Good morning. My name is Christie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Anixter Third Quarter 2016 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be question-and-answer session. I would now like to turn the call over to Lisa Meers, Vice President of Investor Relations. Please go ahead, Ms. Meers.

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…

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…

And our first question comes from the line of Shawn Harrison from Longbow Research. Your line is open.

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.

Our next question comes from the line of Steven Fox from Cross Research. Your line is open.

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.

Your next question comes from the line of David Manthey from Baird. Your line is open. David J. Manthey - Robert W. Baird & Co., Inc. (Broker): All right. Thank you. Good morning.

Good morning, Dave. David J. Manthey - Robert W. Baird & Co., Inc. (Broker): 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. David J. Manthey - Robert W. Baird & Co., Inc. (Broker): 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. David J. Manthey - Robert W. Baird & Co., Inc. (Broker): 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. David J. Manthey - Robert W. Baird & Co., Inc. (Broker): 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. David J. Manthey - Robert W. Baird & Co., Inc. (Broker): 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. David J. Manthey - Robert W. Baird & Co., Inc. (Broker): 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. David J. Manthey - Robert W. Baird & Co., Inc. (Broker): Got it. Okay. Thank you.

Our next question comes from the line of Jeff Kessler from Imperial Capital. Your line is open.

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.

Our next question comes from the line of Kwame Webb from Morningstar. Your line is open.

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.

We have time for one final question. And our last question comes from the line of Shawn Harrison of Longbow Research. Your line is open.

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.

And ladies and gentlemen, this does conclude today's conference call. Thank you for joining us today. You may now disconnect your lines.