WESCO International, Inc. (WCC) Earnings Call Transcript & Summary

Thank you and good morning, everyone. Always happy to start on time. I'm Scott Gaffner, Head of Investor Relations at WESCO. We appreciate you joining us today, and we are pleased to share our strategic vision and talk about WESCO's mission to become the best tech-enabled supply chain solutions provider in the world. So why are we hosting you today in our Glenview Innovation Center? This is our newest innovation center of excellence and highlights how WESCO works with our partners and customers to develop, co-innovate and demonstrate technologies and connected solutions from strategic suppliers, and our innovation partners. For those of you who couldn't make it with us today in person, please reach out. We'd be happy to host you any time here. And you can see firsthand how WESCO is embracing a digital-first culture and an agile organizational structure. Before we get started, we do have our obligatory forward-looking statements and information -- subject to uncertainties. Actual results may differ materially. Please see our webcast slides and the company's SEC filings from this morning for additional risk factors and disclosures. And today's materials are available on our website at wesco.com. We have a very exciting morning in store. For those of you in person in here in the Innovation Center as well as those attending through our webcast. Our agenda includes a look at our past, our present and our future. An overview of our business transformation driven by digital investments, a presentation on our world-class data center offerings, a panel discussion with each of our business unit leaders about our solutions, our expanded service offerings and our digital transformation. And then we'll wrap it up and share some additional details about our financial roadmap to the future and take your questions. Before we are joined up here on stage by our Chairman, President and CEO, John Engel, I'd ask you to take a moment, please watch this very exciting video that showcases how WESCO is uniquely positioned to address complex global operational business challenges. [Presentation]

Please join me in welcoming John Engel to the stage. Thanks, John.

Well, good morning, everyone. It's great to be here. Thank you for joining us in person in Glenview, that was a nice music you have there. Thank you for that. And those that are joining us via the webcast as well, we welcome you. And hey, I trust you had a great evening last night and engage with the management team. And hopefully, that was a jump start for today and you got a little deeper insight in the different parts of our business. We have the entire management team assembled here today. So you'll hear from many of them and make sure you get a chance to engage with them at the break and throughout and even afterwards. So it's been 2 years since our last Investor Day. We did that post Anixter. And what have we done? We've completed the integration of Anixter. We've completed the integration of Rahi Systems and we made great progress on our tech-enabled business transformation, and that's the descriptor word, tech-enabled. As we stand here today, we are a completely new company. We're a new WESCO. We've built the new WESCO, and I think we're going to share our future views. This discussion today is all about the future. So we're going to focus on the future. I know there'll be a lot of questions in the Q&A about present as well. We're going to focus on the future, and we're going to start with our strategic priorities. We're going to talk about our leading value proposition, our global supply chain solutions for customers. We'll bring that to life. We're going to give you an update on our enterprise-wide digital transformation. It's our tech-enabled business transformation that it supports. And we're going to begin to touch on already the benefits that we're seeing inside our 4 walls at WESCO but also with customers and suppliers. We're more than halfway complete on the technology and capabilities built. So we'll get into that in much more detail. And then we're going to touch upon our financial goals and value creation targets. We're committed to 10-plus percent EBITDA. We're going to drive our company to that. And I think the message there is we have multiple pathways to get to the 10-plus percent. We'll bring that to life. In addition, which is an upsized number from our last Investor Day, we're committing to $3 billion of cumulative cash flow across 2025, 2026, 2027. This is supported by a capital allocation framework that is focused on generating the highest returns for our shareholders with accretive acquisitions, acquisitions of higher EBITDA margin businesses at the top of the list, and we'll talk more about that. It's supported by a consistent share buyback program as well as increasing dividends over time. So our sharp focus is earning a premium multiple as we sit here today, we're at a significantly discounted multiple versus what we think we should be trading at in our intrinsic value. And hopefully, as we continue to execute against this future road map and plan we'll be able to unlock the tremendous value creation potential that we have in front of us. Okay. So why invest in WESCO. This is our investment thesis 3 key points I'll leave you with. It's all about the future. We are the market leader. We think we're best positioned, best positioned to deliver outsized growth in our markets that we serve. It's the secular growth trends of AI-driven data centers, significant increases in power generation, electrification, IoT and automation, and near-shoring and reshoring back to the U.S. and North America. From my entire career of which the last 20 has been with WESCO, before that was with other academy companies and engineering manufacturing roles, many different end markets. My entire career the supply chain, was moving south of the border into Southeast Asia. It's very clear that pandemic put a spotlight on the global extended supply chains and the fragility of those is clear. And we are seeing a meaningful shift back to the U.S. and North America, and that's very good for our business. Second, our future cash generation provides for rapid growth and margin expansion, and it's prioritized to expand our services portion of our portfolio, we'll touch upon a few recent acquisitions in our presentation today as well as additional acquisitions of higher EBITDA margin businesses. And again, as I said, supported by a consistent share buyback program and increasing dividends. And then finally, and I think this is as an absolute breakout move. The tech-enabled business transformation through our enterprise-wide digital investments. Akash is going to go through that in much more detail than we have ever to date. We're more than halfway complete on our technology and capabilities build, as I said. And once complete, we'll accelerate our growth through being able to really accelerate greater cross-sell. We'll expand our margins through improved pricing and greater operating cost leverage and also, very importantly, will dramatically increase our speed to value for the integration of future acquisitions. That's an important part of our value creation going forward, we'll dramatically increase the speed, the value. Not only of those acquisitions of other companies, but also the acquisitions of additional digital products and applications. So the architecture and ecosystem we're building out will enable that. So let's talk a little bit about our evolution. We IPO-ed 25 years ago. The first 5 years, we didn't go anywhere. It was $3 billion in sales and 3% EBIT. I think some of you know that. It didn't move. There was a recession at that period of time. I joined in 2004, we've come a long way. We closed out last year at north of $22 billion in sales and 7-plus percent operating margin. So overall, what have we done? We've improved our profitability. We expanded our portfolio of products and services. We've now mix shifted to higher growth markets. And fundamentally, we've established a leading scale position in our served markets, and we have an unmatched global footprint and set of execution capabilities that we're bringing to bear directly with our end user customers. And I think that's one unique aspect of our customer mix. It's the proportion of our customers that are direct end users versus contractors and integrators. We're higher up on the value chain. We can sell our value to a higher level, and you'll hear some great examples of how we're executing on that because we think that forms the basis of our sustainable competitive advantage fundamentally. I think you'll hear some great examples from the SBU leaders here. We're focused on our vision of becoming the best tech-enabled supply chain solution company in the world. In the middle of this is our strategic priorities. I already touched upon them briefly. It's accelerate our services and acquisitions, higher margin -- EBITDA margin businesses, complete our digital transformation, unlocking the power of our big data. I'll come back to that more on that later. And then leverage our scale and enhanced portfolio of products and services, the combination provides complete supply chain solutions for our customers. Our strategic priorities drive the outcomes that we intend on the right, organic sales growth above market, margin expansion through scale, operating efficiencies and our digital investments and transformation and this is an important emphasis, accelerated growth through future M&A. The good news again is we have multiple pathways to deliver the 10-plus percent EBITDA. For those of you less familiar with the company, we're a leading supply chain solutions company in the markets we serve. As I said, global execution capability and footprint for end-user customers. We've got 3 large businesses, CSS, EES, UBS, each leaders in their own right, and you'll hear from those leaders today. We serve 7 key end markets on the right. The good news is all of those are positively impacted by attractive secular growth trends. One of our differentiators is our services and our services value proposition. Bottom right, you see 4 category of services. Our SBU leaders will bring those to life as well. Over 70% of our sales are tied through at least one of those service categories. So our scale and our solutions is what drives our competitive advantage. We're much more than a B2B distributor. That's foundational. We have to be world-class at that, but we're much more than that. We're a global supply chain solutions company, operative word solutions. We take our suppliers' products. These are the industry's leading suppliers. We take our services, we wrap them around those and we provide complete solutions for our customers, whether it's an end-user customer or a contractor integrator. It's important to note over 90% of the Fortune 100 companies we serve directly. Think about that. Over 90% of Fortune 100 companies, we serve directly, not through a contractor or integrator. So our exposure is across all those various end markets. Today, we have a clear industry-leading position, a suite of leading capabilities, and we think this provides the foundation and drives our competitive advantage. So a few examples. In Utility, we implemented the industry's first integrated supply model over 15 years ago. We've climbed the value chain over time with extended variations of it across to other utilities. And now today, we are selling and providing more services than ever to those customers. And these are direct end user customer relationships. In industrial, with our direct end user relationships, we provide a complete set of MRO, OEM and capital project solutions and needs. In construction for contractors and integrators we have a very strong position in project design, project management, on-site services. We have capabilities to provide solutions across the entire life cycle of the construction project. And that has deep roots in WESCO, legacy WESCO coupled with deep roots in Anixter wire and cable, connectivity and now including fiber. And then finally, in data centers, and Bill will talk about this in much more detail, we literally have today, as we sit here, unmatched capabilities. We have a global footprint and global execution capability. We can serve a data center customer from their power, that's our UBS business, gray space, that's our EES business and white space that's our CSS business across that entire spectrum of needs, and we have solutions to help manage the whole life cycle of the data center. Design, through development, through deployment, through operations. We actually have some network operations centers running inside our 4 walls through maintenance and support, and Bill will bring this to life. So just an absolutely great position. Management team, exceptionally capable, very experienced. It's comprised of industry veterans with deep domain knowledge in the markets and the industries we serve. But also, I think, a nice complement, a nice mix of new talent injections that we've added. In my 15 years of tenure as CEO, it is by far the strongest management team we've ever had. So again, and they're assembled here today. Okay. Let's shift to our drivers of sustained outperformance. And the key point is we have multiple drivers. Digitalization, Akash will talk about that, our leading scale and capabilities. I touched upon it. But again, look, Anixter was a step change. It clearly was. Both were leaders in their own right. I mentioned in 2019, how many of you were in our 2019 Investor Day, show your hands? Only a couple. Wow, that's actually a telling sign. But I did mention that the bigs had to come together in distribution. We've got a lot of questions at that point. Well, who is it? And we had been acquisitive, but the bigs are not coming together at that point, right? So we sprung into action when Anixter was put into play. We didn't put it into play. But I could not be more pleased with what we've built as a result of putting these 2 leaders together. And that scale advantage and global execution capability is just absolutely outstanding. We're driving it going forward. And then finally, as I mentioned, earnings compound are through M&A, important words. Again, we've been acquisitive. We're going to continue to be acquisitive. But I'm very -- we're going to send a very clear message here that the types of acquisitions we're going after a higher EBITDA margin businesses, have a heavy services content, and we're driving up the value chain. So again, I'll harken back to our 2019 Investor Day where I laid out a very bold vision that said, look, the distribution part of the value chain had to consolidate for B2B distributors. The suppliers were consolidating at a much more rapid rate. And as a matter of survival, we had to do it. We intended to lead it. We also intended to digitally -- invest in our company to digitally transform. And in doing that, we thought we would lead, it was our endeavor to lead the digitalization of the B2B value chain. I used the S-curve analogy, right, that industries like companies and products go through the proverbial S-curve and that digitalization applied to the B2B value chain was into the early days, the beginning part of the steep part of the S curve. We've seen B2C retail distribution, whether you're an iOS or Android user, we know the benefits we have as the C at the end of the B2C value chain, right? But B2B is way behind and we intended to lead that. And I'm very pleased to say we've made good on both those ambitions and visions, the consolidation as well as the digitalization, and we're going to continue to build on that. So let's get into the digital transformation. As I said, Akash will get into much more detail, but I wanted to define what it is and what it's not, okay? It is a complete IT and digital ecosystem. It's best-of-breed applications and subsystems connected via proprietary architecture, our architecture wrapped around one world-class data lake. That data lake houses our big data, but our big data is more than WESCO transactional data. It's the greatest asset a distributor has, quite frankly, that's not on their balance sheet. It is their big data. Absolutely true in B2C retail distribution value chain, true in B2B wholesale distribution value chain. But it also includes over time, taking our unique customer data sets and our supplier data sets, and hydrating them into the same data lake. We've already begun to apply AI and ML to that enterprise data lake. Akash will give you a full status of that. But that's the center piece. The backbone is the technology itself. It's designed to be flexible, modular, easily updated. It's not -- enables best-of-breed subsystems. It's not a one-size-fits-all approach. It is not remotely like or similar to a monolithic ERP implementation. It is the complete opposite. So let's talk a little bit about where we are in that journey. As I said, we're more than halfway complete on the technology and capabilities build, including the most technical components. We've got those behind us. As I said, we're already starting to see some of the benefits inside our 4 walls as well with customers and suppliers, Akash will touch on that. Some of the capabilities we've implemented to date include AI-powered analytics, we've automated multiple order and fulfillment processes. We have a whole suite of digital tools we're applying to our business, okay? And that just will continue to expand. I'll leave you with this. You know we've been very acquisitive over the years. We have well over today, well over 20 different ERP systems around the world. That makes for some challenges on managing the day-to-day business. And it's been somewhat of an impediment for us to fully optimize our working capital. When we're done, we will have a single unified digital platform for our Fortune Global Fortune 200 company. And that is an absolute breakout move. Let's talk about our value compounding wheel. This is the 5 interdependent factors that form the foundation of our value creation growth model or engine. It really starts at the top being in the right markets. I think as I've already mentioned, we were in the right markets. These markets are now exposed to secular growth. So they've upshifted in growth very attractive. It's our intent moving to the right with our leading value proposition and differentiated services that we take share, outperform the market. That's our goal. That's coupled with operational excellence. We haven't talked about that in some time. Let me double-click on that a bit. And some of you do understand the first part of this. The foundation of that is lean, enterprise-wide lean. We are actually this year, entering the beginning of our third decade of lean. And we still drive lean continuous improvement across our functions, in our daily work activities in our businesses. It's now coupled with agile design and development. And we built an agile development team. We've hired a series of resources. I will not steal Akash's thunder. I think you'll be somewhat surprised with how many we've added to the team, where they're located around the globe, but we're using true agile development methodology as a foundational element on how we're building out this whole digital platform. My view, and I've studied a lot of other companies, quite frankly, my view is the combination of these 2, agile driving the digital and lean fundamentally across our distribution model it represents a secret sauce for us going forward. Again, we're in our early days, but I think it's going to be a fundamental differentiator and the foundation of our operational excellence. So when we outperform the market, grow above the market, add OpEx, right? As I just mentioned, it expands our margins. That drives higher cash flow, gives us greater optionality on the capital allocation, which I've touched on. Let's shift to the pathways to 10-plus percent EBITDA. We are absolutely committed to become a 10-plus percent EBITDA margin company, absolutely committed. As I said, the good news is we have multiple pathways to get there. The way we're thinking about that is a 2-step journey. We know where we are now, we know where we came from. We did get some fundamental, and I think sustainable margin expansion as a result of Anixter integration. But we've got to get the company back to 8% EBITDA first. So that's our near-term goal. Dave will give you more of a time line on that and the drivers. And that's as we complete the digital investments and the tech-enabled business transformation. So our first step is to the 8%. And then our second step is once that digital is done, we'll have accelerated sales growth, operating cost leverage, lower cost and margin expansion. In parallel, and it's not by accident, the acquisition box is shown very large. Think about that is an accelerant and amplifier. And so that results in accelerating our pathways organically, but also can be its own pathway that has a major impact on our time to get to the 10-plus percent. So we're going to execute an aggressive M&A agenda. We have the strongest balance sheet we've ever had in our history period. You know we're very comfortable with using that appropriately with our strong track record of successful M&A. So a very clear message is we're going to continue to use the acquisition engine to drive future growth and profitability and value creation. So let me kind of bring my opening to a close here and leave you with these 4 key points. So think about these, if you could, through the whole presentation. We'll come back to them at the end. We're completing our digital transformation, and we're beginning to capture the benefits. We're progressing towards our 10-plus percent EBITDA margin goal when you look at us across our evolution. We're generating strong consistent cash flow, and I'll repeat this point, this commitment, Dave will emphasize it. We are committed to maintaining our free cash flow at 100% of net income across all phases of the economic cycle. And we're deploying capital strategically, including this aggressive M&A framework focused on services expansion, higher EBITDA margin businesses. Look, we know the value of M&A, and we've delivered on it. And I'll end on this note. We said this before. We said this before back in 2019. We did this before. We're going to do it again. So with that, I'll hand it back to Scott. Thanks.

Thanks, John. It was an inspirational look at our past, present but really the path to the future, which you're going to hear a lot more about today. And as I stated earlier, I know you heard John talk about this a couple of times, but our mission is to become the best tech-enabled supply chain solutions provider in the world. And with that in mind, I'm very excited about our next speaker, Akash Khurana, he's our Executive Vice President and Chief Digital Officer; and he's going to discuss how our business transformation is enabled through all the digital investments and technology investments that we've been making in the company. So I'd like to welcome up to the stage, Akash Khurana.

Thank you, Scott. Good morning, folks. My name is Akash Khurana. I lead IT and digital for WESCO. I've been with the company for about 4 years. And I bring 27 years of experience leading large-scale technology-enabled transformations across various industries. Happy to be here and looking forward to sharing the details on how we are approaching our digital transformation here at WESCO. So folks, during last investor conference, I shared the reasons why we were embarking on our digital transformation. We talked about unique ways we will execute towards this journey, which is all centered around agile. You heard John talk about agile as a methodology. And we also shared some of the early benefits that we were seeing from the capabilities that we were building, testing and deploying in our field. Today, I'll provide you an update on the progress that we have made so far on this journey. And also we'll give you some context of what's to come next. I request you to focus on 3 key areas around which I'll provide a lot of update throughout my presentation. The first one is the technology build. For a digital transformation like this, that's a significant effort. In our case, the technical component as well as the capability build is behind us. Majority of it is behind us, and I'll provide updates on that. Second, we are now transitioning towards benefit realization. We are already realizing near-term benefits, and we are positioned to drive long-term sustained benefits from this transformation. And I'll share updates on that as well. And finally, the uniqueness and the modularity of the technical architecture that we have built, which is powered with our big data and AI, we are confident of the benefits that this will enable. Already seeing those benefits, but also very bullish on the long-term growth benefits it will enable for us through organic as well as acquisitions. So with that, let's jump into the high-level benefits. But before I do that, let me explain what is that we are building. We talk about digital transformation. For us, folks, it is modern unified digital operating system. I want you to note that down. And I'll refer to this operating system throughout the presentation. It has one focus, to enable value for all of our stakeholders, including our customers, suppliers and of course, WESCO operations. It is a lot more than implementing innovative technologies. It's really giving us the platform to rethink how we operate and laser focus on delivering value for our stakeholders. The unified nature of this footprint has multiple benefits. I'll cite a few. Number one, it's giving us a platform to streamline our processes, really focus on operational efficiencies. John talked about that and deliver enhanced customer experience. all of which drives the competitive advantage. Number two, the unified nature of this footprint allows us to quickly react and respond to changing market dynamics, ever evolving secular trends and changing customer and supplier needs. We are looking at this platform to bring about those solutions and really change the value for both ends in terms of suppliers and customers. Third, the way we are now able to use our big data, and I'll talk more about what that big data is. Through this platform, we are able to generate much more deeper insights, which are powered with AI. That's helping us drive efficiencies. It's allowing us to build capabilities that we are extending across our ecosystem, really making it easier for our suppliers and customers to do business with us. The modular nature of this architecture positions us to rapidly integrate any acquisitions that we do in the future and focus on cost efficiencies and growth synergies. And finally, WESCO always had a strong culture of lean, innovation and collaboration. The unified platform that we have built, it's allowing us to break down silos, promote teamwork and focus on what moves the needle for our customers. Let's transition to how different components of this operating system come together to enable value for different parts, starting first with WESCO. Number one focus for us is operational efficiencies. Number two, commercial excellence. This is where we are building capabilities for our sales organization so that they can best serve our customers and drive cross-sell and upsell. We are also leveraging this platform to drive top line revenue by exploring new models, and I'll talk about those models as well. And finally, the modular nature that positions us for organic as well as growth through acquisitions. What it means for our customers, folks, they will have seamless, integrated, personalized one WESCO experience through this platform, which allows them to access all that WESCO has to offer from services and solutions. They will be able to use our AI-enabled portfolio solutions to drive better efficiencies within their value chain and also tailor the solutions that we have built to drive competitive differentiation in the marketplace. For our suppliers, this means much tighter integration, real-time visibility into market demand, order statuses, which they will be able to leverage efficiency and drive efficiency within their supply chains and focus on accelerating working capital velocity. Now let's transition to the overall strategy and where we are on this journey. First focus for us was laying the foundation. And this started 3.5 years ago folks with a clear phase strategy, laying the foundation focused on building the right team. Over the last 3.5 years, we have doubled the size of our technology team. We have brought in specialized skill sets around artificial intelligence and data science. And we have brought about geographic diversity so that we can deliver around the clock for our customers and suppliers using the agile methodology. Folks, we have also adopted modern methodologies like Agile, which we are using across our ecosystem. We focused significantly on data. We brought in data from 27 different ERPs that we have in our legacy environments into one highly structured data lake. In addition to that, we deployed core enterprise systems which our business can use while we are working on this end state digital transformation. These systems focus on strong digitized financial backbone, general ledger forecasting, budgeting capabilities, we implemented human capital management capabilities for our employees and workforce, and we built capabilities for our front office so that we can best serve our customers. Second phase focused on design and build. This is where we stored up a brand-new modern stack. It has no connectivity to our legacy environment and it allows us to stitch together end-to-end processes and enable operating models. The enterprise systems that we stood up in Phase I laying the foundation, Phase 2 allows us to connect them end to end. And this footprint is using brand-new data lake, which is all powered with AI. Phase 3 focused on deploy and scale. This is where we are leveraging change management, training to embrace the capabilities that we have built and deploy those across our ecosystem. So we all can reap maximum benefits from this investment. Folks, we very recently went live with our Phase 2, which is end-to-end design and build at one of our location, and that gives us the footprint that we will carry forward using our agile methodology, build on it and deploy across our company. In terms of status, Phase 1 is complete. Phase 2, we are looking to finish design and build by end of 2025. And Phase 3 has already started, started this year, and we believe it will continue for the next 2 to 3 years. And by 2027, we will be all on new footprint across our company and how we provide services to our external stakeholders. In terms of spend, we charted $500 million for this overall transformation. We have consumed 55% to 60% of this investment and as we transition from majority of the focus on being technology build and capability build to now finishing that technology work and deploying these capabilities across our ecosystem. We believe that the investment that remains is sufficient to ensure that these capabilities are fully embraced our ecosystem, and we are driving tangible benefits for our stakeholders. Now let me share the architecture that's behind this operating system. Folks, this is highly modular, highly scalable and flexible architecture. This is not a traditional monolithic ERP implementation. We focused first on enhancing our enterprise systems. That included front office. This is where we have built a platform, which we refer to as unified sales desk that allows our sales organization to best serve our customers, focus on opportunities, focus on margin improvements and leverage all the fulfillment capabilities that WESCO has to offer. Mid-office is all about supply chain and operations. This is where we are focused on digitizing and integrating end-to-end supply chain and operations, starting with demand forecasting, inventory management, our operations within warehouse and distribution, fulfillment capabilities as well as logistics. This is all powered with advanced analytics and AI. Third focus for us in Enterprise Systems is back office. This is all about finance and HR. We have digitized these areas to drive efficiency and productivity in these functions. In addition to enterprise systems, folks, we have a very robust portfolio of digital systems and services. First one in this area is omnichannel. This is not traditional e-commerce capability. This is brand-new stack with AI-enabled next-gen B2B capabilities for our customers and suppliers. This is backed by a modern API and micro services stack that is already getting utilized by a broad ecosystem of suppliers and customers, brings us much tighter and closer to our external stakeholders. Within omnichannel, we also have built an AI-enabled materials management solution, which we have deployed for our customers and suppliers. As we speak, this capability is already deployed at 2,500 of our customer locations. Second is focused on digital platform. This is a platform that we have built to develop capabilities and offerings that align with our secular trends as well as our customer needs. An example here is data center. Bill Geary will talk about our strategy there and how we are positioned to support end-to-end life cycle of data centers. But this platform brings the digital capabilities to support that footprint. And digital products, folks, that's another key area of our footprint. We have a robust portfolio of capabilities for our internal processes. We have built products that we use for product recommendation, margin improvements, better availability, quicker response to the opportunities. And one example is specifically in the area of UBS, and Jim will touch on that. It's focused on bringing a complex ecosystem of projects onto one platform, which we refer to as FTTX to align our customers, suppliers and WESCO operations. Folks, this entire footprint, this architecture is already in place that got stood up in the last 3.5 years. It's already operational. Many of the components are deployed across the company, for example, financials and HCM and others are getting deployed using agile methodology and will get rolled out over the next 2 to 3 years. This leverages our powerful big data lake and AI capabilities. And that's the transition to what is our data strategy. Folks, enterprise data lake is a central hub for our transformation. This houses information from our 130,000 suppliers, millions of products with detailed categorization information, industry insights, WESCO information, our operations, the value-add services that we do, the asset information that we have and it combines the customer information in terms of usage and consumption. All of this is stitched together in highly scalable, modular and proprietary data lake that we have designed natively to leverage the advancements that we are seeing in analytics and AI, including GenAI. We already are leveraging those capabilities to drive our own operational efficiencies. And we are embedding these capabilities in the smart solutions that we are providing to our customers. Now let's transition to the specific tangible benefits that this footprint enables for us. Starting first with WESCO. As I mentioned, our first focus is operational efficiencies. The way we are able to achieve that is by bringing about process automation and leveraging AI-enabled systems that drive margin improvement, cost savings and significant reduction in errors across our life cycle. This is especially relevant in the area of supply chain and operations. We are seeing significant benefits already in better demand, better forecasting, inventory management and other fulfillment capabilities. It really positions us to be in digitally enabled just-in-time delivery framework, also helps us with the optimized capital utilization in this area. Second focus for us is commercial excellence. This is where we have provided AI-enabled insights to our sales organization so that they are best positioned in an optimized manner and informed to best serve our customers. They have advanced capabilities like customer segmentation, across business unit opportunity identification, targeted marketing, all of which they are using to drive better cross-sell and upsell. I talked about use of technology to explore new business models and add incremental revenue. We're doing that by building capabilities around subscription services, license management, essentially looking at all the value-add capabilities that we have and digitizing them and bringing to our stakeholders. Folks, this positions us to drive incremental growth, both organically and inorganically. Finally, WESCO has a strong DNA of acquisitions. We have, over the last 30 years, we have successfully integrated 50 companies. This ecosystem brings about speed that we have not seen before. We will be able to integrate regardless of the complexity and size in a very quick time manner and focus on cost efficiencies as well as growth synergies. What it means for our customers? Folks, in addition to the seamless experience that our customers will have, we have focused on driving cost to serve lower while driving efficiency and bringing solutions to them. We have taken a customer-centric innovation approach, which allows us to partner with our customers and look at the workflow, every touch point that they have with us, find opportunities and digitize those touch points. We also provide them AI-enabled solutions portfolio that they are able to leverage to drive better pricing, faster delivery and an ability to tailor these solutions for their competitive landscape. Folks in addition to this, they are also leveraging our AI-enabled materials management solution, which gives them access to real-time inventory, and it provides WESCO with an opportunity to understand the customer patterns as well as the usage trends. A few examples to site here. One, very recently, we deployed our digital commerce capability for a very large food manufacturing customer across all of their channels and they are seeing significant improvement in spend management. One of our large global software provider leveraged our integration stack to drive same-day order processing and same-day delivery, significant improvement in terms of fulfillment capabilities. Now let me transition to what does it mean for suppliers. We are approaching it in 2 different ways. One, we are partnering with our strategic suppliers to provide them better visibility and transparency so that we can together drive supply chain resiliency. Second, we are giving them real-time access into demand forecasting, inventory position, order status, lead times that we already have in place so that they can leverage that capability and information to drive optimization in their production schedules, consolidation of the order volumes, provide better rebate structures and drive efficient lead time management, all of which helps with their working capital management. We believe that this level of tight integration and robustness is required for modern supply chains. So folks, in summary, our digital transformation is well on its way. We are already seeing benefits in terms of operational efficiencies, commercial excellence as well as the experience that we are providing to our customers. Our vision is clear. We want to be the best technology-enabled supply chain solutions company. And this ecosystem enables us by propelling innovation and agility culture and positioning us to drive growth both organically and through acquisitions. With that, thank you for your time, going to hand us back to Scott.

Thanks, Akash, for providing us with a very detailed road map on our digital transformation and how it's going to benefit WESCO, our suppliers and customers. So thanks for that. Very excited about our next speaker, Bill Geary, our Executive Vice President of our Communications Security Solutions business. But before he comes on and talks a lot about our data center offering, we'd love to play a video that shows our data center solutions business and our expertise across the data center life cycle really from development to deployment and then even management of those data centers on a go-forward basis. [Presentation]

Please join on stage, Bill Geary.

Good morning, everybody. As Scott mentioned, my name is Bill Geary, I'm the Executive Vice President and General Manager for the Communications and Security Solutions Group. I have been with the combined company right at 30 years in July this year. I spent my entire career in data communications, physical security and the data center space. So I'm really happy today to spend the next 15, 20 minutes talking to all of you about the advantages that WESCO has within the data center space and the differentiation that we have overall. So today, I'll highlight 4 specific ways in which WESCO is capturing opportunities within the data center. Our company's size, our reach and our capabilities uniquely position us to deliver on our long-term targets. We are addressing a large and growing market with substantial potential. In the last 5 years, WESCO has experienced significant growth driven by underlying trends, such as the rise of cloud computing, the digital transformation of industries, and the increasing demand of data center capacities. These trends are set to accelerate even more, offering us more opportunities than ever. At WESCO, we unlock value by leveraging the full portfolio of all of our offerings. This means delivering integrated solutions that cater to a diverse range of customer types and customer needs. Whether it's through our core electrical and data communication solutions or our specialized products and services, we aim to provide comprehensive support to the data center market ensuring operational efficiency and overall scalability. WESCO's ability to serve customers' needs globally truly sets us apart, as John mentioned earlier, our global footprint is a unique differentiator for us. We offer solutions that cover both the gray space, which is the traditional electrical and the white space, which is the networking piece and the IT infrastructure overall. Our scale and breadth of capabilities provide significant advantages for hyperscale customers, MTDC, emerging cloud and enterprise data center customers who require reliable, scalable and efficient solutions to support their massive data processing needs anywhere around the world. Our robust portfolio of expansive product lines, innovative processes, bundled solutions and a wide array of different services, these offers significantly enhance the value that we deliver to customers by providing integrated solutions that address their diverse and evolving requirements from electrical infrastructure to advanced IT systems. Our products and services are designed to meet the highest standards of quality and reliability. And I can tell you, we are viewed as a trusted partner in the industry out there. When you really take into consideration the broad portfolio, the additional amount of services that we can provide, all of this delivered globally and currently over one ERP system around the world. That puts us in a really unique position. So let's take a real quick look at the CSS business overall. We provide comprehensive solutions and ensure 24/7 connectivity and security. Data centers accounts for 26% of the revenue within the CSS organization because it's become incredibly meaningful to the business. And this underscores the importance that we have to the business overall with continuous growth in data traffic and storage demand, we expect to maintain and even accelerate our double-digit growth percentage in this segment, and that's driven, again, by our innovative solutions along with our unmatched global footprint, customer-centric and value-added services approach. It's thrilling to me to see data centers take such a meaningful percentage of the overall CSS business at 26%, but also for WESCO at 10%. This is a couple of billion dollar business right now. So this makes us very unique and very meaningful in this space overall. So if we delve a little deeper into the data center customer segment profile, multi-tenant, emerging cloud and hyperscale customers make up 90% of our sales. Hyperscalers and emerging cloud, which includes data centers for AI, require reliable, scalable and efficient solutions to support their massive data processing, storage and needs as they continue to grow globally, our access to talent and extensive geographic footprint naturally becomes a key differentiator for WESCO in the sales cycle right beside these customers. With MTDC customers, the relationship with the developer is key and we must adapt our go-to-market strategies to fit their very bespoke needs around the world. And we also service these customers in very unique places around the world. Enterprise customers make up 10% of our overall business. Now we have well-established relationships within this space, long-standing experience with these customers who have, in the past, often owned and operated their own data centers. This is where we cut our teeth. This enterprise data center space is where we originally started to work with customers and data centers in the early 2000s. But now you can see that shift from 90 to 10, I think, really highlights that shift from on-prem to cloud. But what we're seeing now is a shift back to a hybrid environment, where people are leaving some applications on-prem and some applications in the cloud. So if you look at our past experience, coupled with what we've been able to do in the near term, this really puts us again in a unique position to capitalize because there's not one part of the value chain that we don't have proficiency and supplier advocacy in. So turning our focus to long-term growth. These numbers are staggering. In the next 7 years, we're projected to see a significant increase in data center power demand. Just in the U.S. by 2030, you're looking at an increase over 160%. This growth is fueled by several factors, including the proliferation of cloud computing, advancements in automation, in artificial intelligence and the expansion of edge computing infrastructures as well. These trends highlight the critical role that data centers will play in our overall digital economy. And I think you're seeing that play out every day in the news where you've seen another $1 billion business, another $2 billion business as being stood up in this space currently. WESCO is again uniquely positioned to capitalize on these. These numbers are staggering to me. They actually offer a once-in-a-career type of opportunity when you look at those. And this is the quintessential definition of secular growth to me. And this offers the ability for WESCO to double our data center business over the long term. The real secret sauce to our business and where we're really seeing significant growth is the integrated offerings that enable us to address all stages of the data center development. And John made mention of this earlier, from the initial planning phase with the power through the integration in the gray space, and into the white space. This comprehensive approach that utilizes all 3 of our strategic business units, starting with CSS in the white space, Nelson Squires' business in the Electrical and Electronic Solutions space, and Jim Cameron's business in Utility and Broadband provide comprehensive solutions to customers that is unmatched in the market. By leveraging the cross-functional expertise, all 3 of our units, we ensure our customers receive the best possible support throughout the life cycle of the data center. You'll hear more from Jim and Nelson in the panel discussion around this today. And you'll see it is our comprehensive approach that presents the biggest opportunity as the addressable market in the gray space is estimated to be 3 to 4x the space that we have in the white space. And when we add additional service to this, it gets even bigger. We're starting to see significant wins with the leverage between the 3 BUs right now. One that we just -- one that Jim will go into a little bit more detail on the panel is in a hyperscaler we utilized some of the traditional utility services to be able to differentiate within that hyperscaler customer. And that allowed us to take down a significant deal. This is one of many that are in the pipeline right now, we're seeing significant acceleration across this business. So if we look a little closer, what sets us apart. We have the most complete array of products and services as well as the expertise to help customers plan, procure, optimize and maintain their operations. We work with global ecosystem of best-in-class contractors, integrators, installers and suppliers with proven track records globally. Our holistic solutions cover every aspect of the data center infrastructure making us the most complete supply chain provider in the data center market, whether it's electrical distribution, IT infrastructure, security systems or network connectivity, we can provide seamless integration and operational efficiency for every one of our customers around the world. I'll give you a case in point. We had a large data center customer in Central and Latin America come to us and wanted an end-to-end solution and wanted us to integrate the solution across multiple countries in South America. This included the white space, and the gray space working with the installer and working on value-added services from an operational standpoint. We were able to do this with them. This marks a unique step change in the way customers view us. Now a lot of you, we talked about this last night, and I've talked to you guys in previous meetings before about disintermediation in the market. And you've asked me, Bill, have you been disintermediated by your suppliers in the data center space? Listen, one thing I'll reference is something that John said in one of the earnings releases, engineered solutions in the data center space have been direct since day one, right? So if you look at switchgear, different applications like that, they've been direct from the supplier to the end user. But now look at the size and the scale and the global aspect of this now. This job marks that we didn't disintermediate the supplier and supplier didn't disintermediate us. We worked hand in hand with them to deliver this solution across the value chain with all parties involved. As this becomes more global, as this grows with this level of size and scale, this puts us in a position to work hand in hand with every aspect of the value chain. It doesn't really change things, it adds to it and it gives the customer more seamless, frictionless experience moving forward. We're hard to beat. We're hard to beat when we're being asked to do things like this. These are differentiations that are completely unique to the WESCO value proposition. So then regarding our capabilities, we believe there's considerable added value for customers to have a single trusted partner who is accountable for more comprehensive products and services, an indispensable services and solutions provider who is with them from the entire journey from bringing power to the build-out, through the daily maintenance of ongoing operations, a partner who can embed services with product offerings for rapid deployment on projects, one that can execute a full suite of services across regions and customers for multiple data centers all around the world. We are involved in the data center when it gets planned. So we work with these data center companies right when they're starting to plan it, where they're putting it, where we're going to be able to help them from a supply chain perspective. We're involved in the design with our advisory services and our TSS group. We're involved in the construction and obviously servicing the project in the installers. We're involved in the commissioning with our value-added services, smart hands on-site services, mission-critical services, and we're involved in the decommissioning and the redesign of all data centers. We simply never leave the data center. We're there all the way from the start, all the way through the middle, all the way to the end and when it retrofits and starts again. We are cradle to cradle. That's unique capabilities that WESCO has across this value chain, very unique capabilities. So I get a lot of questions here, too, and I got him last night, what's the cycle of a data center? I think this slide does an amazing job of really outlining this. It can take 3 to 5 years to get the land, acquire the power, acquire the renewables that are needed, and then it can take up to 1 to 2 years to be able to build that data center. And that's if everything goes well. So when you think about that, some of the stuff that's being funded now should be 5 to 7 years out before you start to see revenue related to this. But what a funnel it's become. Look at the spend that's out there, the CapEx spend that's out there. But I think this slide does a great job of doing this. And remember, too, our solutions encompass everything from the electrical distribution systems to the advanced IT infrastructure, ensuring that our customers have a comprehensive solution all the way through every single phase of this. Our solutions cover the entire data center construction life cycle as well. Our expertise, combined with robust portfolio offerings give us opportunity to expand across products, processes, bundles and services to enhance the value to our overall customers. The earlier we come into an opportunity we have that much more of an opportunity to sell our full suite of advisory services, installation enhancement services, rack and roll services, and it allows the project to move faster, much more efficient and we have an opportunity at the gray space. The earlier that we're in there, we get an opportunity to the other gray space. Additionally, we can layer in project deployment, and we're seeing growing demand for managed services to serve our customers well after the build and into daily operations, security, maintenance and critical on-site services, as John mentioned in his opening. As I mentioned before, we have strength in servicing the white space, we're building on that strength to capture more in the larger gray space as well. And I think the opportunity that I talked about in South America really highlights that. We have many customers now that are at the end stage of their life cycle in the data center and we've been there for over a decade. Over a decade, we've been in some of these sites. So you think about that statement that I made earlier, cradle-to-cradle. People don't leave data centers. They just refresh them. They retrofit them back out. They're certainly not going to leave them now. Some of these we've been there for over a decade. I think that again marks a very unique aspect of our overall value proposition. As mentioned before, it's really our full suite of solutions delivered globally that differentiates us. WESCO offers fleet range of services, complements products, complementary products across the stages of the data center development and our complete service offering enables ongoing support in modification, retrofit and renovation and through every phase of the value chain before. I think our Rahi acquisition that we did in November of '22 really highlights a couple of things that we've hit on here today. We talked about acquisitions that are more services related. This Rahi acquisition allowed us to really fulfill that portfolio for us. We were great on products, we were great on limited services, but we didn't have what we needed from a rack and roll perspective. We didn't have what we needed from an on-site perspective, Rahi really allowed us to do that. We're looking for more type of Rahis moving forward to allow us to continue to build this out at scale around the world. So our expansive portfolio includes a wide range of technologies, products and services that are specifically tailored for the data center market. From the power outside of the substation in Jim's business, through the gray space in Nelson's business and internal technical and value-added services, proficiency and supplier advocacy, including new technologies that are on display today from a liquid cooling perspective. This adds a whole another layer in dimension to the opportunity for us. Liquid cooling is nascent. It's a massive product sell. It's a massive services opportunity that's yet to be defined. But what we do know, as we shift to AI data centers, liquid, immersion, rear door cooling will be absolutely essential. So I hope all of you take the opportunity to meet me and the group over there to talk about liquid cooling because we're really not able to define this market yet because it's not definable, but see this as an amazing opportunity moving forward. I mentioned our supplier advocacy a second ago. By leveraging these strong relationships with the top global suppliers, we ensure that our customers have access to the best assortment of products to meet their very unique and bespoke needs. From high-performance cabling systems, cutting-edge security solutions, our portfolio is designed to support the most demanding data center environments for our global customers. And I think our suppliers would support all the commentary here today about the reciprocity that we have with them and the requirements they have for us. So these relationships are long-standing and very critical to our success. So in closing, the rise of cloud computing, the digital transformation industries, the increasing demand for data center capacity is accelerating our future opportunities here at WESCO. We have the capabilities to serve even the largest and most complex customers around the world. These are unmatched capabilities around the world. Our holistic solutions cover every aspect of the data center infrastructure, making us the most complete supply chain solutions provider in this rapidly growing data center segment. Really appreciate your time today. It's great to see those of you that I've met in the past, those that I've met in the recent times and those I met last night. Thank you so much for your time. Scott?

Thanks, Bill, it was awesome. We're going to take just under a 20-minute break. So for those of you in the room, Bill mentioned it for a minute over there, but we've got a solution showcase for you to take in today. Bill noted the liquid cooling technology that we have over there that has an NVIDIA chip embedded in it. Jim Cameron, who runs our Utility and Broadband Solutions business is going to be in the back of the room over here talking about our grid services and some of our other utility offerings. We're excited to have Nelson Squires, who runs our EES business. He's going to be talking about some of our value-added solutions within the wire and cable product categories. For those of you on the webcast, like I said earlier, we invite you to come back at another time and experience this in person. But we will have a quick panel afterwards with the 3 business unit leaders that are going to go through some of these offerings in more detail. So please come back promptly at 10:30 Central, we'll start then. Just quick housekeeping for those in the room, restrooms are through the door over here. There will be a shuttle at noon Central back to O'Hare and there will be box lunches as well. So enjoy the break, and we'll be back here at 10:30 Central. [Break]

All right, thanks. Try to keep us back on time. I'd like to welcome everyone back into the room. I hope those in the room had a great view of some of the innovations here at our innovation center in Glenview to the solutions offering. As we get settled back into the room, I'd like to reintroduce Bill Geary runs our Communications & Security Solutions business. We've got Jim Cameron, who runs our Utility and Broadband Solutions business, along with Nelson Squires, who runs our Electrical and Electronic Solutions business. These are our leaders who bring ingenuity to life every day for our customers, our suppliers and our WESCO stakeholders. So we're going to try to bring to life some of the solutions innovations online that everyone would have seen in the room. So I'm going to turn it over to you, Nelson first, if you could just introduce yourself a little bit and actually walk us through your business, some of the key end markets you play in and the strategic priorities for your business.

Yes. Thank you, Scott. First of all, good to be here. My name is Nelson Squires, I'm already in my tenth year with WESCO after spending 25 years in the chemical industry before that, and it's always fun to do this. This is my fourth Investor Day since I joined WESCO and I still see a lot of familiar faces because I did a stint in Investor Relations in my former company. So good to see a lot of friendly faces from that standpoint. Every time that I've had the opportunity to speak to everybody about what we're doing at WESCO, it gets more and more compelling and stronger from a capability standpoint. I spent my first 5 years with WESCO, managing the Canadian business, a great business operating very well with great leadership. And now having a global responsibility that's been added to with the combination of Anixter and WESCO has really put us in a place that we have the best solutions, unmatched solutions out there from a capability standpoint. We still are the core WESCO that you think about prior to the acquisition. That's largely what I manage today, but we have so much more to offer and so many more capabilities that we have. Bill talked about the collaboration opportunity. Between the 3 of us, we're surrounding the building. So we can take care of all and any customer needs as these buildings come together, whether it's a data center, an office building, a hospital, so on and so forth. And the projects are just getting bigger and bigger because we're able to bring more value to the customer as a result, more capabilities. And so we're getting involved earlier in the process. Bill touched on this and really being able to unleash the value proposition that we have. For me and EES, my team, it's still the traditional markets. It's construction, it's industrial, it's OEM and yet we're now more global. We're present in more countries than we ever have been due to the combination. And again, we just continue to expand our customer base and our capabilities. So MRO and safety, a big part of what we're doing. We're standing up more and more customers every day because we're bringing a more comprehensive solution. I'll talk again in a little bit about some of the innovations that we're already leveraging from a digital capability standpoint, which is really exciting. So we're taking advantage of what the investment has been so far. We are involved in all aspects. And so Bill talked about cradle to cradle. It's very similar in the EES business. Now we're working further up the chain closer to the early decision-making because we're trying to leverage the capability that we have across WESCO for all of our customers. We take that then through the delivery and installation and the ongoing support through MRO, et cetera, that we continue to have long-term relationships with customers. We bring labor savings. We highlighted one of those, our INSTA-REEL capability over in the corner. We have many more things that basically are modular, modular that allow our customers to take advantage of less footprint, less laydown, labor savings, productivity enhancements. And we'll challenge a customer to say, take your traditional approach and compare it to what we could offer and one of my colleagues just called it a bake off, just do a bake-off. And what you'll see is it's a 30% labor savings and productivity savings, and it helps from a safety and an operating standpoint as well. Our customers are coming to us more and more for ongoing services. The labor pool is changing. A lot of people, a lot of expertise exiting, more younger people coming in and they're relying more and more on us to basically provide ongoing services and capabilities, which really helps us from a stickiness standpoint and really to get the next order. One last comment I'd like to make because I think this is exciting and really shows WESCO continuing to be a leader in the markets that we operate in, is earlier this year, we announced a scholarship program where we are funding full rides for people to get into the electrical trade. And so again, somebody that wants to do this a scholarship setup. It's a full scholarship. We're already in a process and have already awarded some of these. But it's really 2 things. It's helping us give back as a corporation but it's also, I think, an obligation on all of us. And you look at the infrastructure, you look at the needs, you look at Bill from a data standpoint -- data center standpoint, you look at Jim from a utility standpoint, really more and more electricians. And as I like to say, AI is not going to take that over. We're still going to need people to do that, and we're trying to do our job to fund that and make sure we have the labor available to do this long term. So let me turn it back to you, Scott.

Thanks, Nelson. Jim, similar line of question for you. Could you just introduce yourself and talk a little bit about your business.

Absolutely. Good morning, everyone. I appreciate the opportunity to be here with you. I'm Jim Cameron. I'm the Executive Vice President and General Manager for our Utility and Broadband Solutions business. Our Utility and Broadband solutions, well, from an introduction standpoint, I apologize. I've been with WESCO for about 13 years. I've been involved in the utility space for over 30 years, both in manufacturing side for the first half of my career and then in distribution on the back half of the career. So I have a unique perspective in terms of the full supply chain as we work with our key supplier partners. And then as we work with them to serve our end user customers. Our Utility and Broadband Solutions business is focused on the companies that provide electrical service and broadband service to the customers and communities, and we're really more of a North American-based business at this point. We have an industry-leading value proposition, and it's built on our differentiated services, differentiated technology and differentiated product portfolio, all of which are focused on helping our customers run their operations more effectively. We are a huge part of supply chain with the companies that we serve, we're there to make them better and they rely on us day in and day out to support their operations, to support them in achieving their goals. When you look at our utility business, specifically we serve the investor-owned utilities, the rural electric cooperatives and municipal utilities and then the high-voltage contractors that support those customer segments. And within that, we have built tailored solution portfolios for each customer segment that help them to address their specific supply chain needs, help them address the needs that they have in their transmission and distribution networks and then also help them with their generating facilities. So we're there across the business, supporting across the entire business and supporting their portfolio. On the Broadband side, it's a very similar market structure. We support the MSOs. We support the Tier 2, Tier 3 providers. We support the rural telecommunications companies and the other service providers that are in that space. And we have over 40 years of experience working with those customers to put in complex supply chain solutions where they also leverage us from a logistical standpoint and from a technology standpoint as we help them build, operate and maintain their networks. So thank you, Scott.

Thanks, Jim. We're going to transition a little bit here into services. As I mentioned before, we want to be the best tech-enabled supply chain solutions provider. So I'm going to kick it over to Bill here. Can you talk a little bit about the attachment of services within your business? And then also, can you talk about the technical support services group as part of your organization?

Yes. So as has been mentioned, about 70% of our overall business has a service attached to it. Those services come in a variety of different flavors. It starts with advisory services that are part of our technical support and services group that work with end users and our contractors and our inside sales people to really provide technical specifications to our customers, to our reps and to our installers overall. And that morphs into product solutions as well and product services that we provide. We do things like product enhancement, kitting, light kitting, labeling, different things like that. And then that moves through an order of magnitude that's even greater, where we're doing more rack and roll type services, integration type services to the product and then that migrates to more on-site services and installation enhancement services that we do as well. So the journey for us is really broad across the whole value chain when it comes to services. And then we mentioned the TSS group. We have 170 engineers around the world that goes broad across all 3 of our businesses in every discipline that we support within the organization. That makes us very different in the market. And that allows, again, our end-user customers, our installers and our sales reps to access to these engineers for every discipline that we support.

Thanks, Bill. We're going to shift over back to you, Jim. Love to talk about our grid services. We don't talk about it a lot externally with the investor community, but it is a growing business for us, especially given some of the things that we've talked about earlier today. So if you could walk us through that.

Yes, absolutely. The grid services is a perfect example of a business that has been built around the value proposition and value creation we can provide to our customers based on their evolving needs and based on how the markets are changing. Our industry has evolved dramatically over the past decade. The utility industry used to be a very predictable business. It's much more dynamic than it's ever been, and their customers are changing dramatically. And because of that, we've been incredibly focused on expanding and adapting our services portfolio as we see their needs evolve and then also trying to anticipate future needs in staying ahead of the curve. So when you look at what we've been doing from an innovation standpoint with services, we've been incredibly focused on supply chain solutions and maintaining our leadership in that space. And we're constantly innovating with what we bring to market to support our supply chain solutions customers. We've added new service capabilities from a technology standpoint in terms of providing support to the different technology-based products that we provide. We've developed new service capabilities around -- and analytics capabilities around supply chain resiliency and supply chain reliability. And then we've been very focused on technological and operational service enhancements to enable us to support large-scale grid modernization programs as well as large infrastructure projects. So when you look at our business from a services attachment rate we think that the value creation we provide for our customers is foundational, and we believe north of 75% of our sales are tied to some component of our services. As it pertains to our grid services business specifically, we've seen phenomenal growth in that business over the past 3 years. And it has a very, very long runway for continued growth. When you look at the continued the path of electrification and the requirements for grid modernization, the requirements for grid hardening, the deployment of renewables. Those are all large-scale efforts in our grid services programs are designed to support. And they've developed a very complex set of solutions, in addition to what I talked about around project management expertise, the ability to procure and manage high-voltage apparatus, sourcing and real estate solutions to support our customers. And additional capabilities to basically enable participation and support through the entire project life cycle through the design phase, through the build phase and then through the closeout of the project including the reclamation work that's needed. So industry-leading value proposition, the group has adapted very quickly. And what's interesting is we've watched this group grow and our customer base expand over the past few years, we're very excited to see what's happening within the utility space. But Bill alluded to this that we've actually now see the opportunity for these service capabilities within his business and within Nelson's business. And we were working together with one of Bill's customers. And we added a services-based award to support the hyperscale build-out that's several million dollars in services over a couple of years to support that build. So the confluence and the convergence around our businesses and the capabilities we're developing across all 3 businesses, it's very important for us because we have tremendous cross-sell opportunities when we look at this as One WESCO.

Thanks, Jim. Nelson will close it out with you. Can you talk about attachment rates within your business, but also hopefully, a lot of people got to see how exciting some of our value-added solutions are for the wire and cable business.

Yes. Thanks, Scott. Two years ago, I said 60-plus percent today, definitely 70-plus percent in terms of an attachment of services. And we gave some examples over there specific to wire and cable expertise. WESCO had a very solid offering in wire and cable. But when the 2 leaders came together, we now have unmatched capabilities and we're leveraging those every day on a job site now where there's tight space. And we're using truck-mounted solutions, what we call Paraspin bringing wire and cable in, INSTA-REEL that I just mentioned a few minutes ago, but we're helping with customers with codes and standards, engineering expertise, leveraging the TSS capability that Bill mentioned, solving customer problems, looking for opportunities. And it's a much bigger part of who we are and how we go to market in EES today. The capabilities are getting leveraged across the entire business because we've got all this expertise that we can bring to bear. But what's really neat are the solutions that we have more services. We continue to unlock more value. We're getting a high degree of demand, as I said earlier, just test us against what you're currently doing and 100% of the time they're moving to a more engineered comprehensive solution that we're able to provide. So a wide capability that's just gotten even bigger and better with more services because, again, it's creating a more safer operating environment, which is so important. It's addressing labor challenges that I know I mentioned, but they're significant and they're going to continue to compound. We can bring solutions together. And then frankly, knitting together with all 3 SBUs we're able to provide, we can stand up capabilities that are unmatched in the market globally today. And that really is very compelling. Our customers, again, we're creating value and we're creating stickiness as a result.

Thanks. So Bill, we heard John talked a lot about acquisitions earlier, the legacy of the company. We've done a number of acquisitions expanded geographically, expanded in different services, product categories. We'll hear more from Dave here shortly on our acquisition strategy around industry consolidation, expanding services and capabilities. But entroCIM is a really exciting acquisition that we did recently and would love for you to maybe give us a little bit of background on it and why we're so excited about it.

Yes, it's really unique. It is an extension of our services portfolio and our services thought process. If you think about what we sell as an organization across all 3 of our business units, as Nelson mentioned, we really sell every subsystem within a commercial building. We sell every subsystem within a data center as well. And if you think about our leadership position, we almost have responsibility to find a way to connect all these products together because every one of these suppliers has a bespoke operating system that they give to the customer, right? So an operating system that they can get online, they can look at the efficiency of all the data. But think about all the different operating systems within a building or data centers countless, over 20 within everyone. Somebody needs to come and consolidate that all together and very few people are in an agnostic position to be able to do that. And we've been on this journey for the last couple of years to try to find a way to take all these subsystems, bring it down to a single pane of glass that will drive efficiency and visibility for our customers while not stepping on our suppliers, right? This doesn't step on our suppliers at all. This enables their system to be more efficient in one single pane of glass in one operating system, entroCIM provides that. It's a diamond in the rough for us. We found it after a couple of years search and it's already doing it at scale in some of the Fortune 500 companies. So we're able to have applications for this to consolidate these systems altogether across all 3 of our businesses, whether it's utility on the IoT side, whether it's EES on the lighting side, my side on the smart building in the data center. It is a really unique position and again, I'll go back to something I said a second ago. Most people can't offer this because they're not viewed as agnostic in the value chain. WESCO is actually agnostic here. So again, this provides us a higher order of magnitude of value. It's an extended service. It's a digital service and allows us to be stickier with our customers here and provide efficiency.

So I'd like to move into our last and final topic and I'll have each one of you talk about this in a little bit more detail. But the title of the panel was ingenuity delivered, and you heard Akash earlier talking about our digital tools and digital transformation. So I'd like each of you to sort of bring that to life. So I'll start with you, Jim. Akash had mentioned the initial deployment of our enterprise systems within your business. If you could maybe talk to us about how that is going. And then we also heard Akash earlier talk about FTTX and what it's doing for our customers, our suppliers and for WESCO. So if you could just provide a little bit more details would be great.

I'd be glad to do that. The initial deployment, I would say, has been incredibly successful. We -- within my business, we have 2 primary ERPs within the utility space, both of which need to be refreshed. And what we have seen through the development of our new platform is the front end is absolutely fantastic. It's much easier to use. We're increasing the productivity of our sales team. They have access to information on a single screen that they had to work through multiple screens to get before. We're improving their productivity, which is going to allow them to improve their customer service, make them more efficient in serving their customers, giving them insights with information that will help them sell more effectively. So the front end of this so far has been absolutely fantastic, and we look forward to working with Akash and his team to continue to develop those capabilities. When we work -- look into the warehouse operations, the technology that we're deploying to support warehouse automation, will help us significantly in terms of driving warehouse productivity, warehouse accuracy, warehouse efficiency. So we're very excited about what we see, and we're looking forward to the next deployments there, quite honestly. Within the FTTX, this was a project that we started working on probably 3 or so years ago, it was shortly after Akash came on board. And we are active in a number of rural broadband projects. And we were -- one of the fantastic results of the combinations of WESCO and Anixter is it expanded our customer base where we could apply our broadband solutions. And so we are managing quite a few projects locally. And it wasn't necessarily the expertise of the local utility team to figure out how to manage a real broadband program. So we started to develop a platform that provided some level of project management forecasting and demand management support to the field, but also taking that information, bringing it back across all ERPs, being able to aggregate that forecast and demand at the SKU level and then start to figure out how we work with our suppliers and with our inventory teams to ensure that we're really looking at all of these programs, all these individual builds as one single program and have a holistic approach to how we manage inventory, how we engage with our suppliers and how we really drive productivity through that tool. And that tool has been absolutely fantastic because it can also support different secular trends in Bill's and Nelson's business. So it's not just an FTTX tool.

Thanks. So Akash talked earlier about some of the omnichannel investments that we're making as part of our enterprise systems investments as part of the digital transformation. Nelson, you run a business up in Canada, EECOL, which we acquired in 2012. And again, going back to our acquisitions route, it was a nice geographic expansion of the company. But we've recently reinvested in the e-commerce platform there to improve the customer experience. Can you talk a little bit about how that's going?

Sure, Scott. And before I jump into that, I want to just add a comment to what Bill said. We have a large and growing automation and controls business that where customers are pulling us in to help with life cycle management, predictive maintenance, et cetera. And entroCIM is going to be another way of being able to pull all that together to one viewpoint for a customer. And it kind of gives me a segue into what we are doing with EECOL. We've leveraged agile development and taking advantage of our big data to really bring a first class, best-in-class customer experience. So on the front end, and I know this sounds simple, but our customers can find us easier. So somebody who is -- may not be doing business with EECOL can find us much more easily. But then when you get into the website, and we've all had this issue from a B2C standpoint. You saw something, you want to buy it. You don't know what it's called. You don't know what the part number is, et cetera. And frankly, it's the same way in construction, industrial, et cetera. So what this capability allows us to do is sure if you have a partner that's easy, but using trade names, partial descriptions, even pictures to be able to then get a much quicker experience and put that customer in front of what they need to see and know pretty quickly. So this is really cool. I mean we were talking about whether we could actually do this 5 years ago, we're doing it now, and we're seeing the customers really enhance -- experience enhanced and they're really taking this on. Then behind the scenes because we've got these world-class AI capabilities is we're now able to see what our customers are looking at, what they're looking for, and we're using that to further enhance the experience. Last but not least, we have then a 24/7 self-service, self-help capability. So it really means we can do business around the clock. And it's very exciting. We've stood this up and it's really taken off with customers. And it's just going to give us more ways think omnichannel, just more ways to serve the customer and provide a best-in-class experience.

Thanks. Bill, I'd ask you to bring us home here and talk a little bit about some of our new digital tools, really within -- we've got front, mid and back office investments that we're making, but really around the front office and our sales force helping them to really drive improved decision-making around both margin improvement and sales growth. So if you could provide some details on that, would appreciate it.

Kind of pulling off what John said earlier, and Akash said earlier, this is a full digital transformation, right? So there's every aspect to the business is getting touched. You heard about customer-facing, platforms, omnichannel, digital, but we're also touching everything that touches the sales rep, and that's really exciting. So we've got no different than I was talking about disparate systems in a smart building, we've got disparate systems across our front office, right? So whether it's an inventory management tool, whether it's an order entry tool, whether it's a CRM tool, we've got tools that facilitate expedites in the warehouse, all that's being combined into a unified sales desk application now. And that's allowing our users -- every one of our users around the world by the time 2027 rolls around, to have one consistent view of every tool that they need, easy access to it, and easy access to our inventory around the world. I mean that's unprecedented. And we've already started this journey. As Jim said, we've already implemented this here. We've got a good roadmap moving forward. But imagine what that does for efficiency. Imagine what that does for profitability. We've also got a profitability tool that's being built into it as well, which was legacy margin improvement program that we've really enhanced. So again, this is going to really provide us scalability, higher efficiency and more profitability for our sales reps.

Thanks, Bill. Thanks, Nelson. Thanks, Jim. Really appreciate you guys bringing in some of these examples to life. Thanks. All right. Well, it's a pleasure to introduce our last speaker last but certainly not least. I'd like to introduce to you Dave Schulz, our Executive Vice President and Chief Financial Officer. He's going to take us through some details around our path to the future, and then we'll have Q&A at the end. Thanks, Dave.

So first, thank you all for being here. It's a great pleasure to share more of our WESCO story with you. And as you heard earlier today from John and other members of our management team, we're uniquely positioned to capture the benefit of several secular growth trends, and you've also heard how our digital capabilities are helping us achieve our vision to be the best tech-enabled supply chain solutions provider in the world. So over the next several minutes, what I'd like to do is provide you with more information around the financial framework of the business and how we expect our strategy and digital transformation will deliver growth and increase profitability in the years ahead. So I'll start with the long-term targets. And then I'll also walk you through our cash flow expectations and how we expect to allocate that capital to maximize our returns to investors. So to summarize, over the long term, we expect to grow our business 4% to 6% on our organic sales rate over the long term and between 5% to 8% over the long term, including the benefits from M&A. This is driven by an attractive market growth rate that exceeds GDP and our intentional shift into higher growth and higher margin end markets, aligned with the secular growth trends. As we'll discuss shortly, this also includes an expectation that we will continue to take share. On EBITDA, we expect to grow EBITDA at 2x the rate of sales. This is driven by not only operating efficiencies from the top line growth, but also the benefits of our digital transformation. Next, we expect to expand return on net assets, which is one of the metrics of our long-term incentive program. We focus on RONA because it's tied to improving working capital efficiency particularly as we drive growth in the business over the long term. Lastly, we target free cash flow of 100% of adjusted net income through the cycle. And one of the benefits of our business model is its countercyclical nature. So we tend to generate more than 100% of net income during periods of slower economic growth and a bit less during periods of stronger economic growth throughout the cycle. For those of you that may not be as familiar with our company, over the past several years, we substantially changed the end market exposure of WESCO, primarily through the merger with Anixter. Recall that before the merger, construction and industrial end markets made up about 70% of our revenue. Additionally, you can see the impact over the last several years of the secular growth trends particularly in our utility and data center end markets. Utility is now our largest end market, making up about 24% of our company sales. That's up from 20% just 2 years ago. So our utility business has clearly benefited from the secular growth trend of increased power demand, including renewables and grid modernization. And this growth has been compounded by increased scope of work with many of our large utility customers. Turning to data centers. Prior to the merger with Anixter, WESCO had very little exposure to the data center end market. This was clearly a strength of Anixter and post merger, we had a mid-single-digit exposure to data centers. This market has grown to 10% of our sales, including the benefit of the Rahi acquisition. And as you heard from Bill Geary and from John earlier, here today, there is increasing demand for data centers, and we are well positioned to take advantage of this secular growth trend. Our mix of products, services and solutions is a competitive differentiator as we leverage our broad portfolio to meet the needs of our customers and drive incremental revenue. Before talking about our long-term growth framework, let me provide an update on 2024. We are reaffirming the full year outlook we provided on our second quarter earnings call back in August. This calls for reported sales to be down 3.5% to down 1.5% versus the prior year, including a headwind of about 3% from the divestiture of our Integrated Supply business. As we noted on the second quarter call, price is expected to contribute about 1% to revenue with volume slightly negative. We continue to expect to deliver an adjusted EBITDA margin in the range of 7% to 7.3% and adjusted earnings per share of $12 to $13. Additionally, we are reaffirming the outlook of our free cash flow to be in the range of $800 million to $1 billion. For the third quarter, you can see that organic sales in July were down about 1% and up about 1% in August, which is in line with our expectations. Adjusted EBITDA margin through the first 2 months of the quarter is tracking slightly lower than our expectations. Recall that we had indicated that third quarter margins would be roughly in line with the second quarter. Let me now shift to our long-term financial framework for sales and profit growth. We expect that the business will deliver 4% to 6% organic growth over the long term. At the high end of this rate of growth we would anticipate an incremental margin of approximately 14%. That incremental margin includes additional operating costs of about 5% to 7% of revenue to support the incremental volume. The benefit of operating leverage translates to adjusted EBITDA increasing at 2x the rate of sales growth. And at this level of growth and profitability, WESCO generates significant cash which we reinvest organically into the business and into accretive M&A to drive higher growth. We will also return a portion of cash through our dividend and continued share repurchases. Let me walk you through the details of our long-term sales and margin expectations. Starting first with sales. There's 2 components to the organic growth that you see on the slide here. First, we expect our markets to grow about 3% to 4%, and that includes the benefit of the secular growth trends. These include increasing electrification, the growth of automation and the Internet of Things, the transition to green energy and the need to upgrade the electrical grid, the increasing need for high-speed Internet connectivity around the world as well as reshoring of supply chains in North America and increasing digitalization and the rise of artificial intelligence. Each of these trends drives growth across each of WESCO's business units. Second, we expect to outgrow the market. You heard from our business unit leaders already about the importance of services and solutions to our customers. We will continue to drive cross-sell across our businesses and expect share gains of 1 to 2 points on average per year through the combination of our scale and leading portfolio of products, services and solutions. In addition to organic growth, we will continue to invest in M&A, which we expect will add an additional 1 to 2 points of growth over the long term. So in total, our expectation is to grow the business approximately 5% to 8% on a reported basis. Let me now turn to margin. So coupled with the sales growth target, we're focused on expansion of our adjusted EBITDA margin. Here, you can see how we have delivered about 200 basis points of growth since 2019. We have an EBITDA margin target of 10% plus that we intend to achieve in 2 stages. In the midterm, over the next 3 years through 2027, we expect organic sales to grow at 3% to 5% with M&A and upside of about 1% for a total sales growth rate of 4% to 6%. This growth translates to EBITDA margin expansion of 20 to 30 basis points per year, driven primarily by operating leverage and a smaller contribution from gross margin. And during this period, we will complete the investment in digital capabilities that you heard about earlier today and which sets the business up for faster growth and margin expansion. In the long term, we expect growth and profitability to accelerate as we complete the investments in digital and drive higher growth from M&A. We expect organic growth to increase about 4% to 6% and for M&A to contribute 1 to 2 points of growth. At that growth, the cadence of margin expansion would increase to approximately 40 to 50 basis points per year, driven by digital, operational efficiencies, cross-sell and the benefits from M&A. The efficiencies from our digital and business transformation are expected to contribute a cumulative benefit of 100 basis points. This benefit will begin ramping up in 2027 after we deploy and scale the new platform. At this rate of EBITDA margin expansion, we would expect to reach the 10% target sometime in the early part of the next decade. Note that a large acquisition could accelerate our glide path to 10% margin if we were able to generate significant revenue and cost synergies from the deal. I want to reiterate that our digital transformation is more than halfway complete. Akash walked you through the 3 stages shown on the slide, but I'd like to provide you some details on the spend related to the transformation. Akash noted that we expect to spend about $500 million for this transformation and our spend to date has been about $270 million, which aligns with our progress of about 50% complete. Over the next 3 years, the spend incurred in connection with the deploy and scale stages includes the costs associated with converting our facilities to the new systems, rolling out the platform across our entire network, turning off the legacy systems and then also embedding a higher number of digital products within our suite of capabilities. Let me now transition to cash generation and how we intend to allocate our capital going forward. Over the course of our history, we've averaged about 100% of free cash flow conversion. We expect to continue to generate significant capital with a cumulative goal of approximately $3 billion over the next 3 years of 2025 to 2027. As we move forward, our strong free cash flow will continue to be driven by EBITDA growth, progress on driving our capital days back to 2021 levels, and we'll continue to spend about $120 million to $140 million per year on capital expenditures. Regarding our capital allocation, our top priority is to invest organically in the business to drive growth and get operational efficiencies, including the completion of our digital transformation. We expect to invest about 15% of our operating cash flow in organic investments. After funding organic investments, we expect that free cash flow would be allocated to the highest return option. Our top priority will be driving acquisitions. We will target approximately 75% of our available free cash through accretive M&A. During periods when an appropriate acquisition is not available, we will look for the next best return by either buying additional shares or reducing our net debt. And as a reminder, in 2025, we do have our preferred stock, which we intend to call. That's a $540 million preferred stock right now. So we will also be maintaining and focused on our liquidity over the near term. Of the remaining 25% of our free cash flow generation, we expect to return that to our shareholders through regular share repurchases and the common stock dividend, which we anticipate increasing modestly over time. Turning to our balance sheet and leverage. Our target leverage range over the long term is 1.5 to 2.5x. At the end of the second quarter, our leverage was 2.9x or slightly above the top of our range. Going forward, we expect to use cash generated in our balance sheet to execute WESCO's growth strategy, including acquisitions. Over the course of WESCO's history, we have occasionally gone above our target leverage range, to pursue acquisitions and have a track record of rapidly delevering to the target range. So moving forward, we would be willing to go above the leverage range for the right acquisition target and we would plan to rapidly delever the balance sheet in the following 1 to 2 years. Let me provide you some more details about our M&A framework. M&A has been a critical source of growth and revenue -- and value creation throughout our history and remains so today. Our criteria have evolved, but it's remained consistent over the past few years. We have 2 strategies. First, we want to continue driving consolidation through large acquisitions within our core business. Critical in our evaluation of identifying targets that expand our current offerings, but also offer significant cross-sell revenue and cost synergies. And our intent here is to continue to drive operating leverage through scale. Our second focus area is to invest to expand our services and capabilities into adjacent and complementary offerings. And as you heard from our business unit leaders today, about 70% of our sales are linked to at least one type of service, and we expect this percent will grow. We are especially focused on targets with complementary digital capabilities and those that would be margin accretive to WESCO. In certain cases, to complete a deal, we anticipate that we will need to pay above our trading multiple and above what we have historically paid for M&A. We are confident, however, that WESCO scale enables it to generate substantial synergies that will reduce these multiples on a synergized basis. Additionally, our digital transformation will provide the capability to rapidly integrate our acquisitions, which accelerates the value creation of each transaction. M&A has been a critical source of top line and margin growth for WESCO, and it continues to be. This chart does not capture every acquisition, but it does show the most significant. And you can see that going back to 2005 to 2012, we acquired several targets that expanded our product set, geography or end market. And following the transformational acquisition of Anixter, we've acquired value additive service capabilities such as Rahi Systems and entroCIM. You may recall that we announced the acquisition of Rahi Systems at our Investor Day in 2022. And you heard Bill talk about this already a little bit, but just let me reiterate. Rahi substantially increased our exposure to hyperscale data center customers. And it's an excellent example of the types of targets that we continue to seek. Rahi's highly technical capabilities, expanded WESCO's data center service offerings playing directly into a number of secular trends and complementing WESCO's existing portfolio. And now that we have a direct relationship to many of the world's largest data center customers, we can leverage that to expand the suite of solutions that we can offer to them. We also talked briefly about entroCIM. This is another excellent example of our acquiring service capabilities that we can leverage with our customers. entroCIM provides data center and building intelligence software through its browser-based Central Intelligence Manager, customers can drive better operational visibility into energy usage, EV charging, air quality and lighting. By leading with sales of this platform, WESCO can also drive product sales to support the particular needs of each customer. In summary, today, we walked you through our strategy and financial framework to drive value for our shareholders. Consistent with what you heard from John, I want to reiterate 4 key points. First, we're capturing the benefits of our digital transformation. We're more than halfway complete on our technology and capabilities build and once complete, we will accelerate our growth through greater cross-sell, expand our margins through improved pricing and operating cost leverage and dramatically increase our speed to value on the integration of future acquisitions. Second, we're progressing towards our 10% plus EBITDA margin goal. We delivered 200 basis points of margin expansion due to the Anixter acquisition, and we have multiple pathways to achieve our 10% goal. Third, we will continue to generate strong and consistent cash flow. We will target 100% of net income through the cycle, consistent with WESCO's historical cash generation. And fourth, we'll be deploying our capital strategically, and that includes a clear M&A framework, and we expect to add 1% to 2% of top line growth from M&A in the long term. We know the value of M&A and have delivered on it. Our future cash generation opportunities for support rapid growth and margin expansion, and it is prioritized to invest in services and acquisitions while supporting a consistent stock buyback program and increasing dividends. With that, I'll turn it back over to Scott.

So I'd ask all of our presenters to please come back up to the stage for Q&A. Just a couple of housekeeping items as we get the stage ready here for Q&A. For those on the webcast, we do have a chat feature, online chat feature, if you'd like to send in a question, we'll be monitoring that halfway through the Q&A. For those in the room that want to ask a question, please just raise your hand. We do have mic runners. So I'd just ask you, especially for our online audience to wait for the microphone to come. And just give it a second, and then we'll go into Q&A. All right, take our first question from Sam Darkatsh.

Thank you, by the way. There's a lot of work that went into this, and we're very appreciative sometimes that doesn't always come out. I actually have 2 questions. And one of them is a reconciliation. I know, Dave, you're mentioning that future M&A is probably going to come at a higher multiple. But at least it looks like some of the numbers you've laid out suggest a significantly higher multiple than where your stock is at. So you have next 3 years, I don't know, $3 billion in free cash flow, 75% of that's M&A, less the $500 million or so in the pref. So that's, I don't know, $1.5 billion, $2 billion in M&A, but you're only adding about 1 point of acquired sales over the next 3 years. That's a significant price to sales multiple over what Rahi was at 60%, what your own stock is at 60%. First off, is my math right? And secondly, we get the value of M&A, but that seems like a really heady multiple, especially with where your stock is trading. So can you help with.

In the near term, we would be targeting, like I mentioned, about 1 point of M&A over the next 3 years. So again, we do have the preferred that we've got to take care of. Our long-term target is to spend about 75% of the free cash flow in M&A, but we won't experience that in the near term. So the way that we're thinking about it is M&A is going to be episodic. We would like to continue to do more. The reason why we're focused on particularly the services side is those businesses tend to have higher margins. They also tend to trade at higher multiples. We'll be willing to pay the higher multiple if we can get it back to a reasonable valuation on a synergized basis. And similar to what I mentioned on entroCIM, the entroCIM software itself was not -- it's attractive, but the real value driver is the product that we can pull through that services capability. And that's the type of acquisition that we would be looking for. So again, the way that we've positioned that within the midterm and the longer term, the longer term 75% of our cash flow focused on acquisitions, we would be willing to pay more. But again, we want to make sure that we continue to drive the right value for our shareholders.

But large-scale acquisition is not necessarily imminent. I was looking at it in a linear fashion. Understood. Second question, and then I'll defer to others. Sorry, it's a short-term question. You mentioned that the third quarter organic sales are coming in generally as you expected, but margins are coming in a little light. Can you give some color as to the variance that you're seeing specifically on the margin side versus prior?

Certainly, total sales coming in close to expectations. The mix of the sales was slightly different creating some headwinds on the margin line.

So utility a little bit perhaps softer in that EBITDA margin?

Extension of Q2 kind of trends. Think of it that way.

So price -- so gross margin sequentially, no, it's more of a mix than a price cost.

Correct. That's what we've seen through the first 2 months of the quarter.

We'll take our next question down here in the front from Dave Manthey.

Yes. Thank you, and thanks for everything. Here we go. So my question -- there's been a lot of talk today about services, both attach rates and then via acquisition. And I'd like to bridge that gap, if I could, because distributors talk about services quite a bit in terms of supply chain management and kitting and staging and a lot of these capabilities which I'm not sure that customers are willing to pay for separately. On the other hand, when you're talking about acquisitions, you're talking about entroCIM or you're talking about Rahi, for example, I think there's services there the customer is actually paying you to do something. So number one, when you're talking about services, could you just differentiate those? And then as it relates to the services acquisition are these services that customers are demanding of you today? Are they asking you for? And if so, who's doing them right now?

I'll address the first part of that, Dave, thanks for that question. And then I would ask maybe specifically Jim and Bill to tag on to that with the way I set it up. So if you -- I think one of the best examples of the margin contribution due to a high order service value proposition is our utility business. So I mean that business had very thin margins when I joined the company in the industry 20 years ago. And now with the direct end-user relationships, we have a variety of business models at play, Dave. There's some standard distribution models, but and we've talked about this over the years, but we've picked up responsibility for parts of both operational and supply chain management on behalf of our utility customers, and it includes some fee-for-service where we're actually getting paid pure fee to manage a variety of services on behalf of and for the customer, and we're signed up to an SLA agreement. Great example of if you got an end user relationship, it's much more than products, there's a service value proposition. And one of the reasons we put broadband in with the utility when we put Anixter and WESCO together is we think though -- not to disparage the utility industry, but they've not been the most efficient at managing our working capital over the years, over decades. And you look at the broadband customers, they're very similar in that regard. So we think we've been trying to extend variations of that model to other end user relationships. Bill touched upon data centers, and we're seeing -- again, that's margin accretive thus far is what we're seeing. So I'd ask Jim to expand a little bit to address your question specifically because you're right, there's a wide array of services customers are unwilling to pay for. But there's clearly certain services they're willing to pay for. And it shows up in various forms. It may not be paying individually for that service, but you're able to maintain the business. It doesn't get recompeted and you're able to get kind of EBITDA margins expand dramatically over time because of increasing scope of supply and adding other capabilities. And it shows up in very our highest EBITDA SBU, is UBS. And again, 20 years ago when I joined, no 1 would have thought that we could earn the highest returns in the utility business. So I think that's just a great example. So maybe Jim tag onto that a little bit. And then Bill, specifically, because I think on entroCIM, hit Dave's question directly.

So from a utility standpoint, we've been very focused on developing billable service platforms. And the -- especially within our grid services, a significant component of the revenue is billing for services that are being provided through the project life cycle. There's also a significant growth within the core business from a product standpoint. But we've been very focused on the expansion of the value proposition to support stand-alone service billings. And then when you look at the broader utility business, there's an array of services that we would like to be able to offer in the future. that I think would be very helpful for the overall services portfolio, and we see the customers are very interested in having those capabilities.

And those are things that we're looking at through the M&A lens in terms of additional services there.

Same thing on our side, Dave. We're more focused on the billable services, right? Some of the stuff that you mentioned on kitting and some kind of considered table stakes now. If you can't do it, you kind of not in the game and very difficult to build into the price or to pay -- ask the customer to pay separate for. But we've been on this journey to do more advisory services. We talked about our TSS business here, getting involved in the early stages of smart building, data center being in there, building out those technical services, then on-site services that we got from the Rahi business. Again, very billable services, very sticky, allows us to be in there, pull-through on the product. EntroCIM is an extension of that as well because if you think about all those subsystems in a building or a data center, the ability to collapse all that together and offer that as a technical service gives you then access through an advisory services piece and then a pull-through on the product piece as well. So that's how we're kind of looking at it. You've got those kind of simple services over here table stakes have to do it part of the business every day, but this is where we're really focused now. And 1 question you asked there, absolutely the customers are asking for it, and I'll talk specifically on the data center side, they need more people to step up to be able to do these things at scale. They can't have a bunch of people out there providing fragmented services. They need people to consolidate that as much as possible. So we're trying to make sure that we're staying in sync with that ask as well.

I mean, Bill, maybe comment on it. I think you may have touched on it, but probably warrants a little bit further explanation. I mean, just structurally, how large and complex these projects are and all this used to be in-sourced by the hyperscalers. But just talk a bit about why they're looking at other partners to help them with.

Yes, it's the speed, right? It's the speed of deployment. It's the vast, it's the global aspect of it. They've got to move much quicker. So they're really relying on their trusted global partners to be able to deliver for them in ways that they've never asked before. And so we'll try to really step up and stay with them as far as speed goes.

And there's a recognition that, that's not their core competence. As these have gotten much larger, more complex you pick 1 of the Magnificent 7. They want to be able to execute at scale globally with the same technical design set of specs and have the same execution and no matter which country they're spinning up that hyperscale data center. And it's just -- I mean, there's a whole set of competence around that, that they did, and that's not their core business. They didn't build that up over the years. It's the size and scale and complexity of these efforts that has forced them to look outside their 4 walls.

Thanks. Very comprehensive.

If you could just pass the microphone over to Tommy. Okay. Great.

Tommy Moll from Stephens. Thanks, everyone, for all the insight you provided today. John, first question on a potential nexus of the digital investment and some of the forecasting topics that have come up over the past couple of years. So I think you mentioned earlier, you've got 20 ERPs globally, a lot of different business units and certainly most of us in the room can appreciate the difficulty in forecasting an organization with that kind of scale. But bring us in on where you sit today in the digital journey on some of the working capital forecasting and execution and on the expense line as well, are you starting to see some benefits there or what's to come.

Yes. Tom, it's an outstanding question. And I said over 20, Akash actually said the exact number, which is 27. So I'll get that out there. I would -- one thing we didn't mention today, so we didn't have Hemant speak about supply chain and operations. So -- and I'll use a term that's very familiar, I think, to all of you, but it wasn't a well-established or mature term in a distribution part of the value chain. And that's a truly integrated SIOP process, sales, inventory and operations planning, and I've been in distribution now 20 years, but before that, I was engineering manufacturing companies, all those companies have well-developed SIOP processes. You look across the distribution space and really do kind of a sampling of who has a poor person's version of that, up to what level you're going to find a smattering. So we have implemented now using an outside service provider that is one of these best-of-breed app, digital applications as part of this tech stack demand side and supply side planning, and it's formed the basis of our own WESCO SIOP process that we are now in the early days of where we spun it up. I'll ask any of the SBU leaders to touch on this because we're -- this year is when it's getting -- starting to get rolled out across the various SBUs. Now to be fair, I'll set the expectation. This is new days for us. And we still got multisystem, right, with the legacy environment. So this stuff comes together, your question is excellent. It comes together. I just think we'll build that maturity over time. But I think we're exceptionally well positioned now with the fact that we've taken this on. We've defined and develop the SIOP process we want to have. We're leveraging a world-class service provider who has the core inherent demand and supply-side planning, and we're in the early days of rolling it out. I don't know any of the SBU leaders want to touch on that because you all are in various stages.

So EES clearly has the most to gain from this. Out of those 27, we're operating about half of those on a daily basis. And we figured out how to do that. We know how to do that. We know how to operate. But the -- and we are implementing a SIOP process. So we're bringing together sales inventory operations to do as good a planning as we can, but the enablement that we will get is very much going to be transformational. So everyone's talked about single pane of glass, et cetera, et cetera. But as these capabilities continue and as we move down the path, we're already seeing the benefits. I touched on the omnichannel digital front-end piece of it, but it is really all starting to come together, and we'll see a lot of gains on this over the next couple of years.

Maybe double-click it one more time, a little bit deeper. And look, we have more than one kind of, I'll call it, business model or transaction flow running under our house, so to speak. You got stock and flow, you have the project business. But then you also have these large direct end-user multiyear alliance agreements that have their own unique nature. And in some cases, we have to maintain a certain day supply to provide a certain SLA level of commitments we've committed to. So when you start thinking about the variety of different transaction flows that are running, the various business models, the SIOP process we've developed addresses each of those uniquely. And so it's going to be important for those in combination, right, to really optimize working capital. The true ultimate unlock obviously, is when we can get off all these 27 systems. But we're not going to -- we don't need to wait for that benefit. I think we'll start to see increasingly the benefits from the SIOP rollout.

A follow-up question for Dave on margins. And Dave, I'm speaking specifically on the midterm outlook you provided, you said most of the benefit would be on the operating leverage side, less on the gross margin side. But can you just unpack those 2 and any building blocks or dynamics on OpEx leverage or gross margin would be helpful?

Yes, certainly. So when you think about the term sales growth rate that we outlined. Think about that in terms of our SG&A growing at a slower rate. So that's what's providing the real source of that 20 to 30 basis points of margin expansion. And again, a modest contribution from gross margin. We have our margin improvement program. We are adding more services, which tend to come with slightly higher gross margins. So we've incorporated that into our near-term framework that we've provided to you.

Thank you. I'll pass it on.

We just pass the microphone on down the line here over to Chris Glynn, please.

Margin question on the path to a little Dave and Bill focused. But I appreciate the bifurcation around '28 makes a lot of sense with the digital transformation. Easy to see with UBS and the market that, that offers and the kind of steady margin performance and leverage there. I'm curious how the data center growth factors into that because we've seen the pressured first half margins at CSS with the outsized growth from WESCO data center solutions in the sort of flattish down security in E&I. So I'm curious how that profiles within the mix and maybe there's a lot of reference sites you're building in now that kind of build the foreground, but I'll stop answering my own question.

Please, Bill.

Yes. So we did in Q2, see some broad-based margin pressure, and we also felt some margin pressure on the spread items as well. I think we referenced that we had some inventory write-offs as well. I can tell you, right now, the data center business is not overly affecting our margin impact. We're seeing it in other aspects of the business. So we're really kind of doubling down on that margin improvement program that we've had in place. You may remember prior we had 48 straight months of margin improvement. So to give it a back has been a little -- makes us all unhappy right now, but we're working really hard to get that back. But your direct question on the data center side, we haven't seen that directly affect even though it's become a bigger percentage of the business.

Okay. Meaning that's been relatively neutral impact relative usual whole segment?

Relatively neutral.

We get a microphone back to the back of the room to Deane Dray, please.

It's Deane Dray with RBC. I truly lost count of how many times M&A got mentioned here today. So I appreciate that's high on the priority. And the idea here is, in my view, you all have earned the right to acquire given the success of Anixter and Rahi and ability to over deliver on the synergies. So that box gets checked, I mean it will be new challenges, but you've done it before. Just for Dave, can you give us some color on the current funnel? I mean, do you have line of sight on assets and sizes and actionability. And then just a related consolidation question for John, really interesting developments. Obviously, there's more consolidation going on, but one of your peers got an unsolicited bid what's your crystal ball say about the appetite of some of these larger players that are looking at obviously a very attractive space and could WESCO get one of these unsolicited bids as well. And I have a follow-up.

So I'll start with the hopper. And we have built our capability inside WESCO to more actively participate in M&A. Many of you met [ Jerry Will ], who is part of our team that runs organization and Jerry has been doing a great job. So there are plenty of opportunities that are out there. We will continue to be very much focused on what is the value play. And right now, I would say that there are more of the smaller, medium-sized opportunities. We're not seeing anything that I would say is sizable at this point. And again, some of that is back to our focus on continuing to add services and capabilities across our business units but we do have an active hopper, where obviously, we can't speak specifics, but the market seems to have plenty of opportunities. It's a matter of finding the right one at the right price and how could we best leverage it within WESCO.

Deane, great question. Thanks. I think prior to Jerry joining because WESCO has been acquisitive really from the days with the initial LBO spin out. And I think increasingly over time, virtually any deal that's in play, we'll get a look at many, many times, overwhelming majority of times, we get a last look. And you can see why, if you're on the other side of the table and you're selling that particular business. We've been very successful, I think, I mean, Rahi is a great example where we managed an only look so I think. And I think that we never invested with world-class talent in managing the M&A and corporate business development function. So we all kind of did it part time. Speaking for myself in the COO days, CEO, we're at the point where the time came and we had to do it. I'm thrilled we were able to not to embarrass Jerry, but be able to attract Jerry to our team. And he's had a tremendous process rigor. We already had a phase-gated approach, and we were rigorous with that, but he's taken it to a whole another level. We've added some additional resources. So we've built -- we're expanding our M&A team. And what the net result is, which is the first part of your question, which is we have the broadest, deepest, richest pipeline of opportunities we've ever had right now. And so that's terrific for me from my perspective. And the SBU leaders now see it as part of their jobs, too, is so they're feeding into that pipeline. And Jerry has rigorous reviews with them on a monthly basis as they continue to try to populate and fight for, let's say, the share of the capital, which is the way I want it to work. So I just feel really good about that, and we're on a different maturity level. Back to the second part of your question. Look, we were -- I was personally very public about the need for industry consolidation, the level of fragmentation back in 2019. That has accelerated since then in a relative sense in the distribution part of the value chain. A lot of deals have been done. But there's only been one where 2 bigs have come together thus far, right, in a meaningful way in core electrical and that's WESCO and Anixter. So there was no doubt in my mind when we made that statement as we started down that path. If we were successful in putting 2 bigs together, and we have been that, that would spark probably an increased wave of consolidation. What you're alluding to is, I think it's just a testament to -- there is still this fragmentation, okay? And scale is what matters in distribution. So it kind of -- it's a further endorsement that the consolidation trend is going to continue. I do think the difference is today, and obviously, I have a huge bias in this. And it's why I link digitalization consolidation back 5 years ago is that the days where you could just do a very simple roll-up strategy maybe in certain select verticals, you can still pull that off, but I think it's going to be increasingly more difficult. So I just saw digital as not only an enabler, but as a requirement okay. And so I think you've got that sense from today and us digging into it more deeper that I just see that as being an incredible linchpin to enabling more effective, more efficient and faster speed to value on the integration and synergy capture and delivery of future acquisitions. As far as we are still seeing ourselves filling a consolidator role and going to finish the digitalization. So we are in the game. And as the leader, we're going to look at, I mean everything that -- we're looking at everything, and obviously, tons of stuff is coming our way. And for us, it's about does it support our path to the 10-plus percent. I want to use acquisitions as the amplifier, the accelerant to get there. Dave laid out the framework, I summarized it on what we're setting as kind of our base case. But the M&A think of that as a much bigger potential amplifier, which is really the part of your question, right, much bigger amplifier depending on size and scale of the deal.

Yes. And just as a follow-up, I wanted to suspect fully ask about management succession. And John, you and I have known each other since frankly the day you joined the company and the changes at WESCO have been remarkable under your tenure. And today, we saw a deep management bench with an attractive road ahead. And just how are you and the Board thinking about succession on that eventual time frame?

Well, first, we have no mandatory retirement age like some of our other supplier partners. So -- and I'm thankful for that. The second point is, I'm a young 62. I joined the company at 42. As a side note, I wish I was 42 again, which is really my answer, Deane. We got -- we still got a lot to do to finish the digital transformation, a tech-enabled business transformation. And then honestly, I think we're a different company today. That's continuing to build momentum, but you can envision -- hopefully, we've given you this sense post digital transformation of how different -- we haven't even touched on, which I'll leave for a future session, the additional business models that are enabled when we have this 1 digital platform or master data in one data lake. So just I'll leave that out as a teaser. Just a very -- so I think the upside potential on value creation and multiple expansion is far greater than at any time in my tenure. And I along with the team are committed to going after that. So with that said, we have a rigorous process, Deane, on management development, succession training. I mentioned this years and years ago. I'm a product of GE decades ago and their Session C process I brought to a variation of I brought to WESCO 20 years ago. So one board meeting a year is focused on management development, succession planning, development of our top down, all things around management and team and talent development. And so I feel really good that we've got a rigorous process in place, strengthening, building the bench out and such. My vision has always been -- our view has always been, you got to hire and strengthen to get the team for where you're going, not where you are. And so I feel really good with where we are now.

All right. Unfortunately, we only have time for 2 more questions. And I just -- Justin has had his hand up for a while. So we'll go with Justin, if you could just keep it to 1 question and then we'll kick it over to Ken Newman to end.

You mentioned 100 basis points of benefit in the latter part of the decade. I think after 2027 from the digital initiative completion, but that would comprise most of the 40 to 50 basis points of annual margin expansion in 2028, 2030. So are you just being conservative on the digital contribution? Are you expecting that to comprise the lion's share of the margin expansion post 2027?

I'll make a one-sentence answer and hand it to Dave. It's at least 100 basis points. Dave?

Certainly. So operating leverage will continue to play a key part in that margin expansion. Recall that we had that step-up in our reported sales growth and that would be the combination of additional M&A as we think about 2028 and beyond. So it is a combination of operating leverage from higher top line sales along with the same modest improvement in gross margin. And then, of course, we'll be able to get that 100 basis points of efficiencies from our digital transformation.

So I would maybe amplify a bit, too, on top of Dave to say, my comment on multiple pathways, think about it as kind of core organic, right? Think of the digital transformation as being another pathway of at least 100 and then the M&A is another pathway. So in combination, you can have a view of that based on how successful we are on individually on each of those and in combination, that will determine the time frame to a 10-plus percent.

Ken Newman with KeyBanc. My question is really on capital allocation. Obviously, there's been a lot of talk about M&A today. I know it's a big priority. But you also mentioned some expectations for opportunities for share repurchases as well as you talked about this remaining $230 million on the digital transformation. Just any help on how to think about the cadence of, one, the digital transformation? I imagine there's probably some parts that are easier than others. Would you expect that to be front-end loaded? Or is it level loaded through the next couple of years? And then just how aggressive are you willing to be on share repo here in the next 12 to 24 months?

Why don't you start, Dave, on the digital and I'll come on time.

Let me start with the digital. So we have $500 million that we've outlined in terms of the total spend that's primarily complete by the end of 2027. Of that $500 million, roughly 80% is capitalized, 20% is operating cost. The capital expenditure will ramp down as we go through the next 3 years. As we complete the buildout and then we begin the deployment, as you remember from the slide that the deployment started already. It will go through the end of 2027. A lot of the capitalized portion of the work will be in 2026 -- 2025, 2026. So that's where it will tail off as we get to 2027. But I think the long-term capital expenditure of $120 million to $140 million is incorporating that spend as well and then, of course, we have other opportunities to deploy that capital for organic growth.

Any comments?

On the buyback, look, I think we can't always control the timing of the M&A. So I think -- remember the context of this meeting really was to give you a much longer-term view into the future on how we're thinking about it. With that said, with where we're trading right now, we think our -- we're an incredible buy. Let me just say that. We're an incredible buy. We're not even back to our peak historical multiple on an EV to EBITDA basis. Give me a break. I mean, and we are a very different company. So that's why when we ended up selling WES, we took the full $300 million in direct it to buyback. We had a $1 billion buyback program in place. We've been buying back our stock. And we're just trying to balance that equation. But absolutely, we think that's -- given where we're trading now is a huge opportunity. With that said, in response to the earlier -- the other question, we got this very -- most robust pipeline of M&A opportunities as well. You don't have insight into the potential timing of some of that, and we're balancing that equation.

Thanks, John. And just we keep looking forward...

Well, look, thank you. I mean, first of all, it's not easy to get here. Hopefully, this worked for you. We took a little different design for the agenda and such. We had the whole management team available. So thanks to the management team. But thank you all really for taking the time to come. Much appreciated and everyone online, too. And I'll leave you with that. We are very focused and completely committed on delivering on the enormous value creation potential. We have in front of us. So with that, we look forward to following up with you in the coming days and weeks. Thanks again.