WESCO International, Inc.

Good morning and welcome to the WESCO Second Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw from the question queue, please press star then two. We ask that you limit yourself to one question and one follow-up. Please note this event is being recorded. I would now like to turn the conference over to Brian Begg, Treasurer. Please go ahead.

Thank you, Kate. Good morning, ladies and gentlemen. Thank you for joining us. Joining me on today's call are John Engel, Chairman, President, and CEO, and Dave Schulz, Executive Vice President and Chief Financial Officer. This conference call includes forward-looking statements, and therefore, actual results may differ materially from expectations. Please see the webcast slides for additional risk factors and disclosures. For additional information on Wesco International, please refer to the company's SEC filings, including risk factors described therein. The following presentation includes a discussion of certain non-GAAP financial measures. Information required by Regulation G of the Exchange Act with respect to such non-GAAP financial measures can be obtained via Wesco's website at wesco.com. Needs to access this conference call via webcast was disclosed in the press release and was posted on our corporate website. Replays of this conference call will be archived and available for the next seven days. With that, I'll turn the call over to John Engel.

Thank you, Brian. Well, good morning, everyone, and thanks for joining us for today's call. On behalf of Wesco, I hope that all of you have been staying healthy and safe in these challenging times. We prepared a very thorough update for you today. I'll lead off with a few introductory remarks, and then Dave will take you through our second quarter results. And then we'll provide a review of the excellent progress we're making on the Annexter integration, as well as the outstanding value creation that our transformational combination of Wesco and Annexter will create. So first, for an update on our business in the second quarter, results exceeded our expectations across the board. That is for sales, operating margin, operating profit, EPS, and free cash flow. Business momentum improved through the quarter as we outperformed the market and built an all-time record backlog for the legacy Wesco business. Importantly, sales improved sequentially each month, and we saw continued growth in our utility business. Annexter also delivered a strong performance to close out the second quarter. Our positive momentum has continued into the third quarter. We're very encouraged by that, with quarter-to-date sales through Workday 28, that's quarter-to-date, down 8% versus prior year, but up 11% sequentially, with a book-to-bill ratio above 1.0. As we have done in prior economic cycles, we aggressively managed our business and took significant cost reduction in cash management actions, which enabled us to achieve a decremental margin of only 10% and generate exceptionally strong free cash flow of $140 million or 250% of adjusted net income. As you know, we increased debt to complete the Anister combination. We expect our consistently strong and counter-cyclical free cash flow generation to enable us to rapidly de-level and get back within our financial target leverage range. within 36 months. In closing out the first half of 2020, I would like to take this time to recognize and thank all of our associates for their inspirational dedication, commitment, and hard work in effectively managing through this COVID-19-driven crisis. Now turning to Annixter. The second quarter will prove to be a watershed period in our Lesko history. as we successfully closed on our industry-shaping merger of Wesco and Anixter. In combining two industry-leading Fortune 500 companies with successful track records, we are creating the premier electrical communications and utility distribution and supply chain solutions company in the world. In May, we completed a well oversubscribed and highly successful capital raise of approximately $5 billion in bonds and bank debt, all with very favorable terms. We satisfied the remaining closing condition when the waiting period for the Canadian Competition Bureau expired on June 18th and then successfully closed the Anister transaction on June 22nd. This timing met our commitment to close this transaction in the second or third quarter. Against the challenges imposed by the global pandemic, the extraordinary determination of our West Midland Anister associates to execute a flawless day one closing Just five months, just five months after signing the merger agreement was very impressive. I could not be more proud or more appreciative of the entire team and their extraordinary efforts in achieving this noteworthy milestone. As I mentioned before, we've been executing a detailed, rigorous, and process-oriented integration planning effort over the last several months. Now all of our integration efforts and organizational focus shift from planning to execution and synergy realization. I'm happy to say we are off to an excellent start in integrating the two businesses in our first six weeks since closing and have already completed actions to deliver over 50% of our year one cost synergy target of $68 million. We have also begun to realize our first sales synergies through leveraging our expanded global footprint and cross-selling what is now our broader product and services portfolio. The strong cultural alignment between Wesco and Anister is proving to be a key driver of our initial success. We are building on these early successes and we remain highly confident in capturing the significant upside potential and exceeding our three-year cost savings, sales growth, margin expansion, and cash generation synergy targets.