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): August 13, 2020
(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 August 13, 2020 , WESCO International, Inc. (the “Company”) issued a press release announcing its financial results for the second quarter of 2020. 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 senior management of the Company in connection with its discussions with investors regarding the Company's financial results for the second quarter of 2020 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) | ||||||||
| By: | /s/ David S. Schulz | |||||||
| (Date) | David S. Schulz | |||||||
| Executive Vice President and Chief Financial Officer | ||||||||
 | NEWS RELEASE | ||||
| WESCO International, Inc. / Suite 700, 225 West Station Square Drive / Pittsburgh, PA 15219 | |||||
WESCO International, Inc. Reports Second Quarter 2020 Results
Second quarter summary:
•Anixter merger completed on June 22, 2020
•Consolidated net sales of $2.1 billion, down 2.9% versus prior year
–Organic sales down 12.3%
•Operating profit of $15.3 million, including $73.3 million of merger-related costs
–Excluding merger-related costs, adjusted operating margin of 4.2%
–Adjusted WESCO operating margin of 3.8%, representing decremental margin of approximately 10%
•Loss per diluted share of $0.84
–Excluding merger-related costs, adjusted diluted earnings per share of $1.36
–Adjusted WESCO diluted earnings per share of $1.04
•Operating cash flow of $101.2 million
–Free cash flow of $141.9 million, or 248% of adjusted net income
PITTSBURGH, August 13, 2020 /PRNewswire/ -- WESCO International, Inc. (NYSE: WCC), a leading provider of business-to-business distribution, logistics services and supply chain solutions, announces its results for the second quarter of 2020.
Mr. John J. Engel, WESCO's Chairman, President and CEO, commented, “We delivered a strong second quarter where our sales, margin, profit and cash generation results exceeded our expectations. Business momentum improved through the quarter as we outperformed the market and built an all-time record backlog. As we have done in prior economic downturns, we aggressively managed our WESCO business and took significant cost reduction and cash management actions, which enabled us to deliver decremental margins of 10% and generate exceptionally strong free cash flow of 248% of adjusted net income. Anixter also delivered a strong performance to close out the second quarter. I would like to recognize and thank all of our associates for their inspirational dedication, commitment and hard work in effectively managing through this COVID-19 driven crisis."
Mr. Engel added, "The second quarter will prove to be a watershed period in our history, as we successfully closed on our industry-shaping merger of WESCO and Anixter. In combining two industry-leading Fortune 500 companies with successful track records, we are creating the premier electrical, communications and utility distribution and supply chain solutions company in the world. Against the challenges imposed by the global pandemic, the extraordinary determination of our WESCO and Anixter associates to execute a flawless day one closing, just five months after signing the merger agreement, was impressive. I could not be more proud of the entire team in achieving this noteworthy milestone.”
Mr. Engel continued, “We have been executing a detailed, rigorous and process-oriented integration planning effort over the last several months. Now, all of our integration efforts and organizational focus shift from planning to execution and synergy realization. We are off to an excellent start in our first six weeks since closing, and have already completed actions to deliver over 50% of our year one cost synergy target of $68 million. We have also begun to realize our first sales synergies through leveraging our expanded global footprint and cross-selling our broader product and services portfolio. The strong cultural alignment between WESCO and Anixter is proving to be a key driver of our initial success. We are building on these early successes and remain highly confident in capturing the significant upside potential and exceeding our three year cost savings, sales growth, and cash generation synergy targets. With this merger, the new WESCO will capitalize on the accelerating secular trends of electrification, increased bandwidth demand driven by higher voice, data, video and mobile usage, and the digitization of our B2B value chain. We are more bullish than ever in the substantial value creation that this transformational combination will create for our customers, supplier partners, employees, investors, and the communities in which we operate."
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The following are results for the three months ended June 30, 2020 compared to the three months ended June 30, 2019:
•Net sales were $2.1 billion for the second quarter of 2020, compared to $2.2 billion for the second quarter of 2019, a decrease of 2.9%. Organic sales for the second quarter of 2020 declined by 12.3% as the Anixter merger on June 22, 2020 positively impacted net sales by 10.3%.
•Cost of goods sold for the second quarter of 2020 and 2019 was $1.7 billion, and gross profit was $393.8 million and $409.0 million, respectively. As a percentage of net sales, gross profit was 18.9% and 19.0% for the second quarter of 2020 and 2019, respectively.
•Selling, general and administrative expenses were $359.8 million, or 17.2% of net sales, for the second quarter of 2020, compared to $295.9 million, or 13.8% of net sales, for the second quarter of 2019. SG&A expenses for the second quarter of 2020 include $73.3 million of costs related to the merger with Anixter. Adjusted for these costs, SG&A expenses were $286.4 million, or 13.7% of net sales, for the second quarter of 2020. As further adjusted for the nine days of legacy Anixter results, SG&A expenses were $262.8 million, or 14.1% of net sales, reflecting the favorable impact of cost actions initiated in response to the COVID-19 pandemic.
•Operating profit was $15.3 million for the second quarter of 2020, compared to $97.9 million for the second quarter of 2019. Operating profit as a percentage of net sales was 0.7% for the current quarter, compared to 4.6% for the second quarter of the prior year. Adjusted for merger-related costs of $73.3 million, operating profit was $88.6 million for the second quarter of 2020, or 4.2% of net sales. As further adjusted for the nine days of legacy Anixter results, operating profit was $70.2 million, or 3.8% of net sales, representing a decremental margin of approximately 10%.
•Net interest and other for the second quarter of 2020 was $60.6 million, compared to $17.3 million for the second quarter of 2019. Net interest and other for the second quarter of 2020 includes $44.7 million of merger-related financing and interest costs, of which $33.5 million was non-recurring.
•The effective tax rate for the second quarter of 2020 was 24.0%, compared to 21.6% for the second quarter of 2019. The higher effective tax rate in the current quarter is primarily due to costs incurred to complete the merger with Anixter. Excluding the impact of the merger, the effective tax rate for the current quarter would have been approximately 22%.
•Net loss attributable to common stockholders was $35.8 million for the second quarter of 2020, compared to net income attributable to common stockholders of $63.5 million for the second quarter of 2019. Adjusted for merger-related costs, net income attributable to common stockholders was $57.2 million for the second quarter of 2020. As further adjusted for the nine days of legacy Anixter results, net income attributable to common stockholders was $43.6 million.
•Loss per diluted share for the second quarter of 2020 was $0.84, based on 42.7 million diluted shares, compared to earnings per diluted share of $1.45 for the second quarter of 2019, based on 43.8 million diluted shares. Adjusted for merger-related costs, earnings per diluted share for the second quarter of 2020 was $1.36, based on 42.0 million adjusted diluted shares. As further adjusted for the nine days of legacy Anixter results, earnings per diluted share was $1.04, based on 42.0 million adjusted diluted shares.
•Operating cash flow for the second quarter of 2020 was an inflow of $101.2 million, compared to an outflow of $37.7 million for the second quarter of 2019. Free cash flow for the second quarter of 2020 was $141.9 million, or 248% of adjusted net income. The net cash outflow in the second quarter of 2019 was primarily driven by working capital growth as a result of higher sales in the latter part of the quarter last year.
The following are results for the six months ended June 30, 2020 compared to the six months ended June 30, 2019:
•Net sales were $4.1 billion for the first six months of 2020 and 2019, a decrease of 1.4%. Organic sales for the first six months of 2020 declined by 7.3% as the Anixter merger on June 22, 2020 positively impacted net sales by 5.6%.
•Cost of goods sold for the first six months of 2020 and 2019 was $3.3 billion, and gross profit was $770.2 million and $791.5 million, respectively. As a percentage of net sales, gross profit was 19.0% and 19.3% for the first six months of 2020 and 2019, respectively.
•Selling, general and administrative expenses were $659.1 million, or 16.3% of net sales, for the first six months of 2020, compared to $592.4 million, or 14.4% of net sales, for the first six months of 2019. SG&A expenses for the first six months of 2020 include $78.0 million of costs related to the merger with Anixter. Adjusted for these costs, SG&A expenses were $581.1 million, or 14.3%
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of net sales, for the first six months of 2020. As further adjusted for the nine days of legacy Anixter results, SG&A expenses were $557.5 million, or 14.5% of net sales, reflecting the favorable impact of cost actions initiated in response to the COVID-19.
•Operating profit was $76.2 million for the first six months of 2020, compared to $168.7 million for the first six months of 2019. Operating profit as a percentage of net sales was 1.9% for the current six month period, compared to 4.1% for the prior six month period. Adjusted for merger-related costs of $78.0 million, operating profit was $154.1 million for the first six months of 2020, or 3.8% of net sales. As further adjusted for the nine days of legacy Anixter results, operating profit was $135.8 million, or 3.5% of net sales.
•Net interest and other for the first six months of 2020 was $77.1 million, compared to $34.4 million for the first six months of 2019. Net interest and other for the first six months of 2020 includes $45.3 million of merger-related financing and interest costs, of which $33.5 million was non-recurring.
•The effective tax rate for the first six months of 2020 was 67.3%, compared to 21.7% for the first six months of 2019. The higher effective tax rate in the current six month period is primarily due to costs incurred to complete the merger with Anixter. Excluding the impact of the merger, the effective tax rate for the current six month period would have been approximately 22%.
•Net loss attributable to common stockholders was $1.4 million for the first six months of 2020, compared to net income attributable to common stockholders of $105.8 million for the first six months of 2019. Adjusted for merger-related costs, net income attributable to common stockholders was $95.6 million for the six months ended June 30, 2020. As further adjusted for the nine days of legacy Anixter results, net income attributable to common stockholders was $82.0 million.
•Loss per diluted share for the first six months of 2020 was $0.03, based on 42.3 million diluted shares, compared to earnings per diluted share of $2.37 for the first six months of 2019, based on 44.7 million diluted shares. Adjusted for merger-related costs, earnings per diluted share for the current six month period was $2.28, based on 42.0 million adjusted diluted shares. As further adjusted for the nine days of legacy Anixter results, earnings per diluted share was $1.95, based on 42.0 million adjusted diluted shares.
•Operating cash flow for the first six months of 2020 was an inflow of $132.7 million, compared to an outflow of $8.7 million for the first six months of 2019. Free cash flow for the first six months of 2020 was $161.7 million, or 169% of adjusted net income.
Webcast and Teleconference Access
WESCO will conduct a webcast and teleconference to discuss the second quarter of 2020 earnings as described in this News Release on Thursday, August 13, 2020, at 10:00 a.m. E.T. The call will be broadcast live over the internet and can be accessed from the Investor Relations page of the Company's website at www.wesco.investorroom.com. The call will be archived on this internet site for seven days.
WESCO International, Inc. (NYSE: WCC), a publicly traded FORTUNE 500® company headquartered in Pittsburgh, Pennsylvania, is a leading provider of business-to-business distribution, logistics services and supply chain solutions. Pro forma 2019 annual sales were over $17 billion, including Anixter International Inc., which it acquired in June 2020. WESCO offers a best-in-class product and services portfolio of Electrical and Electronic Solutions, Communications and Security Solutions, and Utility and Broadband Solutions. The Company employs over 18,000 people, maintains relationships with over 30,000 suppliers, and serves more than 150,000 customers worldwide. With nearly 1.5 million 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 nearly 800 branch and warehouse locations in over 50 countries, providing a local presence for customers and a global network to serve multi-location businesses and multi-national corporations.
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 process to divest the legacy WESCO Utility and Datacom businesses in Canada, including the expected length of the process, 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
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uncertainties, many of which are outside of WESCO's and WESCO's management's control, and which may cause actual results to differ materially from those contained in forward-looking statements. Accordingly, you should not place undue reliance on such statements.
Those risks, uncertainties and assumptions include the risk of any unexpected costs or expenses resulting from the transaction, the risk of any litigation or post-closing regulatory action relating to the transaction, the risk that the transaction could have an adverse effect on the ability of the combined company to retain customers and retain and hire key personnel and maintain relationships with its suppliers, customers and other business relationships and on its operating results and business generally, the risk that problems may arise in successfully integrating the businesses of the companies or that the combined company could be required to divest one or more businesses, 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 proposed transaction or it may take longer than expected to achieve those synergies or benefits, the risk that the leverage of the company may be higher than anticipated, the impact of natural disasters, health epidemics and other outbreaks, especially the outbreak of COVID-19 since December 2019, which may have a material adverse effect on the combined company's business, results of operations and financial conditions, the risk that the divesture of the legacy WESCO Utility and Datacom businesses in Canada may take longer than expected and other important factors that could cause actual results to differ materially from those projected. All such factors are difficult to predict and are beyond each company's control. Additional factors that could cause results to differ materially from those described above can be found in WESCO's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and WESCO's other reports filed with the U.S. Securities and Exchange Commission ("SEC").
Contact Information:
Will Ruthrauff
Director, Investor Relations and Corporate Communications
(412) 454-4220
http://www.wesco.com
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WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(dollar amounts in thousands, except per share amounts)
(Unaudited)
| Three Months Ended | |||||||||||||||||
| June 30, 2020 | June 30, 2019 | ||||||||||||||||
| Net sales | $ | 2,086,706 | $ | 2,150,088 | |||||||||||||
| Cost of goods sold (excluding | 1,692,931 | 81.1 | % | 1,741,114 | 81.0 | % | |||||||||||
| depreciation and amortization) | |||||||||||||||||
| Selling, general and administrative expenses | 359,750 | 17.2 | % | 295,842 | 13.8 | % | |||||||||||
| Depreciation and amortization | 18,755 | 15,182 | |||||||||||||||
| Income from operations | 15,270 | 0.7 | % | 97,950 | 4.6 | % | |||||||||||
| Net interest and other | 60,583 | 17,307 | |||||||||||||||
| (Loss) income before income taxes | (45,313) | (2.2) | % | 80,643 | 3.8 | % | |||||||||||
| Income tax (benefit) expense | (10,854) | 17,428 | |||||||||||||||
| Net (loss) income | (34,459) | (1.7) | % | 63,215 | 2.9 | % | |||||||||||
| Net income (loss) attributable to noncontrolling interests | 47 | (249) | |||||||||||||||
| Net (loss) income attributable to WESCO International, Inc. | (34,506) | (1.7) | % | 63,464 | 3.0 | % | |||||||||||
| Preferred stock dividends | 1,276 | — | |||||||||||||||
| Net (loss) income attributable to common stockholders | $ | (35,782) | (1.7) | % | $ | 63,464 | 3.0 | % | |||||||||
| (Loss) earnings per share attributable to common stockholders | $ | (0.84) | $ | 1.45 | |||||||||||||
| Weighted-average common shares outstanding and common | |||||||||||||||||
| share equivalents used in computing (loss) earnings | |||||||||||||||||
| per diluted common share (in thousands) | 42,683 | 43,816 | |||||||||||||||
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WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(dollar amounts in thousands, except per share amounts)
(Unaudited)
| Six Months Ended | |||||||||||||||||
| June 30, 2020 | June 30, 2019 | ||||||||||||||||
| Net sales | $ | 4,055,353 | $ | 4,111,355 | |||||||||||||
| Cost of goods sold (excluding | 3,285,179 | 81.0 | % | 3,319,886 | 80.7 | % | |||||||||||
| depreciation and amortization) | |||||||||||||||||
| Selling, general and administrative expenses | 659,143 | 16.3 | % | 592,370 | 14.4 | % | |||||||||||
| Depreciation and amortization | 34,848 | 30,424 | |||||||||||||||
| Income from operations | 76,183 | 1.9 | % | 168,675 | 4.1 | % | |||||||||||
| Net interest and other | 77,055 | 34,427 | |||||||||||||||
| (Loss) income before income taxes | (872) | — | % | 134,248 | 3.3 | % | |||||||||||
| Income tax (benefit) expense | (587) | 29,084 | |||||||||||||||
| Net (loss) income | (285) | — | % | 105,164 | 2.6 | % | |||||||||||
| Net loss attributable to noncontrolling interests | (185) | (668) | |||||||||||||||
| Net (loss) income attributable to WESCO International, Inc. | (100) | — | % | 105,832 | 2.6 | % | |||||||||||
| Preferred stock dividends | 1,276 | — | |||||||||||||||
| Net (loss) income attributable to common stockholders | $ | (1,376) | — | % | $ | 105,832 | 2.6 | % | |||||||||
| (Loss) earnings per share attributable to common stockholders | $ | (0.03) | $ | 2.37 | |||||||||||||
| Weighted-average common shares outstanding and common | |||||||||||||||||
| share equivalents used in computing (loss) earnings | |||||||||||||||||
| per diluted common share (in thousands) | 42,260 | 44,661 | |||||||||||||||
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WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands)
(Unaudited)
| June 30, 2020 | December 31, 2019 | ||||||||||
| Assets | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | 265,222 | $ | 150,902 | |||||||
| Trade accounts receivable, net | 2,454,262 | 1,187,359 | |||||||||
| Inventories | 2,368,827 | 1,011,674 | |||||||||
| Other current assets | 350,075 | 190,476 | |||||||||
| Total current assets | 5,438,386 | 2,540,411 | |||||||||
| Other assets | 6,293,628 | 2,477,224 | |||||||||
| Total assets | $ | 11,732,014 | $ | 5,017,635 | |||||||
| Liabilities and Stockholders' Equity | |||||||||||
| Current Liabilities | |||||||||||
| Accounts payable | $ | 1,660,094 | $ | 830,478 | |||||||
| Short-term borrowings and current debt | 27,696 | 26,685 | |||||||||
| Other current liabilities | 613,936 | 226,896 | |||||||||
| Total current liabilities | 2,301,726 | 1,084,059 | |||||||||
| Long-term debt, net | 5,068,549 | 1,257,067 | |||||||||
| Other noncurrent liabilities | 1,261,338 | 417,838 | |||||||||
| Total liabilities | 8,631,613 | 2,758,964 | |||||||||
| Stockholders' Equity | |||||||||||
| Total stockholders' equity | 3,100,401 | 2,258,671 | |||||||||
| Total liabilities and stockholders' equity | $ | 11,732,014 | $ | 5,017,635 | |||||||
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WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands)
(Unaudited)
| Six Months Ended | |||||||||||
| June 30, 2020 | June 30, 2019 | ||||||||||
| Operating Activities: | |||||||||||
| Net (loss) income | $ | (285) | $ | 105,164 | |||||||
| Add back (deduct): | |||||||||||
| Depreciation and amortization | 34,848 | 30,424 | |||||||||
| Deferred income taxes | 1,062 | 1,983 | |||||||||
| Change in trade receivables, net | 29,302 | (157,387) | |||||||||
| Change in inventories | 55,431 | (39,655) | |||||||||
| Change in accounts payable | (83,085) | 62,484 | |||||||||
| Other | 95,415 | (11,788) | |||||||||
| Net cash provided by (used in) operating activities | 132,688 | (8,775) | |||||||||
| Investing Activities: | |||||||||||
| Capital expenditures | (27,163) | (21,402) | |||||||||
Other(1) | (3,700,792) | (28,897) | |||||||||
| Net cash used in investing activities | (3,727,955) | (50,299) | |||||||||
| Financing Activities: | |||||||||||
Debt borrowings, net(2) | 3,800,637 | 199,934 | |||||||||
| Equity activity, net | (2,025) | (152,722) | |||||||||
Other(3) | (85,605) | 2,803 | |||||||||
| Net cash provided by financing activities | 3,713,007 | 50,015 | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (3,420) | (66) | |||||||||
| Net change in cash and cash equivalents | 114,320 | (9,125) | |||||||||
| Cash and cash equivalents at the beginning of the period | 150,902 | 96,343 | |||||||||
| Cash and cash equivalents at the end of the period | $ | 265,222 | $ | 87,218 | |||||||
(1) Includes payments to acquire Anixter of $3,708.3 million, net of cash acquired of $103.4 million.
(2) Primarily includes the net proceeds from the issuance of senior unsecured notes of $2,815.0 million, as well as borrowings under a new asset-based revolving credit facility and an amended account receivable securitization facility. These cash inflows were used to fund the merger.
(3) Includes approximately $79.5 million of costs associated with the debt financing used to fund a portion of the merger with Anixter.
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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, decremental operating margin, earnings before interest, taxes, depreciation and amortization (EBITDA), adjusted EBITDA, pro forma adjusted EBITDA, financial leverage, pro forma financial leverage, free cash flow, adjusted income from operations, adjusted operating margin, adjusted net income, and adjusted earnings per diluted share. The Company believes that these non-GAAP measures are useful to investors as they provide a better understanding of sales performance, and the use of debt and liquidity on a comparable basis. Additionally, certain non-GAAP measures either focus on or exclude transactions impacting comparability of results, 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
(dollar amounts in thousands, except organic sales data)
(Unaudited)
| Three Months Ended | Six Months Ended | ||||||||||
| Organic Sales Growth: | June 30, 2020 | June 30, 2020 | |||||||||
| Change in net sales | (2.9) | % | (1.4) | % | |||||||
| Impact from acquisitions | 10.3 | % | 5.6 | % | |||||||
| Impact from foreign exchange rates | (0.9) | % | (0.5) | % | |||||||
| Impact from number of workdays | — | % | 0.8 | % | |||||||
| Organic sales growth | (12.3) | % | (7.3) | % | |||||||
Note: Organic sales growth is a measure of sales performance. Organic sales growth is calculated by deducting the percentage impact from acquisitions in the first year of ownership, foreign exchange rates and number of workdays from the overall percentage change in consolidated net sales.
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| Gross Profit: | June 30, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | |||||||||||||||||||
| Net sales | $ | 2,086,706 | $ | 2,150,088 | $ | 4,055,353 | $ | 4,111,355 | |||||||||||||||
| Cost of goods sold (excluding depreciation and amortization) | 1,692,931 | 1,741,114 | 3,285,179 | 3,319,886 | |||||||||||||||||||
| Gross profit | $ | 393,775 | $ | 408,974 | $ | 770,174 | $ | 791,469 | |||||||||||||||
| Gross margin | 18.9 | % | 19.0 | % | 19.0 | % | 19.3 | % | |||||||||||||||
Note: Gross profit is a financial measure commonly used within the distribution industry. Gross profit is calculated by deducting cost of goods sold, excluding depreciation and amortization, from net sales. Gross margin is calculated by dividing gross profit by net sales.
| Three Months Ended | |||||||||||||||||
| Decremental Operating Margin: | June 30, 2020 | June 30, 2019 | Change | ||||||||||||||
Adjusted WESCO(1) | Reported | ||||||||||||||||
| Net sales | $ | 1,864,849 | $ | 2,150,088 | $ | (285,239) | |||||||||||
| Income from operations | 70,248 | 97,950 | (27,702) | ||||||||||||||
| Decremental operating margin | 10 | % | |||||||||||||||
(1)See below for a reconciliation of adjusted WESCO results.
Note: Decremental operating margin is defined as the year-over-year decline in income from operations divided by the year-over-year decline in net sales. Decremental operating margin is a financial measure commonly used in an economic downturn to assess the Company's ability to reduce operating costs in response to declining sales.
10
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in thousands)
(Unaudited)
| Pro Forma | Reported | ||||||||||
| Twelve Months Ended | Twelve Months Ended | ||||||||||
| Financial Leverage: | June 30, 2020 | December 31, 2019 | |||||||||
| Net income attributable to WESCO | $ | 319,580 | $ | 223,426 | |||||||
| Net loss attributable to noncontrolling interests | (1,163) | (1,228) | |||||||||
| Preferred stock dividends | 1,276 | — | |||||||||
| Income tax (benefit) expense | 54,503 | 59,863 | |||||||||
| Interest expense, net | 177,157 | 64,156 | |||||||||
| Depreciation and amortization | 132,719 | 62,107 | |||||||||
| EBITDA | $ | 684,072 | $ | 408,324 | |||||||
| Stock-based compensation | 47,429 | 19,062 | |||||||||
| Foreign exchange and other | 3,991 | 614 | |||||||||
| Merger-related costs | 122,283 | 3,130 | |||||||||
| Adjusted EBITDA | $ | 857,775 | $ | 431,130 | |||||||
| June 30, 2020 | December 31, 2019 | ||||||||||
| Short-term borrowings and current debt | $ | 27,696 | $ | 26,685 | |||||||
| Long-term debt | 5,068,549 | 1,257,067 | |||||||||
Debt discount and debt issuance costs(1) | 96,322 | 8,876 | |||||||||
Fair value adjustments to Anixter Notes due 2023 and 2025(1) | (2,017) | — | |||||||||
| Total debt | 5,190,550 | 1,292,628 | |||||||||
| Less: cash and cash equivalents | 265,222 | 150,902 | |||||||||
| Total debt, net of cash | $ | 4,925,328 | $ | 1,141,726 | |||||||
| Financial leverage ratio | 5.7 | 2.6 | |||||||||
(1)Long-term debt is presented in the condensed consolidated balance sheets net of debt discount and debt issuance costs, and include adjustments to record the long-term debt assumed in the merger with Anixter at its acquisition date fair value.
Note: Financial leverage measures the use of debt. Financial leverage ratio is calculated by dividing total debt, excluding debt discount and debt issuance costs, 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, non-cash stock-based compensation, and costs associated with the merger with Anixter. Pro forma financial leverage ratio is calculated by dividing total debt, excluding debt discount and debt issuance costs, net of cash, by pro forma adjusted EBITDA. Pro forma EBITDA and pro forma adjusted EBITDA gives effect to the combination of WESCO and Anixter as if it had occurred at the beginning of the respective trailing twelve month period.
11
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in thousands)
(Unaudited)
| Three Months Ended | Three Months Ended | ||||||||||||||||||||||
| Free Cash Flow: | June 30, 2020 | June 30, 2019 | |||||||||||||||||||||
| Total | Anixter | WESCO | |||||||||||||||||||||
| Cash flow provided by (used in) operations | $ | 101,160 | $ | 39,176 | $ | 61,984 | $ | (37,584) | |||||||||||||||
| Less: Capital expenditures | (11,401) | (601) | (10,800) | (10,574) | |||||||||||||||||||
| Add: Merger-related expenditures | 52,142 | — | 52,142 | — | |||||||||||||||||||
| Free cash flow | $ | 141,901 | $ | 38,575 | $ | 103,326 | $ | (48,158) | |||||||||||||||
| Percentage of adjusted net income | 248 | % | 278 | % | 238 | % | (76) | % | |||||||||||||||
| Six Months Ended | Six Months Ended | ||||||||||||||||||||||
| Free Cash Flow: | June 30, 2020 | June 30, 2019 | |||||||||||||||||||||
| Total | Anixter | WESCO | |||||||||||||||||||||
| Cash flow provided by (used in) operations | $ | 132,688 | $ | 39,176 | $ | 93,512 | $ | (8,775) | |||||||||||||||
| Less: Capital expenditures | (27,163) | (601) | (26,562) | (21,402) | |||||||||||||||||||
| Add: Merger-related expenditures | 56,134 | — | 56,134 | — | |||||||||||||||||||
| Free cash flow | $ | 161,659 | $ | 38,575 | $ | 123,084 | $ | (30,177) | |||||||||||||||
| Percentage of adjusted net income | 169 | % | 278 | % | 151 | % | (29) | % | |||||||||||||||
Note: Free cash flow is a measure of liquidity. Capital expenditures are deducted from operating cash flow to determine free cash flow. Free cash flow is available to fund investing and financing activities. For the three and six months ended June 30, 2020, the Company paid certain fees, expenses and other costs to consummate the merger with Anixter. Such expenditures have been added back to cash flow provided by operations to determine free cash flow for such periods.
12
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in thousands, except per share amounts)
(Unaudited)
The following tables set forth adjusted net income attributable to common stockholder and adjusted earnings per diluted share for the periods presented:
Adjusted Net Income Attributable to Common Stockholders and Adjusted Earnings Per Diluted Share: | Three Months Ended | Three Months Ended | ||||||||||||||||||||||||||||||
| June 30, 2020 | June 30, 2019 | |||||||||||||||||||||||||||||||
(In thousands, except per share data) | Reported | Adjustments(1) | Adjusted Consolidated | Anixter(2) | Adjusted WESCO | Reported | ||||||||||||||||||||||||||
| Net sales | $ | 2,086,706 | $ | — | $ | 2,086,706 | $ | 221,857 | $ | 1,864,849 | $ | 2,150,088 | ||||||||||||||||||||
Cost of goods sold (excluding depreciation and amortization) | 1,692,931 | — | 1,692,931 | 176,743 | 1,516,188 | 1,741,114 | ||||||||||||||||||||||||||
| Selling, general and administrative expenses | 359,750 | 73,345 | 286,405 | 23,655 | 262,750 | 295,842 | ||||||||||||||||||||||||||
| Depreciation and amortization | 18,755 | — | 18,755 | 3,092 | 15,663 | 15,182 | ||||||||||||||||||||||||||
| Income from operations | 15,270 | (73,345) | 88,615 | 18,367 | 70,248 | 97,950 | ||||||||||||||||||||||||||
| Net interest and other | 60,583 | 44,738 | 15,845 | 543 | 15,302 | 17,307 | ||||||||||||||||||||||||||
| (Loss) income before income taxes | (45,313) | (118,083) | 72,770 | 17,824 | 54,946 | 80,643 | ||||||||||||||||||||||||||
| Income tax (benefit) expense | (10,854) | (26,363) | 15,509 | 3,961 | 11,548 | 17,428 | ||||||||||||||||||||||||||
| Net (loss) income | (34,459) | (91,720) | 57,261 | 13,863 | 43,398 | 63,215 | ||||||||||||||||||||||||||
Net income (loss) attributable to noncontrolling interests | 47 | — | 47 | 209 | (162) | (249) | ||||||||||||||||||||||||||
Net (loss) income attributable to WESCO International, Inc. | (34,506) | (91,720) | 57,214 | 13,654 | 43,560 | 63,464 | ||||||||||||||||||||||||||
| Preferred stock dividends | 1,276 | 1,276 | — | — | — | — | ||||||||||||||||||||||||||
Net (loss) income attributable to common stockholders | $ | (35,782) | $ | (92,996) | $ | 57,214 | $ | 13,654 | $ | 43,560 | $ | 63,464 | ||||||||||||||||||||
Adjusted diluted shares(3) | 42,683 | 41,969 | 41,969 | 43,816 | ||||||||||||||||||||||||||||
| Adjusted earnings per diluted share | $ | (0.84) | $ | 1.36 | $ | 1.04 | $ | 1.45 | ||||||||||||||||||||||||
13
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in thousands, except per share amounts)
(Unaudited)
Adjusted Net Income Attributable to Common Stockholders and Adjusted Earnings Per Diluted Share: | Six Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||
| June 30, 2020 | June 30, 2019 | ||||||||||||||||||||||||||||||||||
(In thousands, except per share data) | Reported | Adjustments(1) | Adjusted Consolidated | Anixter(2) | Adjusted WESCO | Reported | |||||||||||||||||||||||||||||
| Net sales | $ | 4,055,353 | $ | — | $ | 4,055,353 | $ | 221,857 | $ | 3,833,496 | $ | 4,111,355 | |||||||||||||||||||||||
Cost of goods sold (excluding depreciation and amortization) | 3,285,179 | — | 3,285,179 | 176,743 | 3,108,436 | 3,319,886 | |||||||||||||||||||||||||||||
| Selling, general and administrative expenses | 659,143 | 77,953 | 581,190 | 23,655 | 557,535 | 592,370 | |||||||||||||||||||||||||||||
| Depreciation and amortization | 34,848 | — | 34,848 | 3,092 | 31,756 | 30,424 | |||||||||||||||||||||||||||||
| Income from operations | 76,183 | (77,953) | 154,136 | 18,367 | 135,769 | 168,675 | |||||||||||||||||||||||||||||
| Net interest and other | 77,055 | 45,253 | 31,802 | 543 | 31,259 | 34,427 | |||||||||||||||||||||||||||||
| (Loss) income before income taxes | (872) | (123,206) | 122,334 | 17,824 | 104,510 | 134,248 | |||||||||||||||||||||||||||||
| Income tax (benefit) expense | (587) | (27,492) | 26,905 | 3,961 | 22,944 | 29,084 | |||||||||||||||||||||||||||||
| Net (loss) income | (285) | (95,714) | 95,429 | 13,863 | 81,566 | 105,164 | |||||||||||||||||||||||||||||
Net (loss) income attributable to noncontrolling interests | (185) | — | (185) | 209 | (394) | (668) | |||||||||||||||||||||||||||||
Net (loss) income attributable to WESCO International, Inc. | (100) | (95,714) | 95,614 | 13,654 | 81,960 | 105,832 | |||||||||||||||||||||||||||||
| Preferred stock dividends | 1,276 | 1,276 | — | — | — | — | |||||||||||||||||||||||||||||
Net (loss) income attributable to common stockholders | $ | (1,376) | $ | (96,990) | $ | 95,614 | $ | 13,654 | $ | 81,960 | $ | 105,832 | |||||||||||||||||||||||
Adjusted diluted shares(3) | 42,260 | 42,009 | 42,009 | 44,661 | |||||||||||||||||||||||||||||||
| Adjusted earnings per diluted share | $ | (0.03) | $ | 2.28 | $ | 1.95 | $ | 2.37 | |||||||||||||||||||||||||||
(1) Reflects merger-related transaction costs of $73.3 million and $78.0 million, and merger-related financing and interest costs of $44.7 million and $45.3 million for the three and six months ended June 30, 2020, respectively. These adjustments have been tax effected at a rate of approximately 22%.
(2) Represents Anixter's results for the nine day period from June 22, 2020 to June 30, 2020.
(3) Adjusted diluted shares for the three and six months ended June 30, 2020 exclude the weighted-average impact of approximately 8.15 million shares of common stock issued as equity consideration to fund a portion of the merger with Anixter.
Note: Adjusted consolidated net income attributable to common stockholders is defined as net income (loss) attributable to common stockholders, plus: 1) merger-related costs, 2) merger-related financing and interest costs, and 3) preferred stock dividends, less the income tax effect of such merger-related adjustments (as applicable). Adjusted earnings per diluted share is computed by dividing adjusted net income attributable to common stockholders by the weighted-average common shares outstanding and common share equivalents, excluding the impact of common stock issued as equity consideration to fund a portion of the merger with Anixter. Adjusted WESCO net income attributable to common stockholders is defined as adjusted net income attributable to common stockholders excluding nine days of legacy Anixter results. Adjusted WESCO earnings per diluted share is computed by dividing adjusted WESCO net income attributable to common stockholders by the weighted-average common shares outstanding and common share equivalents, excluding the impact of common stock issued as equity consideration to fund a portion of the merger with Anixter. The Company believes that these non-GAAP financial measures are useful to investors' overall understanding of the Company's current financial performance and provides a consistent measure for assessing the current and historical financial results.
14
Second Quarter 2020 Webcast Presentation August 13, 2020 1
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 process to divest the legacy WESCO Utility and Datacom businesses in Canada, including the expected length of the process, the expected benefits and costs of the transaction between WESCO and Anixter International Inc., including anticipated future financial and operating results, synergies, accretion and growth rates, and the combined company's plans, objectives, expectations and intentions, statements that address the combined company's expected future business and financial performance, and other statements identified by words such as "anticipate," "plan," "believe," "estimate," "intend," "expect," "project," "will" and similar words, phrases or expressions. These forward-looking statements are based on current expectations and beliefs of WESCO's management, as well as assumptions made by, and information currently available to, WESCO's management, current market trends and market conditions and involve risks and uncertainties, many of which are outside of WESCO's and WESCO's management's control, and which may cause actual results to differ materially from those contained in forward-looking statements. Accordingly, you should not place undue reliance on such statements. Those risks, uncertainties and assumptions include the risk of any unexpected costs or expenses resulting from the transaction, the risk of any litigation or post-closing regulatory action relating to the transaction, the risk that the transaction could have an adverse effect on the ability of the combined company to retain customers and retain and hire key personnel and maintain relationships with its suppliers, customers and other business relationships and on its operating results and business generally, the risk that problems may arise in successfully integrating the businesses of the companies or that the combined company could be required to divest one or more businesses, 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 proposed transaction or it may take longer than expected to achieve those synergies or benefits, the risk that the leverage of the company may be higher than anticipated, the impact of natural disasters, health epidemics and other outbreaks, especially the outbreak of COVID-19 since December 2019, which may have a material adverse effect on the combined company's business, results of operations and financial conditions, the risk that the divesture of the legacy WESCO Utility and Datacom businesses in Canada may take longer than expected and other important factors that could cause actual results to differ materially from those projected. All such factors are difficult to predict and are beyond each company's control. Additional factors that could cause results to differ materially from those described above can be found in WESCO's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and WESCO's other reports filed with the U.S. Securities and Exchange Commission ("SEC"). Non-GAAP Measures In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles ("U.S. GAAP") above, this presentation includes certain non-GAAP financial measures. These financial measures include organic sales growth, gross profit, gross margin, decremental operating margin, earnings before interest, taxes, depreciation and amortization (EBITDA), adjusted EBITDA, pro forma adjusted EBITDA, financial leverage, pro forma financial leverage, free cash flow, adjusted income from operations, adjusted operating margin, adjusted net income, and adjusted earnings per diluted share. The Company believes that these non-GAAP measures are useful to investors as they provide a better understanding of sales performance, and the use of debt and liquidity on a comparable basis. Additionally, certain non-GAAP measures either focus on or exclude transactions impacting comparability of results, 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. 2
Highlights Second quarter • Q2 results exceeded our expectations on sales, opex, EBIT, EBIT%, EPS, and free cash flow • Reported sales down 3%; Organic sales down 12% ̶ Sequential sales improvement through the quarter (April -13%, May +9%, June +5%) ̶ Continued strength in Utility; up 7% over prior year with growth in U.S. and Canada • Cost reduction actions significantly exceeded expectations • Decremental margin of 10% for legacy WESCO1 • Exceptionally strong free cash flow generation • Record backlog for legacy WESCO • Improving momentum in Q3 with over 40% of the quarter completed ̶ Pro forma Q3 sales down 8% versus prior year through first 28 work days; Up 11% sequentially Completed Anixter merger on June 22, 2020 • Successful capital raise • Closed five months after signing agreement, meeting expectation of closing in Q2 or Q3 • Announced senior management team; new segment reporting beginning in Q3 • Reached consent agreement with Competition Bureau of Canada in early August • Excellent progress on integration; accelerating our execution • Significant upside potential on our sales growth, cost, margin, and free cash flow targets • WESCO + Anixter well positioned for evolving secular growth trends Transformational combination of WESCO and Anixter is underway 1 Decremental margin is defined as the year-over-year decline in adjusted income from operations divided by the year-over-year decline in sales. 3 See appendix for reconciliation of all non-GAAP measures.
Second Quarter Results Overview Three Months Ended June 30, 2020 2019 GAAP Merger- Adjusted Anixter Adjusted GAAP WESCO + related WESCO + Only1 WESCO WESCO $ in millions Anixter1 Adjustments Anixter1 Except per share amounts Sales $ 2,087 $ 2,087 $ 222 $ 1,865 $ 2,150 Gross Profit 394 394 45 349 409 % of Sales 18.9% 18.9% 20.3% 18.7% 19.0% Selling, general and administrative expenses 360 73 286 24 263 296 % of Sales 17.2% 13.7% 10.7% 14.1% 13.8% Operating Profit 15 (73) 89 18 70 98 % of Sales 0.7% 4.2% 8.3% 3.8% 4.6% Net interest and other 61 45 16 1 15 17 (Loss) income before income taxes (45) (118) 73 18 55 81 Income tax (benefit) expense (11) (26) 16 4 12 17 Net (loss) income (34) (92) 57 14 43 63 Minority Interests - - - - - - Net (loss) income attributable to WESCO International, (35) (92) 57 14 44 63 Preferred dividends 1 1 - - - - Net (loss) income attributable to common stockholders $ (36) $ (93) $ 57 $ 14 $ 44 $ 63 Diluted shares2 42.7 42.0 42.0 43.8 Diluted EPS $ (0.84) $ 1.36 $ 1.04 $ 1.45 Decremental margin of 10% for legacy WESCO business 1 Results of Anixter from June 22 – June 30, 2020 2 Adjusted diluted shares for the three months ended June 30, 2020 exclude the weighted-average impact of 8.15 million shares of common stock issued as equity consideration to fund a portion of the merger with Anixter. 4
Second Quarter Sales Summary (Legacy WESCO) ORGANIC SALES ORGANIC SALES Year Over Year Year Over Year GROWTH1 GROWTH Total U.S. Canada International April (16)% Industrial (20)% (21)% (22)% (2)% May (10)% Construction (18)% (16)% (21)% (19)% June (13)% Utility 7% 6% 36% (53)% CIG (5)% (4)% (10)% (7)% (12)% (12)% (17)% (7)% 1 Excludes results of Anixter International from June 22- June 30, 2020 and differences due to foreign exchange rates INDUSTRIAL UTILITY • Global Account bidding activity robust • Year-over-year and sequential growth in U.S. and Canada • COVID-19 driven declines with industrial customers • New wins and scope expansion continues to drive organic growth • Secured five-year renewal worth $1.5 billion with long-term Aerospace • Awarded new fiber to the home project that is scheduled to launch in Q4 customer to provide MRO materials and integrated supply services • Integrated Supply service offering continues to drive customer value CONSTRUCTION CIG • Backlog reached new record level, exceeding prior record at the end • Positive momentum in Q2 with sequential growth in U.S. and Canada of March • Supply chain solutions driving results in datacenter, security, and cloud • Project pipeline remains strong with order conversion being paced by technology projects customer project restart schedules • Well positioned to serve data center construction, LED lighting renovation and • Impact from COVID-19 continued with sales down versus prior year, retrofits, FTTx deployments and broadband build outs however with an improving trend each month in the quarter Strong sales results against COVID-19 driven economic cycle 1 See appendix for non-GAAP reconciliations. 5
Strong Balance Sheet Liquidity (as of 6/30/20) Bank Credit Facilities Limited Operating Covenants • Liquidity: $819 million • Mature in 2023 and 2025 • No maximum leverage covenant – Invested cash: $169 million • Low cost LIBOR based • Fixed charge coverage covenant based on liquidity or availability – Revolver availability: $585 million • Borrowing bases provide confidence in availability • No maintenance covenants in – AR facility availability: $65 million – Inventory holds value throughout the cycle bond indentures – Diversified receivables pool with limited concentration o Largest balances with high credit quality customers o Collection activities performing consistent with historical levels o Bad debt experience consistent with recent quarters Covenant Summary Fixed Charge Facility Maturity Measurement Test Covenant Revolver June 2025 1.0 to 1.0 Revolver availability >$110 million $585 million AR Facility June 2023 1.0 to 1.0 Liquidity > $100 million $915 million1 1 Balance sheet cash plus borrowing availability Strong liquidity and free cash flow generation post Anixter merger closing on June 22 6
Key Second Half Priorities • Build on improving sales momentum • Maintain disciplined cost management • Deploy Anixter’s gross margin improvement programs that generated seven consecutive quarters of year-over-year improvement through Q2 2020 • Rapidly execute Anixter merger synergies • Focus free cash flow generation on debt repayment • Begin reporting under new Strategic Business Unit structure 7
MERGER UPDATE 8
WESCO-Anixter Merger Highlights Transformational Combination Creates the Industry Leader in Electrical, Communications, and Utility Distribution and Supply Chain Solutions Differentiated Scale and Capabilities in Highly Fragmented Industry Complementary Products, Industries and Geographies Drive Accelerated Growth Significant Estimated Cost Synergies Identified with Meaningful Upside Expected to Accelerate Growth and Meaningfully Expand Margins Resilient Business Model with Substantial Free Cash Flow and Proven Ability to Deleverage Results Oriented Management Team Focused on Execution and Efficient Integration Combination creates the industry leader with substantial free cash flow 9
Transformational Combination Creates the Industry Leader in Electrical, Communications, and Utility Distribution and Supply Chain Solutions A leader in electrical distribution A leader in data communications, security, and wire & cable distribution ~$17 billion ~$1 billion ~50 ~18,900 Pro Forma Pro Forma 6/30 2 2 6/30 TTM Sales TTM Adjusted EBITDA 1 Countries Employees Digital Operational Cross Selling to Premier Back Office Technologies Excellence and Expanded Supply Chain Scale and and Innovation Logistics Customer Base Services Efficiencies to Drive Value Optimization Combination expected to generate significant annual cost synergies of $200+ million, enhance cash flow and accelerate growth 1. Adj. EBITDA includes stock based compensation expense at WESCO and Anixter, merger-related costs, foreign exchange and the impact of year three synergies of $200mm. Adj. EBITDA is a non-GAAP financial metric. 2. Country and employee counts reflect FY2019. 10
Differentiated Scale and Capabilities in Highly Fragmented Industry 6/30 TTM Net Sales North American Share 1 ($ in billions) $16.6 7% 6% Sonepar $8.1 $8.5 Other 5,000+ Graybar Rest of Rexel Top 200 + Combination enhances capabilities, expands share and increases scale 1. Source: Electrical Wholesaling Top 200 Electrical Distributors, 2019. Based on 2018 net sales. 11
Evolving Secular Trends Benefit WESCO + Anixter Secular Trends Benefitting WESCO and Anixter…. …Contribute to Financial Benefits of the Transformational Combination IoT and Remote Automation Connectivity Estimated Impact in Year Three Increased reliance Increase in number of on remote automated communications for processes Utility Grid work, school, and Supply Chain home Investments in grid Relocation ✓ Accelerates sales growth by more reliability and Return of supply hardening chains to the U.S. and Canada than 100 bps ✓ Significant cross-selling and Communications Connected Real 5G build-out, fiber-to-the-x, Estate and proliferation of streaming international expansion opportunities Converged infrastructure and mobile data consumption driven by bandwidth needs + ✓ Doubles standalone EPS growth rate Increased LED Adoption Security ✓ Expands adjusted EBITDA margin Material increase in Expansion of coverage rate of LED adoption in metro areas 100+ bps and delivers 50 - 60% EPS accretion Electrification Secure Increasing Networks electrification of Secure networks and ✓ Generates annual pro forma free cash infrastructure, EVs, data centers and renewables Ongoing Mobility and Data Center flow of ~$600 million Accessibility Capacity 24/7/365 connectivity Emerging Increased bandwidth driving bandwidth and power demands demand WESCO + Anixter combination benefits from numerous ongoing and attractive growth opportunities 12
Anixter Merger – Consistently Meeting Commitments Commitments Results Successfully raised bank and bond debt of ~$5 billion; Complete capital raise to fund Anixter merger Bond offerings were substantially oversubscribed Close transaction in Q2 or Q3 Transaction Closed on June 22, 2020 Maintain ample liquidity Increased liquidity to over $800 million Rapidly integrate the businesses and begin Six weeks post-close, completed actions to deliver over generating year one synergies 50% of our year one cost savings target of $68 million Generate sales synergies that are additive to Realized cross-sell sales synergies in the first month $200 million minimum cost synergies after closing All commitments are on track with high confidence of significant upside 13
Process-Oriented Approach to Drive Integration Execution Flawless Build World Deliver Value OBJECTIVES: Day 1 / Day Class New Capture 100 Execution Company • Ensure uninterrupted operations and • Combined company spend and growth • Implement operating model and design protect the base business synergy targets by function, geography, organization structure and business • Detailed plans for key business • Talent selection and retention plans processes for Day 1, including • Prioritize and deliver synergy in • Build change management into integration architecture, tracking and functions that drive majority of value integration governance capture • Deploy cutting edge digital business • Communication and onboarding for capabilities combined teams • Optimize working capital INTEGRATION Partnering with a leading global consulting firm to GOVERNANCE: support integration management and execution VALUE DELIVERY SUPPLY MARKETING / CORPORATE COMMERCIAL DIGITAL / IT OPERATIONS WORKSTREAMS: CHAIN BRANDING FUNCTIONS Resources and detailed roadmap support synergy realization with upside 14
On-Track to Deliver on the Core Integration Objectives G On-Track Objective Execute a Flawless Day One Deliver Value Capture Build a World-Class NewCo Status Complete G G Highlights • Executed Day One with minimal • All master planning and value capture • Announced new organization disruption to the business integration initiatives are on-track with structure organized around three our accelerated time frame Strategic Business Units and two • Stood up dedicated employee, levels of the senior leadership team customer and supplier issue • Planned $200 million+ in recurring response teams (no major issues) cost savings initiatives: • Launched company-wide, broad- based cultural survey to identify • Launched a combined intranet – On-track to exceed $68 million in areas of compatibility and plan to site with comprehensive list of year one synergies harmonize the best of both cultures Frequently Asked Questions – Executed required actions to • Identified critical talent across • Held townhalls company-wide, at capture over $35 million in year legacy organizations and ensuring Strategic Business Unit (SBU) and one synergies since closing strong employee engagement Corporate functional levels • Deployed commercial targets for sales • Received positive feedback from growth and cash flow to businesses customers, suppliers, employees • Demonstrating initial success with first and investors cross-sell pilots Completed flawless day one; accelerating execution 15
Making Rapid Progress on Synergy Capture Cost Synergies ($ millions) Substantial Progress Since Closing • Captured operational synergies including renegotiating contracts, reducing duplicative spend with vendors, and redundant headcount Field Meaningful Operations G&A • Delivered on over 30 unique initiatives Upside 20% 30% ̶ Eliminated duplicative public company- related expenses reducing costs by more 70% than $7 million Supply of total 34% Chain Corporate ̶ Eliminated C-suite and other duplicative of total $200 roles providing over $20 million in savings 35% Overhead $140 15% $68 Executed required actions to capture over Year One Year Two Year Three $35 million in annual synergies since closing Highly confident in delivering upside to $200 million cost synergies target 16
Resilient Business Model with Substantial Free Cash Flow and Proven Ability to Deleverage Net Debt / Adj. EBITDA ✓ Anticipated deleveraging to be driven through a combination of: 2 + Strong free cash flow1 generation 5.7x + Cost savings realization 5.3x3 – Additional capital expenditures to drive synergies ✓ At closing, strong liquidity of $800+ million ✓ Strength of combined company’s cash flows and significant synergies provide a path to reaching leverage target of 2.0 – 3.5x within 36 months of close At Close Within 36 Months of Close Combined platform expected to generate significant free cash flow1 to drive rapid deleveraging 1. Free cash flow defined as cash flow from operating activities less capital expenditures and merger-related expenditures. See appendix for non-GAAP reconciliation. 2. Excludes $68 million of expected year one synergies. 3. Includes $68 million of expected year one synergies. 17
Resilient Business Model with Substantial Free Cash Flow and Rapid Deleveraging Proven ability to deleverage….. Q2 Free Cash Flow5 Through the Cycle 1 Post M&A 1 2.9x 4.5x $103 million 2.7x 1.6x Acq. EECOL 2 legacy WESCO 2007 2011 2012 2014 + ~$1.0 billion cumulative FCF ~$800 million cumulative FCF 4.1x $39 million 2.1x Acq. HDS 2.8x 2.0x Power Anixter Solutions 3 2007 2011 2015 2017 $142 million total ~$900 million cumulative FCF ~$500 million cumulative FCF 248% of adjusted ...aided by dynamic countercyclical cash flow ...through efficient integration and synergy realization net income Since the Global Financial Crisis 4, on a combined basis, WESCO and Anixter have generated free cash flow 5 in excess of $4.0 billion 1. Charts reflect net debt to EBITDA. 2. WESCO completed its acquisition of EECOL in December 2012 for ~$1.1 billion. 3. Anixter competed its acquisition of HD Supply Power Solutions in October 2015 for ~$825 million. 4. Period reflects CY2009 through CY2019. 5. See appendix for non-GAAP reconciliation. 18
Consent Agreement with Canadian Competition Bureau • Announced agreement with Canadian Competition Bureau on August 6, 2020 • Merger was permitted to close when the waiting period expired on June 18, 2020 • Agreement requires WESCO to divest legacy businesses in Canada: ̶ Utility ̶ Datacom (inside plant) • These businesses had total sales of approximately US $150 million in 2019 • Will complete transactions as expeditiously as possible 19
Summary • Continue to take decisive actions in response to COVID-19 pandemic • Executed successful capital raise with strong liquidity and favorable borrowing terms • Completed Anixter merger on June 22, 2020 meeting our expectation of second or third quarter closing • Larger and more diverse by product line, end market, and geography • Differentiated scale and capabilities in highly fragmented industry • Resilient business model and strong free cash flow throughout the cycle • Substantial progress made on integration execution in first six weeks • WESCO + Anixter exceptionally well positioned for evolving secular growth trends • Expect to exceed cost savings, sales growth and cash generation synergy targets of the transformational combination of WESCO and Anixter The start of a new era for WESCO 20
APPENDIX
Second Quarter Diluted EPS and Sales Growth Walk Diluted EPS Walk1 Sales Growth Walk Reported Q2 2019 Diluted EPS $1.45 Q2 2019 Sales $2,150 M Core operations $(0.45) U.S. (860) bps Foreign exchange rates $(0.02) Canada (340) bps Tax $0.02 International (30) bps Lower share count $0.04 Organic Growth (12.3)% Legacy WESCO Diluted EPS $1.04 Foreign exchange rates (90) bps Anixter $0.32 Acquisitions 1,030 bps Adjusted Q2 2020 Diluted EPS $1.36 Merger-related adjustments $(2.20) Q2 2020 Sales $2,087 M Reported Q2 2020 Diluted EPS $(0.84) Reported Growth (2.9)% 1 Calculation differences due to rounding. 22
Gross Profit and Free Cash Flow Gross Profit Three Months Ended, June 30, 2019 June 30, 2020 Net sales $ 2,150 $ 2,087 Cost of goods sold1 1,741 1,693 Gross profit2 $ 409 $ 394 Gross margin 2 19.0% 18.9% Free Cash Flow Three Months Ended, June 30, 2019 June 30, 2020 Total Anixter WESCO Net cash (used in) provided by operating activities $ (38) $ 101 $ 39 $ 62 Less: capital expenditures (11) (11) (1) (11) Add: merger-related expenditures - 52 - 52 Free cash flow3 $ (48) $ 142 $ 39 $ 103 Adjusted net income 63 57 14 43 % of adjusted net income (76)% 248% 278% 238% 1 Excluding depreciation and amortization. 2 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. 3 Free cash flow is provided by the Company as an additional liquidity measure. Capital and merger-related expenditures are deducted from operating cash flow to determine free cash flow. Free cash flow is available to fund investing and financing activities. Note: For gross profit in prior periods, see quarterly earnings webcasts as previously furnished to the Securities & Exchange Commission, which can be obtained from the Investor Relations page of WESCO’s website at www.wesco.com. 23
Second Quarter Organic Sales Growth $ in millions Year-over-Year Three Months Ended, Core Less: Less: Organic June 30, 2019 June 30, 2020 Growth FX Impact Workday Growth Industrial core sales 765 608 (20.6)% (1.0)% 0.0% (19.6)% Construction core sales 707 575 (18.7)% (1.1)% 0.0% (17.6)% Utility core sales 348 372 6.7% (0.3)% 0.0% 7.0% CIG core sales 338 317 (6.4)% (1.2)% 0.0% (5.2)% Total core sales $ 2,159 $ 1,871 (13.2)% (0.9)% 0.0% (12.3)% U.S. core sales 1,623 1,437 (11.5)% 0.0% 0.0% (11.5)% Canada core sales 417 332 (20.4)% (3.0)% 0.0% (17.4)% International core sales 119 103 (13.7)% (6.4)% 0.0% (7.3)% Total core sales $ 2,159 $ 1,871 (13.2)% (0.9)% 0.0% (12.3)% Plus: Anixter - 222 Less: Sales discounts and reductions (9) (8) Total net sales $ 2,150 $ 2,086 Sequential Three Months Ended, Reported Less: Less: Organic March 31, 2020 June 30, 2020 Growth FX Impact Workday Growth Industrial sales 705 608 (13.8)% (1.1)% 0.0% (12.7)% Construction sales 639 575 (9.9)% (1.6)% 0.0% (8.3)% Utility sales 342 372 8.6% (0.5)% 0.0% 9.1% CIG sales 290 317 9.3% (1.4)% 0.0% 10.7% Total core sales 1,975 1,871 (5.3)% (1.2)% 0.0% (4.1)% Plus: Anixter - 222 Less: Sales discounts and reductions (7) (8) Total net sales $ 1,969 $ 2,086 24
Capital Structure and Leverage $ in millions Reported Pro Forma EBITDA Twelve Months Ended, December 31,2019 June 30, 2020 Income from operations $ 346 $ 551 Depreciation and amortization 62 133 EBITDA $ 408 $ 684 Stock-based compensation 19 47 Foreign exchange and other 1 4 Merger-related costs 3 122 Adjusted EBITDA $ 431 $ 858 Cost synergies - 68 Pro Forma Adjusted EBITDA $ 431 $ 926 Debt As of, Maturity December 31, 2019 June 30, 2020 AR Revolver (variable) $ 415 $ 960 2023 Inventory Revolver (variable) - 450 2025 2021 Senior Notes (fixed) 500 500 2021 2023 Senior Notes AXE (fixed) - 59 2023 2024 Senior Notes (fixed) 350 350 2024 2025 Senior Notes AXE (fixed) - 4 2025 2025 Senior Notes (fixed) - 1,500 2025 2028 Senior Notes (fixed) - 1,325 2028 Other 28 43 Various Total debt1 $ 1,293 $ 5,191 Less: cash and cash equivalents 151 265 Total debt, net of cash $ 1,142 $ 4,925 Leverage 2.6x 5.7x Pro Forma Leverage 2.6x 5.3x Liquidity2 $ 823 $ 819 (1) Debt is presented in the condensed consolidated balance sheets net of debt discount and debt issuance costs and include adjustments to record the long-term debt assumed in the merger with Anixter at its acquisition date fair value. (2) Total availability under asset-backed credit facilities plus cash in investment accounts. Note: For financial leverage ratio in prior periods, see quarterly earnings webcasts as previously furnished to the Securities & Exchange Commission, which can be obtained from the Investor Relations page of WESCO’s website at www.wesco.com. 25
Decremental Operating Margin Decremental Operating Margin Three Months Ended June 30, 2020 June 30, 2019 Adjusted $ in millions WESCO Reported Change Net sales $ 1,865 $ 2,150 $ (285) Income from operations 70 98 (28) Decremental operating margin 10% Note: Decremental operating margin is defined as the year-over-year decline in income from operations divided by the year-over-year decline in net sales. Decremental operating margin is a financial measure commonly used in an economic downturn to assess the Company's ability to reduce operating costs in response to declining sales. 26
Work Days Q1 Q2 Q3 Q4 FY 2018 64 64 63 62 253 2019 63 64 63 62 252 2020 64 64 64 61 253 27