Hello and welcome to Wesco's 2025 First Quarter Earnings Call. I'd like to remind you that all lines are in a listen-only mode throughout the presentation. Please note that this event is being recorded. I will now hand the call over to Mr. Scott Gaffner, SVP, Investor Relations to begin.

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

Thank you, Scott. Good morning, everyone. Thanks for joining our call today. We're pleased that our positive sales momentum in the fourth quarter last year carried into 2025, posting 6% organic sales growth in the first quarter, which was ahead of our expectations coming into the year. Our total data center business was again a strong driver of our growth and was up 70%, along with high single-digit growth in our OEM and Broadband businesses. This was partially offset by continued temporary weakness in utility end markets, which is what we expected. We continue to expect our utility business to return to growth in the second half of the year. Gross margin was relatively stable on a sequential basis versus the fourth quarter and improved sequentially in CSS, as we expected. We continued to focus on effective working capital management as we do always in the first quarter and delivered positive free cash flow that exceeded our expectations at the start of the year. Our increased inventory will help us manage the potential supply chain impact of global tariffs. We also issued $800 million of new senior notes to redeem our preferred stock in June and repay a portion of our revolving credit facility. This refinancing along with the preferred stock redemption strengthens our balance sheet, extends our debt maturities, increases our financial flexibility and significantly improves our earnings and cash flow run rates. Dave will take you through those details shortly. Following this preferred stock redemption, we have strong liquidity to address our capital allocation priorities, reinforcing what we outlined at our last Investor Day. After supporting our common stock dividend payments and continuing stock repurchases to offset the dilution of our annual management equity awards, we have well over 75% of our free cash flow remaining, providing us with significant optionality. In the near term, our capital allocation priorities are focused on debt reduction and stock repurchases while we continue to invest in our tech-enabled business transformation and actively manage our M&A pipeline in parallel. So now let's shift to the second quarter; as we've begun the second quarter, I'm very encouraged that our positive momentum is building. Backlog is up from the prior year and sequentially in all three of our business units, CSS, EES, and UBS. Our positive sales momentum has continued into April and is building with preliminary sales per workday up 7%. We are reaffirming our full year outlook based on our positive momentum through the first four months of the year. While we recognize the uncertainty of tariffs and their impact on the global economy, we continue to focus on what we can control: our cross-sell initiatives, our enterprise-wide gross margin expansion program, and operational improvements resulting from our tech-enabled business transformation. Like all companies, we're operating in the current rapidly evolving global trade environment and I want to emphasize what we are doing. First, Wesco is well equipped to address the potential impact of tariffs and changes in the global supply chain. We have successfully addressed global supply chain challenges in the past, including tariffs and managing through cycles of increased inflation. This was most recently demonstrated during the global pandemic. We've shown the ability to successfully manage and expand margins during these periods while delivering growth. We're executing our well-developed playbook to manage our margins and our business, and we're maintaining daily communications with our supplier partners, our customers, and our entire sales force to ensure that we're taking all the required actions. Dave will take you through our playbook in much more detail shortly. One final comment on tariffs: Supply chain reengineering and reshoring back to the U.S. and overall USMCA markets were initiated during the global pandemic. I've spoken about this at length. The global pandemic effectively put a spotlight on a significant risk associated with the extended global supply chains that were in place and established over the last three to four decades. Many of these extended global supply chains were single-sourced, representing significant risk. Supply chain reengineering and reshoring has become a secular growth trend, and tariffs are already beginning to provide a potential accelerant for even higher reshoring growth. With that, I'll hand it over to Dave to take you through our first quarter results and our outlook for the rest of the year.

Thank you, John, and good morning, everyone. Turning to Page 4, I'll walk you through our first quarter results. Organic sales in the first quarter were up 6% at the upper end of our outlook for growth of low to mid single digits. Price was approximately 1.5%, and volume was up about 4%. Reported sales were flat as strong organic growth was offset by the impact of our integrated supply divestiture, foreign exchange rates, and one fewer work day. Recall that we divested the integrated supply business on April 1 of last year, so this will be the last quarter where we see an impact on reported year-over-year growth rates. In the first quarter, our data center business continued to grow rapidly and was up 70% versus the prior year. Additionally, we delivered high single-digit growth in our OEM and Broadband businesses. As expected, utility remained soft as customers continued to work through inventory destocking. On the lower half of the page, you can see that adjusted EBITDA margin was down 60 basis points. Gross margin was stable sequentially and down 20 basis points year-over-year, primarily due to project and product mix, which I'll cover in more detail later. SG&A was up about 2% year-over-year due to normal inflationary pressures, particularly within transportation and facility costs. However, the higher cost on relatively flat reported sales was about a 40 basis point headwind to EBITDA margin in the quarter. Adjusted earnings per share of $2.21 was down 4% from the prior year. Let me walk you through our business unit results, beginning with EES on Slide 5. First, please note that we transferred about $155 million in annual revenue of specialty wire and cable, including $35 million in the first quarter from EES to CSS to better align the customers we serve in that business. All prior year periods for EES and CSS have been recast to reflect that transfer, including those in the table on this page. For a reconciliation of the recast amounts by quarter, please see the appendix in today's presentation. EES organic sales were up 3% in the first quarter. After the impact of foreign exchange headwinds along with one less workday, reported sales were flat. Our OEM business delivered particularly strong growth, up high single digits organically, reflecting strong growth in both the U.S. and Canada, including with our semiconductor customers. Construction was down on a reported basis, but up low single digits organically due to increased project sales. Industrial was down low single digits on a reported basis and roughly flat organically, reflecting continued temporary softness with some customers. Backlog was up 3% from the prior year and up 4% sequentially, supporting an encouraging start to 2025. EES adjusted EBITDA margin was down 90 basis points from the prior year with gross margin, a decrease of 60 basis points. This was primarily driven by an increase in project activity in the quarter and a higher mix of low-margin products along with some competitive price pressures in our construction business. Turning to Slide 6, CSS sales growth accelerated in the first quarter with sales up 18% year-over-year on an organic basis and up 17% as reported. The strong growth was driven by Wesco Data Center Solutions, which was up more than 65%, with especially strong growth with hyperscale data center customers. This growth has significantly increased the mix of data center within both CSS and Wesco's total sales. Within CSS, data center represented nearly 40% of sales in Q1, up from a little more than 25% of segment sales in the prior year quarter. Lastly, I'd like to mention that we have not seen any change in order or buying patterns with data center customers. Based on discussions with our customers, they have not reduced their capital budgets. We're pleased to report that they have been increasing their level of spend and expanding their scope of supply with Wesco. Enterprise network infrastructure was up low single digits in the quarter, reflecting growth with service provider and wireless customers. Security sales were down low single digits, which excludes security sales that are part of Wesco Data Center Solutions. Including those sales, security was a strong performer in Q1 and up mid single digits. CSS backlog was up 32% year-over-year and up 18% sequentially, reflecting substantial growth of our data center business. Adjusted EBITDA margin for CSS was up 20 basis points, driven by strong operating leverage on higher sales growth, partially offset by a decline in gross margin. Similar to Q4, the mix of large projects primarily in the data center space impacted gross margin versus the prior year. Sequentially, CSS gross margin was up 20 basis points consistent with our expectation that margins would improve from the fourth quarter level. Turning to Slide 7, I want to take a moment to discuss the growth in the broader data center space that we've seen recently and how we participate. We have had several large customers announce changes to leases and proposed AI-driven data center builds. Based on conversations with these customers, these changes impact our out-year plans with spending to be allocated to other projects. In short, we have not seen any change to the level of activity in the data center space. Customers continue to partner with Wesco and our suppliers to meet their evolving needs, including an expanding portfolio of services that we can provide. From a total company perspective, data center was approximately 16% of Wesco sales in the quarter and up approximately 14% on a trailing 12-month basis, including sales across all three business units. Note that this is an increase from the comparable 10% of Wesco sales for the trailing 12 months through June of 2024. We first provided the information on the left side of this page at our Investor Day last September. It highlights the two stages of the data center construction cycle, time to power and the construction period. The key takeaway is that projects that are announced today and have obtained funding will likely take about four to seven years before they are up and running. Our solutions now encompass everything from the electrical distribution systems to advanced IT infrastructure to services that support data center operations, ensuring our customers have comprehensive solutions throughout all phases of the data center lifecycle. On the right side of this slide, you can see the substantial and accelerating growth that our total data center business delivered over the past five quarters. This growth has been driven by organic initiatives along with impactful acquisitions we've made to increase our service capabilities within the space. We want to partner with data center customers from cradle to cradle, including the initial build, on-site services, and data center technology upgrades. Turning to Slide 8, organic sales in Utility & Broadband Solutions were down 5% in the quarter and reported sales were down 19%, which includes the divested integrated supply business in the base period. As we've discussed going back to the beginning of 2024, the utility market continues to experience softness related to customer destocking and lower project activity levels, which is partly a function of the current interest rate and regulatory environment. We expect these impacts to continue through the first half of 2025, with a return to growth in the second half of the year. We remain highly confident in the future benefit from the secular trends of electrification, green energy, and grid modernization and believe that these trends will support substantial growth acceleration in our utility business over the long term. We are pleased with the continued growth in broadband. The business was up high single digits from the prior year, reflecting particularly strong growth in Canada. UBS backlog was down 13% from the prior year, but up 13% sequentially due to improving order rates and new utility customer wins. Adjusted EBITDA margin was up 10 basis points over the prior year. The margin benefit from the integrated supply divestiture was partially offset by the impact of lower utility sales. Turning to Page 9, in the first quarter, we delivered $9 million of free cash flow or 8% of adjusted net income as accounts receivable and inventory increased due to growth, offset by an increase in accounts payable. This exceeded our expectation as we anticipated a use of cash in the quarter. You can see on the right side of this page that we reduced net working capital intensity by approximately 50 basis points year-over-year in the first quarter. We remain focused on making further progress, including reducing inventory as a percentage of sales. Turning to Page 10, yesterday, we formally announced our intention to redeem our $540 million Series A preferred stock on June 22, which is the first opportunity to redeem it at face value. We issued $800 million of senior notes in the first quarter in anticipation of this redemption. This will strengthen our balance sheet and reduce our total financing costs. The estimated net income and cash flow benefit of this refinancing is approximately $30 million on an annualized basis or roughly $0.65 per diluted share. In addition to the refinancing, we also extended the maturities of our accounts receivable facility and revolver to 2028 and 2030, respectively. As a result, we have no significant maturities on our balance sheet until 2028. Turning to Page 11, on this slide, we provide an overview of the actions we are taking to manage the potential impacts to our business from the recent tariff announcements. The left side of the chart lists the potential impacts. First, supplier price increases including the significant number of price increase notifications we have already received over the past few weeks. To put this into perspective, in the first quarter, the number of price increase notifications was down 11% versus the prior year, but it is up 150% in the second quarter to date. The average price increase announcement in the first quarter was at a mid-single-digit rate, while in the second quarter, it's averaged a high single-digit rate. Second, we recognize the potential for lower customer demand due to higher costs. And third, in an inflationary environment, we recognize a transitional benefit from inventory gains. Our inventory is valued using average cost, meaning in an inflationary environment, our inventory is below market price. We will see a temporary gain to gross margin assuming higher supplier price increases are absorbed in the market. Note, this is a temporary benefit keeping in mind we turn our inventory every two to three months. Lastly, Wesco is the importer of record on less than 4% of our cost of goods sold, primarily on goods received into the U.S. and Canada. In response, we are taking the following actions to mitigate these impacts and protect our margins. We are passing supplier price increases through to customers and working with our suppliers to ensure that minimum lead times between announced price increases and effective dates are adhered to. We will continue to leverage our global scale to identify opportunities to purchase locally sourced product or products less impacted by tariffs, and we will reduce imports from those countries with the highest tariffs in place. Lastly, we will optimize our supply chain logistics and reengineer our global supply chains to mitigate risk and manage tariff exposure. In short, Wesco has a long operating history and has successfully navigated similar global supply chain challenges. We're executing our playbook to respond to the current volatile and uncertain environment. Turning to Slide 12, this slide shows our 2025 outlook by strategic business unit and the individual operating groups. As John mentioned, we are reaffirming our 2025 outlook and in general, expect the same sales patterns within our strategic business units that we walked through last quarter. However, we've made two adjustments to this slide. First, due to the continuation of exceptionally high growth in our data center business, we are increasing our full-year outlook for reported sales growth from mid-teens to about 20%. Second, and related to this change, we increased our CSS growth expectation for reported sales growth from mid-single digits to mid to high single digits. We continue to expect that within EES, construction will be flat, and both industrial and OEM will be up. Lastly, in UBS, we continue to expect utility will inflect in the second half of the year and deliver growth in 2025, partially offset by broadband, which we expect to be flat. Moving to Page 13, we are reaffirming our 2025 outlook. We acknowledge the uncertainty and volatility surrounding tariffs and the impact on the overall economy. As mentioned earlier, organic sales in the first quarter were up 6% and sequential sales were better than our historical trends. Backlog grew sequentially in all three businesses with CSS up double digits. Momentum continued in April with estimated sales growth up 7%. We have not experienced significant pre-buying from customers to get ahead of proposed tariffs. We are maintaining our ranges for organic and reported sales growth, adjusted EBITDA margin, adjusted diluted earnings per share, and free cash flow. However, based on our first quarter results, we would expect the full year to be above the midpoint of the sales range and below the midpoint of the EBITDA margin range as the project and product mix headwinds we experienced in the first quarter continue in the second quarter. I want to emphasize that our outlook does not include the impact of future pricing actions, including tariffs. This is consistent with our past practice given the lag between when a supplier announces a price increase and when it begins to impact our revenue. While we have seen a significant uptick in price increase notifications in the second quarter, our outlook does not include any potential benefit to sales at this time. We recognize a risk of an impact to demand given tariff-related pricing. Any future pricing would help mitigate any demand impact to our revenue outlook. In terms of free cash flow, we expect to deliver between $600 million to $800 million in 2025. As a percentage of adjusted net income, this implies a range of approximately 95% to 105%. Our strategy for how we deploy cash flow remains unchanged. The use of available cash will be allocated to the highest return opportunity, and we will continue to make decisions in the best interests of the shareholders over the long term. Our top priority is to invest organically in the business to drive growth and operational efficiency, including the completion of our business and digital transformation. In the near term, given the current economic environment, we expect to prioritize deleveraging the balance sheet and share repurchases. However, we will continue to be opportunistic regarding acquisition opportunities to expand our capabilities and better serve our customers, particularly those engaged in high growth end markets. Turning to Page 14, this slide shows the year-over-year monthly and quarterly sales growth comparisons over the past year and our expectations for the second quarter. You can see the return to growth in the last quarter of 2024 and the acceleration in the first quarter. As mentioned, we estimate April sales per workday will be up 7% and expect second quarter reported sales will be up mid to high single digits. We expect organic sales to be about a point higher than reported sales, primarily due to foreign exchange rates. The second quarter has the same number of work days as the prior year. We expect adjusted EBITDA margins will be approximately 50 basis points lower than the second quarter of the prior year, again primarily reflecting the project and product mix impact to gross margin discussed earlier. Moving to Slide 15, let me briefly recap the key points before we open the call to your questions. Sales in the first quarter were up 6% organically at the high end of our outlook and driven by data center, broadband, and OEM. Utility weakness continued due to customer destocking. Gross margin was stable. We've taken a number of actions to manage the potential supply chain impacts of global tariffs, including increasing our inventory. We issued $800 million of 2033 notes in anticipation of redeeming our preferred stock in June, which we formally announced last night. We are pleased with the April momentum we've experienced to date. Lastly, we reaffirmed our 2025 outlook based on the first four months of the year.

Our first question comes from Stephen Volkmann of Jefferies.

Hi, good morning, guys. Thanks for taking the question. Hi, Dave, I just want to be clear on what's in your revised outlook relative to a couple of things. One is the tariff stuff. All the announcements that you described in the first quarter, the up 11% mid-single-digit, is that in your guide, but the 2Q stuff that you've seen so far, is not? Is that the right way to look at it?

There are no tariff related price increases incorporated into our outlook. So our outlook assumes an organic growth rate of 2.5% to 6.5%. Of that, about 0.5% is carryover pricing from 2024. We have not incorporated any new pricing that was announced in either the first quarter or the second quarter to date into our outlook yet. Let me explain why. We generally see a two-quarter lag between a price increase effective date and when it begins hitting our revenue. A couple of drivers of that. First, about half of our revenue was project-based. Those projects have negotiated pricing. So these price increase notifications don't impact those projects. Most of the impact would be to our stock and flow business. And again, as we're seeing these price increase notifications, we're managing that back to meet our commitments with our customers, working back with our suppliers. So generally, when we see an announced price increase of, say, 8%, for our company, we generally see about half of that benefit flow through to the revenue line on a two-quarter lag. So we have not incorporated any of that yet because we're still seeing some of these price increase notifications come through. And again, that is consistent with our past practices over the years.

Understood. Okay. And is that 8% that you just threw out is that sort of ballpark where we would be today if everything was mark-to-market or was that just illustration?

That's just illustration. Again, we would only be marking to market about half of our revenue that would be associated with our stock and flow business. The other half is negotiated pricing for specific projects with our suppliers.

Okay. And does your revised guidance include the $0.65 from the preferred? And then I'll pass it on.

The guidance that we provided did assume that we would be calling the preferred halfway through the year. So when you go back to what we provided back in February and what we've reaffirmed, we did assume that there would be a benefit to earnings per share based on half of the year of the preferred dividend coming out, offset partially by the financing cost.

The next question is from Nigel Coe of Wolfe Research.

Thanks. Good morning.

Good morning, Nigel.

Good morning. I would like to return to the topic of tariffs. Can you provide some insights into the supplier price increases you have experienced so far? I understand the distinction between project costs and ongoing expenses, but are you encountering any surcharging that might require you to pass costs along more quickly than usual? Any additional information on this would be appreciated.

Yes. Let me elaborate on Dave's comments. In the first quarter, the number of suppliers that increased their prices fell by about 15% compared to the first quarter of the previous year. The average increase was in the mid-single-digit range, with some being low single digits and others slightly higher, which is more typical of a normal pricing increase cycle. We noticed that some suppliers postponed their usual price increase announcements while they assessed the impact of the tariffs on their supply chains and operations. There were a few suppliers who temporarily reversed their price increases but have since adjusted. This created an interesting situation in the first quarter. As we entered the second quarter, we've only seen April so far, and the number of price increases has significantly increased. In April, announcements for the second quarter are up by 150%, not in terms of price but in the number of increases compared to the second quarter of last year. We expect more announcements in May and June. The average price increase has risen to the mid-single-digit plus to high single-digit range, with some reaching double digits depending on the specific SKU categories. This illustrates the pricing landscape. We initially thought that the tariffs wouldn't have a significant effect on first-quarter announcements, and our first-quarter results reflect that. We anticipated that the ramp-up would occur in the second quarter, and so far, that has been the case. Regarding line item surcharges, some suppliers implement them while others do not. We actively encourage suppliers to include these adjustments in their overall price increases so we can clearly communicate to our customers how prices are rising due to tariff impacts. Many suppliers agree with this approach, although some prefer to have separate tariff pricing or surcharges, which we usually oppose. In certain instances, we must present those separately to customers, and we navigate that process. However, we generally prefer to incorporate those costs into the overall price.

Okay. Thanks, John. That was great color. And then my follow-on, I think this is maybe for David. So the materials referenced continued destocking at the utility customers. But the comments you made seem to suggest it's a bit more rate sensitive, maybe projects pushing out to the right. So just want to understand kind of the wipe in the reference from what you're seeing right now in the utility vertical and your confidence in that inflection of the growth in the back half of the year?

Yes. We've not seen a significant change from how we describe the utility market back in February to what we're seeing now. We are seeing some customers begin to increase activity levels. We're still seeing some customers that are behind that. But based on the discrete set of customers that we manage these large contracts with, we're in contact with them every day. And based on their projected activity levels, we see a return to growth in the second half of the year. We have seen this end market over the past three years be tremendously impacted by higher product costs. Recall in some quarters, we were announcing double-digit price increases, which increased the cost of the day-to-day business, increased the cost of projects. That cost has to be approved through the regulators, through the local utility commissions, and then is part of a capital budget for each of these utilities. So we've not seen a dramatic change from February to now. The conversations we're having, the activity levels that we're seeing plus we've got some new accounts that we won that's providing us with the confidence of a back half recovery.

And I'll add a bit again, this is exactly how we thought the year would start out. In Q1 and Q2, we expected a second half recovery. The budgets have been set now. They're going to maintain their budgets. It's a matter of do they have to reprioritize them in any form or fashion. I'll also tell you that the extended lead times are still in place for transformers and high voltage apparatus. And we're working on numerous opportunities with our customers in securing supply chain and supply for shipments that are going to be impacting the out years in a major positive sense. So again, I think the overall secular growth trends around power generation, grid modernization, etc., that we've talked about at length are intact.

That's great. Thank you.

The next question is from Deane Dray of RBC Capital Markets.

Thank you. Good morning, everyone.

Good morning, Deane.

Good morning.

Hi. I appreciate all the color you've given on tariffs and pricing and so forth. So I'll ask some questions related to data center, if I can. You put up some really growthy numbers the past two quarters, 70% last quarter, 65% this quarter. The market is not growing that fast. So maybe you can expand on your point that customers are increasing their scope of business they're doing with Wesco. And as you flesh that out, maybe talk about the mix of products versus services that you are engaged in data center.

Yes, Deane, that's a great question. We're really pleased with the strong and growing momentum in our data center business. Sales results have been exceptional, and our backlog has also significantly increased. Bid activity levels are very high, and we clearly disclosed this quarter that we're now including EES-related data center sales in the gray space section of our data center offerings, which is nearing a $400 million run rate over the past 12 months, reflecting an increase of over 70% this quarter. We're seeing exactly what we anticipated; customers are looking to expand their scope of supply from us. The white space includes rack power, everything surrounding the rack, rack installation, and the services we offer. Our acquisition of Rahi continues to have a strong impact, and our recent acquisitions of entroCIM and Ascent are positively influencing our business by enabling us to move up the value chain and provide solutions throughout the entire lifecycle. Customers are requesting more from us as a one-stop shop, including the gray space, which we had predicted. We're very encouraged by these trends and are not seeing any decline in our booking or sales rates. It's crucial to understand the cycle of data center projects where we are involved. We're clearly expanding our supply scope, and our customers are focused on completing ongoing projects. Looking ahead to the next few months, particularly in the second and third quarters, there will be an increasing emphasis on AI-driven data center builds compared to traditional CPU-based builds. These AI-driven projects, which use GPU rather than CPU, require significantly higher power density and increase the demand for white space products, which is favorable for us. This strong growth in the data center arena has contributed to CSS achieving an 18% growth overall as a business unit and is positively affecting our entire business. Finally, I want to stress that we believe our strategic focus on data centers was the right move. We saw a significant increase in Q4, even with different margin levels, and we've committed to improving both gross and EBITDA margins for CSS sequentially. In Q1, both gross and EBITDA margins improved compared to Q4, indicating we're benefiting from operational cost leverage, and we’re still at the beginning of this cycle with expanding supply opportunities ahead. Overall, we see the utility model we've developed over the past decade continuing to be effective in our data center sales.

Got it. Really appreciate all that color on the data center framing especially across the two segments. And then just a follow up, can you address mix in EES? You cited in the slide deck more project activity. Also is there direct shipments involved in that mix issue as well because that's usually a high-quality problem because it is fabulous returns on direct ship at just low margin? But just help us understand the mix issue.

The short answer to your question is yes. I'll ask Dave to expand in a minute, but let me give a little color to set the context. I think, look, it was in the fourth quarter last year that EES returned to growth. And now we've got organically low single-digit growth in Q1 and the backlog is up nicely, both year-over-year now and sequentially. So I think that's an encouraging start to the year. Obviously, data centers are helping there. And the same data center margin impact on the front end of those project cycles that we saw in CSS is weighing on EES, but we will work those margins up over time as well as we provide the complete data center solution, white space, gray space, and focus on services, including power. And again, I think when you look at EES, we've had a few quarters in a row now of strengthening OEM business. That's really a good indicator and typically a leading indicator of what our industrial business will do in the coming quarters. So I think we expect that OEM positive momentum to continue, and we expect industrial to improve as we move through the year, which will have a positive margin mix impact. With that, Dave, probably good to double click again on EES in the quarter though.

Yes, certainly. So within the quarter, two things that I'll call out. As John mentioned, we had a project mix; we also did have some product mix. So we had some large shipments of products that tended to be at a lower margin. That impacted the overall gross margin of the business. We also had, year-over-year, some higher provisions for inventory. As we've called out the last several quarters, the solar business within EES has been under pressure and there are technology changes within that. So just given some of the inventory that we were holding, we took a higher provision for inventory within EES impacting the gross margin here in the first quarter.

Did you just size that solar write-off?

I would say that overall, some of the adjustments that we had, both the write-off and differences in supplier volume rebates, rough around about 25 basis points.

Got it. Thank you very much for all that color.

Thanks.

The next question is from Sam Darkatsh of Raymond James.

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

Good morning, Sam.

Back to price because of course. So is prospective pricing overweight in any of your verticals? I'm saying that in light of the fact that you obviously called out some pricing competition specific to EES and construction. I know Greybar was mentioning the same sort of thing. Just trying to get a sense of where the prices that you're likely to push through. Is that overweight, underweight, or pretty uniform across your businesses? That's the first question.

That's a great question, Sam. I’m not sure we’ve discussed this in the same detail as we have in the past. To provide some context, when considering our three business units, CSS has a significant portion of suppliers, including some major partners with operations and manufacturing in the U.S. One of our largest suppliers made an announcement yesterday, highlighting the tariff impact compared to those who rely more on offshore manufacturing. This results in different dynamics within the value chain, with remarkable growth and demand affecting capacity, which in turn influences pricing. We're not seeing the same level of price increases in our CSS business as we anticipate in our EES business, where prices have been rising in Q2, primarily impacting our utility business as well. Our supplier partners have a mix of manufacturing locations, including the U.S., Mexico, Canada, and China. They've made significant changes in their supply chains over the past few years after the pandemic, and they're now reevaluating their positions in light of the current tariff climate and future expectations. I wanted to provide you with that insight. Dave, you might want to add to this, but I would say that the emphasis is more on electrical in utility compared to CSS based on the STU.

Absolutely. So if you think about just here in the first quarter, both CSS and UBS had essentially no pricing benefit to their top line. We talked about our pricing being about 0.5 that was primarily driven by EES. If you take a look at even 2024, CSS had essentially no pricing benefit to the top line, and we saw low single-digit benefits into both EES and UBS. So again, it goes back down to how some of these supply chains are currently managed, the impact of tariffs. Obviously, that's going to flow through to us as a price increase. And I just again want to reiterate that we are treating these tariff related price increases like we have always historically treated price increases. What we're seeing now come through from our suppliers is a combination of their typical early part of the year price increase to recover inflation and other costs associated with their business, plus we're seeing them pass through some of the tariffs. It comes to us as one price increase. In the past, we never would include those price increase notifications in our outlook. That is the consistent approach that we've taken here in 2025.

My follow-up question would be about how your order contracts are structured, particularly regarding tariffs. Do you end up repricing the backlogs? Do your vendors absorb these costs since you've already established price and cost? Or do you take on those costs? What I'm really asking is if there's a general guideline for how much gross margin benefit or potential risk might arise from mid single- or high single-digit pricing increases.

Yes, certainly. So for our large projects, generally, we either have fixed pricing based on the duration that, that project has between order point and when it gets executed. If it's a couple of months, generally, we've got locked in pricing from the supplier. If it is a longer lead time contract, many of those contracts have a cost escalator, which would include any tariff impact that the customer has agreed to take. So we would work back with our suppliers. We have that true-up clause within the contract that we would then be able to execute to protect our overall value on that particular project. We have not seen any suppliers reach out to us yet with a confirmation that they are repricing our backlog. So we have not seen that. So therefore, we don't see any risk there at this point. That answer your question, Sam?

Thank you. And is there a rule of thumb then, Dave, in terms of if you get a mid-single, high single-digit price increase, how much of a short-term benefit that might be to gross margins in a basis point standpoint?

It varies so much. It would be hard for me to give you a rule of thumb. But just thinking from the context of you're seeing price increases. Generally, there's a two-quarter lag at the company level. We only see about half of that published price increase impacting our revenue at some point in the future. So as we saw back in like 2022, particularly with some of the raw materials going into commodities and pure commodity products, we did get a slight benefit, but you're talking tens of basis points, not hundreds of basis points for that phenomenon with our inventory.

Very helpful. Thank you.

The next question is from David Manthey of Baird.

Thank you. Good morning, everyone. First question, a two-parter here. First off, when you say guidance doesn't anticipate any future pricing and Dave, your commentary, it sounds like you're excluding announced and even expected price increases as a hedge to any potential demand destruction. Am I reading that right?

You are. And again, that is consistent with our past practices. If this was a year ago and we were seeing price increase notifications from our suppliers, we would not be including those price increases into our outlook. So you are correct that we have not incorporated it until we begin to see it recognized in our income statement. And we understand that there could be some demand destruction given higher prices, particularly in some of our more price-sensitive businesses. We feel that if there is a tariff action that comes through to us, we would see a pricing benefit. We believe that pricing benefit would mitigate any demand destruction that we would see due to the higher price.

Okay. So logically, the second quarter guidance, if you take a 7.5% reported growth midpoint and 6.8% EBITDA, it's right around $400 million EBITDA give or take, which is kind of where the street is. So within that, what you're telling us is there may be some price increases that are hitting April, May, June that by convention you're just not including in that outlook, correct?

That is correct.

The next question is from Patrick Baumann of JPMorgan.

All right. Thanks. Just following up on that question. The outlook for the year, I missed the beginning of the call, but have you changed the components of the margin guide. I think at the midpoint, you had assumed a little bit of gross margin benefit from supplier volume rebate initially for the year and that would be offset by some of the incentive comp headwind in SG&A. Now with the guide I think implying something below the midpoint, any thoughts on those components relative to how you initially guided them for the year?

Yes, certainly. So on gross margin, we initially thought that the gross margin would be up slightly year-over-year. Given what we experienced in Q1 and our expectations for Q2, we do think that the gross margin would be down year-over-year. On an SG&A perspective, our SG&A assumptions are essentially still holding. We will, of course, have some additional variable costs as we see increases in sales. And we have highlighted that we expect sales would be in the upper end of the range. With that, we would see some operating leverage coming through on the SG&A margin line.

And you just mentioned second quarter gross margin. What did you say on that? I guess I missed it at the beginning of the call.

For the full year, we expect our gross margin would be down versus 2024. Recall that we did 21.6% in 2024. We initially guided back in February that we expected gross margin to expand slightly. That was part of our margin recipe that would be offset by some of these incremental costs due to incentive compensation on the SG&A line. So our expectation at this point is that gross margin would be down slightly versus the prior year. With the higher sales being in the upper end of the range, we will get some operating leverage though on that SG&A line.

I thought you mentioned something about the gross margin for the second quarter.

EBITDA margin in fact.

We've provided you our expectation that the EBITDA margin would be down 50 basis points versus the prior year.

Understood. Okay. And then if you can maybe talk a little bit about what you're seeing in the Canada market? Kind of a decent-sized exposure for you guys and curious the macro out there, different end markets up there, what you're seeing in your business and your expectations there for the balance of the year?

Yes. To your point, we have a very strong Canadian business and we had a very strong quarter to start the year. Very pleased with our Canadian results. There is a separate market report that the industry publishes up there that both distributors and suppliers are part of that association, and that report showed our performance versus the market was very strong. We outperformed the market and took market share and felt very good about our start to the year. And so backlog grew very strongly as well in the first quarter. So I think we're set up for a really strong year in Canada with our momentum vector. There is a new administration now in Canada. We'll see what the impacts are across their various core industries, including oil and gas, and we'll see what happens there. But I feel very good about our momentum vector with how we started the year and our position.

And what are the key verticals driving that up there?

The Canadian market is significantly more consolidated than the U.S. market, which is more fragmented. We are the clear leader in Canada with a strong electrical business that includes the legacy Wesco operations and our major acquisition of EECOL in the Western provinces, alongside Annexure, which enhances our wire and cable capabilities. Our value proposition in electrical and electronic solutions is robust, covering the region from the Pacific to the Atlantic, including the Northwest territories. We also have a strong utility business serving all major utility customers with the same value proposition we use in the U.S. Our cable services and datacom segments are performing strongly, and our broadband business saw growth in the first quarter following a strong fourth quarter. Although there are different dynamics in U.S. broadband, our Canadian broadband business has started the year well. In summary, all three product lines are well-represented, and we hold a strong leadership position in Canada.

Okay. Thanks for the color.

Yes. Okay. I think we've wrapped up all the questions. Thank you for those. We'll bring the call to a close. Thank you all for your support; it's very much appreciated. We do look forward to speaking with many of you over the next couple of days with the follow-up calls. Then over the next two months, we'll be attending the following conferences: Oppenheimer Industrial Growth Conference, the Wolfe Transportation and Industrials Conference. We'll be participating in the Baird Industrial Distribution field trip. We'll be attending the KeyBanc Industrials and Basic Minerals Conference and the Goldman Sachs Leveraged Finance and Credit Conference. Finally, we expect to announce our second-quarter earnings on Thursday, July 31, 2025. So with that, have a good day. Thank you.

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