Hello. And welcome to WESCO’s Fourth Quarter and Full Year 2022 Earnings Call. I would like to remind you that all lines are in listen-only mode throughout the presentation. Please note that this event is being recorded. I will now hand the call over to Scott Gaffner, Senior Vice President of Investor Relations. Please begin.

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

Thank you, Scott, and good morning, everyone. It’s a pleasure to be with you today. WESCO delivered a stellar encore performance in 2022, clearly demonstrating the power of our ongoing transformation and our ability to drive sustained growth and market outperformance. We again set new company records for sales, margin, and profitability, and reduced leverage to below 3 times for the first time since 2019. With this trajectory, we have taken a significant step forward in the achievement of our long-term 10% plus EBITDA margin target. We also delivered record quarterly free cash flow and reduced net working capital in the fourth quarter, notably on the strength of double-digit organic sales growth that exceeded our expectations. We are carrying very strong positive momentum into 2023, and I am confident that this year will be another transformational year, with advances in our digital capabilities, above-market growth, continued margin expansion, and record free cash flow generation that supports our capital allocation priorities. Now turning to page four. The strength of our business model and the success of our integration efforts over the past two and a half years have established a track record of superior results for our company. This page highlights our record 2022 results compared to the pro forma pre-pandemic results of legacy WESCO plus legacy Anixter in 2019. As you can see, we have clearly outperformed the market, delivering impressive sales growth and margin expansion while achieving record profitability all while rapidly deleveraging our balance sheet. Most importantly, our dedicated team of WESCO associates continues to provide resilient and critical supply chain solutions for our customers around the world, capturing the benefits of our exposure to sustainable secular growth trends that are both deep and drive our future sales and profitability. Turning to page five. This page outlines our noteworthy performance over the last six years and it starts with WESCO’s standalone results in 2017 and 2018. It’s then followed by the WESCO plus Anixter pro forma results in 2019 and 2020, which are followed by the results of the new WESCO, the result of combining WESCO and Anixter in 2021 and 2022. We delivered an impressive adjusted EBITDA CAGR of 24% from 2019 through 2022. These results would have been truly exceptional under normal circumstances, but they are even more impressive, given the tremendous challenges of combining two equal-sized Fortune 500 companies against the backdrop of the pandemic over the last two and a half years. Our three-year post-merger integration plan is coming to a close at the end of 2023, our digital transformation plan is progressing well, and we are on track to deliver advanced digital capabilities to create superior value for our customers and supplier partners as we continue our march towards becoming a double-digit EBITDA margin business. Now moving to page six for a quick update on Rahi Systems, the acquisition we completed on November 1st. Rahi’s performance in November and December was absolutely outstanding, with sales of $112 million, far exceeding our expectation of $65 million to $85 million in sales. For the full year 2022, Rahi generated approximately $480 million in sales, which is substantially higher than our trailing 12-month revenue of $400 million as of the end of September 2022. For 2023, the strong growth is expected to continue with sales up over 20%. Rahi is an excellent example of the type of acquisition that fits well within our strategy and our capital allocation priorities. It operates in a fast-growing market, is highly complementary to WESCO’s product and service capabilities, and it is easily integrated into our operations. Now shifting to page seven. As announced in our Investor Day last year, we substantially raised our free cash flow expectations for the new WESCO. This upsized cash generation of $3.5 billion to $4.5 billion through 2026 fully supports investing in our business for continued above-market growth, as well as increasing our capital return to shareholders. For 2023, our capital allocation priorities include initiating a common stock dividend, which we expect to begin paying this quarter, subject to the Board’s final review and approval, as well as continuing share repurchases under our current $1 billion share repurchase authorization. This represents our commitment to even higher shareholder returns and our strong confidence in the ongoing strength and future performance of WESCO. Overall, our stock price has performed well since closing the Anixter acquisition in June 2020, but we are still trading far below our expectations and intrinsic value, especially given our series of record-setting results and our overall positive business momentum. We look forward with greater confidence than ever to a future of sustained growth and market outperformance. With that, I will now turn the call over to Dave.

Thanks, John, and good morning, everyone. Thank you for joining our call. I will start on slide eight with a summary of our fourth quarter results compared to the prior year. As John mentioned, sales were an all-time fourth quarter record and cross-sell again exceeded our expectations. Our ability to cross-sell WESCO and Anixter products and services contributed more than $260 million of sales in the quarter. I will provide more details on cross-sell synergies in a moment, including an increase to our expectations for 2023. On an organic basis, sales were up 14% in the quarter, driven by a combination of strong price and volume, along with share gains largely attributable to our cross-sell initiatives. We estimate pricing added approximately 6 points to sales growth, with the benefit primarily in our UBS and EES businesses. On a reported basis, sales were up 15% as additional sales from Rahi were partially offset by a headwind due to differences in foreign exchange rates in the quarter. Supply chain challenges have continued to impact our business, although we are seeing signs of supply chain pressures easing in certain product categories. We continue to strategically invest in inventory to ensure we provide continuity of supply for our customers. Backlog continues to be at historically high levels. In total, backlog was up 44% year-over-year and was down approximately 1% sequentially from the end of September. The sequential change in backlog was primarily driven by increased availability of security products within our CSS business that allowed us to ship certain customer projects. As we start the first quarter, demand has continued to be strong. Preliminary reported January results are encouraging, with sales up approximately 17% year-over-year, including the impact of a stronger dollar, which is expected to negatively impact first quarter sales growth by about 2 points, and the Rahi acquisition providing about a 3-point benefit. Note that January is the easiest comparable of the first quarter as February and March were the primary drivers of last year’s 21% organic sales growth in Q1 of 2022. Gross margin was a fourth quarter record at 21.9%, up 110 basis points versus the prior year and down 20 basis points sequentially. This result was driven by our gross margin improvement program, a 40-basis-point benefit of higher supplier volume rebates in the quarter, the effective pass-through of supplier price increases, and the absence of a COVID-related PPE inventory write-down in the prior year period. Adjusted EBITDA, which excludes merger-related and integration costs, stock-based compensation, and other net adjustments, was another fourth quarter record and 41% higher than the prior year. Adjusted EBITDA margin was 8.1% of sales or 150 basis points above the prior year. This result was driven by the combination of increased gross margin, a scale benefit of higher sales, and realized cost synergies from our merger with Anixter. Adjusted diluted EPS for the quarter was $4.13, also a fourth quarter record and up 30% from the prior year. The primary driver of this increase was core operations as we recognized higher interest expense and a higher effective tax rate versus the prior year. Additionally, Rahi was accretive to EPS in the quarter with just two months of results. Turning to page nine. This slide bridges the year-over-year increase in sales and adjusted EBITDA. Organic sales increased 14% versus the prior year, including a 6% benefit from price in the quarter, along with volume growth in our markets. The contribution from price moderated in the quarter relative to the first nine months of the year, as there were fewer supplier price increases, while the year-over-year magnitude of these increases remained relatively unchanged. Compounding this growth was the impact of the $262 million we generated in cross-sell in the quarter, as well as continued share gains. Adjusted EBITDA increased 41% versus the prior year. Higher sales and expanded gross margin drove the majority of the increase, along with the realization of cost synergies in the quarter. Consistent with the first three quarters of the year, we continue to experience higher volume-related operating costs, including shipping and sales commissions, as well as higher expenses for employee benefits and incentive compensation. Finally, in accordance with our plan, we continued our strategic investments in systems and digital tools. Overall, we delivered strong operating leverage as we generated a 41% increase in adjusted EBITDA, almost three times our organic sales growth of 14%. Turning to page 10. This table compares our full year 2022 adjusted results to the prior year. For the full year, sales reached a record $21.4 billion or up 18% organically compared to 2021, including double-digit growth in each of our strategic business units. Gross margin was 21.8%, a new record for the company and 100 basis points higher than the prior year. Adjusted EBITDA was $1.726 billion, also a record level and 47% higher than 2021. As a percentage of sales, adjusted EBITDA was a record 8.1%, representing an increase of 160 basis points compared to 2021 and an increase of almost 300 basis points compared to 2019. Relative to the outlook we provided in early November, we came in at the high end of our organic sales range and slightly better on adjusted EBITDA margin. The operating beat also resulted in EPS above the high end of the outlook range. Turning to page 11. This slide provides the same sales and EBITDA bridges we reviewed a moment ago but for the full year 2022 results. Organic sales increased 18% versus the prior year, including an 8% benefit from price, along with growth in our markets. Compounding this growth was the impact of more than $850 million we generated in cross-sell, $500 million more than in 2021, as well as continued share gains. Adjusted EBITDA increased 47% versus the prior year to a record 8.1% of sales. Higher sales and expanded gross margin drove the majority of the $550 million increase in adjusted EBITDA. We also recognized the benefit of $270 million of cumulative cost synergies. As you would expect, in a strong demand and inflationary environment, we continued to experience higher volume-related operating costs, including shipping and sales commissions, as well as higher expenses for employee benefits and incentive compensation. Turning to slide 12. Sales in our EES segment were up 11% year-over-year in the fourth quarter on an organic basis. Of note is the sequential organic growth of 1% for the segment versus a normal seasonal sequential decline of low to mid-single digits. The sequential and year-over-year growth reflects continued strong construction sales driven by the ongoing recovery of the non-residential market, as well as momentum in our industrial and OEM end markets. Backlog was a record in the quarter, 41% higher than the prior year, and up 4% sequentially at the end of the quarter. Adjusted EBITDA was $198 million for EES, up 31% from the prior year. Adjusted EBITDA margin was 9.1%, 160 basis points higher year-over-year. The increase reflects continued gross margin expansion, strong cost synergy realization, and operating cost leverage. Full year sales were a new record, up 17% with record adjusted EBITDA that was 41% higher than the prior year. As a percentage of sales, adjusted EBITDA was 9.6% for the year, also a record and representing an increase of 170 basis points. Turning to slide 13. Sales in our CSS segment were a quarterly record, up 12% versus the prior year on an organic basis. Of critical importance was the building momentum that CSS experienced in Q4, as year-over-year organic sales growth accelerated in each month of the quarter. We saw stronger growth in network infrastructure driven by data center and hyperscale projects, as well as continued investments in cloud-based applications, professional audio-visual installations, and security solutions. Backlog was up 9% over the prior year and decreased 15% sequentially as we were able to release more projects from backlog due to improved availability of product and reduction in certain product category lead times. 2023 is off to a great start. Book-to-bill in January was significantly above 1.0 as demand for our products and services remains robust. Profitability was also strong, with record adjusted EBITDA and adjusted EBITDA margin of 9.6%, 130 basis points higher than the prior year driven by operating leverage, integration cost synergies, and the execution of our margin improvement initiatives. For the full year, CSS sales were a record and up 12% from the prior year. Adjusted EBITDA was up 25%, with adjusted EBITDA margin of 9.4%, a segment record and a 100-basis-point increase over the prior year. Turning to slide 14. Record sales in our UBS segment were up 22% versus the prior year on an organic basis in the quarter, marking the fifth consecutive quarter of organic growth above 20%. All operating groups grew again in the quarter over the prior year, led by utility sales, which were up more than the segment average. Backlog was a record in the quarter, up 86% over the prior year and up approximately 1% sequentially. Profitability was also strong, with an adjusted EBITDA margin of 11.4%, 180 basis points higher than the prior year, driven by our gross margin improvement initiatives, operating leverage, and integration cost synergies. Full-year sales were a new record, up 27% with record adjusted EBITDA that was 58% higher than the prior year. As a percentage of sales, adjusted EBITDA was 10.9% for the year, also a record and representing an increase of 210 basis points. Now moving to page 15. The size of the cross-sell opportunity of combining WESCO and Anixter continues to exceed our expectations. In Q4, we recognized $262 million of cross-sell revenue, bringing the cumulative total to more than $850 million for the year and over $1.2 billion since the beginning of the program. Our pipeline of sales opportunities remains healthy, and our cross-sell initiatives continue to deliver. We are capitalizing on the complementary portfolio of products and services, as well as the minimal overlap between legacy WESCO and legacy Anixter customers. As we look at the remaining 12 months of the program in 2023, we are increasing our expected cumulative total to $1.6 billion or 9 times greater than the original target we set when the Anixter merger closed. Turning to slide 16. This is a slide we have shown throughout the integration, with the realized cumulative run rate cost synergies of $188 million in 2021 and $270 million in 2022. We remain on track to meet our expected target of $315 million by the end of 2023. The largest remaining synergies are those that take longer to execute, including those related to supply chain and field operations. Turning to page 17. On this page, you can see a free cash flow bridge for both the fourth quarter and full year. Note that the impact of the Rahi acquisition is included in these free cash flow reconciliations. We delivered record quarterly free cash flow of almost $400 million in the quarter, with significant improvement in all three working capital accounts of $190 million. Also, as we discussed last quarter, we expected to deliver substantial free cash flow in the fourth quarter based on a seasonal decline in revenue and reducing levels of working capital. This seasonal decline did not occur as we delivered sequential sales growth but still reduced net working capital. Furthermore, Rahi’s exceptional fourth quarter growth increased net working capital by approximately $57 million for both the fourth quarter and full year. Excluding this impact, free cash flow for WESCO would have been approximately $456 million in Q4 and up $36 million in fiscal year 2022. For the full year, you can see that working capital was a use of cash in 2022, driven by our strategic investment in inventory in response to global supply chain shortages and increases in receivables due to our exceptionally high level of sales growth. You can see that the CapEx and IT spend, which reflects the investment related to our ongoing digital transformation and supply chain optimization, increased in the second half of the year, as we accelerated several digital projects and operational investments to drive the efficiency of our facilities. For the full year, this spend totaled $165 million, which was above our expectations provided last quarter. The increase was largely driven by the acceleration of high return projects that are supporting our supply chain optimization and IT transformation, enabling growth ahead of historical levels. Moving to slide 18. Reducing our leverage has been a top priority since we announced the acquisition of Anixter. In the fourth quarter, we reduced leverage by 0.3 times trailing 12-month adjusted EBITDA and brought our leverage ratio down to 2.9 times, approaching the midpoint of our target range of 2 times to 3.5 times. Note that this decrease includes the $217 million purchase of Rahi Systems and reflects a net debt reduction of $142 million sequentially. This represents a decrease of 2.8 leverage turns since closing the acquisition in June 2020. Now moving to page 19. This slide shows the uniquely strong position of our company to drive growth and profitability in the years ahead. The end-to-end solutions that we provide to our global customer base are directly aligned with the six secular growth trends shown on the left side of this page. Our participation in these trends, coupled with increasing public sector investments in infrastructure, broadband, and partnerships with the private sector, make WESCO positioned exceptionally well. As we outlined at our Investor Day last year, we expect to grow 2% to 4% above the market due to the combined benefit of secular trend growth and increasing share. In short, WESCO is transforming into a secular growth company. Moving to page 20, you can see our 2023 outlook. We are encouraged by the demand trends and positive business momentum as we closed out 2022. In 2023, market growth is expected to contribute approximately 4% to 6% to the top line, which is a combination of volume and price. We expect U.S. GDP to be flat in 2023 with our secular tailwinds providing 1 to 2 points of volume growth. Price carryover in 2023 will be 3 to 4 points based on rollover pricing from 2022 actions. Recall that our guidance does not incorporate any additional future impact from price. In addition to market growth, we believe our scale and continued cross-selling efforts will contribute an additional 1 to 2% above the market, driving total organic growth of 5% to 8%. After factoring in the additional revenue from Rahi and the impact of working days and foreign exchange, we estimate our reported sales growth will be in the range of 6% to 9%. For our strategic business units, we expect EES reported sales to increase by mid-single digits versus 2022, with both CSS and UBS up high-single digits. Please note that in the appendix, we have highlighted some account transfers from EES to CSS and UBS that will take effect in 2023. In 2022, these accounts represented approximately $200 million of sales, with approximately 85% moving to CSS and 15% moving to UBS. For adjusted EBITDA margin, our outlook is for a range of 8.1% to 8.4%, which represents approximately 20 basis points of expansion at the midpoint. We expect adjusted earnings per share between $16.80 and $18.30, and free cash flow of between $600 million and $800 million. This free cash flow outlook of $700 million at the midpoint would represent the highest free cash flow in our history. Through the cycle, we still expect the company will deliver free cash flow equivalent to net income. In 2023, we expect to continue to make selective investments in inventory as supply chains heal and order lead times return to historical levels. Consistent with the expectations we outlined during our Investor Day in September, we expect to generate $3.5 billion to $4.5 billion of operating cash flow during the period of 2022 through 2026. To note, we expect free cash flow in Q1 to be a use of cash as we will make the 2022 incentive compensation payment in March. This outlook reflects a handful of assumptions that I’d like to walk you through. Our short-term compensation structure is reflected in our margin outlook at a target payout. This is a tailwind of approximately 20 basis points compared to 2022, which incurred higher short-term compensation costs due to outperformance of EBITDA. This tailwind is slightly lower than what you originally anticipated, as we didn’t pay out on our free cash flow objective for the year. We expect transportation and logistics costs will be an incremental headwind to margin in 2023 of approximately 20 basis points. We expect depreciation and amortization will be in line or slightly below the 2022 level. Interest expense is expected to be in the range of $330 million to $370 million due to higher variable interest rates and timing of debt paydown in 2023. This outlook reflects an effective tax rate of about 27%. This is slightly above our effective tax rate of the past few years, primarily due to the implementation of certain rules in our Canadian business related to hybrid debt instruments. 2022 also benefited from certain one-time discrete items, primarily related to a change in U.S. tax law regarding the valuation allowance on certain foreign tax credits and one-time discrete benefits in Canada. In 2023, we expect to spend approximately $100 million on capital expenditures and an additional $40 million on capitalized cloud-based computing arrangements related to our digital transformation. On the statement of cash flows, $100 million will flow through capital expenditures, and approximately $40 million will flow through changes in other assets. Our outlook assumes an average diluted share count of 52 million to 53 million shares for the year. This outlook reflects our expectation that 2023 will be the third consecutive year of record results, with record sales, gross and EBITDA margins, and record free cash flow, and is consistent with the long-term financial framework we presented at our Investor Day in September of last year. We will complete our integration with Anixter at the end of the year and expect the results in 2023 to substantially outperform the expectations we set at the time the transaction closed. As it relates to the first quarter, preliminary reported January sales were up 17%. Recall that sales grew 21% organically in Q1 of 2022 as February and March were exceptionally strong. Moving to slide 21 and before opening the call for questions, let me provide a brief summary of what we covered this morning. 2022 was an exceptionally strong year of growth and profitability. We had record sales in all three of our business units, along with record gross margin, operating profit, adjusted EBITDA and adjusted EBITDA margin. WESCO’s EBITDA margin expanded 160 basis points over the prior year to 8.1%. We took share through sales execution and our cross-sell program, and we are again increasing our revenue synergies outlook for 2023. WESCO delivered a quarterly record of approximately $400 million of free cash flow in the fourth quarter, reflecting the power and inherent cash generation characteristics of our business model. Our pace of deleveraging has exceeded our expectations. We are now approaching the midpoint of our target leverage range just two and a half years after closing the acquisition of Anixter, well ahead of expectations. Lastly, we are making excellent progress on our IT and digital roadmap, and are exceptionally well positioned to benefit from the secular growth trends and increasing public sector investments that John discussed earlier. With that, let’s open the call to your questions.

Our first question today comes from Deane Dray with RBC Capital Markets. Please go ahead.

Thank you. Good morning, everyone.

Good morning, Deane.

Hi, Deane.

I was hoping to start with some real-time color on the demand outlook, so daily stock and flow, bid activity, product availability. And John, as you take us through this, we are all trying to gauge what normalization looks like. There are some references to the supply chain getting better, but it sounds like you are adding some buffer inventory in some places. So just kind of take us through the real-time update and then frame for us about normalization to any degree in 2023?

Good question, Deane. I'll begin with January because we have solid data for that month. We experienced a very strong start to the year. Following last year's impressive performance, we entered January with continued growth, achieving 14% growth along with the additional positive impact from Rahi. As we progress through the first quarter, the comparisons will be a bit tougher, but I can confirm that the positive momentum we saw in January is still present in February. Additionally, our margins remain in great shape, leading to an excellent start in terms of both sales and profitability. Looking ahead for the year, I believe we are entering a multi-speed economy. While some end markets may face notable challenges, fortunately, these do not align with our portfolio. The residential construction sector is encountering difficulties, but it’s not a market we serve. In our EES business, the non-residential segment is performing well, supported by a record backlog and strong sequential growth from Q4 compared to Q3, which is better than typical seasonality. The industrial end markets are also robust. Moving to CSS, that segment was particularly affected by supply chain issues last year, but we saw improvements in Q4. Although not fully resolved yet, I anticipate continued improvements in 2023, and we've already seen a significant increase in CSS momentum as we began this year. Furthermore, UBS had an outstanding year of growth, with utilities taking the lead, supported by robust double-digit growth in broadband. We have a strong momentum overall. I expect that while some parts of the economy rise, others might decline. Inflation will persist this year, though not at the same levels as last year. We do expect it to continue throughout 2023, impacting labor, wages, benefits, and transportation costs, while commodity prices will fluctuate. Overall, demand is still surpassing supply from our perspective. Our book-to-bill ratio in January was above 1, marking a strong start. Our guidance for the year suggests it will be another transformative year with record results. As for normalization, you will begin to see that unfold as the year progresses, but I believe that the strong market performance we are outlining is fundamentally supported by our initiatives, successful cross-selling efforts, and the enduring growth trends that are shifting our company towards sustained growth. We have consistently emphasized this shift over the past two and a half years since the merger of Anixter and WESCO. The evidence of our transition into higher growth markets has been clear over the last 10 quarters. Considering the current economic cycle and the multi-speed economy we are experiencing, I believe we will demonstrate even greater market outperformance in 2023 as we continue to distinguish ourselves further from the competition.

All right. That’s comprehensive. Really appreciate all the color. And just as a follow-up, I would like to put the spotlight on free cash flow, if we could. This was an exceptionally strong quarter by our estimates, like 2x your seasonal free cash flow conversion. So, for Dave, can you just take us through expectations on the cadence of free cash flow for the year? You said the first quarter would be a use. You called that out on stock comp. Maybe some color on buffer inventory, because the extent to which you start peeling that out, that should have a positive impact on free cash flow, and are we kind of stuck with this hockey stick fourth quarter? Just kind of gauging what that cadence is through the year? Thanks.

Yeah. Certainly. So let me start by providing the historical context. Generally, in a normal demand environment, we would see our free cash flow generation split 30% first half, 70% the second half. 40% of that free cash flow generation in a year typically occurred in the fourth quarter primarily because we would see the sequential decline in sales, allowing us to then release both accounts receivable and inventory. I mentioned that we do anticipate that our first quarter will be a draw. That’s primarily because we are going to be making the incentive compensation payment in March. But after that, we should expect to see things begin to normalize from a free cash flow perspective. As you mentioned, Deane, supply chains haven’t healed yet, so we would anticipate that we would begin to see inventory releasing in the second half of the year as those supply chains heal.

Good morning, John. Good morning, Dave. How are you?

Good morning, Sam.

Good.

Two questions. First, John, you mentioned in your prepared remarks that you see WESCO shares trading far below intrinsic value, as that due to a concern around the sustainability of gross margins? I mean, they are up a couple of hundred basis points over the past two or three years. If we could just unpack gross margins a little bit.

Sam, I think you lost…

…over the past couple of years? Hello?

Yeah. Would you…

Can you hear me okay?

Yeah. Would you mind repeating after unpacked gross margins, I think we lost you?

Sure. I am sorry. Can you hear me now, John?

Yeah, Sam.

Okay. Sorry about that. Just trying to get a sense of how much of the gross margin expansion is specifically price cost benefit on stock and flow inventory?

So let me answer the question this way. The enterprise-wide gross margin improvement program that we put in across the enterprise that we are now several years into executing has great momentum. It’s not focused on stock and flow versus ship and debit versus, it’s looking at all categories of our all fulfillment method types. It’s really focused on the core level of pricing and the value of our supply chain solutions and services. So we have seen improvement in margins both for stock and flow and our direct ship business. So, and we are focused on continuing to drive gross margin expansion across all our business models. I think there are tremendous legs left in our gross margin expansion program. And look, we have set a mark of 10-plus percent EBITDA margins for the enterprise. We have got north of 8%, a huge mark for us, all-time record results in 2022 to eclipse the 8% adjusted EBITDA margin level. And we are looking at, going forward here, having a strong contribution of both gross margin expansion plus operating cost leverage, those two both being additive to contributing to overall operating margin expansion. So I understand your question. I can tell you that the bottom line is, we have seen contributions, since we put the two companies together, including in 2022, improvement in gross margins for both stock and flow and direct ship, and again, it’s because of the nature of our gross margin improvement program and the way we are going about pricing value. I know this is the question. I think the bigger question is, how does the new WESCO perform against an economic backdrop that has some recessionary pressures? Well, look at the guide we just put out there for 2023, and we are highly confident in the guide that we have outlined, and so that should speak volumes about our confidence in the new WESCO and our ability to generate profitable sales growth across all phases of the economic cycle.

My second question is, what expectations do you have, Dave, for year-on-year backlogs by the end of fiscal year 2023 that inform your free cash flow guide for the year?

Yeah. So, Sam, I would say that our free cash flow guide is less tied to the backlog. It’s more tied to the supply chain’s healing. And one of the ways that I would ask you to think about this is through the first half of the year. We are still expecting some product categories will still be facing severe supply chain constraints. Some product categories; we are starting to see some improvement, but right now, our expectation is that it will be the back half before we get more to a normal lead time in order to support our customers. The way that I would encourage you to think about this, and how we think about it internally, is that we expect that in order to support our sales growth, our net working capital will grow half the rate of sales. And that includes that we have elevated our days of inventory outstanding. So you can take a look at that; it’s up substantially because of the supply chain lead times and our need to service the customers. We expect to make some progress against our DIO metric in 2023. That’s what’s informing our free cash flow, and we are assuming that we will have a typical seasonal pattern to sales, meaning fourth quarter sales will be down sequentially from the third quarter to release working capital.

Thanks. Good morning. So I wanted to switch gears to Rahi, really exceptional performance as you pointed out. So where did the upside come from, the 110, I think it was in the quarter versus the 60 to 80 guide? If I have got this wrong, please correct me. But where did that strength come from, and how much visibility do you have in that 20% growth in 2023?

What was the second part of that, Nigel? How much did you say...

Yeah. The visibility.

Visibility.

Yeah.

Okay. Thank you. Yeah.

Yeah.

When we closed on Rahi, we had been giving updates and you see that’s in our public materials about what their trailing 12-month sales were. So you saw what it was when we initially announced the deal, and you saw what it was when we did our Q3 earnings. So that number is, and they came in substantially stronger. We then gave an outlook for the stub period in Q4. It was due to releasing stub projects and delivering projects that were in backlog. With that said, they grew their backlog. So the momentum vector there is exceptionally strong, and we are getting to learn that business. Now we have got a good sense of what their operating plan commitments are, that that leader who started the business committed to. He’s been over-delivering against these expectations, as long as we talked to Rahi, which was many, many months. He kept beating and raising his performance against his plan. So we locked in his plan. But when I look at the backlog growth and the momentum vector of the business, we are just set up for just an outstanding year. I think it comes down to, Nigel, fundamentally, the core value proposition of Rahi, combined with the secular growth that’s associated with data centers and how we where we play in the value chain and the combination with Anixter’s CSS business is exceptional. This is just a terrific acquisition, and we are thrilled with the start.

Congratulations on the acquisition. Could you share your thoughts on how you plan to deploy the free cash flow in 2023? After accounting for preferred and equity dividends, you will have around $550 million available. I'm curious about how you see this being allocated between debt reduction, share buybacks, and potential M&A. Additionally, based on your EBITDA plan, it looks like you'll reach about 2.6 times leverage purely from EBITDA growth. How much do you aim to reduce leverage this year?

Nigel, thanks for the question. We are going to be balanced with how we deploy the available cash. We are working through with our Board to get the approval for the common stock dividend, so that will be happening here shortly. We are also committed to the $1 billion buyback, and we will be focused on leveraging available cash as part of that buyback program. But from our perspective, right now, the primary concern is we want to operate within the middle of our range on leverage. We are getting closer to that, but that does provide us with significant optionality, which will include providing capital back to shareholders. Plus we will continue to take a look at M&A activity and see what may make sense for our company. But again, I think the common stock dividend and the buyback is something that we will be initiating here in 2023.

Yeah. Thank you. Good morning, everyone.

Good morning, Dave.

Good morning. I’d like to circle back on the gross margin. Dave mentioned that you are expecting record gross margins in 2023, and you clearly have a lot of company-specific factors that are driving it higher. But what would need to happen to drive 2023 gross margin below what you just reported here in 2022?

Yeah. Dave, I think we would have to see a considerable amount of pressure on our top line, and if we see that considerable pressure on the top line, we would see our supplier volume rebates would fall to the lower end of the historical range. And just to put that into perspective, as we outlined, we did get the benefit of higher supplier volume rebates versus the prior year. So that will be a headwind going into the more normalized period in 2023. But if you start to see demand from, call it, a deep recession, then that would mean that our supplier volume rebates would tend to the lower end of the historical range. That would put pressure on gross margin. We have been very clear about our margin improvement program and our focus on passing through costs to our customers. We have been positive on that throughout the full period of 2022. It will be incredibly important that we are able to sustain that momentum into 2023. We believe that we have provided our sales force with the right tools and techniques in order to do that. But clearly, if we saw significant demand destruction, that would put pressure on gross margin.

Okay. Thank you. That’s helpful. And related to that, you are seeing 17% growth in January. You are guiding full year to 6% to 9%. That clearly implies some sort of slowdown overall, and notwithstanding the growth driver overlays you have, what is your core assumption for the economy, industrial production when you are thinking about formulating that top line guidance?

Yeah. As we mentioned, we think that GDP here in the U.S. is going to be essentially flat. We do think that there are pockets of the end markets that we serve that will still be very positive, including non-residential construction, the industrial markets, and data center growth. We are still expecting that to be positive. And so that’s where we are still assuming that we have a volume opportunity as well as the pricing carryover that is going to move our sales up in 2023. So we are taking a look at all the same economic data that you are. We are also talking to our customers. That’s informing how we have positioned our outlook for 2023.

Hey. Good morning, guys. Thanks for fitting me in.

Yeah. Hello, Ken.

First question for me. Sorry if I missed this, but obviously, you have increased the synergy target here. But I know when you first introduced Rahi, there were no identifiable synergies yet, as the deal was just closing. Given all the opportunities that you have had to look into that business and obviously, the demand is improving, any way you can kind of parse out just what the identifiable synergies are for Rahi specifically?

So I will just tell you, I think that the way to think about that business is it’s going to be a major growth engine and it’s got a tremendously positive business momentum vector. The synergies will be cross-sell, but we haven’t put a specific target on that. Again, we did that when we put two equal-sized Fortune 500 companies together back when it was actually announced pre-pandemic and closed at the beginning of the pandemic. We are not going to break out a separate synergy target or cross-sell synergy target for Rahi, but that’s how to think about it, Ken.

I will just highlight that right now we are not going to separate out any of the merger integration related costs for Rahi. It’s not material the way that the Anixter merger was. So what you see on Rahi will be its fully reported results in our adjusted results, and we won’t be breaking out any synergies for you as we go forward in 2023.

We will call out the top line growth so you will see reported versus organic sales. So you will continue to see that until we lap the acquisition of the 12-month point post-close.

I wanted to clarify the CSS guidance for the year. After the re-segment and excluding the acquisitions, it seems the guidance suggests organic growth for that segment in the low to maybe mid-single digits for 2023. Is that correct? If so, it appears slower than I anticipated considering the positive remarks regarding the backlog mentioned earlier.

Yeah. Ken, so we expect our CSS business reported sales will be high-single digits, and that does include the benefit that we will get for both Rahi. And remember, though, that the CSS business doesn’t have the same pricing carryover as the other two SBUs. The pricing in CSS has been low single digits throughout 2022, and we don’t get that same carryover benefit that we get with EES and with UBS.

Hey. But just a comment on EES. Ken, was your question EES?

No…

It was CSS…

It was CSS specifically on organic growth, but I will…

Okay. I got you.

Okay.

No. No. No. Dave gave that guide, too. I mean, he said EES’ outlook is mid-single digits. UBS and CSS are high-single digits as part of the construct and the guide for 2023. Just we talked about throughout 2022 about the supply chain constraints as it started to heal and some recovery. It was different by product category and supplier obviously. CSS was still feeling severe impacts throughout the majority of 2022, started to heal late in the year, and you saw the improved results in 2020 and then in the fourth quarter, and that’s continued to start this year. So that’s what serves as the basis of the guide for CSS stepping up its growth rates in 2023 versus 2022.

Thanks. Good morning, everybody.

Good morning.

I was wondering about the prospects or market conditions for price reclamation on a deferred basis as the supply chains return to normal for CSS. I understand this isn't included in your guidance.

I believe Dave touched on this, Chris, but we noticed an increase in price contribution for CSS in the fourth quarter, which aligns with the improvement in the supply chain. We anticipate strong secular demand and growth, highlighted by our Rahi results showcasing our global data center solutions, which is very promising. We are integrating pricing value into our gross margin improvement strategy, and our sales team is focused on making the most of that. I want to emphasize that this program still has significant potential, and we are providing incentives to the sales team for gross margin enhancements. This establishes a baseline based on last year's performance, creating a strong motivation to present our complete value proposition to customers.

Thanks, John.

Yeah.

Hey. Good morning, guys. Thanks for fitting me in here.

Yeah. Good morning.

Just to kind of clarify on the guide, you said expect a fairly seasonal pattern to the year. I assume that that kind of means any benefit from Infrastructure and Jobs Act or Inflation Reduction Act spending kind of pushing you to the market, that would be kind of incremental upside to what you are contemplating today?

Yes. Short answer.

Perfect. Short and sweet.

Yeah. I mean, the secular trends are in place; we think they are enduring; they are long-term and we are seeing increased contribution from them. But honestly, it’s our leading value proposition, taking advantage of those is what we are really seeing the effect that result in our sales. But to your point, we didn’t talk much about it; Dave did allude to it though. When you really look at that starting to unveil itself and deploy through the value chain, that could be substantial upside, absolutely.

Perfect. Perfect. And just very quickly, again, just to build up the last question, I guess. I know we are waiting on the KPIs, but when I think about maybe the earlier gross margin initiatives that started rolling years ago, the supplier segmentation stratification kind of pushing cost visibility to the sales force. How do you feel about some of those initiatives that have a little bit more maturity to them at this point?

We integrated everything that was being done with Anixter's existing gross margin expansion program across their enterprise and drove it on an enterprise-wide level. This program is continuously being refined and improved. For 2023, we are not relying on what was in place in 2022; we have introduced a series of enhancements in applications and visibility, utilizing our big data as the sales force engages in individual bidding and order opportunities. This showcases the power of digital. With all our data in a world-class data lake, we can continuously leverage it. I am very excited about this as it strengthens our confidence in the remaining aspects of our gross margin expansion program. Thank you for your engagement today. We have gone a bit over the scheduled time, but we have received numerous questions. I will now conclude the call. Your support is greatly appreciated. We have several events lined up in the next month or two and look forward to speaking with many of you later this quarter. We will be attending the Raymond James Institutional Investors Conference, the Loop Capital Investors Conference, and the JPMorgan Industrials Conference next month. Thank you once again, and have a wonderful day.

The conference has now concluded. Thank you for your attendance. You may now disconnect.