WCC - Earnings call 2 2022 | WESCO International, Inc.

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Operator

Hello, and welcome to WESCO's Second Quarter Earnings Call. [Operator Instructions] Please note that this event is being recorded.

I would now hand the call over to Scott Gaffner, Senior Vice President of Investor Relations to begin.

Scott Gaffner

Thank you, and good morning, everyone.

Before we get started, I wanted to remind you that certain statements made on this call contain forward-looking information.

guarantees inherent and uncertainties. not are their are to subject statements of by performance nature, Forward-looking Actual may results differ materially. risk Please well see and additional as as disclosures. factors the company's our SEC filings webcast slides for this on the to and no reflect related information changed undertakes forward-looking call only this company the as update to circumstances. speaks obligation the date, of information Any

our of in financial these non-GAAP about are today, Additionally, our slides our wesco.com. Required webcast measures. website we both will use information press and on posted in is which certain available release, non-GAAP at measures

call On and WESCO's and Chief Chief morning, Dave this President Officer; Officer. this Engel, we have Executive President Financial Chairman, John Schulz, Vice Executive and

to it now turn And John. I'll over

John Engel

Good Scott. everyone. you, pleasure morning, today. to a Thank you It's be with

earlier release this the transformational as of earnings the combination morning, terms beat we anniversary Anixter. on new from saw creation passed you value business goes of our with WESCO's in of good model second the the As

quarter sales, again Our second We company margin profitability. backlog, records once new set and results were exceptional. for

Importantly, back the we a what target year our to full now June within range, than it's the in XXXX. after merger and we earlier Anixter market expect completed guided is leverage

as double-digit sales demand value build portfolio success power growth cross-selling continues. Strong to markets ongoing end improvement gross enterprise-wide programs. profit Each the continues deliver positions of outperform again is our and our and superior industry-leading delivered business the in by our strategic and quarter, momentum Our X our newfound and in and each to of quarter. the driven margin units every market The customers. expanded our we of scale, made clear

and for X-plus margin, the profitability of which versus XX%. delivered month deliver a adjusted we sales first impressive to adjusted EPS growth EBITDA XX% Overall, the year. now X%, of important of prior above percent very is Record organic WESCO growth

we quarter recall outlook substantially for first excellent raised results. year after will our our that You the

and want an raise, the our continues business, which strong in performance, raising second to our for this profitability quarter that are investment result highlight [indiscernible] loyalty. outlook our of higher results our advanced operating I we our to expected result execution efficiency level fuel in is Among of even digital capabilities, a As and outstanding to customer increased across XXXX.

will growth our hand in our our address Dave it results detail review financial and uniquely our trends higher I end in our the address pre-pandemic to year our on well David, as plan to before levels, But secular as capitalize results markets. full strong attractive to versus I off transformational outlook shortly. more position

turning of of best XXXX. compared of in half XXXX. the of our we value June as record the our in first the and strength new results have record measured is This our Now pre-pandemic highlights of to success our model superior the have of of established for results a over Page our last new strength half X. WESCO. demonstrated new XXXX created closed integration the first The forma The efforts results business since WESCO pro years -- X the track to merger page

market, our deleveraging have while all balance you sheet. see record achieved delivered outperformed we clearly, and growth profitability, the As expansion margin rapidly sales can and impressive

we combination of because there's market the sustained While value generated of this are outperformance. more transformational and progress, we're in we're pleased growth even be and future from confident WESCO with excited a to still and substantial Anixter,

make day. chain services global Now price that and solutions X. our moving including effective customers is efficient and our providing that and to more each more customers drives every supply with us is end-to-end the what Page

global are this well-positioned level, investments high on growth trends long-term page. the in public infrastructure in at and and executing of quarter the to raised is trends $X.X we on We again the merger exceptionally sector up our our units close. sales cumulative set are we increasing growth billion. global to outlined synergy and each secular are capitalize original this target to target enterprise. strong this entire note driving now We Xx very These a secular that X prior business It's our across important to

growth Our fueling and momentum WESCO is cross-selling outperformance transforming And our as into said new is before, accelerating market I've growth. the a company.

but in backlog momentum our total we early We program, cross-sell stages and the potential. overall. and of is and positive have are a pipeline expanding growth very and this But opportunity only a -- growing unlocking record important,

With that, I'll now turn over Dave. to call the

David Schulz

our results I'll compared everyone. Thank with our for prior to X Slide a morning, on you summary call. of year. the good and start John, quarter joining Thanks, second

As John quarter exceeded a our in record were mentioned, the second and cross-sell expectations. quarter sales

Anixter XX% rates Our up million an contributed improved represented in and basis WESCO basis, from basis, in $XXX On We services sales low quarter and continue our cross-sell a points the more with benefit in added a and organic ability businesses. to saw in On sales the XX% prior UBS EES as in sales quarter up X to CSS and year. estimate growth, over were were of the reported products price. than benefit exchange foreign differences single-digit we sales benefit the quarter. sequentially. business primarily point The to line price from XXX first a approximately headwind pricing and with the

our of challenges lack have sales by same chain the business. pockets the of year. as amount from to in products that approximately availability quarter impact of continued certain estimate suppliers first our of We reduced certain the the Supply

March level as growth increases prior XX% strong up these from more year. Backlog challenges sequentially continue We year. well reached future than opportunities. another was Each backlog unit inventory in this in than than strategically to prior sales and to more record and business the quarter invest our backlog posted of quarter above XX% more the the support up from address XX% of as

year at encouraging, in with July quarter, the effective absence price up points sales pass-through the XX% sequentially. our period. margin This margin prior basis of XX the are up year and supplier the inventory As year-over-year. we a results improvement points highest to the demand XX up strong. continued quarter, and program, be PPE Gross third write-down COVID-related start driven was primarily of has by approximately prior gross basis versus result XX.X% the ever Preliminary in our was increases

the Recall adjustments in represented the net impact of scale quarter. prior sales the write-down year synergies and PPE X.X% the XX% an by result XX the merger-related EBITDA, year merger excludes and from of higher combination margin, stock-based with basis prior of sales, compensation realized integration was and which was all-time for This Anixter. the driven increased costs, points other gross benefit company our Adjusted higher and than prior cost was high basis watermark the than a points year. higher XXX of and

nearly from I'll fiscal effective headwinds all-time $X.XX, reduced year. of quarter up walk core record the and share improvement and [ main rate discrete year financing in rates, related ] expense, quarter this benefits also was tax than moment. to a interest The from driver our items. in diluted The collectively per effective higher was quarter. drivers the the higher the $X.XX tax rate intercompany through outlook due adjusted the in was this lower Adjusted to prior tax exchange foreign adjusted and count, an diluted operations by EPS a primary you but for the included share XX% earnings increase of which

Page to X. Turning

sales the that EBITDA. and see $XXX can gross margin increase You million expanded in the higher drove adjusted

year the also synergies million prior recognized basis rate cost benefit incremental on $XX to the the We incremental quarter million in of quarter. or $XX of run a

As operating you would expect sales and in demand higher and an commissions including volume-related costs, shipping and employee a benefits we as as expenses environment, well inflationary experience compensation. strong higher to incentive continue for

target. results, incentive compensation approve above we Given our to strong short-term continue

an million long-term [ will which above associated with target. ] out Additionally, we incremental also recognized $X we expense pay incentive programs, anticipate of our

investment of we incurred digital sales accordance more systems leverage generated strong adjusted we the expenses and Finally, a higher Overall, offset than a in in EBITDA. our Xx XX% growth in operating adjusted plan, as delivered EBITDA, with growth organic XX%. of our related that portion of increase tools we to our

an to with the that were ongoing market. Slide the in digits strong nonresidential segment construction year-over-year continued Sales second XX. reflects the Moving up basis. of growth quarter EES double up sales organic were XX% recovery on our in This

in We OEM to industrial further momentum drove activity EES bidding in businesses, Elevated see demand. the market also backlog in increased and a record our our quarter. end level supported continue its by increase broad from prior

growth We earlier. initiatives Difficulty] progress on demand by our is that Adjusted also secular trends cross-sell John discussed the [Technical capturing made driven in EBITDA our

Operator

Ladies momentarily. resume will please and hold call gentlemen, the

You may resume.

David Schulz

with everyone. technical Good our Dave morning, some was We service apologize. There Schulz. difficulties providers. It's

webcast back So towards I'm going deck. Slide our to you of point XX

prior growth the security turning up in Infrastructure Solutions our in and So organic and strong a Slide year We an as projects. Network data were with cloud versus Sales saw basis. wireless CSS growth groups operating XX% on segment and hyperscale well driven as center by applications both Security XX. integrators, to

these due of discussed supply pockets primarily we as in the to with ongoing constraints pleased growth UBS that sales results, not While and was as EES CSS last certain robust chain industry quarter.

in improve sequentially. helping with benefit these but a customers And prior are did additionally, single-digit pricing low our versus challenges. CSS effectively the We navigate year

program. sales with end in demand to also in of reflecting increased markets. adjusted integration the March growth year, higher synergies Backlog leverage, our the cost strong execution by than in level, CSS X% quarter, the of was secular XX margin driven X.X% points the operating record EBITDA by continued driven improvement from strong of our prior sequentially another trends and basis Profitability

exceptionally both Turning demand organic consistently on to strong modernization. were versus remained invest applications. Slide Sales investor-owned for again and also continued utility hardening our in strong, basis. in the XX. continue home-based by for including UBS XX% this Organic broadband grid customers year requirements as our was segment data public quarter, power has strong up driven and in sales prior business Utility high-speed and connectivity, demand our to an growth

sales quarter in end versus demand. UBS, from sales related EBITDA expansion. and UBS the prior basis benefit EBITDA from sales. year We the benefit continue to up XX% to strong nearly future of Digital XXX% was XX% XXX by driven government's up Opportunity scale the adjusted Rural benefit margin gross Backlog the of XX% for sequentially in and activity to This and was margin Adjusted points expanded was growth reflecting Fund. market federal

of than Page to revenue, to XX. cross-sell of nearly quarter $XXX size In sequentially QX, continues and to we the recognized The million exceed up our opportunity cross-sell expectations. from WESCO QX. our moving largest and combining Now Anixter date, of XX% more

expand of continues cross-sell our pipeline continues opportunities to momentum and sales to Our build.

plus on size The WESCO be to quarter, ago, Recall of of legacy customers. as of most this combination overlap our $XXX cumulative And legacy between $XXX that of services million. X Anixter increased has the Anixter. X again capitalizing and cross-sell out and are quarters to the it drivers minimal products increased target complementary value opportunity as to significant the well portfolio We of the turned we million. last we WESCO

Due this to end increasing to of XXXX. our of target. again $X.X that the million we billion program, we cumulatively XX% by $XXX To of the generated date, continued by are have strength target

XX. X cross-sell year of Turning wins to awards. we've These million Page recent represent On X highlighted slide, sales. this approximately $XX

data Anixter However, next example, to projects all center EES the legacy construction over X and sales more switchgear equipment extend won XXXX. award first represent the a to electrical the of foot that support $XX Collectively, end-user are million these miscellaneous cable, relationship. far electrical and in as XXX,XXX $XXX In a total from than multiyear customer a as provide square potential million wins years. X value

complete win. this solution EES and provide Our end-to-end to product ability an drove offering

project legacy TVC middle $XX to CSS comprehensive example, WESCO's sales sales initial leveraged of expertise a leveraging initiative. by Anixter WESCO's then legacy customer the product and build-out supply team third Anixter a legacy And mile a to network second the UBS expansion solutions. fiber generated the the support support chain set In example, broadband unified million and with

combined of Our cross-sell momentum is the the power highlights it portfolio. clearly building, and

Slide to XX. Turning

in million these $XXX realize remain by synergies relative and cost synergies in of gray we QX that slide, $XX realized side $XXX cumulative increasing see can $XX million run XXXX million the On Due in our are million XXXX, to of left rate we the in to to QX. forma expected you the this the of XXXX progress, XXXX. of in $XXX our track by meet target of that to We Recall are XXXX. target $XX end now cost million pro base. the savings and expect on million boxes

in that On slide, each to outlined category. of the have the sense the million $XXX synergy type. realized date you been right can the savings synergies we've cost side of for And by get the a chart, in

chain For synergies field longer The been those now that corporate execute, to supply example, operations. overhead the estimated those $XX are million remaining related savings to including realized. take in have largest fully and

for Inventory use backlog continue of far inventory almost exclusively as million to growth which in in first Turning a other our flow, offset supply total, a receivables payables million. and first source through to has exceeded been cash invest In of this with Page $XXX the income reflects will and and the manage the a each due exceptionally amortization, cash moving half, depreciation you driven chain taxes. support capital free cash primarily page, see $XX normal $XXX draw million adjusted sales by bridge to we of a seasonality. the increases XX. and income has our in year-to-date of On Starting to strong half and combination net was interest which right, cash working challenges. in

the the transformation our with to consistent spend digital related ongoing Lastly, our CapEx IT reflects plan. investments and

has we X.Xx. ratio down priority Slide XX. X.Xx to quarter, our XX-month turns reduced a a since closing represents Reducing the to Moving leverage X.Xx the XXXX. June This leverage our of trailing acquisition In announced leverage adjusted EBITDA been the of decrease we brought acquisition and Anixter. leverage in by top since second

operating reflects our We of are and closing target merger. of to leverage a to months full distribution return than range BXB strength XX target the investors pace range date prior the of accelerated now our model. to Xx to the of provided that within Anixter This deleveraging faster the X.Xx

Page XX. to Moving

XX%. XX% synergies, of again the increasing are range of our demand growth significant the full for from backlog, quarter's expansion cross-sell year a range year strong to our outlook sales on based previous the trends full continued our to we results. this are XX% we updating We growth seeing, Due outlook XX% of to of are a to our

prior market including of X% increase Our XX% benefit from to outlook. is growth assumption of price, XX%, our for an is the which

We products, expect to our solutions and strong. for to continue the services demand environment be

inflation for constraints we recognize the present some pace the chain supply that of of year. However, and the second half uncertainties

to gains program, the are cross-sell of strength to our Due for our approximately estimate X% X% a cross-sell range increasing and from we of to share X%.

updating our headwind foreign also regarding exchange a are to We outlook approximately rates of X%. reflect

quarter, XXXX. that points of mind Lastly, has that in estimate the keep which add in than we and XXXX occurred X will workday more X.X first in XXXX growth

With regard business units. to our

businesses EBITDA. a continue fee impact that outlook sales chain model our recall expect below from X.X disruptions. less impact well the lower and will range. experiencing to negatively a impact be supply a no upper the sales point EES will shift to is that Also or included as contract by to due which a price We with our larger benefit range will from in utility at end customer that to full UBS approximately above with service revenue to of model, relative UBS and of their EES sales of be to CSS a from the a as should end

outlook reflecting margin, our midpoint For X.X% our the midpoint from increase represents as sales, improvement outlook is sales to margin are midpoint At our of EBITDA of sales, EBITDA and we and operating and our higher program. margin outlook range billion. leverage a a substantial our for billion prior outlook prior billion to adjusted increased of of versus range, the adjusted $X.XX EBITDA continued gross well $X.XX $X.XX on range as of year range of full original this above our fully X.X% benefit primarily increasing

to first of of effective half based rate rate XX% We a the tax for on XXXX the increasing to outlook slightly are in also year. XX% the our range effective

not that benefit the first outlook discrete additional quarter. any in experienced from assume Our does we items

also increasing to which the approximately We are of EPS our range XX% year a versus of $XX.XX XX%. to growth $XX.XX adjusted outlook prior to represents

for working increased reflects Lastly, expectation income, approximately in cash which we net outlook. adjusting capital investment to our XX% the sales our free to are need adjusted support for of flow higher

As our our net primary growth. by working accounts strong increase of is driven sales noted the earlier, capital driver receivable,

on to not quality free net cash continued forecast the quarter. our our are flow capital including working We through The reflect adjusting has of fourth strength sales degraded.

there handful will capability flow this also margin mentioned our and first costs the for transportation reflects in on assumptions and We reflected no an cash, short-term logistics half We've our compensation remind that above-target I results collect change the outlook are we long-term outlook the conversion of payout. and outlook of cash of confident last company. Based that increase to an like This is year, to structure impact free quarter. our is included at we of. the a would you in

On expenditures digital and we still flow, in spend IT $XXX investments. expect approximately million cash to combined capital

the approximately flow expenditures and cash in On statement through of will $XX million through capital $XX flow million approximately changes will flows, assets. other

the realize full of that redemption XXXX we we annual that million XXXX, our savings interest year. realized of completed Recall annual notes the related to in approximately expect million in last We to $XX June of $XX of the million benefit. full $X

does of the any higher outlook short-term potential activity incorporate into account refinancing effects has this further year interest not taken Our that rates.

of for an applicable share assumes XX tax any million not to average reflect shares the laws. year. lastly, outlook potential this count changes Our does outlook diluted And approximately

I the are prior mentioned it to XX% earlier, year As quarter, up relates the sales margins preliminary and were steady. third as July versus

our board, profit, This start have and the me year, provide segment adjusted versus our record-level year, prior generation. EBITDA including we've EBITDA over and in the across the Slide the the to brief and grew points sequentially business. delivered Moving value-based and operating we the synergy call delivered this the to margin driven let continued since in quarter of transaction what covered adjusted the XXX as XXXX. prior financial June We levels. pricing compared execution, of Anixter and closed before our of very adjusted questions, cross-sell momentum was year exceptional results morning. to as well strong quarter opening and This business a cost accelerated We XXXX EPS XX summary for strongest basis across sales, expansion strong by an

expectations, deleveraging back leverage now and Our of the acquisition target exceeded our Anixter. X has are of just within range, pace we quarters after closing our

from investments exceptionally are map, And and lastly, progress and on earlier. increasing discussed John that digital excellent sector trends we're benefit IT public our making secular and to well-positioned growth road the

let's that, questions. to the with open your And call

Operator

[Operator Instructions]

Our from Markets. RBC first question today comes of Dray Deane Capital

Deane Dray

I your First be of might to think all, rural for broadband upgrade service with digital opportunity eligible provider need that fund. the

John Engel

your love sales lead, I Deane.

Deane Dray

Scott you'll then Scott. secondly, seen be confident to I in And history have big action. a of a together. I'm lot I've and welcome them successful.

Scott. congrats, So

Scott Gaffner

Thanks, Dave.

Deane Dray

not real would a in of anything flow of kind through here. business? maybe if sign slowing post-COVID about the that you're all you're up, what's and of availability, putting benefit. going that product just anxiety at a of And at real-time just you going project to be drivers delays, all stock long-term X see burst such Any -- that Page now as helpful. on off, start But are time you you in markets John, of financial seeing you're right not well of slide color it's -- as us a Take metrics there's of kind slowdown the ramp activity, margin we daily tells long any a seeing on it's the but these because happening. look just swearing the there's any terms

John Engel

It's a great question, Deane.

indicators our respect we the not any slowdown array WESCO. occurring of are Anixter you in backlog. the with WESCO of KPIs use look seeing terms any of in indication combination, at to new leading and We

large of you pipeline, of degree at If opportunity that's comprised cross-sell our synergies. look

look sales at our margin at seasonality. you normal it and sequentially, You look momentum daily there's

everything just to word are QX, -- use describe We It's I for use, X true [ ] the I would this QX. accelerating.

exceptionally encore quarter even July, that that number send delivered. [ not forward WESCO it's strong. just Dave at the I strongest an This is still At in sales is acceleration. that sales has outlined seeing preliminary we we're ever ] in to -- So delivered QX, QX. the

Our is book-to-bill above ratio X.X.

latest August, in days sales their again, I data. the So set daily results that's seeing few a results. represented [indiscernible] of sequential this reported and July morning, uptick We're that's and versus July just know June. in Fastenal

the -- just we momentum, are again, So I'll the it's call I of combination. power very strong seeing, just and really it

in proud question flow managing specifically, In stock terms team have your the know see supply say were In but chain challenged And very I in words we're still doing and is but gotten it I and your select as a constraints. the an that some incrementally we're encouraging. better, we supply few how supply chain at was challenges it's result of that's to areas, say, of not few categories chain kind would array a would margin, that. material improvement starting in of I through. a I'm a bit of yet, of more

have said, QX that of it With much chain with his as top so better. consistent commentary earlier, we Dave points, our would outlined couple a that saw throttling of still line, been in supply

I And and so the but kind demand I just our would supply perspective. to share a mean from this would and few what is I it quarters, still -- that period chain -- last occur. for healing, I -- take it's we did the healing in supply it's thought is outstripping protractive signal. of that's

Deane. I addressed your question, So hopefully,

Deane Dray

to everywhere order up. Absolutely. That's free cash great. to Dave flow. you are just industrials as big look, got for fill in XX% follow-up across And then hear. a backlog the Really And this demand, this on good we

We to inventory. higher then get You've got take and that on payables. higher sales, more

So X questions.

There's come. inventory. on and misperception like put you the customers anything target to past put unusual, that shelves payables a this the or WESCO hope somehow once is like some some assurances is due that res like you secondly, anything on is And you in this there. inventory then that as One the bit

hook for customers You're are for by project-based. And the that. to the that inventory these customers the the projects, on committed has been

carrying? address certainty just the that speculative in you're that Maybe of inventory. that terms You're inventory not of adding

David Schulz

Yes. Deane. Thanks,

Let your question there on second inventory. address me

right. absolutely You're

inventory to we and the terms in So we taking and been have have strong backlog, which are orders, do given committed conditions.

So a shipped that to inventory customer. will be

any seen have We in the cancellations not backlog.

very confident the inventory. quality of we're So in the

Going half your in we We've quarter. including versus a run payables, capital, improved quality process. our of day our seen question not quality about first the degradation actually of the the net any year back payables. to the working about prior We consistent

So free in out that expect second ordinary our working going or the of of working cash our our the of that guide strong receivable expect we capital coming again, accounts nothing and the terms the forward flow again, impact net of net in the capital quality down, specifically the for year. sales half we

Deane Dray

Great. that call high-quality problem. We a

Operator

comes Manthey The of Baird. next David question from

David Manthey

some X% is first -- noted and you there you measure could benefit the your methodology. companies of different in to us, tell all, are revenues. You inflation price what differences Dave, how Could

you're is then which wire it And it to in least. mentioned talk You of right But product goods could mostly sort gear gauge CSS heavy you're general think and you seeing about steel in second, and and switch is lines seeing most that less inflation? finished the supplies, the where seeing the thing? conduit

David Schulz

start to Yes, we've the we through pass pricing customers been to looked calculation. to at able Dave, I let me essentially X%. and that our calculate to what changes mean, the with

to to that services product, to ensure paid on are again, the not that appropriately suppliers at customers. do getting to we're the that start does with attached through but the passing the us. product look take we really then, a only what it our and pass that delivering we're We for So how

that last, relatively commodities. consistent of related. the are overall In would XX tell of we all just primarily call across that of inflation, have increases terms seen suppliers a But are the I given outside spikes you it, pure our that over months the seeing seeing that commodity lot categories the the price we're product are inflation

increases clearly, logistics, more on market. seeing they're going the service the passing are that And on some based, of through increases seeing that's labor, commodity transportation orders with to very us. and to all on to also their the So of our the they're suppliers ability move

late you inflation the called product one that to of business. of in So not some We our we we're be We area suppliers and we're that in board us do we get level see sequential the from start The the up across seeing volatile. I the would QX, all broad-based tell anticipate that, across was to did part, will being most it's out inflation to that same But CSS passed seeing did that for in pick to a categories. through benefit. suppliers. continue the the

David Manthey

that be just And year? last Okay. same that read understand people same to SKUs how use. just specific Is look are you I'm this at trying versus you year Dave, saying methodologies there's same the it mean clear, I different number. to SKU, X% just SKU, to product?

David Schulz

from Yes. by We're looking at consistently SKU same we it product category because quarter-to-quarter year-over-year. don't always sell the

within SKU quarter. that calculate looking product family X% to number group the this in of order categories at we're So

Operator

Sam James. comes Raymond The from next from question Darkatsh

Sam Darkatsh

I topics, Two broad if could.

would authorization. wasn't prepared first $X remarks in your or it The repo certainly be new being I billion the don't about least recall at accentuated.

than is your more prospective from that attractive can First, that equity any you M&A opportunities? we this find infer considerably own

wrongly, turns? are And rightly more which looking simply turns substantial at the of secondly, then more really becomes under repo will X generally equity? on the value when Or you knowing the debt stock to X your slowdown, of industrial guess, the plans absolute repo an knowing get concerns based do you be the perceives And market the point of or broad I this high leverage, beta. and

David Schulz

Dave. it's Sam,

the approved we shares quarter. look was Board authorization that in meeting. question. you So factors second We I when We take the Board mentioned, as May not at do And purchase a appreciate multiple our during the any do back we have the did make decisions. by

just terms the how target about now, of leverage thinking range. this right In got we're we under

net borrowings our increased that support we're turns. growth. sales our working facilities So and capital at the strong actually We against X.X to

now, So we're right being near-term. able still focused on in leverage to that the down drive

expect that range. middle the X.X Over to term, turn closer the X leverage our to to long of be we'd

on focus And so that. again, to to we continue want

other focused have most immediate term, down looking we'll our the we leverage And from on range. and value And of shareholders. will equity our then the continue those drive the within against that at right we In that always now, capital. what for there, we making sure been value are target uses get opportunities to believe evaluate we

Sam Darkatsh

I topic you're of with piggyback going getting working kind be peers virtually as respect question what going inventory. you your be at that are is second ultimately to to to was all -- indicating My Deane on lower. of the your mean inventories

that and your is risk but going forth. to per it's vendors pressure and it's so on going your going not se, pressure volumes, You inventory to so pricing, to rebates may drawdown have their pressure

what And cost at suppliers if longer cover how believe of gross you lose you expansion end? price your So air going seeing your do announced margin no do from you increases price manage that point the forward? will

John Engel

the Sam, management we've Dave, seasoned been if you operating very a team. myself through numerous cycles. look cycles. We've numerous businesses of X And at leaders got the been and through we've

stages the cycle. this how think know company all manage I of we through to

you look to we first all half, from that that it's confidence generation accounts working through cycle. if high confident all have in phases the of will customers. all capital We growth, our through touch in at on collect receivable characteristics really cash of the sitting exceptionally model earlier the And are point, just the

Relative gross improvement margin that's to underway. enterprise-wide an we program margin, have

post-merger first now close. we that's refinements additional across quarters the facing getting When that very a the better of challenging X We the If consistently it's the priority gross margin to part posted gross made been you some leading years refinements, expansion in and margin and top place, months to X you wide. in If look up executing that that's terms margin. margin other in Anixter to WESCO. merger we a XXXX, make was some they compression. enterprise so was we were enterprise-wide continued. backdrop XX been publicly-traded distributors, close, took the wanted XXXX. And several that looked at of for here And far program that across in have we look against And

margins. on momentum gross gross take at we're you If a look very our building margins, the strong

lot recipe improved guide drive expansion. there's operating we operating margin with commodity those again new margin plus leverage, on We And a those of see at some quarter. were runway but this further that's on starting -- And a that focused prices driving on both the cost clearly combinatorial there's significantly quarter, strong And don't gross working. in a left focused expansion. of margin is so the gross terms roll long we've over level. record And of to look laser all-time got in margin confidence both to to sequentially contributions anymore, of -- that gross expansion

on customers' think, essence delivering So gross to improvement program margin our not creation supply creation and or pleased our teams selling our selling the to management the sales is I I really in value exceptional value their value that could we're enterprise-wide focused again, the that value, account of operations chains. and job are doing And the be customers. more with of selling terms

suite. even broadest I the a [ is level markets a lean complete a They And suppliers at shop. in Yes, supply ] the the one-stop on said challenges. and their now we volatile and highest-performing We top more have more of think the did more a of customers the we And provide capital. customers -- But it's solution in for invest at importantly, get -- as board chain terms more. as strongest, are I've working in C priority. room strategic issue before,

terms Now the supply deliver to in supply we chain we integrity resilience, resilience, both customers. and of of that's corridor integrity, provide chain high or supply chain what degree value

that So to left our runway But highly slow terms answer got extent margin -- to question tremendous look, we've short the are is down. confident in that expansion. know start is highly of the we're we and that everyone this the things I has

Sam Darkatsh

the back paraphrase. Gross drawdowns? in to So continue inventory trajectory favorable half margins on the its despite

John Engel

We're I'll not it. issue margins. our mentioned seeing it, Dave any in amplify

ran July, goes in consistent Very through how quarter. margins the the on. with Our second beat we

the improvement as gross made -- and margin for this is sales some enterprise profit earlier, in part what terms Sam, recall core So I of you'll mentioned of changes force. for the specifically. statements this We as one

the fruit. very And think the to continuing -- from the [indiscernible] there, on I additional expansion. is focused performance margin and value this they're drive So for benefiting selling significant myopically

Sam Darkatsh

performance Onward quarter. and a terrific upward. . and Terrific to in the hear

Operator

from question comes next The of Wolfe Coe Nigel Research.

Nigel Coe

make maybe off works. just how accruals. yes, just I I company sum to understand on a [indiscernible] this had So sure just question, want the I

obviously, the topped So up payout. year you've full

have and third catch-up then run be would a Dave? a then rate, and catch-up XQ, you So quarter a be right, that for XQ fourth quarter, XQ would but XQ. for Is

David Schulz

well in incentive above QX. target as Yes. Nigel, QX in up payouts trued comp XXXX, we as in

incentive short-term sequentially a increase only that accrual. there's on slight plan So

Nigel Coe

in help Okay. year in And we is can where the now for dollar full to running where back compared were January? that terms us you

David Schulz

Yes.

Well, that when not we pay XXXX XX pay January, The a target, we out that are in year-over-year guide, mean, initial called that we XXXX. if provided performing short-term essentially has point our that Therefore, was than materially target, we incentive above going different against we out tailwind compensation. XXXX, are appropriately what away. dollars much are for back did we it tailwind. basis where roughly So we better. at I experienced accruing for in

Nigel Coe

but Okay. XXXX got But Is that that's big as don't positive We've real basis that's I'm a could be but FY more a [indiscernible] on is, backlog margins that sort table? scenario on else, volumes is tailwind some doesn't And if, the XX headwinds. based point of seem scenario about 'XX? 'XX, price into the are I XXXX. what in know And even go you in 'XX, obviously on cost target. my as a unreasonable. here in that's maybe question the into down assuming there a is where thinking back

David Schulz

operate. Nigel, going to margin. we've before, mean always be are that impacting There's through We you, the overall to these what would in I been I John know similar tell to said the how cycles things past. Well,

going we've in to be we're inflation years, said previous market people As on our looking rates at cost.

have that got top hold we've line and growth the margin. enough to offset So to

incentive place, in drive pull back one we XXXX about plan our adjusted The protect the again, So to making focused order take We're for our volatile levers was as on sure shareholder. compensation for But clearly, would we've going the environment, you as have continue think we a that to if economic to setup be think margins good a target to got in mentioned. that next we we before. would value appropriate to forward. year. long-term We've for it done

John Engel

point. the year XXXX. in would time for sit I the of I for to say our add would half. the Dave's excellent here second early full as We the raised second just setup guidance for we substantially XXXX is part

substantially the sales billion. momentum. have target strong $X.X We very at again raised synergy We

synergies sales exceed second in This the is that premerger original opportunity. $XXX the growth Our targets quarter million of breakout our close.

over track establish I as think of that X record is really success quarters. the this showing last itself we

Our level backlog in great XXXX. for XXXX, and record just a any setup, seasonality particular is but which is sequentially, continued all-time not to normal a without for new in

the Our raising we've pipeline target by seen, is ever evidence to is continues grow. largest opportunity cross-sell the

integrity want strongest We inflation market supplier supply. with market our more bit think is partners, think resilience, point. still leader, in I leader gets outstripping the cycle supply important And the I customers markets market chain look, their and outperforming continues. significantly. will even We're we're down and a And a -- double more extent the don't to the really undisputed it's that demand core to challenging,

a former. inflation at demand is outstripping meaningful continues first XXXX and supply inflation through the of level think I sources because

materials everyone's constraint. It's chain. is supply well. that labor labor as the in It's Secondly, missing a not just the

infrastructure spending yet. with in our demand even we've I seen none further. plan think And stoke of numbers you public that that have will

want full the point. did XXXX at upon guide, third above line we current analyst really are It's I our Take a to touch is now year consensus where XXXX for important. in So for look our guide this. year full top on

the answer. expect to we point, Second grow in That's XXXX.

Operator

of comes Inc. Moll from Stephens Tommy The next question

Thomas Moll

data the wanted start I to big John, theme. on

digital transparency and the given You've recently. IT investment some into

what investments. So P&L? benefits a the where investment when up some revenue anticipate side, curious then on the when I'm that we'll even see to those of cycle. margin benefits unlock the Have we're Or you started these and monetize for meaningful start flip that it and from in you yet? inning way those in you of in to see And would do show some

John Engel

outstanding. question. that It's for thanks Yes,

very, analogy. baseball the benefits. with in benefits. innings are I'll in start the very We're the seeing We of early the

We're early We've terms Anixter the where since highlighted buy of since WESCO a I be will digital you of with some Investor our We onset Day about September. first our excited that we -- last digital for we've tell and respect of kind to that. apply Day total in very our applications our quarters. few expressive more business will at products. on transformation of upcoming areas Investor pandemic. together team couple in over digital That be plan and

individual X-year we're back -- digital. to, put companies and to program integration X-year We the these X a like either back opportunity And to that transformation digital process. digital large either leading X together in a we the the and frankly ability companies where in And longer together we of June XXXX. to new quite is parked is the gave company we But the was also these a upon. individually. roughly brought announced catalyst have form a strong invest us to That that midst this said could the in WESCO transformation

into showing fuel X-year investments into allows years results X capital again We're we're we're is X-year and different period. so and spotlighted out. his are the the a spending line Dave integration on years The But synergies both commentary X transformation of the laid in digital investments. in them And areas investing to period. these it statement. our P&L top us what that

increasingly for more and growth I to basis of nature unlock long-term other prospects transformative tap new business am and we're mid- our data. digital, we forms our the the doing effectively will ability what avenues big in serve of to efficiently, and do of other customers. more as growth incredibly that bullish us long-term, on it of monetization what --or model areas

growth about results results, our results capital. excited results are of The margin in yet. improved. in and it. of It's our not results A expansion are investments our in That's in working not yet. our in Super but meaningful dramatic yet acceleration here's and news. the terms the sales not great

thus sense and period quarter our The us. it's years, join order transformation the X-year with results way. far. futures X together. exceptionally the another that digital exceptional, journey. since Investor Day, transformation that a digital are at story -- strong integration So much late as story of increases get exceptional think We're the has X-year exciting. Please as a been the along series you'll whole came point, tuned the of of and higher in the and in stay I magnitude, are This And of we been better a

Thomas Moll

that. appreciate I

it -- below I a As although just follow-up, wanted the in X quite strong was other trend CSS. on the quite segments. Organic well quarter, trended to was ask the sales

You called headwind one as supply chain there. out

in comment on So segment's if that could growth the would the delta others? primary that. you I versus be.... that Was wonder rate Or there

John Engel

Yes, another question. great

let's Let's look the versus businesses. over [indiscernible] X last really, the the X say, X to other at quarters

comments has outstanding secular as middle have outstanding That's It trends, been unchanged. global think supply and has prospects it's chain comments of business, chain long-term and and as only bullish been ever. very It proposition, constraints. been Dave's that I'm terrific. positive business. growth value footprint and My It's bullish I a constraints. leading supply the on franchise.

the have in access to offering. that In terms we solution applications total our of

is look accelerate with CSS growth you And at not We've beginning UBS of in to quite to The continues heal. rate exceptional. be pleased rate, couldn't but the to exceptional. the than at vectors, business. up. more sequentially. respect in It's the seen and growth momentum chain margin picked how backlog building I CSF. backlog higher now as momentum it's supply sales Everything to ask is a with relative EES, Specifically light the is this I'd

on the And again CSS in story pleased the I'm growth pickup with accelerating the again, here. is that that with very is quarter. XX% we're an now and it vector delivering So

Operator

And will session come of from the question final Q&A line today's Ken Newman KeyBanc. of of the

Kenneth Newman

regarding Just trying gain a the briefly do question, you where of just conservative do up that for of a realized increase increase a is? momentum you for the benefits within the have already of in those I'm the just and how John, coming guide to been sense cross-sell further? in but I XXXX, guidance? portion synergies how prior those current have get of think sales even touched it see much you on synergy capture sense share the

John Engel

I'll let Dave that. handle

David Schulz

Yes.

we in that our think as cross-sell, seeing that we bridge outlook gain called the X%. share. success we share So look X% I our we're It's call, previous and the increased in to of out previously. And X% the that sales confident it from about we growth when think QX, quarter approximately as now at we're

the but X really the believe we our within now benefit we So taking that the And points be approximately growth combined share, outlook to of are XXXX. expecting of cross-sell. we're that for

really pleased results. again, with the So

our earlier, had reasons it taking this of for As the not quarter. the is at diligent We're one up second the expectations confidence the exceeded which target we cross-sell, number very mentioned also in about in just the pipeline, quarter. the we looking of the but backlog

Kenneth Newman

just follow-up my then And here. Understood. for

some and You from are and talked leverage, the that repurchase balance how much common about on keeping curious there just you but at the how the and working repurchasing preferred understanding I'm priorities needs sheet comments and can target if shares, you the capital caveats between balance preferred the that have any shares repurchases that and share you between bucket. look

David Schulz

preferred is able the make We will stock to there that the a and repurchasing back come Yes, at or the the pure down clearly, provisions that. both best down buy more back economic common at to on required are premium be look buy buy authorization. would preferred perspective, the just within the classes purely it look we are It whether economics a will sense back time. to take to at that from some very some there And on are come those It to value. the back and make-whole constraints preferred. shares, we would take where if trading

John Engel

different and we characteristics. shifted ever clearly. prior and results company have I on either we think fundamentally know the created just different shifted execution, we it again. say, want the and trajectory, the understand, growth It's foreshadowed think did execution what's value That's in to new a important year, was this and their company earlier foreshadow higher We in we we've mix it's than the this I fundamentally to up think to I showing let's a markets, company thus far history. and in creation also

generation that address share important. we've these cash in our do back great at in priorities. got and authorization Getting an to have longer-term something of cash our And terms put because earlier, not over upcoming And that that. We purposely. and companies that repurchase since are utilization we that foreshadowed something a capability approved Investor did utilization, did That's think we is the together, view will it's within going place. was authorization mid- vital to we outlined ahead Day. cash long-term not of put the In X we absolutely range. for that being -- the we in place we target I we was place And and

sure to We will bottom have make place. ongoing always we an share need repurchase the authorization in That's line.

have opportunity breakout terms unlike month. forward Investor going for new of represent which a this to when exceptional. take in you've of at a levers us, kind is at company in in WESCO anything look address we not past, is you got a but to of earnings had Day, optionality generation we creation the and either it the we'll with I this this the going cash The I'm call, value outlined share the next

Kenneth Newman

understand. I

forward it. Looking to

John Engel

wrap connection call go a a a bit minutes did because to went few over. here we difficulty bring think had, That's a going the to I I'll where little why we we that, we a I'm With lost for technical minutes. few again, Okay. close. it longer.

all much appreciated. for your support. you Thank Very

mentioned, virtually. us upcoming And Investor since be about That able person least coming or will merger, as our closing opportunity New I you our and our this get know just look X of learn at will combined September in earlier, York to Day. an hopefully all as as to well and excellent better. first more to City. will our team it I management mentioned Anixter of forward be hope the Day entire we business at to in join you senior the be been It's has As in with date set. Investor I many speaking days

conferences to September. going Morgan participating August Stanley we're Additionally, Raymond be the and Industrials Industrials James Diversified Conference in both RBC and Global in in the

a So with you we've a this Have again. to got wrap. great bringing and that, calls day. you Thank afternoon scheduled many tomorrow,

Operator

for That concludes the you your conference call. participation. Thank

You may now your disconnect lines.

WESCO International (WCC) 4 Aug 222022 Q2 Earnings call transcript