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 3, 2022
(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 3, 2022, WESCO International, Inc. (the “Company”) issued a press release announcing its financial results for the third quarter of 2022. 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 2022 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 3, 2022 | By: | /s/ David S. Schulz | ||||||
| (Date) | David S. Schulz | |||||||
| Executive Vice President and Chief Financial Officer | ||||||||
 | NEWS RELEASE | ||||
| WESCO International, Inc. / 225 West Station Square Drive, Suite 700 / Pittsburgh, PA 15219 | |||||
Wesco International Reports Third Quarter 2022 Results
•Net sales of $5.4 billion, up 15% YOY
–Organic sales growth of 17%
–Record backlog as of September 30, 2022, up more than 60% YOY and up approximately 5% sequentially
•Record operating profit of $402 million, up 75% YOY; operating margin of 7.4%, up 250 basis points YOY
–Record gross margin of 22.1%, up 80 basis points YOY and up 40 basis points sequentially
–Record adjusted operating profit of $415 million, up 48% YOY; record adjusted operating margin of 7.6%, up 170 basis points YOY and 50 basis points sequentially
–Record adjusted EBITDA of $466 million, up 41% YOY; record adjusted EBITDA margin of 8.6%, up 160 basis points YOY and 50 basis points sequentially
•Record earnings per diluted share of $4.30
–Adjusted earnings per diluted share of $4.49, up 64% YOY and 7% sequentially
•Leverage of 3.2x; improved 0.2x sequentially
•Rahi Systems acquisition closed on November 1, 2022
•Narrowing 2022 outlook for adjusted earnings per diluted share to a range of $15.80 to $16.20, or up 58% to 62% versus prior year
PITTSBURGH, November 3, 2022 /Business Wire/ -- Wesco International (NYSE: WCC), a leading provider of business-to-business distribution, logistics services and supply chain solutions, announces its results for the third quarter of 2022.
“Our third quarter results provide demonstrable evidence of the substantial value creation capability of the new Wesco. We once again set new company records for margin, profitability and backlog, and further reduced our leverage ratio in the third quarter. The power of our increased scale, expanded portfolio, and industry-leading positions is clearly evident in our continued strong performance,” said John Engel, Chairman, President and CEO.
Mr. Engel continued, “Strong demand and operational improvements continue to underpin the record-setting performance of each of our strategic business units. Each strategic business unit again delivered strong organic sales and profit growth in the quarter driven by the breakthrough results of our enterprise-wide cross selling and margin improvement programs. Our increased profitability continues to fuel our investment in advanced digital capabilities that will transform our relationship with our customers and supplier partners. The recent acquisition of Rahi Systems underscores our strategy to maximize our exposure to attractive secular growth trends. Our profitable execution against these sustainable trends and our investment in Wesco’s digital transformation supports a virtuous cycle which should result in an even higher level of performance, operating efficiency and customer loyalty.”
Mr. Engel added, “As you recall, after delivering excellent results in each of the first and second quarters, we substantially increased our outlook for the year. Our outstanding results in the third quarter and the continued strong execution across our business support the full year outlook for 2022 previously provided. We are maintaining our organic growth targets but adjusting our reported sales to reflect the unprecedented strong dollar performance throughout 2022. We now expect reported sales to increase 15% to 17% versus our prior outlook of 16% to 18% with the change entirely driven by foreign exchange rates. We are maintaining our record-setting profit forecast and now expect adjusted EBITDA margin to expand to 7.9% to 8.0% of sales, equating to approximately $1.68 billion of adjusted EBITDA at the midpoint of our outlook range. And we are narrowing our outlook for adjusted EPS to a range of $15.80 to $16.20. Given our strong growth, record backlog and investment in inventory to support that backlog, we now expect full year 2022 free cash flow to be approximately 10% of adjusted net income.”
Mr. Engel concluded, “The demonstrated strength of our business model and the success of our integration efforts over the last nine quarters have established a track record of superior results for our company. By providing resilient and critical supply chain solutions for our customers around the world, the new Wesco is demonstrating the benefit of our exposure to sustainable secular trends that are deep and will drive our future sales and profitability. As we conveyed during our recent Investor Day, we are excited because there is still
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substantial value embedded in the transformational combination of Wesco and Anixter. We look forward with great confidence to a future of sustained growth and market outperformance.”
The following are results for the three months ended September 30, 2022 compared to the three months ended September 30, 2021:
•Net sales were $5.4 billion for the third quarter of 2022 compared to $4.7 billion for the third quarter of 2021, an increase of 15.2%, reflecting price inflation, continued strong demand, secular growth trends, and execution of our cross-sell program. Organic sales for the third quarter of 2022 grew 16.9% as fluctuations in foreign exchange rates negatively impacted reported net sales by 1.7%. Sequentially, net sales declined 0.7% and organic sales were flat as fluctuations in foreign exchange rates negatively impacted reported net sales by 0.7%. Backlog at the end of the third quarter of 2022 increased more than 60% to a record level compared to the end of the third quarter of 2021. Sequentially, backlog grew approximately 5%, marking the seventh consecutive quarter of sequential growth.
•Cost of goods sold for the third quarter of 2022 was $4.2 billion compared to $3.7 billion for the third quarter of 2021, and gross profit was $1.2 billion and $1.0 billion, respectively. As a percentage of net sales, gross profit was 22.1% and 21.3% for the third quarter of 2022 and 2021, respectively. Gross profit as a percentage of net sales for the third quarter of 2022 reflects our focus on value-driven pricing and pass-through of inflationary costs, along with the continued momentum of our gross margin improvement program. The third quarter of 2021 included a write-down to the carrying value of certain personal protective equipment inventories that unfavorably impacted gross profit as a percentage of net sales by approximately 10 basis points. Sequentially, gross profit as a percentage of net sales increased 40 basis points from 21.7% for the second quarter of 2022.
•Selling, general and administrative ("SG&A") expenses were $760.2 million, or 14.0% of net sales, for the third quarter of 2022, compared to $721.8 million, or 15.3% of net sales, for the third quarter of 2021. SG&A expenses for the third quarter of 2022 and 2021 include merger-related and integration costs of $13.2 million and $35.8 million, respectively. Adjusted for these amounts, SG&A expenses were $747.0 million, or 13.7% of net sales, for the third quarter of 2022 and $686.0 million, or 14.5% of net sales, for the third quarter of 2021. SG&A expenses for the third quarter of 2022 reflect higher salaries, as well as higher volume-related costs driven by significant sales growth. In addition, digital transformation initiatives contributed to higher expenses in the third quarter of 2022. These increases were partially offset by the realization of integration cost synergies, as well as lower professional and consulting fees associated with integration activities.
•Depreciation and amortization for the third quarter of 2022 was $42.7 million compared to $56.7 million for the third quarter of 2021, a decrease of $14.0 million. In connection with an integration initiative to review the Company's brand strategy, certain legacy trademarks are migrating to a master brand architecture, which resulted in $0.4 million and $15.1 million of accelerated amortization expense for the third quarter of 2022 and 2021, respectively.
•Operating profit was $401.6 million for the third quarter of 2022 compared to $229.5 million for the third quarter of 2021, an increase of $172.1 million, or 75.0%. Operating profit as a percentage of net sales was 7.4% for the current quarter compared to 4.9% for the third quarter of the prior year. Adjusted for the merger-related and integration costs, and accelerated trademark amortization described above, operating profit was $415.2 million, or 7.6% of net sales, for the third quarter of 2022 and $280.4 million, or 5.9% of net sales, for the third quarter of 2021. Adjusted operating margin was up 170 basis points compared to the prior year.
•Net interest expense for the third quarter of 2022 was $75.1 million compared to $69.7 million for the third quarter of 2021. The increase reflects higher borrowings and an increase in variable interest rates.
•The effective tax rate for the third quarter of 2022 was 26.3% compared to 27.2% for the third quarter of 2021. The effective tax rate for the quarter ended September 30, 2022 was lower than the comparable prior year period due to the favorable net impact of discrete income tax items.
•Net income attributable to common stockholders was $225.3 million for the third quarter of 2022 compared to $105.2 million for the third quarter of 2021. Adjusted for merger-related and integration costs, accelerated trademark amortization expense, and the related income tax effects, net income attributable to common stockholders was $235.2 million for the third quarter of 2022 compared to $142.6 million for the third quarter of 2021. Adjusted net income attributable to common stockholders increased 64.9% year-over-year.
•Earnings per diluted share for the third quarter of 2022 was $4.30, based on 52.4 million diluted shares, compared to $2.02 for the third quarter of 2021, based on 52.1 million diluted shares. Adjusted for merger-related and integration costs, accelerated trademark amortization expense, and the related income tax effects, earnings per diluted share for the third quarter of 2022 was $4.49 compared to $2.74 for the third quarter of 2021. Adjusted earnings per diluted share increased 63.9% year-over-year.
•Operating cash flow for the third quarter of 2022 was an outflow of $106.1 million compared to an inflow of $69.9 million for the third quarter of 2021. The net cash outflow in the third quarter of 2022 was primarily driven by changes in working capital, including an increase in inventories of $355.6 million resulting from investments to address supply chain challenges and to support
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increases in our sales backlog, including project-based business. An increase in trade accounts receivable of $20.9 million resulting from higher sales and a decrease in accounts payable of $54.6 million also contributed to the net cash outflow.
The following are results for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021:
•Net sales were $15.9 billion for the first nine months of 2022 compared to $13.4 billion for the first nine months of 2021, an increase of 18.7%, reflecting price inflation, continued strong demand, secular growth trends, and execution of our cross-sell program. Organic sales for the first nine months of 2022 grew 19.5% as the number of workdays positively impacted reported net sales by 0.5%, while fluctuations in foreign exchange rates and the divestiture of Wesco's legacy utility and data communications businesses in Canada in the first quarter of 2021 negatively impacted reported net sales by 1.2% and 0.1%, respectively.
•Cost of goods sold for the first nine months of 2022 was $12.4 billion compared to $10.6 billion for the first nine months of 2021, and gross profit was $3.4 billion and $2.8 billion, respectively. As a percentage of net sales, gross profit was 21.7% and 20.8% for the first nine months of 2022 and 2021, respectively. Gross profit as a percentage of net sales for the first nine months of 2022 reflects our focus on value-driven pricing and pass-through of inflationary costs, along with the continued momentum of our gross margin improvement program. The first nine months of 2021 included a write-down to the carrying value of certain personal protective equipment inventories that unfavorably impacted gross profit as a percentage of net sales by approximately 20 basis points.
•SG&A expenses were $2.3 billion, or 14.2% of net sales, for the first nine months of 2022, compared to $2.1 billion, or 15.4% of net sales, for the first nine months of 2021. SG&A expenses for the first nine months of 2022 include merger-related and integration costs of $52.2 million. Adjusted for this amount, SG&A expenses were 13.9% of net sales for the first nine months of 2022. SG&A expenses for the first nine months of 2022 reflect higher salaries and variable compensation expenses, as well as higher volume-related costs driven by significant sales growth. In addition, digital transformation initiatives contributed to higher expenses in the first nine months of 2022. These increases were partially offset by the realization of integration cost synergies, as well as lower professional and consulting fees associated with integration activities. SG&A expenses for the first nine months of 2021 include merger-related and integration costs of $119.8 million, as well as a net gain of $8.9 million resulting from the Canadian divestitures described above. Adjusted for these amounts, SG&A expenses were 14.6% of net sales for the first nine months of 2021.
•Depreciation and amortization for the first nine months of 2022 was $135.6 million compared to $144.6 million for the first nine months of 2021, a decrease of $9.0 million. In connection with an integration initiative to review the Company's brand strategy, certain legacy trademarks are migrating to a master brand architecture, which resulted in $9.4 million and $20.2 million of accelerated amortization expense for the first nine months of 2022 and 2021, respectively.
•Operating profit was $1.1 billion for the first nine months of 2022 compared to $0.6 billion for the first nine months of 2021, an increase of $474.7 million, or 81.6%. Operating profit as a percentage of net sales was 6.7% for the current nine-month period compared to 4.4% for the first nine months of the prior year. Operating profit for the first nine months of 2022 includes the merger-related and integration costs, and accelerated trademark amortization expense described above. Adjusted for these amounts, operating profit was 7.0% of net sales. For the first nine months of 2021, operating profit was 5.3% of net sales as adjusted for merger-related and integration costs of $119.8 million, accelerated trademark amortization expense of $20.2 million, and the net gain on the Canadian divestitures of $8.9 million. Adjusted operating margin was up 170 basis points compared to the prior year.
•The effective tax rate for the first nine months of 2022 was 24.0% compared to 22.0% for the first nine months of 2021. The effective tax rates for the current nine-month period and the comparable prior year period reflect discrete income tax benefits of $13.4 million and $8.3 million, respectively, resulting from reductions to the valuation allowance recorded against foreign tax credit carryforwards, as well as the exercise and vesting of stock-based awards of $9.4 million and $7.8 million, respectively. These discrete income tax benefits were partially offset by discrete income tax expense of $0.8 million and $4.2 million, respectively, resulting from return-to-provision adjustments. The net impact of discrete income tax items was a reduction to the estimated annual effective tax rates in such periods of approximately 2.6 and 3.1 percentage points, respectively.
•Net income attributable to common stockholders was $598.5 million for the first nine months of 2022 compared to $254.9 million for the first nine months of 2021. Adjusted for merger-related and integration costs, accelerated trademark amortization expense, and the related income tax effects, net income attributable to common stockholders was $643.7 million for the first nine months of 2022. Adjusted for merger-related and integration costs, accelerated trademark amortization expense, net gain on Canadian divestitures, and the related income tax effects, net income attributable to common stockholders for the first nine months of 2021 was $353.0 million. Adjusted net income attributable to common stockholders increased 82.4% year-over-year.
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•Earnings per diluted share for the first nine months of 2022 was $11.42, based on 52.4 million diluted shares, compared to $4.91 for the first nine months of 2021, based on 51.9 million diluted shares. Adjusted for merger-related and integration costs, accelerated trademark amortization expense, and the related income tax effects, earnings per diluted share for the first nine months of 2022 was $12.29. Adjusted for merger-related and integration costs, accelerated trademark amortization expense, net gain on Canadian divestitures, and the related income tax effects, earnings per diluted share for the first nine months of 2021 was $6.80. Adjusted earnings per diluted share increased 80.7% year-over-year.
•Operating cash flow for the first nine months of 2022 was an outflow of $410.6 million compared to an inflow of $172.7 million for the first nine months of 2021. Operating 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.
Segment Results
The Company has operating segments comprising three strategic business units consisting of Electrical & Electronic Solutions ("EES"), Communications & Security Solutions ("CSS") and Utility & Broadband Solutions ("UBS").
The Company incurs corporate costs primarily related to treasury, tax, information technology, legal and other centralized functions. Segment results include depreciation expense or other allocations related to various corporate assets. Interest expense and other non-operating items are either not allocated to the segments or reviewed on a segment basis. Corporate expenses not directly identifiable with our reportable segments 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, 2022 compared to the three months ended September 30, 2021:
•EES reported net sales of $2.2 billion for the third quarter of 2022 compared to $2.0 billion for the third quarter of 2021, an increase of 12.7%. Organic sales for the third quarter of 2022 grew 14.9% as fluctuations in foreign exchange rates negatively impacted reported net sales by 2.2%. Sequentially, reported net sales declined 4.1%. Adjusting for the negative effect of fluctuations in foreign exchange rates, organic sales decreased 3.2%. The increase compared to the prior year quarter reflects price inflation and strong end market demand, partially offset by the effect of supply chain constraints and commodity prices. Operating profit was $213.2 million for the third quarter of 2022 compared to $155.2 million for the third quarter of 2021, an increase of $58.0 million, or 37.4%. The increase primarily reflects the factors impacting the overall business, as described above. EBITDA, adjusted for other non-operating income and non-cash stock-based compensation expense, was $225.8 million for the third quarter of 2022, or 10.1% of net sales, compared to $173.9 million for the third quarter of 2021, or 8.8% of net sales. Adjusted EBITDA increased $51.9 million, or 29.8% year-over-year.
•CSS reported net sales of $1.6 billion for the third quarter of 2022 compared to $1.5 billion for the third quarter of 2021, an increase of 7.6%. Organic sales for the third quarter of 2022 grew 9.6% as fluctuations in foreign exchange rates negatively impacted reported net sales by 2.0%. Sequentially, reported net sales were flat and organic sales increased 0.8%. The increase compared to the prior year quarter reflects price inflation, growth in our security solutions and network infrastructure businesses, as well as the benefits of cross selling, partially offset by the effect of supply chain constraints. Operating profit was $139.0 million for the third quarter of 2022 compared to $108.2 million for the third quarter of 2021, an increase of $30.8 million, or 28.4%. 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 approximately 20 basis points from the inventory write-down described above. EBITDA, adjusted for other non-operating expenses and non-cash stock-based compensation expense, was $156.4 million for the third quarter of 2022, or 9.8% of net sales, compared to $133.7 million for the third quarter of 2021, or 9.0% of net sales. Adjusted EBITDA increased $22.7 million, or 17.0% year-over-year.
•UBS reported net sales of $1.6 billion for the third quarter of 2022 compared to $1.3 billion for the third quarter of 2021, an increase of 28.0%. Organic sales for the third quarter of 2022 grew 28.6% as fluctuations in foreign exchange rates negatively impacted reported net sales by 0.6%. Sequentially, reported net sales grew 3.7% and organic sales increased 4.0%. The increase compared to the prior year quarter reflects price inflation, broad-based growth driven by investments in electrification, green energy, grid modernization and hardening, and rural broadband development, as well as expansion in our integrated supply business. Operating profit was $179.3 million for the third quarter of 2022 compared to $108.2 million for the third quarter of 2021, an increase of $71.1 million, or 65.7%. The increase primarily reflects the factors impacting the overall business, as described above. EBITDA, adjusted for other non-operating expenses (income) and non-cash stock-based compensation expense, was $186.3 million for the third quarter of 2022, or 11.6% of net sales, compared to $114.7 million for the third quarter of 2021, or 9.1% of net sales. Adjusted EBITDA increased $71.6 million, or 62.4% year-over-year.
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The following are results by segment for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.
•EES reported net sales of $6.7 billion for the first nine months of 2022 compared to $5.6 billion for the first nine months of 2021, an increase of 18.3%. Organic sales for the first nine months of 2022 grew 19.4% as the number of workdays positively impacted reported net sales by 0.5%, while fluctuations in foreign exchange rates and the Canadian divestitures described above negatively impacted reported net sales by 1.4% and 0.2%, respectively. The increase reflects price inflation, expansion in our industrial, construction, and original equipment manufacturer businesses, as well as the benefits of cross selling and secular growth trends in electrification and automation, partially offset by the effect of supply chain constraints and commodity prices. Operating profit was $613.5 million for the first nine months of 2022 compared to $409.1 million for the first nine months of 2021, an increase of $204.4 million, or 50.0%. The increase primarily reflects the factors impacting the overall business, as described above. EBITDA, adjusted for other non-operating income and non-cash stock-based compensation expense, was $653.6 million for the first nine months of 2022, or 9.8% of net sales, compared to $453.9 million for the first nine months of 2021, or 8.1% of net sales. Adjusted EBITDA increased $199.7 million, or 44.0% year-over-year.
•CSS reported net sales of $4.6 billion for the first nine months of 2022 compared to $4.2 billion for the first nine months of 2021, an increase of 10.4%. Organic sales for the first nine months of 2022 grew 11.5% as the number of workdays positively impacted reported net sales by 0.5% and fluctuations in foreign exchange rates negatively impacted reported net sales by 1.6%. The increase reflects strong growth in our security solutions and network infrastructure businesses, as well as price inflation and the benefits of cross selling, partially offset by the effect of supply chain constraints. Operating profit was $373.8 million for the first nine months of 2022 compared to $293.4 million for the first nine months of 2021, an increase of $80.4 million, or 27.4%. 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 approximately 40 basis points from the inventory write-down described above. EBITDA, adjusted for other non-operating expenses and non-cash stock-based compensation expense, was $429.5 million for the first nine months of 2022, or 9.3% of net sales, compared to $355.5 million for the first nine months of 2021, or 8.5% of net sales. Adjusted EBITDA increased $74.0 million, or 20.8% year-over-year.
•UBS reported net sales of $4.6 billion for the first nine months of 2022 compared to $3.5 billion for the first nine months of 2021, an increase of 29.1%. Organic sales for the first nine months of 2022 grew 29.1% as the number of workdays positively impacted reported net sales by 0.5%, while fluctuations in foreign exchange rates and the Canadian divestitures described above negatively impacted reported net sales by 0.4% and 0.1%, respectively. The increase reflects price inflation, broad-based growth in our utility and broadband businesses, as well as expansion in our integrated supply business. Operating profit was $471.7 million for the first nine months of 2022 compared to $289.9 million for the first nine months of 2021, an increase of $181.8 million, or 62.7%. The increase primarily reflects the factors impacting the overall business, as described above, offset by the benefit in the first quarter of 2021 from the net gain on the Canadian divestitures. EBITDA, adjusted for other non-operating expenses (income), non-cash stock-based compensation expense, and the net gain on the Canadian divestitures in the first quarter of 2021 was $491.7 million for the first nine months of 2022, or 10.8% of net sales, compared to $299.0 million for the first nine months of 2021, or 8.4% of net sales. Adjusted EBITDA increased $192.7 million, or 64.4% year-over-year.
Webcast and Teleconference Access
Wesco will conduct a webcast and teleconference to discuss the third quarter of 2022 earnings as described in this News Release on Thursday, November 3, 2022, 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 https://investors.wesco.com. The call will be archived on this internet site for seven days.
Wesco International (NYSE: WCC) builds, connects, powers and protects the world. Headquartered in Pittsburgh, Pennsylvania, Wesco is a FORTUNE 500® company with more than $18 billion in annual sales and a leading provider of business-to-business distribution, logistics services and supply chain solutions. 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 more than 18,000 people, partners with the industry’s premier suppliers, and serves thousands of customers around the world, including more than 90% of FORTUNE 100® companies. 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.
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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 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 (including as a result of climate change), health epidemics, pandemics and other outbreaks, such as the ongoing COVID-19 pandemic, supply chain disruptions, and the impact of Russia's invasion of Ukraine, including the impact of sanctions or other actions taken by the U.S. or other countries, the increased risk of cyber incidents and exacerbation of key materials shortages, inflationary cost pressures, material cost increases, demand volatility, and logistics and capacity constraints, 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 the combined 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, 2021 and Wesco's other reports filed with the U.S. Securities and Exchange Commission.
| Contact Information | |||||
| Investor Relations | Corporate Communications | ||||
| Will Ruthrauff Director, Investor Relations 484-885-5648 | Jennifer Sniderman Senior Director, Corporate Communications 717-579-6603 | ||||
http://www.wesco.com
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WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollar amounts in thousands, except per share amounts)
(Unaudited)
| Three Months Ended | |||||||||||||||||
| September 30, 2022 | September 30, 2021 | ||||||||||||||||
| Net sales | $ | 5,445,916 | $ | 4,728,325 | |||||||||||||
| Cost of goods sold (excluding depreciation and amortization) | 4,241,401 | 77.9 | % | 3,720,332 | 78.7 | % | |||||||||||
| Selling, general and administrative expenses | 760,200 | 14.0 | % | 721,795 | 15.3 | % | |||||||||||
| Depreciation and amortization | 42,723 | 56,732 | |||||||||||||||
| Income from operations | 401,592 | 7.4 | % | 229,466 | 4.9 | % | |||||||||||
| Interest expense, net | 75,057 | 69,720 | |||||||||||||||
| Other expense (income), net | 688 | (5,320) | |||||||||||||||
| Income before income taxes | 325,847 | 6.0 | % | 165,066 | 3.5 | % | |||||||||||
| Provision for income taxes | 85,637 | 44,870 | |||||||||||||||
| Net income | 240,210 | 4.4 | % | 120,196 | 2.5 | % | |||||||||||
| Net income attributable to noncontrolling interests | 608 | 600 | |||||||||||||||
| Net income attributable to WESCO International, Inc. | 239,602 | 4.4 | % | 119,596 | 2.5 | % | |||||||||||
| Preferred stock dividends | 14,352 | 14,352 | |||||||||||||||
| Net income attributable to common stockholders | $ | 225,250 | 4.1 | % | $ | 105,244 | 2.2 | % | |||||||||
| Earnings per diluted share attributable to common stockholders | $ | 4.30 | $ | 2.02 | |||||||||||||
| Weighted-average common shares outstanding and common share equivalents used in computing earnings per diluted common share (in thousands) | 52,389 | 52,063 | |||||||||||||||
| Reportable Segments | |||||||||||||||||
| Net sales: | |||||||||||||||||
| Electrical & Electronic Solutions | $ | 2,234,771 | $ | 1,982,485 | |||||||||||||
| Communications & Security Solutions | 1,602,459 | 1,488,689 | |||||||||||||||
| Utility & Broadband Solutions | 1,608,686 | 1,257,151 | |||||||||||||||
| $ | 5,445,916 | $ | 4,728,325 | ||||||||||||||
| Income from operations: | |||||||||||||||||
| Electrical & Electronic Solutions | $ | 213,185 | $ | 155,210 | |||||||||||||
| Communications & Security Solutions | 139,013 | 108,226 | |||||||||||||||
| Utility & Broadband Solutions | 179,291 | 108,172 | |||||||||||||||
| Corporate | (129,897) | (142,142) | |||||||||||||||
| $ | 401,592 | $ | 229,466 | ||||||||||||||
7
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollar amounts in thousands, except per share amounts)
(Unaudited)
| Nine Months Ended | |||||||||||||||||
| September 30, 2022 | September 30, 2021 | ||||||||||||||||
| Net sales | $ | 15,861,622 | $ | 13,365,592 | |||||||||||||
| Cost of goods sold (excluding depreciation and amortization) | 12,418,561 | 78.3 | % | 10,581,406 | 79.2 | % | |||||||||||
| Selling, general and administrative expenses | 2,251,162 | 14.2 | % | 2,057,952 | 15.4 | % | |||||||||||
| Depreciation and amortization | 135,569 | 144,645 | |||||||||||||||
| Income from operations | 1,056,330 | 6.7 | % | 581,589 | 4.4 | % | |||||||||||
| Interest expense, net | 207,155 | 207,683 | |||||||||||||||
| Other expense (income), net | 3,007 | (8,929) | |||||||||||||||
| Income before income taxes | 846,168 | 5.3 | % | 382,835 | 2.9 | % | |||||||||||
| Provision for income taxes | 203,178 | 84,201 | |||||||||||||||
| Net income | 642,990 | 4.1 | % | 298,634 | 2.2 | % | |||||||||||
| Net income attributable to noncontrolling interests | 1,439 | 665 | |||||||||||||||
| Net income attributable to WESCO International, Inc. | 641,551 | 4.0 | % | 297,969 | 2.2 | % | |||||||||||
| Preferred stock dividends | 43,056 | 43,056 | |||||||||||||||
| Net income attributable to common stockholders | $ | 598,495 | 3.8 | % | $ | 254,913 | 1.9 | % | |||||||||
| Earnings per diluted share attributable to common stockholders | $ | 11.42 | $ | 4.91 | |||||||||||||
| Weighted-average common shares outstanding and common share equivalents used in computing earnings per diluted common share (in thousands) | 52,386 | 51,896 | |||||||||||||||
| Reportable Segments | |||||||||||||||||
| Net sales: | |||||||||||||||||
| Electrical & Electronic Solutions | $ | 6,654,883 | $ | 5,626,309 | |||||||||||||
| Communications & Security Solutions | 4,638,631 | 4,200,424 | |||||||||||||||
| Utility & Broadband Solutions | 4,568,108 | 3,538,859 | |||||||||||||||
| $ | 15,861,622 | $ | 13,365,592 | ||||||||||||||
| Income from operations: | |||||||||||||||||
| Electrical & Electronic Solutions | $ | 613,462 | $ | 409,062 | |||||||||||||
| Communications & Security Solutions | 373,789 | 293,446 | |||||||||||||||
| Utility & Broadband Solutions | 471,667 | 289,895 | |||||||||||||||
| Corporate | (402,588) | (410,814) | |||||||||||||||
| $ | 1,056,330 | $ | 581,589 | ||||||||||||||
8
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands)
(Unaudited)
| As of | |||||||||||
| September 30, 2022 | December 31, 2021 | ||||||||||
| Assets | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | 234,083 | $ | 212,583 | |||||||
| Trade accounts receivable, net | 3,622,067 | 2,957,613 | |||||||||
| Inventories | 3,490,121 | 2,666,219 | |||||||||
| Other current assets | 550,816 | 513,696 | |||||||||
| Total current assets | 7,897,087 | 6,350,111 | |||||||||
| Goodwill and intangible assets | 4,976,881 | 5,152,474 | |||||||||
| Other assets | 1,206,596 | 1,115,114 | |||||||||
| Total assets | $ | 14,080,564 | $ | 12,617,699 | |||||||
| Liabilities and Stockholders' Equity | |||||||||||
| Current Liabilities | |||||||||||
| Accounts payable | $ | 2,578,741 | $ | 2,140,251 | |||||||
Short-term debt and current portion of long-term debt, net(1) | 69,295 | 9,528 | |||||||||
| Other current liabilities | 919,536 | 900,029 | |||||||||
| Total current liabilities | 3,567,572 | 3,049,808 | |||||||||
| Long-term debt, net | 5,192,816 | 4,701,542 | |||||||||
| Other noncurrent liabilities | 1,128,230 | 1,090,138 | |||||||||
| Total liabilities | 9,888,618 | 8,841,488 | |||||||||
| Stockholders' Equity | |||||||||||
| Total stockholders' equity | 4,191,946 | 3,776,211 | |||||||||
| Total liabilities and stockholders' equity | $ | 14,080,564 | $ | 12,617,699 | |||||||
(1) As of September 30, 2022, short-term debt and current portion of long-term debt includes the $58.6 million aggregate principal amount of the Company's 5.50% Anixter Senior Notes due 2023, which mature on March 1, 2023.
9
WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands)
(Unaudited)
| Nine Months Ended | |||||||||||
| September 30, 2022 | September 30, 2021 | ||||||||||
| Operating Activities: | |||||||||||
| Net income | $ | 642,990 | $ | 298,634 | |||||||
| Add back (deduct): | |||||||||||
| Depreciation and amortization | 135,569 | 144,645 | |||||||||
| Deferred income taxes | 7,246 | (5,340) | |||||||||
| Change in trade receivables, net | (737,639) | (521,491) | |||||||||
| Change in inventories | (886,328) | (428,405) | |||||||||
| Change in accounts payable | 479,645 | 550,858 | |||||||||
| Other, net | (52,104) | 133,769 | |||||||||
| Net cash (used in) provided by operating activities | (410,621) | 172,670 | |||||||||
| Investing Activities: | |||||||||||
| Capital expenditures | (59,366) | (25,170) | |||||||||
Other, net(1) | 2,159 | 61,776 | |||||||||
| Net cash (used in) provided by investing activities | (57,207) | 36,606 | |||||||||
| Financing Activities: | |||||||||||
Debt borrowings (repayments), net(2) | 549,281 | (330,341) | |||||||||
| Payments for taxes related to net-share settlement of equity awards | (24,963) | (20,784) | |||||||||
| Payment of dividends | (43,056) | (43,056) | |||||||||
| Other, net | (4,011) | (16,023) | |||||||||
| Net cash provided by (used in) financing activities | 477,251 | (410,204) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | 12,077 | 3,592 | |||||||||
| Net change in cash and cash equivalents | 21,500 | (197,336) | |||||||||
| Cash and cash equivalents at the beginning of the period | 212,583 | 449,135 | |||||||||
| Cash and cash equivalents at the end of the period | $ | 234,083 | $ | 251,799 | |||||||
(1) For the nine months ended September 30, 2021, other investing activities includes cash consideration totaling approximately $56.0 million from the divestiture of Wesco's legacy utility and data communications businesses in Canada. The Company used the net proceeds from the divestitures to repay indebtedness.
(2) The nine months ended September 30, 2021 includes the redemption of the Company's $500.0 million aggregate principal amount of 2021 Notes. The redemption of the 2021 Notes was funded with excess cash, as well as borrowings under the Company's accounts receivable securitization and revolving credit facilities.
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, gross margin, earnings before interest, taxes, depreciation and amortization (EBITDA), adjusted EBITDA, adjusted EBITDA margin, financial leverage, free cash flow, adjusted selling, general and administrative expenses, 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 our financial condition and results of operations on a comparable basis. Additionally, certain non-GAAP measures either focus on or exclude items impacting comparability of results such as merger-related and integration 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 - QTD: | |||||||||||||||||||||||||||||||||||||||||
| Three Months Ended | Growth/(Decline) | ||||||||||||||||||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | Reported | Divestiture Impact | Foreign Exchange Impact | Workday Impact | Organic Growth | |||||||||||||||||||||||||||||||||||
| EES | $ | 2,234,771 | $ | 1,982,485 | 12.7% | — | % | (2.2) | % | — | % | 14.9 | % | ||||||||||||||||||||||||||||
| CSS | 1,602,459 | 1,488,689 | 7.6% | — | % | (2.0) | % | — | % | 9.6 | % | ||||||||||||||||||||||||||||||
| UBS | 1,608,686 | 1,257,151 | 28.0% | — | % | (0.6) | % | — | % | 28.6 | % | ||||||||||||||||||||||||||||||
| Total net sales | $ | 5,445,916 | $ | 4,728,325 | 15.2% | — | % | (1.7) | % | — | % | 16.9 | % | ||||||||||||||||||||||||||||
| Organic Sales Growth by Segment - YTD: | |||||||||||||||||||||||||||||||||||||||||
| Nine Months Ended | Growth/(Decline) | ||||||||||||||||||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | Reported | Divestiture Impact | Foreign Exchange Impact | Workday Impact | Organic Growth | |||||||||||||||||||||||||||||||||||
| EES | $ | 6,654,883 | $ | 5,626,309 | 18.3% | (0.2) | % | (1.4) | % | 0.5 | % | 19.4 | % | ||||||||||||||||||||||||||||
| CSS | 4,638,631 | 4,200,424 | 10.4% | — | % | (1.6) | % | 0.5 | % | 11.5 | % | ||||||||||||||||||||||||||||||
| UBS | 4,568,108 | 3,538,859 | 29.1% | (0.1) | % | (0.4) | % | 0.5 | % | 29.1 | % | ||||||||||||||||||||||||||||||
| Total net sales | $ | 15,861,622 | $ | 13,365,592 | 18.7 | % | (0.1) | % | (1.2) | % | 0.5 | % | 19.5 | % | |||||||||||||||||||||||||||
| Organic Sales Growth by Segment - Sequential: | |||||||||||||||||||||||||||||||||||||||||
| Three Months Ended | Growth/(Decline) | ||||||||||||||||||||||||||||||||||||||||
| September 30, 2022 | June 30, 2022 | Reported | Divestiture Impact | Foreign Exchange Impact | Workday Impact | Organic Growth | |||||||||||||||||||||||||||||||||||
| EES | $ | 2,234,771 | $ | 2,330,153 | (4.1) | % | — | % | (0.9) | % | — | % | (3.2) | % | |||||||||||||||||||||||||||
| CSS | 1,602,459 | 1,601,997 | — | % | — | % | (0.8) | % | — | % | 0.8 | % | |||||||||||||||||||||||||||||
| UBS | 1,608,686 | 1,551,375 | 3.7 | % | — | % | (0.3) | % | — | % | 4.0 | % | |||||||||||||||||||||||||||||
| Total net sales | $ | 5,445,916 | $ | 5,483,525 | (0.7) | % | — | % | (0.7) | % | — | % | — | % | |||||||||||||||||||||||||||
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, fluctuations in foreign exchange rates and number of workdays from the reported 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, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||||||||
| Net sales | $ | 5,445,916 | $ | 4,728,325 | $ | 15,861,622 | $ | 13,365,592 | |||||||||||||||
| Cost of goods sold (excluding depreciation and amortization) | 4,241,401 | 3,720,332 | 12,418,561 | 10,581,406 | |||||||||||||||||||
| Gross profit | $ | 1,204,515 | $ | 1,007,993 | $ | 3,443,061 | $ | 2,784,186 | |||||||||||||||
| Gross margin | 22.1 | % | 21.3 | % | 21.7 | % | 20.8 | % | |||||||||||||||
| Three Months Ended | |||||
| Gross Profit: | June 30, 2022 | ||||
| Net sales | $ | 5,483,525 | |||
| Cost of goods sold (excluding depreciation and amortization) | 4,294,086 | ||||
| Gross profit | $ | 1,189,439 | |||
| Gross margin | 21.7 | % | |||
Note: Gross profit is a financial measure commonly used in 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 SG&A Expenses: | September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||||||||
| Selling, general and administrative expenses | $ | 760,200 | $ | 721,795 | $ | 2,251,162 | $ | 2,057,952 | |||||||||||||||
| Merger-related and integration costs | (13,210) | (35,750) | (52,200) | (119,792) | |||||||||||||||||||
| Net gain on divestitures | — | — | — | 8,927 | |||||||||||||||||||
| Adjusted selling, general and administrative expenses | $ | 746,990 | $ | 686,045 | $ | 2,198,962 | $ | 1,947,087 | |||||||||||||||
| Percentage of net sales | 13.7 | % | 14.5 | % | 13.9 | % | 14.6 | % | |||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| Adjusted Income from Operations: | September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||||||||
| Income from operations | $ | 401,592 | $ | 229,466 | $ | 1,056,330 | $ | 581,589 | |||||||||||||||
| Merger-related and integration costs | 13,210 | 35,750 | 52,200 | 119,792 | |||||||||||||||||||
| Accelerated trademark amortization | 389 | 15,147 | 9,384 | 20,196 | |||||||||||||||||||
| Net gain on divestitures | — | — | — | (8,927) | |||||||||||||||||||
| Adjusted income from operations | $ | 415,191 | $ | 280,363 | $ | 1,117,914 | $ | 712,650 | |||||||||||||||
| Adjusted income from operations margin % | 7.6 | % | 5.9 | % | 7.0 | % | 5.3 | % | |||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| Adjusted Provision for Income Taxes: | September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||||||||
| Provision for income taxes | $ | 85,637 | $ | 44,870 | $ | 203,178 | $ | 84,201 | |||||||||||||||
Income tax effect of adjustments to income from operations(1) | 3,673 | 13,512 | 16,371 | 32,968 | |||||||||||||||||||
| Adjusted provision for income taxes | $ | 89,310 | $ | 58,382 | $ | 219,549 | $ | 117,169 | |||||||||||||||
(1) The adjustments to income from operations have been tax effected at a rate of approximately 27% for the three and nine months ended September 30, 2022, and at rates of approximately 27% and 25% for the three and nine months ended September 30, 2021, respectively.
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, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||||||||
| Adjusted income from operations | $ | 415,191 | $ | 280,363 | $ | 1,117,914 | $ | 712,650 | |||||||||||||||
| Interest expense, net | 75,057 | 69,720 | 207,155 | 207,683 | |||||||||||||||||||
| Other expense (income), net | 688 | (5,320) | 3,007 | (8,929) | |||||||||||||||||||
| Adjusted income before income taxes | 339,446 | 215,963 | 907,752 | 513,896 | |||||||||||||||||||
| Adjusted provision for income taxes | 89,310 | 58,382 | 219,549 | 117,169 | |||||||||||||||||||
| Adjusted net income | 250,136 | 157,581 | 688,203 | 396,727 | |||||||||||||||||||
| Net income attributable to noncontrolling interests | 608 | 600 | 1,439 | 665 | |||||||||||||||||||
| Adjusted net income attributable to WESCO International, Inc. | 249,528 | 156,981 | 686,764 | 396,062 | |||||||||||||||||||
| Preferred stock dividends | 14,352 | 14,352 | 43,056 | 43,056 | |||||||||||||||||||
| Adjusted net income attributable to common stockholders | $ | 235,176 | $ | 142,629 | $ | 643,708 | $ | 353,006 | |||||||||||||||
| Diluted shares | 52,389 | 52,063 | 52,386 | 51,896 | |||||||||||||||||||
| Adjusted earnings per diluted share | $ | 4.49 | $ | 2.74 | $ | 12.29 | $ | 6.80 | |||||||||||||||
Note: For the three and nine months ended September 30, 2022, SG&A expenses, income from operations, the provision for income taxes and earnings per diluted share have been adjusted to exclude merger-related and integration costs, 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, 2021, SG&A expenses, income from operations, the provision for income taxes and earnings per diluted share have been adjusted to exclude merger-related and integration costs, a net gain on the divestiture 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. 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, 2022 | ||||||||||||||||||||||||||||||||
| EBITDA and Adjusted EBITDA by Segment: | EES | CSS | UBS | Corporate | Total | |||||||||||||||||||||||||||
| Net income attributable to common stockholders | $ | 214,054 | $ | 138,747 | $ | 180,354 | $ | (307,905) | $ | 225,250 | ||||||||||||||||||||||
| Net income attributable to noncontrolling interests | 200 | — | — | 408 | 608 | |||||||||||||||||||||||||||
| Preferred stock dividends | — | — | — | 14,352 | 14,352 | |||||||||||||||||||||||||||
| Provision for income taxes | — | — | — | 85,637 | 85,637 | |||||||||||||||||||||||||||
| Interest expense, net | — | — | — | 75,057 | 75,057 | |||||||||||||||||||||||||||
| Depreciation and amortization | 9,596 | 15,929 | 5,859 | 11,339 | 42,723 | |||||||||||||||||||||||||||
| EBITDA | $ | 223,850 | $ | 154,676 | $ | 186,213 | $ | (121,112) | $ | 443,627 | ||||||||||||||||||||||
| Other (income) expense, net | (1,069) | 266 | (1,063) | 2,554 | 688 | |||||||||||||||||||||||||||
Stock-based compensation expense(1) | 2,983 | 1,428 | 1,107 | 2,853 | 8,371 | |||||||||||||||||||||||||||
| Merger-related and integration costs | — | — | — | 13,210 | 13,210 | |||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 225,764 | $ | 156,370 | $ | 186,257 | $ | (102,495) | $ | 465,896 | ||||||||||||||||||||||
| Adjusted EBITDA margin % | 10.1 | % | 9.8 | % | 11.6 | % | 8.6 | % | ||||||||||||||||||||||||
(1) Stock-based compensation expense in the calculation of adjusted EBITDA for the three months ended September 30, 2022 excludes $1.3 million as such amount is included in merger-related and integration costs. | ||||||||||||||||||||||||||||||||
| 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 and integration 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 and integration costs. | ||||||||||||||||||||||||||||||||
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 other non-operating expenses (income), non-cash stock-based compensation expense, and merger-related and integration costs. 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, 2022 | ||||||||||||||||||||||||||||||||
| EBITDA and Adjusted EBITDA by Segment: | EES | CSS | UBS | Corporate | Total | |||||||||||||||||||||||||||
| Net income attributable to common stockholders | $ | 615,547 | $ | 373,073 | $ | 472,119 | $ | (862,244) | $ | 598,495 | ||||||||||||||||||||||
| Net income attributable to noncontrolling interests | 561 | — | — | 878 | 1,439 | |||||||||||||||||||||||||||
| Preferred stock dividends | — | — | — | 43,056 | 43,056 | |||||||||||||||||||||||||||
| Provision for income taxes | — | — | — | 203,178 | 203,178 | |||||||||||||||||||||||||||
| Interest expense, net | — | — | — | 207,155 | 207,155 | |||||||||||||||||||||||||||
| Depreciation and amortization | 32,818 | 51,916 | 17,315 | 33,520 | 135,569 | |||||||||||||||||||||||||||
| EBITDA | $ | 648,926 | $ | 424,989 | $ | 489,434 | $ | (374,457) | $ | 1,188,892 | ||||||||||||||||||||||
| Other (income) expense, net | (2,646) | 716 | (452) | 5,389 | 3,007 | |||||||||||||||||||||||||||
Stock-based compensation expense(1) | 7,350 | 3,747 | 2,670 | 16,612 | 30,379 | |||||||||||||||||||||||||||
| Merger-related and integration costs | — | — | — | 52,200 | 52,200 | |||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 653,630 | $ | 429,452 | $ | 491,652 | $ | (300,256) | $ | 1,274,478 | ||||||||||||||||||||||
| Adjusted EBITDA margin % | 9.8 | % | 9.3 | % | 10.8 | % | 8.0 | % | ||||||||||||||||||||||||
(1) Stock-based compensation expense in the calculation of adjusted EBITDA for the nine months ended September 30, 2022 excludes $4.1 million as such amount is included in merger-related and integration costs. | ||||||||||||||||||||||||||||||||
| 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 and integration costs | — | — | — | 119,792 | 119,792 | |||||||||||||||||||||||||||
| Net gain on 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 and integration costs. | ||||||||||||||||||||||||||||||||
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 other non-operating expenses (income), non-cash stock-based compensation expense, merger-related and integration costs, and net gain on the divestiture of Wesco's legacy utility and data communications businesses in Canada. 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, 2022 | December 31, 2021 | |||||||||
| Net income attributable to common stockholders | $ | 751,555 | $ | 407,974 | |||||||
| Net income attributable to noncontrolling interests | 1,794 | 1,020 | |||||||||
| Preferred stock dividends | 57,408 | 57,408 | |||||||||
| Provision for income taxes | 234,487 | 115,510 | |||||||||
| Interest expense, net | 267,545 | 268,073 | |||||||||
| Depreciation and amortization | 189,478 | 198,554 | |||||||||
| EBITDA | 1,502,267 | 1,048,539 | |||||||||
Other income, net(1) | (36,176) | (48,112) | |||||||||
| Stock-based compensation expense | 37,122 | 25,699 | |||||||||
Merger-related and integration costs | 90,892 | 158,484 | |||||||||
| Net gain on divestitures | — | (8,927) | |||||||||
| Adjusted EBITDA | $ | 1,594,105 | $ | 1,175,683 | |||||||
| As of | |||||||||||
| September 30, 2022 | December 31, 2021 | ||||||||||
| Short-term debt and current portion of long-term debt, net | $ | 69,295 | $ | 9,528 | |||||||
| Long-term debt, net | 5,192,816 | 4,701,542 | |||||||||
Debt discount and debt issuance costs(2) | 60,765 | 70,572 | |||||||||
Fair value adjustments to Anixter Senior Notes due 2023 and 2025(2) | (439) | (957) | |||||||||
| Total debt | 5,322,437 | 4,780,685 | |||||||||
| Less: cash and cash equivalents | 234,083 | 212,583 | |||||||||
| Total debt, net of cash | $ | 5,088,354 | $ | 4,568,102 | |||||||
| Financial leverage ratio | 3.2 | 3.9 | |||||||||
(1) Other non-operating income for the twelve months ended September 30, 2022 and December 31, 2021 includes a $36.6 million curtailment gain resulting from the remeasurement of the Company's pension obligations in the U.S. and Canada due to amending certain terms of such defined benefit plans.
(2) 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 is a non-GAAP measure of 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 other non-operating expenses (income), non-cash stock-based compensation expense, merger-related and integration costs, and net gain on the divestiture of Wesco's legacy utility and data communications businesses in Canada.
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, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||||||||
| Cash flow (used in) provided by operations | $ | (106,090) | $ | 69,875 | $ | (410,621) | $ | 172,670 | |||||||||||||||
| Less: Capital expenditures | (27,725) | (4,979) | (59,366) | (25,170) | |||||||||||||||||||
| Add: Merger-related and integration cash costs | 6,200 | 20,109 | 49,460 | 61,676 | |||||||||||||||||||
| Free cash flow | $ | (127,615) | $ | 85,005 | $ | (420,527) | $ | 209,176 | |||||||||||||||
| Percentage of adjusted net income | (51) | % | 54 | % | (61) | % | 53 | % | |||||||||||||||
Note: Free cash flow is a non-GAAP financial 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, 2022 and 2021, the Company paid for certain costs to integrate the acquired Anixter business. Such expenditures have been added back to operating cash flow to determine free cash flow for such periods.
19
Third Quarter 2022 Webcast Presentation November 3, 2022 NYSE: WCC
2 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 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 (including as a result of climate change), health epidemics, pandemics and other outbreaks, such as the ongoing COVID-19 pandemic, supply chain disruptions, and the impact of Russia’s invasion of Ukraine, including the impact of sanctions or other actions taken by the U.S. or other countries, the increased risk of cyber incidents and exacerbation of key materials shortages, inflationary cost pressures, material cost increases, demand volatility, and logistics and capacity constraints, 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 the combined 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, 2021 and Wesco's other reports filed with the U.S. Securities and Exchange Commission (the "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, gross margin, earnings before interest, taxes, depreciation and amortization (EBITDA), adjusted EBITDA, adjusted EBITDA margin, financial leverage, free cash flow, adjusted selling, general and administrative (“SG&A”) expenses, 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 our financial condition and results of operations on a comparable basis. Additionally, certain non-GAAP measures either focus on or exclude items impacting comparability of results such as merger-related and integration 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. Forward-Looking Statements
Agenda 3 Business Overview Financial Results Overview John Engel Chairman, President & CEO Executive Vice President & CFO Dave Schulz
4 2022 Momentum Continues with Record Third Quarter Record adjusted EPS of $4.49, up 64% YOY; Affirming 2022 EBITDA and EPS outlook See appendix for non-GAAP definitions and reconciliations. • Increased scale and mix shift into higher growth and higher margin end markets fueling positive momentum • All three SBUs benefiting from cross-selling and attractive secular growth trends • Record-level backlog up 5% sequentially and more than 60% YOY Sales of $5.4 billion Up 17% YOY organically • Focus on value-driven pricing and pass-through of inflationary costs • Continued momentum of our gross margin improvement program Record gross margin of 22.1% Up 80 bps YOY Up 40 bps sequentially • Benefits of scale, gross margin expansion, and increased operating leverage • Strong synergy execution delivering higher profitability Record adjusted EBITDA of $466M Up 41% YOY Record adjusted EBITDA margin of 8.6% Up 160 bps YOY • Inherent business model strength demonstrated by leverage reduction • Moody’s credit rating upgraded to Ba2 reflecting our market position, integration successes, balanced approach to shareholder returns, liquidity and healthy balance sheet Leverage reduced to 3.2x Down 0.2x sequentially Down 2.5x since June 2020
5 Substantial Value Creation Since Merger Close $ millions $12,853 $15,862 YTD 2019 YTD 2022 +23% Sales Record $674 $1,274 YTD 2019 YTD 2022 +89% Adjusted EBITDA Record 5.2% 8.0% YTD 2019 YTD 2022 +280 bps Adjusted EBITDA Margin Record 5.7x 3.2x Q2 2020 Q3 2022 Leverage 19.5% 21.7% YTD 2019 YTD 2022 +220 bps Gross Margin Record Results highlight the strength of the Wesco + Anixter combination 2.5x (Pro Forma)1 (Pro Forma)1 (Pro Forma)1 (Pro Forma)1 1 2019 figures are as-reported on Form 8-K dated November 4, 2020, and include sales and adjusted EBITDA derived from the legacy Wesco data communications and utility business in Canada that were divested in the first quarter of 2021. See appendix for non-GAAP definitions and reconciliations. Since Anixter acquisition closing
a • Leading Portfolio of Products, Services, and Solutions • Leading Positions in All SBUs • Global Footprint and Capabilities • Digital Investments Unlocking the Value of Our Big Data • Accelerating Consolidation Across the Value Chain Electrification Automation and IoT Green Energy and Grid Modernization 24/7 Connectivity and Security DigitalizationSupply Chain Consolidation and Relocation to North America Attractive Long-Term Growth Drivers + Wesco’s Uniquely Strong Position Increasing Public Sector Investment U.S. Infrastructure Bills Public-Private Partnerships for Smart Cities Rural Digital Opportunity Fund (RDOF) Canada Broadband Investments Secular Growth Trends + 6 The new Wesco is uniquely positioned for sustainable long-term growth
Actual 7 ~$400M in TTM1 Sales Data Center • Cloud • Edge • Colocations Workplace Productivity • End-User Computing • Applications • Audio and Video Solutions Secure Connectivity • Local Area Network • Wireless Network • Service Provider 900+ Total Employees 25 Countries Served Solutions 1Preliminary as of 09/30/2022 Acquired a Leading Global Hyperscale Data Center Company Enhances and strengthens our leading global position in the CSS business
Third Quarter Results Overview Dave Schulz Executive Vice President & Chief Financial Officer
9 Third Quarter Results Overview Exceptional financial results driven by strong sales growth, margin expansion and operating leverage Q3 2022 Q3 2021 YOY Sales $5,446 $4,728 +17%1 Gross Profit $1,205 $1,008 +19% Gross Margin 22.1% 21.3% +80 bps Adjusted EBITDA $466 $330 +41% EBITDA Margin 8.6% 7.0% +160 bps Adjusted Diluted EPS $4.49 $2.74 +64% $ millions, except per share amounts • All-time record gross profit, gross margin, adjusted EBITDA, adjusted EBITDA margin and adjusted EPS 1 Sales growth shown on an organic basis. 2 Preliminary October sales are not adjusted for differences in foreign exchange rates. See appendix for non-GAAP definitions and reconciliations. • Record third quarter sales • Organic sales +17% YOY with strength across all SBUs • Record backlog up 5% sequentially and over 60% YOY • Preliminary October sales up approximately 12%2 YOY
10 Q3 2021 Adjusted EBITDA Sales Gross Margin Improvement Cost Synergies Volume-related Costs & Variable Compensation Digital/IT & Other Q3 2022 Adjusted EBITDA Third Quarter Sales and Adjusted EBITDA Bridges $330 $466 6.7% of sales 8.6% of sales $ millions 1 Sales growth attribution based on company estimates. See appendix for non-GAAP definitions and reconciliations. Q3 2021 Sales Market Growth (Including Price) Share Gain/ Cross Sell FX Q3 2022 Sales Net Sales1 Adjusted EBITDA 7.0% of sales +41% +160 bps Exceptional financial results driven by strong sales growth, margin expansion and operating leverage $4,728 $5,446 +17% organic
Growth due to enhanced value proposition and complete electrical solutions offering Third Quarter Drivers • Record third quarter with sales growth in all operating groups – Non-residential construction demand remained strong – Strong industrial and OEM momentum continues • Record backlog up 2% sequentially and over 45% YOY • Adjusted EBITDA growth and margin expansion driven by sales growth, synergy capture, cost controls and execution of margin improvement initiatives Electrical & Electronic Solutions (EES) Q3 2022 Q3 2021 YOY Sales $2,235 $1,982 +15%1 Adjusted EBITDA $226 $174 +30% % of sales 10.1% 8.8% +130 bps 11 $ millions Long-term, sustainable growth supported by secular trends of electrification, automation and green energy 1 Sales growth shown on an organic basis. See appendix for non-GAAP definitions and reconciliations.
Communications & Security Solutions (CSS) Global position, leading value proposition and accelerating secular trends drive strong outlook over the long term 12 $ millions Q3 2022 Q3 2021 YOY Sales $1,602 $1,489 +10%1 Adjusted EBITDA $156 $134 +17% % of sales 9.8% 9.0% +80 bps Long-term, sustainable growth supported by secular trends of 24/7 connectivity, data center expansion, secure networks and IoT/automation 1 Sales growth shown on an organic basis. See appendix for non-GAAP definitions and reconciliations. Third Quarter Drivers • Record quarter with sales growth in key end markets and geographies despite continued global supply chain challenges – Network infrastructure growth continued to be led by global hyper- scale data centers and an increase in structured cabling driven by accelerating return-to-workplace activities – Security growth driven by increased IP-based surveillance and adoption of cloud-based technologies by global customers – Continued strong demand from multinational customers for professional A/V projects and in-building wireless applications • Backlog up over 40% YOY, and flat sequentially • Adjusted EBITDA growth and margin expansion driven by sales growth, synergy capture, cost controls and execution of margin improvement initiatives
Third Quarter Drivers • Record quarter with double-digit sales growth in all operating groups – Broad-based growth in utility driven by investments in electrification, green energy, and grid modernization – Broadband communications growth driven by connectivity demand and rural broadband expansion – Integrated supply growth driven by new agreements and scope expansion with existing customers • Record backlog up over 130% YOY and 14% sequentially • Adjusted EBITDA growth and margin expansion driven by sales growth, synergy capture, cost controls and execution of margin improvement initiatives Utility & Broadband Solutions (UBS) Leadership position and complete solutions offering continue to drive exceptional sales and profit growth 13 $ millions Q3 2022 Q3 2021 YOY Sales $1,609 $1,257 +29%1 Adjusted EBITDA $186 $115 +62% % of sales 11.6% 9.1% +250 bps Long-term, sustainable growth driven by industry- leading value proposition, scope expansion and attractive secular trends of green energy, grid modernization and infrastructure investment 1 Sales growth shown on an organic basis. See appendix for non-GAAP definitions and reconciliations.
14 June 2020 August 2021 February 2022 May 2022 August 2022 November 2022 Expanding pipeline of cross-sell opportunities Increasing Cross-Sell Target to $1.4 Billion Successful cross-selling initiatives driving market outperformance $ millions Cumulative Cross-Sell Synergies $600 million$500 million $170 million $1.2 billion $1.4 billion $850 million $966 million $729 million $525 million $365 million$77 million Realized through prior quarter-end Cross-sell target (through 2023) 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 Capturing cross-sell opportunities within and across all three SBUs Growth opportunity is further amplified by attractive secular growth trends
15 Cost Synergy Realization Continues Tracking well toward 2023 cost synergy target of $315 million 202 1 (to date) To be realizedRealized Supply Chain $115 million G&A $95 million Corporate Overhead $45 million Field Operations $60 million To be realizedRealized $ millions Cumulative Realized Synergies By Type $14 $34 $25 $44 $66$50 $68$60 2020 2021 2022 2023 $315 $188 $39 $63 Q3 Q4 Q1 Q2 Q3 Q4 Cumulative Realized Synergies Q1 Q2 Q3 $270 Revised target
16 Year-to-Date Free Cash Flow $688 Adjusted Net Income D&A, Variable Comp and Other Accounts Receivable Inventory Accounts Payable Capex / IT Spend Free Cash Flow $139 $(104) $(738) $(886) $480 $(421) Free Cash Flow Managing working capital to ensure effective execution in a high-growth, supply-constrained environment $ millions See appendix for non-GAAP definitions and reconciliations.
17 5.7x 5.3x 5.3x 4.9x 4.5x 4.1x 3.9x 3.6x 3.4x 3.2x Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Net Debt / TTM Adjusted EBITDA Leverage Back within Target Range Well Ahead of Schedule Deleveraging continued in Q3; Now well within target range Acquisition closed June 2020 See appendix for non-GAAP definitions and reconciliations. • Leverage improved 0.2x in Q3 and 2.5x since Anixter merger closed in June 2020 • Returned to target leverage range 12 months sooner than originally expected • Rapid deleveraging demonstrates inherent strength of our B2B distribution business model 2.5x Reduction 27 months 3.5x target range 2.0x
Updated 2022 Outlook 18 Outlook Notes • Does not reflect the effect of potential tax law changes or future refinancing activity • Utility customer model shift results in negative sales impact of ~0.5% • Does not reflect Rahi acquisition which closed on 11/1/22 Prior Revised 8/4/22 11/3/22 Sales Market growth (including price) +12% to +14% +12% to +14% Plus: share gain/cross-sell ~5% ~5% Less: differences of foreign exchange rates ~(1)% ~(2)% Plus: benefit of one more workday in 2022 +0.5% +0.5% Reported sales +16% to +18% +15% to +17% Adjusted EBITDA Adjusted EBITDA margin 7.8% to 8.0% 7.9% to 8.0% Implied midpoint of range $1.68 billion $1.68 billion Adjusted EPS Adjusted diluted EPS $15.60 to $16.40 $15.80 to $16.20 Cash Free cash flow percent of adjusted net income ~50% ~10% See appendix for non-GAAP definitions.
19 Summary Differentiated capabilities and execution drive strong outlook • Outstanding results in Q3 and strongest quarter of Wesco + Anixter combination yet – Third quarter record sales – All-time record gross margin, operating profit, adjusted EBITDA, adjusted EBITDA margin and adjusted diluted EPS – Delivered record 8.6% adjusted EBITDA margin in the quarter with margin expansion of 160 bps over prior year on value-based pricing execution, accelerated cross-sell, and continued cost synergies • Expanded market share through sales execution and cross-selling, and again increased cross-sell synergy target • Leverage reduced further to 3.2x and is down 2.5x since merger close in June 2020 • Making excellent progress on our IT/Digital roadmap • Exceptionally well positioned to benefit from secular growth trends
APPENDIX
Underlying Assumptions 21 Fourth Quarter FY 2022 Depreciation and Amortization ~$40–45 million ~$175–180 million Interest Expense ~$80–85 million ~$285–290 million Share Count ~52-53 million ~52-53 million Effective Tax Rate ~26% ~24-25%
22 Glossary Abbreviations 1H: First half of fiscal year MSD: Mid-single digit 2H: Second half of fiscal year PF: Pro Forma A/V: Audio/visual PY: Prior Year COGS: Cost of goods sold OEM: Original equipment manufacturer CIG: Commercial, Institutional and Government OPEX: Operating expenses CSS: Communications & Security Solutions (strategic business unit) ROW: Rest of world EES: Electrical & Electronic Solutions (strategic business unit) RTW: Return to Workplace ETR: Effective tax rate SBU: Strategic Business Unit FTTx: Fiber-to-the-x (last mile fiber optic network connections) Seq: Sequential HSD: High-single digit TTM: Trailing twelve months LSD: Low-single digit UBS: Utility & Broadband Solutions (strategic business unit) MRO: Maintenance, repair and operating WD: Workday MTDC: Multi-tenant data center YOY: Year-over-year Definitions 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
23 Workdays Q1 Q2 Q3 Q4 FY 2019 63 64 63 62 252 2020 64 64 64 61 253 2021 62 64 64 62 252 2022 63 64 64 62 253 2023 63 64 63 62 252
24 Non-GAAP Measure Definitions 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 reported percentage change in consolidated net sales. Gross profit is a financial measure commonly used in 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. 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 expense, merger-related and integration costs, and net gain on the divestiture of Wesco's legacy utility and data communications businesses in Canada. Adjusted EBITDA margin % is calculated by dividing Adjusted EBITDA by net sales. Free cash flow is a non-GAAP financial 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. Financial leverage is a non-GAAP measure of 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 expense, merger-related and integration costs, and net gain on the divestiture of Wesco's legacy utility and data communications businesses in Canada.
25 Organic Sales Growth by Segment $ thousands Organic Sales Growth by Segment - QTD: Three Months Ended Growth/(Decline) September 30, 2022 September 30, 2021 Reported Divestiture Impact Foreign Exchange Impact Workday Impact Organic Growth EES $2,234,771 $1,982,485 12.7% — % (2.2)% — % 14.9% CSS 1,602,459 1,488,689 7.6% — % (2.0)% — % 9.6% UBS 1,608,686 1,257,151 28.0% — % (0.6)% — % 28.6% Total net sales $5,445,916 $4,728,325 15.2% — % (1.7)% — % 16.9% Organic Sales Growth by Segment - Sequential: Three Months Ended Growth/(Decline) September 30, 2022 September 30, 2021 Reported Divestiture Impact Foreign Exchange Impact Workday Impact Organic Growth EES $2,234,771 $2,330,153 (4.1)% — % (0.9)% — % (3.2)% CSS 1,602,459 1,601,997 — % — % (0.8)% — % 0.8% UBS 1,608,686 1,551,375 3.7% — % (0.3)% — % 4.0% Total net sales $5,445,916 $5,483,525 (0.7)% — % (0.7)% — % — %
26 Gross Profit and Free Cash Flow $ thousands Three Months Ended Nine Months Ended Gross Profit: September 30, 2022 September 30, 2021 June 30, 2022 September 30, 2022 September 30, 2021 Net sales $5,445,916 $4,728,325 $5,483,525 $15,861,622 $ 13,365,592 Cost of goods sold (excluding depreciation and amortization) 4,241,401 3,720,332 4,294,086 12,418,561 10,581,406 Gross profit $1,204,515 $1,007,993 $1,189,439 $3,443,061 $2,784,186 Gross margin 22.1% 21.3% 21.7% 21.7% 20.8% Three Months Ended Nine Months Ended Free Cash Flow: September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Cash flow (used in) provided by operations $(106,090) $69,875 $ (410,621) $172,670 Less: Capital expenditures (27,725) (4,979) (59,366) (25,170) Add: Merger-related and integration cash costs 6,200 20,109 49,460 61,676 Free cash flow $ (112,615) $85,005 $(420,527) $209,176 Percentage of adjusted net income (51)% 54% (61)% 53%
27 Three Months Ended September 30, 2022 EBITDA and Adjusted EBITDA by Segment: EES CSS UBS Corporate Total Net income attributable to common stockholders $214,054 $138,747 $180,354 $ (307,905) $225,250 Net income attributable to noncontrolling interests 200 — — 408 608 Preferred stock dividends — — — 14,352 14,352 Provision for income taxes — — — 85,637 85,637 Interest expense, net — — — 75,057 75,057 Depreciation and amortization 9,596 15,929 5,859 11,339 42,723 EBITDA $223,850 $154,676 $186,213 $(121,112) $443,627 Other (income) expense, net (1,069) 266 (1,063) 2,554 688 Stock-based compensation expense(1) 2,983 1,428 1,107 2,853 8,371 Merger-related and integration costs — — — 13,210 13,210 Adjusted EBITDA $225,764 $156,370 $186,257 $(102,495) $465,896 Adjusted EBITDA margin % 10.1% 9.8% 11.6% 8.6% 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 and integration 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% Adjusted EBITDA $ thousands (1) Stock-based compensation expense in the calculation of adjusted EBITDA for the three months ended September 30, 2022 and September 30, 2021 excludes $1.3 million as such amount is included in merger-related and integration costs.
Adjusted EPS 28 Three Months Ended Nine Months Ended September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Adjusted Income from Operations: $401,592 $229,466 $1,056,330 $581,589 Merger-related and integration costs 13,210 35,750 52,200 119,792 Accelerated trademark amortization 389 15,147 9,384 20,196 Net gain on divestitures — — — (8,927) Adjusted income from operations $415,191 $280,363 $1,117,914 $712,650 Adjusted Provision for Income Taxes: Provision for income taxes $85,637 $44,870 $203,178 $84,201 Income tax effect of adjustments to income from operations(1) 3,673 13,512 16,371 32,968 Adjusted provision for income taxes $89,310 $58,382 $219,549 $117,169 Adjusted Earnings per Diluted Share: Adjusted income from operations $415,191 $280,363 $1,117,914 $712,650 Interest expense, net 75,057 69,720 207,155 207,683 Other expense (income), net 688 (5,320) 3,007 (8,929) Adjusted income before income taxes 339,446 215,963 907,752 513,896 Adjusted provision for income taxes 89,310 58,382 219,549 117,169 Adjusted net income 250,136 157,581 688,203 396,727 Net income attributable to noncontrolling interests 608 600 1,439 665 Adjusted net income attributable to WESCO International, Inc. 249,528 156,981 686,764 396,062 Preferred stock dividends 14,352 14,352 43,056 43,056 Adjusted net income attributable to common stockholders $235,176 $142,629 $643,708 $353,006 Diluted shares 52,389 52,063 52,386 51,896 Adjusted earnings per diluted share $4.49 $2.74 $12.29 $6.80 (1) The adjustments to income from operations have been tax effected at a rate of approximately 27% for the three and nine months ended September 30, 2022, and at rates of approximately 27% and 25% for the three and nine months ended September 30, 2021, respectively. $ thousands
Capital Structure and Leverage 29 $ thousands Twelve Months Ended Financial Leverage: September 30, 2022 December 31, 2021 Net income attributable to common stockholders $751,555 $407,974 Net income attributable to noncontrolling interests 1,794 1,020 Preferred stock dividends 57,408 57,408 Provision for income taxes 234,487 115,510 Interest expense, net 267,545 268,073 Depreciation and amortization 189,478 198,554 EBITDA 1,502,267 1,048,539 Other income, net(1) (36,176) (48,112) Stock-based compensation expense 37,122 25,699 Merger-related and integration costs 90,892 158,484 Net gain on divestitures — (8,927) Adjusted EBITDA $1,594,105 $1,175,683 September 30, 2022 December 31, 2021 Short-term debt and current portion of long-term debt, net $69,295 $9,528 Long-term debt, net 5,192,816 4,701,542 Debt discount and debt issuance costs(2) 60,765 70,572 Fair value adjustments to Anixter Senior Notes due 2023 and 2025(2) (439) (957) Total debt 5,322,437 4,780,685 Less: cash and cash equivalents 234,083 212,583 Total debt, net of cash $5,088,354 $4,568,102 Financial leverage ratio 3.2 3.9 (1) Other non-operating income for the twelve months ended September 30, 2022 and December 31, 2021 includes a $36.6 million curtailment gain resulting from the remeasurement of the Company's pension obligations in the U.S. and Canada due to amending certain terms of such defined benefit plans. (2) 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.