John Engel : Yes, I’ll comment, Sam. Thanks for that question. First, I’ll make the comment that if you look across the new WESCO as a result of putting out external WESCO together, we have an array of complete supply chain solutions that includes some people would call some of those business models “integrated supply.” So it’s important to — not everyone — there’s not a clear standard definition. We don’t have a Webster’s dictionary definition. Everyone agrees to what integrated supply is. I just wanted to make that first because it’s important when you look at how we serve our utility customers, our broadband customers, our global data center customers, our industrial global account customers, in some cases, some of the large EPCs, we have multiyear agreements and you could argue that there are all different forms of integrated supply.
With that said, the WESCO Integrated Supply captive business unit that’s part of UBS, which is the more traditional industrial-focused MRO and selective OEM integrated supplies business model, has been part of the business since I joined the company in 2004. The origins were the Bruckner business that was acquired in 1998. The team’s done a very good job of expanding the margins on that. But presently, Sam, it is still below our overall corporate margin. So the way we’ve looked at that over the years is it was an interesting business model. We learned a lot but we’ve applied different variants of it to other customers in the other businesses and the end users, as I mentioned. And we’ve been dining off the deltas because we’ve improved the margin profile of that business meaningfully over the years.
And now it’s growing double digits this year. I think it’s a reflection of our industrial end market exposure and the capabilities in that business. With that said, it is below our overall corporate margins, and so that’s something that we’re looking at from a portfolio perspective.
Sam Darkatsh: Very helpful. Thank you.
Operator: Our next question today will come from Nigel Coe of Wolfe Research. Please go ahead.
Nigel Coe: Thanks good morning everyone.
John Engel : Good morning.
Nigel Coe: Good morning. So on inventory, I think we touched on this topic, but there’s definitely a little bit of a draw during the quarter, but given the metric out there in terms of the inventory headwinds that some of your suppliers are talking about, I’m curious what you’re seeing across the broader industry. Are smaller distributors managing their inventories more aggressive than you are? I’m wondering if there’s an ambition in sense of WESCO inventory in light of the current demand environment, how much further to go on that dollar inventory reduction.
John Engel : So I think as Dave mentioned, we added significantly to our inventories over the pandemic. It was — hindsight is always 20/10. And with 20/10 hindsight, absolutely the right decision. It allowed us to maintain our service levels and support our growth and take additional share. As we look at our inventories today, we’ve got a rigorous set of controls on it, Nigel. I will tell you, we’re being very thoughtful of how we work it. You saw that it was a source of cash in the quarter but it wasn’t a huge source of cash. So I’ll give — my first response to your question is there’s a lot of opportunity in inventory still as we look across 2024 and beyond to continue to work it down. We’re balancing our inventory management levels with customer service levels, and we do not want to compromise those customer service levels.
That is paramount. And so we look at an availability metric, at a fill rate metric. I’ve talked about this extensively in the past and those are the metrics that drive where we keep our inventory levels. With that said, and I think as things get — as the economy moderates a bit, we’re even in a better position to show the power of this new WESCO portfolio as well as how we manage working capital. And so that’s my answer. I think inventory does represent a source of cash opportunity, monetization opportunity as we look through the fourth quarter and into 2024 clearly. And as Dave mentioned, we’ll be more clear on our days reduction target for 2024 when we give our overall guide as part of Q1.
Nigel Coe: Great. And then looking into 2024, I must say the data center and utility would be the 2 end markets that people would look to for continued growth. Maybe just to touch on Rahi, are we still on track for 20% growth for this year? And then on utility, just given that we’re sort of stalling on growth in the fourth quarter, how do we feel about the environment in ’24?
John Engel : Yes. Rahi is still on track. It’s been — it’s absolutely been a home run acquisition. We’re thrilled with Rahi. We’re thrilled with how it integrated. The integration has been seamless. And as we’ve mentioned before, we took the legacy data center business that was captive as part of CSS, combined it with Rahi, now calling at WDCS, WESCO Data Center Solutions, and it’s approaching kind of a $2 billion annualized run rate, just a terrific combination. Global capabilities, just we feel terrific about the overall data center business, but clearly, Rahi leveled up our game. We already — Anixter already was the global leader, but Rahi leveled up our game with a higher services value proposition, more services content as well as global capability and an impressive array of end user customers.
So you can tell by my commentary, I could not be more thrilled with that acquisition. I’ve said before, don’t be under — don’t underestimate the size and scope and scale of the impact on the overall WESCO enterprise based on the size of Rahi at acquisition. It punches way above its weight class. And this was before it was clear to everyone on what AI will do and gen AI in terms of an additional accelerator wave of growth for global data centers. So you add that on top and I’m even more bullish on the outlook for CSS and our WDCS business. Shifting to utility, look, we are — we have a clear leadership position. Very high and leading value proposition. We’re outperforming the market. We performed exceptionally well this year on top of last year, on top of the prior year.
Utility had record sales and record EBITDA margins in the third quarter. We have a little bit of moderation with Utility customers in the fourth quarter. I have 0 concerns about the end market demand or ultimately what the outlook for Utility is. Customers are deferring their purchases a bit. They’re managing cash, and they can do that and they’re going to do that to land a year. But as I look out to next year and beyond, I feel very, very good about the secular growth drivers for our Utility business. We’re going to — we’re seeing and we will continue to see, I think, an acceleration on grid modernization trends. The U.S. electric grid is going to require north — upwards of $2 trillion worth of investments over the next 10 years. Think of that number.
