管理層發言
Hello, and welcome to Wesco's 2026 Second Quarter Earnings Call. If you would like to ask a question, please press star followed by 1 on your telephone keypad. Please note this event is being recorded. I will now hand the call over to Scott Gaffner, Senior Vice President, Investor Relations, to begin.
Thank you, and good morning, everyone. Before we get started, I want to remind you that certain statements made on this call contain forward-looking information. Forward-looking statements are not guarantees of performance and by their nature are subject to uncertainties. Actual results may differ materially. Please see our webcast slides and the company's SEC filings for additional risk factors and disclosures. Any forward-looking information speaks only as of this date, and the company undertakes no obligation to update the information to reflect changed circumstances. Additionally, today we will use certain non-GAAP financial measures. Required information about these measures is available on our webcast slides and in our press release, both of which you can find on our website at wesco.com. On the call this morning, we have John J. Engel, Wesco's Chairman, President, and Chief Executive Officer, and Indraneel Dev, Executive Vice President and Chief Financial Officer. Now I will turn the call over to John.
Thank you, Scott. Good morning, everyone. Thank you for joining our call today. We delivered exceptional results in the second quarter, and they reflect continuing strong execution, market outperformance, and accelerating momentum across our entire business. We achieved record sales, record backlog, record adjusted EBITDA, and record adjusted earnings per share, all of which exceeded our plan. Free cash flow generation was also positive and exceeded our expectations. Key milestones and highlights for the second quarter included the following. First, sales: record sales were up 13%. We have now posted four consecutive quarters of double-digit sales growth for our Wesco enterprise, fueled by data centers. Beyond our outsized growth in data centers, demand remains strong across the rest of our diversified portfolio and end markets as customers continue to invest in major infrastructure projects. Sales growth was broad-based across all three of our business units. Very importantly, excluding data centers, we delivered mid-single-digit sales growth across Wesco in the second quarter. This highlights the strength of our diversified portfolio and provides another proof point that we are benefiting from multiple secular trends in CSS, EES, and UBS. Our second highlight of this exceptional quarter was profitability: record adjusted EBITDA was up 24%, and record adjusted EPS was up 35%. Adjusted EBITDA margin expanded 60 basis points to 7.3% for Wesco overall. Even more importantly, we significantly improved the profitability of each of our three business units. CSS achieved a record 10.2% EBITDA margin, establishing itself as a double-digit EBITDA margin business. It is great to get CSS above the 10% mark. EES expanded operating margins 110 basis points to 9.2% EBITDA; it is great to get EES back above 9% EBITDA. And UBS returned to a 10% EBITDA margin business; it is great to have UBS return above 10% as well because, as you know, we fell below 10% over the last two quarters. Our third major highlight for this exceptional quarter was backlog: record backlog, which we have posted now for three quarters in a row, and backlog was up a whopping 60% in the second quarter. This was driven by strong double-digit growth across all three business units and reflects the continued effectiveness of our OneWesco cross-selling strategy. CSS backlog was up 95%, essentially doubling. EES backlog was up 30%. UBS backlog was up 80%. All three SBUs posted record backlogs. This impressive backlog growth was fueled by multiyear customer commitments demonstrating our transformation into a leading infrastructure solutions provider serving the communications, security, electrical, utility, and power markets. Another major milestone I wanted to call out this quarter was a significant multiyear grid services award in our UBS business from a hyperscale data center customer. This win represents a very important step in diversifying our UBS customer base and expanding our comprehensive data center offerings to include end-to-end power solutions. That is in addition to our extensive white space and gray space product and service offerings. Finally, as recently announced, we strengthened our end-to-end capabilities in cooling solutions for data center customers through the acquisition of Singapore-based Newark Engineering, and that acquisition closed on July 1, 2026. We are very pleased with our exceptional second quarter results and our accelerating business momentum. The power of our customer value proposition, our global capabilities, and our leading portfolio of products, services, and solutions is very clear, and it is very clear as we continue to outperform the market. As a result, we are significantly raising our full-year outlook for sales, EBITDA, and EPS. This reflects the favorable secular growth trends and our confidence in continued strong execution. As a market leader, and with positive momentum building across our business, I am bullish that Wesco will continue to outperform our markets and deliver superior value to our customers, our suppliers, and our shareholders in the second half of 2026 and beyond. With that, I will turn it over to Neil to take you through our second quarter results and our raised full-year outlook in more detail. Neil?
Thank you, John, and good morning, everyone. As John highlighted, we delivered a record quarter reflecting strong demand across our end markets with excellent execution and strong momentum across the portfolio. Before turning to the quarter in more detail, let me start with a few highlights. We delivered record sales, adjusted EBITDA, and adjusted earnings per share. Growth was broad-based across the portfolio with contributions from all three business units and strength across multiple end markets, highlighting the diversified nature of our growth profile. Margin expansion continued, driven by gross margin improvement and strong operating leverage on higher sales growth. As a result of our exceptional first half results and accelerating business momentum, we are raising our full-year outlook for sales, adjusted EBITDA, and adjusted EPS. With that, let me turn to our second quarter results. Starting on Slide 4: both the top line and profitability stepped up meaningfully in the second quarter. Sales reached $6.7 billion with both reported and organic growth of 13%, driven by an estimated 3% price benefit and solid volume growth across all three SBUs. While data center remains a key growth driver for the company, growth this quarter was broad-based and diversified with mid-single-digit year-over-year sales growth excluding data center. Adjusted EBITDA grew 24% to a record $487 million, and margin expanded 60 basis points to 7.3% of sales. Gross margins expanded by 70 basis points as a result of favorable sales mix during the quarter and continued execution of our margin improvement initiatives. SG&A for the quarter was 14.5% of sales compared to 14.4% for the year-ago quarter, primarily driven by higher incentive compensation partially offset by operating leverage in the core business. Turning to Slide 5: adjusted earnings per share increased 35% to a record $4.57. The improvement was driven primarily by strong operating performance including higher sales and margin expansion. EPS growth also benefited from a lower tax rate, the absence of preferred dividends, and a lower share count, partially offset by higher interest expense. Turning to CSS on Slide 6: CSS delivered an outstanding quarter with reported and organic sales growth of 18%, driven by continued data center momentum. Sales for Wesco data center solutions increased approximately 45%, driven by broad-based growth across our data center customer base. Security and enterprise network infrastructure grew low-single-digit, and both grew high-single-digit including data center projects. Backlog ended the quarter at a record level up approximately 95% versus the prior year, underscoring the durability of demand in data center projects and providing meaningful revenue visibility. Adjusted EBITDA increased 37% and adjusted EBITDA margin expanded 140 basis points to a record 10.2%. This was our first double-digit EBITDA margin quarter in CSS history. Moving to Slide 7: a key strategic highlight in the quarter was our acquisition of Newark Engineering Group, which further strengthens our position in mission-critical data center infrastructure. Newark expands our capabilities in engineered cooling solutions and lifecycle services while strengthening our presence in the fast-growing Southeast Asia region. The addition of Newark enhances our ability to serve customers across the full data center lifecycle from design and installation through ongoing operations, maintenance, and optimization. Turning to EES on Slide 8: EES delivered an excellent quarter with sales growth of 11%. Volume was up approximately 6% and price contributed approximately 5%, with about 1 point coming from commodity inflation. Construction grew high-single-digit on robust data center infrastructure investments and project activity. Industrial grew low-single-digit on solid MRO demand and increased project activity. OEM was up strong double-digits supported by strength across semiconductor electrification and data center customers. Data center sales increased more than 70% year-over-year and remained a strong growth driver, now representing about 8% of EES sales. Excluding data center, EES grew high-single-digit supported by ongoing infrastructure investment, industrial project activity, and strength in OEM. This performance further highlights the diversified growth profile of our business. Backlog ended the quarter at a record level, up approximately 30% versus the prior year, with double-digit backlog growth across industrial, OEM, and construction. Adjusted EBITDA increased 27% and adjusted EBITDA margin expanded 110 basis points to 9.2%. The margin improvement was driven by strong gross margin expansion to a record 24.4%, partially offset by slightly higher SG&A expense associated with variable compensation on increased sales and profit growth. Turning to UBS on Slide 9: sales increased 7% reflecting strengthening demand trends across the business. Utility delivered mid-single-digit growth supported by strong investor-owned utility performance, improving public power trends, and increased traction for power solutions from our grid services portfolio. Broadband posted strong mid-teens growth driven by increased project activity and customer share gains with strength across both U.S. and Canadian operations. Adjusted EBITDA increased 2%, and the business returned to a 10% EBITDA margin this quarter. As expected and discussed on prior calls, public power competitive dynamics remained a margin headwind in the near term. However, the combination of strengthening demand trends, record backlog, and accelerating momentum in grid services positions UBS well. Backlog ended the quarter at a record level up approximately 80% year-over-year, driven by a significant multiyear grid services award with a hyperscale data center customer. As John mentioned, this win represents an important milestone for UBS, expanding our customer base beyond traditional utility and broadband end markets into data center-powered infrastructure. Moving to Slide 10: we believe that our grid services offerings position us well to benefit from the significant power infrastructure investments that will be needed over the coming years. Notably, our capabilities span a broad set of power solutions that support utilities, data centers, high-voltage industrial applications, renewables, and other power-intensive end markets. As demand for power-intensive AI data center infrastructure continues to increase, customers are engaging Wesco earlier in the lifecycle to help solve complex power and infrastructure challenges. This is creating new opportunities to cross-sell into existing customer relationships and expand our participation across large-scale projects. Moving to Slides 11 and 12: in the second quarter, data center sales reached $1.5 billion, up approximately 45% year-over-year. As we discussed last quarter, Wesco's differentiated power-to-compute model positions us across the full data center lifecycle from the grid to the building to the rack and equipment. This integrated approach continues to create growth opportunities across all three business units while expanding the scope of products, services, and solutions we provide to our customers. We will continue to enhance our value proposition with organic investments and targeted bolt-on acquisitions. Turning to Slide 13: during the second quarter, free cash flow was $32 million. Despite double-digit top-line growth, over the past four quarters our working capital intensity remained at approximately 20% of sales. For the first half of the year, we generated $246 million in free cash flow. Moving to Slide 14: we are raising our full-year sales growth outlook across all three business units, reflecting accelerating momentum throughout the portfolio. Within CSS, we now expect reported sales growth of mid- to high-teens year-over-year, which is primarily driven by our higher expectations for our data center business. We are raising our CSS data center sales outlook to more than 30% year-over-year, reflecting continued strength in hyperscale and data center-related demand. We are also raising our outlook for EES to high-single-digit sales growth year-over-year reflecting diversified strength across construction, industrial, and OEM. Finally, we are raising our outlook for UBS to mid-single-digit sales growth year-over-year reflecting improving trends across all of our utility businesses and for our broadband business. Moving to Slide 15 and our outlook for the remainder of the year: for full-year 2026 we are raising our outlook for sales growth, profitability, and earnings per share reflecting our exceptional first-half performance and continued momentum across the business. We now expect organic sales growth in the range of 9% to 11%, up from 5% to 8% previously. Reported sales growth is now expected to be 10% to 12% with total reported sales of $26 billion at the midpoint of the range. Consistent with our stronger growth outlook, we are raising our adjusted EBITDA margin outlook to 6.9% to 7.1%, representing an EBITDA raise in dollar terms at the midpoint of over $100 million compared to the previous outlook. We are also increasing our adjusted diluted EPS range to $16 to $17.50, representing a $0.75 raise at the midpoint. Given the continued growth in the business and the associated working capital requirements, we now expect free cash flow of $300 million to $600 million for the year. The midpoint of our guidance implies mid-single-digit sales growth sequentially in the second half of the year compared to the first half of the year, which will require incremental working capital investments. As a reminder, we run a CapEx-light business model with attractive returns on working capital deployed. Over the past few months, we have made several operational and organizational changes to drive more accountability around initiatives to improve working capital intensity and cash flow conversion. There are now a number of initiatives in flight around improving days sales outstanding and days inventory outstanding. As reflected on the slide, we have made some adjustments to depreciation and amortization, stock-based compensation, interest expense, and effective tax rate. As detailed last quarter, we completed the redemption of our 2028 notes and significantly improved and extended our debt maturity profile. We also repurchased $50 million of Wesco shares in the first half of the year, including $25 million in the second quarter, largely due to dilution from equity compensation. Additionally, the strength of our operating performance drove another quarter of leverage improvement, ending the quarter at approximately 3.0x net debt to adjusted EBITDA compared to 3.4x at year-end. Turning to Slide 16: as we reflect on our second quarter outperformance compared to our outlook, the drivers were increased bidding activity and win rates, cross-selling enabled by our OneWesco value proposition resonating with existing customers, favorable project and customer mix, and strong execution across the business. We continue to see favorable demand trends across the business. To start the third quarter, preliminary July month-to-date sales per workday were up approximately mid-teens on a percentage basis. Based on current customer forecasts and the backdrop of record sales per workday in September 2025, we expect third quarter sales to grow low double-digits year-over-year. Adjusted EBITDA margin is expected to be slightly lower sequentially reflecting the anticipated mix of business in the quarter. We have covered a lot of material this morning, so let me briefly recap the key points before we open up the call to your questions. In summary, we delivered double-digit top-line growth for four consecutive quarters. We delivered record results across the company, including record sales, adjusted EBITDA, and adjusted earnings per share, while continuing to expand margins. Data center remained a key growth driver for the company, and growth was broad-based across the portfolio with strong sales growth excluding data center. A major multiyear grid services win represents a major milestone for UBS in terms of customer diversification and meaningfully expands our data center product portfolio to now include power solutions. We have made meaningful progress toward our long-term margin goals, with two of our three business units at double-digit EBITDA margin this quarter. We further strengthened our balance sheet during the quarter with lower leverage and an improved debt maturity profile. We are raising our full-year outlook for sales, adjusted EBITDA, and adjusted earnings per share. Despite higher working capital to support double-digit sales growth, we expect to continue to deliver solid free cash flow. As we lean in to support 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.
分析師問答
Thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press star followed by 1 on your telephone keypad. The first question will come from Deane Dray with RBC Capital Markets. Please go ahead.
Thank you. Good morning, everyone. This obviously brings lots of excitement about the data center growth and how that continues, but your growth this quarter is so much more broad-based. So it really begs the question, John: what do you see as the drivers here? What does this say about the macro? And any sense about the sustainability or visibility that you have on this growth rate? Also, I am tempted to talk about the margin improvements because that is fabulous, and congrats to the team there, but I actually want to put the spotlight on the acquisition of Newark Engineering because the strategic rationale you listed should enhance your capabilities in data centers globally. What does this mean for your international aspirations? I know your name is Wesco International, so what does this say about the data center opportunities globally and how does this compare or have parallels with Rahi? Rahi was a good acquisition that came at the doorstep of the data center growth spike. A lot to unpack there, but I'd love to hear your thoughts. Thanks.
Thanks, Deane, and thanks for that question. I addressed some of that in my opening comments, but let me come back and hit it more broadly. First, we feel terrific about our positioning to capture the hyperscale growth for these AI-driven data centers. No doubt about it, we are getting great momentum across our entire business. This is not just a CSS-driven opportunity; it is a OneWesco play. That said, we are not a one-trick pony: we are benefiting from multiple secular growth trends and you are seeing that starting to contribute meaningfully to our results. In the second quarter, our non-data-center sales were up mid-single-digits. I will remind everyone that data centers as a mix of our total sales are a little over 20% on a trailing 12-month basis. So we have the remainder portion of the portfolio, roughly 75% to 80% of the business, that is diversified and very well positioned to benefit from multiple secular trends: infrastructure build-out and all things power around the power chain supporting increased demand for electricity, reshoring to U.S. and North American markets, and what we believe is an impending industrial super cycle. We think we are in the early innings of that. In terms of our outlook and visibility, that is why I highlighted backlog growth: all three SBUs at record levels with eye-popping growth numbers. You have covered the company a long time; this is very telling. Our confidence is reflected in our raise for the year, and I think it sets the table for a very strong 2027 as well. Now, on Newark and tying it back to earlier acquisitions like Rahi: by combining Anixter and Wesco we created a new company and we are seeing the benefits of a strong and diverse portfolio. Post-Anixter, our acquisition path began with Rahi in 2022, which gave us increased end-user customer access and added global capabilities. Following Rahi we added facility services with Ascent, and now Newark Engineering brings cooling solutions. Systematically, we are expanding our end-to-end solutions capabilities to support data center customers across the entire lifecycle. We operate in 55 countries. Our end-user relationships with hyperscale customers, multitenant data center customers, and enterprise customers are global, and those customers are running global expansion plays. We are uniquely positioned with our global footprint and the breadth of our portfolio to serve them around the world. Newark expands our portfolio meaningfully in Southeast Asia, has very strong end-user customer relationships that overlap with many of our existing customers, and enhances our mission-critical cooling and thermal management expertise. We did not have that capability in our portfolio at scale before. Newark allows us to engage customers earlier in the data center lifecycle, which will be very helpful for cross-selling and building services content. They bring design and engineering capabilities around mission-critical HVAC systems, in-house fabrication and assembly capability, installation, and after-sales servicing and support. Think of this as a continuum: we have a leading position to serve global data center customers, and the acquisitions since Anixter have been tuck-ins that expand the portfolio and that we are leveraging through our OneWesco selling model across the globe. Thanks, Deane, and congrats for the question.
The next question will come from Sam Darkatsh with Raymond James. Please go ahead.
Good morning, John. Good morning, Neil. A couple of questions. First on gross margins, specifically around data center: CSS and EES gross margins were up materially year-over-year. Has the data center gross margin dynamic switched? Is price versus cost turning positive and overwhelming lower project mix? Also, could you address the gross margin for the grid services award versus your overall UBS gross margins? Second, I was a little surprised that the third quarter EBITDA margin guide is a bit lower than the second quarter. I recognize you are calling mix out, but you are also going to have several hundred million of extra sales incrementally—what is happening there and when are you expecting OpEx leverage on a year-over-year basis? Thanks.
Thanks for the question, Sam. Going back six to seven quarters, CSS sales started to meaningfully inflect up and we had some gross margin pressure. We were clear then that as we executed projects with customers, margins would improve because additional products would be pulled through and we would increase services content over time in project execution and post-project deployment. That is what you are now seeing: the result of the actions we described six to seven quarters ago. We have been building a very nice gross margin trend in CSS. On EES, I am very pleased with the broad-based gross margin momentum there as well. Two important factors to call out are the leadership changes: we have new leaders in CSS and EES, and you are seeing what I would call a 'new leader effect' in both sales growth and profitability. Finally, on UBS: I remain incredibly bullish on the outlook overall, especially utility and broadband. Margins for grid services are accretive at the operating margin line to UBS. As grid services kicks into gear it will be margin accretive. We have now had two quarters in a row of double-digit growth for grid services and expect continued strong growth. Public power has stabilized and is improving; investor-owned utilities continue to deliver solid growth. The significant multiyear grid services award will ship over multiple years and is margin accretive. That addresses your first question. On the third quarter guide: the short answer is it's largely mix. In the second quarter we had significant margin improvement and mix was one of the drivers—some of the bigger, chunkier projects drove higher margins. Going into the third quarter, anticipated project mix is expected to be less favorable for margin. We also had a true-up of incentive compensation in this quarter because we exceeded our internal plan, which dampens near-term margin. From an operating model perspective, we have geared up to run at this higher organic growth rate and we expect to realize strong operating cost leverage as we move into 2027 and beyond. Also, as I highlighted earlier, the operating leverage for some of the data-center-related services is important to look at on the EBITDA line since services are being wrapped into those relationships.
The next question will come from David Manthey with Baird. Please go ahead.
Morning. First, on grid services, John: who is the buyer here? Do you sell this direct to the customer or is there an integrator involved? Second, how did this type of grid-to-data-center connection application get purchased in the past before you stood up this operation? Also, on core EES trends excluding data centers, one of your big competitors noted that progression was more limited in the core electrical business outside of data center. It's encouraging to see Wesco growing high-single-digits outside of that vertical. Could you talk more broadly about where you are seeing acceleration and whether there are markets yet to inflect in core OEM and medium-voltage areas?
Thanks, David. Regarding grid services, it is sold direct to a very large hyperscaler end-user customer. We cannot disclose the customer's identity, but we are thrilled that it is a direct end-user relationship. Grid Services has been built organically over the last five to six years and was historically served direct, with manufacturers and end users engaging directly. We grew the business organically and have now strung three quarters of double-digit growth in a row—Q4, Q1, and Q2—and we expect that to continue. The reasons we are right to win here are our global supply base, supply chain management capabilities, global project execution, and logistical capabilities, stitched together with our services abilities to support major construction builds. While grid services has historically served utilities principally, this is a landmark win with a data center end user, it will ship over multiple years, and it drives the 80% backlog growth in UBS. The grid services value proposition applies to utilities, data centers, high-voltage industrial applications, and renewables. Even though grid services is reported under UBS, it is very much a OneWesco play, and the opportunities are broader than just data centers. On EES ex data center: I'm very pleased with EES accelerating—11% sales growth and, if you strip out data centers, still over 8% growth. OEM was up over 20%, which is a leading indicator for industrial activity and supports our view that we are in the early innings of a broader industrial cycle. Industrial was up low-single-digits in the quarter, and construction grew high-single-digits. Backlog growth for industrial, OEM, and construction is double-digits. So we see breadth across EES and remain bullish on further acceleration as the industrial cycle expands.
The next question will come from Guy Drummond Hardwick with Barclays. Please go ahead.
Hi, good morning. Congratulations on outstanding results. Has there been any sign of any of your end markets being crowded out by data center AI spend? For example, ENI and security only grew low-single-digits. Could resources be switching to data center and AI investment, impacting other areas? Also, Neil, could you expand on the initiatives to improve DSOs and DIOs? It looks like the reduction work in the free cash guidance is entirely accounted for by the increase in the top line, so is there a target for working capital to sales in one year or two years' time?
I wouldn't single out our business; it's more of an industry-wide phenomenon. The amount of capital being spent on data centers is driving significant power demand and also increasing demand for construction labor. Demand is outstripping supply across the value chain, starting with power, then labor, and then other constraints. To the extent data center projects consume labor, it can shift the timing of other construction projects. That said, we're not seeing a material negative impact in our results: EES was up high-single-digits in construction ex data center, and overall we remain pleased with the breadth of growth. The constraint is mainly power and labor supply across the industry, not a Wesco-specific displacement of other end markets.
Thanks. Just quickly, Neil, could you possibly expand on what those initiatives to improve DSOs and DIOs are?
Sure. We have a series of initiatives that start on the commercial front: being very diligent on payment terms with customers, thinking through protections in contracts to limit extended payment exposure, and improving inventory holding practices. We have also made organizational changes to put focus on a stronger collections engine, compressing timelines, and resolving customer disputes faster. On the inventory side, we are investing in digital transformation and layering in AI tools to analyze our entire data lake and identify opportunities to compress cycles. This is one of my top priorities and I am personally spending a lot of time on it.
The next question will come from Steve Volkmann with Jefferies. Please go ahead.
Neil, I think you said there would be a little bit of a mix impact on margins in the third quarter. Any words of wisdom relative to the different segments and how we should think about that?
Steve, it's sometimes hard for us to predict the exact timing of large projects, but our guidance reflects our best estimate today of anticipated project mix across all the SBUs. There is some variability, but that is the best guidance I can give you at this point.
Okay. Maybe a bigger picture question then on grid services: how do you think about the competitive dynamic there? Is it the same competitive group you would see in standard distribution, or a different set of competitors? What does the pipeline look like for additional orders?
Think of grid services as addressing significant unmet customer needs that require a broad set of capabilities. There isn't a single direct one-for-one competitor doing exactly what we're doing across supply chain, engineering, project execution, and services. Different companies do different pieces, and many are not our traditional competitors. The pipeline for grid services is very robust; we are not disclosing pipeline size, but it's large and we are working a substantial set of opportunities. This is a long-cycle business, so wins will ship over many quarters to a few years. The momentum vector is positive and we are well-positioned given our capabilities.
The next question will come from Nigel Coe with Wolfe Research. Please go ahead.
Thanks. Good morning. It's good to see the broad-based momentum. I wanted to touch back on gross margins: they are up materially—was there any price benefit coming through on gross margins? And on the data center business, we've been trained to believe it's gross-margin dilutive; does that still hold given CSS margins? Also, a quick question on hiring: with high-single-digit growth, this is labor-intensive—any constraints on hiring, particularly technical talent?
On pricing, overall it was about a 3% benefit: CSS roughly 1%, EES about 5% with about 1 point from commodity inflation, and UBS about 3%. Stepping back, we would characterize that as back to business as usual—nothing out of the ordinary on pricing. Our supplier partners are being measured and testing the markets, so we view pricing as normalized.
On data center margins: there are two drivers. First, the new leader effect—our new CSS leader is in his fifth quarter and driving margin initiatives. Second, we are adding products and services to end-user relationships and increasingly becoming a one-stop shop. When we pick up initial project awards, not all items are always specified at the outset. As we execute projects well and engage earlier in the lifecycle, additional products, services, and lifecycle engagements pull through, which enhances margin mix. On hiring: we remain very focused on operating cost structure and operating leverage. We are selectively adding resources where we see strong opportunity, particularly technical resources to support engineering and specification needs for customers. These technical hires are being added at a fraction of the sales growth rate and we have been able to attract strong talent given the interesting, high-impact work we are doing with end users.
This concludes our question-and-answer session. I would like to turn the conference back over to John J. Engel for any closing remarks.
Thank you. I think we have addressed most of your questions. I will bring the call to a close. We have many follow-ups scheduled for today, tomorrow, and early next week, so we look forward to engaging with you. We expect to announce our third quarter earnings on Thursday, October 29, 2026. Again, thank you for your support. Have a great day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.