WESCO International, Inc.

Hello and welcome to Wesco's fourth quarter and full year 2023 earnings call. I would like to remind you that all lines are in listen-only mode throughout the presentation. If you would like to ask a question, please press star followed by one on your telephone keypad. Please note this event is being recorded. I would now like to hand the call over to Scott Gaffner, SVP, Investor Relations. to begin.

Please go ahead. Thank you and good morning everyone. Before we get started, I want to remind you that certain statements made on this call contain forward-looking information. Forward-looking statements are not guarantees of performance and by their nature are subject to inherent uncertainties. Actual results may differ materially. Please see our webcast slides as the company's SEC filings for additional risk factors and disclosures. Any forward-looking information related on this call speaks only as of this date, and the company undertakes no obligation to update the information to reflect the changed circumstances. Additionally, today we will use certain non-GAAP financial measures. Required information about these non-GAAP measures is available on our webcast slides and in our press release, both of which you can find on our website at wesco.com. On the call this morning, we have John Engel, Wesco's chairman, president, and CEO, and Dave Schultz, executive vice president and CFO. Now I'll turn the call over to John.

Thank you, Scott. Good morning, everyone, and thank you for joining the call today. As you saw from our earnings release earlier today, we had a very disappointing fourth quarter to close out 2023 with results well below our expectations. These results They're unacceptable. They're unacceptable to me, and they're unacceptable to the entire Westco management team. We understand the issues that drove our fourth quarter results, and we're already taking actions to address them. Dave will take you through this in detail shortly, but first I'll summarize the three key issues we had in the fourth quarter. First, reported sales declined 2% versus our expectation for flat to slightly positive sales. This was due to a market downshift and reduced purchases with some customers. Second, we experienced higher SG&A expenses. This was due to higher than anticipated benefits and healthcare costs, along with higher costs to operate our facilities and IT-related expenses. And finally, our free cash flow generation was below our expectations. This was due to a lower accounts payable balance related to the timing of purchases. On a full-year basis last year, certain sectors, including utility, data centers, industrial security, and network infrastructure, continued to grow, somewhat consistent with our expectations, while others underperformed, including broadband and specific OEM and construction-related sectors. As a leading global provider of business-to-business supply chain solutions, the Wesco team effectively navigated through this mixed economic environment last year, And this was all done while managing changing customer buying patterns as supply chains healed. I'm pleased that our team delivered 5% revenue growth in 2023 following two years of double-digit increases given these market challenges. We finished the year with our backlog near a historical high level and stable versus the end of September. Our free cash flow generation was higher in the second half. And we return one-third of our full-year free cash flow to common shareholders through dividends and share repurchases. So as we move into 2024 and we take a look forward, the long-term secular growth trends that we have consistently described will continue to provide us with the opportunity to outperform the market and our competitors. While I view the general economic conditions in 2024 as favorable, I'm mindful of the uncertain backdrop that the election cycle, easing inflation, geopolitical upheaval, and short-term borrowing rates may have on demand. Regardless of these near-term impacts, as a market leader, we expect to benefit from our global capabilities, our leading scale, and our expanded portfolio of products, services, and solutions. Our investment and commitment in our digital transformation are expected to magnify those benefits as we roll out that program over the next 36 months. The substantial cash flow that Wesco generates has supported that investment over the last two years, while allowing us to return capital to our shareholders. I am confident that Wesco will outperform our markets again this year, and we are positioned to deliver profitable sales growth and continue toward our long-term EBITDA margin expansion goal. Finally, I want to take a moment to provide you with two important updates. First, I'm very pleased to announce that we are narrowing and lowering our target leverage range for the first time since the company went public 25 years ago. You'll recall that we have historically had a target leverage range of 2.0 to 3.5 times net debt to EBITDA. Based on our size and scale and upsize cash generation, We believe it is the appropriate time to update this important target. Moving forward, our target leverage range is 1.5 to 2.5 times net debt to EBITDA, and this represents a reduction of three-quarters of a turn at the midpoint compared with our prior range. Second, we are increasing our return of cash to shareholders in 2024. Our board of directors intends to increase Wesco's dividend by 10% beginning in the first quarter of this year. We're also continuing our share repurchase program, and we expect our share repurchases this year to outpace last year. Now turning to page four, I want to take a brief word and brief minute to summarize the successful completion of our three-year integration of Anixter. The acquisition of Anixter literally transformed Wesco. This acquisition not only established Wesco as the clear leader in several of our business segments, but it also mixed shifted our business to higher growth and higher margin and markets, reducing our cyclicality and increasing our resilience across all phases of the economic cycle. If we look at our performance metrics since the acquisition, they underscore the extraordinary performance and commitment of the entire Wesco team. We exceeded all our initial operational and synergy targets set at the time of the annex or acquisition. Sales increased 30% and adjusted EBITDA increased 89% versus the 2019 performance of the standalone companies. And EBITDA margin expanded 240 basis points. We did all this while rapidly delivering our balance sheet by three terms, one year ahead of schedule. Most importantly, Since closing the Anixter merger in June 2020 through the end of 2023, total shareholder return was 353% compared to 62% for the S&P 500. As we sit here today, Wesco is much more than a traditional distributor. We're a critical partner to both our suppliers and our global set of customers. The combination of Wesco and Anixter has created a new paradigm. The digital transformation that we committed to at the time of the acquisition is designed to take that new paradigm and create the Wesco of tomorrow. That further empowers us to capitalize on our long-term secular trends from which we are uniquely positioned to benefit compared to our competitors. I'll now hand it over to Dave to take you through our fourth quarter and full year 2023 results, as well as our outlook for 2024.