UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 4, 2021
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | |||||||||||||||
Suite 700 | |||||||||||||||||
| (Zip Code) | |||||||||||||||||
| (Address of principal executive offices) | |||||||||||||||||
(412 ) 454-2200
(Registrant's telephone number, including area code)
Not applicable.
(Former name or former address, if changed since last report)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
| Title of Class | Trading Symbol(s) | Name of Exchange on which registered | ||||||||||||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). | ||||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ | ||||||||||||||
Item 2.02 Results of Operations and Financial Condition.
The information in this Item 2.02 is being furnished and shall not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. The information in this Item 2.02 shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.
On November 4, 2021, WESCO International, Inc. (the “Company”) issued a press release announcing its financial results for the third quarter of 2021. A copy of the press release is attached hereto as Exhibit 99.1.
Item 7.01 Regulation FD Disclosure.
The information in this Item 7.01 is being furnished and shall not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. The information in this Item 7.01 shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.
A slide presentation to be used by executive management of the Company in connection with its discussions with investors regarding the Company's financial results for the third quarter of 2021 is included in Exhibit 99.2 to this report and is being furnished in accordance with Regulation FD of the Securities and Exchange Commission.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| WESCO International, Inc. | ||||||||
| (Registrant) | ||||||||
| November 4, 2021 | By: | /s/ David S. Schulz | ||||||
| (Date) | David S. Schulz | |||||||
| Executive Vice President and Chief Financial Officer | ||||||||
 | NEWS RELEASE | ||||
| WESCO International, Inc. / Suite 700, 225 West Station Square Drive / Pittsburgh, PA 15219 | |||||
WESCO International, Inc. Reports Third Quarter 2021 Results
•Record net sales of $4.7 billion, up 14.2% YOY
–Organic sales growth of 13.6%
–Sequential growth of 2.9% on a reported basis; 3.4% on an organic basis
–Record backlog as of September 30, 2021
•Record operating profit of $229.5 million; operating margin of 4.9%
–Record gross margin of 21.3%, up 170 basis points YOY and up 30 basis points sequentially
–Adjusted operating profit of $280.4 million; adjusted operating margin of 5.9%, up 110 basis points YOY
–Adjusted EBITDA of $330.3 million; adjusted EBITDA margin of 7.0%, up 31% and 90 basis points YOY
•Record net income attributable to common stockholders of $105.2 million
–Adjusted net income attributable to common stockholders of $142.6 million, up 71% YOY
•Earnings per diluted share of $2.02
–Adjusted earnings per diluted share of $2.74, up 65% YOY
•Leverage of 4.1x; improvement of 0.4x sequentially and 1.6x post-close of the Anixter merger
–Trailing twelve months adjusted EBITDA of $1,067.4 million
•Raising 2021 outlook for adjusted earnings per diluted share to a range of $9.20 to $9.40
PITTSBURGH, November 4, 2021 /Business Wire/ -- WESCO International, Inc. (NYSE: WCC), a leading provider of business-to-business distribution, logistics services, and supply chain solutions, announces its results for the third quarter of 2021.
“We had another exceptional quarter and again delivered outstanding results across the board. Early in the second year of our transformational combination of WESCO and Anixter, the substantial value creation of the new WESCO is building,” said John Engel, Chairman, President and CEO. “Our sales growth accelerated versus 2019 pre-pandemic levels, and our margin performance and backlog achieved new records for the company. We are outperforming the market across our three business units by utilizing our increased scale, expanded portfolio and industry-leading positions. And, we are continuing to de-lever our balance sheet at a rapid rate while investing in our digital transformation. The impressive progress we’re making in the integration is a direct result of the dedication, commitment and relentless execution of the entire WESCO team. I want to thank all our associates for their strong teamwork on our transformation, supplier engagement and customer focus in providing the products, services and resilient supply chain solutions our customers need.”
Mr. Engel continued, “We are seeing sales and margin momentum in each of our three strategic business units. Based on our strong third quarter results, we are raising our full year 2021 outlook for sales, margin and profitability for the third time this year. We now expect sales to increase 11% to 13%, adjusted EBITDA margin to expand to between 6.4% and 6.5%, and adjusted EPS to grow to a range of $9.20 to $9.40. As a result of our expected sales growth and increasing inventories to support our customers, we are also adjusting our full year 2021 outlook for free cash flow to approximately 80% of net income.”
Mr. Engel added, “We are transforming into a growth company as a result of our digital investments, cross-selling our expanded portfolio of products and services, and providing resilient and sustainable supply chain solutions for our customers around the world. Continued execution of our aggressive integration plan, and capitalizing on the secular growth trends, will only accelerate this shift. The value creation potential of the new WESCO is building, and we are only in the early days.”
1
The following are results for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.
•Net sales were $4.7 billion for the third quarter of 2021 compared to $4.1 billion for the third quarter of 2020, an increase of 14.2%. Organic sales for the third quarter of 2021 grew by 13.6% as foreign exchange rates positively impacted reported net sales by 1.4% and divestitures negatively impacted reported net sales by 0.8%. Sequentially, net sales grew 2.9% and organic sales increased 3.4%. All segments increased sales versus the prior year period. Backlog at the end of the third quarter of 2021 increased by over 60% compared to the prior year quarter and the end of 2020. Sequentially, backlog grew approximately 15%. WESCO's book-to-bill ratio was above 1.0 for the quarter ended September 30, 2021, indicating strong demand.
•Cost of goods sold for the third quarter of 2021 was $3.7 billion compared to $3.4 billion for the third quarter of 2020, and gross profit was $1.0 billion and $785.5 million, respectively. As a percentage of net sales, gross profit was 21.3% and 19.0% for the third quarter of 2021 and 2020, respectively. Gross profit as a percentage of net sales for the third quarter of 2021 reflects the favorable impact of margin improvement initiatives, partially offset by a write-down to the carrying value of certain personal protective equipment products, which had a negative impact of 10 basis points. Gross profit as a percentage of net sales for the third quarter of 2020 was 19.6% excluding the effect of merger-related fair value adjustments of $28.0 million. Sequentially, gross profit as a percentage of net sales increased 30 basis points from 21.0% for the second quarter of 2021.
•Selling, general and administrative expenses were $721.8 million, or 15.3% of net sales, for the third quarter of 2021, compared to $562.0 million, or 13.6% of net sales, for the third quarter of 2020. SG&A expenses for the third quarter of 2021 include merger-related costs of $35.8 million. Adjusted for this amount, SG&A expenses were $686.0 million, or 14.5% of net sales, for the third quarter of 2021. SG&A expenses for the third quarter of 2021 reflect higher salaries, variable compensation expense and benefit costs, as well as volume-related costs driven by significant sales growth, partially offset by the realization of integration cost synergies. SG&A expenses for the third quarter of 2020 include $14.2 million of merger-related costs, as well as a gain on the sale of an operating branch in the U.S. of $19.8 million. Adjusted for these amounts, SG&A expenses were $567.6 million, or 13.7% of net sales, for the third quarter of 2020, reflecting cost reduction actions taken in response to the COVID-19 pandemic that lowered SG&A expenses as a percentage of net sales by approximately 70 basis points.
•Operating profit was $229.5 million for the third quarter of 2021, compared to $178.1 million for the third quarter of 2020, an increase of $51.4 million, or 28.8%. Operating profit as a percentage of net sales was 4.9% for the current quarter, compared to 4.3% for the third quarter of the prior year. Operating profit for the third quarter of 2021 includes the aforementioned merger-related costs. Additionally, in connection with an integration initiative to review the Company's brand strategy, certain legacy WESCO trademarks are migrating to a master brand architecture, which resulted in $15.1 million of accelerated amortization expense for the third quarter of 2021. Adjusted for these amounts, operating profit was $280.4 million, or 5.9% of net sales. In the third quarter of 2020, operating profit was $200.5 million, or 4.8% of net sales, adjusted for merger-related costs and fair value adjustments totaling $42.2 million and the gain on sale of a U.S. operating branch of $19.8 million. Adjusted operating margin was up 110 basis points compared to the prior year.
•Net interest expense for the third quarter of 2021 was $69.7 million, compared to $74.5 million for the third quarter of 2020. The decrease reflects a reduction of debt, including the repayment of higher fixed rate debt with lower variable rate debt.
•The effective tax rate for the third quarter of 2021 was 27.2%, compared to 23.3% for the third quarter of 2020. The higher effective tax rate in the current quarter reflects the impact on the estimated annual effective tax rate of a decrease in expected foreign tax credit utilization.
•Net income attributable to common stockholders was $105.2 million for the third quarter of 2021, compared to $66.2 million for the third quarter of 2020. Adjusted for merger-related costs and fair value adjustments, accelerated amortization expense associated with migrating to the Company's master brand architecture, gain on sale of a U.S. operating branch, and the related income tax effects, net income attributable to common stockholders was $142.6 million and $83.6 million for the third quarter of 2021 and 2020, respectively, an increase of 70.6%.
•Earnings per diluted share for the third quarter of 2021 was $2.02, based on 52.1 million diluted shares, compared to $1.31 for the third quarter of 2020, based on 50.5 million diluted shares. Adjusted for merger-related costs and fair value adjustments, accelerated amortization expense associated with migrating to the Company's master brand architecture, gain on sale of a U.S. operating branch, and the related income tax effects, earnings per diluted share for the third quarter of 2021 and 2020 was $2.74 and $1.66, respectively, an increase of 65.1%.
•Operating cash flow for the third quarter of 2021 was $69.9 million, compared to $286.3 million for the third quarter of 2020. Free cash flow for the third quarter of 2021 was $85.0 million, or 54% of adjusted net income, compared to $307.4 million, or 315% of adjusted net income, for the third quarter of 2020. Free cash flow for the current year period was lower than the comparable prior year period primarily due to changes in working capital to support double-digit sales growth.
2
The following are results for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The Company completed the merger with Anixter on June 22, 2020, thereby impacting comparisons to the prior year.
•Net sales were $13.4 billion for the first nine months of 2021 compared to $8.2 billion for the first nine months of 2020, an increase of 63.1% primarily due to the merger with Anixter.
•Cost of goods sold for the first nine months of 2021 was $10.6 billion compared to $6.6 billion for the first nine months of 2020, and gross profit was $2.8 billion and $1.6 billion, respectively. As a percentage of net sales, gross profit was 20.8% and 19.0% for the first nine months of 2021 and 2020, respectively. Gross profit as a percentage of net sales for the first nine months of 2021 reflects the favorable impact of margin improvement initiatives, partially offset by the write-down to the carrying value of certain personal protective equipment products, which had a negative impact of 20 basis points. Gross profit as a percentage of net sales for the first nine months of 2020 was 19.3% excluding the effect of merger-related fair value adjustments of $28.0 million.
•Selling, general and administrative expenses were $2.1 billion, or 15.4% of net sales, for the first nine months of 2021, compared to $1.2 billion, or 14.9% of net sales, for the first nine months of 2020. SG&A expenses for the first nine months of 2021 include merger-related costs of $119.8 million, as well as a net gain of $8.9 million resulting from the sale of WESCO's legacy utility and data communications businesses in Canada during the first quarter of 2021, which were divested in connection with the merger. Adjusted for these amounts, SG&A expenses were 14.6% of net sales for the first nine months of 2021. SG&A expenses for the first nine months of 2020 include merger-related costs of $92.1 million, as well as a gain on the sale of an operating branch in the U.S. of $19.8 million. Adjusted for these amounts, SG&A expenses were $1.1 billion, or 14.0% of net sales, for the first nine months of 2020, reflecting cost reduction actions taken in response to the COVID-19 pandemic that lowered SG&A expenses as a percentage of net sales by approximately 60 basis points.
•Operating profit was $581.6 million for the first nine months of 2021, compared to $254.3 million for the first nine months of 2020. Operating profit as a percentage of net sales was 4.4% for the current nine month period, compared to 3.1% for the first nine months of the prior year. Operating profit for the first nine months of 2021 includes merger-related costs and the net gain on the Canadian divestitures, as well as $20.2 million of accelerated amortization expense associated with migrating to the Company's master brand architecture. Adjusted for these amounts, operating profit was $712.7 million, or 5.3% of net sales. Adjusted for merger-related costs and fair value adjustments totaling $120.1 million, and gain on sale of a U.S. operating branch of $19.8 million, operating profit was $354.6 million for the first nine months of 2020, or 4.3% of net sales. Adjusted operating margin was up 100 basis points compared to the prior year.
•Net interest expense for the first nine months of 2021 was $207.7 million, compared to $152.3 million for the first nine months of 2020. The increase in interest expense was driven by financing activity related to the Anixter merger.
•The effective tax rate for the first nine months of 2021 was 22.0%, compared to 22.9% for the first nine months of 2020. The effective tax rate for the current year-to-date period reflects discrete income tax benefits resulting from a decrease in the valuation allowance recorded against foreign tax credit carryforwards of $8.3 million and deductible stock-based compensation of $7.8 million, which were partially offset by discrete income tax expense of $4.2 million associated with return-to-provision adjustments. These discrete items reduced the estimated annual effective tax rate by approximately 3.1 percentage points.
•Net income attributable to common stockholders was $254.9 million for the first nine months of 2021, compared to $64.8 million for the first nine months of 2020. Adjusted for merger-related costs and fair value adjustments, net gains on the Canadian divestitures and sale of a U.S. operating branch, accelerated amortization expense associated with migrating to the Company's master brand architecture, and the related income tax effects, net income attributable to common stockholders was $353.0 million and $143.0 million for the first nine months of 2021 and 2020, respectively, an increase of 146.8%.
•Earnings per diluted share for the first nine months of 2021 was $4.91, based on 51.9 million diluted shares, compared to $1.44 for the first nine months of 2020, based on 45.1 million diluted shares. Adjusted for merger-related costs and fair value adjustments, net gains on the Canadian divestitures and sale of a U.S. operating branch, accelerated amortization expense associated with migrating to the Company's master brand architecture, and the related income tax effects, earnings per diluted share for the first nine months of 2021 and 2020 was $6.80 and $3.17, respectively, an increase of 114.5%.
•Operating cash flow for the first nine months of 2021 was $172.7 million, compared to $418.9 million for the first nine months of 2020. Free cash flow for the first nine months of 2021 was $209.2 million, or 53% of adjusted net income, compared to $462.1 million, or 292% of adjusted net income, for the first nine months of 2020. Free cash flow for the current year period was lower than the comparable prior year period primarily due to changes in working capital to support double-digit sales growth.
3
Segment Results
The Company has operating segments that are organized around three strategic business units consisting of Electrical & Electronic Solutions ("EES"), Communications & Security Solutions ("CSS") and Utility & Broadband Solutions ("UBS").
Corporate expenses are incurred to obtain and coordinate financing, tax, information technology, legal and other related services. Segment results include depreciation expense or other allocations related to various corporate assets. Interest expense and other non-operating items are not allocated to the segments or reviewed on a segment basis. Corporate expenses are not directly identifiable with our reportable segments and are reported in the tables below to reconcile the reportable segments to the consolidated financial statements.
The following are results by segment for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. For the third quarter of 2021, operating profit and adjusted EBITDA margin improved for all segments (EES, CSS and UBS), reflecting sales growth, gross margin expansion due to strong execution of margin improvement initiatives and the realization of integration cost synergies, partially offset by higher salaries, variable compensation expense and benefit costs, as well as volume-related costs.
•EES reported net sales of $2.0 billion for the third quarter of 2021, compared to $1.7 billion for the third quarter of 2020, an increase of 19.9%. Organic sales for the third quarter of 2021 grew by 19.0% as foreign exchange rates positively impacted reported net sales by 2.0% and the Canadian divestitures negatively impacted reported net sales by 1.1%. The increase reflects double-digit sales growth in our construction, original equipment manufacturer and industrial businesses due to business expansion, price inflation, and the benefits of cross selling. Operating profit was $155.2 million for the third quarter of 2021, compared to $105.5 million for the third quarter of 2020, an increase of $49.7 million. The increase primarily reflects the factors impacting the overall business, as described above. Additionally, operating profit for the third quarter of 2021 was negatively impacted by the inventory write-down described above, as well as accelerated amortization expense of $6.3 million associated with migrating to the Company's master brand architecture. EBITDA, adjusted for other non-operating income and non-cash stock-based compensation, was $173.9 million for the third quarter of 2021, or 8.8% of net sales, compared to $108.9 million for the third quarter of 2020, or 6.6% of net sales.
•CSS reported net sales of $1.5 billion for the third quarter of 2021, compared to $1.4 billion for the third quarter of 2020, an increase of 7.2%. Organic sales for the third quarter of 2021 grew by 6.2% as foreign exchange rates positively impacted reported net sales by 1.0%. The increase reflects sales growth in our network infrastructure and security solutions businesses driven by business expansion and the enhanced scale and capabilities afforded by the combination of WESCO and Anixter. Operating profit was $108.2 million for the third quarter of 2021, compared to $89.6 million for the third quarter of 2020, an increase of $18.7 million. The increase primarily reflects the factors impacting the overall business, as described above. Additionally, operating profit for the third quarter of 2021 was negatively impacted by 20 basis points from the inventory write-down described above, as well as accelerated amortization expense of $8.3 million associated with migrating to the Company's master brand architecture. EBITDA, adjusted for other non-operating expenses and non-cash stock-based compensation, was $133.7 million for the third quarter of 2021, or 9.0% of net sales, compared to $121.2 million for the third quarter of 2020, or 8.7% of net sales.
•UBS reported net sales of $1.3 billion for the third quarter of 2021, compared to $1.1 billion for the third quarter of 2020, an increase of 14.4%. Organic sales for the third quarter of 2021 grew by 14.8% as foreign exchange rates positively impacted reported net sales by 0.9% and the Canadian divestitures negatively impacted reported net sales by 1.3%. The increase reflects broad-based growth in our utility business, as well as continued strong demand in our broadband and integrated supply businesses. Operating profit was $108.2 million for the third quarter of 2021, compared to $74.1 million for the third quarter of 2020, an increase of $34.1 million. The increase primarily reflects the factors impacting the overall business, as described above. Operating profit for the third quarter of 2021 was negatively impacted by accelerated amortization expense of $0.5 million associated with migrating to the Company's master brand architecture. EBITDA, adjusted for other non-operating expenses and non-cash stock-based compensation, was $114.7 million for the third quarter of 2021, or 9.1% of net sales, compared to $86.1 million for the third quarter of 2020, or 7.8% of net sales.
4
The following are results by segment for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, which primarily reflect the impact of the merger with Anixter. For the nine months ended September 30, 2021, operating profit and adjusted EBITDA margin improved for all segments and reflects sales growth and gross margin expansion, as well as the realization of integration cost synergies and structural cost takeout actions. Operating profit for the first nine months of 2021 was negatively impacted by higher volume-related costs, and SG&A payroll and payroll-related expenses consisting of salaries, variable compensation expense and benefit costs, including the impact of reinstating salaries and certain benefits of legacy WESCO employees that had been reduced or suspended in the prior year in response to the COVID-19 pandemic.
•EES reported net sales of $5.6 billion for the first nine months of 2021, compared to $3.8 billion for the first nine months of 2020, an increase of 47.6%. In addition to the impact from the merger, the increase reflects improved economic conditions and strong demand. Operating profit was $409.1 million for the first nine months of 2021, compared to $194.6 million for the first nine months of 2020, an increase of $214.4 million. The increase primarily reflects the factors impacting the overall business, as described above. Additionally, operating profit for the first nine months of 2021 was negatively impacted by 10 basis points from the inventory write-down described above, as well as accelerated amortization expense of $8.4 million associated with migrating to the Company's master brand architecture. EBITDA, adjusted for other non-operating income and non-cash stock-based compensation, was $453.9 million for the first nine months of 2021, or 8.1% of net sales, compared to $214.5 million for the first nine months of 2020, or 5.6% of net sales.
•CSS reported net sales of $4.2 billion for the nine months ended September 30, 2021, compared to $2.0 billion for the nine months ended September 30, 2020, an increase of 115.0%. The increase reflects the impact from the merger and broad-based growth in our security solutions and network infrastructure businesses. Operating profit was $293.4 million for the first nine months of 2021, compared to $127.5 million for the first nine months of 2020, an increase of $165.9 million. The increase primarily reflects the factors impacting the overall business, as described above. Additionally, operating profit for the first nine months of 2021 was negatively impacted by 40 basis points from the inventory write-down described above, as well as accelerated amortization expense of $11.1 million associated with migrating to the Company's master brand architecture. EBITDA, adjusted for other non-operating expenses and non-cash stock-based compensation, was $355.5 million for the first nine months of 2021, or 8.5% of net sales, compared to $165.4 million for the first nine months of 2020, or 8.5% of net sales.
•UBS reported net sales of $3.5 billion for the nine months ended September 30, 2021, compared to $2.4 billion for the nine months ended September 30, 2020, an increase of 45.5%. Along with the impact of the merger, the increase reflects broad-based growth in our utility business and continued strong demand in our broadband business. Operating profit was $289.9 million for the first nine months of 2021, compared to $167.7 million for the first nine months of 2020, an increase of $122.2 million. Operating profit for the first nine months of 2021 The increase primarily reflects the factors impacting the overall business, as described above, combined with the benefit from the net gain on the Canadian divestitures. Accelerated amortization expense of $0.7 million associated with migrating to the Company's master brand architecture negatively impacted operating profit in the current year. EBITDA, adjusted for other non-operating expenses, non-cash stock-based compensation and net gain on the Canadian divestitures, was $299.0 million for the first nine months of 2021, or 8.4% of net sales, compared to $187.8 million for the first nine months of 2020, or 7.7% of net sales.
Webcast and Teleconference Access
WESCO will conduct a webcast and teleconference to discuss the third quarter of 2021 earnings as described in this News Release on Thursday, November 4, 2021, at 10:00 a.m. E.T. The call will be broadcast live over the internet and can be accessed from the Investor Relations page of the Company's website at www.wesco.investorroom.com. The call will be archived on this internet site for seven days.
WESCO International, Inc. (NYSE: WCC) builds, connects, powers and protects the world. A publicly traded FORTUNE 500® company headquartered in Pittsburgh, Pennsylvania, WESCO is a leading provider of business-to-business distribution, logistics services and supply chain solutions. Pro forma 2020 annual sales were over $16 billion, including Anixter International Inc., which it acquired in June 2020. WESCO offers a best-in-class product and services portfolio of Electrical and Electronic Solutions, Communications and Security Solutions, and Utility and Broadband Solutions. The Company employs nearly 18,000 people, maintains relationships with approximately 30,000 suppliers, and serves more than 125,000 customers worldwide. With nearly 1,500,000 products, end-to-end supply chain services, and leading digital capabilities, WESCO provides innovative solutions to meet customer needs across commercial and industrial businesses, contractors, government agencies, institutions, telecommunications providers, and utilities. WESCO operates approximately 800 branches, warehouses and sales offices in more than 50 countries, providing a local presence for customers and a global network to serve multi-location businesses and multi-national corporations.
5
Forward-Looking Statements
All statements made herein that are not historical facts should be considered as forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. These statements include, but are not limited to, statements regarding the expected benefits and costs of the transaction between WESCO and Anixter International Inc., including anticipated future financial and operating results, synergies, accretion and growth rates, and the combined company's plans, objectives, expectations and intentions, statements that address the combined company's expected future business and financial performance, and other statements identified by words such as "anticipate," "plan," "believe," "estimate," "intend," "expect," "project," "will" and similar words, phrases or expressions. These forward-looking statements are based on current expectations and beliefs of WESCO's management, as well as assumptions made by, and information currently available to, WESCO's management, current market trends and market conditions and involve risks and uncertainties, many of which are outside of WESCO's and WESCO's management's control, and which may cause actual results to differ materially from those contained in forward-looking statements. Accordingly, you should not place undue reliance on such statements.
Those risks, uncertainties and assumptions include the risk of any unexpected costs or expenses resulting from the transaction, the risk of any litigation or post-closing regulatory action relating to the transaction, the risk that the transaction could have an adverse effect on the ability of the combined company to retain customers and retain and hire key personnel and maintain relationships with its suppliers, customers and other business relationships and on its operating results and business generally, or the risk that problems may arise in successfully integrating the businesses of the companies, which may result in the combined company not operating as effectively and efficiently as expected, the risk that the combined company may be unable to achieve synergies or other anticipated benefits of the transaction or it may take longer than expected to achieve those synergies or benefits, the risk that the leverage of the company may be higher than anticipated, the impact of natural disasters, health epidemics and other outbreaks, especially the outbreak of COVID-19 since December 2019, which may have a material adverse effect on the combined company's business, results of operations and financial condition, and other important factors that could cause actual results to differ materially from those projected. All such factors are difficult to predict and are beyond each company's control. Additional factors that could cause results to differ materially from those described above can be found in WESCO's Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and WESCO's other reports filed with the U.S. Securities and Exchange Commission ("SEC").
Contact Information:
Will Ruthrauff
Director, Investor Relations and Corporate Communications
(412) 454-4220
http://www.wesco.com
6
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollar amounts in thousands, except per share amounts)
(Unaudited)
| Three Months Ended | |||||||||||||||||
| September 30, 2021 | September 30, 2020 | ||||||||||||||||
| Net sales | $ | 4,728,325 | $ | 4,141,801 | |||||||||||||
| Cost of goods sold (excluding depreciation and amortization) | 3,720,332 | 78.7 | % | 3,356,259 | 81.0 | % | |||||||||||
| Selling, general and administrative expenses | 721,795 | 15.3 | % | 561,971 | 13.6 | % | |||||||||||
| Depreciation and amortization | 56,732 | 45,476 | |||||||||||||||
| Income from operations | 229,466 | 4.9 | % | 178,095 | 4.3 | % | |||||||||||
| Interest expense, net | 69,720 | 74,540 | |||||||||||||||
| Other income, net | (5,320) | (777) | |||||||||||||||
| Income before income taxes | 165,066 | 3.5 | % | 104,332 | 2.5 | % | |||||||||||
| Provision for income taxes | 44,870 | 24,294 | |||||||||||||||
| Net income | 120,196 | 2.5 | % | 80,038 | 1.9 | % | |||||||||||
| Net income (loss) attributable to noncontrolling interests | 600 | (640) | |||||||||||||||
| Net income attributable to WESCO International, Inc. | 119,596 | 2.5 | % | 80,678 | 1.9 | % | |||||||||||
| Preferred stock dividends | 14,352 | 14,511 | |||||||||||||||
| Net income attributable to common stockholders | $ | 105,244 | 2.2 | % | $ | 66,167 | 1.6 | % | |||||||||
| Earnings per diluted share attributable to common stockholders | $ | 2.02 | $ | 1.31 | |||||||||||||
| Weighted-average common shares outstanding and common share equivalents used in computing earnings per diluted common share (in thousands) | 52,063 | 50,487 | |||||||||||||||
| Reportable Segments | |||||||||||||||||
| Net sales: | |||||||||||||||||
| Electrical & Electronic Solutions | $ | 1,982,485 | $ | 1,653,726 | |||||||||||||
| Communications & Security Solutions | 1,488,689 | 1,388,791 | |||||||||||||||
| Utility & Broadband Solutions | 1,257,151 | 1,099,284 | |||||||||||||||
| $ | 4,728,325 | $ | 4,141,801 | ||||||||||||||
| Income from operations: | |||||||||||||||||
| Electrical & Electronic Solutions | $ | 155,210 | $ | 105,508 | |||||||||||||
| Communications & Security Solutions | 108,226 | 89,634 | |||||||||||||||
| Utility & Broadband Solutions | 108,172 | 74,092 | |||||||||||||||
| Corporate | (142,142) | (91,139) | |||||||||||||||
| $ | 229,466 | $ | 178,095 | ||||||||||||||
7
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollar amounts in thousands, except per share amounts)
(Unaudited)
| Nine Months Ended | |||||||||||||||||
| September 30, 2021 | September 30, 2020 | ||||||||||||||||
| Net sales | $ | 13,365,592 | $ | 8,197,154 | |||||||||||||
| Cost of goods sold (excluding depreciation and amortization) | 10,581,406 | 79.2 | % | 6,641,438 | 81.0 | % | |||||||||||
| Selling, general and administrative expenses | 2,057,952 | 15.4 | % | 1,221,114 | 14.9 | % | |||||||||||
| Depreciation and amortization | 144,645 | 80,324 | |||||||||||||||
| Income from operations | 581,589 | 4.4 | % | 254,278 | 3.1 | % | |||||||||||
| Interest expense, net | 207,683 | 152,281 | |||||||||||||||
| Other income, net | (8,929) | (1,463) | |||||||||||||||
| Income before income taxes | 382,835 | 2.9 | % | 103,460 | 1.3 | % | |||||||||||
| Provision for income taxes | 84,201 | 23,707 | |||||||||||||||
| Net income | 298,634 | 2.2 | % | 79,753 | 1.0 | % | |||||||||||
| Net income (loss) attributable to noncontrolling interests | 665 | (825) | |||||||||||||||
| Net income attributable to WESCO International, Inc. | 297,969 | 2.2 | % | 80,578 | 1.0 | % | |||||||||||
| Preferred stock dividends | 43,056 | 15,787 | |||||||||||||||
| Net income attributable to common stockholders | $ | 254,913 | 1.9 | % | $ | 64,791 | 0.8 | % | |||||||||
| Earnings per diluted share attributable to common stockholders | $ | 4.91 | $ | 1.44 | |||||||||||||
| Weighted-average common shares outstanding and common share equivalents used in computing earnings per diluted common share (in thousands) | 51,896 | 45,104 | |||||||||||||||
| Reportable Segments | |||||||||||||||||
| Net sales: | |||||||||||||||||
| Electrical & Electronic Solutions | $ | 5,626,309 | $ | 3,811,498 | |||||||||||||
| Communications & Security Solutions | 4,200,424 | 1,953,967 | |||||||||||||||
| Utility & Broadband Solutions | 3,538,859 | 2,431,689 | |||||||||||||||
| $ | 13,365,592 | $ | 8,197,154 | ||||||||||||||
| Income from operations: | |||||||||||||||||
| Electrical & Electronic Solutions | $ | 409,062 | $ | 194,643 | |||||||||||||
| Communications & Security Solutions | 293,446 | 127,502 | |||||||||||||||
| Utility & Broadband Solutions | 289,895 | 167,651 | |||||||||||||||
| Corporate | (410,814) | (235,518) | |||||||||||||||
| $ | 581,589 | $ | 254,278 | ||||||||||||||
8
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands)
(Unaudited)
| September 30, 2021 | December 31, 2020 | ||||||||||
| Assets | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | 251,799 | $ | 449,135 | |||||||
| Trade accounts receivable, net | 2,955,632 | 2,466,903 | |||||||||
| Inventories | 2,569,798 | 2,163,831 | |||||||||
| Other current assets | 438,267 | 427,109 | |||||||||
| Total current assets | 6,215,496 | 5,506,978 | |||||||||
| Goodwill and intangible assets | 5,179,529 | 5,252,664 | |||||||||
| Other assets | 1,085,993 | 1,120,572 | |||||||||
| Total assets | $ | 12,481,018 | $ | 11,880,214 | |||||||
| Liabilities and Stockholders' Equity | |||||||||||
| Current Liabilities | |||||||||||
| Accounts payable | $ | 2,246,454 | $ | 1,707,329 | |||||||
Short-term debt and current portion of long-term debt, net(1) | 19,292 | 528,830 | |||||||||
| Other current liabilities | 872,353 | 750,836 | |||||||||
| Total current liabilities | 3,138,099 | 2,986,995 | |||||||||
| Long-term debt, net | 4,565,772 | 4,369,953 | |||||||||
| Other noncurrent liabilities | 1,195,330 | 1,186,877 | |||||||||
| Total liabilities | 8,899,201 | 8,543,825 | |||||||||
| Stockholders' Equity | |||||||||||
| Total stockholders' equity | 3,581,817 | 3,336,389 | |||||||||
| Total liabilities and stockholders' equity | $ | 12,481,018 | $ | 11,880,214 | |||||||
(1) As of December 31, 2020, short-term debt and current portion of long-term debt includes the $500.0 million aggregate principal amount of the Company's 5.375% Senior Notes due 2021 (the "2021 Notes"), which were redeemed on January 14, 2021.
9
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands)
(Unaudited)
| Nine Months Ended | |||||||||||
| September 30, 2021 | September 30, 2020 | ||||||||||
| Operating Activities: | |||||||||||
| Net income | $ | 298,634 | $ | 79,753 | |||||||
| Add back (deduct): | |||||||||||
| Depreciation and amortization | 144,645 | 80,324 | |||||||||
| Deferred income taxes | (5,340) | (8,261) | |||||||||
| Change in trade receivables, net | (521,491) | 3,584 | |||||||||
| Change in inventories | (428,405) | 77,681 | |||||||||
| Change in accounts payable | 550,858 | 80,489 | |||||||||
| Other, net | 133,769 | 105,368 | |||||||||
| Net cash provided by operating activities | 172,670 | 418,938 | |||||||||
| Investing Activities: | |||||||||||
| Capital expenditures | (25,170) | (42,562) | |||||||||
Other, net(1) | 61,776 | (3,681,335) | |||||||||
| Net cash provided by (used in) investing activities | 36,606 | (3,723,897) | |||||||||
| Financing Activities: | |||||||||||
Debt (repayments) borrowings, net(2) | (330,341) | 3,606,339 | |||||||||
| Equity activity, net | (20,784) | (2,032) | |||||||||
Other, net(3) | (59,079) | (96,987) | |||||||||
| Net cash (used in) provided by financing activities | (410,204) | 3,507,320 | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | 3,592 | (1,014) | |||||||||
| Net change in cash and cash equivalents | (197,336) | 201,347 | |||||||||
| Cash and cash equivalents at the beginning of the period | 449,135 | 150,902 | |||||||||
| Cash and cash equivalents at the end of the period | $ | 251,799 | $ | 352,249 | |||||||
(1) For the nine months ended September 30, 2021, other investing activities includes cash consideration totaling approximately $56.0 million from the sale of WESCO's legacy utility and data communications businesses in Canada. The Company used the net proceeds from the divestitures to repay indebtedness. Other investing activities for the nine months ended September 30, 2020 includes payments to acquire Anixter of $3,707.6 million, net of cash acquired of $103.5 million.
(2) The nine months ended September 30, 2021 includes the redemption of the Company's $500.0 million aggregate principal amount of 2021 Notes and $354.7 million aggregate principal amount of its 5.375% Senior Notes due 2024 (the "2024 Notes"). The redemptions of the 2021 Notes and 2024 Notes were funded with excess cash, as well as borrowings under the Company's accounts receivable securitization and revolving credit facilities. The nine months ended September 30, 2020 primarily includes the net proceeds from the issuance of senior unsecured notes of $2,815.0 million, as well as borrowings under the Company's accounts receivable securitization and revolving credit facilities. These cash inflows were used to fund the merger with Anixter.
(3) For the nine months ended September 30, 2021, other financing activities includes $43.1 million of dividends paid to holders of Series A preferred stock. Other financing activities for the nine months ended September 30, 2020 includes approximately $79.9 million of costs associated with the debt financing used to fund a portion of the merger with Anixter, as well as $15.8 million of dividends paid to holders of Series A preferred stock.
10
NON-GAAP FINANCIAL MEASURES
In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles ("U.S. GAAP") above, this earnings release includes certain non-GAAP financial measures. These financial measures include organic sales growth, gross profit, adjusted gross profit, gross margin, adjusted gross margin, earnings before interest, taxes, depreciation and amortization (EBITDA), adjusted EBITDA, adjusted EBITDA margin, financial leverage, free cash flow, adjusted income from operations, adjusted operating margin, adjusted provision for income taxes, adjusted income before income taxes, adjusted net income, adjusted net income attributable to WESCO International, Inc., adjusted net income attributable to common stockholders, and adjusted earnings per diluted share. The Company believes that these non-GAAP measures are useful to investors as they provide a better understanding of sales performance, and the use of debt and liquidity on a comparable basis. Additionally, certain non-GAAP measures either focus on or exclude items impacting comparability of results such as merger-related costs, and the related income tax effect of such items, allowing investors to more easily compare the Company's financial performance from period to period. Management does not use these non-GAAP financial measures for any purpose other than the reasons stated above.
11
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in thousands, except per share data)
(Unaudited)
| Organic Sales Growth by Segment: | |||||||||||||||||||||||||||||||||||
| Three Months Ended | Growth/(Decline) | ||||||||||||||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | Reported | Divestiture Impact | Foreign Exchange Impact | Organic Growth | ||||||||||||||||||||||||||||||
| EES | $ | 1,982,485 | $ | 1,653,726 | 19.9% | (1.1) | % | 2.0 | % | 19.0 | % | ||||||||||||||||||||||||
| CSS | 1,488,689 | 1,388,791 | 7.2% | — | % | 1.0 | % | 6.2 | % | ||||||||||||||||||||||||||
| UBS | 1,257,151 | 1,099,284 | 14.4% | (1.3) | % | 0.9 | % | 14.8 | % | ||||||||||||||||||||||||||
| Total net sales | $ | 4,728,325 | $ | 4,141,801 | 14.2% | (0.8) | % | 1.4 | % | 13.6 | % | ||||||||||||||||||||||||
| Organic Sales Growth by Segment - Sequential: | |||||||||||||||||||||||||||||
| Three Months Ended | Growth/(Decline) | ||||||||||||||||||||||||||||
| September 30, 2021 | June 30, 2021 | Reported | Foreign Exchange Impact | Organic Growth | |||||||||||||||||||||||||
| EES | $ | 1,982,485 | $ | 1,923,011 | 3.1 | % | (0.6) | % | 3.7 | % | |||||||||||||||||||
| CSS | 1,488,689 | 1,461,120 | 1.9 | % | (0.6) | % | 2.5 | % | |||||||||||||||||||||
| UBS | 1,257,151 | 1,211,659 | 3.8 | % | (0.2) | % | 4.0 | % | |||||||||||||||||||||
| Total net sales | $ | 4,728,325 | $ | 4,595,790 | 2.9% | (0.5) | % | 3.4 | % | ||||||||||||||||||||
Note: Organic sales growth is a non-GAAP financial measure of sales performance. Organic sales growth is calculated by deducting the percentage impact from acquisitions and divestitures for one year following the respective transaction, foreign exchange rates and number of workdays from the overall percentage change in consolidated net sales.
12
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in thousands, except per share data)
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| Gross Profit: | September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||||||||
| Net sales | $ | 4,728,325 | $ | 4,141,801 | $ | 13,365,592 | $ | 8,197,154 | |||||||||||||||
| Cost of goods sold (excluding depreciation and amortization) | 3,720,332 | 3,356,259 | 10,581,406 | 6,641,438 | |||||||||||||||||||
| Gross profit | $ | 1,007,993 | $ | 785,542 | $ | 2,784,186 | $ | 1,555,716 | |||||||||||||||
Adjusted gross profit(1) | $ | 1,007,993 | $ | 813,561 | $ | 2,784,186 | $ | 1,583,735 | |||||||||||||||
| Gross margin | 21.3 | % | 19.0 | % | 20.8 | % | 19.0 | % | |||||||||||||||
Adjusted gross margin(1) | 21.3 | % | 19.6 | % | 20.8 | % | 19.3 | % | |||||||||||||||
(1) Adjusted gross profit and adjusted gross margin exclude the effect of merger-related fair value adjustments to inventory of $28.0 million for the three and nine months ended September 30, 2020.
| Three Months Ended | |||||
| Gross Profit: | June 30, 2021 | ||||
| Net sales | $ | 4,595,790 | |||
| Cost of goods sold (excluding depreciation and amortization) | 3,630,633 | ||||
| Gross profit | $ | 965,157 | |||
| Gross margin | 21.0 | % | |||
Note: Gross profit is a financial measure commonly used within the distribution industry. Gross profit is calculated by deducting cost of goods sold, excluding depreciation and amortization, from net sales. Gross margin is calculated by dividing gross profit by net sales.
13
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in thousands, except per share data)
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| Adjusted Income from Operations: | September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||||||||
| Income from operations | $ | 229,466 | $ | 178,095 | $ | 581,589 | $ | 254,278 | |||||||||||||||
| Merger-related costs | 35,750 | 14,175 | 119,792 | 92,127 | |||||||||||||||||||
| Accelerated trademark amortization | 15,147 | — | 20,196 | — | |||||||||||||||||||
| Merger-related fair value adjustments | — | 28,019 | — | 28,019 | |||||||||||||||||||
| Net gain on sale of assets and divestitures | — | (19,816) | (8,927) | (19,816) | |||||||||||||||||||
| Adjusted income from operations | $ | 280,363 | $ | 200,473 | $ | 712,650 | $ | 354,608 | |||||||||||||||
| Adjusted income from operations margin % | 5.9 | % | 4.8 | % | 5.3 | % | 4.3 | % | |||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| Adjusted Provision for Income Taxes: | September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||||||||
| Provision for income taxes | $ | 44,870 | $ | 24,294 | $ | 84,201 | $ | 23,707 | |||||||||||||||
Income tax effect of adjustments to income from operations(1) | 13,512 | 4,923 | 32,968 | 22,073 | |||||||||||||||||||
| Adjusted provision for income taxes | $ | 58,382 | $ | 29,217 | $ | 117,169 | $ | 45,780 | |||||||||||||||
(1) The adjustments to income from operations have been tax effected at rates of approximately 27% and 25% for the three and nine months ended September 30, 2021, respectively, and 22% for the three and nine months ended September 30, 2020.
14
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in thousands, except per share data)
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| Adjusted Earnings per Diluted Share: | September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||||||||
| Adjusted income from operations | $ | 280,363 | $ | 200,473 | $ | 712,650 | $ | 354,608 | |||||||||||||||
| Interest expense, net | 69,720 | 74,540 | 207,683 | 152,281 | |||||||||||||||||||
| Other income, net | (5,320) | (777) | (8,929) | (1,463) | |||||||||||||||||||
| Adjusted income before income taxes | 215,963 | 126,710 | 513,896 | 203,790 | |||||||||||||||||||
| Adjusted provision for income taxes | 58,382 | 29,217 | 117,169 | 45,780 | |||||||||||||||||||
| Adjusted net income | 157,581 | 97,493 | 396,727 | 158,010 | |||||||||||||||||||
| Net income (loss) attributable to noncontrolling interests | 600 | (640) | 665 | (825) | |||||||||||||||||||
| Adjusted net income attributable to WESCO International, Inc. | 156,981 | 98,133 | 396,062 | 158,835 | |||||||||||||||||||
| Preferred stock dividends | 14,352 | 14,511 | 43,056 | 15,787 | |||||||||||||||||||
| Adjusted net income attributable to common stockholders | $ | 142,629 | $ | 83,622 | $ | 353,006 | $ | 143,048 | |||||||||||||||
| Diluted shares | 52,063 | 50,487 | 51,896 | 45,104 | |||||||||||||||||||
| Adjusted earnings per diluted share | $ | 2.74 | $ | 1.66 | $ | 6.80 | $ | 3.17 | |||||||||||||||
Note: For the three and nine months ended September 30, 2021, income from operations, the provision for income taxes and earnings per diluted share have been adjusted to exclude merger-related costs, a net gain on the sale of WESCO's legacy utility and data communications businesses in Canada, accelerated amortization expense associated with migrating to the Company's master brand architecture, and the related income tax effects. For the three and nine months ended September 30, 2020, income from operations, the provision for income taxes and earnings per diluted share have been adjusted to exclude merger-related costs and fair value adjustments, gain on sale of an operating branch in the U.S., and the related income tax effects. These non-GAAP financial measures provide a better understanding of the Company's financial results on a comparable basis.
15
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in thousands, except per share data)
(Unaudited)
| Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||
| EBITDA and Adjusted EBITDA by Segment: | EES | CSS | UBS | Corporate | Total | |||||||||||||||||||||||||||
| Net income attributable to common stockholders | $ | 155,627 | $ | 107,898 | $ | 108,150 | $ | (266,431) | $ | 105,244 | ||||||||||||||||||||||
| Net income attributable to noncontrolling interests | 309 | — | — | 291 | 600 | |||||||||||||||||||||||||||
| Preferred stock dividends | — | — | — | 14,352 | 14,352 | |||||||||||||||||||||||||||
| Provision for income taxes | — | — | — | 44,870 | 44,870 | |||||||||||||||||||||||||||
| Interest expense, net | — | — | — | 69,720 | 69,720 | |||||||||||||||||||||||||||
| Depreciation and amortization | 16,840 | 24,723 | 5,869 | 9,300 | 56,732 | |||||||||||||||||||||||||||
| EBITDA | $ | 172,776 | $ | 132,621 | $ | 114,019 | $ | (127,898) | $ | 291,518 | ||||||||||||||||||||||
| Other (income) expense, net | (726) | 328 | 22 | (4,944) | (5,320) | |||||||||||||||||||||||||||
Stock-based compensation expense(1) | 1,848 | 752 | 633 | 5,079 | 8,312 | |||||||||||||||||||||||||||
| Merger-related costs | — | — | — | 35,750 | 35,750 | |||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 173,898 | $ | 133,701 | $ | 114,674 | $ | (92,013) | $ | 330,260 | ||||||||||||||||||||||
| Adjusted EBITDA margin % | 8.8 | % | 9.0 | % | 9.1 | % | 7.0 | % | ||||||||||||||||||||||||
(1) Stock-based compensation expense in the calculation of adjusted EBITDA for the three months ended September 30, 2021 excludes $1.3 million as such amount is included in merger-related costs. | ||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||
| EBITDA and Adjusted EBITDA by Segment: | EES | CSS | UBS | Corporate | Total | |||||||||||||||||||||||||||
| Net income attributable to common stockholders | $ | 107,192 | $ | 90,585 | $ | 73,924 | $ | (205,534) | $ | 66,167 | ||||||||||||||||||||||
| Net loss attributable to noncontrolling interests | (270) | — | — | (370) | (640) | |||||||||||||||||||||||||||
| Preferred stock dividends | — | — | — | 14,511 | 14,511 | |||||||||||||||||||||||||||
| Provision for income taxes | — | — | — | 24,294 | 24,294 | |||||||||||||||||||||||||||
| Interest expense, net | — | — | — | 74,540 | 74,540 | |||||||||||||||||||||||||||
| Depreciation and amortization | 10,411 | 18,536 | 7,550 | 8,979 | 45,476 | |||||||||||||||||||||||||||
| EBITDA | $ | 117,333 | $ | 109,121 | $ | 81,474 | $ | (83,580) | $ | 224,348 | ||||||||||||||||||||||
| Other (income) expense, net | (1,414) | (951) | 168 | 1,420 | (777) | |||||||||||||||||||||||||||
Stock-based compensation expense(2) | 1,146 | 711 | 441 | 3,704 | 6,002 | |||||||||||||||||||||||||||
| Merger-related costs | — | — | — | 14,175 | 14,175 | |||||||||||||||||||||||||||
| Merger-related fair value adjustments | 11,695 | 12,344 | 3,980 | — | 28,019 | |||||||||||||||||||||||||||
| Gain on sale of assets | (19,816) | — | — | — | (19,816) | |||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 108,944 | $ | 121,225 | $ | 86,063 | $ | (64,281) | $ | 251,951 | ||||||||||||||||||||||
| Adjusted EBITDA margin % | 6.6 | % | 8.7 | % | 7.8 | % | 6.1 | % | ||||||||||||||||||||||||
(2) Stock-based compensation by reportable segment for the three months ended September 30, 2020, as previously reported in a press release issued on November 5, 2020, has been reallocated to conform to the current period presentation. | ||||||||||||||||||||||||||||||||
Note: EBITDA, Adjusted EBITDA and Adjusted EBITDA margin % are non-GAAP financial measures that provide indicators of the Company's performance and its ability to meet debt service requirements. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before foreign exchange and other non-operating expenses (income), non-cash stock-based compensation, costs and fair value adjustments associated with the merger with Anixter, and gain on sale of an operating branch in the U.S. Adjusted EBITDA margin % is calculated by dividing Adjusted EBITDA by net sales.
16
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in thousands, except per share data)
(Unaudited)
| Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||
| EBITDA and Adjusted EBITDA by Segment: | EES | CSS | UBS | Corporate | Total | |||||||||||||||||||||||||||
| Net income attributable to common stockholders | $ | 410,233 | $ | 292,537 | $ | 289,851 | $ | (737,708) | $ | 254,913 | ||||||||||||||||||||||
| Net income attributable to noncontrolling interests | 158 | — | — | 507 | 665 | |||||||||||||||||||||||||||
| Preferred stock dividends | — | — | — | 43,056 | 43,056 | |||||||||||||||||||||||||||
| Provision for income taxes | — | — | — | 84,201 | 84,201 | |||||||||||||||||||||||||||
| Interest expense, net | — | — | — | 207,683 | 207,683 | |||||||||||||||||||||||||||
| Depreciation and amortization | 40,184 | 60,257 | 16,545 | 27,659 | 144,645 | |||||||||||||||||||||||||||
| EBITDA | $ | 450,575 | $ | 352,794 | $ | 306,396 | $ | (374,602) | $ | 735,163 | ||||||||||||||||||||||
| Other (income) expense, net | (1,329) | 909 | 44 | (8,553) | (8,929) | |||||||||||||||||||||||||||
Stock-based compensation expense(1) | 4,648 | 1,818 | 1,517 | 10,972 | 18,955 | |||||||||||||||||||||||||||
| Merger-related costs | — | — | — | 119,792 | 119,792 | |||||||||||||||||||||||||||
| Net gain on Canadian divestitures | — | — | (8,927) | — | (8,927) | |||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 453,894 | $ | 355,521 | $ | 299,030 | $ | (252,391) | $ | 856,054 | ||||||||||||||||||||||
| Adjusted EBITDA margin % | 8.1 | % | 8.5 | % | 8.4 | % | 6.4 | % | ||||||||||||||||||||||||
(1) Stock-based compensation expense in the calculation of adjusted EBITDA for the nine months ended September 30, 2021 excludes $3.8 million as such amount is included in merger-related costs. | ||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||
| EBITDA and Adjusted EBITDA by Segment: | EES | CSS | UBS | Corporate | Total | |||||||||||||||||||||||||||
| Net income attributable to common stockholders | $ | 196,665 | $ | 128,295 | $ | 167,483 | $ | (427,652) | $ | 64,791 | ||||||||||||||||||||||
| Net loss attributable to noncontrolling interests | (664) | — | — | (161) | (825) | |||||||||||||||||||||||||||
| Preferred stock dividends | — | — | — | 15,787 | 15,787 | |||||||||||||||||||||||||||
| Provision for income taxes | — | — | — | 23,707 | 23,707 | |||||||||||||||||||||||||||
| Interest expense, net | — | — | — | 152,281 | 152,281 | |||||||||||||||||||||||||||
| Depreciation and amortization | 24,638 | 24,393 | 15,153 | 16,140 | 80,324 | |||||||||||||||||||||||||||
| EBITDA | $ | 220,639 | $ | 152,688 | $ | 182,636 | $ | (219,898) | $ | 336,065 | ||||||||||||||||||||||
| Other (income) expense, net | (1,358) | (793) | 168 | 520 | (1,463) | |||||||||||||||||||||||||||
Stock-based compensation expense(2) | 3,343 | 1,130 | 1,040 | 10,016 | 15,529 | |||||||||||||||||||||||||||
| Merger-related costs | — | — | — | 92,127 | 92,127 | |||||||||||||||||||||||||||
| Merger-related fair value adjustments | 11,695 | 12,344 | 3,980 | — | 28,019 | |||||||||||||||||||||||||||
| Gain on sale of assets | (19,816) | — | — | — | (19,816) | |||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 214,503 | $ | 165,369 | $ | 187,824 | $ | (117,235) | $ | 450,461 | ||||||||||||||||||||||
| Adjusted EBITDA margin % | 5.6 | % | 8.5 | % | 7.7 | % | 5.5 | % | ||||||||||||||||||||||||
(2) Stock-based compensation expense by reportable segment for the nine months ended September 30, 2020, as previously reported in a press release issued on November 5, 2020, has been reallocated to conform to the current period presentation. | ||||||||||||||||||||||||||||||||
Note: EBITDA, Adjusted EBITDA and Adjusted EBITDA margin % are non-GAAP financial measures that provide indicators of the Company's performance and its ability to meet debt service requirements. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before foreign exchange and other non-operating expenses (income), non-cash stock-based compensation, costs and fair value adjustments associated with the merger with Anixter, and net gains on the divestiture of WESCO's legacy utility and data communications businesses in Canada and sale of an operating branch in the U.S. Adjusted EBITDA margin % is calculated by dividing Adjusted EBITDA by net sales.
17
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in thousands, except per share data)
(Unaudited)
| Twelve Months Ended | |||||||||||
| Financial Leverage: | September 30, 2021 | December 31, 2020 | |||||||||
| Reported | Proforma(1) | ||||||||||
| Net income attributable to common stockholders | $ | 260,544 | $ | 115,572 | |||||||
| Net income (loss) attributable to noncontrolling interests | 969 | (521) | |||||||||
| Preferred stock dividends | 57,408 | 30,139 | |||||||||
| Provision for income taxes | 83,298 | 55,659 | |||||||||
| Interest expense, net | 281,993 | 255,842 | |||||||||
| Depreciation and amortization | 185,921 | 153,499 | |||||||||
| EBITDA | 870,133 | 610,190 | |||||||||
| Other (income) expense, net | (9,860) | 4,635 | |||||||||
| Stock-based compensation | 21,675 | 34,733 | |||||||||
| Merger-related costs and fair value adjustments | 175,574 | 206,748 | |||||||||
| Out-of-period adjustment | 18,852 | 18,852 | |||||||||
| Net gain on sale of assets and Canadian divestitures | (8,927) | (19,816) | |||||||||
Adjusted EBITDA(2) | $ | 1,067,447 | $ | 855,342 | |||||||
| As of | |||||||||||
| September 30, 2021 | December 31, 2020 | ||||||||||
| Short-term debt and current portion of long-term debt, net | $ | 19,292 | $ | 528,830 | |||||||
| Long-term debt, net | 4,565,772 | 4,369,953 | |||||||||
Debt discount and debt issuance costs(3) | 74,222 | 88,181 | |||||||||
Fair value adjustments to Anixter Senior Notes due 2023 and 2025(3) | (1,132) | (1,650) | |||||||||
| Total debt | 4,658,154 | 4,985,314 | |||||||||
| Less: cash and cash equivalents | 251,799 | 449,135 | |||||||||
| Total debt, net of cash | $ | 4,406,355 | $ | 4,536,179 | |||||||
| Financial leverage ratio | 4.1 | 5.3 | |||||||||
(1) EBITDA and adjusted EBITDA for the twelve months ended December 31, 2020 gives effect to the combination of WESCO and Anixter as if it had occurred at the beginning of the respective trailing twelve month period.
(2) Adjusted EBITDA includes the financial results of WESCO's legacy utility and data communications businesses in Canada, which were divested in the first quarter of 2021 under a Consent Agreement with the Competition Bureau of Canada.
(3) Debt is presented in the condensed consolidated balance sheets net of debt discount and debt issuance costs, and includes adjustments to record the long-term debt assumed in the merger with Anixter at its acquisition date fair value.
Note: Financial leverage measures the use of debt. Financial leverage ratio is calculated by dividing total debt, excluding debt discount, debt issuance costs and fair value adjustments, net of cash, by adjusted EBITDA. EBITDA is defined as the trailing twelve months earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as the trailing twelve months EBITDA before foreign exchange and other non-operating expenses (income), non-cash stock-based compensation, costs and fair value adjustments associated with the merger with Anixter, an out-of-period adjustment related to inventory absorption accounting, and net gains on the divestiture of WESCO's legacy utility and data communications businesses in Canada and sale of an operating branch in the U.S.
18
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in thousands, except per share data)
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| Free Cash Flow: | September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||||||||
| Cash flow provided by operations | $ | 69,875 | $ | 286,250 | $ | 172,670 | $ | 418,938 | |||||||||||||||
| Less: Capital expenditures | (4,979) | (15,399) | (25,170) | (42,562) | |||||||||||||||||||
| Add: Merger-related expenditures | 20,109 | 36,591 | 61,676 | 85,674 | |||||||||||||||||||
| Free cash flow | $ | 85,005 | $ | 307,442 | $ | 209,176 | $ | 462,050 | |||||||||||||||
| Percentage of adjusted net income | 54 | % | 315 | % | 53 | % | 292 | % | |||||||||||||||
Note: Free cash flow is a measure of liquidity. Capital expenditures are deducted from operating cash flow to determine free cash flow. Free cash flow is available to fund investing and financing activities. For the three and nine months ended September 30, 2021 and 2020, the Company paid certain fees, expenses and other costs related to WESCO's merger with Anixter. Such expenditures have been added back to operating cash flow to determine free cash flow for such periods.
19
1 Third Quarter 2021 Webcast Presentation November 4, 2021 NYSE: WCC
2 Forward-Looking Statements All statements made herein that are not historical facts should be considered as forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. These statements include, but are not limited to, statements regarding the expected benefits and costs of the transaction between WESCO and Anixter International Inc., including anticipated future financial and operating results, synergies, accretion and growth rates, and the combined company's plans, objectives, expectations and intentions, statements that address the combined company's expected future business and financial performance, and other statements identified by words such as "anticipate," "plan," "believe," "estimate," "intend," "expect," "project," "will" and similar words, phrases or expressions. These forward-looking statements are based on current expectations and beliefs of WESCO's management, as well as assumptions made by, and information currently available to, WESCO's management, current market trends and market conditions and involve risks and uncertainties, many of which are outside of WESCO's and WESCO's management's control, and which may cause actual results to differ materially from those contained in forward-looking statements. Accordingly, you should not place undue reliance on such statements. Those risks, uncertainties and assumptions include the risk of any unexpected costs or expenses resulting from the transaction, the risk of any litigation or post-closing regulatory action relating to the transaction, the risk that the transaction could have an adverse effect on the ability of the combined company to retain customers and retain and hire key personnel and maintain relationships with its suppliers, customers and other business relationships and on its operating results and business generally, or the risk that problems may arise in successfully integrating the businesses of the companies, which may result in the combined company not operating as effectively and efficiently as expected, the risk that the combined company may be unable to achieve synergies or other anticipated benefits of the transaction or it may take longer than expected to achieve those synergies or benefits, the risk that the leverage of the company may be higher than anticipated, the impact of natural disasters, health epidemics and other outbreaks, especially the outbreak of COVID-19 since December 2019, which may have a material adverse effect on the combined company's business, results of operations and financial conditions, and other important factors that could cause actual results to differ materially from those projected. All such factors are difficult to predict and are beyond each company's control. Additional factors that could cause results to differ materially from those described above can be found in WESCO's Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and WESCO's other reports filed with the U.S. Securities and Exchange Commission ("SEC"). Non-GAAP Measures In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles ("U.S. GAAP"), this presentation includes certain non-GAAP financial measures. These financial measures include organic sales growth, gross profit, adjusted gross profit, gross margin, adjusted gross margin, earnings before interest, taxes, depreciation and amortization (EBITDA), adjusted EBITDA, adjusted EBITDA margin, financial leverage, free cash flow, adjusted income from operations, adjusted operating margin, adjusted provision for income taxes, adjusted income before income taxes, adjusted net income, adjusted net income attributable to WESCO International, Inc., adjusted net income attributable to common stockholders, and adjusted earnings per diluted share. The Company believes that these non-GAAP measures are useful to investors as they provide a better understanding of sales performance, and the use of debt and liquidity on a comparable basis. Additionally, certain non-GAAP measures either focus on or exclude items impacting comparability of results such as merger-related costs, and the related income tax effect of such items, allowing investors to more easily compare the Company's financial performance from period to period. Management does not use these non-GAAP financial measures for any purpose other than the reasons stated above.
3 Agenda Business Overview Financial Results Overview John Engel Chairman, President & CEO Executive Vice President & CFO Dave Schulz
4 Strong Results Across The Board in Q3 Raised 2021 outlook on sales and margin growth momentum and accelerated synergy realization Sales up 14% YOY and 3% sequentially on an organic basis – Leveraging increased scale, expanded product and services portfolio, and global supplier relationships – Seeing increasing benefits from SBU cross-selling and attractive secular growth trends – Economic recovery continuing across our end markets – Backlog at record level, up 15% sequentially and 60% YOY – Effectively managing global supply chain challenges – Increased inventories to support sales growth and ensure customer service levels Gross margin up 170 basis points YOY and up 30 bps sequentially – Focus on value-driven pricing through enhanced and rigorous margin-improvement processes – Ability to pass-through inflationary prices is favorable in light of strong market demand and constrained supply Adjusted EBITDA margin up 90 basis points YOY and 30 bps sequentially – Strong synergy execution delivering results above expectations – Benefits accruing from structural cost takeout and increased operating leverage Leverage of 4.1x; down 0.4x sequentially and 1.6x in 15 months since Anixter merger – TTM adjusted EBITDA of over $1 billion – Accelerated de-leveraging demonstrates inherent strength of our business model
5 Cross-Sell Momentum Building •On track to deliver $500 million in cross-sell synergies by 2023 • Expanding pipeline of cross-sell opportunities • Strong customer relationships and global supplier partnerships • Minimal overlap between legacy WESCO and Anixter customers • Highly complementary products and services • Salesforce training and incentives in place • Opportunities to cross-sell expanded product and services portfolio exist across all three SBUs • $105 million of incremental sales generated in Q3 with $220 million generated since merger closed • Growth opportunity is further amplified by attractive secular growth trends Broad Portfolio of Cross-Sell Products and Services Balance of Electrical system Wire & Cable Solutions Substation and Grid Components Network Infrastructure and Security ServicesMRO Supplies Switch Gear
6 Third Quarter Results Overview Dave Schulz Executive Vice President & Chief Financial Officer
7 Q3 2021 Q3 2020 YOY Sales $4,728 $4,142 14% Gross Profit1 1,008 814 24% % of sales 21.3% 19.6% +170 bps Adjusted Income from Operations2 280 200 40% % of sales 5.9% 4.8% +110 bps Adjusted EBITDA3 330 252 31% % of sales 7.0% 6.1% +90 bps Adjusted Diluted EPS2 $2.74 $1.66 65% Third Quarter Results Overview Sales growth, margin expansion and cost synergies drive 7% adjusted EBITDA margin in Q3 1 Q3 2020 Gross Profit excludes the effect of measuring the inventories acquired in the merger with Anixter at their acquisition date fair value. 2 Adjusted income from operations and adjusted earnings per diluted share exclude merger-related costs and fair value adjustments, accelerated amortization expense associated with migrating to the Company's master brand architecture, gain on sale of an operating branch in the U.S., and the related income tax effects. 3 Adjusted EBITDA excludes foreign exchange and other non-operating expenses (income), non-cash stock-based compensation, costs and fair value adjustments associated with the merger with Anixter, and gain on sale of an operating branch in the U.S. $M Except per share amounts • Sales +14% YOY and +3% sequentially on an organic basis • Record backlog, up 60% YOY and 15% since Q2 • Record gross margin, up 170 bps YOY and 30 bps sequentially • $50 million in realized cost synergies in Q3 • Adjusted EBITDA margin up 90 bps YOY and 30 bps sequentially • Sales up 8%, adjusted EBITDA up 38% and adjusted EBITDA margin up 150 bps from 2019 pro forma levels See appendix for non-GAAP reconciliations.
8 Adjusted EBITDA Bridge • Sales Strength + Margin Expansion + Accelerated Synergy Capture = Strong EBITDA Growth 2020 Q3 Adjusted EBITDA Sales Gross Margin Cost Synergies Volume-Related, Variable Compensation and Other Benefit Costs Reversal of COVID Cost Actions, Other 2021 Q3 Adjusted EBITDA $252 $M $330 See appendix for non-GAAP reconciliations. 6.1% of sales 7.0% of sales +31% +90 bps
9 $1,654 $1,982 Q3 2020 Q3 2021 $109 $174 Q3 2020 Q3 2021 Electrical & Electronic Solutions (EES) •Ability to offer complete electrical package driving share gains and strong growth See appendix for non-GAAP reconciliations. Organic sales growth represents reported sales growth adjusted to remove the effect of acquisitions, divestitures, changes in foreign currency exchange rates, and differences in working days. Sales Adjusted EBITDA $M 8.8% of sales • Strong double-digit sales growth in all operating groups – Non-resi construction remains ahead of expectations – Industrial and MRO gaining momentum, along with OEM and CIG • Backlog up 52% since December to record level • Adjusted EBITDA growth and margin expansion driven by synergy capture, effective cost controls, and execution of margin improvement initiatives • Secular trends of electrification, automation, and green energy support increased outlook and future growth +19% organic 6.6% of sales +220 bps +60%
10 $1,389 $1,489 Q3 2020 Q3 2021 Communications & Security Solutions (CSS) Industry leading value proposition driving global growth • Sales growth in all operating groups – Network infrastructure growth led by data center and hyperscale projects – Continued strength in cloud and professional audio/visual applications – Security growth driven by increased IP-based surveillance and adoption of cloud-based technologies • Backlog up 93% from December to record level including the impact of some project delays due to high demand and supply challenges • Adjusted EBITDA growth and margin expansion driven by sales execution, synergy capture, and margin improvement initiatives partially offset by a 20 basis point headwind related to the write-off of certain safety equipment • Secular trends of 24/7 connectivity, data center expansion, secure networks, and IoT/automation support increased outlook and future growth See appendix for non-GAAP reconciliations. Organic sales growth represents reported sales growth adjusted to remove the effect of acquisitions, divestitures, changes in foreign currency exchange rates, and differences in working days. $121 $134 Q3 2020 Q3 2021 Sales Adjusted EBITDA 9.0% of sales +6% organic 8.7% of sales $M +30 bps +11%
11 Utility & Broadband Solutions (UBS) Leadership and scale driving share gains and strong growth See appendix for non-GAAP reconciliations. Organic sales growth represents reported sales growth adjusted to remove the effect of acquisitions, divestitures, changes in foreign currency exchange rates, and differences in working days. $1,099 $1,257 Q3 2020 Q3 2021 $86 $115 Q3 2020 Q3 2021 Sales Adjusted EBITDA 9.1% of sales 7.8% of sales $M +15% organic +130 bps +34% • Strong sales growth in all operating groups – Growth in utility driven by IOU and Public Power investments in grid modernization and new business wins – Double-digit broadband growth driven by greater connectivity demand and rural broadband expansion – Integrated supply up versus PY and sequentially, in-line with industrial recovery • Backlog up 68% since December to record level • Adjusted EBITDA growth and margin expansion driven by higher sales, cost synergies, and margin improvement initiatives • Growth outlook driven by industry-leading value proposition, scope expansion and attractive secular trends of green energy and infrastructure investment
12 Accelerating Cost Synergy Realization in 2021 and 2022 Increased outlook due to execution timing and new opportunities $ millions Cumulative Realized Synergies 2021 (to date) Supply Chain $105 million G&A $90 million Corporate Overhead $45 million Cumulative Realized Synergies By Type $128 (to date) $39 $39 $14 $34$25 $44 $50 $54 2020 2021 2022 2023 To be realizedRealized $300 $230 $182 $39 Field Operations $60 million To be realizedRealized (increased from $170M) (increased from $210M)
13 Leverage Improved 1.6x Since Anixter Merger 15 Months Ago Remain on track to return to target leverage range of 2.0-3.5x during second half of 2022 • Leverage reduced 0.4x in Q3; 1.6x since Anixter merger closed • Working capital improved 3 days sequentially while investing in inventory to support double-digit sales growth • Rapid deleveraging since merger close demonstrates inherent strength of our distribution business model 5.7x 5.3x 5.3x 4.9x 4.5x 4.1x 3.5 4 4.5 5 5.5 6 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Reduction of 1.6x See appendix for non-GAAP reconciliations. Net Debt / TTM Adjusted EBITDA
14 2021 Outlook Accelerated execution and market recovery drives increased outlook for 2021 2020 Pro Forma Sales $16.0 billion Adjusted EBITDA $858 million 2021 Outlook Prior (8/5/21) Revised (11/4/21) Market growth 9% - 10% ~10% Plus: share gain/cross-sell 2% - 4% 2% - 4% Less: impact of one fewer workday in 2021 and divestitures (1)% (1)% Reported sales1 10% - 13% 11% - 13% Adjusted EBITDA margin2 6.1% - 6.4% 6.4% - 6.5% Effective tax rate ~23% ~23% Adjusted EPS2 $8.40 - $8.80 $9.20 - $9.40 Free cash flow (percent of net income) ~90% ~80% Capital expenditures and other IT/digital investments $100 - $120M ~$100M 1 Reflects one less workday in 2021 compared to 2020. Outlook reflects growth compared to 2020 pro forma sales of $16.0 billion. 2 Adjusted EBITDA is defined as EBITDA before other, net, non-cash stock-based compensation and merger-related costs; Adjusted EPS excludes merger-related costs, accelerated trademark amortization, and the related income tax effects.
15 Summary •Our performance and improving macro environment again drive stronger 2021 outlook • Very strong results across the board again in Q3 – Strong sales and backlog growth in all businesses – Generating growth from cross-sell benefits, market recovery, and differentiated offering – Delivering strong gross and EBITDA margin expansion on value-based pricing execution and accelerated cost synergies – Capitalizing on leadership position and operating leverage as economic recovery accelerates • Continue to rapidly delever balance sheet with leverage reduced 1.6x since June 2020 • Increased full year outlook again for sales, adjusted EBITDA, and adjusted EPS – Accelerated cost synergies in 2021 – Effectively managing global supply chain challenges to ensure superior customer service levels • Exceptionally well positioned to benefit from secular growth trends
APPENDIX
Growth Opportunity Amplified by Attractive Secular Growth Trends Supply chain consolidation and relocation to North America Exceptionally well-positioned across all business units Electrification Automation and IoT Green Energy and Grid Modernization 24/7 Connectivity and Security Digitalization
18 Glossary 1H: First half of fiscal year 2H: Second half of fiscal year A/V: Audio/visual COGS: Cost of goods sold CIG: Commercial, Institutional, and Government CSS: Communications & Security Solutions (business unit) EES: Electrical & Electronic Solutions (business unit) ETR: Effective tax rate FTTx: Fiber-to-the-x (last mile fiber optic network connections) HSD: High-single digit LSD: Low-single digit MRO: Maintenance, repair, and operating MTDC: Multi-tenant data center Executed synergies: Initiatives fully implemented – actions taken to generate savings Realized synergies: Savings that impact financial results versus pro forma 2019 One-time operating expenses: Operating expenses that are in or will be realized in the P&L (including cash and non-cash) Leverage: Debt, net of cash, divided by trailing-twelve-month adjusted EBITDA MSD: Mid-single digit PF: Pro Forma PY: Prior Year OEM: Original equipment manufacturer OPEX: Operating expenses ROW: Rest of world SBU: Strategic Business Unit Seq: Sequential TTM: Trailing twelve months UBS: Utility & Broadband Solutions (business unit) WD: Workday YOY: Year-over-year Abbreviations Definitions
19 Q1 Q2 Q3 Q4 FY 2019 63 64 63 62 252 2020 64 64 64 61 253 2021 62 64 64 62 252 Workdays 2022 63 64 64 62 253
20 Gross Profit and Free Cash Flow $ in millions Gross Profit: Three Months Ended September 30, 2021 September 30, 2020 Net sales $ 4,728 $ 4,142 Cost of goods sold (excluding depreciation and amortization) 3,720 3,356 Gross profit $ 1,008 $ 786 Merger-related fair value adjustment to inventory — 28 Adjusted gross profit1 $ 1,008 $ 814 Gross margin 21.3 % 19.0 % Adjusted gross margin1 21.3 % 19.6 % Free Cash Flow Three Months Ended September 30, 2021 September 30, 2020 Cash flow provided by operations $ 70 $ 286 Less: Capital expenditures (5) (15) Add: Merger-related expenditures 20 37 Free cash flow $ 85 $ 308 Adjusted net income 158 97 % of adjusted net income 54 % 315 % 1 Gross profit is calculated by deducting cost of goods sold, excluding depreciation and amortization, from net sales. Gross margin is calculated by dividing gross profit by net sales. Adjusted gross profit and adjusted gross margin exclude the effect of merger-related fair value adjustments to inventory of $28.0 million for three months ended September 30, 2020.
21 Adjusted EBITDA EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin % by Segment Three Months Ended September 30, 2021 EES CSS UBS Corporate Total Net income applicable to common stockholders 156 108 108 (266) $ 106 Preferred stock dividends — — — 14 14 Provision for income taxes — — — 45 45 Interest expense, net — — — 70 70 Depreciation and amortization 17 25 6 9 57 EBITDA $ 173 $ 133 $ 114 $ (128) $ 292 Other income, net (1) — — (5) (6) Stock-based compensation 2 1 1 5 8 Merger-related costs — — — 36 36 Adjusted EBITDA 174 134 115 (92) 330 Adjusted EBITDA margin % 8.8 % 9.0 % 9.1 % 7.0 % $ in millions Note: EBITDA and Adjusted EBITDA are non-GAAP financial measures that provide indicators of the Company's performance and its ability to meet debt service requirements. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before foreign exchange and other non-operating income, non-cash stock-based compensation costs, and merger-related costs.
22 Adjusted EPS Q3 2021 (in millions, except for EPS) Reported Results Adjustments 1 Adjusted Results Income from operations $ 229.5 $ 250.9 $ 280.4 Net interest 69.7 — 69.7 Other income, net (5.3) — (5.3) Income before income taxes 165.1 50.9 216.0 Provision for income taxes2 44.9 13.5 58.4 Effective tax rate 27.2% 27.0 % Net income 120.2 37.4 157.6 Less: Non-controlling interest 0.6 — 0.6 Net income attributable to WESCO 119.6 37.4 157.0 Preferred stock dividends 14.4 — 14.4 Net income attributable to common stockholders 105.2 37.4 142.6 Diluted Shares 52.1 52.1 EPS $ 2.02 $ 2.74 1 Adjustments include merger-related costs, accelerated amortization expense associated with migrating to the Company's master brand architecture, and the related income tax effects. 2 The adjustments to income from operations have been tax effected at a rate of approximately 27% for three months ended September 30, 2021.
23 $ in millions Twelve Months Ended Financial Leverage: September 30, 2021 December 31, 2020 Reported Proforma(1) Net income attributable to common stockholders $ 261 $ 116 Net income (loss) attributable to noncontrolling interests 1 (1) Preferred stock dividends 57 30 Provision for income taxes 83 56 Interest expense, net 282 256 Depreciation and amortization 186 153 EBITDA $ 870 $ 610 Other, net (10) 5 Stock-based compensation 22 35 Merger-related costs and fair value adjustments 176 207 Out-of-period adjustment 19 19 Net gain on sale of asset and Canadian divestitures (9) (20) Adjusted EBITDA(2) $ 1,068 $ 856 As of, Maturity Debt September 30, 2021 December 31, 2020 Receivables Securitization (variable) $ 1,185 $ 950 2024 Inventory Revolver (variable) 550 250 2025 2021 Senior Notes (fixed) — 500 2021 2023 Senior Notes AXE (fixed) 59 59 2023 2024 Senior Notes (fixed) — 350 2024 2025 Senior Notes AXE (fixed) 4 4 2025 2025 Senior Notes (fixed) 1,500 1,500 2025 2028 Senior Notes (fixed) 1,325 1,325 2028 Other 35 47 Various Total debt2 $ 4,658 $ 4,985 Less: cash and cash equivalents 252 449 Total debt, net of cash $ 4,406 $ 4,536 Leverage 4.1 x 5.3 x 1 EBITDA and adjusted EBITDA for the twelve months ended December 31, 2020 gives effect to the combination of WESCO and Anixter as if it had occurred at the beginning of the respective trailing twelve month period. 2 Adjusted EBITDA includes the financial results of WESCO's legacy utility and data communications businesses in Canada, which were divested in the first quarter of 2021 under a Consent Agreement with the Competition Bureau of Canada. 3 Total debt is presented in the consolidated balance sheets net of debt discount and debt issuance cots, and includes adjustments to record the long-term debt assumed in the merger with Anixter at its acquisition date fair value. Capital Structure and Leverage
24 Organic Sales Growth by Segment $ in millions Year-over-Year: Three Months Ended Growth/(Decline) September 30, 2021 September 30, 2020 Reported Divestiture Impact Foreign Exchange Impact Organic Growth EES $ 1,982 $ 1,654 19.9% (1.1)% 2.0 % 19.0 % CSS 1,489 1,389 7.2% — % 1.0 % 6.2 % UBS 1,257 1,099 14.4% (1.3)% 0.9 % 14.8 % Total net sales $ 4,728 $ 4,142 14.2% (0.8)% 1.4 % 13.6 % Sequential: Three Months Ended Growth/(Decline) September 30, 2021 June 30, 2021 Reported Foreign Exchange Impact Organic Growth EES $ 1,982 $ 1,923 3.1 % (0.6)% 3.7 % CSS 1,489 1,461 1.9 % (0.6)% 2.5 % UBS 1,257 1,212 3.8 % (0.2)% 4.0 % Total net sales $ 4,728 $ 4,596 2.9% (0.5)% 3.4 %