Wesco (WCC) Q1 2026 Earnings Call Transcript

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DATE

Thursday, April 30, 2026 at 10 a.m. ET

CALL PARTICIPANTS

• Chairman, President, and Chief Executive Officer — John J. Engel
• Chief Financial Officer — [Name Not Provided]

TAKEAWAYS

• Reported Sales -- $6.1 billion, up 14%, representing third consecutive quarter of double-digit growth.
• Organic Sales Growth -- 12%, exceeding normal seasonality and driven by broad-based strength across all segments.
• Data Center Sales -- $1.4 billion, up approximately 70%, now 24% of total company sales for the quarter.
• Record Company Backlog -- Increased 22%, reflecting sustained demand and order flow across segments.
• Adjusted EBITDA -- $389 million, up 25%; margin up 60 basis points to 6.4% of sales, reflecting greater gross margin and SG&A leverage.
• Adjusted Diluted EPS -- $3.37, up 52%, with growth attributed to higher operating performance, a lower tax rate, and the absence of the preferred stock dividend.
• Free Cash Flow -- $213 million, equal to 128% of adjusted net income, supported by working capital inflows.
• CSS Segment Performance -- Organic sales up 22%, reported sales up 24%, with data center-related sales driving growth and a 40% backlog increase.
• CSS Adjusted EBITDA -- $223 million, up 41%; EBITDA margin improved 110 basis points to 9% despite gross margin pressure from large projects.
• EES Segment Performance -- Organic sales up 7%, reported sales up 9%, led by OEM (mid-teens growth) and construction (low double digits); data center sales up over 100% and 10% of EES sales.
• EES Adjusted EBITDA -- $185 million, up 30%; margin increased 130 basis points to 8.2% from gross margin improvement and leverage.
• UBS Segment Performance -- Organic sales up 6%, with backlog up 16%; utility grew high single digits, broadband up mid-single digits, public power remained flat.
• UBS Adjusted EBITDA -- $131 million, down 5%; margin declined 120 basis points to 9.6%, pressured by gross margin and higher SG&A costs.
• Bond Refinancing -- Raised $1.5 billion at record low pricing for a double-B rated five-year note, enabling redemption of 2028 notes and expected annual interest savings of over $20 million.
• Share Repurchase -- $25 million of shares repurchased to offset dilution.
• Full-Year Sales Outlook Raised -- Projected reported sales growth of 6%-9%, organic sales growth of 5%-8%, implying $24.9-$25.6 billion in total sales.
• Adjusted EBITDA Margin Guidance -- 6.6%-7% for the year, unchanged FX and pricing assumptions.
• Adjusted EPS Guidance -- Increased to $15-$17 per share, factoring in earnings leverage and expected tax rate changes.
• Free Cash Flow Guidance -- $500-$800 million with continued working capital discipline; historical pattern is 70% of cash flow generated in the second half.
• April Sales Trends -- Month-to-date sales per workday up about 10%, with second-quarter reported sales expected to increase high single digits; EBITDA margins expected to be flat year over year.
• CSS 2026 Outlook Increased -- Now targeting low double-digit growth, with data center sales expected up 20%+.
• Employee and Leadership Transition -- Retirement of former CFO Dave Schulz with a new CFO in place, continuity mentioned as strong.

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RISKS

• UBS segment margin pressure continues, as stated: "gross margins are expected to remain under pressure given weak sales in transformers and wire and cable."
• Incentive compensation increases are projected to create "Higher incentive compensation, approximately 25 basis points, accounts for most of the year-over-year pressure, and we continue to expect double-digit growth in adjusted EPS." of margin headwind for second-quarter EBITDA margin at the enterprise level.
• Management noted, "the market remains highly competitive," especially in UBS, impacting margin outlook despite backlog growth.

SUMMARY

WESCO International (NYSE:WCC) delivered double-digit top-line, profit, and free cash flow growth, supported by record sales and backlog, with data center demand serving as the primary driver. The company completed a $1.5 billion bond refinancing at the lowest coupon in its history for senior notes and repurchased $25 million of shares while maintaining a disciplined capital allocation approach. Management raised full-year outlooks for sales, EBITDA margin, and EPS, attributing the guidance increase to broad-based segment momentum and robust order pipeline across end markets.

• John J. Engel said, "AI-driven data centers and related investments from our customers remain a key driver of growth across several product categories and verticals."
• The backlog contains projects that extend into 2027 and beyond, with management noting, "there are some longer-lead items that we are quoting for 2027–2028."
• Management confirmed full deployment of one end-to-end CSS operation on the new digital platform as a Q1 milestone, signaling the digital transformation’s ongoing phased rollout.
• The new CFO stated early strategic priorities include "partnering with our functional leaders on continuing to improve our cost structure." and "improving working capital efficiency and cash conversion."

INDUSTRY GLOSSARY

• White Space: Refers to the data center area where IT equipment and servers are housed, typically addressed through CSS solutions at WESCO International.
• Gray Space: Denotes data center infrastructure components outside the main IT room, such as power and cooling systems, commonly served by EES.
• Stock-and-Flow Business: Short-cycle, recurring sales such as MRO (maintenance, repair, and operations) supplies, indicating near-term demand in industrials.
• Backlog: The aggregate value of firm orders received but not yet fulfilled, used as an indicator of future revenue visibility.
• Book-to-Bill Ratio: The ratio of orders received (booked) to units shipped and billed over a specified period, reflecting demand strength or weakness.

Full Conference Call Transcript

John J. Engel: Thank you, Scott. Good morning, everyone. Thank you for joining our call today. We delivered an exceptional start to 2026, building on last year's market outperformance and accelerating business momentum. In the first quarter, sales, backlog, operating margin, adjusted earnings per share, and free cash flow all increased versus the prior year and exceeded our expectations. Record first-quarter sales of $6.1 billion were up 14%, marking our third quarter in a row of double-digit sales growth. Booming data center demand remains a significant growth driver of our business. Data center sales of $1.4 billion were up approximately 70% versus prior year and represented 24% of total company sales in the quarter.

Overall, our business momentum continued to accelerate in the quarter with organic sales up sequentially, outpacing normal seasonality and reinforcing the strength and durability of demand across our end markets. This performance reflects broad-based strength across our entire portfolio led by continued strong momentum in CSS and EES, along with improving trends in UBS. We again ended this quarter with a record backlog, up 22% versus prior year, reflecting the continued effectiveness of our cross-selling program and providing clear visibility of the secular growth trends in our business. Profit growth, margin improvement, and free cash flow generation were also excellent in the first quarter.

Adjusted EBITDA grew 25% and adjusted EBITDA margin expanded 60 basis points driven by gross margin expansion and strong operating cost leverage on our double-digit sales growth. Adjusted diluted earnings per share was up 52% versus the prior year. Free cash flow generation at 128% of adjusted net income was also very strong, underscoring our disciplined execution and continued focus on working capital management. We are very pleased with our first-quarter results. While we remain mindful of the volatility of the broader macroeconomic environment, we see positive momentum continuing across our business. As a result, we are raising our full-year outlook for 2026.

As the market leader and with positive momentum building, I am confident that WESCO International, Inc. will continue to outperform our markets through disciplined execution, our differentiated value proposition, and the strength of our global platform. Our team remains focused on driving strong growth and margin expansion and delivering superior value to our customers and shareholders. One final comment: as we announced earlier this year, Dave Schulz is retiring from WESCO International, Inc., and our new CFO has joined our team. I would like to thank Dave for his outstanding leadership, his dedicated service, and his tremendous contributions to WESCO International, Inc. and our overall success over the past ten years. We wish Dave and his family our very best.

Our new CFO is off to a great start. I will now turn it over to him to take you through our excellent first-quarter results and raised full-year outlook in more detail.

Unknown Speaker: Thank you, John, and good morning, everyone. I would like to thank John and the board for the opportunity, and I want to recognize Dave for his leadership and thank him for his partnership during this transition. Before turning to our results, I will take a minute to touch on my near-term priorities. I intend to focus on partnering with the leadership team to scale our business in attractive end markets, drive profitable growth, continued market outperformance, and deliver strong cash flow with disciplined capital allocation. That mindset has been shaped by working across both public and private companies, often in complex global, highly competitive technology and capital-intensive businesses.

John and I are aligned on the initial focus areas where we have the potential for taking our existing great capabilities to the next level. First, driving operating leverage and margin expansion as we scale, particularly in data centers and other high-growth end markets. This will be accomplished by a combination of partnering with our business leaders to ensure that our commercial and go-to-market strategy reflects our enhanced value proposition and partnering with our functional leaders on continuing to improve our cost structure. It is all about profitable growth. Second, improving working capital efficiency and cash conversion through tighter processes, analytics, and execution discipline. This is not just about back office.

It is about optimizing our end-to-end capabilities from sales funnel to cash collection. Transitioning to our results, let me start with the highlights for the quarter. We delivered strong organic sales growth year over year, with sequential performance better than typical seasonality. Profitability improved with meaningful EBITDA margin expansion. EPS was up more than 50%, and free cash flow generation was strong at 128% of net income. With that, let me turn to our first-quarter results starting on Slide 4. We delivered an excellent first quarter with reported sales of $6.1 billion, up 14% year over year, including 12% organic growth. We delivered volume growth across all three SBUs and realized an estimated price benefit of approximately three points.

Gross margin was 21.2%, up approximately 20 basis points year over year, and SG&A operating leverage improved by 40 basis points. As a result, adjusted EBITDA increased 25% to $389 million and adjusted EBITDA margin expanded 60 basis points to 6.4% of sales. Turning to Slide 5, adjusted EPS increased 52% year over year to $3.37. The year-over-year improvement was driven primarily by stronger operating performance in the quarter, reflecting higher sales and improved profitability. Additionally, EPS growth benefited from a lower tax rate and from the absence of the preferred stock dividend following last year's redemption. Turning to Slide 6, CSS delivered another excellent quarter with organic sales up 22% year over year and reported sales up 24%.

This growth was driven by continued strength in WESCO Data Center Solutions, which delivered a record quarter with sales up over 60%. Within the rest of the portfolio, security delivered high single-digit growth, while enterprise network infrastructure declined mid-single digits due to weakness in the service provider market. However, including data center-related sales, enterprise network infrastructure grew high teens year over year. Overall, organic growth was driven primarily by volume, up about 21%, with price contributing approximately 1%. Backlog ended the quarter at a record level and was up approximately 40% versus the prior year, reflecting continued strong data center project activity and order rates.

Profitability also improved meaningfully and our focus remains on margin expansion as we scale the business, particularly in our data center markets. Adjusted EBITDA increased 41% to $223 million and adjusted EBITDA margin expanded 110 basis points to 9%. Importantly, despite some modest pressure on gross margin from large data center projects, we generally see healthy and accretive EBITDA margins for WESCO International, Inc. data center solutions. Moving to Slide 7, EES delivered solid growth in the quarter with organic sales up 7% and reported sales up 9% year over year. Growth was driven by strong execution in OEM and construction. OEM was up mid-teens, driven by strength in semiconductor and data center markets.

Construction was up low double digits, supported by robust wire and cable demand and continued infrastructure project activity. Industrial was down low single digits, primarily reflecting project timing impacts. However, our industrial stock-and-flow business grew mid-single digits in the first quarter, and backlog was up double digits supporting an improving trend. Data center sales in EES were up over 100% year over year and represented about 10% of EES sales, highlighting the continued scaling of our exposure to this secular growth trend. Overall, organic growth was driven by solid underlying demand, with volume contributing approximately 3% and pricing contributing about 4%.

Importantly, backlog ended the quarter at a record level, up 14% versus the prior year, supported by strong order activity and pipeline conversion. Profitability improved meaningfully in the quarter. Adjusted EBITDA increased 30% to $185 million, and adjusted EBITDA margin expanded 130 basis points to 8.2%, driven by higher gross margins and strong operating leverage. Turning to Slide 8, UBS delivered 6% organic sales growth in the first quarter supported by improving demand and an increasing backlog. Utility delivered high single-digit growth driven by strong double-digit growth in investor-owned utilities and continued positive momentum in grid services. Public power was flat year over year, which is encouraging.

However, the market remains highly competitive, and gross margins are expected to remain under pressure given weak sales in transformers and wire and cable, consistent with our prior commentary. Broadband delivered mid-single-digit growth year over year, supported by strength in the U.S. Overall, organic sales growth reflected approximately 3% volume growth and about 3% pricing. Backlog increased 16% year over year. We are seeing increasing interest in our grid services-enabled power capabilities from hyperscalers and other data center customers. We have a growing funnel of sales opportunities and we are bullish that we will benefit from AI-driven data center investments and other major power-related infrastructure projects over the long term.

Adjusted EBITDA was $131 million, down 5% versus the prior year, and adjusted EBITDA margin decreased 120 basis points to 9.6%, primarily driven by gross margin pressure and higher SG&A as a percentage of sales. Recall that UBS is accretive to total company adjusted EBITDA margin; given its higher margin profile, the improved growth rates will lead to even higher margins over time given the operating leverage. Turning to Slide 9, I want to take a moment to further review the continued momentum we are seeing in the broader data center market and WESCO International, Inc.'s role in that growth.

Data center sales continued to scale in the first quarter, reaching approximately $1.4 billion, up about 70% year over year and representing 24% of total company sales in the quarter. Notably, the data center end market is now WESCO International, Inc.'s largest end market across all three SBUs and supports a diverse set of customers with a diverse set of capabilities. On a trailing twelve-month basis, data center sales are now approximately $4.8 billion, or 20% of total sales. This underscores both the strength of the secular demand environment and the expanding scope of what we provide customers across all business units and across the full life cycle.

Turning to Slide 10, this highlights our end-to-end data center offering and the role we play across the full life cycle, with exposure across CSS, EES, and UBS. WESCO International, Inc. supports hyperscale, multitenant, colocation, and enterprise customers with a comprehensive portfolio of products, services, and solutions that span power, connectivity, and ongoing operations. Our expanding capabilities and global ecosystem position us as a trusted partner as customers build, scale, and operate increasingly complex data center environments. Turning to Slide 11, we delivered strong free cash flow of $213 million in the first quarter. Free cash flow was 128% of adjusted net income.

Despite sequential sales growth, net working capital was a source of cash in the quarter, largely driven by timing of inventory purchases and accounts payable. Moving to Slide 12, during the quarter, we executed a highly successful $1.5 billion bond refinancing that was upsized relative to the initial launch, reflecting strong investor demand and record pricing. Notably, we achieved the lowest coupon WESCO International, Inc. has ever achieved on a senior notes offering and the lowest for a double-B rated five-year note issued since 2021. The net proceeds will be used to redeem our 2028 senior notes, improve liquidity, and further strengthen the balance sheet.

This refinancing meaningfully improves our debt maturity profile and is expected to generate more than $20 million in annualized interest expense savings. We exited the quarter at 3.2x net debt to adjusted EBITDA. Additionally, we repurchased $25 million of shares during the quarter towards offsetting dilution. Moving to Slide 13, within CSS, we have raised our 2026 outlook to low double-digit growth, reflecting the continued strength and visibility we are seeing in data centers. Data center sales are now expected to be up 20%+ for the year. Given the size of the market, we intend to continue to focus on healthy EBITDA margin business. Our outlook for EES and UBS remains unchanged.

Moving to Slide 14, we are increasing our outlook for the full year given strong first-quarter results. Before I get into the details, I want to address our position relative to the current macroeconomic uncertainty. Through the first quarter and into April, we have seen no meaningful disruption to our revenue or profitability, but we continue to monitor the situation closely and kept this backdrop in mind for our outlook. In the Middle East, I am pleased to report that all of our employees are safe. From a company perspective, we generate less than 1% of our sales in the region, with the majority of those sales related to our CSS business.

The secondary impacts on transportation costs are more tangible but have so far been manageable. Our teams are focused on passing these cost increases to our customers where appropriate and limiting the time that transportation quotes are valid to minimize overall risk. On the tariff front, the overall impact to WESCO International, Inc. is not material. As a reminder, WESCO International, Inc. is the importer of record for a small percentage of our cost of goods sold, typically low single digits. We typically increase prices when needed to maintain margins. At this point, we do not expect any material recoveries from the IEEPA decision. Based on the strong start to the year, we are raising our full-year 2026 outlook.

We now expect reported sales growth of 6% to 9%, with organic sales growth of 5% to 8%, which implies reported sales of approximately $24.9 to $25.6 billion. Our assumptions around foreign exchange and pricing remain unchanged. On profitability, we continue to expect adjusted EBITDA margin in the range of 6.6% to 7%, essentially increasing our EBITDA guidance in dollar terms. We are raising our adjusted diluted EPS outlook to $15 to $17 per share, reflecting earnings leverage demonstrated in the first quarter as well as slight adjustments to the expected tax rate for the year.

There is no change to our outlook on interest expense, based on our current view of no rate cuts this year and factoring in timing of the debt raise and subsequent paydown. Finally, we continue to expect free cash flow of $500 to $800 million as we maintain working capital discipline supporting higher growth. As a reminder, our historical pattern is typically about 70% of our annual cash flow is generated in the second half of the year. Turning to Slide 15, while April is not entirely closed out, month-to-date sales per workday are up about 10% year over year, with growth continuing to be led by CSS.

For the quarter, we expect reported sales to be up high single digits. Recall that more than 50% of our sales are related to project activity and the mix of project sales is higher in the second and third quarter due to increased construction activity. The timing of project billings at the end of the quarter will determine where we land in the high single-digit range. On margins, second-quarter EBITDA margin is expected to be about flat year over year and within our full-year guidance range. Higher incentive compensation, approximately 25 basis points, accounts for most of the year-over-year pressure, and we continue to expect double-digit growth in adjusted EPS.

As you think about our outlook, keep in mind that we had strong sales growth and good EBITDA margins in the second, third, and fourth quarter of last year. On a two-year stacked basis, growth is expected to remain strong and consistent with the outlook we have provided. We have covered a lot of material this morning, so let me briefly recap the key points before we open the call to your questions. In summary, we delivered an excellent start to the year with double-digit sales growth, margin expansion, and over 50% earnings-per-share growth. AI-driven data centers and related investments from our customers remain a key driver of growth across several product categories and verticals.

We generated strong cash flow and improved our leverage and debt maturity profile during the quarter. Despite macroeconomic uncertainty, we are confident in our positive business momentum and are raising our full-year outlook. As we lean in to support organic growth, there is no change to our previously communicated capital allocation priorities and guiding principles. With that, operator, we can now open the call to questions. Thank you.

Operator: We will now open the call for questions. If you would like to ask a question, please press star followed by 1. Our first question today comes from David John Manthey with Baird. Please go ahead.

David John Manthey: All right, thank you. Good morning, guys. Good morning, John. CSS is doing amazing, so I will focus on EES and UBS with my questions first thing here. First, on lead times, I know within the industrial business you mentioned project timing as the reason for that small decline there. With switchgear components stretching well a year and medium voltage switchgear sometimes 40 to 60 week lead times, you are clearly navigating any shortages in the market well overall. But could you just talk about the specific issues? Where are the pinch points, and is that what you mean by project timing?

John J. Engel: Yes. Great question, Dave, and your lead-time comments are accurate. We are still seeing extended lead times in a couple of critical categories, but honestly we have been facing those extended lead times since the pandemic, and we have been managing the business well. I think this is more of a very specific intra-quarter project timing issue. I will give you my views of industrial. I have mentioned this before. I really believe we are at the beginning of an industrial super cycle in the U.S. in particular.

It is driven by AI-driven infrastructure investments, clearly the need for increased power generation not just for AI data centers but for all these mega projects, and a fundamental secular trend that I think is becoming more apparent every day regarding reshoring. These secular trends are going to play out over many years, and they really expand WESCO International, Inc.'s opportunity set. Specifically relative to your question in Q1, I would ask you to look at our short-cycle business. Our industrial stock-and-flow, the short-cycle business, MRO supplies and such, was up in line with mid-single-digit growth with the recent recovery in industrial production. That is a good and important leading indicator.

It was offset for us with some project timing issues. Relative to the project timing issues, however, our book-to-bills were exceptionally strong in EES and particularly in industrial in the first quarter, and we have double-digit backlog growth in the industrial portion of EES. That supports a future improving trend for industrial, again consistent with my overall views of the cycle.

David John Manthey: Thanks for that, John, and I agree. Maybe I could ask the CFO: from the first conversation that you and I had, I get the impression that you are a deal guy at heart. Could you discuss, as you settle in here, how you find the WESCO International, Inc. M&A process, and as you think about the pipeline, your general thoughts on consolidation going forward?

Unknown Speaker: Yes, Dave. I have spent a lot of time on operations. One thing I would mention: I am more of an operations guy than a deal guy. But I do like to get into the operations side of deals. I would say we have a great team here evaluating deals, and we are going to be very active, but also very disciplined. We want to make sure that there is fit in terms of our strategy and where we want to take the business, and we want to play into a lot of the megatrends that we are seeing in the marketplace.

It is all about how a deal accelerates our overall growth and profitability, and not just something that we would buy to leave standalone. Like we have talked about, the margin profile is another real important driver for us. We are very focused on it. We have launched a number of initiatives on that front, and M&A will be another lever. One thing back on your earlier question, not specific to EES and UBS: I came from the infrastructure side, building a lot of infrastructure. One of the things that we see—and we will see some of the secondary effects here—is the throttling factor for building infrastructure really are two things: lead time and skilled labor.

That has been true for a number of years and will continue to be true going forward. It is not the appetite for investment; it is not the allocation of capital; it is really those two things that are calibrating the spend quarter over quarter from a customer's perspective, not our perspective.

David John Manthey: I appreciate your thoughts. Thank you, and thanks, John.

Unknown Speaker: Thanks, Dave.

Operator: The next question comes from Analyst with RBC Capital Markets. Please go ahead.

Analyst: Hi. This is Kenny Stemen for Deane today. I wanted to ask you about data centers. Can you unpack data center strength given you are clearly outperforming peers here? Where are you gaining share of wallet? How is the growth rate different across the gray space, white space, and services? And related to that, what is driving the step down in data center growth rate in the back half in your guidance? Thank you.

John J. Engel: Good morning. We have outlined white space and gray space growth rates. White space, ostensibly supported and provided by our CSS business with deep roots that go back decades, grew north of 60% in the quarter and is the driver of the backlog growth in CSS, a major driver. Very strong growth rates in white space. Services are embedded in that; we do not break that out separately. For the gray space, ostensibly served by EES, that was up over 100% in the quarter, and again services are baked into that. We are very confident that we are outperforming the market meaningfully.

We are uniquely positioned with our portfolio because we have the datacom-related solutions—white space with CSS—we have the core electrical infrastructure and connectivity solutions supported by our EES business, and we have the power solutions supported by our UBS business, which is our grid services in particular tucked under UBS. Relative to the outlook, we took investors through that when we provided our full-year guide. We think it was appropriate originally; we have stepped it up meaningfully now given this exceptional start to Q1.

Analyst: Thank you. I appreciate that. Sticking with CSS, another really good double-digit incremental margin for this segment this quarter. What needs to happen for these double-digit incremental margins to be sustainable and potentially move toward the mid-teens given you are still executing on large projects?

John J. Engel: We have been very clear on how we are managing that business. We have a new CSS leader who has been at the helm for four quarters. He took a business that had positive momentum and accelerated that momentum and stepped up the performance meaningfully. You see that in the results. We are very aggressively managing our gross margins, and you can see they remain stable. We are trying to expand gross margins too, and we would love to do that over time, but we have stable gross margins in CSS and outstanding operating cost leverage. To be at 9% EBITDA for Q1—we are thrilled with that. It is a huge step up.

We have been north of a nine-handle on EBITDA margins more than one quarter in a row; we had it in Q4 as well. You are seeing the power of our portfolio, our execution, and the inherent operating leverage in our business model showing up in the EBITDA expansion for CSS. We are very focused on gross margins—every single basis point matters—and we will ensure the operating cost leverage, and we have very strong top-line momentum. The backlog is at an all-time record level, growing at 40% that is well in excess of our first-quarter sales growth rate.

As a side note, the backlog growth for all three businesses and segments was well in excess of our first-quarter sales rates for each of the three SBUs.

Analyst: Appreciate that. Thank you.

Operator: The next question comes from Sam Darkatsh with Raymond James. Please go ahead.

Sam Darkatsh: Good morning, John. Good morning, CFO. How are you?

John J. Engel: Good. I am good, Sam. How are you?

Sam Darkatsh: I am well. Thank you for asking. Two questions. It looks like Slide 15 shows April coming in maybe better than March. The comparisons year on year are pretty similar, and you are saying April is up 10%. Can you give a little color on what you are seeing, John? Are you seeing stock-and-flow improving over the last month or two, or is that just timing of projects?

John J. Engel: Good question, Sam. First, I would say mix. We are seeing a consistent mix with what we had in the first quarter. We still have two days to go—we are in the last day—but by the time we see the final numbers for yesterday and then we have today, which will close the quarter, we will have the full view. We have very strong book-to-bill rates continuing, again mix consistent with Q1. In Q1, we had very nice stock-based sales momentum. Projects kicked in very nicely. Relative to my comments on EES industrial, we had very good stock-and-flow momentum there; it was project timing that resulted in that not being a net growth in Q1.

I feel good about our stock momentum, Sam. I will make that comment.

Sam Darkatsh: Thank you. Second question: I think there was a recent presidential determination that authorizes federal purchasing and financing for the electrical grid. How material might this be for you, and when or where would it materialize first?

John J. Engel: First, the various associations we are part of have been working across the industry and with industry partners and association members, of which we are a participant, proactively with the federal government on addressing the core issues around supporting this infrastructure buildout in the U.S. The biggest driver is power and the power chain. We would see that as supportive of what I see as fundamentally secular growth trends in utility. I have made a strong statement that utility was classically a cyclical industry and has now moved secular growth even though we are not seeing that manifest in all the numbers yet. We would see it in our UBS business and in our EES business—supportive of the secular trends.

Sam Darkatsh: Thank you much.

Operator: The next question comes from Guy Drummond Hardwick with Barclays. Please go ahead.

Guy Drummond Hardwick: Good morning. John, I want to click on the point you brought up earlier about backlog growing faster than sales in Q1. So organic sales up 12%, backlog up 22%. At what point do sales catch up with backlog, or does backlog really underpin 2027 revenues to the extent that they are lengthening somewhat?

John J. Engel: Great question, Guy. Good morning. Backlog only represents a piece of our business. Long-term multiyear alliance agreements for utility customers and multiyear national and global account agreements in industrial—there are also some in CSS—do not all get loaded in the backlog because we are loading in the actual POs. We may have a multiyear agreement but only load in the POs when we get them. That said, we have been reporting consistently the trend on backlog. The fact that growth rate is materially higher than our sales growth rate bodes well for the balance of 2026, but it is also a look into 2027, which is the heart of your question.

When you look at the projects that are in the backlog, a number of them also ship in 2027, and there are some longer-lead items that we are quoting for 2027–2028—like some transformer business in utility. Think about the trend and the relative growth rate of backlog versus sales; it speaks to the rising demand curve that our portfolio is capturing.

Guy Drummond Hardwick: And just a follow-up: the 14% backlog growth in EES is the fastest in three years. How much of that was driven by data center projects?

John J. Engel: We have not disclosed that number, but think about the math. Data centers for the gray space—EES’s exposure—was up 100% year over year but is only 10% of EES sales. You should think about that 14% as being a very healthy number for EES overall. Two of our three SBU leaders are new in their jobs in the last year. CSS, we promoted from within four quarters ago. EES, we hired a leader from outside who returned to the electrical industry; he has now been at the helm for three quarters and is off to an outstanding start, as is our CSS leader.

Look at the momentum vector and the profit quality improvement of EES starting in Q3 last year, Q4, and now Q1. This is his third quarter since joining us. It is a big deal to have two of your three business leaders new in the saddle in the last year; we are seeing stepped-up execution in both businesses.

Guy Drummond Hardwick: Thank you.

Operator: The next question comes from Christopher D. Glynn with Oppenheimer. Please go ahead.

Christopher D. Glynn: Thanks. Good morning. Exciting start to the year. Feeding off that last topic, you were going into the EES margin trends and execution there. The gross margin sequentially has been a really strong trend and now year over year standing out, and nice outperformance on the EBITDA margin this quarter, particularly from a normal sequential seasonal pattern that we have long seen. I think the normal seasonality of the 2Q profitability ramp from EES is sort of downplayed in the suggested enterprise margin for the second quarter. Are you seeing those seasonal margin swings level off, and is that moderating the 2Q forecast over the first quarter given that the baseline shifted upward in the first quarter?

John J. Engel: First, on EES specifically, we are not guiding gross margins or op margins by SBU for Q2; we do not guide at that level. Relative to our overall outlook of flattish EBITDA margins for the enterprise in Q2, there are some interesting timing dynamics when you look at sequentials. I will hand it to our CFO to take you through.

Unknown Speaker: Thanks, John. A few things to highlight. As I said in my prepared remarks, if you look at our incentive comp and performance last year versus this year, that is about 25 to 30 basis points of overall headwind in terms of the EBITDA margin at the enterprise level. Typically we see a step down in revenue Q4 to Q1, so a lot of the operating leverage that you see in the business in terms of sequential improvement in EBITDA margin was accelerated into the first quarter of this year. Sequentially, the improvement is muted.

A couple of other things: we are in an inflationary environment, but we are doing a pretty good job managing that and passing along where appropriate. Also, with the growth of our data center business, we are making some very disciplined investments in facility expansion and capability expansions. That shows up on our cost side. Think about those as small step-function investments; we will see the benefit over several quarters and the operating leverage from that investment. That also mutes a little bit of the margin expansion year over year.

Christopher D. Glynn: Great color. Thanks. One on WDCS: I think you mentioned that is now mix accretive in CSS. Curious to double click on that. I imagine if we look at your historical top five to 10 suppliers for the enterprise, there has probably been some swapping as WDCS has ramped so prolifically. Anything interesting there?

John J. Engel: We thought it was important for investors to understand that WDCS—the exceptional growth we are getting and the way we are managing the margin profile of the business we are taking on—we are being very judicious in terms of what we bid and then applying our value proposition. We are getting very good margin pull-through; it is accretive, as outlined, to CSS. That is very encouraging given the strong secular growth trend. We have had some movement in the top five to 10 suppliers for overall WESCO International, Inc. I am not going to go through that on this call, but clearly a number of those suppliers are experiencing meaningfully greater growth given CSS growth rates.

Look at our overall momentum as a company: third quarter in a row of double-digit growth for the enterprise. The rising tide we are creating with our suppliers is raising a number of their boats.

Christopher D. Glynn: Appreciate the color, and talk soon. Thanks.

Operator: The next question comes from Kenneth Newman with KeyBanc Capital Markets. Please go ahead.

Kenneth Newman: Thanks. Good morning, guys. Welcome to the team, looking forward to working with you. Maybe first on pricing: the 3% net price—can you help quantify how much of that was from carryover benefits from last year versus incremental pricing that I know was not baked into the outlook? And any color you are seeing from supplier pushes on pricing as we exited the quarter?

Unknown Speaker: Most of that is carryover benefit, because of the timing of when we get notices and the actual yield and what flows through. A couple of things to keep in mind: CSS is our largest business unit right now, in which the price impact has been small compared to the other two business units, and increasingly we are doing a lot of projects where pricing is negotiated with special pricing agreements. Just a comment as you think about our outlook.

Kenneth Newman: Understood. Follow-up on data centers: really strong growth, particularly in white space. Can you contextualize what you saw in gray space versus white space? How much of the white space growth was a transition from projects you won in gray space a few years ago? And how should we think about the potential of that 100% growth in gray space this quarter transitioning to white space activity over the next 12 to 18 months?

John J. Engel: Very good question. We are working the OneWESCO solution on all future bid opportunities. It may be for a portion of white space, gray space, or a piece of the power solution with UBS. We are pulling in all three SBUs and, irrespective of what the RFP is for, going in with our full value prop. That has excellent momentum. Specifically, the EES growth we got—the majority in Q1—was not linked to a prior CSS or white space win. The market today procures gray space and white space at different times in the build cycle, and power is addressed much earlier and by different decision makers.

What that means for our mix in real time is we are not seeing a lot of that linkage yet, but we are putting a lot of shots on goal with our broader value proposition, and we are very confident that has huge needle-moving potential for WESCO International, Inc. going forward as we aggressively go after this secular trend. I could not be more pleased with the 100% growth in gray space in Q1 for EES. That shows we are putting an awful lot of shots on goal. It is roughly 20% of our overall sales mix, but still a very encouraging growth rate.

Unknown Speaker: One minor point to add: as the new guy coming in, I have been super impressed with the coordinated effort across all three SBUs in our go-to-market on data centers. We really go to market as OneWESCO across white and gray space, but every customer buys differently, and we let the customer decide where our value proposition resonates.

Kenneth Newman: Very helpful. Appreciate it.

Operator: The last question today will be from Patrick Michael Baumann with JPMorgan. Please go ahead.

Patrick Michael Baumann: Good morning. I had one on digital transformation. It seems like those costs are stepping up here in the first quarter in terms of what is outside the P&L. What are you spending that on—what are those costs for? What is the path and timing of the ERP rollout? Your confidence in execution on that? And what happens to those costs on day one when ERP systems turn on? How long does it take you to realize the benefits?

John J. Engel: Our last fulsome update was at our Investor Day year before last. We outlined that program and laid out extensive activities remaining for design/build; we had not really begun deployment then. We have not given a fulsome update—which we will do at our next Investor Day—but I will address your question. Outstanding progress on the design/build; we continue to grind away at that and have begun deployment. We have a very small number of locations in each of the three businesses that have been deployed. That has been part of our agile design/build process with increasing capabilities being brought to bear and released into those locations.

We had a notable milestone in the first quarter where we have one operation—one end-to-end P&L operation as part of CSS—fully deployed on our new digital platform. That occurred at the very end of the first quarter. Now we have an end-to-end operation with the latest instance and most capabilities deployed to date. We still have design/build activities that continue through this year and into the beginning of next year, but then our deployment phases in and accelerates, completely consistent with what we outlined at Investor Day. It is a phased deployment; unlike a knife-edge ERP transition that puts the enterprise at risk, we control the phasing to ensure we do not disrupt the business and can manage change effectively.

It is our utmost priority that we do not disrupt our current business momentum. We have excellent improving momentum and want to execute against that, as evidenced by our first-quarter results. No change to program design/build/deployment schema. Huge milestone in Q1 with one end-to-end operation now deployed, and we are seeing how that is operating. The benefits will phase in over a multiyear period similar to what we outlined at Investor Day, where we said it is a two-speed EBITDA margin improvement profile going forward. We are grinding away to get operating margin expansion as we complete design/build and deployment, but once that is complete, there is a step-function increase in margin expansion because all the one-time investments are done.

We very much look forward to those benefits. They are not hitting our P&L yet; that is all to come.

Unknown Speaker: On your question on the disclosures, we provide a fair amount of disclosure in terms of what is excluded from EBITDA to get to adjusted EBITDA. Like most companies, the objective is to give you visibility to things that, like John mentioned, are one-time in nature. We will reevaluate that every year when we do our reporting, but you have full visibility.

Patrick Michael Baumann: Thanks for that. My last question—this was asked earlier in the call, but bear with me: your data center revenue in the quarter was $1.4 billion. Annualized, you are at $5.6 billion, which would be up about 30% versus what you reported last year. In the quarter, you are up 70%. You have hyperscaler CapEx going up 70% this year. Help us understand what tails off. Is it some big projects or jobs that top out in the first quarter? The 20% growth is great, but in context of what you have been putting up, something seems like maybe it is project timing. Can you help us understand?

Unknown Speaker: We addressed it earlier in the call, and you gave the answer in the last part of your question—project timing. That is the answer. It was project timing then; it is project timing now. With that said, it is an exceptional start to Q1. We are thrilled with the start.

Patrick Michael Baumann: Thanks a lot. Best of luck.

Operator: This concludes our question-and-answer session. We have addressed all your questions, so we are going to bring the call to a close. There is no one left in the queue, which is great. We have a lot of calls lined up for today and tomorrow. We look forward to speaking with you in the follow-ups. Thank you all for your support. It is very much appreciated. We expect to announce our second quarter earnings on Thursday, July 30. Have a great day.

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

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