Lisa Micou Meers - Anixter International, Inc. Robert J.

Eck - Anixter International, Inc. Theodore A.

Dosch - Anixter International, Inc.

Shawn M. Harrison - Longbow Research LLC Steven Fox - Cross Research LLC David J.

Manthey - Robert W. Baird & Co., Inc.

(Broker) Jeffrey Ted Kessler - Imperial Capital LLC Kwame Webb - Morningstar, Inc. (Research)

Thank you, Christie. Good morning and thank you all for joining us today for Anixter's third quarter 2016 earnings call.

This morning, Bob Eck, President and CEO; and Ted Dosch, Executive Vice President and CFO, will review and discuss the third quarter financial results. And after their remarks, we'll open the line up to take your questions.

Before we begin, I want to remind everyone that we'll be making forward-looking statements in this presentation, which is subject to a number of factors that can cause actual results to differ materially from what is indicated here. We do not undertake to update these statements and refer you to our SEC filings for more information.

Today's earnings announcement includes both GAAP and non-GAAP financial results, the reconciliation of which is detailed in our earnings release and in the slides posted on our website. In conjunction with today's call, please find the supplemental slide presentation that further details the quarter available on our Investor Relations website, anixter.com/investor.

Now, I will turn the call over to Bob.

Thanks, Lisa. Good morning and thank you for joining us for today's earnings call.

This morning, I will provide an overview of our third quarter performance, briefly update you on our NSS and EES segments and discuss in a bit more depth our progress with the Power Solutions integration including our recent win of a $750 million, five-year contract, serving a large electric utility customer. I will then turn the call to Ted to detail our third quarter financial performance and provide more detail on our outlook for both the fourth quarter and full-year 2016.

As you saw from this morning's press release, we delivered earnings per diluted share of $1.20 compared to $1.06 in the prior-year period. Adjusted earnings per diluted share increased by 6% to $1.38.

Record third quarter sales of $2 billion reflected a 31% increase versus prior year, driven by the Power Solutions acquisition. Adjusted for the favorable impact of the Power Solutions acquisition, and the unfavorable impact of the stronger U.S.

dollar and lower average copper prices, year-over-year organic sales declined by 2.3%. Further adjusting for one fewer billing day in the current quarter, organic sales on a per-day basis declined by 0.7%, within the negative 2% to positive 2% outlook range we provided for the quarter.

It is important to note that on a per-day basis, our organic sales trend improved by 150 basis points. As Ted will detail, we delivered strong cash flow in the quarter, bringing our year-to-date cash flow from operations to $238 million.

This is consistent with our priority to return to our strategic leverage and debt-to-total capital targets by the second half of 2017. Finally, before turning to a discussion of sales by segment, let me provide a few overview comments on what we are seeing in the macro economy to provide context for our performance.

From a global perspective, we continue to see pockets of improvement in all of our businesses, particularly in North America. It is noteworthy that our Network & Security Solutions business grew 6.2% on a per-day basis, marking the 12th consecutive quarter of year-over-year growth in our NSS business.

We experienced similar strong trends in the North America industrial portion of our EES segment, reflecting our breadth of exposure to first time markets. We continue to be impacted by a sluggish global industrial economy outside of our North American geography, with particular weakness in Brazil.

As we discussed in our second quarter earnings call, we have responded with aggressive actions on the cost side to improve profitability of weaker markets and the results of these actions are evident in this quarter's results. After significant negative impacts from copper over the past seven quarters, we expect less of a copper headwind in the current quarter, and going forward based on current copper price levels.

Finally, we continue to monitor the Brexit situation. Currently, the most significant impact is at the currency exchange rate.

British pound weakened versus the U.S. dollar following the Brexit both in late June and weakened further in the beginning of the fourth quarter reflecting developments in the UK's plans to exit the EU.

With that, let me now discuss sales in the quarter by segment, starting with the Network & Security Solutions business. NSS quarterly sales of $1 billion increased 0.3%, reflecting organic sales growth of 2.3% on a per-day basis driven by strong organic growth in North America.

As in recent quarters, we continued to see strength with complex global accounts particularly with global technology customers. By geography as I noted earlier, we delivered organic growth of 6.2% on a per-day basis in North America which accounts for over 80% of segment sales.

Our emerging markets business, which represents approximately 12% of NSS sales, decreased by 16.8% on an organic days-adjusted basis. In addition to persistent challenging markets, we faced a particularly difficult comparison related to large projects in Brazil and Asia in the prior-year period.

Specifically excluding Brazil, NSS sales would have reflected a 4.9% organic growth versus prior year on a days-adjusted basis. Following four quarters of deteriorating sales trends, our view is that our business in Brazil should stabilize going forward.

Finally, our EMEA geography representing the remaining 8% of NSS sales declined 0.8% on an organic per-day basis, with solid sales in the UK and Europe offset by slower growth in our Middle East business. Overall, we believe we have a strong global position in this business as we continue to win business with multinationals in all markets that are increasingly gaining non-U.S.-based multinational customers as a result of our differentiated model including the unique global support capability we provide.

Looking at the security portion of the NSS business, security sales of $418 million or approximately 40% of segment sales increased 2.6% from the prior year. Adjusting for $2 million of unfavorable foreign exchange, NSS security sales increased 3.1% on an organic basis and 4.7% on a days-adjusted basis.

Cumulative EBITDA synergies from the Tri-Ed acquisition continued to track ahead of our year-two goal of $10 million. Based on conversations with suppliers and market survey data, we believe we maintained or gained share in both our network infrastructure and the security business in all major geographies.

With continued solid trends in this business and increased backlog and a robust pipeline, we are optimistic that current sales momentum will continue through the fourth quarter and into 2017. Moving to the Electrical & Electronic Solutions business, our third quarter sales of $535 million increased by 26%, reflecting the combination of the low-voltage portion of the Power Solutions business with our legacy wire and cable business.

Adjusting for $16 million of combined negative impact from copper and currency and $145 million of favorable impact from acquisition-related sales, EES organic sales declined 1.6% on a per-day basis. This represents 180 basis points improvement versus the prior quarter, making the second consecutive quarter of improving sales trends in EES.

By geography, North America sales of $433 million decreased 1.1% on a days-adjusted organic basis, which we believe is solid considering the weak, slowly improving Canadian economy. The industrial portion of our EES business improved this quarter as we continued to accelerate sales of the low-voltage product set from the Power Solutions product portfolio.

We are very pleased with the strategic alignment we have achieved with the core electrical product suppliers. On the OEM side of the business with broad manufacturing exposure was somewhat softer in the U.S.

but strengthened in Canada. Outside of North America, our EES EMEA sales of $59 million increased 4.6% on an organic per-day basis, reflecting growth in both industrial and OEM portions of the business.

Our EES emerging market sales of $43 million decreased by 13.5% on an organic per-day basis caused by weak sales with industrial customers and weak mining and oil and gas industries causing lower construction and industrial capital spending. Following eight quarters of persistent macroeconomic headwinds, including negative impacts from mining, oil and gas, copper, and currency, we see some signs of improvement in our business.

With a more stable external environment, we are cautiously optimistic that our EES segment will return to growth in the fourth quarter, driven by the synergies we expect to deliver as a result of the Power Solutions acquisition, as well as our ongoing strategies with automation and complex global accounts. Finally, our Utility Power Solutions segment achieved sales of $371 million in the current quarter.

Excluding the negative impact of copper and currency, organic sales declined by 7.3% on a per-day basis. As we experienced in the first half of the year, UPS sales were adversely impacted by the timing of utility customers' major project spend and utility customers deferring some investments.

On a sequential basis, sales increased by $15 million versus the second quarter, which was an increase of 6% on a per-day basis. I'd now like to update you on the progress we've made in the quarter including the new win we disclosed today, and on recent wins that we highlighted on last quarter's earnings call.

As I mentioned in my overview comments, we are extremely pleased to have been awarded a $750 million five-year contract, estimated to deliver revenue of approximately $150 million a year to distribute utility products and services, supporting a large electric utility company. Representing an estimated $100 million per year in incremental revenue, this contract is the largest in Anixter's history, and is further evidence of the confidence we have in our ability to deliver the EBITDA synergies from the Power Solutions acquisition.

Importantly, this contract win is a direct result of the powerful combination of Anixter's longstanding relationship with the utility, and our increased utility-focused capabilities that resulted from the Power Solutions acquisition. In addition to the new contract announced today, recall in the second quarter, we discussed that the majority of the decline in sales was attributable to four customers, which included one major customer contract that was not renewed.

We've had ongoing discussions with that customer and are extremely pleased to report that through our ongoing engagement with that customer, we recently were awarded a new project. We also discussed two new customer wins that would replace the sales run rate of the contract that was not renewed.

Our business with both of these customers continues to build, and we expect to exit 2016 with a run rate for these two customers equal to the volume in the contract that was not renewed. These recent successes validate our belief that the value created through the combined capabilities of the Power Solutions utility business and our legacy Anixter business is resonating with our customers and giving us further optimism in the opportunities we can create for our customers, suppliers, and all stakeholders.

As we enter the fourth quarter of 2016, we expect a positive momentum in the NSS segment to continue, driven by strength in its projects with global customers. This business benefits from its exposure to end markets where continued growth in data usage and demand for mobility remains a secular tailwind.

While our EES segment continues to experience weakness related to industrial and manufacturing end market exposure, we are cautiously optimistic that this segment will return to growth in the fourth quarter based on recent sales trends, reflecting diminishing headwinds from copper and currency and some signs of stabilization in the industrial economy. Finally, we expect the momentum we experienced at the end of the quarter in our UPS segment to continue based on customer trends as we exited the quarter, new customer wins, and a robust pipeline.

Overall, we continue to plan for slow market growth and no inflation. However, we are optimistic that the leverage created by the Power Solutions acquisition will help drive above-market organic growth in Q4 and 2017.

We now expect full-year 2016 organic sales growth in the negative 1% to flat range. Overall, we feel very good about our opportunity for organic growth going forward as we continue to leverage the benefits created to our repositioned platform.

With that, let me turn the call over to Ted for a more detailed analysis of our results and actions on the cost side of the business.

Thanks, Bob, and good morning, everyone. Today's earnings release includes a schedule which reconciles the GAAP financial results with the non-GAAP results.

We believe the non-GAAP measures we disclosed provide the best representation of our ongoing operational performance. As we do each quarter, the presentation has been posted to our website with more detail to explain our results.

All of the following comments this morning, including year-over-year and sequential comparisons, are based on continuing operations only and on an adjusted non-GAAP earnings basis. As Bob highlighted, we reported third quarter 2016 earnings per diluted share of $1.20 and an adjusted earnings per diluted share of $1.38, a 6.2% increase from prior-year adjusted EPS of $1.30.

Let me review the items that we have excluded from our adjusted EPS which are detailed in the schedule on page 11 of our earnings release and in the appendix of the accompanying slides which are posted on our Investor Relations website. Each quarter, we exclude intangible amortization which was $9.4 million in the current quarter and other costs of $0.5 million, the majority of which was the acquisition and integration costs.

We also reported a favorable $2.1 million in net tax benefit related to prior-year tax positions. Those items resulted in a combined pre-tax impact of $9.9 million and a net income impact of $6 million or $0.18 per diluted share.

We believe providing an earnings number excluding non-cash expenses and these other items provides a clearer picture of the underlying performance of the business. Now, let me review the key drivers in our adjusted earnings performance year-over-year.

We continue to be impacted by lower copper prices, which averaged $2.16 for the quarter or a 9.6% decline versus prior year, resulting in an unfavorable impact of $7.7 million on sales and $0.03 on a diluted earnings per share basis. While the strength of the U.S.

dollar relative to our foreign currency exposure was a $12.6 million headwind to sales, lower costs in the respective currencies mitigated the impact on our earnings per share, which was $0.02 per share. Adjusting for the combined copper and currency impact of $0.05 per share, core operating performance would have resulted in EPS of $1.43, a 10% increase from the prior-year adjusted EPS of a $1.30.

Now, we'll go into more details on our results. As Bob discussed, our quarterly sales of nearly $2 billion increased 31% compared to a year ago driven by the Power Solutions acquisition.

Adjusting for the favorable impacts of the Power Solutions acquisition and the unfavorable impacts of lower average copper prices and currency fluctuations, organic sales decreased by 2.3% versus prior year, which was a 0.7% decrease on a days-adjusted basis. As Bob highlighted, this is a 150-basis-point sequential improvement from our growth rate in the second quarter.

Gross margin of 20.3% in the quarter compares with 20.1% in the second quarter, reflecting segment and product mix. As expected, the decrease versus prior-year gross margin of 22.2% is due primarily to the Power Solutions acquisition.

Operating expense of $309.4 million or 15.8% of sales compares to prior year operating expense of $252.7 million or 17% of sales, reflecting the impact of the Power Solutions acquisition. Excluding the $9.9 million of expense items I just reviewed, adjusted operating expense of $299.5 million or 15.3% of sales, compares to prior year adjusted operating expense of $239.6 million or 16.1% of sales.

The 80-basis-point improvement in adjusted operating expense as a percent of sales, was driven by ongoing focus on cost management, and includes approximately $3.5 million in combined savings from the previously announced restructuring actions which have now been fully implemented. As a reminder, in the fourth quarter of 2015, we took a $2.9 million restructuring charge that resulted in $4 million in annualized savings, including $2 million in the second half of 2016.

In the second quarter of Q2 2016, we announced additional actions that will deliver an incremental $10 million of savings, including $5 million in the second half of 2016. For your reference, the incremental year-over-year savings of our three restructuring actions are shown in the schedule on page 21 of our investor presentation.

We will continue our disciplined approach to cost management as we target additional opportunities to gain efficiencies and profitability across our business. Adjusted EBITDA of $108.2 million or 5.5% of sales, reflect an increase of 8.4% versus prior year adjusted EBITDA of $99.8 million or 6.7% of sales.

Over half of the decline in adjusted EBITDA margin is attributable to the consolidation of the Power Solutions business into our results and the impact of copper, while the remaining decline reflects the general industrial segment weakness combined with segment mix. By segment, NSS adjusted EBITDA of $79.1 million was flat with the prior-year quarter and increased $3.4 million from $75.7 million in the second quarter of this year.

The corresponding adjusted EBITDA margin of 7.5% is an improvement of 30 basis points sequentially from the second quarter and down 10 basis points versus the prior-year quarter. The 30-basis-point improvement on a sequential basis reflects mix and operating expense discipline while the year-over-year decline in margin is the result of product and customer mix.

EES adjusted EBITDA of $31.4 million compares to $34.3 million in the prior-year period and $32.3 million in the second quarter of 2016. The corresponding adjusted EBITDA margin of 5.9% compares to 8.1% in the prior-year period and 5.8% in the second quarter of 2016.

The 10-basis-point improvement in sequential margin reflects an improving sales trend and operating expense discipline. Approximately two-thirds of the decline in adjusted EBITDA margin versus prior year was caused by lower copper pricing and weakness in the industrial sector with the balance due to the addition of the low voltage business of the Power Solutions acquisition.

Utility Power Solutions adjusted EBITDA was $21.1 million or 5.7% of sales, which improved from $19.3 million or 5.4% of sales in the second quarter of 2016. As we move down the income statement, interest expense of $19.8 million increased by $4 million year-over-year.

The increase in interest expense results from the issuance of incremental debt used to finance the Power Solutions acquisition. Our third quarter effective tax rate from continuing operations was 38.4%, which includes a $2.1 million net tax benefit related to prior-year tax positions.

The adjusted tax rate was 38.5% versus the prior-year adjusted tax rate of 37.8%. The largest driver of the 70-basis-point increase from the prior-year effective tax rate was due to the change in the country mix of earnings.

Our projected full-year GAAP effective tax rate is 39.3% and our adjusted full-year effective tax rate for non-GAAP operating results is 37.7%. Excluding the net tax benefit, our projected full-year effective tax rate is 40.8%.

Year-to-date, we have generated $238.4 million in cash from operations, which compares to $93.7 million in the prior-year period, driven primarily by working capital efficiencies. Our working capital as a percent of sales was at an all-time low of 18.6% for the quarter, which was over 280 basis points improvement from year-end.

This performance is the result of our relentless efforts to drive more efficiency on our cash to cash management processes as we more fully integrate the recent acquisitions. Year-to-date, we have invested $24.9 million in capital investments.

For the full year, we expect to invest $35 million to $40 million in capital expenditures. This is lower than our original plans as we adjust for the current business environment.

We now expect to generate $280 million to $300 million in cash flow from operations for the full year, an increase of $100 million to our previous cash flow level. At the end of the quarter, our debt-to-capital ratio improved to 52.7%, which compares to 58.2% at the end of 2015, reflecting the repayment of over $300 million year-to-date on our additional borrowings to fund the Power Solutions acquisition.

With our debt-to-capital ratio outside of our target range of 45% to 50% and a leverage ratio of approximately 3.6 times trailing 12 months adjusted EBITDA, our first priority remains to pay down our debt with cash flow generated from operations. We continue to make progress toward our goal of returning to our target debt levels, which include a debt-to-capital ratio of below 50% and a leverage ratio of below 3 times adjusted EBITDA by the second half of 2017.

Our weighted average cost of borrowed capital of 4.7% compares to 5.3% in the prior-year quarter. Our liquidity position remained strong with total available liquidity under revolving lines of credit and secured accounts receivable and inventory facilities of $580 million at the end of the quarter.

As we enter the fourth quarter of 2016, we expect a positive momentum in our NSS segment driven by strength in projects with global customers to continue. Supported by our book-to-bill ratio, backlog, and project pipeline, we have reasonable confidence that current trends in this business will continue through the remainder of this year and into the beginning of 2017.

In our EES segment, we continue to face challenging markets related to our industrial and manufacturing and market exposure. We are cautiously optimistic that our end markets are stabilizing and the improving trends we experienced in the last two quarters will continue.

In addition to a solid book-to-bill ratio in a growing backlog, we are delivering on our synergy goals related to the low-voltage portion of the business. Combined with the benefits of our restructuring actions, we are positioned for continued improvement in the profitability of this segment in the fourth quarter.

In our Utility segment, we faced similar challenging market from a macroeconomic perspective, driven by the relative weakness in utility capital spend levels combined with the general weakness in the Canadian market in oil and gas related markets in the U.S. The $750 million five-year contract that we discussed has an estimated $150 million per year of revenue, of which over $100 million is incremental to our current business with the utilities.

Incremental shipments will begin in the fourth quarter of 2016 and are expected to build to full run rate levels in the first quarter of 2017. Given the size of the contract and the nature of the business, it will have a lower gross margin than average.

However, the size and scope leverages our cost structure and is expected to deliver strong incremental operating income growth. Based on recent contract wins and a robust pipeline, we believe our UPS segment is well positioned for organic growth in the fourth quarter and into 2017.

Combining our favorable outlook for our NSS segment with recently improved trends in our EES and UPS segments, we now expect full-year 2016 organic sales growth in the negative 1% to flat range. As you think about the fourth quarter and full year 2016, I'd like to update our framework for modeling currency and copper based on current rates.

We have now owned and operated the Power Solutions business for four quarters, so it is fully embedded in our run rate. Based on the current value of the U.S.

dollar against other currencies, we currently expect the 2016 sales headwind of $70 million to $80 million, resulting in a $0.04 to $0.05 negative impact on EPS for the year with the majority of that impact having already occurred. Based on recent average copper prices of $2.13 compared to fourth quarter 2015 average price of $2.20, the impact of copper price on sales will be in the $2 million to $4 million range.

For the full year, we estimate lower average copper prices to have a negative sales impact of $50 million to $60 million with nearly all of that headwind occurring in the first three quarters of the year. The corresponding impact on EPS will be an estimated $0.20 to $0.22 for the full year, with nearly all of that impact having already occurred.

Turning to Power Solutions, we continue to be excited about the long-term value creation opportunities with this business despite the macro headwinds. Power Solutions added an incremental $497 million to our third quarter sales, bringing the year-to-date total to $1.5 billion.

As a reminder, in addition to our previously announced restructuring, synergies will be driven primarily by product cross-selling opportunities and purchasing synergies, and will continue to accelerate as we move through the year. Total synergies in the quarter including both Tri-Ed and Power Solutions were in line with our expectations.

We are on track to exceed our goal of delivering $17 million in cumulative EBITDA synergies in fiscal year 2016 between Tri-Ed and Power Solutions. This will result in incremental EBITDA synergies of over $10 million compared to 2015.

Let me conclude by saying that overall we were extremely encouraged in the quarter by solid results in our NSS business and improving trends in our EES segment. These were partially offset by ongoing challenges related to the industrial economy and macro conditions in CALA, and we responded by taking aggressive actions to ensure our cost structures aligned with our business.

Overall, we remain excited and energized about the transformation of our business, and the opportunities available from a repositioned platform, as evidenced by our progress in the current quarter. We continue to believe we're well positioned for substantial and sustainable long-term growth as a result of our leadership positions in attractive markets.

We remain focused on successful integration of our acquired businesses and maximizing the synergistic value in continuing to improve our working capital efficiency. Together, we expect these efforts to result in a significant free cash flow generation that will support our balanced capital allocation strategy to benefit all of our stakeholders.

With that, we will now open the call for questions.

Hi. Good morning, everybody.

Morning, Shawn.

Good morning, Shawn.

Wanted to first just touch on cash flow from operations and the strength of your year-to-date. How much of the working capital improvement that you're seeing this year is benefiting that number and is not repeatable in the next year?

Essentially, I'm trying to get into a normalized drop-through to cash flow from operations as we get into 2017 and beyond.

Great question, Shawn. Clearly, a significant portion of this year's improvement in free cash flow is gaining the efficiencies of integrating the Power Solutions acquisition.

As I mentioned, we delivered an all-time low level of working capital as a percent of sales. We do believe that we will have some more efficiencies once we ultimately convert systems for that business.

But that won't occur until early 2018 for those two businesses. So I don't expect the same level or same amount of improvement next year as this year.

As you get the lower working capital, it gets that much tougher to get every incremental percentage of improvement. But I do expect that we ought to be able to maintain these levels and show some improvement in 2017.

I guess to that – is there, seeing the business now with you guys for 12 months in the combined companies, do you have a new target of how much EBIT should drop through to operating cash flow annually?

Yes. I think that we should be looking at a number that's more like 80%, 80% to 90%.

Okay. And then I wanted to follow up on the UPS business.

So very big win here. Congratulations on that.

You made a change in management last quarter, I think maybe in part due to the lack of momentum in wins, but also just on the security progress in that business. If you could update just kind of what progress you've seen since the change in management.

Obviously, you have a big win, but just also on the security business which had been lagging in terms of initial bookings related to utility.

Yes. So I guess, Shawn, I'd just start with saying I don't think we're lagging so much.

I think what's happened is, as we've been, I think, harping on for multiple quarters now, we've had four customers that contributed virtually all of the decline in the business, and it has to do with those customer spending patterns, not anything in the competitive market. I think that's fairly clear by a couple of cases we highlighted, that I highlighted in my opening comments that we are actually making progress winning new business.

So to go back to your original point about the management change, I think actually it's been very significant. It's been significant not only in winning some of the new business we've won; it's also significant in driving new sales discipline into the organization.

And in addition, driving better supplier alignment. In the past, a lot of the supplier negotiation happened out in the regions, in the field, and didn't take advantage of the scope of the company.

Now I don't mean that just from a perspective of leverage beating people over the head because we have more volume. I mean it from a perspective of being able to sit with the supplier and talk strategically about a North America wide scope and in addition other geographies around the world where the supplier's looking for help, and as a result of that being able to drive some improvement in our relationships and terms.

So all those things have happened in a very short period of time here since the leadership change back in the second quarter. And we're very pleased with the progress we're seeing.

And I would suggest that we're in the early innings of seeing how that leadership change impacts that business.

Do you feel more comfortable now with the momentum you're seeing in the security progress and just trying to cross-sell that product?

Yes. Yeah, we do.

And I don't want to hedge on that. Our improvement has been perhaps a bit more complex than we had expected initially just in terms of time lag, because the sale cycles are fairly long.

These are actually fairly large capital spend decisions that customers have to make. And as a result of that, they're being very thoughtful about how they make some of these decisions.

Okay. That's helpful.

And I just want to say go Indians, knowing that you guys sit on North side of Chicago, so.

You're killing me.

It's a beautiful sunny day here in Cleveland for baseball, so.

Thanks. Good morning.

Just a little bit further question on the new wins on the UPS side of the business. Can you provide any more texture in terms of what drove that?

In other words, I think you mentioned it was an existing Anixter customer. And so I was curious if this was all incremental new products added with the acquisition or was there something more layered on top of that in terms of solutions that you're able to provide combined?

Anything else there would be really helpful. And then I have a couple follow-ups.

I think, Steve, it's a mix of few things. It's a mix of an ability to articulate a supply chain strategy for the customer that's highly effective along with the expanded products.

And I don't want to make light of the expanded products; we would not be in this contract if we did not have the products that we got with the Power Solutions acquisition. So when we look at the incremental $100 million of revenue per year, that's all coming out of the products that came with the Power Solutions acquisition.

Had we not done it, we would not be talking about this win.

Okay.

Yeah. Maybe just to add to that, Steve, if I can.

This customer has been a legacy Anixter customer in our legacy wire and cable side for many, many years. The difference between the $150 million and the $100 million annual revenue comes on the fact that the acquired Power Solutions business already was selling one of the operating companies.

But this contract now brings all of the operating companies of this utility under one contract.

Okay. That's helpful.

And then in terms of just the confidence level in the revenue number you're throwing out there; obviously, spending plans can change, but to what degree would you say that this is built into their maintenance spending and you can count on it consistently?

Yes. I think, Steve, this is a number that we're confident we're going to hit.

I don't want to project that we're being overly conservative and you should build into your models incremental volume on top of it. But it's a number we're confident we'll hit.

Okay. Fair enough.

And then on the Network business, could you just talk a little bit more about, obviously, like you said in your prepared remarks, you've had some very consistent growth in that business. As you head into the end of the year, maybe any kinds of puts and takes you're seeing and I guess your confidence that you can continue to produce these type of growth rates into next year?

Yeah. I think, Steve, absent a macro-economy event, say the U.S.

dipping into recession, we're confident with where we're at and it's based on significant progress with multinational customers. Being able to make the migration shift that we've talked about in the past from multinational end-user direct IT spend to cloud and software-as-a-service providers or hyperscale data center providers, which has become a bigger part of that mix, so in effect the IT CapEx in some of the traditional enterprise end-users has flattened a bit.

We shifted our focus towards the multitenant data centers, the hyperscale business, cloud software and service providers, and that's what's enabled us to continue growing at a reasonable rate in this business and I think put us in a good position. So I think because of our ability to support many of these companies globally that ends up being very significant.

It certainly plays back into North America, but as well as our sales around the world. So we're very confident that we have good momentum going in that business.

And again, absent a macroeconomic issue, we don't see a big opportunity for the wheels to come off. We've had our struggles in the emerging markets, we've had our struggles in the Middle East, and we believe those are stabilizing at a low level.

If you look at the Middle East, it's obviously being driven by oil and gas, and the bond issue being done by the Saudi Arabian government is an example of a macro change that suggests to us that we'll stabilize, if not begin to see some improvement in that market.

Great. That's helpful.

And then just a very final question on the NSS business would be just when you look at how the growth has broken down between security and your traditional products, is that a good bogie to use into this quarter and maybe into next year?

It's probably not bad from a starting point. I guess, I'll say it that way.

I would like to bet on a little bit of acceleration in security as we go into next year. But I think from a starting point, looking at the way we exited this quarter in terms of growth rate it's probably fair.

Great. Thank you very much.

All right. Thank you.

Good morning.

Good morning, Dave.

So, if I'm understanding the guidance here when we distill it down to just the fourth quarter, it looks like it implies revenues overall of down 1% to down 4%. It seems like copper and FX are pretty stable here.

And within the segments, you're talking about good growth in NSS and you're expecting some growth in EES, and positive momentum in UPS. Can you help us understand what seems like a disconnect there between segments that appear to be growing and guidance that implies declines?

I'm not sure, Dave, I follow your math. I think with the year-to-date where we are to get to our minus 1% to flat, we have to be minus 1% to 3% in the fourth quarter.

So I'm not sure where you – if I understood you right, I thought I heard you say the range went as far as minus 4%. But minus 1% to plus 3% would be the implied Q4 performance to get to the midpoint of our new range.

Okay. And that's overall revenues, not organic ex everything, or that's just the reported number?

No, that's organic. That's organic.

But think of it this way, the difference between organic and reported will be smaller than it's been in quite a while.

Right.

First off, we won't have the acquisition impact because it was in Q4, and as I mentioned, we're expecting something in the range of $2 million to $4 million impact in copper. Currency will be a little more than we thought it would be because of the big drop in the pounds in the first week of October, but I would expect copper and currency combined to have a net impact of less than 1% on our sales.

Got it. Okay.

And days, fourth quarter this year versus last year?

Days will be up one in Q4 of this year, approximately 62 days to 61 days versus last year.

Okay, great. And then as it relates to this security opportunity within utility, could you give us an idea of average ticket size from maybe low-to-high of a security system on a substation?

I'm just trying to figure out bigger than a breadbox what is that in terms of revenue opportunity for you.

Yes. Good question, Dave.

It's actually a very broadly varying number depending on what an individual customer is choosing to do with security. And so we've had projects that we've won with smaller scale public power companies, so think of it as like municipal power companies or co-ops that have been in the low-six figure range to projects in large investor-owned utilities with large-scale substations that are in the low- to mid-seven-figure range.

And there have been a couple of cases that I would call extreme outliers that are quite a bit larger than that, but I wouldn't focus on those kind of numbers.

Any idea, Bob, on a per substation basis what that might be? I mean, if you divide out those contracts by the number of substations those individual customers have?

No. I mean, there's thousands of substations in the U.S.

And there are different regulatory requirements based on the size of a substation and how critical the substation is to the total grid. So it's difficult to say an average substation is X because they will have very much to do with the mix of where you win the projects, what type of customers you win the projects at.

Got it. Okay.

Thank you.

Thank you. Thank you for taking my questions.

Going back to the contracts that were in NSS that were ending, or the contracts in utility that were ending, and now have been either fully renewed or on the way back to renewed, what was the change that allowed you to in a sense get back in with these customers beyond what you've talked about before, and within these customers, particularly those utility ones, does there exist an incremental capability to add some security revenues to the contracts that have already been talked about or are in the pipeline?

Okay. So of course, it's one customer that we lost the contract when it came up for a renewal last year in the fourth quarter.

That's the one that we've talked about and we've talked about replacing it...

Yeah,

...with two new customers that have been ramping up. And that's the customer that just recently awarded us a small project.

So the question is why did we lose it and how were we able to get back in? Why we lost it, quite honestly is in the course of the transition from closing the acquisition and getting our arms around the business, we had very little visibility to the contract and to the process that was underway.

Frankly, the team dropped the ball, pure and simple. It was a very poor execution on bidding the renewal, didn't listen to the customer, and we had had good performance for years with them.

So, as it turned out, I met the President of the utility at an event. He told me that he actually had been shocked at our performance on the bid process.

They'd always had good experience with us, and that triggered the ability to have some further follow-ups with his team, get in front of their people and get back in the door. So the way we got back in the door was simply a recognition that we did a poor job on the renewal, but we had a good track record of performance and we had an opportunity to start fresh and that's what we did.

Yeah. Jeff, if I could just add to that, the customer communicated to us the decision on the contract in Q4 after we acquired the business.

But they had told us the decision was made prior, and at a point in time where they didn't fully understand or appreciate what value Anixter could bring to the combined business. So, to be clear, we haven't won back that contract.

It was a multiyear contract that one of our competitors won. But being able to have our foot back in the door and sell them additional projects and demonstrate the capabilities of the combined company certainly bodes well for this customer going forward.

So then...

Okay.

...to get to your question on can we add security to these contracts, it's slightly different than that. We can't really add security to these contracts in most cases.

But because we have the relationships with a number of customers, we have the ability then to leverage that relationship in that contract to get in front of their security team and work with them on their security requirements, which probably actually comes ultimately under a separate contract.

Okay. And one final question related to the two customers that you are ramping up with, the nature of why you've gotten those contracts, and are those a large part of your pipeline, or are they a small part of your pipeline?

So, we don't think of them actually as being part of the pipeline because they're already...

So they're already out of the pipeline...

Yeah. They're out of the pipeline.

Yes. Okay.

They have gone through implementation and we're billing.

Okay. All right, great.

I'm sorry. You had a question why do we think we won those, and it would be basically projected...

Right.

...performance and price.

Okay. Great.

Okay. Thank you very much.

Thanks, Jeff.

Good morning, everyone. Just a couple of questions.

So, number one, and I might have missed this, on the $750 million agreement, is that ROIC or margin accretive, dilutive or neutral?

It would be accretive on an ROIC basis. As I mentioned, it's somewhat dilutive at the operating profit line.

Okay. Great.

And then just in terms of – if we look at your three businesses, how would you describe the current cadence of RFPs versus maybe 12 months ago? And then also, now that you've got your businesses a lot more stabilized following the acquisitions, is there anything fundamentally different about business that you're pursuing today versus one to two years ago?

So, the cadence on RFPs is probably about the same in the NSS business as it has been for a while, and we would suggest that's a good cadence. So the fact that it's the same as positive, it's not getting worse.

In the EES business, we're seeing improved cadence in North America and in EMEA. And then in the UPS business, we're seeing improved cadence in RFPs having a lot to do with the stepped-up sales efforts.

And I'm not sure I caught what you're getting at with the second part of your question.

Just so if I think about some of these acquisitions, a lot of discussion revolved around you needed to expand the product breadth, you needed to expand your scale, and what I'm really getting at is if we looked at one year to two years ago, was there business where you just said, you know what, we just don't have the capabilities, so let's not even bother to pursue it versus today it now makes a lot more sense to pursue?

Yes, perfect. Thank you.

That helps. So yeah, actually there's business we're pursuing, particularly in the EES business, that we would not have participated in the past.

We talked before about how we had this kind of barbell business when we were focused on wire and cable. We got a lot of day-to-day business because we had inventory.

We got large projects where you could break the wire and cable out of the electrical package because we had expertise in supply chain and product technology that would enable us to win those, but we were missing the middle of the market, which we described the middle kind of very generically, but it's the biggest chunk of the available market. Since acquiring Power Solutions and adding the electrical products – and I'll define those kind of roughly as switchgear, transformers and lighting as kind of the biggest categories you'd identify since adding those products – we've seen significant improvement in our ability to participate in that mid market and frankly, if we didn't have those products in our mix, we'd have much worse performance in the EES this year because we've been able to participate in what I would call less true industrial and more commercial construction kind of projects, large scale projects, the power part of data centers for example, that we would not have participated in in a meaningful way in the past.

So we're definitely seeing an incremental improvement in our business already from having completed that, and we've seen very good alignment from the core lighting and then the switchgear and transformer suppliers who are new to us. We had one of those suppliers actually terminate our agreement.

It was something that we were not surprised by, frankly anticipated, and for us it was a net positive which may sound weird, except that they took our territory so to speak, gave it to a competing regional wholesaler. That regional wholesaler had to drop one of their core volumes to get that business, which we then were able to pick up and build a broader relationship with a supplier that's much more strategic to us.

So, there have been some puts and takes certainly as we've gone through the past 12 months. Some of which we expected to some degree, some of which we didn't.

But the end result is that we are absolutely participating in business we would not have participated and had we not done the acquisition.

Great. Thanks so much for the color today.

Hi, if I may. I just want to be clear on two topics.

The fourth quarter outlook Ted, it's flat to positive 1.5% organic and then you pick up an extra day which is, what, $30 million to $40 million of sales, or is it lighter than that because it falls at the end of the year?

It will be lighter than that because of the holiday. It is just a difference in the way the holidays fall this year versus last year which in all reality may only be half a day, kind of equivalent of billing.

So, yeah, it'd be probably closer to the $20 million range or so.

Okay. But it's flat to positive, 1.5% organic on a per-day basis.

Correct.

Okay.

On a per-day basis. Correct.

And then just lastly, I know it's been partially addressed on the call, but what were you expecting, I guess, when you issued guidance back in July for the second half of the year that maybe didn't pan out because with the growth rate now, at least 2 points coming off the top, but the bottom looking a little bit better? What didn't pan out because your tone on just demand trends is still very positive today?

Yeah. I think, Shawn, what we thought we were going to experience when we came out at Q2 was acceleration that actually didn't happen.

Because if you remember, you asked us a question in the Q2 call about our trend in the quarter because many industrial distributors had declining trends in the quarter, and we commented that ours was actually an improving trend, particularly in our OEM and industrial businesses as we went through the quarter. So it was kind of April, May, June, each month better than the other on a per-day basis.

What happened when we got into July is we actually saw a softening across a number of our businesses in July, an uptick in August that was modest, and then improvement in September that was more significant. And that ramp in September, coupled with the pipeline, coupled with backlog, is what gives us the feeling that we'll have the kind of outlook that we have.

And the weakness you saw was solely industrial focused, on a July-month basis it wasn't flowing into the networks business or utility?

We had a little bit of softness in the networks business in July not in the utility business, but the NSS business stayed pretty consistent through the quarter.

Okay. Very helpful.

Thanks again.

Thanks.

So with that, we'll conclude our call. Thanks for all your questions and for listening today's call.

If you have additional questions, please do not hesitate to reach us, Ted or Lisa. And as always, thank you for your interest in Anixter.