Hello, and welcome to WESCO's 2025 Third Quarter Earnings Call. Please note that this event is being recorded. I will now hand the call over to 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 about these measures is available on our webcast slide and in our press release, both of which you can find on our website at wesco.com. On the call this morning, we have John Engel, WESCO's Chairman, President and Chief Executive Officer; and Dave Schulz, Executive Vice President and Chief Financial Officer. Now I'll turn the call over to John.

Thank you, Scott, and good morning, everyone. Thank you for joining our call today. We delivered very strong results in the third quarter, and we again outperformed the market with our leading portfolio of product services and solutions. Sales growth has accelerated throughout the year with organic sales up 6% in the first quarter, 7% in the second quarter and now 12% in the third quarter. And that marks four consecutive quarters of accelerating momentum. Our positive business momentum has continued in October. We're happy to say with month-to-date preliminary sales per workday up approximately 9% year-over-year, and that's with three days left in the month. Our record quarterly sales and was an all-time record for any quarter sales of $6.2 billion were led by 18% organic growth in Communications and Security Solutions, 12% organic growth in our Electrical and Electronic Solutions business and a return to growth in utility and broadband solutions. And that was driven by strong high-single-digit growth with investor-owned utilities and strength in broadband. Also of note, all three SBUs delivered sales growth in this quarter, and that's the first time that's occurred since Q1 of 2023. Total data center sales were again very strong at $1.2 billion. They set another quarterly record. They were up 60% year-over-year and now represent 19% of our total Q3 company sales. On a trailing 12-month basis, our data center sales are now close to $4 billion. Adjusted EPS, earnings per share, grew 9.5% versus prior year and 16% versus Q2 sequentially, with both gross margin and EBITDA margin improving sequentially. We are building on our positive business momentum as we enter the fourth quarter and as we prepare for continued market-leading growth in 2026. Now turning to our full year 2025 outlook. We are raising our full year outlook for organic sales growth, adjusted EBITDA, and adjusted EPS based on our increasing business momentum in the third quarter. At the same time, we're reducing our full year free cash flow outlook to reflect an increase in working capital dollars, and that's associated with our rising demand curve and the increased sales growth rates we've been experiencing. We're executing very well, and we remain firmly focused on accelerating our cross-selling initiatives. Continuing to drive our enterprise-wide margin improvement program and delivering operational improvements enabled by our technology-driven business transformation. As the market leader, it's really the strength of our portfolio and the enduring secular growth trends of digitalization that includes AI-driven data centers and automation, electrification that includes increased power generation and reliability and supply chain resiliency, which includes reshoring. All of these secular trends fuel my confidence that WESCO will continue to outperform our markets and deliver exceptional customer and shareholder value in 2026 and beyond. Looking ahead specifically to 2026, our midterm targets for annual sales growth and margin expansion that we provided at our Investor Day are the appropriate starting point for the outlook that we will provide in conjunction with our earnings release in February. So with that, I'll turn it over to Dave to walk you through our Q3 results and our outlook for the remainder of the year. Dave?

Thank you, John. Good morning, everyone. Turning to Slide 4. Organic sales in Q3 were up 12% year-over-year. This growth was driven by volume gains across all three SBUs supported by an estimated price benefit of less than 3%. Reported sales increased 13% with sequential growth of 5%, which was better than historical seasonality. The strong performance was broad-based, with continued momentum in our data center business and solid contributions from all three business units. As John mentioned, CSS delivered 18% organic growth, EES grew 12%, and UBS organic sales increased by 3%. Adjusted EBITDA margin was 6.8%, down 50 basis points versus the prior year, but was up 10 basis points sequentially. Gross margin contracted 80 basis points to 21.3%, reflecting consistent project and product mix dynamics experienced over the last four quarters. Importantly, gross margin increased sequentially by 20 basis points, driven by mix, higher supplier volume rebates, and execution of our enterprise-wide margin improvement program. Adjusted SG&A increased approximately 11% year-over-year, driven by the higher levels of sales growth, along with higher employee and facility costs. Specifically, over one-third of the increase in SG&A dollars year-over-year was related to higher volume, with the balance coming from increased incentive compensation, merit increases, employee benefits, and facilities costs. SG&A as a percentage of sales improved due to operating leverage on our sales growth. Finally, adjusted EPS was up 9.5% year-over-year driven by the improved operating performance and the absence of the preferred stock dividend following the redemption in Q2. I'll walk you through our business unit results, beginning with EES on Slide 5. In the third quarter, EES delivered very strong results with organic sales up 12% year-over-year driven by growth across all three operating groups, construction, industrial, and OEM. Construction grew mid-teens, driven by robust wire and cable demand and ongoing infrastructure projects, including sales to data centers. Industrial was up mid-single digits, supported by improved day-to-day demand in the U.S. and increased project activity in Canada. And OEM sales grew mid-teens, reflecting strong momentum in both the U.S. and Canada. Notably, data center sales were up 60% year-over-year, now representing approximately 6% of EES sales. Backlog remained flat year-over-year with healthy quoting activity and a strong pipeline of opportunities. Profitability improved with adjusted EBITDA margin of 8.4%, up 30 basis points sequentially, driven by improved gross margin and stable operating cost leverage. Gross margin was 23.3%, down 100 basis points year-over-year, but up 30 basis points sequentially. Lower gross margin year-over-year was primarily due to project and product mix. SG&A remained stable at 14.9% of sales and adjusted EBITDA increased to $198 million, up 9% year-over-year. Looking ahead, EES remains well positioned to capitalize on secular trends in electrification, data center expansion and infrastructure modernization. Turning to Slide 6. In the third quarter, CSS again delivered very strong results with organic sales up 18% and reported sales up 21% year-over-year. This growth was driven by continued strength in WESCO data center solutions, which was up over 50% from large project activity with hyperscale and multi-tenant data center customers. Enterprise network infrastructure also contributed to growth with sales up mid-single digits year-over-year. E&I growth was due partially to the timing of project activity during the quarter and a favorable year-over-year comparison. Security sales were up low single digits, including data center-related sales, security growth was up mid-single digits. CSS backlog increased 17% year-over-year reflecting continued strength in data center project activity. Profitability improved with adjusted EBITDA margin at 9.1%, up 30 basis points sequentially, driven by improved gross margin and stable operating cost leverage. Gross margin was 21.2%, down 80 basis points year-over-year, but up 30 basis points sequentially. Lower gross margin year-over-year was primarily due to business and project mix, including elevating volume from large hyperscale projects. Significant operating leverage year-over-year drove 90 basis points of EBITDA margin improvement, and adjusted EBITDA increased to $221 million, up 22% year-over-year. Overall, CSS continues to demonstrate strong growth and profitability, supported by sustained demand in AI-driven data center projects and security markets, along with disciplined cost management. We remain focused on improving margins with our large customers by expanding the scope of services we provide to them throughout the entire data center lifecycle. Turning to Slide 7. I want to take a moment to discuss the continued momentum we're seeing in the broader data center space and WESCO's role in that growth. Customers continue to rely on WESCO and our supplier partners to meet their evolving needs, including our expanding portfolio of services we provide across the data center life cycle. From a total company perspective, data center sales were about $1.2 billion in the quarter. Data center represented approximately 19% of WESCO sales in the third quarter and 17% on a trailing 12-month basis. This growth was driven by strong performance in both the white space and the gray space with CSS representing the majority of the sales contribution. The top of the slide outlines the two key stages of the data center construction cycle, time to power and the construction period. The key takeaway is that projects announced and funded today typically take four to seven years to become operational. Our solutions now span the full spectrum of the data center lifecycle. From power and electrical distribution systems and advanced AI and IT infrastructure to on-site services and solutions that support ongoing operations. This ensures we can deliver value throughout every phase of the data center lifecycle. On the lower left of this slide, you can see the substantial and accelerating growth in our total data center business over the past seven quarters. Total data center sales on a trailing 12-month basis were approximately $4 billion. This growth has been driven by organic initiatives along with tuck-in acquisitions that have expanded our services capabilities. We remain committed to partnering with our suppliers to service our customers from cradle to cradle, supporting everything from initial builds, on-site services and solutions, ongoing upgrades, retrofits, life cycle upgrades and modernization. Turning to Slide 8. This provides additional information on our data center products, services and solutions offerings. Our offerings span both gray space and white space delivering a comprehensive portfolio that positions WESCO as a trusted partner for hyperscale, multi-tenant colocation and enterprise data center customers. In the gray space, which accounts for approximately 20% of our overall data center sales, serviced by our EES business, we deliver extensive power, electrical, automation and MRO solutions that support the build-out of high-performance, reliable and scalable data centers. Some of our product offerings include electrical infrastructure, such as medium voltage cables and cable trays, alongside mechanical and cooling products like automated switches and sensors. Additionally, we supply MRO and safety products to help ensure safe, efficient and reliable data center operations. In the white space, which accounts for approximately 80% of our total data center sales through our CSS business, we deliver next-generation infrastructure and services for always-on connectivity. Our white space products include communications equipment, advanced IT infrastructure such as racks and enclosures, wireless technologies, access controls and video surveillance equipment. Beyond products, we offer extensive services and holistic solutions spanning the entire data center lifecycle from planning and design through installation and commissioning to ongoing operations through on-site services and decommissioning. We are there every step of the way, moving with speed to help our customers quickly adapt and thrive in a rapidly evolving environment. With a global ecosystem of suppliers and partners, WESCO offers a leading portfolio and complete solutions, providing customers with a single source for their evolving data center needs. WESCO enables seamless global execution, moving products and solutions across borders to support our customers. We believe our combination of products, services, solutions, and expertise uniquely positions WESCO to capture the accelerating demand for data center capacity, driven by cloud, AI, and edge computing trends. Turning to Slide 9. In the third quarter, organic and reported sales in UBS increased 3% year-over-year, marking a return to growth after seven quarters of declines. This improvement was led by high single-digit growth in our investor-owned utility customer base, partially offset by continued softness in public power. We expect the utility market to continue to improve as greater clarity is obtained on tariff impacts and as interest rates are reduced. Additionally, we expect public power customers to return to growth in 2026. Broadband performance accelerated in the third quarter with sales up over 20% year-over-year, driven by increased demand in the U.S. This marks a significant improvement from Q2, where broadband growth was up mid-single digits. Backlog increased 11% year-over-year, reflecting stronger customer order rates. Adjusted EBITDA margin for UBS was 10.4%, flat sequentially, reflecting disciplined cost management and sustained profitability. Adjusted EBITDA margin was down 90 basis points year-over-year, primarily driven by lower gross margins due to competitive pressures within public power markets, partially offset by improved operating cost leverage. We remain confident in the long-term growth potential of our utility business, supported by secular trends in electrification, green energy, and grid modernization. These drivers are expected to accelerate demand for our utility services and solutions, and we anticipate further margin improvement in Q4 as mix improves and utility growth continues. Turning to Slide 10. In the third quarter, free cash flow was a use of $89 million. Recall that our distribution model requires investment in working capital, especially in times of significant growth, which we have experienced year-to-date. The third quarter was the highest growth quarter of the year with organic sales up 12%. Additionally, you will see later in the presentation that September organic sales were up mid-teens, which is the highest growth month of the year and represents an all-time record for monthly sales per workday. Given the top line strength in the quarter and in September, we generated significant increases to accounts receivable, resulting in a use of cash of $270 million. I'll provide you with an update on our free cash flow outlook shortly. Turning to accounts payable. We've had strong performance over the trailing 12 months and a third quarter period with cash generation of $526 million on a trailing 12-month basis and $100 million in the third quarter. Inventory has increased in 2025 to support customer projects and to ensure supply chain disruptions are minimized as we work to meet our customers' needs and a rising demand curve. On the right side of this slide, you can see that net working capital intensity has steadily improved over the past three years. This quarter, we saw a 60 basis point year-over-year improvement on a trailing 12-month basis with net working capital intensity declining from 20.4% to 19.8%. That follows a 50 basis improvement in 2024 over 2023. We remain confident in our ability to drive stronger cash generation through the cycle. Turning to Slide 11. We redeemed our $540 million Series A preferred stock in June, the first opportunity to do so at face value. This high-cost instrument carried a 10.5% dividend rate, and its redemption marked a significant milestone in our capital structure optimization. To fund the redemption, we utilized proceeds from our $800 million issuance of 6.38% senior notes due 2033, which we completed earlier in the year. This refinancing action reduced our total financing costs and created a substantial benefit to our net income, EPS, and cash flow rates. The estimated annualized benefit from this transaction is approximately $32 million or $0.65 per diluted share. In addition, with the financing completed in the first quarter, we extended the maturities of our accounts receivable facility and revolver to 2028 and 2030, respectively. As a result, we now have no significant debt maturities until 2028, providing enhanced financial flexibility and stability. Turning to Slide 12. On this slide, we provided an overview of the actions we've taken to manage the impacts on our business from tariff announcements. The chart lists the potential impacts in our response to protect our margins. An update on the tariff environment. In the third quarter, supplier price increase notifications were up over 100% in count, but the impact on results was limited due to the timing of notifications and effective dates. We estimate a price benefit of less than 3% for the quarter, and this includes about 1 point from commodity price increases. Through October, supplier price increase notifications are up over 60% in count versus all of Q4 2024, with an average increase in the mid-single-digit range. This remains an evolving and dynamic situation with modifications to effective dates based on finalized tariff agreements and timing. WESCO has a long operating history and has successfully navigated similar global supply chain challenges. We're continuing to execute our playbook to effectively manage our business in the current volatile environment. Turning to Slide 13. This slide shows our updated 2025 outlook by strategic business unit and the individual operating groups. As John mentioned, we are revising our 2025 outlook and increasing organic sales growth to up 8% to 9%. This is significantly higher than our prior guidance of up 5% to 7%. Sales into data centers continue to exceed our initial expectations as do broader electrical sales trends. For EES, we are benefiting from data center growth, along with broader positive trends in electrical end markets. We continue to expect growth in the fourth quarter across all three markets we serve: construction, industrial, and OEM supporting our revised EES outlook of mid-single-digit plus growth. For CSS, due to the continuation of exceptionally high growth in our data center business, we are increasing our full-year outlook for reported sales growth of WESCO data center solutions from up about 40% to up approximately 50%. This supports our revised CSS outlook of mid-teens growth, up from our prior growth expectation of low double-digit growth. Lastly, within UBS, we expect further utility growth in Q4, driven by our investor-owned utility customers. We anticipate public power customers won't return to growth until 2026, which leaves our total full-year outlook for the utility market unchanged. Broadband is now expected to be up for the full year versus our prior expectations for approximately flat sales versus 2024. Moving to Slide 14. We are raising and narrowing our ranges for organic and reported sales growth, increasing adjusted EBITDA and increasing and narrowing the range for adjusted EPS. Our expectation for free cash flow has been lowered due to the significant top line growth in 2025, which requires net working capital investments, principally accounts receivable. We are revising our 2025 sales outlook based on the accelerated growth we are experiencing. Organic sales are expected to be up 8% to 9% versus our prior forecast of 5% to 7%. 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 as we move through the year, our outlook does not include any additional benefit to sales beyond what we realized in the third quarter and the rollover impact of those price increases. Turning to EPS. We are raising our outlook by $0.10 at the midpoint to a range of $13.10 to $13.60. Improved operating results are the primary driver of the increased EPS outlook, which is partially offset by higher estimates for interest expense. In terms of free cash flow, we now expect to deliver between $400 million to $500 million in 2025. As a percentage of adjusted net income, this implies a range of approximately 60% to 75%. 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 interest 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 digital business transformation. In the near term, given the current economic environment, we expect to prioritize delevering the balance sheet. However, we will continue to be opportunistic regarding share repurchases and acquisition opportunities. We continue to seek acquisitions that expand our capabilities and better serve our customers, particularly those engaged in our high-growth end markets. We have also included updated modeling assumptions on the right-hand side of the slide. Most notably, interest expense is now forecast to be about $10 million higher. This is largely driven by the reduction in free cash flow for the full year, along with increased borrowings intra-quarter to support the current level of growth. Turning to Slide 15. This slide shows the year-over-year monthly and quarterly sales growth comparisons over the past year and our expectations for the fourth quarter. You can see the return to growth in the last quarter of 2024 and the acceleration throughout 2025. As mentioned, preliminary month-to-date October sales per workday are up approximately 9% with three days to go in the month. We expect fourth quarter reported sales will be up high single digits plus with growth across all three business units. We expect organic sales will be up a similar amount as there is no difference in workdays year-over-year and FX impacts have moderated. We expect adjusted EBITDA margins will be up approximately 30 basis points versus the prior year, with improved gross margin driven by higher supplier volume rebates and SG&A headwinds due to higher incentive compensation. Moving to Slide 16. Let me briefly recap the key points before we open the call to your questions. We delivered another very strong quarter, with sales up 12% year-over-year marking four consecutive quarters of accelerating sales momentum. CSS went away, up 18%, EES grew 12%, and UBS was up 3%. Utility returned to growth driven by investor-owned utilities and total data center sales were approximately $1.2 billion, up about 60% year-over-year. Adjusted EBITDA margins expanded 10 basis points sequentially, supported by improved gross margin and strong operating leverage. Adjusted EPS was up 9.5% year-over-year. We've raised our full-year organic growth outlook, adjusted EBITDA, and adjusted EPS to reflect this strength. We remain very well positioned to benefit from secular growth trends including AI-driven data centers, power generation, electrification, automation, and reshoring. As John noted earlier, when looking ahead to 2026, our mid-term targets for annual growth and margin expansion that we provided at our Investor Day are still appropriate and would be the starting point for any outlook that we will provide in February. Based on the strength of the secular trends, we would expect mid-single-digit organic sales growth in 2026 with continued strength in our electrical markets, a return to full-year growth in utility with a recovery in public power and mid-teens growth in data center. We are also targeting annual adjusted EBITDA margin improvement of 20 to 30 basis points, with the majority of the improvement being generated by operating leverage. With that, operator, we can now open the call to questions.

Our first question today will come from David Manthey with Baird.

I have a quick question regarding what you mentioned at the end, Dave, about expecting EBITDA margin improvement into 2026. Could you provide an approximate breakdown of how much price contributed to growth by segment, or at least give us a general idea?

Certainly. So overall, our pricing benefit in the third quarter was just under 3%. And that was primarily driven by our EES segment, which was about 4%, and that's where we saw the largest benefit from commodity pricing on our pure commodity products. Our CSS business saw a price benefit of about 2%, and UBS about 1%.

Okay. And then maybe on outside of data center, could you just talk about whether it's industries or applications where you're seeing some strength there. It's great to see a return to growth, nice growth in EES. And maybe you could just help with a little bit of color there.

Thanks for the question, Dave. This is John. We're really pleased with our performance this quarter. The continued success in CSS is evident, driven by AI-driven data centers. For EES, we've now seen four consecutive quarters of improving sales growth. We returned to growth in the fourth quarter of last year, with a 3% increase in Q1, 6% in Q2, and a significant jump to 12% growth in Q3. All three operating groups—construction, industrial, and OEM—saw growth, particularly construction, which experienced mid-teen growth. This growth includes not just data center projects but also other significant infrastructure projects, such as water management, hospitals, and public transit. We're quite pleased with this progress. In the industrial segment, performance was up in the mid-single digits, with improved daily demand in the U.S. and increased project activity in Canada. Our stock sales also grew each month of the quarter, reflecting daily market demand. OEM had a strong performance, with mid-teen growth primarily driven by semiconductor and infrastructure markets, indicating significant semiconductor-related projects in our relationships. Overall, we're optimistic about the sales momentum in EES. Our EBITDA margins are above 8% for the second consecutive quarter. I want to highlight that we have a new leader, Danny Castillo, who has returned to the electrical industry with a strong background. He has started off very well. Thanks again for your question, Dave.

Your next question today will come from Sam Darkatsh with Raymond James.

I wanted to follow up on Dave Manthey's last question. You're right, the 10% EES growth, excluding data center, is quite notable. We're hearing many reports about general AI and tech spending by customers overshadowing other types of capital expenditures. It seems that you're not experiencing this in your results. Are you not seeing this crowd-out effect, or is the EES growth, excluding data center, largely driven by share gains, John?

Sam, we're not experiencing any crowding out based on our activity levels. It's clear that this quarter's results showed overall market outperformance across our three businesses. Focusing on EES, there are numerous data points from market surveys and competitors reporting a strong outperformance relative to the market. This performance exceeded our expectations. While we anticipated EES would gain momentum in Q3 and Q4 and we did see improving trends, this was a significant increase, especially with EES achieving over 12% growth and double-digit growth excluding data centers, which was more than we expected.

Yes. My last question is about the data center itself. I know the margins are somewhat lower than the fleet average due to the large projects, but I imagine that because of the direct ship special orders, the asset velocity is better than the fleet average. Can you provide some clarification regarding the return on assets for that data center business?

Yes, we haven't disclosed that publicly yet, Sam, but there may be a time in the future when we do. I appreciate your question. Let me address another aspect of it. Direct ship margins do have lower gross margins, but our operating costs for these transactions are significantly reduced. We've consistently stated that this leads to strong operating profit. I'm pleased to report that CSS has achieved sequential EBITDA margin expansion for the third consecutive quarter, benefiting from both gross margin and operating cost leverage. This quarter, CSS' gross margins increased by 30 basis points sequentially. It's important to note that we experienced a significant shift in our margin mix in Q4 of last year when CSS began to see substantial growth. Data centers experienced a 70% increase in Q4 last year, and I previously mentioned our plan to improve margins over time. Currently, CSS' gross margins are 40 basis points higher than they were in Q4. We're steadily increasing those margins while achieving operating cost leverage through growth. I wanted to emphasize that point in response to your question, Sam. Regarding ROIA, it indeed reflects better asset velocity, but we haven't provided specific numbers by SBU yet.

And your next question today will come from Guy Hardwick with Barclays.

With such strong volumes, I'm curious if the company as a whole is reaching levels regarding volume rebates, which have been decreasing as a percentage of EBITDA but may begin to recover, and if this positions you for them to become a positive force for margins next year.

Yes. Guy, thank you for the question. So year-over-year in the third quarter, some of the increase in our gross margin was driven by better supplier volume rebates. That does include the benefit we're getting this year from reaching some of those higher volume tiers, which is translating to a better rate with certain suppliers. We also expect that we will continue to see that in the fourth quarter. So year-over-year, we do expect to see supplier volume rebates contributing to gross margin expansion. I do believe it is a good setup as we go into 2026. We'll provide you more details on that in February when we do our next earnings call.

And just as a follow-up. I didn't hear you mention much about the digitalization investment. Are you beginning to see benefits in terms of cross-selling yet? Or is that more of a story for out years?

Guy, it's a great question. Thanks for asking. Look, I think that first, on cross-selling, I don't want to link that to our enterprise-wide digital transformation because that will help accelerate it and improve our execution across the global enterprise. But I'll take all the investors back to this has been really one of the most significant value creation levers that we've been executing exceptionally well against since we put Anixter and WESCO together. And we had significantly overdelivered the sales synergies that we committed to. We had committed to 1% of pro forma sales, which would be $170 million a year. We ended up delivering over $2.3 billion cumulative of cross-sell sales. So that process we put in place and the incentive structure supporting it that's deployed across our sales force and the way we're executing, we're gaining better traction every day on our cross-selling, and we're seeing that in our results. The digital transformation, when it's done, will result in, I think, even further acceleration of improved execution there. With respect to the overall digital transformation since you touched on it, at least I'll make a comment. We're making very good progress. All three SBUs are running the initial build of our new digital platform and at least one location, that's call that baseline set of capabilities. In the second half of 2025, we've been focused on continuing to build out additional capabilities while beginning deployment. And in 2026, deployment will really start to scale up. As we outlined at our last Investor Day, our check-enabled business transformation is on track and with the timelines we outlined at our last Investor Day in 2024. More on that as we move into next year, we'll be providing more robust updates.

And your next question today will come from Deane Dray with RBC Capital.

I appreciate all the clarity on the revised outlook, especially the change in free cash flow guidance, which we consider to be a high-quality problem given all the growth.

Thank you, Deane. While we are not pleased with the reported free cash flow figure, I want to highlight that our sales for Workday in September reached the highest monthly sales per Workday in our history, in the 15-plus percent range. This has contributed to a growth in accounts receivable, which increased by $271 million. As you mentioned, this is indeed a high-quality problem since that accounts receivable will be collected.

Yes. And your working capital intensity continues to improve. So you're not losing anything on the receivables, payables, et cetera?

Yes. That's an important point, which is why we include that page, Deane, the net working capital as a percentage of sales, which is obviously AR plus inventory minus payables. We're showing improved efficiency. And so this is just a high-quality problem on the AR growth. And so we're doing that now still with all the various "ERP" instances we're running in the company. We do expect, as we outlined at Investor Day, when our digital transformation is done to get really substantial benefits in overall net working capital.

Exactly. All right. Just a couple of quick ones for me here. First, I'll echo all the previous comments about EES, and I was a little surprised not to see some backlog build there. So was it all really short, quick-turn business that was done? That would probably be the explanation, but would love to hear your color.

Yes, I believe your backlog remains quite strong. Although we didn't see any growth, the significant increase in sales growth I mentioned earlier is noteworthy. Compared to typical historical seasonality, our backlog is stable and robust, with high quality. The opportunity pipeline is expanding, indicating we are encountering more chances and aiming to take more actions, which is encouraging. While we aren't ready to provide a full forecast for 2026, we did note an improvement in electrical markets for that year. This suggests a positive level of confidence based on both the backlog and our sales performance.

That's really good to hear. And since you opened the door on the 2026 kind of data points that Dave shared, the one on data center, the mid-teens growth, that would be what we consider to be industry growth, the kind of footprint rollout given the multiyear backlog. You've been outgrowing that significantly for the past year plus and increasing your share of wallet. Do you see where that ramps down? And just what's your visibility on this outgrowth in data center heading into '26?

All indications are that the data center market remains exceptionally strong. We have a unique and robust set of end-user customers and are in ongoing discussions with them, which provides us valuable insights into their long-term investment and deployment plans for data centers. We are assisting them on a global scale. Therefore, I can confidently state that the market is both strong and active. While we are not providing guidance for 2026 yet, we are dedicated to and optimistic about our potential to continue outperforming the data center market. This is largely due to our significant advantages in the white space and the expansion of our services. We've also seen increasing strength in the gray space, as discussed in previous calls. We aimed to share more details about our mix, which you can find in our current webcast materials. Additionally, our UBS business is becoming more involved at the initial stages, as the primary factor driving data center growth is power. This is why I'm optimistic about the utility sector evolving into a long-term growth industry, as increased power generation will be necessary to support data center expansion, which is beneficial for us. To sum up, our capabilities in white space, gray space, and power and utilities, combined with our global presence and growing services, position us uniquely to continue outperforming in the data center market.

Your next question today will come from Nigel Coe with Wolfe Research.

We covered a lot of ground already, but I'm just wondering, I'm sorry if I missed this, 30 basis points of margin expansion for 4Q. How should we think about that between gross margin and SG&A?

Nigel, the one thing I'll emphasize is that given the increase in our top line, part of that 30 basis points of expansion will be improvement to our supplier volume rebates. And so when you think about the 30 basis points, you should assume a modest increase in the supplier volume rebates, and we're confident we'll be able to get to the 30 basis points through a combination of that supplier volume rebate, other gross margin actions, but then also operating leverage.

Okay. Great. And then on the price increases, I think we understand how you're layering those in now for 4Q. Would that be gross margin accretive as well? Because normally, when you raise prices, you normally have a maybe a temporary benefit on inventory. So just wondering if that's having an impact as well.

It will have a slight impact because we are averaged with inventory. So as market prices increase, our inventory has not caught up to that market increase. What I would tell you what we experienced in Q3 was it was a very modest impact. We're not seeing that pricing translate from our suppliers into the market and into our sales yet. So we had rough round just under 3% pricing benefit, that's after seeing these high single-digit price increase notifications in Q1 and into Q2. So all of that pricing is not translating to the market yet. As we do get pricing traction, we should see a modest benefit to our gross margin.

Okay. And then a quick one on cash flow. If we do get into that mid-single-digit zone on growth in 2026, would you expect conversion to be, if not 100%, pretty darn close?

Yes.

And your next question today will come from Ken Newman with KeyBanc Capital Markets.

First, Dave, could you just talk about, obviously, the implied acceleration in UBS organic sales growth in the fourth quarter. Just talk a little bit about the color and the confidence there. If there's any comment you have on how much of that revenue is already secured in backlog just versus an easier comparison math there?

Well, I'll start with the easier comparison. So if you take a look at our overall utility and broadband solutions business in the fourth quarter of 2024, we do have an easier comp, particularly within the utility space. So utility was down high single digits in Q4 2024. And given the acceleration that we've seen, particularly with the investor-owned utilities, we're confident that we will have significant growth here in the fourth quarter of 2025. Again, some of that's just the trends that we're seeing, not only the backlog, but the day-to-day activity primarily, again, in those investor-owned utilities, some of the project work that we're doing, but we also are getting some benefit from an easier comp.

Got it. Okay. Sorry if I missed it, but did you disclose how much gray space revenue increased this quarter compared to white space? It was nice to see the stronger margins in both the ESS and CSS this quarter. I'm trying to understand if there's a way to evaluate the longer-term margin trend as we manage the mix effects from growth in those two channels.

Yes. The data center sales in our EES business, those gray space sales were up approximately 60% in the third quarter.

And the white space was up over 50%.

Over 50%. Correct.

And then any comments on how you think about mix normalizing into '26?

I am not sure if that mix will normalize. As we've discussed in previous earnings calls and at investor conferences, we have a strong and established presence in white space with solid end-user relationships. We are adding services and managing global deployments for hyperscalers and global MTDC customers. Because of our unique value proposition and global execution capabilities, we are outperforming the market with our strength in white space. The gray space, which has historically been served directly, is now seeing a shift as we take on parts moving into distribution, acting as the overall supply chain manager for our end-user customers. This is contributing to our growth. Therefore, I expect strong growth in both white and gray space, and we anticipate continuing to outperform the market.

And your next question today will come from Patrick Baumann with JPMorgan.

I wanted to start off discussing utility, particularly the public power segment, which I believe accounts for about a third of your utility sales. Can you share how much this segment declined in the last quarter? Additionally, what leads you to believe it will return to growth next year? You also mentioned something about competitive pricing in that area, which may have contributed to some gross margin compression from quarter to quarter. Could you provide more details on that?

Yes, to provide some context on our utility business, 90% is in the U.S. while 10% is in Canada. Within the U.S. portion, over 60% consists of investor-owned utilities, around 10% directly serves specialty utility contractors, leaving about 30% in public power. Our sales to investor-owned utility customers increased in the high single digits in the third quarter, which we are very pleased about. The strength we see in investor-owned utilities is driving our overall utility growth. However, public power has continued to experience softness. As I noted last quarter, during the pandemic, investor-owned utility customers were prioritized in terms of material deliveries as the supply chain resumed operations. Public power customers began to build their inventories much later than investor-owned utilities. These inventory buildups for public power are expected to continue into 2024 as manufacturers shift focus from serving investor-owned utilities to building up for public power customers. Currently, we are noticing that customer stocking issues aren't universal. They primarily affect distribution transformers and wire and cable for public power but do not extend to line construction materials. Customer order rates are generally improving, which is a positive leading indicator. We do anticipate that public power will return to growth by 2026. I want to highlight the breadth and strength of our utility business beyond just public power. Our agreements with investor-owned utilities position us as their supply chain management partner, and seeing high single-digit growth in this area is encouraging. We are also identifying robust opportunities for growth in the transmission and substation segments of the market—this is an area we expect to contribute significantly to growth in 2026. The current competitive dynamics in public power are influenced by local market conditions, with some competitors operating as non-profits or cooperative distributors. This competitive landscape has been present for decades.

Got it. Helpful. On the 2026 margin outlook, the 20 to 30 basis points of expansion on, I guess, mid-single-digit organic top line growth. Can you walk through us like the confidence you have in getting leverage. And I ask just in respect to 2025 when you're growing high single-digit organically and not getting leverage. Maybe remind us of the moving parts on why you're not getting leverage in 2025 and why that turns in 2026?

Yes, Patrick, one of the things I'll highlight is relative to incentive compensation. We still have about a 20 basis point headwind to adjusted EBITDA margin with the expected payouts for incentive compensation in 2025. So that's a headwind in 2025. Obviously, we've been able to drive significant sales growth, but that's also come with some product mix and project mix impact on the gross margin line. The other thing I'll highlight is like many companies, we're also continuing to invest in our IT capabilities. And so we've made significant investments in that area. We do believe that that is part of our continued investment into our digital transformation and new capabilities to service our customers. And one of the other things that we'll highlight is we've made sequential improvement as we progress through the year. That leaves us to a good setup for 2026. We'll provide you the full outlook for 2026 when we do our call in February.

Understood. So it's a better jumping-off point at the end of the year, combined with less incentive comp headwind, maybe less project mix year-over-year. Those are some of the factors. I'd imagine you're going to keep investing.

That concludes our question-and-answer session. I'll now turn the conference back over to John Engel for any closing remarks.

Well, thank you for your questions and support today. I think we've addressed all the questions that were in the queue. I'll bring the call to a close. Again, thanks for your support. It's much appreciated. We look forward to speaking with many of you over the next quarter.