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): May 4, 2023
(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 May 4, 2023, WESCO International, Inc. (the “Company”) issued a press release announcing its financial results for the first quarter of 2023. 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 first quarter of 2023 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) | ||||||||
| May 4, 2023 | 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 Record First Quarter 2023 Results
•Record first quarter sales, gross margin, operating profit, and earnings per diluted share
•Net sales of $5.5 billion, up 12% YOY
–Organic sales growth of 11% YOY
•Operating profit of $346 million; operating margin of 6.3%
–Adjusted EBITDA of $421 million, up 16% YOY; adjusted EBITDA margin of 7.6%, up 20 basis points YOY
–Gross margin of 21.9%, up 60 basis points YOY
•Earnings per diluted share of $3.48
–Adjusted earnings per diluted share of $3.75, up 3% YOY
PITTSBURGH, May 4, 2023 /PR Newswire/ -- Wesco International (NYSE: WCC), a leading provider of business-to-business distribution, logistics services and supply chain solutions, announces its results for the first quarter of 2023.
“After delivering an exceptional performance in 2022, we’re off to a strong start this year and once again set new first quarter company records for sales, backlog, margin and profitability. The power of our increased scale, industry-leading positions, and expanded portfolio of products, services and solutions is clearly evident in our continued strong performance,” said John Engel, Chairman, President and CEO.
Mr. Engel continued, “Strong secular demand trends and continued execution of our enterprise-wide cross selling and margin improvement programs are driving our sustained growth and market outperformance. Our dedicated team of colleagues continues to provide resilient and critical supply chain solutions for our customers around the world, capturing the benefits of our exposure to these sustainable secular trends. As our three-year integration program comes to a close this year, our digital transformation is accelerating which will result in an even higher level of performance, operating efficiency, supplier partnership and customer loyalty.”
Mr. Engel concluded, “We are reaffirming our 2023 outlook and remain confident in our ability to drive mid- to high-single digit sales growth this year, along with continued EBITDA margin expansion. We are also reaffirming that we expect to generate approximately $600 to $800 million in free cash flow in support of our growth initiatives and capital allocation priorities. In the near-term, we are focusing our cash generation on debt reduction and expect to reduce our leverage below the midpoint of our target range of 2.0 to 3.5x by year-end. We look forward with greater confidence than ever to a future of market outperformance and value creation.”
The following are results for the three months ended March 31, 2023 compared to the three months ended March 31, 2022:
•Net sales were $5.5 billion for the first quarter of 2023 compared to $4.9 billion for the first quarter of 2022, an increase of 12.0%, reflecting price inflation and volume growth, secular demand trends, execution of our cross-sell program, and an improving supply chain. Organic sales for the first quarter of 2023 grew 10.8% as the acquisition of Rahi Systems, which closed in November of 2022, positively impacted reported net sales by 2.8%, while fluctuations in foreign exchange rates negatively impacted reported net sales by 1.6%. Backlog at the end of the first quarter of 2023 increased 21% compared to the end of the first quarter of 2022. Sequentially, backlog remained flat.
•Cost of goods sold for the first quarter of 2023 was $4.3 billion compared to $3.9 billion for the first quarter of 2022, and gross profit was $1.2 billion and $1.0 billion, respectively. As a percentage of net sales, gross profit was 21.9% and 21.3% for the first quarter of 2023 and 2022, respectively. Gross profit as a percentage of net sales for the first quarter of 2023 reflects our continued focus on value-driven pricing and pass-through of inflationary costs, along with the continued momentum of our margin improvement program.
•Selling, general and administrative ("SG&A") expenses were $817.7 million, or 14.8% of net sales, for the first quarter of 2023, compared to $718.1 million, or 14.6% of net sales, for the first quarter of 2022. SG&A expenses for the first quarter of 2023 and 2022 include merger-related and integration costs of $19.5 million and $25.6 million, respectively. Adjusted for these amounts,
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SG&A expenses were $798.2 million, or 14.5% of net sales, for the first quarter of 2023 and $692.5 million, or 14.0% of net sales, for the first quarter of 2022. Adjusted SG&A expenses for the first quarter of 2023 reflect higher salaries and benefits due to wage inflation and increased headcount, including the impact of the Rahi Systems acquisition, as well as an increase in volume-related costs such as commissions and transportation. Increased costs to operate our facilities also contributed to higher SG&A expenses. In addition, digital transformation initiatives contributed to higher expenses in the first quarter of 2023, including those related to professional and consulting fees. These increases were partially offset by the realization of integration cost synergies and a reduction to incentive compensation expense.
•Depreciation and amortization for the first quarter of 2023 was $44.4 million compared to $47.0 million for the first quarter of 2022, a decrease of $2.6 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 $5.3 million of accelerated amortization expense for the first quarter of 2022.
•Operating profit was $346.4 million for the first quarter of 2023 compared to $284.0 million for the first quarter of 2022, an increase of $62.4 million, or 22.0%. Operating profit as a percentage of net sales was 6.3% for the current quarter compared to 5.8% for the first quarter of the prior year. Adjusted for the merger-related and integration costs described above, operating profit was $365.9 million, or 6.6% of net sales, for the first quarter of 2023. Adjusted for merger-related and integration costs, and accelerated trademark amortization, operating profit was $314.9 million, or 6.4% of net sales, for the first quarter of 2022.
•Net interest expense for the first quarter of 2023 was $95.0 million compared to $63.6 million for the first quarter of 2022. The increase reflects higher borrowings and an increase in variable interest rates.
•Other non-operating expense for the first quarter of 2023 was $10.1 million compared to $1.1 million for the first quarter of 2022. Net benefits of $0.3 million and $3.6 million associated with the non-service cost components of net periodic pension (benefit) cost were recognized for the three months ended March 31, 2023 and 2022, respectively. Due to fluctuations in the U.S. dollar against certain foreign currencies, a net foreign currency exchange loss of $9.5 million was recognized for the first quarter of 2023 compared to a net loss of $3.6 million for the first quarter of 2022.
•The effective tax rate for the first quarter of 2023 was 18.3% compared to 17.2% for the first quarter of 2022. The current quarter and the comparable prior year period both reflect discrete income tax benefits resulting from the exercise and vesting of stock-based awards. The first quarter of 2022 also reflects a discrete income tax benefit resulting from a reduction to the valuation allowance recorded against foreign tax credit carryforwards.
•Net income attributable to common stockholders was $182.7 million for the first quarter of 2023 compared to $166.8 million for the first quarter of 2022. Adjusted for merger-related and integration costs and the related income tax effect, net income attributable to common stockholders was $196.9 million for the first quarter of 2023. Adjusted for merger-related and integration costs, accelerated trademark amortization expense, and the related income tax effects, net income attributable to common stockholders was $189.7 million for the first quarter of 2022. Adjusted net income attributable to common stockholders increased 3.8% year-over-year.
•Earnings per diluted share for the first quarter of 2023 was $3.48, based on 52.5 million diluted shares, compared to $3.19 for the first quarter of 2022, based on 52.2 million diluted shares. Adjusted for merger-related and integration costs and the related income tax effect, earnings per diluted share for the first quarter of 2023 was $3.75. Adjusted for merger-related and integration costs, accelerated trademark amortization expense, and the related income tax effects, earnings per diluted share for the first quarter of 2022 was $3.63. Adjusted earnings per diluted share increased 3.3% year-over-year.
•Operating cash flow for the first quarter of 2023 was an outflow of $255.4 million compared to an outflow of $172.0 million for the first quarter of 2022. The net cash outflow in the first quarter of 2023 was primarily driven by changes in working capital, including an increase in inventories of $223.8 million as shipments from suppliers have accelerated due to an improving supply chain. An increase in trade accounts receivable of $133.5 million and a decrease in accounts payable of $86.5 million due to the timing of receipts from customers and payments to suppliers, respectively, also contributed to the net cash outflow.
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.
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The following are results by segment for the three months ended March 31, 2023 compared to the three months ended March 31, 2022:
•EES reported net sales of $2,135.1 million for the first quarter of 2023 compared to $2,090.0 million for the first quarter of 2022, an increase of 2.2%. Organic sales for the first quarter of 2023 grew 3.9% as fluctuations in foreign exchange rates negatively impacted reported net sales by 1.7%. The increase in organic sales compared to the prior year quarter reflects continued momentum in our industrial business driven by strength in the automation, petrochemical, and metals and mining end markets, as well as growth in non-residential construction. These positive factors were partially offset by a transfer of certain customer accounts to the CSS segment, which negatively impacted reported net sales for EES by approximately 2%, as well as lower sales in certain original equipment manufacturer end markets. EBITDA, adjusted for other non-operating expenses and non-cash stock-based compensation expense, was $183.0 million for the first quarter of 2023, or 8.6% of net sales, compared to $192.4 million for the first quarter of 2022, or 9.2% of net sales. Adjusted EBITDA decreased $9.4 million, or 4.9% year-over-year, as an increase in gross profit was more than offset by higher SG&A expenses.
•CSS reported net sales of $1,732.0 million for the first quarter of 2023 compared to $1,434.2 million for the first quarter of 2022, an increase of 20.8%. Organic sales for the first quarter of 2023 grew 13.3% as the acquisition of Rahi Systems in the fourth quarter of 2022 positively impacted reported net sales by 9.5%, while fluctuations in foreign exchange rates negatively impacted reported net sales by 2.0%. The increase in organic sales compared to the prior year quarter reflects growth in our security solutions and network infrastructure businesses, as well as the benefits of cross selling and improvements in supply chain constraints. The transfer of certain customer accounts from the EES segment also positively impacted reported net sales for CSS by approximately 2%. EBITDA, adjusted for other non-operating expenses and non-cash stock-based compensation expense, was $155.5 million for the first quarter of 2023, or 9.0% of net sales, compared to $123.0 million for the first quarter of 2022, or 8.6% of net sales. Adjusted EBITDA increased $32.5 million, or 26.4% year-over-year. The increase primarily reflects the factors impacting the overall business, as described above.
•UBS reported net sales of $1,654.8 million for the first quarter of 2023 compared to $1,408.0 million for the first quarter of 2022, an increase of 17.5%. Organic sales for the first quarter of 2023 grew 18.2% as fluctuations in foreign exchange rates negatively impacted reported net sales by 0.7%. The increase in organic sales compared to the prior year quarter reflects significant price inflation, secular trends in the utility business that are driving growth, as well as expansion in our integrated supply business. These positive factors were partially offset by lower sales in our broadband business due to certain customers depleting existing inventories. EBITDA, adjusted for other non-operating expenses and non-cash stock-based compensation expense, was $187.7 million for the first quarter of 2023, or 11.3% of net sales, compared to $136.3 million for the first quarter of 2022, or 9.7% of net sales. Adjusted EBITDA increased $51.4 million, or 37.7% year-over-year. The increase primarily reflects the factors impacting the overall business, as described above.
Webcast and Teleconference Access
Wesco will conduct a webcast and teleconference to discuss the first quarter of 2023 earnings as described in this News Release on Thursday, May 4, 2023, 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 $21 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 approximately 20,000 people, partners with the industry’s premier suppliers, and serves thousands of customers around the world. With millions of 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 business strategy, growth strategy, competitive strengths, productivity and profitability enhancement, competition, new product and service introductions, and liquidity and capital resources, as well as 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 and expectations. Such statements can generally be identified by the use of words such as "anticipate," "plan," "believe," "estimate," "intend," "expect," "project," and similar words, phrases or expressions or future or conditional verbs such as "could," "may," "should," "will," and "would," although not all forward-looking statements contain such words. 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.
Important factors that could cause actual results or events to differ materially from those presented or implied in the forward-looking statements include, among others, the failure to achieve the expected benefits of the transaction between Wesco and Anixter International Inc. or the anticipated benefits of Wesco's acquisition of Rahi Systems Holdings, Inc. in the expected timeframe or at all, unexpected costs or problems that may arise in successfully integrating the businesses of the companies, the impact of increased interest rates or borrowing costs, failure to adequately protect Wesco's intellectual property or successfully defend against infringement claims, failure to execute Wesco's environmental, social and governance (ESG) programs as planned, disruption of information technology systems or operations, natural disasters (including as a result of climate change), health epidemics, pandemics and other outbreaks (such as the ongoing COVID-19 pandemic, including any resurgences or new variants), supply chain disruptions, geopolitical issues, such as the impact of Russia's invasion of Ukraine, including the impact of sanctions or other actions taken by the U.S. or other countries against Russia (as well as those imposed on China), 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. All such factors are difficult to predict and are beyond the 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, 2022 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
(in millions, except per share amounts)
(Unaudited)
| Three Months Ended | |||||||||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||||||||
| Net sales | $ | 5,521.9 | $ | 4,932.2 | |||||||||||||
| Cost of goods sold (excluding depreciation and amortization) | 4,313.4 | 78.1 | % | 3,883.1 | 78.7 | % | |||||||||||
| Selling, general and administrative expenses | 817.7 | 14.8 | % | 718.1 | 14.6 | % | |||||||||||
| Depreciation and amortization | 44.4 | 47.0 | |||||||||||||||
| Income from operations | 346.4 | 6.3 | % | 284.0 | 5.8 | % | |||||||||||
| Interest expense, net | 95.0 | 63.6 | |||||||||||||||
| Other expense, net | 10.1 | 1.1 | |||||||||||||||
| Income before income taxes | 241.3 | 4.4 | % | 219.3 | 4.4 | % | |||||||||||
| Provision for income taxes | 44.1 | 37.7 | |||||||||||||||
| Net income | 197.2 | 3.6 | % | 181.6 | 3.7 | % | |||||||||||
| Net income attributable to noncontrolling interests | 0.1 | 0.4 | |||||||||||||||
| Net income attributable to WESCO International, Inc. | 197.1 | 3.6 | % | 181.2 | 3.7 | % | |||||||||||
| Preferred stock dividends | 14.4 | 14.4 | |||||||||||||||
| Net income attributable to common stockholders | $ | 182.7 | 3.3 | % | $ | 166.8 | 3.4 | % | |||||||||
| Earnings per diluted share attributable to common stockholders | $ | 3.48 | $ | 3.19 | |||||||||||||
| Weighted-average common shares outstanding and common share equivalents used in computing earnings per diluted common share | 52.5 | 52.2 | |||||||||||||||
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WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollar amounts in millions)
(Unaudited)
| As of | |||||||||||
| March 31, 2023 | December 31, 2022 | ||||||||||
| Assets | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | 349.1 | $ | 527.3 | |||||||
| Trade accounts receivable, net | 3,807.4 | 3,662.7 | |||||||||
| Inventories | 3,729.5 | 3,498.8 | |||||||||
| Other current assets | 562.1 | 641.7 | |||||||||
| Total current assets | 8,448.1 | 8,330.5 | |||||||||
| Goodwill and intangible assets | 5,166.3 | 5,184.3 | |||||||||
| Other assets | 1,356.8 | 1,296.9 | |||||||||
| Total assets | $ | 14,971.2 | $ | 14,811.7 | |||||||
| Liabilities and Stockholders' Equity | |||||||||||
| Current Liabilities | |||||||||||
| Accounts payable | $ | 2,648.3 | $ | 2,728.2 | |||||||
| Short-term debt and current portion of long-term debt, net | 7.6 | 70.5 | |||||||||
| Other current liabilities | 883.0 | 1,018.6 | |||||||||
| Total current liabilities | 3,538.9 | 3,817.3 | |||||||||
| Long-term debt, net | 5,595.1 | 5,346.0 | |||||||||
| Other noncurrent liabilities | 1,247.5 | 1,198.8 | |||||||||
| Total liabilities | 10,381.5 | 10,362.1 | |||||||||
| Stockholders' Equity | |||||||||||
| Total stockholders' equity | 4,589.7 | 4,449.6 | |||||||||
| Total liabilities and stockholders' equity | $ | 14,971.2 | $ | 14,811.7 | |||||||
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WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in millions)
(Unaudited)
| Three Months Ended | |||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||
| Operating Activities: | |||||||||||
| Net income | $ | 197.2 | $ | 181.6 | |||||||
| Add back (deduct): | |||||||||||
| Depreciation and amortization | 44.4 | 47.0 | |||||||||
| Deferred income taxes | 11.6 | (4.5) | |||||||||
| Change in trade receivables, net | (133.5) | (324.6) | |||||||||
| Change in inventories | (223.8) | (214.2) | |||||||||
| Change in accounts payable | (86.5) | 200.0 | |||||||||
| Other, net | (64.8) | (57.3) | |||||||||
| Net cash used in operating activities | (255.4) | (172.0) | |||||||||
| Investing Activities: | |||||||||||
| Capital expenditures | (13.9) | (15.2) | |||||||||
| Other, net | 1.3 | 0.1 | |||||||||
| Net cash used in investing activities | (12.6) | (15.1) | |||||||||
| Financing Activities: | |||||||||||
Debt borrowings, net(1) | 181.0 | 191.3 | |||||||||
| Payments for taxes related to net-share settlement of equity awards | (51.6) | (16.8) | |||||||||
| Payment of common stock dividends | (19.2) | — | |||||||||
| Payment of preferred stock dividends | (14.4) | (14.4) | |||||||||
| Other, net | (7.2) | 7.1 | |||||||||
| Net cash provided by financing activities | 88.6 | 167.2 | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | 1.2 | 8.8 | |||||||||
| Net change in cash and cash equivalents | (178.2) | (11.1) | |||||||||
| Cash and cash equivalents at the beginning of the period | 527.3 | 212.6 | |||||||||
| Cash and cash equivalents at the end of the period | $ | 349.1 | $ | 201.5 | |||||||
(1) The three months ended March 31, 2023 includes the repayment of the Company's $58.6 million aggregate principal amount of 5.50% Anixter Senior Notes due 2023 (the “Anixter 2023 Senior Notes”). The repayment of the Anixter 2023 Senior Notes was funded with borrowings under the Company's revolving credit facility.
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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.
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WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(in millions, except per share amounts)
(Unaudited)
| Organic Sales Growth by Segment - Three Months Ended: | |||||||||||||||||||||||||||||||||||||||||
| Three Months Ended | Growth/(Decline) | ||||||||||||||||||||||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | Reported | Acquisition Impact | Foreign Exchange Impact | Workday Impact | Organic Growth | |||||||||||||||||||||||||||||||||||
| EES | $ | 2,135.1 | $ | 2,090.0 | 2.2 | % | — | % | (1.7) | % | — | % | 3.9 | % | |||||||||||||||||||||||||||
| CSS | 1,732.0 | 1,434.2 | 20.8 | % | 9.5 | % | (2.0) | % | — | % | 13.3 | % | |||||||||||||||||||||||||||||
| UBS | 1,654.8 | 1,408.0 | 17.5 | % | — | % | (0.7) | % | — | % | 18.2 | % | |||||||||||||||||||||||||||||
| Total net sales | $ | 5,521.9 | $ | 4,932.2 | 12.0 | % | 2.8 | % | (1.6) | % | — | % | 10.8 | % | |||||||||||||||||||||||||||
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.
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WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(in millions, except per share amounts)
(Unaudited)
| Three Months Ended | |||||||||||
| Gross Profit: | March 31, 2023 | March 31, 2022 | |||||||||
| Net sales | $ | 5,521.9 | $ | 4,932.2 | |||||||
| Cost of goods sold (excluding depreciation and amortization) | 4,313.4 | 3,883.1 | |||||||||
| Gross profit | $ | 1,208.5 | $ | 1,049.1 | |||||||
| Gross margin | 21.9 | % | 21.3 | % | |||||||
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.
| Three Months Ended | |||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||
| Adjusted SG&A Expenses: | |||||||||||
| Selling, general and administrative expenses | $ | 817.7 | $ | 718.1 | |||||||
| Merger-related and integration costs | (19.5) | (25.6) | |||||||||
| Adjusted selling, general and administrative expenses | $ | 798.2 | $ | 692.5 | |||||||
| Percentage of net sales | 14.5 | % | 14.0 | % | |||||||
| Adjusted Income from Operations: | |||||||||||
| Income from operations | $ | 346.4 | $ | 284.0 | |||||||
| Merger-related and integration costs | 19.5 | 25.6 | |||||||||
| Accelerated trademark amortization | — | 5.3 | |||||||||
| Adjusted income from operations | $ | 365.9 | $ | 314.9 | |||||||
| Adjusted income from operations margin % | 6.6 | % | 6.4 | % | |||||||
| Adjusted Provision for Income Taxes: | |||||||||||
| Provision for income taxes | $ | 44.1 | $ | 37.7 | |||||||
Income tax effect of adjustments to income from operations(1) | 5.3 | 8.0 | |||||||||
| Adjusted provision for income taxes | $ | 49.4 | $ | 45.7 | |||||||
(1) The adjustments to income from operations have been tax effected at rates of approximately 27% and 26% for the three months ended March 31, 2023 and 2022, respectively.
10
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(in millions, except per share amounts)
(Unaudited)
| Three Months Ended | |||||||||||
| Adjusted Earnings per Diluted Share: | March 31, 2023 | March 31, 2022 | |||||||||
| Adjusted income from operations | $ | 365.9 | $ | 314.9 | |||||||
| Interest expense, net | 95.0 | 63.6 | |||||||||
| Other expense, net | 10.1 | 1.1 | |||||||||
| Adjusted income before income taxes | 260.8 | 250.2 | |||||||||
| Adjusted provision for income taxes | 49.4 | 45.7 | |||||||||
| Adjusted net income | 211.4 | 204.5 | |||||||||
| Net income attributable to noncontrolling interests | 0.1 | 0.4 | |||||||||
| Adjusted net income attributable to WESCO International, Inc. | 211.3 | 204.1 | |||||||||
| Preferred stock dividends | 14.4 | 14.4 | |||||||||
| Adjusted net income attributable to common stockholders | $ | 196.9 | $ | 189.7 | |||||||
| Diluted shares | 52.5 | 52.2 | |||||||||
| Adjusted earnings per diluted share | $ | 3.75 | $ | 3.63 | |||||||
Note: For the three months ended March 31, 2023, 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 and the related income tax effects. For the three months ended March 31, 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. These non-GAAP financial measures provide a better understanding of the Company's financial results on a comparable basis.
11
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(in millions, except per share amounts)
(Unaudited)
| Three Months Ended March 31, 2023 | ||||||||||||||||||||||||||||||||
| EBITDA and Adjusted EBITDA by Segment: | EES | CSS | UBS | Corporate | Total | |||||||||||||||||||||||||||
| Net income attributable to common stockholders | $ | 171.3 | $ | 135.4 | $ | 180.3 | $ | (304.3) | $ | 182.7 | ||||||||||||||||||||||
| Net (loss) income attributable to noncontrolling interests | (0.1) | 0.2 | — | — | 0.1 | |||||||||||||||||||||||||||
| Preferred stock dividends | — | — | — | 14.4 | 14.4 | |||||||||||||||||||||||||||
| Provision for income taxes | — | — | — | 44.1 | 44.1 | |||||||||||||||||||||||||||
| Interest expense, net | — | — | — | 95.0 | 95.0 | |||||||||||||||||||||||||||
| Depreciation and amortization | 9.9 | 18.0 | 6.0 | 10.5 | 44.4 | |||||||||||||||||||||||||||
| EBITDA | $ | 181.1 | $ | 153.6 | $ | 186.3 | $ | (140.3) | $ | 380.7 | ||||||||||||||||||||||
| Other expense, net | 0.5 | 0.8 | 0.6 | 8.2 | 10.1 | |||||||||||||||||||||||||||
Stock-based compensation expense(1) | 1.4 | 1.1 | 0.8 | 7.1 | 10.4 | |||||||||||||||||||||||||||
| Merger-related and integration costs | — | — | — | 19.5 | 19.5 | |||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 183.0 | $ | 155.5 | $ | 187.7 | $ | (105.5) | $ | 420.7 | ||||||||||||||||||||||
| Adjusted EBITDA margin % | 8.6 | % | 9.0 | % | 11.3 | % | 7.6 | % | ||||||||||||||||||||||||
(1) Stock-based compensation expense in the calculation of adjusted EBITDA for the three months ended March 31, 2023 excludes $1.3 million that is included in merger-related and integration costs. | ||||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2022 | ||||||||||||||||||||||||||||||||
| EBITDA and Adjusted EBITDA by Segment: | EES | CSS | UBS | Corporate | Total | |||||||||||||||||||||||||||
| Net income attributable to common stockholders | $ | 178.7 | $ | 103.7 | $ | 129.9 | $ | (245.5) | $ | 166.8 | ||||||||||||||||||||||
| Net income attributable to noncontrolling interests | 0.2 | — | — | 0.2 | 0.4 | |||||||||||||||||||||||||||
| Preferred stock dividends | — | — | — | 14.4 | 14.4 | |||||||||||||||||||||||||||
| Provision for income taxes | — | — | — | 37.7 | 37.7 | |||||||||||||||||||||||||||
| Interest expense, net | — | — | — | 63.6 | 63.6 | |||||||||||||||||||||||||||
| Depreciation and amortization | 12.0 | 18.1 | 5.8 | 11.1 | 47.0 | |||||||||||||||||||||||||||
| EBITDA | $ | 190.9 | $ | 121.8 | $ | 135.7 | $ | (118.5) | $ | 329.9 | ||||||||||||||||||||||
| Other (income) expense, net | (0.1) | 0.3 | — | 0.9 | 1.1 | |||||||||||||||||||||||||||
Stock-based compensation expense(1) | 1.6 | 0.9 | 0.6 | 4.4 | 7.5 | |||||||||||||||||||||||||||
| Merger-related and integration costs | — | — | — | 25.6 | 25.6 | |||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 192.4 | $ | 123.0 | $ | 136.3 | $ | (87.6) | $ | 364.1 | ||||||||||||||||||||||
| Adjusted EBITDA margin % | 9.2 | % | 8.6 | % | 9.7 | % | 7.4 | % | ||||||||||||||||||||||||
(1) Stock-based compensation expense in the calculation of adjusted EBITDA for the three months ended March 31, 2022 excludes $1.4 million that 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.
12
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(in millions, except per share amounts)
(Unaudited)
| Twelve Months Ended | |||||||||||
| Financial Leverage: | March 31, 2023 | December 31, 2022 | |||||||||
| Net income attributable to common stockholders | $ | 818.9 | $ | 803.1 | |||||||
| Net income attributable to noncontrolling interests | 1.3 | 1.7 | |||||||||
| Preferred stock dividends | 57.4 | 57.4 | |||||||||
| Provision for income taxes | 281.0 | 274.5 | |||||||||
| Interest expense, net | 325.8 | 294.4 | |||||||||
| Depreciation and amortization | 176.5 | 179.0 | |||||||||
| EBITDA | $ | 1,660.9 | $ | 1,610.1 | |||||||
| Other expense, net | 16.0 | 7.0 | |||||||||
| Stock-based compensation expense | 43.9 | 41.0 | |||||||||
Merger-related and integration costs | 61.4 | 67.5 | |||||||||
| Adjusted EBITDA | $ | 1,782.2 | $ | 1,725.6 | |||||||
| As of | |||||||||||
| March 31, 2023 | December 31, 2022 | ||||||||||
| Short-term debt and current portion of long-term debt, net | $ | 7.6 | $ | 70.5 | |||||||
| Long-term debt, net | 5,595.1 | 5,346.0 | |||||||||
Debt discount and debt issuance costs(1) | 54.2 | 57.9 | |||||||||
Fair value adjustments to Anixter Senior Notes due 2023 and 2025(1) | (0.1) | (0.3) | |||||||||
| Total debt | 5,656.8 | 5,474.1 | |||||||||
| Less: cash and cash equivalents | 349.1 | 527.3 | |||||||||
| Total debt, net of cash | $ | 5,307.7 | $ | 4,946.8 | |||||||
| Financial leverage ratio | 3.0 | 2.9 | |||||||||
(1) 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, and merger-related and integration costs.
13
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(in millions, except per share amounts)
(Unaudited)
| Three Months Ended | |||||||||||
| Free Cash Flow: | March 31, 2023 | March 31, 2022 | |||||||||
| Cash flow used in operations | $ | (255.4) | $ | (172.0) | |||||||
| Less: Capital expenditures | (13.9) | (15.2) | |||||||||
| Add: Merger-related and integration cash costs | 3.4 | 22.8 | |||||||||
| Free cash flow | $ | (265.9) | $ | (164.4) | |||||||
| Percentage of adjusted net income | (126) | % | (80) | % | |||||||
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 months ended March 31, 2023 and 2022, 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. Our calculation of free cash flow may not be comparable to similar measures used by other companies.
14
First Quarter 2023 Webcast Presentation May 4, 2023 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 business strategy, growth strategy, competitive strengths, productivity and profitability enhancement, competition, new product and service introductions and liquidity and capital resources, as well as 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 and expectations.. Such statements can generally be identified by the use of words such as "anticipate," "plan," "believe," "estimate," "intend," "expect," "project," and similar words, phrases or expressions or future or conditional verbs such as "could," "may," "should," "will," and "would,” although not all forward-looking statements contain such words. 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. Important factors that could cause actual results or events to differ materially from those presented or implied in the forward-looking statements include, among others, the failure to achieve the expected benefits of the transaction between Wesco and Anixter or the anticipated benefits of Wesco’s acquisition of Rahi Systems Holdings, Inc., in the expected timeframe or at all, unexpected costs or problems that may arise in successfully integrating the businesses of the companies, the impact of increased interest rates or borrowing costs, failure to adequately protect Wesco’s intellectual property or successfully defend against infringement claims, failure to execute Wesco’s environmental, social and governance (ESG) programs as planned; disruption of information technology systems or operations, natural disasters (including as a result of climate change), health epidemics, pandemics and other outbreaks (such as the ongoing COVID-19 pandemic, including any resurgences or new variants), supply chain disruptions, geopolitical issues, such as the impact of Russia's invasion of Ukraine, including the impact of sanctions or other actions taken by the U.S. or other countries against Russia (as well as those imposed on China), 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. All such factors are difficult to predict and are beyond the 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, 2022 and Wesco's other reports filed with the U.S. Securities and Exchange Commission. 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
3 Strong First Quarter to Start 2023 2023 off to a strong start and expected to be another transformational year See appendix for non-GAAP reconciliations. • Strong first quarter organic sales growth of 11% driven by secular demand trends, continued share gains, and improving supply chain ― Record first quarter sales for all three business units ― Strong cross-sell execution, raising target to $1.8 billion • Record first quarter profitability ― Record gross margin up 60 basis points YOY with all SBUs contributing to the YOY increase ― Record adjusted EBITDA and record adjusted EBITDA margin up 20 basis points YOY • 2023 expected to be another transformational year ― Additional advances in digital capabilities, share gains, continued margin expansion ― On track to deliver record profitability and free cash flow to support our capital allocation priorities
4 Substantial Value Creation Since Merger Close $ millions $4,070 $5,522 Q1 2019 Q1 2023 +36% Sales $187 $421 Q1 2019 Q1 2023 +125% Adjusted EBITDA 4.6% 7.6% Q1 2019 Q1 2023 +300 bps Adjusted EBITDA Margin 5.7x 3.0x Q2 2020 Q1 2023 Leverage 19.7% 21.9% Q1 2019 Q1 2023 +220 bps Gross Margin Results highlight the strength of the transformational Wesco + Anixter combination 2.7x (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 Q1 Record Q1 Record Q1 Record Q1 Record
5 First Quarter Results Overview Record first quarter financial results driven by sales growth and margin expansion Q1 2023 Q1 2022 YOY Sales $5,522 $4,932 +11%1 Gross Profit $1,209 $1,049 +15% Gross Margin 21.9% 21.3% +60 bps Adjusted EBITDA $421 $364 +16% EBITDA Margin 7.6% 7.4% +20 bps Adjusted Diluted EPS $3.75 $3.63 +3% $ millions, except per share amounts 1 Sales growth shown on an organic basis. 2 Preliminary workday-adjusted April sales are not adjusted for differences in foreign exchange rates and include sales related to the Rahi Systems acquisition. See appendix for non-GAAP definitions and reconciliations. • Organic sales +11% YOY, reported sales +12% YOY • Record first quarter sales, gross profit, gross margin, adjusted EBITDA, adjusted EBITDA margin and adjusted EPS • Record first quarter backlog up 21% YOY, flat sequentially including Rahi • Preliminary workday adjusted April sales up 6%2 YOY • April 2-year stack up ~28%
6 Q1 2022 Adjusted EBITDA Sales and M&A Gross Margin Improvement Cost Synergies Volume-related Costs & Compensation Digital/IT & Other Q1 2023 Adjusted EBITDA First Quarter Sales and Adjusted EBITDA Bridges $364 $421 6.7% of sales 7.6% of sales $ millions 1 Sales growth attribution based on company estimates. See appendix for non-GAAP definitions and reconciliations. Q1 2022 Sales Market Growth (Including Price) Share Gain/ Cross Sell FX M&A Q1 2023 Sales Net Sales1 Adjusted EBITDA 7.4% of sales +16% +20 bps $4,932 $5,522 +11% organic Record first quarter financial results driven by sales growth and margin expansion
Growth due to enhanced value proposition, electrification trend, and complete electrical solutions offering First Quarter Drivers • Record first quarter sales up 4% organically (up 6%1 excluding the impact of inter-segment business transfers) – Strong industrial momentum continued, up mid-teens driven by automation, petrochem, and metals and mining – Construction up MSD driven by improving supply chain and non- residential projects including renewables – OEM down LSD driven by specialty vehicle and manufactured housing • Backlog up 14% YOY, flat sequentially • Adjusted EBITDA and margin down YOY driven by higher SG&A (headcount and logistics expense) Electrical & Electronic Solutions (EES) 7 $ millions See appendix for non-GAAP definitions and reconciliations. Q1 2023 Q1 2022 YOY Sales $2,135 $2,090 +4%2 Adjusted EBITDA $183 $192 (5)% % of sales 8.6% 9.2% (60) bps 1 Excluding the impact of inter-segment business transfers, EES organic sales growth would have been approximately 6% 2 Sales growth shown on an organic basis
Communications & Security Solutions (CSS) Global position, leading value proposition and secular trends drive strong outlook over the long term 8 $ millions Q1 2023 Q1 2022 YOY Sales $1,732 $1,434 +13%2 Adjusted EBITDA $156 $123 +26% % of sales 9.0% 8.6% +40 bps See appendix for non-GAAP definitions and reconciliations. First Quarter Drivers • Record first quarter sales up 13% organically (up 11%1 excluding the impact of inter-segment business transfers) with growth in all key end markets and geographies – Network infrastructure up MSD, driven by data center and cloud applications – Security up LDD driven by new applications due to convergence of technologies (IoT) and robust global demand – Professional A/V and in-building wireless applications up well over 30% due to continued strong demand from multinational customers – Rahi up well ahead of expectations due to continued strong demand from global hyperscale data centers • Backlog up 10% YOY, down 2% sequentially including Rahi • Adjusted EBITDA growth and margin expansion driven by sales growth, synergy capture, and execution of margin improvement initiatives 1 Excluding the impact of inter-segment business transfers, CSS organic sales growth would have been approximately 11% 2 Sales growth shown on an organic basis
First Quarter Drivers • Record quarter with sales growth in all geographies – Broad-based utility growth of well over 20% driven by investments in electrification, green energy, and grid modernization – Integrated supply up LDD driven by new agreements and scope expansion with existing customers – Broadband sales down LDD as certain customers work through inventory build; attractive secular growth trends remain intact • Backlog up 46% YOY, and up 1% sequentially • Adjusted EBITDA growth and margin expansion driven by sales growth, synergy capture, operating leverage, and execution of margin improvement initiatives Utility & Broadband Solutions (UBS) Leadership position and complete solutions offering continue to drive exceptional sales and profit growth 9 $ millions See appendix for non-GAAP definitions and reconciliations. Q1 2023 Q1 2022 YOY Sales $1,655 $1,408 +18%1 Adjusted EBITDA $188 $136 +38% % of sales 11.3% 9.7% +160 bps 1 Sales growth shown on an organic basis
10 June 2020 February 2023 May 2023 Expanding pipeline of cross-sell opportunities Increasing Cross-Sell Target to $1.8 Billion Successful cross-selling initiatives driving market outperformance Cumulative Cross-Sell Synergies $1.6 billion $1.2 billion 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 $1.8 billion $1.45 billion $170 million June 20201 February 2023 May 2023 1 At Anixter acquisition close on June 22, 2020
11 Cost Synergy Realization Continues Tracking well toward 2023 cumulative 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 $63 $76 $25 $44 $66$50 $68$60 $73 2020 2021 2022 2023 $315 $188 $39 Q3 Q4 Q1 Q2 Q3 Q4 Cumulative Realized Synergies Q1 Q2 Q3 Q4 $270 Q1
12 Year-to-Date Free Cash Flow $211 Adjusted Net Income Accounts Receivable Inventory Accounts Payable Capex Other Free Cash Flow $(18)$(14) $(87) $(266) Free Cash Flow Managing working capital to ensure resilient supply chain in a secular-growth environment $ millions See appendix for non-GAAP definitions and reconciliations. $(134) $(224) $(87)
13 5.7x 5.3x 5.3x 4.9x 4.5x 4.1x 3.9x 3.6x 3.4x 3.2x 2.9x 3.0x Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023 Net Debt / TTM Adjusted EBITDA Leverage Back within Target Range Well Ahead of Schedule Strong deleveraging momentum; Well within target range Acquisition closed June 2020 See appendix for non-GAAP definitions and reconciliations. • Pace of deleveraging significantly faster than originally expected • Sequential leverage increase driven by first quarter use of cash • Expect to reduce leverage below midpoint of our target range of 2.0-3.5x by year-end driven by near- term focus on debt reduction 2.7x Reduction Since June 2020 3.5x target range 2.0x
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 + 14 Wesco is uniquely positioned for sustainable long-term growth
Reaffirmed 2023 Outlook 15 Outlook Notes • Growth from price reflects carry-over pricing from 2022; no additional pricing benefit assumed in 2023 • After the impact of inter-segment business transfers, acquisitions, workday adjustments and foreign exchange impacts, reported sales growth for EES is expected to be mid-single digit while CSS and UBS are expected to be up high-single to low-double digits. • Rahi Systems acquisition closed on 11/1/22 • Outlook does not reflect the effect of potential tax law changes or future refinancing activity • Free cash flow reflects elevated inventory position until global supply chain is fully recovered Reaffirmed 2023 Outlook Sales Market growth (including price) 4% - 6% Plus: share gain/cross-sell 1% - 2% Total organic sales 5% - 8% Rahi acquisition ~2% Less: differences of foreign exchange rates ~(1)% Less: impact of one fewer workday in 2023 (0.5)% Reported sales 6% - 9% Adjusted EBITDA Adjusted EBITDA margin 8.1% - 8.4% Implied midpoint of range ~$1.9 billion Adjusted EPS Adjusted diluted EPS $16.80 - $18.30 Cash Free cash flow $600 - $800 million See appendix for non-GAAP definitions.
16 Summary 2023 off to a strong start and expected to be another transformational year See appendix for non-GAAP reconciliations. • Strong first quarter organic sales growth of 11% driven by secular demand trends, continued share gains, and improving supply chain ― Record first quarter sales for all three business units ― Strong cross-sell execution, raising target to $1.8 billion • Record first quarter profitability ― Record gross margin up 60 basis points YOY with all SBUs contributing to the YOY increase ― Record adjusted EBITDA and record adjusted EBITDA margin up 20 basis points YOY • 2023 expected to be another transformational year ― Additional advances in digital capabilities, share gains, continued margin expansion ― On track to deliver record profitability and free cash flow to support our capital allocation priorities
APPENDIX
Underlying Assumptions 18 FY 2023 February Outlook FY 2023 May Outlook Depreciation and Amortization ~$170–180 million ~$170–180 million Interest Expense ~$330–370 million ~$350–390 million Other Expense, net Outlook not provided ~$30–40 million Capital Expenditures ~$100 million ~$100 million Share Count ~52-53 million ~52-53 million Effective Tax Rate ~27% ~25-26% (~27% for Q2 – Q4)
2023 Inter-Segment Business Transfers 19 Q1 2022 Q2 2022 Q3 2022 Q4 2022 FY 2022 EES Sales (45) (55) (46) (52) (198) CSS Sales 37 48 37 45 168 UBS Sales 8 7 9 7 30 $ millions Beginning in 2023, Wesco shifted the business associated with certain accounts from EES to CSS and UBS. The 2022 sales amounts by quarter are shown in the table above.
20 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 LDD: Low-double digit UBS: Utility & Broadband Solutions (strategic business unit) LSD: Low-single digit WD: Workday MRO: Maintenance, repair and operating YOY: Year-over-year MTDC: Multi-tenant data center 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)
21 Workdays Q1 Q2 Q3 Q4 FY 2020 64 64 64 61 253 2021 62 64 64 62 252 2022 63 64 64 62 253 2023 63 64 63 62 252
22 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.
23 Organic Sales Growth by Segment - QTD: Three Months Ended Growth/(Decline) March 31, 2023 March 31, 2022 Reported Acquisition Impact Foreign Exchange Impact Workday Impact Organic Growth EES 2,135.1 2,090.0 2.2 % — % (1.7) % — % 3.9 % CSS 1,732.0 1,434.2 20.8 % 9.5 % (2.0) % — % 13.3 % UBS 1,654.8 1,408.0 17.5 % — % (0.7) % — % 18.2 % Total net sales 5,521.9 4,932.2 12.0 % 2.8 % (1.6) % — % 10.8 % Organic Sales Growth by Segment $ millions Organic Sales Growth by Segment - Sequential: Three Months Ended Growth/(Decline) March 31, 2023 December 31, 2022 Reported Acquisition Impact Foreign Exchange Impact Workday Impact Organic Growth EES 2,135.1 2,168.5 (1.5) % — % 0.4 % 1.6 % (3.5) % CSS 1,732.0 1,762.8 (1.7) % 1.4 % 0.3 % 1.6 % (5.0) % UBS 1,654.8 1,627.2 1.7 % — % 0.1 % 1.6 % — % Total net sales 5,521.9 5,558.5 (0.7)% 0.4 % 0.3 % 1.6 % (3.0)%
24 Gross Profit and Free Cash Flow $ millions Three Months Ended Gross Profit: March 31, 2023 March 31, 2022 Net sales 5,521.9 4,932.2 Cost of goods sold (excluding depreciation and amortization) 4,313.4 3,883.1 Gross profit 1,208.5 1,049.1 Gross margin 21.9 % 21.3 % Three Months Ended Free Cash Flow: March 31, 2023 March 31, 2022 Cash flow used in operations (255.4) (172.0) Less: Capital expenditures (13.9) (15.2) Add: Merger-related and integration cash costs 3.4 22.8 Free cash flow (265.9) (164.4) Percentage of adjusted net income (126) % (80) %
25 Three Months Ended March 31, 2023 EBITDA and Adjusted EBITDA by Segment: EES CSS UBS Corporate Total Net income attributable to common stockholders 171.3 135.4 180.3 (304.3) 182.7 Net (loss) income attributable to noncontrolling interests (0.1) 0.2 — — 0.1 Preferred stock dividends — — — 14.4 14.4 Provision for income taxes — — — 44.1 44.1 Interest expense, net — — — 95.0 95.0 Depreciation and amortization 9.9 18.0 6.0 10.5 44.4 EBITDA 181.1 153.6 186.3 (140.3) 380.7 Other expense, net 0.5 0.8 0.6 8.2 10.1 Stock-based compensation expense(1) 1.4 1.1 0.8 7.1 10.4 Merger-related and integration costs — — — 19.5 19.5 Adjusted EBITDA 183.0 155.5 187.7 (105.5) 420.7 Adjusted EBITDA margin % 8.6% 9.0% 11.3% 7.6% Three Months Ended March 31, 2022 EBITDA and Adjusted EBITDA by Segment: EES CSS UBS Corporate Total Net income attributable to common stockholders 178.7 103.7 129.9 (245.5) 166.8 Net income attributable to noncontrolling interests 0.2 — — 0.2 0.4 Preferred stock dividends — — — 14.4 14.4 Provision for income taxes — — — 37.7 37.7 Interest expense, net — — — 63.6 63.6 Depreciation and amortization 12.0 18.1 5.8 11.1 47.0 EBITDA 190.9 121.8 135.7 (118.5) 329.9 Other expense, net (0.1) 0.3 — 0.9 1.1 Stock-based compensation expense(1) 1.6 0.9 0.6 4.4 7.5 Merger-related and integration costs — — — 25.6 25.6 Adjusted EBITDA 192.4 123.0 136.3 (87.6) 364.1 Adjusted EBITDA margin % 9.2% 8.6% 9.7% 7.4% Adjusted EBITDA $ millions (1) Stock-based compensation expense in the calculation of adjusted EBITDA for the three-month periods ended March 31, 2023 and March 31, 2022 exclude $1.3 million and $1.4 million, respectively, as such amounts are included in merger-related and integration costs.
Adjusted EPS 26 ` Three Months Ended March 31, 2023 March 31, 2022 Adjusted Income from Operations: Income from Operations 346.4 284.0 Merger-related and integration costs 19.5 25.6 Accelerated trademark amortization — 5.3 Adjusted income from operations 365.9 314.9 Adjusted Provision for Income Taxes: Provision for income taxes 44.1 37.7 Income tax effect of adjustments to income from operations(1) 5.3 8.0 Adjusted provision for income taxes 49.4 45.7 Adjusted Earnings per Diluted Share: Adjusted income from operations 365.9 314.9 Interest expense, net 95.0 63.6 Other expense, net 10.1 1.1 Adjusted income before income taxes 260.8 250.2 Adjusted provision for income taxes 49.4 45.7 Adjusted net income 211.4 204.5 Net income attributable to noncontrolling interests 0.1 0.4 Adjusted net income attributable to WESCO International, Inc. 211.3 204.1 Preferred stock dividends 14.4 14.4 Adjusted net income attributable to common stockholders 196.9 189.7 Diluted shares 52.5 52.2 Adjusted earnings per diluted share 3.75 3.63 (1) The adjustments to income from operations have been tax effected at rates of approximately 27% and 26% for the three months ended March 31, 2023 and 2022, respectively. $ millions, except per share amounts
Twelve Months Ended Financial Leverage: March 31, 2023 December 31, 2022 Net income attributable to common stockholders 818.9 803.1 Net income attributable to noncontrolling interests 1.3 1.7 Preferred stock dividends 57.4 57.4 Provision for income taxes 281.0 274.5 Interest expense, net 325.8 294.4 Depreciation and amortization 176.5 179.0 EBITDA 1,660.9 1,610.1 Other expense, net 16.0 7.0 Stock-based compensation expense 43.9 41.0 Merger-related and integration costs 61.4 67.5 Adjusted EBITDA 1,782.2 1,725.6 March 31, 2023 December 31, 2022 Short-term debt and current portion of long-term debt, net 7.6 70.5 Long-term debt, net 5,595.1 5,346.0 Debt discount and debt issuance costs(1) 54.2 57.9 Fair value adjustments to Anixter Senior Notes due 2023 and 2025(1) (0.1) (0.3) Total debt 5,656.8 5,474.1 Less: cash and cash equivalents 349.1 527.3 Total debt, net of cash 5,307.7 4,946.8 Financial leverage ratio 3.0 2.9 Capital Structure and Leverage 27 $ millions (1) 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.