Hello, and welcome to WESCO International, Inc.'s 2025 Fourth Quarter and Full Year Earnings Call. If you would like to ask a question, please note this event is being recorded. I will now hand the call over to Scott Gaffner, Senior Vice President, Investor Relations. Please go ahead, Scott.

Thank you, and good morning, everyone. Before we get started, I want to remind you that certain statements made on this call contain forward-looking information. Forward-looking statements are not guarantees of performance and by their nature are subject to uncertainties. Actual results may differ materially. Please see our webcast slides and the company's SEC filings for additional risk factors and disclosures. Any forward-looking information speaks only as of this date, and the company undertakes no obligation to update the information to reflect changed circumstances. Additionally, today, we will use certain non-GAAP financial measures. Required information on these measures is available on our webcast slides and in our press release, both of which are posted on our website at wesco.com. On this call, we have today John Engel, WESCO International, Inc.'s Chairman, President, and Chief Executive Officer, and David Schulz, Executive Vice President and Chief Financial Officer. With that, I'll turn the call over to John. Well, thank you, Scott. Good morning, everyone, and thanks for joining our call today.

So I'd like to open up today's call with the organization change we announced earlier this morning. WESCO's CFO, David Schulz, will be retiring from WESCO in May 2026. David will serve as Executive Vice President, Adviser to me until his retirement. David has done an absolutely excellent job since joining our company in 2016. On behalf of our board of directors and the entire WESCO team, I'd like to thank David for his outstanding and dedicated service and tremendous contributions to our WESCO success over the past ten years. I have the utmost respect for David and greatly appreciate our business partnership that we had in building out the new WESCO. We extend our very best wishes to David and his family. I'm pleased to announce the appointment of Neil Deve as Executive Vice President and CFO. David and Neil will work together to effectively transition CFO responsibilities. Neil will join WESCO later this month to support a smooth transition. For a brief introduction to Neil, he's a seasoned CFO with extensive financial, commercial, and operational experience in multiple WESCO served end markets. In his leadership roles for both public and private companies, he's demonstrated the ability to navigate complex financial environments and deliver superior growth and value creation. Neil's an excellent addition to our executive management team and will help us as we continue to accelerate our strategy, execute our growth initiatives, deliver our financial targets, and create value for our stockholders. Now moving to our WESCO results. We closed out 2025 with positive momentum and, again, outperformed the market with our leading portfolio of product services and solutions. In the fourth quarter, we delivered record sales of $6.1 billion, up 10% year over year, including 9% organic growth, and set another record in data center sales of…

Thank you, John, and thank you for the kind words. Good morning, everyone. I'll turn you to Page four. Sales in the fourth quarter were in line with our expectations driven by strong performance in DES and CSS. Revenue was $6.1 billion, an increase of 10% year over year with organic sales up 9%. Growth was driven by approximately six points of volume and an estimated three points of price, including one point from commodities. CSS delivered 17% organic growth, EES grew 8%, and UBS organic sales increased by 3%. The increase in adjusted EBITDA was driven by higher sales. SG&A as a percentage of sales was essentially flat versus the prior year. Gross margin was 21.2%, in line with the prior year. Adjusted EBITDA margin was 6.7% of sales, and adjusted EBITDA was $409 million, up 10% year over year. Adjusted EPS grew 8% to $3.40. Turning to Page five. For the full year, sales were $23.5 billion, an increase of 8% with organic sales up 9%. Volume contributed approximately seven points while price provided an estimated two-point benefit, including about a point from commodities. Volume growth was strong across CSS and EES, with UBS momentum returning in the second half. Adjusted EBITDA increased 2% to $1.54 billion or 6.5% of sales. Gross margin was 21.1%, down 50 basis points versus 2024. The decline in gross margin reflects project and product mix, along with public power competitive pressures. Adjusted EBITDA margin also benefited from 10 basis points from operating leverage versus the prior year. Turning to Page six, I'll provide you the bridge on EPS versus the prior year. In the fourth quarter, adjusted EPS increased 8% to $3.40. The year-over-year improvement was driven primarily by strong operational execution as well as the benefit from the preferred stock redemption.…

We will now begin the question and answer session. If you would like to ask a question, please press star followed by 1 on your telephone. Please limit your questions to one question and one follow-up. Our first question comes from David Manthey with Baird. Please go ahead.

My first question is on the price that you mentioned. You've talked about this before. I'm a little unclear on why you describe it in terms of the number of increased letters, and you said the average increase is mid-single digits. But you're not including anything in the outlook here. So if you could talk us through that. But more importantly, if you should happen to get a few points of incremental price in 2026, would and this is a hypothetical, of course. But would that take you to the high end of the EBITDA margin guidance range alone just to pick up a couple points of price? Could you just walk us through that?

Yes. Certainly. So the way that we've outlined 2026 is very consistent with how we've always provided you with our future-looking projection. Given the uncertainty of when the price increases that are issued to us by our suppliers, when they will actually hit our revenue, we don't include it. We are highlighting the number of increases just to provide you with some context around the inflationary environment that we're dealing with. Many of our suppliers have historically taken one, maybe two price increases a year. We're seeing the number of price increases announced by them accelerate and you're seeing what used to be a low single-digit announced price increase has now been trending up to mid-single digits. It's moderated a little bit here in the month of January, but we're just providing that as perspective as to what the current market environment is dealing with. From our perspective, if we are seeing those price increases continue to get pushed through from our suppliers, and you're seeing the market accept those higher prices, you would see some transitory benefit on our gross margin. So that would give us a couple of extra basis points on the gross margin line. And then as our sales increase behind those price increases, we should get better operating leverage. So there is some benefit if these price increases do come through, but I will caution everyone that last year at this time, we were talking about the same item. So we did not see the benefit of that mid to high single-digit price increase notification translate through to our results. We only saw a 2% benefit for the full year 2025 on pricing. And a point of that was commodity-driven. So that's why we don't include it in the outlook. But if it does come to fruition, we're prepared to pass it through and ensure that we get the margin capture behind it.

That's a great explanation, David. Thank you for that. Second, as I look at contribution margins here in the fourth quarter, I know it's maybe a little bit wrong to look at just one quarter in a vacuum. But CSS and EES came in around 14.5% year over year, which looks great. But the UBS is what dragged things down overall. And so the question is, you outlined a little bit about the complexion of the year and what UBS should look like. I just want to make sure that what's going on in UBS right now is a solvable issue in that this is just a mix of business or a transitory competitive situation. Could you talk about that? Or are there bad contracts in here that you can walk away from? Could you just talk us through sort of what that looks like through '26?

Yeah. Hi, David. Good morning. The Hey, John. It's really driven exclusively in utility. The utility portion of UBS. By public power customers. So this is an extension of what's been occurring. And we've talked about the dynamics of public power, that value chain investor-owned utilities for a number of quarters in a row now. Inventory is still normalizing. So they're still running with excess inventories at the public power customer level. And pricing is very competitive. What we're seeing is this pricing challenge and which translates to a margin challenge and we did take a significant impact in utility margins due to public power. Specifically with respect to transformers, that product category, and a little bit of a wiring cable, but principally transformers. This did not affect overall kind of line construction materials. So it's a really important point. In terms of your other part of your question, how would this do we see this? Does it extend? We're very clear that our outlook for 2026 expects to return to growth in public power by year-end. So I'll highlight that IOUs are a bright spot. They have improving momentum. We have three quarters in a row now of IOU growth. And that IOU growth has been picking up. If you look at what's happened in Q2 of last year, grew low single digits Q3, high single digits Q4 was up double digits. And so we've got a nice momentum vector. With our investor-owned utilities. Grid services that we highlighted in this earnings release it's important that we did talk about it first at Investor Day. But that is an aggressively and like, growing piece of our utility business. And that was up single-digit growth in 2025, but double-digit growth in the fourth quarter. Very important point. And utility backlog was up 23% at year-end, which provides a strong setup for 2026. So here's the bottom line, David, on the second part of your question. We do expect sales growth and margin expansion for UBS in 2026, and that's built into our outlook.

Makes sense. Thanks for the color, John. Appreciate it.

Our next question comes from Sam Darkatsh with Raymond James. Please go ahead.

Good morning, John. Good morning, David. How are you? Morning, Sam. And, David, best wishes on your next chapter. It's been absolutely terrific working with you over the past decade. Just terrific stuff.

Thank you.

So a couple of just clarification questions if I could. You're guiding for data center growth mid-teens. Can you give a sense of what you're anticipating first half versus second half? Or what kind of exit rate in fiscal '26 you're seeing at a data center within the guide?

Yes, Sam. The comps were pretty tough back in 2025. So in terms of our activity levels, we see relatively consistent activity levels by quarter on a dollars basis in 2026, but against the comp that was continuing to increase throughout the year. So you know, we've got a, you know, we were up 70% in 2025. So, again, the dollars have continued to increase sequentially through 2025. We would expect that the dollars will be relatively consistent by quarter in 2026. It is a project-based business, so there's always some things that could move. You know, a week or two within a quarter. But, generally, that's how we're viewing the opportunity in '26.

So January is, like, running that mid-teens then?

We would comment that our results from the fourth quarter seem to have continued about the same way from a growth perspective by business unit. And so in January. In January. Be clear. In January, Sam. You know, our up 15% per workday in January. The mix of that sales growth is consistent with our fourth quarter.

Got you. My second question, and I apologize, I clicked off of a point during the call. So if you mentioned this, I apologize. You obviously missed the fourth quarter free cash flow expectations. It sounded like it was primarily on the receivables side. You're guiding for only roughly a 100% free cash flow of net income in '26. I would have thought that with the timing of the receivables and maybe the improving vendor lead times that that free cash flow might have been above net income for '26. Can you help reconcile perhaps some of those areas, David?

Yeah. Certainly. And so you're right. The fourth quarter free cash flow was impacted primarily by a higher receivables balance just given the trends by month within the '5. We also had a higher inventory balance than we were anticipating. As we think about the free cash flow generation, you know, we've given you a range of $500 to $800 million that does include some of that carryover benefit of the receivables that we're collecting here in Q1. But the other thing that we would highlight is that, you know, that 100% historical free cash flow generation generally occurs when you're in that, you know, 3% to 5% organic growth range. And so while we do anticipate that we will have further investments in working capital to support what we provided you as an organic sales range of 4% to 7%, we do see the opportunity to do better collecting cash in 2026. So from our perspective, this is the right view to start the year with on a free cash flow basis. Given the continued strength in organic sales and what we're anticipating in terms of sales by quarter in 2026.

Very helpful. Thank you.

Our next question comes from Guy Drummond Hardwick with Barclays.

Hi, good morning.

Morning, Guy.

It was good to see the pickup in the order book at EES. So just wondering if you could comment on just the order book trends by end markets and particularly if you excluded the data center business.

All three of the businesses grew their backlog in Q4. So that's a really important point. And so and if it you should really think about that in the backdrop of over the longer-term normal seasonality we would not have expanding backlog. Or growing backlog in the fourth quarter. So and so positive momentum vector is the answer. CSS, obviously, was the strongest of the three. With a, you know, backlog up 40% at a record level. As we said, UBS is up 23%. EES grew as well. I will say what's really encouraging with EES is just the overall momentum vector. When you're looking at opportunity pipeline, the bid activity level, plus backlog, plus the increased sales growth rate. As we as we move throughout 2025 and particularly the second half. It really kicked into gear. And so and I'll remind you, we got a new EES leader who joined in the third quarter, and so off to absolutely a terrific start as evidenced by the strong, you know, Q3 and even stronger Q4 results. And what's really encouraging is we're getting the operating cost leverage with EES plus gross margin expansion in Q4. Same with CSS. We're getting the operating cost leverage UBS, we already talked about those drivers, but plus the gross margin expansion in Q4. I'm very bullish on UBS' sales and profit expansion opportunities in 2026.

Thank you. I'll pass it on.

Our next question comes from Deane Dray with RBC Capital Markets.

Thank you. Good morning, everyone. Also, will add my thanks to David, and congratulations.

Thank you, Deane.

Maybe we can start with some further clarification on the UBS shortfall because last quarter, there was a sense that it had turned the corner. Broadly within the segment on the public power side, but it looks like that recovery is now getting pushed into year-end. And you referenced competitive pressure. So how much of a dynamic is that in? Or is it really core demand? And then just so broadly, before you answer that, just the idea is you've got IOUs doing better. So maybe just educate us if that is moving, how much confidence does that give you about the public power side? Is there a lead? Is there a lag? You know, how correlated are they? So a lot to unpack there, but maybe we could start there, please.

Yes. So, Deane, look. The public power challenges were all throughout 2025 and, in fact, in 2024 as well. And I'll just I'll just take a few seconds and just we've talked through the dynamic of what the pandemic did to the utility value chain and that IOUs benefited first. Versus public power. So I'm not gonna go back through that, but we've gone through that a few times. That's important to understand. The momentum improvement we experienced in 2025 started in the second quarter it was with the return, the growth of IOUs in that quarter. Not public power. IOUs that is we move through Q3, stepped up their growth rate. To high single digits versus prior year. But public power still remained significantly challenged. And that challenge just extended and continued throughout. And it's a combination of two things. One is Q4. There's still an excess inventory position. At the public power customer level, on specific categories principally being transformers and distribution transformers, I'll call them. And so that's coupled with the fact that they have that excess inventory position any RFPs they're putting out to kind of do some minimal stock replenishment is under extreme competitive bidding pressures. So we experienced that negative mix effect on the category of transformers principally the public power, it was and it occurred throughout the year, but was also continued in Q4. Look. I think the public power market still has these same challenges as we started this year. And as David mentioned, our January sales results were really encouraged with the plus 15%. That's a really terrific start with the year given December's close. And the mix of the businesses in terms of the all three are growing is similar to Q4. But public power has not returned to growth. We're now stating that we expect that that return to growth will be not till the end of the year. But the very good news is and this is why it's a critical point. We included grid services in this deck. I know it's a lot to unpack. And we had a lot of script commentary around grid services. I'll remind you that we did tee that up back at Investor Day in 2024. That's been an increasing part of our business. To 300 plus million dollar business that we built organically. It grew mid-single digits last year, double digits in Q4, not via acquisition. This thing's really kicking into gear. So when you start thinking about utility, and UBS in 2026, particularly, you know, if IOUs with three quarters in a row of very positive momentum, we expect IOUs to carry the day. Public powers will remain public power will remain challenged. That is our view for 2026. But grid services increasingly kicking in and providing strong growth because we've got an outlook for grid services. Of double-digit growth for 2026. So it was a lot to unpack. Hopefully, that helps kind of stitch it together.

John, that was really helpful. I appreciate that. And just as a follow-up question, there's been so much focus across the electrical equipment sector on these North America mega projects. There's over 800. That are over a billion dollars of spending. Just have you all looked at what that opportunity is? How many projects of the 15 that have started do you think you're engaged in? Is that part of your backlog and visibility?

Yeah. A great question, Deane. First of all, we're aware of all of them. I think we've got a rigorous process wrapped around the front end of our opportunity pipeline. We got some terrific tools in place. We scrape all public data. We obviously have the relationships with our customers that we're leveraging. That's end-user customers. Where we have particular strength because the percentage of our customer reach is end-user is disproportionately higher than any of our competitors, but also where we serve big contractors and all the way up to global EPCs. So that process I'll call the front end of the opportunity pipeline, is something we've spent a lot of time and attention on. It's robust. It's operational. We've you know, we don't size our opportunity pipeline externally, but it's been growing at a very large clip. And it's at an all-time record level. And each of the three SBUs has their piece of the opportunity pipeline. We got a rigorous process that manages those opportunities because for every opportunity, we're looking for the cross-sell and the one WESCO. Complete. And what's the total one WESCO scope for every opportunity? And, obviously, what's in that pipeline is the mega project. So you know, we've not provided further detail Deane, in terms of you know, what percent we've won thus far, but I will remind all investors that remember upon announcement of a mega project, these are longer cycle time in general. And depending on the package that we're bidding, it comes into play at different parts along the construction cycle. So that to me is that's part of my bullishness on the future growth trajectory. That we'll be able to capture and continue to deliver against for WESCO. Because it is what feeds this secular growth trend of the infrastructure build-out and it's obviously driven by heavy reshoring and nearshoring as well. So outstanding question, Deane, but it is it's really one of the key elements that gives us great confidence about the rising demand curve for our business.

Thank you.

Our next question comes from Nigel Coe with Wolfe Research. Please go ahead.

Oh, thanks. Good morning. Good morning, John. Good morning, David. So just on the SG&A, obviously, up I think, by 11% year over year in the fourth quarter. You called out a long list of factors there. So maybe just talk about what caused that and, you know, were these year-end accruals just maybe break out the 30 basis points in 2026. You called out gross margin expansion and SG&A leverage. I'd be curious how that looks between the two categories.

Yes, certainly. So Nigel, let me start with on the SG&A front versus the prior year. The quarter, this is primarily a base period issue. Recall that we talked about as we came into 2026 or I'm sorry, 2025 that we would need to restore incentive compensation. In the fourth quarter of 2024, we had much lower spending on incentive comp just given the trajectory of our sales and EBITDA relative to our plan. In 2025, the incentive compensation expense was more typical for the quarter. So that was really the big driver of the year-over-year change in SG&A was really driven by incentive compensation.

Okay. Thanks, David. And then just the January 15% growth is obviously exceptional. High single digits for the quarter. I mean, I understand January is a low contribution to the quarter. But is it more consistent? So I do think January is your toughest kind of comp month in the quarter. Is it just conservatism, or was there anything lumpy in January that you called out?

Yeah. January is always hard for us to pull a trend out of because we have so much activity during the month of December. You know, a lot of it, you know, based on where we finished December, we thought that we would be off to a slower start in January. Then when you add on top of that the issues with the weather. So we were pleasantly surprised by the strength of the business and the sales that we saw through the month of January. You know, again, we think that we've got the right way of thinking about this. I mean, February, we generally see, you know, obviously, fewer workdays, but then March we expect to see a recovery. So there's you know, from our perspective, the right way to think about this is there could be some activity that occurred in January that was carryover from December that we didn't get out the door. But we think that thinking of a high single-digit growth rate on reported sales is the way that we're viewing the first quarter.

Great. Thanks, David. And by the way, you're far too young to be retiring. But, anyway, good luck.

Thank you. Thank you, Nigel. We by the way, we said the same thing.

Thank you. Good luck.

Our final question today comes from Tommy Moll with Stephens. Please go ahead.

Morning, Tommy.

John, I want to start on data centers. Heck of a year you had in 2025 there, and you're now run rating well north of a billion dollars in sales a quarter. So I want to see if you can situate us on the opportunity from here because I hear David talking about relatively consistent dollars across the quarters in '26. I don't think you want the takeaway today to be that we've now peaked on run rate data center sales. But arguably, that's embedded in the guidance. So what would we need to see to drive another step change higher potentially? In data center?

Thanks, Tommy. No. Look. I'll you know, David is not saying that we peaked with data centers, not even close. I'll just I'll take you back to this is actually important. I'll take you back to remember even it wasn't a few quarters ago. It was actually two years ago. When some of our supplier partners started to see the step up in growth related to data centers, and they were seeing it, and WESCO was not yet. And remember, we had a lot of questions from a number of investors on you know, in our earnings calls and at conferences, why aren't you seeing the growth yet? And we were very clear that the limited number of suppliers that are in a public domain where you can see the results and we're no we all know who we're talking about, that this was direct ship parts of their business and those packages went in at the very early stage of the site of the total life cycle of the construction. Project for a new data center. And we said we are highly confident that we will see that growth rate but it doesn't come one or two quarters later. It's three, four, five, six quarters later. We clearly have seen that. And I would argue that the growth rates we're seeing are equal to, if not above market. So that time lag still occurs Tommy, and it's an important point. It's why I'm so bullish over the mid to long term, and I don't think we're anywhere near not even remotely close to seeing a peak in the cycle for AI-driven data centers. And with that time lag, that serves us exceptionally well. Second point I'll make is look. You know, we're engaged with our customers. We're getting feedback…

Absolutely. Thank you, John. As a follow-up, I wanted to ask about the free cash flow and specifically working capital comments. You gave for 2026. Can you just give us an example or two of some of the initiatives that are in flight to improve that working capital in the next year?

Yes, certainly Tommy. We have continued to drive changes to digital applications that we are using to better plan inventory. Working directly through a sales and inventory and operations planning process. We also have some various incentives, which are aligned to management and management incentives on our better management of accounts receivable. So that is another initiative. So not only do we want to work it from the inventory side and how we better manage our inventory days, and you know, we did make progress on inventory days through the first March. We saw a slight pop-up in the fourth quarter on our inventory days. And we had the same issue on receivables. So, but we are incenting our team to better manage both inventory and receivables in 2026. So slight changes to the program that we had in 2025 from an incentives perspective.

Tommy, that's a very high priority for us. And we're driving that across the entire enterprise.

Thank you both. And, David, best of luck writing the next chapter.

Thank you.

Well, thank you all. I think we've addressed your questions today. I know we have a number of follow-up calls scheduled, and we look forward to engaging with you on those. So I'll bring the call to a close. Thank you all for your support. It's very much appreciated, and I'll remind you, we expect to announce our second quarter earnings on Thursday, April 30, 2026. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.