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spk33: If you would like to ask a question, please press star followed by one on your telephone keypad. Please note that this event is being recorded. I will now hand the call over to Scott Gaffner, Senior Vice President, Investor Relations, to begin.
spk04: 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 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 about these measures is available on our webcast slides and in our press release, both of which are posted on our website, Wesco.com. On the call this morning, we have John Engel, Wesco's Chairman, President, and Chief Executive Officer, and Dave Schultz, Executive Vice President and Chief Financial Officer. With that, I'll turn the call over to John.
spk21: Thank you, Scott. Good morning, everyone. Thank you for joining our call today. Our second quarter results were somewhat below our expectations for a low single-digit decline in reported sales, and this was against a continued mixed and multi-speed economic environment. Results improved, however, as we moved through the quarter with a return to organic sales growth in June, and that was accompanied by improvement in gross and operating margins on a sequential basis. With our record $500 million of free cash flow generation in the first half, we're on track to deliver our full-year free cash flow outlook of $800 million to $1 billion. As planned, we executed our capital allocation strategies and repurchased $300 million of our Wesco stock in the second quarter. We also closed on two small but important software-based acquisitions, EntraSim being the first one, a data center and building intelligence software company, and StoreroomLogix, the second acquisition, an asset and inventory management software company. I think it's important to note that M&A remains a critical component of our enterprise growth strategy as we continue to benefit from our global capabilities, our leading scale, and our expanded portfolio and continue our move towards our long-term EBITDA margin expansion goal. The digital transformation... that we're currently executing will enable us to increase shareholder value through a combination of cost efficiencies, additional cross-sell opportunities, and rapid integration of future acquisitions. We look forward to sharing more details on these critical aspects of our growth strategy at our investor day next month. Dave will walk you through the details of our three businesses momentarily, but I first wanted to touch on a few noteworthy aspects of the quarter. Growth in our data center business was strong, and it was up high teams versus the prior year. We continue to capture share and benefit from the secular growth of global data centers, and the increase is driven by AI and Gen AI applications. This growth was more than offset by a significant slowdown in purchases by our utility customers as a result of destocking and project delays in the second quarter. While we remain confident in the long-term growth of our utility and broadband solutions business, we do expect the mixed economic environment and customer purchasing delays in our UBS business to continue through the second half of 2024. As you saw from our materials, we've reduced our full-year outlook to reflect this change. With that said, overall quoting, the inactivity levels, and our overall backlog remains healthy And it supports our view for sales growth in the second half against an easier year-over-year comparable, but at a more modest rate than our previous outlook. So with that, I'll now hand it over to Dave to take you through our second quarter results in more detail, as well as our updated outlook for the rest of the year. Dave. Thank you, John.
spk15: Good morning, everyone. Turning to page four. As John noted earlier, our second quarter results were below our low single-digit expected decline in reported sales, against a continued mixed and multi-speed economic environment. The primary driver of the top line miss was market weakness in utility and broadband, leading to an organic sales decline of less than 1% versus the prior year. This includes approximately a 2% benefit from price, offset by lower volumes. Pricing was a tailwind in both EES and UBS, including the benefit from higher commodity costs, while pricing in CSS was slightly negative. The divestiture of the integrated supply business was a year-over-year impact of 350 basis points, and differences in foreign exchange rates were a minor headwind. I'll provide more color on the sales drivers in the next few slides. On the lower half of the page, you can see the adjusted EBITDA impacts of lower sales, partially offset by gross margins. Gross margin was up 30 basis points over the prior year on a reported basis. As discussed in the prior quarter earnings call, the integrated supply business had a lower gross margin than the balance of the company. The year-over-year improvement in the gross rate was primarily due to the mixed benefit of the divestiture. Gross margin excluding this benefit was down slightly and entirely due to lower gross margin in our CSS business. Growth margins in EES and UBS, excluding the impact of the integrated supply divestiture, were up versus the prior year. Excluding the impact of the integrated supply divestiture, adjusted SG&A increased slightly due to the annual merit increase, partially offset by cost actions taken in previous quarters. Turning to page five. On a sequential basis, organic sales were up approximately 5%, with all three SBUs contributing. The integrated supply divestiture and differences in foreign exchange rates were a combined headwind of 390 basis points, offset by 160 basis points due to one additional workday in the second quarter. As you can see on the chart on the bottom of the page, adjusted EBITDA margins were up 90 basis points from the first quarter. All three SBUs posted sequential improvements of 50 to 130 basis points. Gross margin was up 60 basis points sequentially due to the integrated supply divestiture, as well as favorable cash discounts and inventory adjustments. As I mentioned earlier, gross margin expanded sequentially in both EES and UBS, offset by weaker gross margins within our CSS business. The SG&A impact on the sequential improvement to adjusted EBITDA was neutral. as the benefit of the integrated supply divestiture offset the annual merit increase effective on April 1st. Estimated as a percentage of sales improved sequentially due to operating leverage on higher sales. Turning to page six. This is a slide we first showed last quarter and supports that Westco has outperformed both our supplier partners and our distributor peers over the past few years. The chart on the left compares Wesco's year-over-year organic growth to the average organic growth of our 10 largest publicly traded supplier partners, weighted to the proportion of our purchases that they represent. You can see that Wesco has outperformed the supplier average since the middle of 2021. The chart on the right compares Wesco's year-over-year organic growth to the electrical and data communications distributors in the Bayer Distribution Survey which is published quarterly. We think these two data sets clearly demonstrate that our growth has exceeded our peers and we have outperformed the market over the last three years. Turning to slide seven, second quarter organic sales in our EES business were down about 1% on both an organic and reported basis. But more importantly, we have seen a stabilization in the top line which has allowed the business to leverage the cost actions taken over the last year. Organic sales improved each month as we moved through the second quarter. Additionally, our EES sales in Canada were up low single digits due to some large project wins, and we continue to see significant growth in the EES international markets. Similar to the first quarter, construction sales were down low single digits due to continued weakness in solar, partly offset by growth from large project shipments. Industrial sales were up low single digits with strong project activity offset by some weakness in day-to-day MRO, consistent with recent market data in the U.S. OEM sales were down low single digits. Backlog was down about 2% on a sequential basis and down about 9% from the prior year. This represents normal seasonality for backlog as orders taken in Q4 and Q1 are converted into revenue in Q2 and Q3. Lastly, as anticipated, EES adjusted EBITDA margin continued to improve and was up approximately 40 basis points driven by higher gross margin, benefits of cost actions taken in 2023 and 2024, and continued cost controls. Turning to slide 8. While CSS sales in the quarter were generally in line with our expectations, adjusted EBITDA margin was impacted by the mix of sales, which I'll explain shortly. Second quarter sales in CSS were up approximately 1% from the prior year on both an organic and reported basis. We are encouraged by the growth acceleration in our data center business. Data center sales were up high teens in the second quarter versus the prior year, and acceleration from the first quarter where year-over-year sales were up low single digits. Growth was broad-based with all end users, hyperscale, multi-tenant, and enterprise data center customers. The growth opportunity of this business continues to be exceptionally strong given the step change in data center capacity driven by artificial intelligence. Enterprise network infrastructure, which comprises structured cabling, and Internet service providers was down low single digits due to declining sales to service providers, as well as weakness in commercial office space. Security sales were down mid-single digits, driven by a general slowdown in non-residential commercial construction and weaker office space activity. The security market has contracted over the past few quarters, but we expect it will grow in the second half of this year as comparisons ease significantly, particularly in the fourth quarter. CSS backlog continues to climb after normalizing last year due to lead time compression and increased product availability. Backlog was down 4% versus the prior year, but up 13% from the end of 2023 and up 8% sequentially from the last quarter. Adjusted EBITDA margin for CSS was down 160 basis points. The primary driver of the decrease was gross margin in the enterprise network infrastructure business. Several factors drove the CSS EBITDA margin contraction versus the prior year. First, customer mix. We had a higher mix of shipments in support of large programs that are below the average CSS gross margin, including a higher percentage of direct ship projects. As I mentioned previously, sales were generally in line with our expectations overall. The day-to-day business was slower than anticipated, which has a higher margin. While we were able to make up the sales with projects, the mix of sales impacted margins. Second, additional sales through channel. In the second quarter, we worked with our suppliers to service several large projects that historically were sold direct to the end user by the supplier. This is the result of customers looking to consolidate their supplier base and and take advantage of our global one-stop shop capabilities. In the future, we anticipate winning more of these types of projects and expanding margin by adding additional services to our offering. Third, we built this business to deliver on the higher growth rates of secular trends. We have invested in people and capabilities to capture this growth, but with sales in the quarter up only 1%, we did not get the operating leverage we expect to get in the future. For the balance of the year, we expect stable gross margins and additional operating leverage in CSS. Turning to slide nine, organic sales in UBS were down 3% in the quarter, and reported sales were down 15% due to the integrated supply divestiture. The utility market is experiencing some short-term softness related to customer destocking and lower project activity which is a function of the current interest rate and regulatory environment. We expect these impacts to last through the end of the year. We continue to benefit from the secular trends of electrification, green energy, and grid modernization and believe that these trends will support growth acceleration as we move into 2025 and beyond. Broadband sales were down high single digits, reflecting continued demand weakness as customers continue to work through inventory and delay purchases until government funding is released. At present, it is difficult to call the bottom in this market in the U.S., but we are driving growth in our Canadian operations. We expect this market to improve in 2025 with the timing of broadband equity access and deployment, or B dollars, getting spent. Backlog was down 15% from the prior year and down 10% on a sequential basis as there has been a delay on projects being converted from the opportunity pipeline into backlog. Adjusted EBITDA margins were healthy despite the near-term top-line headwinds. EBITDA margins were favorable approximately 90 basis points versus the prior year, driven by the divestiture of integrated supply and improvements to gross margin in the core business. Turning to page 10. On this slide, we have highlighted a recent win by each of our business units that, in aggregate, represent more than $100 million of future project sales. These examples reinforce the positive trend of our bidding and cross-sell activity to win increasingly large, complex projects. Also worth noting are the end markets that these projects serve, a major power plant retrofit, a cloud data center project, and a large renewable energy project. Moving to slide 11. On this slide, we have outlined our return to capital to shareholders over the past three years, along with our capital allocation priorities for 2024 and the long term. We said we intended to use the full $300 million of after-tax proceeds from the integrated supply divestiture for share repurchases in the second quarter, and we hit that target. In addition, Our 2024 free cash flow outlook of $900 million at the midpoint provides us with options to opportunistically repurchase additional shares, reduce debt, and or pursue M&A in the second half of the year. Recall that we provided a five-year outlook for operating cash flow generation of $3.5 to $4.5 billion at our investor day in 2022. We remain on track to achieve this target and expect to return approximately 40 percent of our operating cash flow to shareholders through dividends, including our common dividend, which we increased 10 percent in 2024, and executing our $1 billion share repurchase authorization. The upside's tax generation also allows us to continue to invest for organic growth and operational efficiency through our digital transformation. Turning to page 12, historically, strong free cash flow has been a hallmark of Wesco in our distribution business model. With the significant sales growth we delivered in 2021 and 2022, we invested heavily in networking capital and we're well below our expected free cash flow conversion. We delivered strong free cash flow beginning in the back half of 2023, in which the company generated approximately $400 million. This has been followed by free cash flow generation of $500 million in the first half of 2024, a record for Wesco. On a trailing 12-month basis, which discharges bridges to adjusted net income, free cash flow was more than $900 million with more than $80 million of cash generation from net working capital. Now moving to page 13 for the key drivers of our strategic business units. We are reducing our top line organic growth forecast, primarily driven by market conditions in our utility and broadband markets. Looking specifically at UBS, in 2022 and 2023, we generated double digit growth in utility. The recent softness is coming off a historically high base. We now expect the utility business to be down low to mid single digits versus a high single digit increase previously. This is driven by a change in market conditions due to continued customer destocking and lower project activity. However, if you look at long-term capital expenditure budgets for the utility market to address the rising power demand curve, there is strong momentum for this business to significantly surpass the historical growth rates over the long term. For broadband, we had assumed that we would see the market recover by the end of 2024, with growth in our Canadian business offsetting continued weakness in the U.S. However, the spending of B dollars continues to be delayed. Due to customer destocking and delays of purchases until government dollars are released, we now expect our broadband sales to be down high single digits versus our previous outlook of down low single digits. Within EES, our overall forecast remains largely unchanged. In 2024, we expect EES reported sales growth to be flat to up low single digits as construction and markets remain pressured despite an increase in large project activity. The industrial business is expected to benefit from continued growth in many of the end market verticals we support, but the recent softness in our day-to-day business has moderated some of the expected upside. OEM is expected to be roughly flat. Looking at our CSS segment, we generated accelerating growth in our data center business in the second quarter, which was up high teens versus a low single-digit increase in the first quarter. We now expect our data center business to be up mid-teens for the full year, and based on share gains and security, we expect to outgrow the market and for the business to be relatively flat based on strong comparisons in the second half of 2023. Lastly, our enterprise network infrastructure is expected to be up low single digits. Moving to slide 14 for our 2024 outlook. As we noted earlier, while we still see a long-term secular growth opportunity in utility, the market has downshifted. Based primarily on the reduction to the utility market forecast, along with continued delays in the broadband market recovery, we are reducing the range and adjusting our reported top-line outlook to down 1.5% to down 3.5% versus the prior year. As we noted on the previous slide, the change to the top-line outlook is entirely driven by a shift in market conditions. Adjusting for the impact of integrated supply divestiture and foreign exchange, we expect organic sales to be down 1.5% to up 0.5%. This translates into total revenue for 2024 of $21.6 to $22 billion. At the midpoint of the range, price is expected to contribute about one point to the top line with volume slightly negative. Due to the lower sales outlook, along with our results here to date, we are reducing our full-year EBITDA outlook to $1.55 billion versus $1.7 billion and an adjusted EBITDA margin range of 7 to 7.3%. We are also adjusting our outlook for adjusted EPS to a range of $12 to $13. We feel that this updated outlook is appropriate given the mixed economic environment and our current business results. Additionally, we are reaffirming our previously increased outlook for free cash flow to be in the range of $800 million to $1 billion. This free cash flow outlook represents the highest free cash flow in our history and more than 100% of adjusted net income. We have assumed in our free cash flow outlook that net working capital days improve and continue to target a three-day improvement to inventory days outstanding. On leverage, we finished the second quarter at 2.9 times trailing 12-month EBITDA, We now expect leverage to improve slightly through the balance of the year, but to end above the high end of our 1.5 to 2.5 times range. Turning to page 15, this slide shows the year-over-year monthly and quarterly sales growth comparisons for the past 18 months and our expectations for the third quarter. Sequentially, we expect reported sales to be flat to down low single digits. EBITDA margins should also be stable sequentially with the second quarter as we continue to manage cost effectively in a mixed economic environment. Preliminary July sales per workday were down low single digits versus the prior year, excluding the impact of the integrated supply divestiture in the base period. The sales outlook at the midpoint of the third quarter and the balance of the year assumes the current run rate of sales continues. while the high end of the guidance range assumes more normal seasonality. Turning to slide 16, before we open it up for your questions today, I wanted to highlight our upcoming investor day on Thursday, September 26, from 9 to 11.30 a.m. Central Time. We will be giving an update on our digital transformation with more details on what we are executing and the benefits to our customers, suppliers, employees, and our investors. We will also discuss the path to our long-term goal of a 10% EBITDA margin. And finally, we will talk in more detail around our upsized cash generation and how we intend to use this cash flow to increase investment returns. With that, operator, we can now open the call to questions.
spk33: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. Please limit your questions to one question and one follow-up. Today's first question comes from Dean Dre with RBC Capital Markets. Please go ahead.
spk10: Thank you. Good morning, everyone.
spk33: Morning, Dean.
spk10: Maybe we can start with the pockets of weakness. And in your release, the slides and the commentary, everything you talked about, we've heard before in terms of being weak spots, construction, solar, utility, and the telecom broadband. So there's nothing relatively new here from a vertical getting weaker. But just talk about within the context of your expectations, is it the duration of the slowing in these pockets lasting longer? Is the magnitude getting worse? you know, when you talk about project delays, are they cancellations? Is there, you know, a demand sentiment here where they're just, you're seeing this ripple through where you're getting delays in decision making? Just kind of that bigger context of how we look at all these pockets and is there a bigger trend here?
spk21: Thanks for that question, Dean. No cancellations, so let me just hit that up front. We've seen no cancellations in our backlog in our business. The only meaningful change is utility and our view of broadband recovery, but principally utility. We had expected, you know, we had a bit of kind of slowdown in purchases in utility that started in the fourth quarter. continued into the first quarter, we thought that would start to kick back into a more normal purchase run rate in the second quarter. It has not occurred. And, you know, I think an important point is on our UVS page. It's in our outlook deck. Two-thirds of our customers in the U.S., we have sales down in the quarter. So that's a very good indication of the overall utility market. And so we just see that being extending through the second half, and that's based on discussions with our utility customers. I think, again, given our size scale and leading value proposition in utility, I think we have very good insight into kind of exactly what customer purchasing patterns are. But back to the balance of the business, you can think of the kind of the momentum vector as consistent with Q1. EES is stable. Slight improvement versus Q1. Construction stable. Industrial, great opportunity. Pipeline, just a little bit of moderation in the day-to-day MRO, but I think that's in phase or in alignment with the overall market dynamics. OEM improving momentum-wise as we move out of Q1 and Q2. And if you look at EES, too, I think very, very good – margin and cost management. So we're well positioned for continued margin expansion as future growth kicks in. And on CSS, we saw an acceleration. So data centers, AI-driven data centers started really picking up momentum. It's kicked into the double-digit growth range from single-digit growth in Q1. I know that was a lot of questions we had around why wasn't data centers growing at double digits? And it's great to see. And you'll recall from last quarter's call, We kind of took everyone through the value chain, the timing of gray space, white space, and then we'd see the benefit. And so we said there would be a bit of a lag there. So that's clearly kicking in. Great to see. Great to see that. And we expect that momentum vector to continue. And so that's the other two businesses. So there's a little more color, Dean. Hopefully that's helpful. The big delta is utility not coming back in the second half.
spk10: And just to clarify on the utility, how much of that is project delays and pushouts versus the kind of extended destocking that's been going on for multiple quarters?
spk21: So the destocking continues. I wouldn't say it's project delays. The dynamic that's occurring is, you know, with all the inflation that's occurred across our economy and value chain over the last couple of years, The capital spending that was approved is still getting executed by the utilities, but those dollars are not going as far. So it's not that the current projects underway are getting stretched out or slipped or kind of extending. The new projects are not kicking in. And I think what we're seeing is kind of the overall – and impact on our served markets, adjusting to, you know, the elevated interest rates that increased, tightened lending standards, even the strong dollar. You're kind of seeing that kind of ripple through. And I think that's what's impacting utilities. Seeing a little bit of resi construction weakening. You're seeing that in the industrial kind of trending sideways, you know, That ISM number is a pretty notable number. You know, 19 of the last 20 months it's been in contraction territory. So I think that speaks to the overall economic environment being mixed in multi-speed.
spk10: All right, that's all really helpful. And just one last question related to the data center growth. That is right now in that kind of mid to high teens, that's the sector, that vertical growth that we would expect. Just talk about the margins for that data center business for you versus the segment average. I would have thought there'd be more of an offset to the other areas, but it looks like you're not getting that.
spk21: So where does the data come from? So in the quarter, when you think about the operating groups that are part of CSS, it's enterprise network infrastructure, it's our WDCS, or data center business and security solutions, the gross margins of our data center business and our security business actually improved in the quarter year over year. It was the enterprise network infrastructure that we had the contraction and Dave kind of went through the details on that in his opening comments. I think as that increasingly grows, Dean, you know, again, and as Dave mentioned, which I'll reiterate, you know, our view on CSS margins are going forward, we expect, you know, stability. We're working to improve those. And with the accelerating growth, we'll get increased operating leverage, you know, down to the EBITDA line for CSS.
spk11: Thank you.
spk33: Thank you. And our next question comes from Sam Darkatch with Raymond James. Please go ahead.
spk08: Good morning, John. Good morning, Dave. How are you?
spk02: Morning, Sam.
spk07: First question, you've taken a $300 million, $300 to $400 million cut in your sales guidance. You're cutting EBITDA by $150. That's obviously way more than your normal decremental margin. Just trying to get a sense as to why that might be so high, and then also with keeping free cash flow guidance intact? What's the incremental benefit to free cash flows with the $150 million take down and EBITDA to get to your intact free cash flow guide?
spk13: Yes. Let me first address the changes to the guidance.
spk15: And at the midpoint, you know, we're coming down about $450 million of sales at the midpoint. as we called out, the majority of that is really driven by utility and broadband solutions. We also did not perform to our expectations in the first half of the year. Clearly, we missed the consensus in the second quarter by just under $100 million. So those are the real drivers of the sales coming down. When you take a look at the decremental margin for that decline. It is heavier than we would historically count on. One of the things that I'll highlight here is the utility and broadband solutions business is our high adjusted EBITDA margin business. So as we're taking out the majority of the sales for that, that is having a disproportionate effect on the decremental margins. On top of that, we're recognizing that our results were soft in the first half of the year relative to our initial outlook. We're also recognizing that given that our sales are coming down, there will be some pressure on our supplier volume rebates. So we are reflecting a reduction to the outlook to emphasize that given the slower than expected growth rate with this outlook, there will be pressure on gross margins because of the supplier volume rebates. On the margin side of this, we also need to take into account the loss the deleveraging of our operating platform. So as sales have come down, we've already taken cost reductions over the past 12 months. It's difficult for us to manage a significant reduction to cost in the back half of the year, keeping in mind that we want to make sure that we keep the capability to take advantage of the secular growth trends in the out years. But that operating leverage is also putting pressure on the EBITDA margin.
spk07: So the lower SVRs implies lower purchases, which implies lower inventories, which is why the free cash flow doesn't change?
spk15: Correct. So we would anticipate that given the shape of the curve on sales as we've guided to reported sales being sequentially down, low single digit to flat, we think we've given you the appropriate guide. So from a networking capital perspective, that's what gives us the confidence that we can hold the free cash flow outlook that we provided to you previously.
spk07: Got it. My last question, there's been some chatter in the channel about improper coordination and pricing between manufacturers of PVC pipe for electrical conduit. I'm almost positive this is a really small part of your business, but can you remind us what your sales in EBITDA mix is specific to electrical conduit?
spk15: Sam, if you're talking specifically about PVC-related conduit, I don't have that number in front of me. When you think about the pure commodity products across all product categories, it's mid-single-digit percentage of our revenue. PVC conduit would be, of course, a much smaller portion of that. We're not aware of anything from our suppliers. We've not been contacted by anyone about you know, this concern in the marketplace. So, you know, this is relatively new news to us. Thank you. Appreciate it.
spk33: Thank you. And our next question today comes from Tommy Moll with Stevens, Inc. Please go ahead.
spk29: Good morning, and thank you for taking my questions.
spk02: Morning, Tommy.
spk29: I'll have two on utility, one near term and one bigger picture. But on the near term, John, you've referenced this customer destocking for some time. Do you have any idea how far above typical the inventory there at your customer base sits today and how much farther we may have to go?
spk21: Yeah. You know, it's a great question. There are actually some you know, variation by customer. Now look that those customers typically run with, with inventory that is in a meaningful position to support, you know, running their business and supporting getting back up online quickly in response to storms. So there's, there's always meaningful inventory and the customer portion of that value chain. But I think it's just given the overall environment, we're seeing the pause on purchasing extending further than we thought. It varies pretty significantly, Tommy, across the customer base. But I would say in general, overall, they're just tight on their purchasing, and they're running those inventory levels down a bit.
spk29: Okay. Bigger picture on utility, this is a market that we've discussed benefiting from secular tailwinds for some time now. And there just seems to be a growing list of interruptions, maybe you could call it. You mentioned, John, what I'll call digesting some of this inflation, where maybe it's not the CapEx dollars impacted, but those dollars just don't go as far. You mentioned regulatory concerns, rates as potentially tying in to some of the more muted spending patterns. So what gives you the confidence that we'll see this end market resume what had not that long ago been a pretty brisk secular growth clip?
spk21: Yeah, that's a great question, Tommy. I have great confidence that I will call this a temporary pause. You know, if you think about the short, mid, and long term, and all the different secular trends that everyone's talking about, whether it's electrification or green energy, grid modernization, even recently the buzz around AI-driven data centers. When you look at all those secular trends, coupled with nearshoring and reassuring back to the U.S. and North America, The governing factor to enable all of that is power. So I'm very confident over the mid to long term that we have a significant step up in the power-demand curve, I'll call it. And so I think, you know, all the ambitions around AI and Gen-AI driven data centers, the ambitions around green energy, the ambitions around electrification, That step up results in a significant increase in demand that's going to pull on the whole value chain. And the governing item, the critically enabling item, is that way up the value chain is power generation and the distribution of that power. So the utilities play a critical role in enabling the secular growth. And I think, you know, we're going to see them, you know, in varying ways managing through that. This is not a one quarter or one year, you know, kind of ramp up. This is going to occur over a multi-year period and support these secular trends over the next decade and beyond. So, again, I'm very confident that it will get addressed. It has to get addressed. Again, if you look at the current state and fidelity of the power distribution transmission and distribution network, it is not positioned to meet the rising power demand curve and clearly not positioned to meet it with the reliability and sustainability requirements that are going to be required. So all that translates into a big step up in CapEx, Tommy, over time.
spk29: Thank you, John. I'll turn it back.
spk33: Thank you. And our next question today comes from David Manthe with Baird. Please go ahead.
spk17: Yeah, thank you. And John, to your point earlier, ISM July came out today 46.8. So it's just not pretty out there in industrial America today. But the question prior to the WIS divestiture, you said you expected full year 2024 gross margin to be higher than 2023. And if my math is right, I think the divestiture adds about 30 basis points to full year gross margin, which would put you up even higher, all else being equal. But taking into account the divestiture and the new guidance, do you generally still believe that 2024 gross margin can be higher than 2023?
spk13: Dave, good morning. Dave Schultz. We're not going to guide specifically to gross margin.
spk15: The one thing I will reiterate that your math on the impact of the integrated supply divestiture on gross margin for the year, that's right. It's about 30 basis points of improvement. I also mentioned in one of my previous responses that as we have downshifted the expectation for total sales of the company, primarily driven by utility and broadband solutions, that will put pressure on our ability to achieve supplier volume rebates, which will put some pressure on our gross margins, of course. So, yes, we are getting the benefit of the 30 basis points from the integrated supply divestiture. That will be partially offset or fully offset, depending on how you model the balance of this year, relative to gross margin. Again, we're not going to guide you specifically when you take a look at how we've provided you with the framework of a 7% to 7.3% adjusted EBITDA margin. I think depending on your point of view on the gross margin, we think that we have the appropriate outlook for adjusted EBITDA, and there could be some swings between gross margin and SG&A, of course, as we progress through the year.
spk17: Okay, that's fair. Second question on CSS EBITDA, which came in a little bit lighter than we thought for the second consecutive quarter. I think last quarter you attributed to slowing momentum in your core data comm. I assume that means the enterprise network infrastructure business. Were the margins there, the gross margins, as expected, and the downfall in CSS margins were related to lack of OpEx leverage? It sounds like you're investing there quite a bit. So I'm just wondering if we see a reacceleration in sales, will that solve itself? And then related, if you could just give us a rough breakdown of CSS between data center, network infrastructure, and security.
spk13: Yes, certainly. So let me start first with the margin expectations.
spk15: CSS did not meet our margin expectations in the second quarter. So, you know, we did not expect that we would have the drag from the project mix and the higher mix of direct shipments in the quarter. So, you know, we did not meet our expectations when we looked specifically at CSS adjusted EBITDA margin driven primarily by that gross margin. When I take a look at the composition of the profit quality, it really is a gross margin issue. We did not get the leverage on the top line, with the top line only up 1%. As we think about the balance of this year, we do anticipate that the margins will be stable, plus get the benefit of operating leverage on the top line. And then if I take a look at What is the mix within CSS? So enterprise network infrastructure is just under 40% of that strategic business unit. Security is also about 40%, the balance being in the data center side.
spk30: Very helpful. Thank you, Dave.
spk03: Thank you. And our next question comes from Ken Newman at KeyBank Capital Markets. Please go ahead. Sorry, I was on mute there. Can you hear me? Yes, morning, Ken.
spk11: Morning. So I just wanted to touch on some of the industrial end markets. Obviously, the PMI number was not that great, but just as you think about the destocking that you've already seen in the industrial OE business from a few quarters ago, how do you think about that maintained EES guide in the context of what we're seeing in the macro today?
spk21: I mean, we saw those results. So far, Ken, in Q1 and Q2. So I would say that the industrial market is not downshifting. The industrial is kind of trending sideways. This is a market comment. You know, a little bit of softness showed up in some other players that have reported this quarter. Depending on their mix of business, they may be seeing that differently than others. But, you know, fundamentally for industrial, we have announced Outstanding that portion of EES we have an outstanding opportunity pipeline our bidding and quoting and activity levels is strong We've just seen some moderation in the day-to-day MRO, but that didn't just kick in in q2 to your point I mean, we've seen that over the last last several quarters So I just think that extends, you know through the through the second half with all that said, you know given the construction plus industrial plus OEM. Our EES business showed good stability, and it showed some slight improvements in Q2 versus Q1. And I think, again, I want to emphasize this point. It's pretty important. When you look at both EES and UBS, even with sales that were down year over year, you know, we expanded operating margins in both of those two businesses. So I think for EES and industrial in particular, we're well positioned. The SP&A structure that's in place is what we need to take advantage of that market as it returns to growth in the future in a more meaningful way. And good cost management, good margin management. So I'm not seeing a step down. I'm just seeing it kind of trending sideways. Hopefully that helps.
spk11: Yeah, that's helpful, Culler. For my follow-up, Dave, I think last quarter you gave us a little bit of help on thinking about OPEX on a sequential basis. I'm curious if there's anything in particular that we should kind of be paying attention to from an OPEX perspective, 2Q to 3Q, or even from help on 3Q to 4Q. Yes, certainly.
spk15: The big thing to think about sequentially, Q2 to Q3, is in the second quarter, we recognize less expense than typical OPEX. on our stock-based compensation and other incentives. And so I would anticipate that there is a modest step-up in that expense in the third quarter. And then, of course, any adjustment for how you're modeling on the volumes. I mean, we've given you our point of view. But again, we have been aggressively managing structural cost takeout over the last 12 months. We will continue to be aggressive managing discretionary spend for the balance of the year.
spk03: Very helpful, thanks. Thank you.
spk33: And our next question comes from Patrick Bowman with JP Morgan. Please go ahead.
spk16: Hi, good morning. Quick one, a couple, quick couple here, I guess. The price that you talked about being up 2% for the company in the quarter, was there any big difference across the segments, or was it up kind of 2% in all the segments? And You know, then on the EES gross margin line, was there any benefit from commodity pricing in the quarter that could reverse in the second half? Because pricing, as you mentioned, was better. And I would have thought a slowdown in the day-to-day industrial MRO business there would have been a headwind to margin. So maybe any color in that would be helpful.
spk15: Yep, certainly. So on the overall company-level pricing, we disclosed a 1% benefit in the first quarter, a 2% benefit approximately here in the second quarter. The key difference between the quarters was the benefit of pure commodity pricing. And so when you think about us having that mid single digit exposure to pure commodities, we did get extra benefits sequentially from commodity. That would primarily be within our EES business. So both EES and UBS, saw continued benefit from price in the second quarter.
spk03: The CSS pricing was slightly negative. Hello? Go ahead. Oh, sorry. Did that answer your question?
spk16: No, no, no. I think it says that was part of the question. The other part was the ES gross margin. Was there a benefit? there from commodity pricing because your day-to-day industrial MRO business sounded like it was weaker and I would have thought that would have been a headwind to margin there, but it sounds like the gross margin was more resilient.
spk15: The commodity impact was really not material to the EES gross margin. Again, we have a very modest percentage of our mix in EES is commodity-related. And, again, we're an average with inventory company. Those commodity costs have been going up and down over the last six months. So, you know, really no substantial benefit because of commodities on the EES gross margin.
spk21: And, Patrick, remember, too, on the industrial portion of the business, we go to market, you know, not for all of industrial, but a good portion of that is national account or global account programs, you know, which are multi-year in nature. which is a services component. And so when you just think about the margin mix of industrial, that doesn't move lockstep with commodities on a weekly basis.
spk16: Okay. And then my follow-up is on the July decline of low single digits, if you could help us. understand how the different segments performed relative to that, and then also if there was anything unusual that you saw or any unusual performance in different markets that you saw that impacted that growth rate.
spk15: Yeah, so those are preliminary numbers, so I don't want to provide a breakdown by units because there's a lot of things that could change in the last couple of days of a quarter and when we actually closed the books officially. But the one thing that I'll highlight is when you take a look sequentially in the second quarter, where we saw the big step up in that sequential sales growth, we were up about 5% organically sequentially in the second quarter. That was with double-digit sequential growth on a sales per workday basis within CSS. And given how we're viewing the market opportunity, if you compare the front half versus the back half and what we've guided for the full-year reported sales, that would provide you with a little bit of how things are shaping. I would say July was in line with the full-year outlook that we've provided you. Nothing significantly different from the trend from the second quarter or any impact to our full-year outlook.
spk03: Thank you. Thank you.
spk33: And our next question comes from Nigel Coe at Wolf Research. Please go ahead.
spk06: Thanks. Good morning, everyone. Thanks for the question. So, I mean, keeping it a little bit short term here, but, you know, the thing about the third quarter guide, you know, flat to down, low singles, which wouldn't be out of step with, you know, history, but we do have that extra day in the third quarter. So just wondering if that's the message here that you're, baking in essentially weaker seasonality, you know, reflective of the macro. Is that the message? And then, you know, your guidance for flattish EBITDA margins, if sales are down sequentially, I would have expected, you know, margins to be down a little bit as well. So I guess what will be the offset if volumes are coming in the weaker QBQ?
spk15: Yes, certainly. So, Nigel, let me first address, you know, based on the outlook for reported sales in In the third quarter, yes, we are coming off the typical seasonality. I think the trends that we saw through the first half of the year, our market outlook for primarily the utility and broadband solutions business, we believe that that's the appropriate way of viewing this. So, yes, it is coming off of that typical seasonality. As we mentioned earlier, the high end of the guide takes into account more of the typical seasonality. But we believe that we've got the right framing for the third quarter based on input from our business units and how we see the month shaping up within the quarter. From a margin perspective, we did mention that we would expect the margins to be relatively stable Q2 to Q3. Again, I think that that's where I would leave this one is the margins are relatively stable. And some of that will be impacted, of course, by the mix of the businesses. But, you know, we think that that's the appropriate framework for the third quarter.
spk06: Thanks, David. And then I want to go back to the utility outlook. I mean, you know, it's definitely coming in weaker than we would have expected. Maybe just try and pass out in a bit more detail, you know, how much of this is destocking activity by the customers themselves versus genuine, you know, weakness in spending. Just trying to figure out what changes in the back half of the year.
spk21: Yeah, I just, again, I'd reinforce that question. I'll reinforce the comment I made earlier. You know, it kind of varies by customer, but it clearly is just, you know, kind of putting a freeze on purchasing, running down their current inventory levels. It is destocking. And they can do that at any given point in time because they always run with meaningful inventories. And then the dynamic is on, you know, not that they're delaying projects. It's just that Given inflation, they're executing the current projects that are underway, but there seems to be a bit of pause on the new projects kicking in. Again, I will say this is absolutely a temporary pause in our view. It's temporal. And I already talked about my view and our team's view of the mid- to long-term outlook. It is the critical enabler. I'll say it again. Utility, power generation, and the utilities are a critical enabler to realize all these secular trends, the growth of those.
spk05: Without that, you're not going to see it.
spk19: You're not going to see it. So it pays for them.
spk05: Great. Thanks, Tom. Cheers.
spk33: Thank you. And this concludes our question and answer session. I'd like to turn the conference back over to John Engel for any closing remarks.
spk21: Thank you all. I think we were able to get through all your questions today, so I'll bring the call to a close. Thank you for all your support. It's very much appreciated. We have a very full schedule of follow-up calls today and tomorrow, and we do look forward to speaking with many of you over the next couple months. We'll be attending the KeyBank Technology Leadership Forum next week on August 6th, as well as the Raymond James Industrial and Energy Showcase on August 8th. and the Jeffries Industrial Conference on September 4th. In addition, we look forward to providing an in-depth update on our long-term strategy at our Investor Day. The last Investor Day we held was in 2022, so we'll hold our Investor Day on September 6th, as Dave mentioned earlier. And then finally, we expect to announce our third quarter on Thursday, October 31st.
spk20: So with that, thank you, and have a good day.
spk33: Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day. Thank you. Thank you. Thank you.
spk00: Thank you.
spk33: Hello and welcome to WESCO's 2024 Second Quarter 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 that this event is being recorded. I will now hand the call over to Scott Gaffner, Senior Vice President, Investor Relations, to begin.
spk04: 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 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 about these measures is available on our webcast slides and in our press release, both of which are posted on our website, Wesco.com. On the call this morning, we have John Engel, Wesco's Chairman, President, and Chief Executive Officer, and Dave Schultz, Executive Vice President and Chief Financial Officer. With that, I'll turn the call over to John.
spk21: Thank you, Scott. Good morning, everyone. Thank you for joining our call today. Our second quarter results were somewhat below our expectations for a low single-digit decline in reported sales, and this was against a continued mixed and multi-speed economic environment. Results improved, however, as we moved through the quarter with a return to organic sales growth in June, and that was accompanied by improvement in gross and operating margins on a sequential basis. With our record $500 million of free cash flow generation in the first half, we're on track to deliver our full year free cash flow outlook of $800 million to $1 billion. As planned, we executed our capital allocation strategies and repurchased $300 million of our Westco stock in the second quarter. We also closed on two small but important software-based acquisitions, EntraSim being the first one, a data center and building intelligence software company, and StoreroomLogix, the second acquisition, an asset and inventory management software company. I think it's important to note that M&A remains a critical component of our enterprise growth strategy as we continue to benefit from our global capabilities, our leading scale, and our expanded portfolio and continue our move towards our long-term EBITDA margin expansion goal. The digital transformation... that we're currently executing will enable us to increase shareholder value through a combination of cost efficiencies, additional cross-sell opportunities, and rapid integration of future acquisitions. We look forward to sharing more details on these critical aspects of our growth strategy at our investor day next month. Dave will walk you through the details of our three businesses momentarily, but I first wanted to touch on a few noteworthy aspects of the quarter. Growth in our data center business was strong, and it was up high teams versus the prior year. We continue to capture share and benefit from the secular growth of global data centers, and the increase is driven by AI and Gen AI applications. This growth was more than offset by a significant slowdown in purchases by our utility customers as a result of destocking and project delays in the second quarter. While we remain confident in the long-term growth of our utility and broadband solutions business, we do expect the mixed economic environment and customer purchasing delays in our UBS business to continue through the second half of 2024. As you saw from our materials, we've reduced our full-year outlook to reflect this change. With that said, overall quoting, the inactivity levels, and our overall backlog remains healthy and it supports our view for sales growth in the second half against an easier year-over-year comparable, but at a more modest rate than our previous outlook. So with that, I'll now hand it over to Dave to take you through our second quarter results in more detail, as well as our updated outlook for the rest of the year. Dave. Thank you, John.
spk15: Good morning, everyone. Turning to page four. As John noted earlier, our second quarter results were below our low single-digit expected decline in reported sales, against a continued mixed and multi-speed economic environment. The primary driver of the top line miss was market weakness in utility and broadband, leading to an organic sales decline of less than 1% versus the prior year. This includes approximately a 2% benefit from price, offset by lower volumes. Pricing was a tailwind in both EES and UBS, including the benefit from higher commodity costs, while pricing in CSS was slightly negative. The divestiture of the integrated supply business was a year-over-year impact of 350 basis points, and differences in foreign exchange rates were a minor headwind. I'll provide more color on the sales drivers in the next few slides. On the lower half of the page, you can see the adjusted EBITDA impacts of lower sales, partially offset by gross margins. Gross margin was up 30 basis points over the prior year on a reported basis. As discussed in the prior quarter earnings call, the integrated supply business had a lower gross margin than the balance of the company. The year-over-year improvement in the gross rate was primarily due to the mixed benefit of the divestiture. Gross margin excluding this benefit was down slightly and entirely due to lower gross margin in our CSS business. Growth margins in EES and UBS, excluding the impact of the integrated supply divestiture, were up versus the prior year. Excluding the impact of the integrated supply divestiture, adjusted SG&A increased slightly due to the annual merit increase, partially offset by cost actions taken in previous quarters. Turning to page five. On a sequential basis, organic sales were up approximately 5%, with all three SBUs contributing. The integrated supply divestiture and differences in foreign exchange rates were a combined headwind of 390 basis points, offset by 160 basis points due to one additional workday in the second quarter. As you can see on the chart on the bottom of the page, adjusted EBITDA margins were up 90 basis points from the first quarter. All three SBUs posted sequential improvements of 50 to 130 basis points. Gross margin was up 60 basis points sequentially due to the integrated supply divestiture, as well as favorable cash discounts and inventory adjustments. As I mentioned earlier, gross margin expanded sequentially in both EES and UBS, offset by weaker gross margins within our CSS business. The SG&A impact on the sequential improvement to adjusted EBITDA was neutral, as the benefit of the integrated supply divestiture offset the annual merit increase effective on April 1st. SCMA as a percentage of sales improved sequentially due to operating leverage on higher sales. Turning to page six, this is a slide we first showed last quarter and supports that Wesco has outperformed both our supplier partners and our distributor peers over the past few years. The chart on the left compares Wesco's year-over-year organic growth to the average organic growth of our 10 largest publicly traded supplier partners, weighted to the proportion of our purchases that they represent. You can see that Wesco has outperformed the supplier average since the middle of 2021. The chart on the right compares Wesco's year-over-year organic growth to the electrical and data communications distributors in the Bayer Distribution Survey which is published quarterly. We think these two data sets clearly demonstrate that our growth has exceeded our peers and we have outperformed the market over the last three years. Turning to slide seven, second quarter organic sales in our EES business were down about 1% on both an organic and reported basis. But more importantly, we have seen a stabilization in the top line which has allowed the business to leverage the cost actions taken over the last year. Organic sales improved each month as we moved through the second quarter. Additionally, our EES sales in Canada were up low single digits due to some large project wins, and we continue to see significant growth in the EES international markets. Similar to the first quarter, construction sales were down low single digits due to continued weakness in solar, partly offset by growth from large project shipments. Industrial sales were up low single digits with strong project activity offset by some weakness in day-to-day MRO, consistent with recent market data in the U.S. OEM sales were down low single digits. Backlog was down about 2% on a sequential basis and down about 9% from the prior year. This represents normal seasonality for backlog as orders taken in Q4 and Q1 are converted into revenue in Q2 and Q3. Lastly, as anticipated, EES adjusted EBITDA margin continued to improve and was up approximately 40 basis points driven by higher gross margin, benefits of cost actions taken in 2023 and 2024, and continued cost controls. Turning to slide eight. While CSS sales in the quarter were generally in line with our expectations, adjusted EBITDA margin was impacted by the mix of sales, which I'll explain shortly. Second quarter sales in CSS were up approximately 1% from the prior year on both an organic and reported basis. We are encouraged by the growth acceleration in our data center business. Data center sales were up high teens in the second quarter versus the prior year, and acceleration from the first quarter where year-over-year sales were up low single digits. Growth was broad-based with all end users, hyperscale, multi-tenant, and enterprise data center customers. The growth opportunity of this business continues to be exceptionally strong given the step change in data center capacity driven by artificial intelligence. Enterprise network infrastructure, which comprises structured cabling, and Internet service providers was down low single digits due to declining sales to service providers, as well as weakness in commercial office space. Security sales were down mid-single digits, driven by a general slowdown in non-residential commercial construction and weaker office space activity. The security market has contracted over the past few quarters, but we expect it will grow in the second half of this year as comparisons ease significantly, particularly in the fourth quarter. CSS backlog continues to climb after normalizing last year due to lead time compression and increased product availability. Backlog was down 4% versus the prior year, but up 13% from the end of 2023 and up 8% sequentially from the last quarter. Adjusted EBITDA margin for CSS was down 160 basis points. The primary driver of the decrease was gross margin in the enterprise network infrastructure business. Several factors drove the CSS EBITDA margin contraction versus the prior year. First, customer mix. We had a higher mix of shipments in support of large programs that are below the average CSS gross margin, including a higher percentage of direct ship projects. As I mentioned previously, sales were generally in line with our expectations overall. The day-to-day business was slower than anticipated, which has a higher margin. While we were able to make up the sales with projects, the mix of sales impacted margins. Second, additional sales through channel. In the second quarter, we worked with our suppliers to service several large projects that historically were sold direct to the end user by the supplier. This is the result of customers looking to consolidate their supplier base and and take advantage of our global one-stop shop capabilities. In the future, we anticipate winning more of these types of projects and expanding margin by adding additional services to our offering. Third, we built this business to deliver on the higher growth rates of secular trends. We have invested in people and capabilities to capture this growth, but with sales in the quarter up only 1%, we did not get the operating leverage we expect to get in the future. For the balance of the year, we expect stable gross margins and additional operating leverage in CSS. Turning to slide 9, organic sales in UBS were down 3% in the quarter, and reported sales were down 15% due to the integrated supply divestiture. The utility market is experiencing some short-term softness related to customer destocking and lower project activity which is a function of the current interest rate and regulatory environment. We expect these impacts to last through the end of the year. We continue to benefit from the secular trends of electrification, green energy, and grid modernization and believe that these trends will support growth acceleration as we move into 2025 and beyond. Broadband sales were down high single digits, reflecting continued demand weakness as customers continue to work through inventory and delay purchases until government funding is released. At present, it is difficult to call the bottom in this market in the U.S., but we are driving growth in our Canadian operations. We expect this market to improve in 2025 with the timing of broadband equity access and deployment, or B dollars, getting spent. Backlog was down 15% from the prior year and down 10% on a sequential basis as there has been a delay on projects being converted from the opportunity pipeline into backlog. Adjusted EBITDA margins were healthy despite the near-term top-line headwinds. EBITDA margins were favorable approximately 90 basis points versus the prior year, driven by the divestiture of integrated supply and improvements to gross margin in the core business. Turning to page 10. On this slide, we have highlighted a recent win by each of our business units that, in aggregate, represent more than $100 million of future project sales. These examples reinforce the positive trend of our bidding and cross-sell activity to win increasingly large, complex projects. Also worth noting are the end markets that these projects serve, a major power plant retrofit, a cloud data center project, and a large renewable energy project. Moving to slide 11. On this slide, we have outlined our return to capital to shareholders over the past three years, along with our capital allocation priorities for 2024 and the long term. We said we intended to use the full $300 million of after-tax proceeds from the integrated supply divestiture for share repurchases in the second quarter, and we hit that target. In addition, Our 2024 free cash flow outlook of $900 million at the midpoint provides us with options to opportunistically repurchase additional shares, reduce debt, and or pursue M&A in the second half of the year. Recall that we provided a five-year outlook for operating cash flow generation of $3.5 to $4.5 billion at our investor day in 2022. We remain on track to achieve this target and expect to return approximately 40 percent of our operating cash flow to shareholders through dividends, including our common dividend, which we increased 10 percent in 2024, and executing our $1 billion share repurchase authorization. The upside's tax generation also allows us to continue to invest for organic growth and operational efficiency through our digital transformation. Turning to page 12, historically, strong free cash flow has been a hallmark of Wesco in our distribution business model. With the significant sales growth we delivered in 2021 and 2022, we invested heavily in networking capital and we're well below our expected free cash flow conversion. We delivered strong free cash flow beginning in the back half of 2023 in which the company generated approximately $400 million. This has been followed by free cash flow generation of $500 million in the first half of 2024, a record for Wesco. On a trailing 12-month basis, which this chart bridges to adjusted net income, free cash flow is more than $900 million with more than $80 million of cash generation from net working capital. Now moving to page 13 for the key drivers of our strategic business units. We are reducing our top line organic growth forecast, primarily driven by market conditions in our utility and broadband markets. Looking specifically at UBS, in 2022 and 2023, we generated double digit growth in utility. The recent softness is coming off a historically high base. We now expect the utility business to be down low to mid single digits versus a high single digit increase previously. This is driven by a change in market conditions due to continued customer destocking and lower project activity. However, if you look at long-term capital expenditure budgets for the utility market to address the rising power demand curve, there is strong momentum for this business to significantly surpass the historical growth rates over the long term. For broadband, we had assumed that we would see the market recover by the end of 2024, with growth in our Canadian business offsetting continued weakness in the U.S. However, the spending of B dollars continues to be delayed. Due to customer destocking and delays of purchases until government dollars are released, we now expect our broadband sales to be down high single digits versus our previous outlook of down low single digits. Within EES, our overall forecast remains largely unchanged. In 2024, we expect EES reported sales growth to be flat to up low single digits as construction and markets remain pressured despite an increase in large project activity. The industrial business is expected to benefit from continued growth in many of the end market verticals we support, but the recent softness in our day-to-day business has moderated some of the expected upside. OEM is expected to be roughly flat. Looking at our CSS segment, we generated accelerating growth in our data center business in the second quarter, which was up high teens versus a low single-digit increase in the first quarter. We now expect our data center business to be up mid-teens for the full year, and based on share gains and security, we expect to outgrow the market and for the business to be relatively flat based on strong comparisons in the second half of 2023. Lastly, our enterprise network infrastructure is expected to be up low single digits. Moving to slide 14 for our 2024 outlook. As we noted earlier, while we still see a long-term secular growth opportunity in utility, the market has downshifted. Based primarily on the reduction to the utility market forecast, along with continued delays in the broadband market recovery, we are reducing the range and adjusting our reported top-line outlook to down 1.5% to down 3.5% versus the prior year. As we noted on the previous slide, the change to the top-line outlook is entirely driven by a shift in market conditions. Adjusting for the impact of integrated supply divestiture and foreign exchange, we expect organic sales to be down 1.5% to up 0.5%. This translates into total revenue for 2024 of $21.6 to $22 billion. At the midpoint of the range, price is expected to contribute about one point to the top line with volume slightly negative. Due to the lower sales outlook, along with our results here to date, we are reducing our full-year EBITDA outlook to $1.55 billion versus $1.7 billion and an adjusted EBITDA margin range of 7 to 7.3%. We are also adjusting our outlook for adjusted EPS to a range of $12 to $13. We feel that this updated outlook is appropriate given the mixed economic environment and our current business results. Additionally, we are reaffirming our previously increased outlook for free cash flow to be in the range of $800 million to $1 billion. This free cash flow outlook represents the highest free cash flow in our history and more than 100% of adjusted net income. We have assumed in our free cash flow outlook that net working capital days improve and continue to target a three-day improvement to inventory days outstanding. On leverage, we finished the second quarter at 2.9 times trailing 12-month EBITDA, We now expect leverage to improve slightly through the balance of the year, but to end above the high end of our 1.5 to 2.5 times range. Turning to page 15, this slide shows the year-over-year monthly and quarterly sales growth comparisons for the past 18 months and our expectations for the third quarter. Sequentially, we expect reported sales to be flat to down low single digits. EBITDA margins should also be stable sequentially with the second quarter as we continue to manage cost effectively in a mixed economic environment. Preliminary July sales per workday were down low single digits versus the prior year, excluding the impact of the integrated supply divestiture in the base period. The sales outlook at the midpoint of the third quarter and the balance of the year assumes the current run rate of sales continues. while the high end of the guidance range assumes more normal seasonality. Turning to slide 16, before we open it up for your questions today, I wanted to highlight our upcoming investor day on Thursday, September 26, from 9 to 11.30 a.m. Central Time. We will be giving an update on our digital transformation with more details on what we are executing and the benefits to our customers, suppliers, employees, and our investors. We will also discuss the path to our long-term goal of a 10% EBITDA margin. And finally, we will talk in more detail around our upsized cash generation and how we intend to use this cash flow to increase investment returns. With that, operator, we can now open the call to questions.
spk33: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. Please limit your questions to one question and one follow-up. Today's first question comes from Dean Dre with RBC Capital Markets. Please go ahead.
spk10: Thank you. Good morning, everyone.
spk33: Morning, Dean.
spk10: Maybe we can start with the pockets of weakness. And in your release, the slides and the commentary, everything you talked about, we've heard before in terms of being weak spots, construction, solar, utility, and the telecom broadband. So there's nothing relatively new here from a vertical getting weaker. But just talk about within the context of your expectations, is it the duration of the slowing in these pockets lasting longer? Is the magnitude getting worse? you know, when you talk about project delays, are they cancellations? Is there, you know, a demand sentiment here where they're just, you're seeing this ripple through where you're getting delays in decision making? Just kind of that bigger context of how we look at all these pockets and is there a bigger trend here?
spk21: Thanks for that question, Dean. No cancellations. So let me just hit that up front, we've seen no cancellations in our backlog or our business. And the only meaningful change is utility and our view of broadband recovery, but principally utility. We had expected, you know, we had a bit of kind of slowdown in purchases and utility that started in the fourth quarter. continued into the first quarter we thought that would start to kick back into a more normal purchase run rate in the second quarter it has not occurred and you know i think an important point is on on our ubs page it's in our outlook deck two-thirds of our customers in the us we have sales down in the quarter so that's a very good indication of the overall utility market and so we just see that being extending through the second half and that's based on discussions with our utility customers i think again given our size scale and leading value proposition and utility i think we have very good insight into kind of exactly what customer purchasing patterns are but back to the balance of the business you can think of the kind of the momentum vector is consistent with q1 ees is stable um slight improvement versus Q1. Construction stable, industrial, great opportunity, pipeline, just a little bit of moderation in the day-to-day MRO, but I think that's in phase or in alignment with the overall market dynamics. OEM improving momentum-wise as we move out of Q1 and Q2. So if you look at EES, too, I think very, very good – margin and cost management. So we're well positioned for continued margin expansion as future growth kicks in. And on CSS, we saw an acceleration. So data centers, AI-driven data centers started really picking up momentum. It's kicked into the double-digit growth range from single-digit growth in Q1. I know that was a lot of questions we had around why wasn't data centers growing at double digits? And it's great to see. And you'll recall from last quarter's call, We kind of took everyone through the value chain, the timing of gray space, white space, and then we'd see the benefit. And so we said there would be a bit of a lag there. So that's clearly kicking in. Great to see. Great to see that. And we expect that momentum vector to continue. And so that's the other two businesses. So there's a little more color, Dean. Hopefully that's helpful. The big delta is utility not coming back in the second half.
spk10: And just to clarify on the utility, how much of that is project delays and pushouts versus the kind of extended destocking that's been going on for multiple quarters?
spk21: So the destocking continues. I wouldn't say it's project delays. The dynamic that's occurring is, you know, with all the inflation that's occurred across our economy and value chain over the last couple of years, The capital spending that was approved is still getting executed by the utilities, but those dollars are not going as far. So it's not that the current projects underway are getting stretched out or slipped or kind of extending. The new projects are not kicking in. And I think what we're seeing is kind of the overall – economy and impact on our served markets, adjusting to, you know, the elevated interest rates that increased, tightened lending standards, even the strong dollar. You're kind of seeing that kind of ripple through. And I think that's what's impacting utilities. Seeing a little bit of resi construction weakening. You're seeing that in the industrial kind of trending sideways, you know. That ISM number is a pretty notable number. You know, 19 of the last 20 months it's been in contraction territory. So I think that speaks to the overall economic environment being mixed in multi-speed.
spk10: All right, that's all really helpful. And just one last question related to the data center growth. That is right now in that kind of mid to high teens, that's the sector, that vertical growth that we would expect. Just talk about the margins for that data center business for you versus the segment average. I would have thought there'd be more of an offset to the other areas, but it looks like you're not getting that.
spk21: So where does the data come from? So in the quarter, when you think about the operating groups that are part of CSS, it's enterprise network infrastructure, it's our WDCS infrastructure, let's go to data center solutions, or data center business and security solutions, the gross margins of our data center business and our security business actually improved in the quarter, year over year. It was the enterprise network infrastructure that we had the contraction, and Dave kind of went through the details on that in his opening comments. So I think as that increasingly grows, Dean, you know, again, and as Dave mentioned, which I'll reiterate, you know, our view on CSS margins are going forward, we expect, you know, stability. We're working to improve those. And with the accelerating growth, we'll get increased operating leverage, you know, down to the EBITDA line for CSS.
spk11: Thank you.
spk33: Thank you. And our next question comes from Sam Darkats with Raymond James. Please go ahead.
spk08: Good morning, John. Good morning, Dave. How are you?
spk02: Morning, Sam.
spk07: First question, taking a $300 million, $300 to $400 million cut in your sales guidance, you're cutting EBITDA by 150. That's obviously way more than your normal decremental margin. Just trying to get a sense as to why that might be so high. And then also with keeping free cash flow guidance intact, what's the incremental impact
spk15: uh benefit to free cash flows with the 150 million dollar takedown to get to your intact free cash flow uh guide yes sam let me first address the the changes to the guidance and at the midpoint you know we're coming down about 450 million dollars of sales at the midpoint as we called out, the majority of that is really driven by utility and broadband solutions. We also did not perform to our expectations in the first half of the year. Clearly, we missed the consensus in the second quarter by just under $100 million. So those are the real drivers of the sales coming down. When you take a look at the decremental margin of for that decline. It is heavier than we would historically count on. One of the things that I'll highlight here is the utility and broadband solutions business is our high adjusted EBITDA margin business. So as we're taking out the majority of the sales for that, that is having a disproportionate effect on the decremental margins. On top of that, we're recognizing that our results were soft in the first half of the year relative to our initial outlook. We're also recognizing that given that our sales are coming down, there will be some pressure on our supplier volume rebates. So we are reflecting a reduction to the outlook to emphasize that given the slower than expected growth rate with this outlook, there will be pressure on gross margins because of the supplier volume rebates. On the margin side of this, we also need to take into account the deleveraging of our operating platform. So as sales have come down, we've already taken cost reductions over the past 12 months. It's difficult for us to manage a significant reduction to cost in the back half of the year, keeping in mind that we want to make sure that we keep the capability to take advantage of the secular growth trends in the out years. But that operating leverage is also putting pressure on the EBITDA margin.
spk07: So the lower SVRs implies lower purchases, which implies lower inventories, which is why the free cash flow doesn't change?
spk15: Correct. And so we would anticipate that given the shape of the curve on sales as we've guided to reported sales being sequentially down, low single digit to flat, we think we've given you the appropriate guide. So from a networking capital perspective, that's what gives us the confidence that we can hold the free cash flow outlook that we provided to you previously.
spk07: Got it. My last question, there's been some chatter in the channel about improper coordination and pricing between manufacturers of PVC pipe for electrical conduit. I'm almost positive this is a really small part of your business, but can you remind us what your sales and EBITDA mix is specific to electrical conduit?
spk15: Sam, if you're talking specifically about PVC-related conduit, I don't have that number in front of me. When you think about the pure commodity products across all product categories, it's mid-single-digit percentage of our revenue. PVC conduit would be, of course, a much smaller portion of that. We're not aware of anything from our suppliers. We've not been contacted by anyone about you know, this concern in the marketplace. So, you know, this is relatively new news to us. Thank you. Appreciate it.
spk33: Thank you. And our next question today comes from Tommy Moll with Stevens, Inc. Please go ahead.
spk29: Good morning, and thank you for taking my questions.
spk02: Morning, Tommy.
spk29: I'll have two on utility, one near term and one bigger picture. But on the near term, John, you've referenced this customer destocking for some time. Do you have any idea how far above typical the inventory there at your customer base sits today and how much farther we may have to go?
spk21: Yeah. You know, it's a great question. There are actually some... you know, variation by customer. Now, look, those customers typically run with inventory that is in a meaningful position to support, you know, running their business and supporting getting back up online quickly in response to storms. So there's always meaningful inventory in the customer portion of that value chain, but I think it's just given the overall environment, we're seeing the pause on purchasing extending further than we thought. It varies pretty significantly, Tommy, across the customer base. But I would say in general, overall, they're just tight on their purchasing, and they're running those inventory levels down a bit.
spk29: Okay. Okay. Bigger picture on utility, this is a market that we've discussed benefiting from secular tailwinds for some time now. And there just seems to be a growing list of interruptions, maybe you could call it. You mentioned, John, what I'll call digesting some of this inflation, where maybe it's not the CapEx dollars impacted, but those dollars just don't go as far. You mentioned regulatory concerns, rates as potentially tying in to some of the more muted spending patterns. So what gives you the confidence that we'll see this end market resume what had not that long ago been a pretty brisk secular growth clip?
spk21: Yeah, that's a great question, Tommy. I have great confidence that I will call this a temporary pause. You know, if you think about the short, mid, and long term, and all the different secular trends that everyone's talking about, whether it's electrification, or green energy, grid modernization, even recently the buzz around AI-driven data centers. When you look at all those secular trends, coupled with nearshoring and reassuring back to the U.S. and North America, The governing factor to enable all of that is power. So I'm very confident over the mid to long term that we have a significant step up in the power-demand curve, I'll call it. And so I think, you know, all the ambitions around AI and Gen-AI driven data centers, the ambitions around green energy, the ambitions around electrification, That step up results in a significant increase in demand that's going to pull on the whole value chain. And the governing item, the critically enabling item, is that way up the value chain is power generation and the distribution of that power. So the utilities play a critical role in enabling the secular growth. And I think, you know, we're going to see them, you know, in varying ways managing through that. This is not a one quarter or one year, you know, kind of ramp up. This is going to occur over a multi-year period and support these secular trends over the next decade and beyond. So, again, I'm very confident that it will get addressed. It has to get addressed. Again, if you look at the current state and fidelity of the power distribution transmission and distribution network, it is not positioned to meet the rising power demand curve and clearly not positioned to meet it with the reliability and sustainability requirements that are going to be required. So all that translates into a big step up in CapEx, Tommy, over time.
spk29: Thank you, John. I'll turn it back.
spk33: Thank you. And our next question today comes from David Manthe with Baird. Please go ahead.
spk17: Yeah, thank you. And, John, to your point earlier, ISM July came out today 46.8, so it's just not pretty out there in industrial America today. But the question prior to the WIS divestiture, you said you expected full-year 2024 gross margin to be higher than 2023. And if my math is right, I think the divestiture adds about 30 basis points to full year gross margin, which would put you up even higher, all else being equal. But taking into account the divestiture and the new guidance, do you generally still believe that 2024 gross margin can be higher than 2023?
spk13: Dave, good morning. Dave Schultz here.
spk15: We're not going to guide specifically to gross margin. The one thing I will reiterate that your map on the impact of the integrated supply divestiture on gross margin for the year, that's right. It's about 30 basis points of improvement. I also mentioned in one of my previous responses that as we have downshifted the expectation for total sales of the company, primarily driven by utility and broadband solutions, that will put pressure on our ability to achieve supplier volume rebates, which will put some pressure on our gross margins, of course. So, yes, we are getting the benefit of the 30 basis points from the integrated supply divestiture. That will be partially offset or fully offset, depending on how you model the balance of this year, relative to gross margin. Again, we're not going to guide you specifically when you take a look at how we've provided you with the framework of a 7% to 7.3% adjusted EBITDA margin. I think depending on your point of view on the gross margin, I mean, we think that we have the appropriate outlook for adjusted EBITDA, and there could be some swings between gross margin and SG&A, of course, as we progress through the year.
spk17: Yeah, okay, that's fair. Second question on CSS EBITDA, which came in a little bit lighter than we thought for the second consecutive quarter. I think last quarter you attributed to slowing momentum in your core datacom. I assume that means the enterprise network infrastructure business. Were the margins there, the gross margins, as expected, and the downfall in CSS margins were related to lack of OpEx leverage? It sounds like you're investing there quite a bit. So I'm just wondering if we see a reacceleration in sales, will that solve itself? And then related, if you could just give us a rough breakdown of CSS between data center, network infrastructure, and security.
spk13: Yes, certainly. So let me start first with the margin expectations.
spk15: CSS did not meet our margin expectations in the second quarter. So, you know, we did not expect that we would have the drag from the project mix and the higher mix of direct shipments in the quarter. So, you know, we did not meet our expectations when we looked specifically at CSS adjusted EBITDA margin driven primarily by that gross margin. When I take a look at the composition of the profit quality, it really is a gross margin issue. We did not get the leverage on the top line, with the top line only up 1%. As we think about the balance of this year, we do anticipate that the margins will be stable, plus get the benefit of operating leverage on the top line. And then if I take a look at What is the mix within CSS? So enterprise network infrastructure is just under 40% of that strategic business unit. Security is also about 40%, the balance being in the data center side.
spk30: Very helpful. Thank you, Dave.
spk03: Thank you. And our next question comes from Ken Newman at KeyBank Capital Markets. Please go ahead. Sorry, I was on mute there. Can you hear me? Yes, morning, Ken.
spk11: Morning. So I just wanted to touch on some of the industrial end markets. Obviously, the PMI number was not that great, but just as you think about the destocking that you've already seen in the industrial OE business from a few quarters ago, how do you think about that maintained EES guide in the context of what we're seeing in the macro today?
spk21: I mean, we saw those results. so far, Ken, in Q1 and Q2. So I would say that the industrial market's not downshifting. The industrial is kind of trending sideways. That is a market comment. You know, a little bit of softness showed up in some other players that have reported this quarter. Depending on their mix of business, they may be seeing that differently than others. But, you know, fundamentally for industrial, we have announced Outstanding, that portion of EES. We have an outstanding opportunity pipeline. Our bidding and quoting and activity levels is strong. We've just seen some moderation in the day-to-day MRO, but that didn't just kick in in Q2, to your point. I mean, we've seen that over the last several quarters. So I just think that extends through the second half. With all that said, given... construction plus industrial plus OEM. Our EES business showed good stability, and it showed some slight improvements in Q2 versus Q1. And I think, again, I want to emphasize this point. It's pretty important. When you look at both EES and UBS, even with sales that were down year over year, you know, we expanded operating margins in both of those two businesses. So I think for EES and industrial in particular, we're well positioned. The SP&A structure that's in place is what we need to take advantage of that market as it returns to growth in the future in a more meaningful way. And good cost management, good margin management. So I'm not seeing a step down. I'm just seeing it kind of trending sideways. Hopefully that helps.
spk11: Yeah, that's helpful, Keller. For my follow-up, you know, Dave, I think last quarter you gave us a little bit of help on thinking about OpEx on a sequential basis. I'm curious if there's anything in particular that we should kind of be paying attention to from an OpEx perspective, 2Q to 3Q, or even from help on 3Q to 4Q. Yes, certainly.
spk15: The big thing to think about sequentially, Q2 to Q3, is in the second quarter, we recognize less expense than typical in on our stock-based compensation and other incentives. And so I would anticipate that there is a modest step-up in that expense in the third quarter. And then, of course, any adjustment for how you're modeling on the volumes. I mean, we've given you our point of view. But again, we have been aggressively managing structural cost takeout over the last 12 months. We will continue to be aggressive managing discretionary spend for the balance of the year.
spk03: Very helpful. Thanks. Thank you.
spk33: And our next question comes from Patrick Bowman with J.P. Morgan. Please go ahead.
spk16: Hi. Good morning. Quick one, a quick couple here, I guess. The price that you talked about being up 2% for the company in the quarter, was there any big difference across the segments or was it up kind of 2% in all the segments? And Then on the EES gross margin line, was there any benefit from commodity pricing in the quarter that could reverse in the second half? Because pricing, as you mentioned, was better. And I would have thought a slowdown in the day-to-day industrial MRO business there would have been a headwind to margin. So maybe any color in that would be helpful.
spk15: Yeah, certainly. So on the overall company-level pricing, we disclosed a 1% benefit in the first quarter, a 2% benefit approximately here in the second quarter. The key difference between the quarters was the benefit of pure commodity pricing. And so when you think about us having that mid single digit exposure to pure commodities, we did get extra benefits sequentially from commodity. That would primarily be within our EES business. So both EES and UBS, saw continued benefit from price in the second quarter. The CSS pricing was slightly negative.
spk03: Hello? Go ahead. Oh, sorry. Did that answer your question?
spk16: No, no, no. I think that was part of the question. The other part was the EES gross margin. Was there a benefit there from commodity pricing? Because your day-to-day industrial MRO business sounded like it was weaker, and I would have thought that would have been a headwind to margin there, but it sounds like the gross margin was more resilient.
spk15: No, the commodity impact was really not material to the EES gross margin. Again, we have a very modest margin. A percentage of our mix in EES is commodity-related. And, again, we're an average with inventory company. Those commodity costs have been going up and down over the last six months. So, you know, really no substantial benefit because of commodities on the EES gross margin.
spk21: And, Patrick, remember, too, on the industrial portion of the business, we go to market, you know, not for all of industrial, but a good portion of that is national account or global account programs. which are multi-year in nature, which is a services component. And so when you just think about the margin mix of industrial, that doesn't move lockstep with commodities on a weekly basis.
spk16: Okay. And then my follow-up is on the July decline of low single digits, if you could help us. understand how the different segments performed relative to that, and then also if there was anything unusual that you saw or any unusual performance in different markets that you saw that impacted that growth rate.
spk15: Yeah, so those are preliminary numbers, so I don't want to provide a breakdown by units because there's a lot of things that could change in the last couple of days of a quarter and when we actually closed the books officially. But the one thing that I'll highlight is when you take a look sequentially in the second quarter, where we saw the big step up in that sequential sales growth, we were up about 5% organically sequentially in the second quarter. That was with double-digit sequential growth on a sales per workday basis within CSS. And given how we're viewing the market opportunity, if you compare the front half versus the back half and what we've guided for the full-year reported sales, that would provide you with a little bit of how things are shaping. I would say July was in line with the full-year outlook that we've provided you. Nothing significantly different from the trend from the second quarter or any impact to our full-year outlook.
spk03: Okay, thank you. Thank you. And our next question comes from Nigel Coe at Wolf Research.
spk33: Please go ahead.
spk06: Thanks. Good morning, everyone. Thanks for the question. So, I mean, keeping it a little bit short term here, but, you know, the thing about the third quarter guy, you know, flat to down, low singles, which wouldn't be out of step with, you know, history, but we do have that extra day in the third quarter. So just wondering if that's the message here that you're, baking in essentially weaker seasonality, you know, reflective of the macro. Is that the message? And then, you know, your sort of guidance for flattish EBITDA margins, if sales are down sequentially, I would have expected, you know, margins to be down a little bit as well. So I guess what will be the offset if volumes are coming in the weaker QBQ?
spk15: Yes, certainly. So, Nigel, let me first address, you know, based on the outlook for reported sales in In the third quarter, yes, we are coming off the typical seasonality. I think the trends that we saw through the first half of the year, our market outlook for primarily the utility and broadband solutions business, we believe that that's the appropriate way of viewing this. So, yes, it is coming off of that typical seasonality. As we mentioned earlier, the high end of the guide takes into account more of the typical seasonality. But we believe that we've got the right framing for the third quarter based on input from our business units and how we see the month shaping up within the quarter. From a margin perspective, we did mention that we would expect the margins to be relatively stable Q2 to Q3. Again, I think that that's where I would leave this one is the margins are relatively stable. And some of that will be impacted, of course, by the mix of the businesses. But we think that that's the appropriate framework for the third quarter.
spk06: Thanks, David. And then I want to go back to the utility outlook. I mean, it's definitely coming in weaker than we would have expected. Maybe just try and pass out in a bit more detail how much of this is destocking activity by the customers themselves versus genuine weakness in spending. Just trying to figure out what changes in the back half of the year.
spk21: Yeah, I just, again, I'd reinforce, thanks for that question, Naz. I'll reinforce the comment I made earlier. You know, it kind of varies by customer, but it clearly is just, you know, kind of putting a freeze on purchasing, running down their current inventory levels. It is destocking. And they can do that at any given point in time because they always run with meaningful inventories. And then the dynamic is on, you know, not that they're delaying projects. It's just that Given inflation, they're executing the current projects that are underway, but there seems to be a bit of pause on the new projects kicking in. Again, I will say this is absolutely a temporary pause in our view. It's temporal. And I already talked about my view and our team's view of the mid to long-term outlook. It is the critical enabler. I'll say it again. Utility, power generation, and the utilities are a critical enabler to realize all these secular trends, the growth of those.
spk05: Without that, you're not going to see it.
spk19: You're not going to see it. So it pays for them.
spk05: Great. Thanks, Tom. Cheers.
spk33: Thank you. And this concludes our question and answer session. I'd like to turn the conference back over to John Engel for any closing remarks.
spk21: Thank you all. I think we were able to get through all your questions today, so I'll bring the call to a close. Thank you for all your support. It's very much appreciated. We have a very full schedule of follow-up calls today and tomorrow, and we do look forward to speaking with many of you over the next couple months. We'll be attending the KeyBank Technology Leadership Forum next week on August 6th, as well as the Raymond James Industrial and Energy Showcase on August 8th. and the Jeffries Industrial Conference on September 4th. In addition, we look forward to providing an in-depth update on our long-term strategy at our Investor Day. The last Investor Day we held was in 2022, so we'll hold our Investor Day on September 6th, as Dave mentioned earlier. And then finally, we expect to announce our third quarter on Thursday, October 31st.
spk20: So with that, thank you, and have a good day.
spk33: Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
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