August 18, 2025 11:54 AM GMT M Idea Morgan Stanley & Co. LLC Christopher Snyder, CFA Equity Analyst Chris.Snyder@morganstanley.com +1 212 761-4470 Brandon Knutson Equity Analyst Brandon.Knutson@morganstanley.com +1 212 761-4168 Toby Okwara Equity Analyst Toby.Okwara@morganstanley.com +1 212 761-1693 Christine Yao Research Associate Christine.Yao@morganstanley.com +1 212 761-4193 Multi-Industry Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, invest ...

Financial Data and Key Metrics Changes - Organic sales grew 7% in Q2 2025, following a 6% increase in Q1 2025, with preliminary July sales per workday up approximately 10% year over year [5][11][39] - Adjusted EBITDA margin increased by 90 basis points sequentially, driven by strong operating cost leverage and stable gross margin [6][12] - Adjusted EPS was $3.39, reflecting a 6% increase compared to the prior year [7][13] Business Line Data and Key Metrics Changes - CSS (Communications and Security Solutions) achieved 17% organic growth, while EES (Electrical and Electronic Solutions) grew by 6% [5][12] - Data center sales surpassed $1 billion in Q2, marking a 65% year-over-year increase, indicating strong demand driven by AI trends [5][19] - UBS (Utility and Broadband Solutions) experienced a 4% decline in sales, although investor-owned utility sales returned to growth in Q2 [22][24] Market Data and Key Metrics Changes - The utility market faced challenges but showed signs of recovery, with investor-owned utilities growing low single digits in Q2 [22][56] - Backlog increased across all business units, with CSS backlog up 36% year over year, reflecting strong demand in data center projects [36][65] - The overall data center sales represented approximately 18% of total sales in Q2, up from 10% in the previous year [19] Company Strategy and Development Direction - The company raised its full-year outlook for organic sales growth to 5% to 7%, up from a previous range of 2.5% to 6.5% [33][35] - Focus remains on executing cross-sell initiatives, managing margins, and delivering operational improvements through technology [9][38] - The company aims to prioritize deleveraging the balance sheet while remaining opportunistic regarding share repurchases and acquisitions [37][38] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term growth trajectory supported by trends in electrification, data center expansion, and infrastructure modernization [16][24] - The company acknowledged uncertainties related to tariffs and the overall economy but noted strong demand for data centers and improving electrical end markets [35][36] - Preliminary July sales indicate continued positive momentum, with expectations for mid to high single-digit growth in Q3 [39][41] Other Important Information - The company redeemed $540 million of Series A preferred stock, enhancing financial flexibility and stability [26][27] - Inventory management remains a focus, with a 60 basis point year-over-year improvement in networking capital intensity [25][37] - The company is actively managing tariff impacts and global trade uncertainties to protect margins [30][41] Q&A Session Summary Question: Clarification on pricing and demand trends - Management confirmed that no tariff impacts are included in the second half outlook, and July sales show genuine demand increase rather than just easier comparisons [45][46] Question: Insights on UBS margins - UBS margins were impacted by customer mix and increased SG&A costs, but management expects significant operating leverage as utility sales return to growth [48][50] Question: Utility business performance - Investor-owned utilities returned to growth in Q2, while public power customers are expected to follow suit in the second half of the year [56][58] Question: Data center growth metrics - Management highlighted strong visibility into data center demand, with significant growth in both white space and gray space projects [60][62] Question: Inventory gains and pricing impacts - Management indicated that inventory gains from price increases are temporary and will be reflected in future financials, but specific impacts are difficult to project [78][89]