. If you would like to withdraw your question. Please press Star then two.

Operator: If you would like to withdraw your question, please press star, then 2. Please limit your questions to one and one follow-up. Our first question comes from Deane Dray with RBC Capital Markets. Please go ahead. Thank you. Good morning, everyone.

Speaker Change: Please limit your questions to one question and one follow up.

Speaker Change: Our first question comes from Deane Dray with RBC capital markets. Please go ahead. Thank.

Deane Dray: Thank you and good morning, everyone.

Speaker Change: Hello Deane.

Deane Dray: Maybe we can start with parsing through what changed in terms of customer behavior. What can you tell us about the stock and flow business, how it changed during the sounded like the latter point in the quarter. So specifically the idea that customers are waiting for government funding.

John J. Engel: Hello Dean. Hey, maybe we can start with parsing through what changed in terms of customer behavior. What can you tell us about the stock and flow business? How it changed during, you know, sounded like the latter, www.youtube.com or the link in the description? Yeah, again, at the highest level. EES, you know, had strong industrial, as Dave mentioned. Robert Barry, Nelson Squires, Sam Darkatsh, Ryan Cieslak, Ken Newman, John Engel, Robert Barry, Nelson Squires, Sam Darkatsh, Ryan Cieslak, Ken Newman, John Engel, Robert Barry, Nelson Squires, in both CSS and UBI. So, let me take you through each of them.

Deane Dray: And then what were the OE businesses that were soft and where specifically was did you see construction weakness.

Deane Dray: Yeah.

Deane Dray: At the highest level.

Deane Dray: Yes, you know had strong industrial as Dave mentioned.

Deane Dray: Instruction was down a bit OEM was down a bit but it didn't it wasn't far off our expectations. Now if you look at the underlying mix of E. S stock and flow is a little weaker than we anticipated we did have projects.

Deane Dray: <unk> shipments the <unk> shipments kind of tick up.

Deane Dray: That wasn't the big Delta versus our overall expectations. The big Delta that was with a shift in both CSS and UBS. So let me take you through each of them see us as saw a slowdown in their stock and flow really to various contractors and some.

John J. Engel: CSS saw a slowdown in their stocking flow, really to various contractors and some select project push-outs, specifically with a few customers that were, these are fairly sizable projects. We had expected CSS to really step up sequentially. So this was really versus expectation. UBS, as well, had two major drivers. Integrated supply, which is part of that business, an industrial-oriented integrated supply business called WISC, grew very nicely, mid-single-digit growth, very strong, actually, and very strong momentum. However, broadband was significantly weaker than we thought.

Deane Dray: Select project push outs, specifically with a few customers that these are fairly sizeable projects. We had expected CSS to really step up sequentially. So this was really versus expectations.

Deane Dray: UBS is well had had two major drivers integrated supply, which is part of that business.

Deane Dray: Industrial oriented integrated integrated supply business called West grew very nicely mid single digit growth very strong actually.

And very strong momentum broadband was significantly weaker than we thought it had been down all year in the 20% range. It was down over 30% in Q4 so.

John J. Engel: It had been down all year in the 20% range. It was down over 30% in Q4. So we had thought we kind of had hit the bottom on broadband, but it kind of legged down a little bit further. We did have a very challenging comparable in Q4'22, but nevertheless, broadband was worse than expected. And then finally, utility.

Deane Dray: We had thought we kind of hit the bottom on broadband, but it kind of leg down a little bit further we did have a very challenging comparable in Q4, 'twenty two but nevertheless broadband was worse than expected and then finally utility team.

Deane Dray: And I'd say utility was a case where customers clearly.

John J. Engel: And I'd say utility was a case where customers clearly did some inventory management as we moved through, let's say, the latter parts of November through December. And they were adjusting their purchases, you know, that really impacted stock and flow. So they kind of, they were kind of riding the inventory levels they had and kind of just pushed stuff out. You call it year-end inventory management. I think I have covered all your questions. Dave, do you want to add anything?

Deane Dray: Did some inventory management at AR as we move through let's say the latter parts of November through December and they were adjusting their purchases.

Deane Dray: That really impacted the stock and flow. So they had kind of they were kind of riding the inventory levels. They had in kind of just push stuff out you call at year end inventory management.

Deane Dray: I think I hit all your questions. Dave do you want to add anything I just want to mention on OEM. You had a specific question. There we had talked about manufactured structures being one of our issues. Throughout 2023, we think we've hit bottom. There there were some sales to customers that we were expecting in other sectors of our OEM business.

David S. Schulz: Yeah, I just want to mention OEM. You had a specific question there. We had talked about manufactured structures being one of our issues throughout 2023. We think we've hit rock bottom there.

David S. Schulz: There were some sales to customers that we were expecting in other sectors of our OEM business that we were expecting to ship out in the fourth quarter that we're not shipping out. So we do think that there was a market downshift with some of our OEM customers.

David S. Schulz: That we were expecting to ship out in the fourth quarter that we're we're not shipping out. So we do think that there was a market downshift with some of our OEM customers.

David S. Schulz: Got it that was all helpful. And then just as a follow up for 24 can you talk about the impacts of normalization.

John J. Engel: And then just as a follow-up for 24, can you talk about the impacts of normalization? So we're seeing pricing normalize. Sounds like you're only getting a 1% benefit from carryover, www.youtube.com or www.facebook.com and Order Patterns.

David S. Schulz: So we're seeing pricing normalize it sounds like you're only getting a 1% benefit from carryover.

David S. Schulz: Seeing normalizing in order patterns from customers and how they manage their inventory and you're seeing more normalizing in your backlog.

David S. Schulz: Just kind of take us through those themes, and then specifically regarding price and and order patterns.

Speaker Change: Let me start with the pricing impact.

David S. Schulz: Let me start with the pricing impact. As we've reported throughout 2023, the benefit of price, you know, was still positive, but the growth rate was much lower quarter over quarter. We had two points of benefit on price in the fourth quarter. Most of the supplier price increases that we've been seeing are more typical of what we saw pre-COVID.

As we've reported throughout 2023 the benefit of price.

Speaker Change: It was still a positive but it was the growth rate was much lower quarter over quarter. We did two points of benefit on price in the fourth quarter are most of the supplier price increases that we've been seeing are more typical of what we saw pre COVID-19. So we're looking at the one to two points of announced price increases for many of our.

David S. Schulz: So we're looking at one to two points of announced price increases from many of our supplier partners. So we do expect to get some carryover. We've included about a point of pricing benefit from that carryover in our 2024 outlook. So we are seeing that normalization of price. Of course, we'll always have the commodity impact on pure commodity products. You know, that's always hard for us to predict.

Speaker Change: Supplier partners.

Speaker Change: So we do expect to get some carryover. We've included about a point of pricing benefit from that carryover in our 2024 outlook. So we are seeing that normalized normalization of price you know of course, we will always have the commodity impact on the pure commodity products, that's always hard for us to predict but generally the pricing environment has stabilized.

John J. Engel: But generally, the pricing environment has stabilized to pre-COVID expectations. In terms of order patterns, we're still seeing quite a bit of bidding activity within the businesses that we serve. So many of our customers are still out there with these major projects that we are still seeing good bidding activity. We do expect, as we go through 2024, that we'll continue to see a return to typical order patterns. And, you know, that's playing out for us in things like how much inventory we have on inventory to support these projects based on product availability and lead times coming down from our suppliers. Gene, I think your question is a good one in that, you know, we've had this period of time, going into the pandemic, through the pandemic, coming out of the pandemic.

Speaker Change: As the pre Covid expectations.

Speaker Change: In terms of the order patterns were still seeing quite a bit of bidding activity.

Speaker Change: Within this the businesses that we serve so many of our customers are still out there with these major projects that we are still seeing good bidding activity.

Speaker Change: We do expect as we go through 2024.

Speaker Change: We'll continue to see the return to typical ordering patterns and how that's playing through for us in things like how much orders do we have an inventory to support these projects based on these.

Speaker Change: Product availability and lead times coming down from our suppliers.

Speaker Change: Dean I think your question is a good one in that you know.

Speaker Change: We've had that I think we'll look back to this period of time going into the pandemic through the pandemic coming out of the pandemic and we clearly had.

John J. Engel: And we clearly had, you know, some dramatic effects across the entire value chain and the global supply chains as we entered, went through, and came out on the other side. By and large, what we're seeing now is kind of a return to a normalized level across almost all dimensions of the business. Pricing, as Dave said, supplier lead times continue to be, you know, they're back at pre-COVID levels except for a few select categories like, you know, engineering products, switchgear, and transformers. So, most of that supply chain disruption was on the front end through it; on the back end, it's kind of worked its way through, I think, as we closed out 2020. Thank you. The next question comes from Nigel Coe with Wolf Research. Let's go ahead. Nigel, your line may be muted on your end. Yes, but it was muted.

Speaker Change: Some dramatic effects across the entire value chain and a global supply chain as we entered went through and came out the other side.

Speaker Change: By and large what we're seeing now is.

Speaker Change: Back to more normalized level across almost all dimensions of the business pricing as Dave said.

Speaker Change: Lee supplier lead times continue to be.

Back at pre Covid levels, except for a few select categories like engineered.

Speaker Change: Products switch gear and Transformers.

Speaker Change: So.

Speaker Change: Most of that supply chain disruption and there was a front end through it on the backend has kind of worked its way through I think as we closed out 2023.

Speaker Change: Thank you.

Speaker Change: The next question comes from Nigel Coe with Wolfe Research. Please go ahead.

Nigel Coe: Nigel Your line may be muted on your end.

Nigel Coe: Yes, it was a it was needed thanks for that.

Nigel Coe: Thanks for that. So, look, John, you mentioned the disappointments in the way the court played out, but, you know... Really good companies make their own luck, and, you know, the SG&A and the free cash flow were obviously very disappointing in that regard. So I'm just wondering, you know, when you take a step back and think about, you know, kind of what happened, is there an organizational issue here that needs to be solved? Is information thrown around in the organization?

Nigel Coe: So John you you you know you mentioned the disappointments in the with the way the quarter played out but you know.

Nigel Coe: Really good companies make their own look and you know the SG&A and the free cash flow was obviously very disappointing in that regard. So I'm. Just wondering you know when you take a step back and think about you know kind of what transpired is that an organizational issue here that needs to be solved as information flowing around the organization.

Nigel Coe: And maybe just talk about, you know, what changes will happen in 24 to give us confidence that, you know, the team can deliver on commitment. Nigel, thanks for the question. You know, I started my opening comments today by saying these results are unacceptable. They're unacceptable to me and the entire management team.

Nigel Coe: Just talk about you know what changes in 24 to give us confidence that our you know the team can deliver on our commitments.

Nigel Coe: Nigel Thanks for the question.

Speaker Change: In my opening comments today by saying these results are unacceptable there unacceptable to me and the entire management team I think we've we've.

John J. Engel: I think we've clearly built a new company, and we established a very strong track record of delivering exceptional results and creating value. You know, if you think about 2023 in summary, we had a little bit of a kind of softening in EES and Q2, and we took some cost actions. And then as we go through Q4, things move pretty quickly.

Speaker Change: Nearly built a new company and we established a very strong track record of delivering exceptional results and creating value.

Speaker Change: If you think about 2023 in summary, we had a little we had a little bit of a kind of softening in E. S. In Q2, and we took some cost actions.

Speaker Change: And then as we go through Q4 things move pretty quickly and look.

John J. Engel: And look, as we enter this year, we still have our sales rates not bouncing back yet. So we have declining sales, as Dave mentioned, in January. So that kind of extends the Q4 trend on the top line, although backlog has ticked up sequentially. So that's an encouraging point. We've got the best team we've had, Nigel.

As we enter this year, we still we still have our sales rates.

You know not bouncing back yet so we have declining sales is as Dave mentioned in January so kind of that it extends the Q4 trend on the top line, although backlog has ticked up sequentially. So that's a that's an encouraging point.

Speaker Change: We've got the best team, we've had Nigel we've got very clear initiatives.

John J. Engel: We've got very clear initiatives that have delivered value. As we've done over the last several years since we brought Annexer and Wesco together, we've refined our margin improvement program as we've entered. We did that, we launched it initially several years ago, and we refine it every year. So we refine that again, adding new tools and capabilities to that program back in January of 2024. And we continue to see tremendous cross-cell opportunities.

Speaker Change: Delivered value as we've done over the last several years since we brought anixter and Wesco together, we've refined our margin improvement program as we've entered.

Speaker Change: Did that we launched it initially several years ago and we've refined it every year. So we refine that again, adding new tools and capabilities.

Speaker Change: To that program and that's.

Speaker Change: In January of 2024, and we continue to see tremendous cross sell opportunities I think we've built a very good process a rigorous process and have a have a real strong recipe around delivering the cross sell results. So highly confident that we'll get the momentum back here quickly.

John J. Engel: I think we've built a very good process, a rigorous process, and have a real strong recipe around delivering the cross-cell results. So, I'm highly confident that we'll get the momentum back here quickly. As we kind of look at the guide for the year, you know, I think we were very thoughtful and measured in terms of how we set up the guide. We do expect more of a normal seasonality as we walk quarter to quarter across this year sequentially. And if you factor that in, that takes us, you know, well above the midpoint of the guidance range that we've put out there. So, you know, I look at 24, you know, as being a year when most of the external market factors seem to normalize. And now we're down to execution.

Speaker Change: As we kind of look at guide for the here you know I think we were very thoughtful and measured in terms of how we set up the guide when do you expect more of a normal seasonality as we work quarter to quarter across this year sequentially and if and if you factor that in that takes us.

Speaker Change: Well above the midpoint of the guidance range that we've put out there.

Speaker Change: So I look at 24.

Speaker Change: As being a year that most of the external market factors seem to seem to normalize in and now we're down to execution.

John J. Engel: And again, I feel very confident in the team we have in place, the initiatives that we have in place, building off the momentum and the results we've delivered since we brought these two companies together back in the middle of 2020. Dave, I don't know if you want to add anything. Maybe, Dave, talk to cash flow, because I think, just speak to cash flow. Yeah, again, I think that, you know, I'm very disappointed with the cash flow performance. Obviously, there are two big factors, the biggest one being accounts payable. And one of the things that we experienced throughout 2023 was that our purchases stayed relatively stable, particularly in Q2 and in Q3, and we generated a significant amount of cash from our payables balance. The driver of the reduction in the accounts payable balance was really driven by the timing of purchase.

Speaker Change: And I again, I feel very confident in the team we have in place the initiatives that we have in place building off the momentum in our results. We've delivered since we brought these two companies together back in middle of 2020.

Dave I don't know if okay, I'd be saying, maybe Dave talk to cash flow because I think you speak to the cash flow.

David S. Schulz: Again, I think that you know.

David S. Schulz: Very disappointed with the cash flow performance. Obviously, there are two big factors the biggest one being the accounts payable and one of the things that we experienced throughout 2023 is our purchases stayed relatively stable, particularly in Q2, and then Q3 and we generated a significant amount of.

David S. Schulz: Of cash from our payables balance the two.

David S. Schulz: The driver of the reduction in the accounts payable balance was really driven by the timing of purchases.

David S. Schulz: And as our stock and flow business began to underperform our expectations, we were not replenishing that inventory, therefore not creating new payables. So as we were paying our vendors, we're not getting new payables onto the balance sheet. You know, this was clearly unexpected, but really driven by that stock and flow business decline and not replenishing those purchases. I appreciate the detail there.

And as our stock and flow business began to underperform our expectations, we were not replenishing that inventory, therefore, not creating new payables. So it was we were paying our vendors were not getting new payables onto the balance sheet.

David S. Schulz: Clearly.

David S. Schulz: It was unexpected, but really driven by that stock and flow business decline and not replenishing those purchases.

Speaker Change: I appreciate the detail. Thanks, Thanks, guys and then my follow on is a modeling question.

Nigel Coe: Thanks, guys. And then my follow-on question is about modeling. If I take, you know, the $1.75 billion EBITDA guide and roll that through to my model, I'm getting to the high end of the earnings range based on the below-line guidance items. Is there anything I'm missing there?

Speaker Change: If I take the $1.75 billion EBITDA guide and rollout through to in my model I'm getting to the high end of the earnings range based on the Blue line guidance items.

Is there anything I'm missing there as it was at minimum.

David S. Schulz: My math's just bad, but is there some contingency within the EPS range based on the EBITDA guide? One of the things that I would highlight is, You know, we've called out that other expense which impacts our EPS, and this year we had the high end of the range.

Speaker Change: My Master fat, but is that some contingency within the EPS range based on the EBITDA Guide.

Speaker Change: One of the things that I would highlight is.

Speaker Change: We've called out that other expense, which impacts our EPS.

Speaker Change: And this year, we had the high end of the range. We provided you with a range of $10 million to $25 million, we did $25 million here in 2023 that is the combination of.

David S. Schulz: We provided you with a range of 10 to 25 million. We did $25 million here in 2023. That is the combination of our pensions and the impact of our pensions on the P&L and then also the impact of foreign exchange rates on our balance sheet. But again, there's nothing else I think, outside of what we have provided you, those underlying assumptions should roll through to get you relatively close to where we are from the midpoint of our range. Okay, I'll go back into the clip. The next question comes from Sam. Darkatsh with Raymond James.

Speaker Change: Our pension and the impact of our pensions on the P&L and then also the impact of foreign exchange rates on our balance sheet.

Speaker Change: But again there is nothing else I think.

Speaker Change: Outside of what we provided you those underlying assumptions should roll through to get you relatively close to where we are from the midpoint of our range.

Speaker Change: Okay I'll go back into those.

Speaker Change: The next question comes from Sam Dark catch with Raymond James. Please go ahead.

Sam Darkatsh: Please go ahead. Good morning, John. Good morning, Dave.

Sam Dark: Good morning, John Good morning, Dave.

Sam Dark: Hello, Sam.

Sam Dark: John.

Sam Darkatsh: John, you're on the U.S. Steel Board. You've had a fun last couple, two, three months, it sounds like. So, first question, I guess, with respect to inventory days, I think Wesco is like, I don't know, 10, 12 days higher versus pre-pandemic when adjusting for Annex Ter, and I'm in isolation. This is obviously understandable based on the extended lead times. But when I look at your competitors, whether it's Graybar or Rexel, It looks like they're back to pre-pandemic days of inventory, and I'm trying to understand the difference. Is it a different mix with direct ship?

Sam Dark: In the U S Steel board you've had a fun last couple two three months it sounds like.

Sam Dark: So.

Sam Dark: First question I guess with respect to inventory days I think wesco is like.

Sam Dark: I don't know 10, 12 days higher versus pre pandemic.

Sam Dark: When adjusting for anixter and Eid in isolation. This is obviously understandable based on the.

Sam Dark: Extended lead times, but when I look at your <unk>.

Sam Dark: Competitors, whether it's gray bar or rec, so it looks like they're back at pre pandemic days of inventory.

I'm trying to understand the difference is it.

Sam Dark: Is it different mix with direct ship is it utility is it a schneider versus eaten thing is theres something west coast specific how do you how help us reconcile while the inventories are still elevated here, but not at your at your peers.

Sam Darkatsh: Is it utility? Is it a Schneider versus Eaton thing? Is this something Wesco-specific?

John J. Engel: How do you help us reconcile while the inventories are still elevated here but not at your peers? Yeah, Sam, I, again, want to provide a little bit of perspective relative to the peer group that you outlined there. We do believe that a much higher percentage of our business is project-related, and many of those projects include engineered components that have much longer lead times. As we went through the recovery of COVID in 22 and into 23, you know, we clearly saw an increase in our inventory days primarily driven by that project and that project backlog, getting what we could get when we could get it and then waiting for those customized engineered components. You know, this is something that we are very clearly focused on. We did not make the progress that we were expecting to make here in the back half of 2023. It's something that we have included in our outlook for free cash flow going forward is that we will reduce our inventory days in 2024. But, you know, clearly, some of it is relative to the competitive group.

Speaker Change: Yes, Sam.

Speaker Change: Again want to provide a little bit of perspective relative to the peer group that you outlined there we.

Speaker Change: We do believe that we have a much higher percentage of our business is project related.

Speaker Change: And many of those projects include engineered components that have much longer lead times as we went through the recovery of Covid in 'twenty, two and into 'twenty. Three we clearly saw the increase in our inventory days, primarily driven by that project and that project backlog getting what we could get one we could get it and then waiting for those customers.

Speaker Change: <unk> engineered components.

Speaker Change: This is something that we are very clearly focused on we did not make the progress that we were expecting to make here in the back half of 2023, it's something that we have included in our outlook for free cash flow going forward is that we will reduce our inventory days in 2024, but clearly some of it is the relative to the competitor.

Speaker Change: <unk> group some of it is the business mix and some of it is the types of projects that we service around the globe that in some cases include a longer lead times and then a longer time for us to service the customer.

David S. Schulz: Some of it is the business mix, and some of it is the types of projects that we service around the globe that, in some cases, include longer lead times and then longer times for us to service the customer. My second question, the thinking behind lowering the target debt range. John, I know your company is historically comfortable with leverage. You have, I would say at least, an inarguably undervalued equity. In a year, you're going to call the preferreds. You've got countercyclical cash flows. I think you mentioned in your prepared remarks that you're really pleased to do this. Why is this the optimal capital structure versus the prior two to three and a half turns? Two things, Sam.

Speaker Change: If they sit my second question.

Speaker Change: The thinking behind lowering the target debt range, John I know your company has historically comfortable with leverage you have I would say at least in an arguably undervalued equity and a year youre going to call the preferreds.

Speaker Change: Got counter cyclical cash flows I think you mentioned in your prepared remarks that you were real pleased to do this.

John J. Engel: Why why is this the optimal capital structure versus the prior two to three and a half turns.

John J. Engel: Two things one is the confidence and the upsize cash generation characteristics of the combined company.

John J. Engel: One, it's confidence in the increased cash generation characteristics of the combined company. You know, we've got a guy that will give us record free cash flow this year. So I mean, we're more confident than ever about the underlying characteristics of our business model and the ability to generate cash. What we outlined in our investor day, we're confident and strongly committed to. That's, you know, the underlying cash flow characteristics of the business, what we outlined there, as well as outperforming the market over the top line consistently over time, and then delivering the EBITDA margin expansion. So that's the first driver.

John J. Engel: We've got a guy that would get us record free cash flow. This year, so I mean.

John J. Engel: I remain more confident than ever about the underlying characteristics of our business model and the ability to generate cash what we outlined at our Investor day.

John J. Engel: We're confident and strongly committed to that.

John J. Engel: The underlying cash flow characteristics of the business, what we what we outlined there as well as outperforming the market over the topline consistently over time, and then delivering to EBITDA margin expansion. So that that's the that's the first driver we delever very quickly.

John J. Engel: We deleveraged very quickly, much faster than we had committed externally, and we're very confident in the underlying cashflow characteristics. Secondly, I think it's a recognition of, and based on some investor feedback, that we should, you know, we should operate with a little bit lower leverage ratio. And I, you know, we've looked at our investor peers and others, and so I think this represents. We always were going to move here at some point, Sam. It's just a matter of when.

John J. Engel: Much faster than we had committed externally and we're very confident in the underlying cash flow characteristics. Secondly, I think it's a recognition of and based on some investor feedback.

John J. Engel: That we should we in general we should operate with a little bit lower leverage ratio.

John J. Engel: And I you know, we've looked at our investor peers, and others and so I think this represents we always were going to move and move here at some point Sam It's just a matter of when.

John J. Engel: And it's a decision we've looked at for some time and made that decision, obviously. We think it sends a very strong message that we'll operate consistently as a target within a lower target leverage range and still with increased capital return to shareholders in the form of dividends, which we're increasing, announcing the intent, our intent to increase them, as well as continuing our share buyback program that we've got authorized. So I think it's a very important message.

Speaker Change: It's a decision we will.

Speaker Change: Looked at for some time and made that decision. Obviously, we think it sends a very strong message you know that.

Speaker Change: That will operate.

Speaker Change: Insistently as a target within a lower target leverage range and still with increased capital returned to shareholders in the form of dividends, which were increasing announcing the intent of our intent to increase it as.

Speaker Change: As well as continuing our share buybacks.

Speaker Change: Graham that we've got authorized so I think it's a very strong message, we hope that you see as such.

John J. Engel: We hope that you will see it as well. Thank you. The next question comes from Christopher Glynn with Oppenheimer. Go ahead. Hey, thanks. Good morning.

Speaker Change: Thank you.

Speaker Change: The next question comes from Christopher Glynn with Oppenheimer. Please go ahead.

Speaker Change: Hey.

Christopher Glynn: Just wanted to dive into some of the uses of cash going forward. You know, share a purchase, you have the billion authorization intent to use it by 26. Seems like you're talking more about opportunistic levels now.

Graham: Thanks, Good morning, just wanted to.

Christopher Glynn: Dive into some of the uses of cash going forward.

Christopher Glynn: Share repurchase you had the.

Christopher Glynn: $1 billion authorization intend to use it by 26.

Christopher Glynn: It seems like you're talking more about opportunistic levels now.

David S. Schulz: I think we're expecting you'll have the cash for 540 million preferreds in the second quarter, and I'm just curious, in those contexts, if you could help us think about those, you know, what amount of balance sheet cash is appropriate as sort of a threshold. Yeah, Chris, let me start by just grounding everyone on the primary sources of cash. We've walked through that.

Christopher Glynn: We're expecting you'll you'll have the cash for.

Christopher Glynn: $540 million preferreds in the second quarter 'twenty five.

Speaker Change: And I'm.

Speaker Change: Just curious in those contexts.

Speaker Change: Could help us think about those.

Speaker Change: What amount of balance sheet cash as appropriate as sort of a threshold benchmark.

Speaker Change: Yeah, Chris let me start by grounding ever.

Chris: Everyone on the primary sources of cash we've walked through that we provided you our outlook $700 million of free cash flow at the midpoint of the guide.

David S. Schulz: We've provided you our outlook, $700 million of free cash flow at the midpoint of the guide. The dividend payments, including the common and the preferred, will be around $140 million of cash in 2024. That still leaves us with about $560 million of cash that we can allocate against our priority. So, from that perspective, we're going to be opportunistic on the shared buyback. We have the billion-dollar authorization.

Chris: Dividend payments, including the common and the preferred route.

Chris: Round $140 million of cash in 2024 that still leaves us with about $560 million.

Chris: Of cash that we can allocate against our priorities. So from that perspective, we're going to be opportunistic on the share buyback. We have the $1 billion authorization that is not time bound so that is something that we can always leverage here up to that billion dollar limit we're still at the very early stages.

David S. Schulz: That is not time-bound, so that is something that we can always leverage here up to that billion-dollar limit. We're still in the very early stages, and we have not done a considerable amount of share buybacks over the past two years.

Chris: We have not done a considerable amount of share buybacks over the past two years.

David S. Schulz: So, from our perspective, we'll be opportunistic on whether we continue to pay down existing debt or we leverage that cash for share buybacks. And like, you know, we use that word opportunistic quite a bit. That's exactly how we look at it: where can we get the best return? You know, as we think about paying down our existing debt, that just frees up capacity on our existing facilities. And we're keeping in mind that we do have that preferred that needs to be taken out in the second quarter of 2025. So that is part of our calculus as we think about deploying cash here in 2025. That's a great color, Dave.

Chris: So from our perspective, we'll be opportunistic on whether we continue to pay down existing.

Chris: Existing debt or we leverage that.

Chris: Cash for share buybacks, and we use that word opportunistic quite a bit that's exactly how we look at it is where can we get the best return so as we think about paying down or our existing debt.

Chris: It just frees up capacity on our existing facilities and we're keeping in mind that we do have that preferred that needs to be taken out in.

Chris: In the second quarter of 2025, so that is part of our calculus as we think about deploying cash here in 2024.

Speaker Change: That's great color Dave.

David S. Schulz: Just one other component. Is about a half a billion what you should have on the balance sheet to support your operations on average? That's correct.

Speaker Change: One other component it is about a half a billion what you should have on the balance sheet to support your operations on an average.

David S. Schulz: That's correct I mean, that's that's the amount that we typically have had been carrying.

David S. Schulz: I mean, that's the amount that we typically have been carrying. So we're comfortable with $500 to $600 million of cash on the balance sheet. And again, you know, we think about that as, you know, supporting the day-to-day business, particularly as we go through the different elements of building sequential sales throughout a typical year. So we want to make sure that we've got the available capital on the balance. Great, thank you. The next question comes from David Manthey with Baird. Please go ahead.

David S. Schulz: So we're comfortable with that $500 million to $600 million of cash on the balance sheet.

David S. Schulz: And again you know.

David S. Schulz: We think about that as you know supporting the day to day business, particularly as we go through the different.

David S. Schulz: Elements of building sequential sales throughout.

David S. Schulz: Typical year, so we want to make sure that we've got available capital on the balance sheet.

Speaker Change: Okay, great. Thank you.

Speaker Change: The next question comes from David Manthey with Baird. Please go ahead.

David J. Manthey: All right. Good morning, guys, a load of data. First question: So this time next year, when we look at the right-hand side of slide nine, that EBITDA bridge, what you're telling us is that all three of those bars should be green. They might be really skinny, but they'll be green.

David J. Manthey: Hi, good morning, guys.

David J. Manthey: Furloughed.

First question. So this time next year when we look at the right hand side of slide nine that EBITDA bridge, what you're telling us is that all.

David J. Manthey: All three of those bars should be green, they might be really skinny, but there'll be green is that your expectation.

David J. Manthey: Is that your expectation? Dave, we did highlight that, and just for the audience, we're referring to the fiscal year 2023 sales and EBITDA bridges that were in our prepared remarks, slide nine. We would anticipate that sales would be a positive green, the gross margin rate, and gross margin sales. As we commented, we would expect that to improve year over year. You know, SG&A would still be a negative, but we expect to get leverage, operating leverage on SG&A. All right, that's, that's fair.

Speaker Change: So Dave we did highlight that our and just for the audience, we're referring to the fiscal year 2023 sales and EBITDA bridges that were in our prepared remarks slide nine.

Speaker Change: We would anticipate that sales will be a positive green gross margin rate and gross margin sales as we commented we would expect that to improve year over year SG&A would still be negative, but we expect to get leverage operating leverage on SG&A.

David S. Schulz: Okay Alright.

David S. Schulz: Alright, that's that's fair and then.

David S. Schulz: And then, I'm thinking about what you mentioned about rebates being stable. When I think about the supply chain issues working out, backlogs down, and inventories are still somewhat elevated, as we've kind of talked about. Maybe you don't think that relative to the project business, et cetera. But when you say rebates are going to be stable, it would seem like a downside would be more likely. Can you just talk us through why you think that the flat is the right idea there?

Thinking about the.

David S. Schulz: You mentioned on rebates being stable.

David S. Schulz: When I think about the supply chain issues working out backlogs down inventories are still somewhat elevated as we kind of talked about maybe you don't think that relative to the project business et cetera, but.

David S. Schulz: When you say rebates are going to be stable.

David S. Schulz: Stable it would seem like the downside would be more likely can you just talk us through what.

Why do you think that flat is the right idea there.

David S. Schulz: Yes, certainly. We negotiate our supplier volume rebate programs with our supplier partners every year, and it's generally based on a joint view of what the market growth opportunities are. And then what are the specific products or product categories that our suppliers are incentivizing us to ensure that we push through to the channel? Then, as you take a look at the history of our supplier volume rebate? We did about 1.6% of sales in 2022. That was on a performance that included us being at the higher end of those growth rates during 2022. That moderated here in 2023, so we lost about 20 basis points, or about 1.4%.

Speaker Change: Yes, certainly we negotiate our supplier volume rebate programs with our supplier partners every year and it's generally based on a joint view of what the market growth opportunities are and then what are the specific.

Speaker Change: Products or product categories that our suppliers are incentive us to ensure that we pushed through to the channel.

Speaker Change: As you take a look at the history of our supplier volume rebates.

Speaker Change: We did about one 6% of sales in 2022 that was on a.

Speaker Change: Performance that included us being at the higher end of those growth rates now during 2022 that moderated here in 2023. So we lost about 20 basis points about one 4%. Our expectation is that we're going to continue to negotiate and hold that supplier volume rebate given our outlook for sales that we.

David S. Schulz: Our expectation is that we're going to continue to negotiate and hold that supplier volume rebate given our outlook for sales that we provided to you. Again, those supplier volume rebates get reset to market expectations every year. So, you know, you can see what some of our supplier partners have put out in terms of their expectations for 2024. We're still negotiating, but our expectation is that our SVR's percentage of sales will be relatively consistent in 2024 versus 2023. Okay, and if I can just close the loop on this thought finally here, Dave, you said you don't want to talk too much about the SG&A reductions, but... Maybe if you could talk about the areas you're targeting for reduction as opposed to quantifying that. You talked about two-thirds of your increase in the current quarter coming through facilities, IT, sales, promotions, and the other third, benefits, and healthcare. Is it one of those?

Speaker Change: Provided to you again, those supplier volume rebates get reset to market expectations every year.

Speaker Change: So you can see what some of our supplier partners have put out in terms of their expectations for 2024, we're still negotiating.

Speaker Change: But our expectation is that our SBR as a percentage of sales will be relatively consistent 2024 versus 2023.

Speaker Change: Okay, and if I could just close the loop on this thought finally here. Dave you said you don't want to talk too much about the SG&A reductions but.

Speaker Change: Maybe if you could talk about the areas you're targeting for reduction as opposed to quantifying that you talked about two thirds of your increase in the current quarter coming through facilities. It sales promotions you have there.

Speaker Change: Third benefits and health care.

Speaker Change: Is it one of those is that something outside of those can you just talk in broad strokes about the areas that youre targeting.

David S. Schulz: Is it something outside of those? Could you just talk in broad strokes about the areas that you're targeting? Certainly. And again, we've done this before.

Speaker Change: Certainly and again, we've done this before and you know we are coming off of two years.

David S. Schulz: And, you know, we are coming off of two years with significant double-digit increases in 21 and 22. Our sales growth moderated unexpectedly in the back half of 2023. We had some SG&A items. You know, there's always some puts and calls whenever we close the year. In 2023, everything went the wrong way.

Speaker Change: With significant double digit increases in 'twenty, one and 'twenty two our sales growth moderated unexpectedly in the back half of 2023, we add some SG&A items you know there's always some puts and calls whenever we close the year in 2023 everything went the wrong way and again as we think about.

David S. Schulz: And again, as we think about what we've got to target from an SG&A perspective going forward, we have to get profitability. And that means we've got to reduce our SG&A as a percentage of sales. Like we've done in the past, we'll target a combination of discretionary spend plus some structural spend. That includes how do we consolidate some of our facilities to reduce our costs.

Speaker Change: We've got a target from an SG&A perspective going forward is we've got to get the profitability back and that means we've got to reduce our SG&A as a percentage of sales like we've done in the past, we will target a combination of discretionary spend.

Speaker Change: Some structural spend that includes how do we consolidate some of our facilities to reduce our costs will be very very focused on head count management, you know based on the demand that we see out there we do want to continue to invest in our digital transformation.

David S. Schulz: We'll be very, very focused on headcount management, you know, based on the demand that we see out there. But we do want to continue to invest in our digital transformation. So that is something that we want to make sure that we're able to continue to pull forward. And, you know, from my perspective, this is a combination of tightening the belt on discretionary expenses and then focus on some of the structural changes that we need to make to ensure that we've got the profitability that, you know, we expect internally but also you and our investors expect from us. Thank you very much. The next question comes from Patrick Baumann with J.P. Morgan. Please go ahead. Hi, good morning.

Speaker Change: So that is something that we want to make sure that we're able to continue to pull forward and.

Speaker Change: So from my perspective. This is a combination of tightened the belt on discretionary expenses and then focus on some of the structural changes that we need to make to ensure that we've got the profitability that we expect internally, but also you and our investors expect from us.

Speaker Change: Thank you very much.

Speaker Change: The next question comes from Patrick Baumann with JP Morgan. Please go ahead.

Patrick Baumann: Hi, good morning.

Patrick Baumann: Thanks. Just wanted to go back to slide six and go over some of these fourth quarter items in terms of missing the sales expectations you had. Maybe first on the CSS business, can you talk about where specifically you saw projects delayed? Was this like the Rahi business you acquired?

Patrick Baumann: Thanks, I just wanted to go back to slide six and go over.

Patrick Baumann: Some of these.

Patrick Baumann: Fourth quarter items in terms of missing on the sales expectations you had.

Patrick Baumann: Maybe first on the CSS business.

Patrick Baumann: Can you talk about like.

Patrick Baumann: Where specifically you saw projects delayed was this like the Rocky business. You acquired is it data center related and then whats your visibility to that coming back in 24 is that embedded in your outlook.

David S. Schulz: Is it data center related? And then, what's your visibility to that coming back? And 24, is that embedded in your outlook?

David S. Schulz: And then on the EES segment, a couple here, like how big is solar for you? I don't remember you guys talking much about that before. And then what's in OEM?

Patrick Baumann: And then on the EES segment.

Patrick Baumann: A couple of them.

Ones here like how big is solar for you.

Patrick Baumann: I remember you guys talking much about that before and then.

Patrick Baumann: What what's your an OEM like whats declining.

Patrick Baumann: Like what's declining? I mean, I feel like this is a business where you don't have a lot of visibility into, you know, over the course of the year, you talked about manufactured housing, you talked about small vehicles. It's not clear to me what exactly is in the OEM business besides that kind of what drove the weakness here in the fourth quarter would be helpful. Certainly, let me start with CSS.

Patrick Baumann: Feel like this is a business where you don't have a lot of visibility to over the course of the year you talked about manufactured housing you've talked about small vehicles, it's not clear to me what exactly is in the OEM business. Besides that kind of what drove the weakness here in the fourth quarter would be helpful.

Speaker Change: Certainly let me start with.

Speaker Change:

Speaker Change: With CSS.

David S. Schulz: Relative to our expectations, and if you take a look at how we finished the fourth quarter, the biggest miss relative to our expectations was within the CSS. That's where we did see some of our large projects for technology customers, including some data centers, got pushed out of 2024. We were clearly focused on having those ship in November and December. They've been pushed to the current. So, that is something that was unexpected.

Speaker Change: Relative to our expectations and if you take a look at how we finished the fourth quarter the biggest miss relative to our expectations was within the CSS business, that's where we did see some of our large projects to technology customers, including some data centers got pushed out of 'twenty 'twenty four we were.

Speaker Change: We're clearly focused on having those ship in November December they've been pushed to the current year.

Speaker Change: So that that is something that was unexpected we have included those sales as we think about the growth rates in the current year into 2024.

David S. Schulz: We have included those sales as we think about the growth rates in the current year into 2024 for EES. So EES came in, as John mentioned, relatively close to our expectations, but we had some puts and calls within the makeup of those sales. I'll mention on OEM, you know, we had called out the manufactured structures business, which is, as you said, Patrick, it includes some specialty vehicles. But it also includes, you know, some manufactured housing.

Speaker Change: On E S.

Speaker Change: <unk> came in as John mentioned relatively close to our expectations, but we had some puts and calls within.

Speaker Change: The makeup of those sales.

Speaker Change: Mentioned on OEM, we had called out the manufactured structures business, which is.

Speaker Change: As you said Patrick as it includes some specialty vehicle. It also includes.

Speaker Change: Some manufactured housing that business has been relatively stable I mean, I think we've hit the bottom.

David S. Schulz: That business has been relatively stable. I mean, I think we've hit the bottom in terms of the overall market opportunity for our sales, but we did have some customers in other segments where sales were expected to ship in November and December that we did not see ship. So we do think that that was driven by a market downshift relative to our expectations. And then I'll just highlight UBS again.

Speaker Change: In terms of the overall market opportunity and our sales, but we did have some customers in other segments where sales were.

Speaker Change: We're expected to ship in in November December that we did not see ship. So we do think that that was driven by a market downshift a relative to our expectations.

Speaker Change: And then I'll just highlight again on UBS broadband came down more than we thought it would.

David S. Schulz: Broadband came down more than we thought it would. The other thing that we had highlighted was utility, just copying some very strong numbers. We still see very strong demand from the utility business, but again, you know, against the tough comparison, we came in below our expectations in the fourth quarter. Patrick, I'll add that the secular growth trends are still intact, and, you know, so I'll add to Dave's comment relative to data centers and what we call our WDCS business, our Wesco Data Center Solutions, which is the combination of Rahi plus Annexer's legacy data center So that had very strong results in the fourth quarter, and it grew double digits, and double digits, you know, obviously was up very strongly across the year, but there were some projects that did slip out that we had expected to get in December. The momentum vector is still exceptionally strong there, and we have very high bid activity levels and quoting levels. The AI-driven demand is expected to only further accelerate the opportunities with data centers.

Speaker Change: The other thing that we had highlighted was utility just comping. Some very strong numbers, we still see very strong demand from.

Speaker Change: From the utility business, but again against the tough comparison.

Speaker Change: He came in below our expectations in the fourth quarter, Patrick I'll add that.

Speaker Change: Secular growth trends are still intact.

Speaker Change: I'll, just I'll add to Dave's comment relative to data centers and what we call. Our R. W. D. C. S business, our Wesco data center solutions, which which is a combination.

Speaker Change: <unk> E plus anixter as legacy data center business, which was exceptionally strong so that that had very strong results in the fourth quarter and it grew double digits.

Speaker Change: And and grew double digits, obviously was up very strongly across the year, but there were some projects that dish did slip out that we had expected to get in December.

Speaker Change: Matter of vectors still exceptionally strong there.

Speaker Change: And we got very high bidding activity levels and quoting levels.

Speaker Change: AI driven demand.

Speaker Change: Expected to only further accelerate I think the opportunities with data centers and we expect very strong results in 2020 for it because I think that was part of your question as well.

John J. Engel: And we expect very strong results in 2024, because I think that was part of your question as well. Very high single-digit to low double-digit growth for that portion of our CSS. Yeah, let me just go back. I failed to mention solar.

Speaker Change: Very high single digit to low double digit growth for that for that portion of our CSS business yeah.

Speaker Change: Yeah, Let me just go back I felt dimensions solar so solar as a high single digit percent of our EES business. We've not provided a specific number we do support a combination of of nonresidential plus residential customers are related to that so.

David S. Schulz: So solar is a high single-digit percent of our EES. We've not provided the specific number. We do support a combination of..., non-residential plus residential customers related to that solar business. We've seen significant downturns just based on inflation, interest rates, and some of those demand patterns in our EES business for solar. Thanks.

Speaker Change: Their business, we've seen significant downturn, just based on inflation interest rates and.

Speaker Change: Some of those demand patterns in our EES business for solar.

Speaker Change: Thanks, and then just one follow up.

Patrick Baumann: And then just one follow-up, just on the first quarter, you mentioned, I think, sales down, mid-single digit. And then I was wondering if you could give some color on, you know, margin expectations for the year-over-year because, you know, for the full year, you have them up, I think, 10 basis points at the midpoint. But since you're starting slow, I'm going to imagine that you're down to start the year-over-year on margins. If you could just help provide some parameters around that, it'd be helpful.

Speaker Change: Just on the first quarter, you mentioned I think sales down.

Speaker Change: Mid single digit.

Speaker Change: And then I was wondering if you could give some color on margin expectations for the year over year because for the full year, you'll have them up I think 10 basis points at the midpoint, but since youre, starting slow I'm going to imagine that youre down to start the year year over year on margin. If you could just provide some parameters around that would be helpful.

David S. Schulz: Yeah, Patrick, let me walk you through how we developed our 2024 outlook. And I'll focus on sales first. As we mentioned, we were down about 5% in the month of January on a preliminary basis. That's in line with typical seasonality.

Speaker Change: Patrick Let me walk you through how we developed our 2020 for outlook and I'll focus on sales first.

Patrick Baumann: As we mentioned we're down about 5% in the month of January on a preliminary basis. That's in line with typical seasonality and as the way that we built our 2024 sales outlook is we started with our Q4 2023, and we applied the typical season.

David S. Schulz: And the way that we built our 2024 sales outlook is we started with our Q4 2023, and we applied the typical seasonality on a sales per workday basis. So, from that perspective, we typically see January down mid-single digits, typical seasonality, and we see the first quarter down low single digits. We've applied that same methodology for each of our quarters. The one thing I'll note here is that in Q1 and Q2 of 2023, the reported sales were up 12 and up 5 percent, respectively. So we've got tough base period comparisons in the first half.

Patrick Baumann: Now what are you on a sales per workday basis.

Patrick Baumann: So from that perspective, we typically see January down mid single digits typical seasonality and we see the first quarter down low single digits.

Patrick Baumann: We've applied that same methodology for our each of our quarters. The one thing I'll note here is that Q1 and Q2 of 2023. The reported sales were up 12 and up 5%, respectively. So we've got tough base period comparisons in the first half in the second half of the year again, we've applied typical seasonality.

David S. Schulz: In the second half of the year, again, we've applied typical seasonality sequentially by quarter, which includes sequential growth from Q1 to Q2, relatively flat growth from Q2 to Q3, and then just a very modest growth rate into the fourth quarter. In 2024, we have two extra work days. They're both in the back half of the year. So as we think about the construct of our sales outlook, it's roughly 48 percent front half, and 52 percent back half. That 52 percent back half, of course, being helped by the two extra hours of work.

Patrick Baumann: Sequentially by quarter, which includes sequential growth Q1 to Q2 relatively flat Q2 to Q3, and then just a very modest growth rate into the fourth quarter.

Patrick Baumann: In 2024, we have two extra workdays there both in the back half of the year.

Patrick Baumann: So as we think about the construct of our sales outlook, it's roughly 48% front half, 52% back half that 52% back half of course being helped by the two extra workdays.

David S. Schulz: So, again, we've applied typical seasonality against our sales outlook. If you look at typical seasonality, it would point you towards the higher end of the range of our 1 to 4 percent, but we, of course, have taken a look at some of the other external factors, and we've incorporated that into, you know, how we set the range for 2024. Our project activity, and our bidding levels continue to be strong, which also supports the range of 1 to 4 percent. On the margin profile, we've given you the margin profile and our expectations for the full year. You know, we're not going to provide the specific margin drivers for the first time. Hey, thanks. I had to try it.

Patrick Baumann: So again, we've applied typical seasonality against our sales outlook. If you look at typical seasonality. It would point you towards the higher end of the range of our 1% to 4%, but we of course have taken a look at some of the other external factors and we've incorporated that into how we've set the.

Patrick Baumann: Our range for 2020 for our project activity or bidding levels continue to be strong that also supports the range of 1% to 4% on the margin profile. We are giving you the margin profile and our expectations for the full year.

Patrick Baumann: You know, we're not going to provide the specific margin drivers for the first quarter.

Speaker Change: Hey, Thanks, I appreciate the color.

Patrick Baumann: I appreciate the color. This concludes today's conference. Thank you. This concludes our question and answer session. I would now like to turn the conference back over to John Engel for any closing remarks. Okay, thank you again for joining us. We've addressed all your questions. I thank you for your support. It is, it's appreciated.

Speaker Change: This concludes.

This concludes our question and answer session I would now like to turn the conference back over to John Engel for any closing remarks.

Okay. Thank you again for joining us I'll bring the call to close we've addressed all your questions I. Thank you for your support and its appreciated we look forward to speaking with many of you I know we have many follow up calls plan today and tomorrow in the coming days, we also will be.

John J. Engel: We look forward to speaking with many of you. I know we have many follow-up calls planned today and tomorrow. We also will be participating in a series of conferences over the next two months, first, the Raymond James Institutional Conference, second, the Loop Investor Conference, and third, the J.P. Morgan Industrial Conference. And additionally, we expect to announce our first quarter earnings results on Thursday, May 2nd.

Speaker Change: Participating in a series of conferences over the next two months.

Speaker Change: The Raymond James Institutional conference.

Second the loop Investor Conference and third the JP Morgans Industrial conference and Additionally, we expect to announce our first quarter earnings results.

Speaker Change: As Dave May 2nd so with that thank you and have a good day.

Operator: So with that, thank you, and have a good day. This concludes our conference. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: This concludes our conference.

Speaker Change: Thank you for attending today's presentation you may now disconnect.