UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 5, 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 November 5, 2020, WESCO International, Inc. (the “Company”) issued a press release announcing its financial results for the third 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 executive management of the Company in connection with its discussions with investors regarding the Company's financial results for the third 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) | ||||||||
| November 5, 2020 | By: | /s/ David S. Schulz | ||||||
| (Date) | David S. Schulz | |||||||
| Executive Vice President and Chief Financial Officer | ||||||||
 | NEWS RELEASE | ||||
| WESCO International, Inc. / Suite 700, 225 West Station Square Drive / Pittsburgh, PA 15219 | |||||
WESCO International, Inc. Reports Third Quarter 2020 Results
Third quarter summary:
•Net sales of $4.1 billion, up 93% due to the Anixter merger
•Operating profit of $178.1 million; operating margin of 4.3%
–Adjusted operating profit of $200.5 million; adjusted operating margin of 4.8%
•Earnings per diluted share of $1.31
–Adjusted earnings per diluted share of $1.66
•Operating cash flow of $286.3 million
–Free cash flow of $307.4 million, or 315% of adjusted net income
•Leverage of 5.3x; improved 0.4x sequentially
–Net debt reduction of $280 million
PITTSBURGH, November 5, 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 third quarter of 2020.
Mr. John J. Engel, WESCO's Chairman, President and CEO, commented, “We delivered very strong results in the third quarter and exceeded our sales, margin, profit and cash generation expectations. This was our first full quarter of results after completing the merger with Anixter and clearly highlights the value creation potential of this transformational combination. Business momentum improved through the quarter as we took market share and built an all-time record third quarter backlog. We aggressively managed our business and executed significant cost reduction, margin improvement and cash management actions, which enabled us to deliver profit growth in the third quarter. Free cash flow generation was exceptional at over 300% of net income and demonstrates our resilient business model and strength through the cycle. Notably, net debt was reduced by $280 million thereby reducing our financial leverage consistent with our capital allocation priorities. Again this quarter, I would like to recognize and thank all of our associates for their inspirational dedication, commitment and hard work in effectively managing in this COVID-19 driven environment."
Mr. Engel continued, "We accelerated our integration planning, execution and synergy realization efforts, and made outstanding progress in the third quarter. The strong cultural alignment between WESCO and Anixter is proving to be a key driver of our initial success. We realized $15 million of cost synergies in the third quarter, and have already initiated actions to deliver 100% of our year one cost synergy target of $68 million after just four months since closing the acquisition. I could not be more pleased with the integration team’s execution of our plan. As a result, we are raising our year 1, 2 and 3 cost synergy targets to $100 million, $180 million, and $250 million, respectively. Our initial integration progress gives us confidence that we will revisit our synergy targets as we build success upon success. We are also realizing initial sales synergies through leveraging our expanded global footprint and cross-selling our broader product and services portfolio. We believe our sales synergy efforts will support incremental revenue growth in the years ahead. As a result, we are building on these early successes and are increasingly confident in our ability to achieve significant upside potential and exceed our three year cost savings, sales growth, margin expansion, and cash generation synergy targets.”
Mr. Engel added, “WESCO’s new era is off to an exceptional start. As the premier electrical, communications and utility distribution and supply chain solutions company in the world, we are very well positioned to 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. Building on our positive momentum, we are looking forward to entering 2021 with accelerating results. As we look to the future, 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 September 30, 2020 compared to the three months ended September 30, 2019:
•Net sales were $4.1 billion for the third quarter of 2020 compared to $2.1 billion for the third quarter of 2019, an increase of 92.8% due to the merger with Anixter that was completed on June 22, 2020, partially offset by the weakened demand impact from the COVID-19 pandemic.
•Cost of goods sold for the third quarter of 2020 was $3.4 billion compared to $1.7 billion for the third quarter of 2019, and gross profit was $785.5 million and $400.2 million, respectively. As a percentage of net sales, gross profit was 19.0% and 18.6% for the third quarter of 2020 and 2019, respectively. Gross profit as a percentage of net sales for the third quarter of 2020 was 19.6% excluding the effect of merger-related fair value adjustments of $28.0 million.
•Selling, general and administrative expenses were $562.0 million, or 13.6% of net sales, for the third quarter of 2020, compared to $290.9 million, or 13.5% of net sales, for the third quarter of 2019. SG&A expenses for the third quarter of 2020 include merger-related costs of $14.2 million, as well as a gain on the sale of an operating branch in the U.S. of $19.8 million. Adjusted for these amounts, SG&A expenses were $567.6 million, or 13.7% of net sales, for the third quarter of 2020, reflecting the favorable impact of cost reduction actions taken in response to the COVID-19 pandemic.
•Operating profit was $178.1 million for the third quarter of 2020, compared to $93.7 million for the third quarter of 2019. Operating profit as a percentage of net sales was 4.3% for the current quarter, compared to 4.4% for the third quarter of the prior year. As adjusted for the merger-related costs and gain on the sale of a U.S. operating branch, operating profit was $200.5 million for the third quarter of 2020, or 4.8% of net sales.
•Net interest expense for the third quarter of 2020 was $74.5 million, compared to $14.3 million for the third quarter of 2019. The increase in interest expense was driven by financing activity related to the Anixter merger.
•The effective tax rate for the third quarter of 2020 was 23.3%, compared to 19.8% for the third quarter of 2019. The higher effective tax rate in the current quarter is primarily due to costs incurred to complete the merger with Anixter.
•Net income attributable to common stockholders was $66.2 million for the third quarter of 2020, compared to $64.5 million for the third quarter of 2019. As adjusted, net income attributable to common stockholders was $83.6 million for the third quarter of 2020.
•Earnings per diluted share for the third quarter of 2020 was $1.31, based on 50.5 million diluted shares, compared to $1.52 for the third quarter of 2019, based on 42.4 million diluted shares. As adjusted, earnings per diluted share for the third quarter of 2020 was $1.66.
•Operating cash flow for the third quarter of 2020 was $286.3 million, compared to $125.4 million for the third quarter of 2019. Free cash flow for the third quarter of 2020 was $307.4 million, or 315% of adjusted net income, compared to $116.5 million, or 181% of net income, for the third quarter of 2019.
The following are results for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019:
•Net sales were $8.2 billion for the first nine months of 2020 compared to $6.3 billion for the first nine months of 2019, an increase of 31.0% due to the merger with Anixter that was completed on June 22, 2020, partially offset by the weakened demand impact from the COVID-19 pandemic.
•Cost of goods sold for the first nine months of 2020 was $6.6 billion and gross profit was $1.6 billion, compared to $5.1 billion and $1.2 billion, respectively, for the first nine months of 2019. As a percentage of net sales, gross profit was 19.0% for the first nine months of 2020 and 2019. Gross profit as a percentage of net sales for the first nine months of 2020 was 19.3% excluding the effect of merger-related fair value adjustments of $28.0 million.
•Selling, general and administrative expenses were $1.2 billion, or 14.9% of net sales, for the first nine months of 2020, compared to $883.2 million, or 14.1% of net sales, for the first nine months of 2019. SG&A expenses for the first nine months of 2020 include merger-related costs of $92.1 million, as well as a gain on the sale of an operating branch in the U.S. of $19.8 million. Adjusted for these amounts, SG&A expenses were $1.1 billion, or 14.0% of net sales, for the first nine months of 2020, reflecting the favorable impact of cost reduction actions taken in response to the COVID-19 pandemic.
•Operating profit was $254.3 million for the first nine months of 2020, compared to $262.4 million for the first nine months of 2019. Operating profit as a percentage of net sales was 3.1% for the current nine month period, compared to 4.2% for the prior nine month
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period. As adjusted for the merger-related costs and gain on the sale of a U.S. operating branch, operating profit was $354.6 million for the first nine months of 2020, or 4.3% of net sales.
•Net interest expense for the first nine months of 2020 was $152.3 million, compared to $49.3 million for the first nine months of 2019. The increase in interest expense was driven by financing activity related to the Anixter merger.
•The effective tax rate for the first nine months of 2020 was 22.9%, compared to 21.0% for the first nine months of 2019. The higher effective tax rate in the current nine month period is primarily due to costs incurred to complete the merger with Anixter.
•Net income attributable to common stockholders was $64.8 million for the first nine months of 2020, compared to $170.3 million for the first nine months of 2019. As adjusted, net income attributable to common stockholders was $143.0 million for the nine months ended September 30, 2020.
•Earnings per diluted share for the first nine months of 2020 was $1.44, based on 45.1 million diluted shares, compared to $3.88 for the first nine months of 2019, based on 43.9 million diluted shares. As adjusted, earnings per diluted share for the current nine month period was $3.17.
•Operating cash flow for the first nine months of 2020 was $418.9 million, compared to $116.7 million for the first nine months of 2019. Free cash flow for the first nine months of 2020 was $462.1 million, or 292% of adjusted net income, compared to $86.3 million, or 51% of net income, for the first nine months of 2019.
Segment Results
In the third quarter of 2020, in connection with the acquisition of Anixter, the Company identified new segments, which have been organized around three strategic business units consisting of Electrical & Electronic Solutions ("EES"), Communications & Security Solutions ("CSS") and Utility & Broadband Solutions ("UBS").
Corporate expenses are incurred to obtain and coordinate financing, tax, information technology, legal and other related services. Segment results include depreciation expense or other allocations related to various corporate assets. Interest expense and other non-operating items are not allocated to the segments or reviewed on a segment basis. Corporate expenses are not directly identifiable with our reportable segments and are reported in the tables below to reconcile the reportable segments to the consolidated financial statements.
The following are results by segment for the three months ended September 30, 2020 compared to the three months ended September 30, 2019:
•EES reported net sales of $1.7 billion for the third quarter of 2020, compared to $1.3 billion for the third quarter of 2019, an increase of 32.3%. Operating profit was $105.5 million for the third quarter of 2020, compared to $72.0 million for the third quarter of 2019. Adjusted EBITDA was $107.9 million for the third quarter of 2020, or 6.5% of net sales, compared to $78.7 million for the third quarter of 2019, or 6.3% of net sales.
•CSS reported net sales of $1.4 billion for the third quarter of 2020, compared to $235.9 million for the third quarter of 2019, an increase of 488.7%. Operating profit was $89.6 million for the third quarter of 2020, compared to $10.6 million for the third quarter of 2019. Adjusted EBITDA was $120.5 million for the third quarter of 2020, or 8.7% of net sales, compared to $12.4 million for the third quarter of 2019, or 5.2% of net sales.
•UBS reported net sales of $1.1 billion for the third quarter of 2020, compared to $662.1 million for the third quarter of 2019, an increase of 66.0%. Operating profit was $74.1 million for the third quarter of 2020, compared to $43.8 million for the third quarter of 2019. Adjusted EBITDA was $85.7 million for the third quarter of 2020, or 7.8% of net sales, compared to $47.3 million for the third quarter of 2019, or 7.1% of net sales.
The following are results by segment for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019:
•EES reported net sales of $3.8 billion for the first nine months of 2020, compared to $3.6 billion for the first nine months of 2019, an increase of 5.1%. Operating profit was $194.6 million for the first nine months of 2020, compared to $198.8 million for the first nine months of 2019. Adjusted EBITDA was $212.0 million for the first nine months of 2020, or 5.6% of net sales, compared to $219.6 million for the first nine months of 2019, or 6.1% of net sales.
•CSS reported net sales of $2.0 billion for the first nine months of 2020, compared to $681.1 million for the first nine months of 2019, an increase of 186.9%. Operating profit was $127.5 million for the first nine months of 2020, compared to $32.5 million for the first nine months of 2019. Adjusted EBITDA was $164.3 million for the first nine months of 2020, or 8.4% of net sales, compared to $38.0 million for the first nine months of 2019, or 5.6% of net sales.
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•UBS reported net sales of $2.4 billion for the first nine months of 2020, compared to $2.0 billion for the first nine months of 2019, an increase of 24.6%. Operating profit was $167.7 million for the first nine months of 2020, compared to $134.4 million for the first nine months of 2019. Adjusted EBITDA was $187.0 million for the first nine months of 2020, or 7.7% of net sales, compared to $144.7 million for the first nine months of 2019, or 7.4% of net sales.
Webcast and Teleconference Access
WESCO will conduct a webcast and teleconference to discuss the third quarter of 2020 earnings as described in this News Release on Thursday, November 6, 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 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 INCOME
(dollar amounts in thousands, except per share amounts)
(Unaudited)
| Three Months Ended | |||||||||||||||||
| September 30, 2020 | September 30, 2019 | ||||||||||||||||
| Net sales | $ | 4,141,801 | $ | 2,148,110 | |||||||||||||
| Cost of goods sold (excluding | 3,356,259 | 81.0 | % | 1,747,913 | 81.4 | % | |||||||||||
| depreciation and amortization) | |||||||||||||||||
| Selling, general and administrative expenses | 561,971 | 13.6 | % | 290,852 | 13.5 | % | |||||||||||
| Depreciation and amortization | 45,476 | 15,612 | |||||||||||||||
| Income from operations | 178,095 | 4.3 | % | 93,733 | 4.4 | % | |||||||||||
| Interest expense, net | 74,540 | 14,306 | |||||||||||||||
| Other, net | (777) | (798) | |||||||||||||||
| Income before income taxes | 104,332 | 2.5 | % | 80,225 | 3.7 | % | |||||||||||
| Income tax expense | 24,294 | 15,886 | |||||||||||||||
| Net income | 80,038 | 1.9 | % | 64,339 | 3.0 | % | |||||||||||
| Net loss attributable to noncontrolling interests | (640) | (156) | |||||||||||||||
| Net income attributable to WESCO International, Inc. | 80,678 | 1.9 | % | 64,495 | 3.0 | % | |||||||||||
| Preferred stock dividends | 14,511 | — | |||||||||||||||
| Net income attributable to common stockholders | $ | 66,167 | 1.6 | % | $ | 64,495 | 3.0 | % | |||||||||
| Earnings per share attributable to common stockholders | $ | 1.31 | $ | 1.52 | |||||||||||||
| Weighted-average common shares outstanding and common | |||||||||||||||||
| share equivalents used in computing earnings | |||||||||||||||||
| per diluted common share (in thousands) | 50,487 | 42,378 | |||||||||||||||
| Reportable Segments | |||||||||||||||||
| Net sales: | |||||||||||||||||
| Electrical & Electronic Solutions | $ | 1,653,726 | $ | 1,250,079 | |||||||||||||
| Communications & Security Solutions | 1,388,791 | 235,921 | |||||||||||||||
| Utility & Broadband Solutions | 1,099,284 | 662,110 | |||||||||||||||
| $ | 4,141,801 | $ | 2,148,110 | ||||||||||||||
| Income from operations: | |||||||||||||||||
| Electrical & Electronic Solutions | $ | 105,508 | $ | 72,007 | |||||||||||||
| Communications & Security Solutions | 89,634 | 10,555 | |||||||||||||||
| Utility & Broadband Solutions | 74,092 | 43,811 | |||||||||||||||
| Corporate | (91,139) | (32,640) | |||||||||||||||
| $ | 178,095 | $ | 93,733 | ||||||||||||||
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WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollar amounts in thousands, except per share amounts)
(Unaudited)
| Nine Months Ended | |||||||||||||||||
| September 30, 2020 | September 30, 2019 | ||||||||||||||||
| Net sales | $ | 8,197,154 | $ | 6,259,465 | |||||||||||||
| Cost of goods sold (excluding | 6,641,438 | 81.0 | % | 5,067,799 | 81.0 | % | |||||||||||
| depreciation and amortization) | |||||||||||||||||
| Selling, general and administrative expenses | 1,221,114 | 14.9 | % | 883,222 | 14.1 | % | |||||||||||
| Depreciation and amortization | 80,324 | 46,035 | |||||||||||||||
| Income from operations | 254,278 | 3.1 | % | 262,409 | 4.2 | % | |||||||||||
| Interest expense, net | 152,281 | 49,293 | |||||||||||||||
| Other, net | (1,463) | (1,359) | |||||||||||||||
| Income before income taxes | 103,460 | 1.3 | % | 214,475 | 3.4 | % | |||||||||||
| Income tax expense | 23,707 | 44,970 | |||||||||||||||
| Net income | 79,753 | 1.0 | % | 169,505 | 2.7 | % | |||||||||||
| Net loss attributable to noncontrolling interests | (825) | (824) | |||||||||||||||
| Net income attributable to WESCO International, Inc. | 80,578 | 1.0 | % | 170,329 | 2.7 | % | |||||||||||
| Preferred stock dividends | 15,787 | — | |||||||||||||||
| Net income attributable to common stockholders | $ | 64,791 | 0.8 | % | $ | 170,329 | 2.7 | % | |||||||||
| Earnings per share attributable to common stockholders | $ | 1.44 | $ | 3.88 | |||||||||||||
| Weighted-average common shares outstanding and common | |||||||||||||||||
| share equivalents used in computing earnings | |||||||||||||||||
| per diluted common share (in thousands) | 45,104 | 43,901 | |||||||||||||||
| Reportable Segments | |||||||||||||||||
| Net sales: | |||||||||||||||||
| Electrical & Electronic Solutions | $ | 3,811,498 | $ | 3,626,423 | |||||||||||||
| Communications & Security Solutions | 1,953,967 | 681,087 | |||||||||||||||
| Utility & Broadband Solutions | 2,431,689 | 1,951,955 | |||||||||||||||
| $ | 8,197,154 | $ | 6,259,465 | ||||||||||||||
| Income from operations: | |||||||||||||||||
| Electrical & Electronic Solutions | $ | 194,643 | $ | 198,774 | |||||||||||||
| Communications & Security Solutions | 127,502 | 32,501 | |||||||||||||||
| Utility & Broadband Solutions | 167,651 | 134,431 | |||||||||||||||
| Corporate | (235,518) | (103,297) | |||||||||||||||
| $ | 254,278 | $ | 262,409 | ||||||||||||||
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WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands)
(Unaudited)
| September 30, 2020 | December 31, 2019 | ||||||||||
| Assets | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | 352,249 | $ | 150,902 | |||||||
| Trade accounts receivable, net | 2,492,248 | 1,187,359 | |||||||||
| Inventories | 2,357,634 | 1,011,674 | |||||||||
| Other current assets | 395,319 | 190,476 | |||||||||
| Total current assets | 5,597,450 | 2,540,411 | |||||||||
| Other assets | 6,270,889 | 2,477,224 | |||||||||
| Total assets | $ | 11,868,339 | $ | 5,017,635 | |||||||
| Liabilities and Stockholders' Equity | |||||||||||
| Current Liabilities | |||||||||||
| Accounts payable | $ | 1,830,877 | $ | 830,478 | |||||||
| Short-term borrowings and current portion of long-term debt | 28,844 | 26,685 | |||||||||
| Other current liabilities | 681,214 | 226,896 | |||||||||
| Total current liabilities | 2,540,935 | 1,084,059 | |||||||||
| Long-term debt, net | 4,878,124 | 1,257,067 | |||||||||
| Other noncurrent liabilities | 1,236,056 | 417,838 | |||||||||
| Total liabilities | 8,655,115 | 2,758,964 | |||||||||
| Stockholders' Equity | |||||||||||
| Total stockholders' equity | 3,213,224 | 2,258,671 | |||||||||
| Total liabilities and stockholders' equity | $ | 11,868,339 | $ | 5,017,635 | |||||||
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WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands)
(Unaudited)
| Nine Months Ended | |||||||||||
| September 30, 2020 | September 30, 2019 | ||||||||||
| Operating Activities: | |||||||||||
| Net income | $ | 79,753 | $ | 169,505 | |||||||
| Add back (deduct): | |||||||||||
| Depreciation and amortization | 80,324 | 46,035 | |||||||||
| Deferred income taxes | (8,261) | 4,621 | |||||||||
| Change in trade receivables, net | 3,584 | (122,903) | |||||||||
| Change in inventories | 77,681 | (1,500) | |||||||||
| Change in accounts payable | 80,489 | 46,902 | |||||||||
| Other | 105,368 | (25,996) | |||||||||
| Net cash provided by operating activities | 418,938 | 116,664 | |||||||||
| Investing Activities: | |||||||||||
| Capital expenditures | (42,562) | (30,323) | |||||||||
Other(1) | (3,681,335) | (23,167) | |||||||||
| Net cash used in investing activities | (3,723,897) | (53,490) | |||||||||
| Financing Activities: | |||||||||||
Debt borrowings, net(2) | 3,606,339 | 148,387 | |||||||||
| Equity activity, net | (2,565) | (152,735) | |||||||||
Other(3) | (96,454) | (13,734) | |||||||||
| Net cash provided by (used in) financing activities | 3,507,320 | (18,082) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (1,014) | (3,275) | |||||||||
| Net change in cash and cash equivalents | 201,347 | 41,817 | |||||||||
| Cash and cash equivalents at the beginning of the period | 150,902 | 96,343 | |||||||||
| Cash and cash equivalents at the end of the period | $ | 352,249 | $ | 138,160 | |||||||
(1) Includes payments to acquire Anixter of $3,707.6 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 the Company's asset-based revolving credit facility and accounts receivable securitization facility. These cash inflows were used to fund the merger with Anixter.
(3) Includes approximately $79.9 million of costs associated with the debt financing used to fund a portion of the merger with Anixter, and $15.8 million of dividends paid to holders of Series A preferred stock.
8
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 gross profit, adjusted gross profit gross margin, adjusted gross margin, earnings before interest, taxes, depreciation and amortization (EBITDA), adjusted EBITDA, adjusted EBITDA margin, pro forma adjusted EBITDA, financial leverage, pro forma financial leverage, free cash flow, adjusted income from operations, adjusted operating margin, adjusted provision for income taxes, adjusted net income, adjusted net income attributable to WESCO International, Inc., adjusted net income attributable to common stockholders, and adjusted earnings per diluted share. The Company believes that these non-GAAP measures are useful to investors as they provide a better understanding of sales performance, and the use of debt and liquidity on a comparable basis. Additionally, certain non-GAAP measures either focus on or exclude 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.
9
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in thousands, except per share data)
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| Gross Profit: | September 30, 2020 | September 30, 2019 | September 30, 2020 | September 30, 2019 | |||||||||||||||||||
| Net sales | $ | 4,141,801 | $ | 2,148,110 | $ | 8,197,154 | $ | 6,259,465 | |||||||||||||||
| Cost of goods sold (excluding depreciation and amortization) | 3,356,259 | 1,747,913 | 6,641,438 | 5,067,799 | |||||||||||||||||||
| Gross profit | $ | 785,542 | $ | 400,197 | $ | 1,555,716 | $ | 1,191,666 | |||||||||||||||
Adjusted gross profit(1) | $ | 813,561 | $ | 400,197 | $ | 1,583,735 | $ | 1,191,666 | |||||||||||||||
| Gross margin | 19.0 | % | 18.6 | % | 19.0 | % | 19.0 | % | |||||||||||||||
Adjusted gross margin(1) | 19.6 | % | 18.6 | % | 19.3 | % | 19.0 | % | |||||||||||||||
Note: Gross profit is a financial measure commonly used within the distribution industry. Gross profit is calculated by deducting cost of goods sold, excluding depreciation and amortization, from net sales. Gross margin is calculated by dividing gross profit by net sales.
(1) Adjusted gross profit and adjusted gross margin exclude the effect of merger-related fair value adjustments to inventory of $28.0 million for the three and nine months ended September 30, 2020.
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| Adjusted Income from Operations: | September 30, 2020 | September 30, 2019 | September 30, 2020 | September 30, 2019 | |||||||||||||||||||
| Income from operations | $ | 178,095 | $ | 93,733 | $ | 254,278 | $ | 262,409 | |||||||||||||||
| Merger-related costs | 14,175 | — | 92,127 | — | |||||||||||||||||||
| Merger-related fair value adjustments | 28,019 | — | 28,019 | — | |||||||||||||||||||
| Gain on sale of asset | (19,816) | — | (19,816) | — | |||||||||||||||||||
| Adjusted income from operations | $ | 200,473 | $ | 93,733 | $ | 354,608 | $ | 262,409 | |||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| Adjusted Provision for Income Taxes: | September 30, 2020 | September 30, 2019 | September 30, 2020 | September 30, 2019 | |||||||||||||||||||
| Provision for income taxes | $ | 24,294 | $ | 15,886 | $ | 23,707 | $ | 44,970 | |||||||||||||||
Income tax effect of adjustments to income from operations(1) | 4,923 | — | 22,073 | — | |||||||||||||||||||
| Adjusted provision for income taxes | $ | 29,217 | $ | 15,886 | $ | 45,780 | $ | 44,970 | |||||||||||||||
(1) The adjustments to income from operations have been tax effected at a rate of 22%.
10
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in thousands, except per share data)
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| Adjusted Earnings per Diluted Share: | September 30, 2020 | September 30, 2019 | September 30, 2020 | September 30, 2019 | |||||||||||||||||||
| Adjusted income from operations | $ | 200,473 | $ | 93,733 | $ | 354,608 | $ | 262,409 | |||||||||||||||
| Interest expense, net | 74,540 | 14,306 | 152,281 | 49,293 | |||||||||||||||||||
| Other, net | (777) | (798) | (1,463) | (1,359) | |||||||||||||||||||
| Adjusted income before income taxes | 126,710 | 80,225 | 203,790 | 214,475 | |||||||||||||||||||
| Adjusted provision for income taxes | 29,217 | 15,886 | 45,780 | 44,970 | |||||||||||||||||||
| Adjusted net income | 97,493 | 64,339 | 158,010 | 169,505 | |||||||||||||||||||
| Net loss attributable to noncontrolling interests | (640) | (156) | (825) | (824) | |||||||||||||||||||
| Adjusted net income attributable to WESCO International, Inc. | 98,133 | 64,495 | 158,835 | 170,329 | |||||||||||||||||||
| Preferred stock dividends | 14,511 | — | 15,787 | — | |||||||||||||||||||
| Adjusted net income attributable to common stockholders | $ | 83,622 | $ | 64,495 | $ | 143,048 | $ | 170,329 | |||||||||||||||
| Diluted shares | 50,487 | 42,378 | 45,104 | 43,901 | |||||||||||||||||||
| Adjusted earnings per diluted share | $ | 1.66 | $ | 1.52 | $ | 3.17 | $ | 3.88 | |||||||||||||||
Note: Income from operations, the provision for income taxes and earnings per diluted share for the three and nine months ended September 30, 2020 have been adjusted to exclude merger-related costs and fair value adjustments, gain on sale of an operating branch in the U.S. and the related income tax effects. These non-GAAP financial measures provide a better understanding of the Company's financial results on a comparable basis.
11
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in thousands, except per share data)
(Unaudited)
| Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||
| EBITDA and Adjusted EBITDA by Segment: | EES | CSS | UBS | Corporate | Total | |||||||||||||||||||||||||||
| Net income attributable to common stockholders | $ | 107,192 | $ | 90,585 | $ | 73,924 | $ | (205,534) | $ | 66,167 | ||||||||||||||||||||||
| Net loss attributable to noncontrolling interests | (270) | — | — | (370) | (640) | |||||||||||||||||||||||||||
| Preferred stock dividends | — | — | — | 14,511 | 14,511 | |||||||||||||||||||||||||||
| Income tax expense | — | — | — | 24,294 | 24,294 | |||||||||||||||||||||||||||
| Interest expense, net | — | — | — | 74,540 | 74,540 | |||||||||||||||||||||||||||
| Depreciation and amortization | 10,411 | 18,536 | 7,550 | 8,979 | 45,476 | |||||||||||||||||||||||||||
| EBITDA | $ | 117,333 | $ | 109,121 | $ | 81,474 | $ | (83,580) | $ | 224,348 | ||||||||||||||||||||||
| Other, net | (1,414) | (951) | 168 | 1,420 | (777) | |||||||||||||||||||||||||||
| Stock-based compensation expense | 141 | 6 | 77 | 5,778 | 6,002 | |||||||||||||||||||||||||||
| Merger-related costs | — | — | — | 14,175 | 14,175 | |||||||||||||||||||||||||||
| Merger-related fair value adjustments | 11,695 | 12,344 | 3,980 | — | 28,019 | |||||||||||||||||||||||||||
| Gain on sale of asset | (19,816) | — | — | — | (19,816) | |||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 107,939 | $ | 120,520 | $ | 85,699 | $ | (62,207) | $ | 251,951 | ||||||||||||||||||||||
| Adjusted EBITDA margin % | 6.5 | % | 8.7 | % | 7.8 | % | 6.1 | % | ||||||||||||||||||||||||
| Three Months Ended September 30, 2019 | ||||||||||||||||||||||||||||||||
| EBITDA and Adjusted EBITDA by Segment: | EES | CSS | UBS | Corporate | Total | |||||||||||||||||||||||||||
| Net income attributable to common stockholders | $ | 72,163 | $ | 10,555 | $ | 43,811 | $ | (62,034) | $ | 64,495 | ||||||||||||||||||||||
| Net loss attributable to noncontrolling interests | (156) | — | — | — | (156) | |||||||||||||||||||||||||||
| Income tax expense | — | — | — | 15,886 | 15,886 | |||||||||||||||||||||||||||
| Interest expense, net | — | — | — | 14,306 | 14,306 | |||||||||||||||||||||||||||
| Depreciation and amortization | 7,171 | 1,811 | 3,396 | 3,234 | 15,612 | |||||||||||||||||||||||||||
| EBITDA | $ | 79,178 | $ | 12,366 | $ | 47,207 | $ | (28,608) | $ | 110,143 | ||||||||||||||||||||||
| Other, net | (798) | — | — | — | (798) | |||||||||||||||||||||||||||
| Stock-based compensation expense | 279 | 19 | 58 | 4,070 | 4,426 | |||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 78,659 | $ | 12,385 | $ | 47,265 | $ | (24,538) | $ | 113,771 | ||||||||||||||||||||||
| Adjusted EBITDA margin % | 6.3 | % | 5.2 | % | 7.1 | % | 5.3 | % | ||||||||||||||||||||||||
12
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in thousands, except per share data)
(Unaudited)
| Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||
| EBITDA and Adjusted EBITDA by Segment: | EES | CSS | UBS | Corporate | Total | |||||||||||||||||||||||||||
| Net income attributable to common stockholders | $ | 196,665 | $ | 128,295 | $ | 167,483 | $ | (427,652) | $ | 64,791 | ||||||||||||||||||||||
| Net loss attributable to noncontrolling interests | (664) | — | — | (161) | (825) | |||||||||||||||||||||||||||
| Preferred stock dividends | — | — | — | 15,787 | 15,787 | |||||||||||||||||||||||||||
| Income tax expense | — | — | — | 23,707 | 23,707 | |||||||||||||||||||||||||||
| Interest expense, net | — | — | — | 152,281 | 152,281 | |||||||||||||||||||||||||||
| Depreciation and amortization | 24,638 | 24,393 | 15,153 | 16,140 | 80,324 | |||||||||||||||||||||||||||
| EBITDA | $ | 220,639 | $ | 152,688 | $ | 182,636 | $ | (219,898) | $ | 336,065 | ||||||||||||||||||||||
| Other, net | (1,358) | (793) | 168 | 520 | (1,463) | |||||||||||||||||||||||||||
| Stock-based compensation expense | 849 | 54 | 221 | 14,405 | 15,529 | |||||||||||||||||||||||||||
| Merger-related costs | — | — | — | 92,127 | 92,127 | |||||||||||||||||||||||||||
| Merger-related fair value adjustments | 11,695 | 12,344 | 3,980 | — | 28,019 | |||||||||||||||||||||||||||
| Gain on sale of asset | (19,816) | — | — | — | (19,816) | |||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 212,009 | $ | 164,293 | $ | 187,005 | $ | (112,846) | $ | 450,461 | ||||||||||||||||||||||
| Adjusted EBITDA margin % | 5.6 | % | 8.4 | % | 7.7 | % | 5.5 | % | ||||||||||||||||||||||||
| Nine Months Ended September 30, 2019 | ||||||||||||||||||||||||||||||||
| EBITDA and Adjusted EBITDA by Segment: | EES | CSS | UBS | Corporate | Total | |||||||||||||||||||||||||||
| Net income attributable to common stockholders | $ | 199,598 | $ | 32,501 | $ | 134,431 | $ | (196,201) | $ | 170,329 | ||||||||||||||||||||||
| Net loss attributable to noncontrolling interests | (824) | — | — | — | (824) | |||||||||||||||||||||||||||
| Income tax expense | — | — | — | 44,970 | 44,970 | |||||||||||||||||||||||||||
| Interest expense, net | — | — | — | 49,293 | 49,293 | |||||||||||||||||||||||||||
| Depreciation and amortization | 21,343 | 5,453 | 10,118 | 9,121 | 46,035 | |||||||||||||||||||||||||||
| EBITDA | $ | 220,117 | $ | 37,954 | $ | 144,549 | $ | (92,817) | $ | 309,803 | ||||||||||||||||||||||
| Other, net | (1,359) | — | — | — | (1,359) | |||||||||||||||||||||||||||
| Stock-based compensation expense | 837 | 57 | 173 | 13,174 | 14,241 | |||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 219,595 | $ | 38,011 | $ | 144,722 | $ | (79,643) | $ | 322,685 | ||||||||||||||||||||||
| Adjusted EBITDA margin % | 6.1 | % | 5.6 | % | 7.4 | % | 5.2 | % | ||||||||||||||||||||||||
Note: EBITDA and Adjusted EBITDA are non-GAAP financial measures that provide indicators of the Company's performance and its ability to meet debt service requirements. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before other, net, non-cash stock-based compensation, costs and fair value adjustments associated with the merger with Anixter, and gain on sale of an operating branch in the U.S.
13
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in thousands, except per share data)
(Unaudited)
| Pro Forma | Reported | ||||||||||
| Twelve Months Ended | Twelve Months Ended | ||||||||||
| Financial Leverage: | September 30, 2020 | December 31, 2019 | |||||||||
| Net income attributable to common stockholders | $ | 264,116 | $ | 223,426 | |||||||
| Net loss attributable to noncontrolling interests | (1,229) | (1,228) | |||||||||
| Preferred stock dividends | 15,787 | — | |||||||||
| Income tax expense | 40,051 | 59,863 | |||||||||
| Interest expense, net | 216,699 | 64,156 | |||||||||
| Depreciation and amortization | 145,471 | 62,107 | |||||||||
| EBITDA | $ | 680,895 | $ | 408,324 | |||||||
| Other, net | 2,365 | 614 | |||||||||
| Stock-based compensation | 43,868 | 19,062 | |||||||||
| Merger-related costs and fair value adjustments | 166,849 | 3,130 | |||||||||
| Gain on sale of asset | (19,816) | — | |||||||||
| Adjusted EBITDA | $ | 874,161 | $ | 431,130 | |||||||
| September 30, 2020 | December 31, 2019 | ||||||||||
| Short-term borrowings and current portion of long-term debt | $ | 28,844 | $ | 26,685 | |||||||
| Long-term debt | 4,878,124 | 1,257,067 | |||||||||
Debt discount and debt issuance costs(1) | 92,343 | 8,876 | |||||||||
Fair value adjustments to Anixter Notes due 2023 and 2025(1) | (1,824) | — | |||||||||
| Total debt | 4,997,487 | 1,292,628 | |||||||||
| Less: cash and cash equivalents | 352,249 | 150,902 | |||||||||
| Total debt, net of cash | $ | 4,645,238 | $ | 1,141,726 | |||||||
| Financial leverage ratio | 5.3 | 2.6 | |||||||||
(1)Long-term debt is presented in the condensed consolidated balance sheets net of debt discount and debt issuance costs, and includes adjustments to record the long-term debt assumed in the merger with Anixter at its acquisition date fair value.
Note: Financial leverage measures the use of debt. Financial leverage ratio is calculated by dividing total debt, excluding debt discount, debt issuance costs and fair value adjustments, net of cash, by adjusted EBITDA. EBITDA is defined as the trailing twelve months earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as the trailing twelve months EBITDA before foreign exchange and other non-operating expenses, non-cash stock-based compensation, costs and fair value adjustments associated with the merger with Anixter, and gain on sale of an operating branch in the U.S. 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.
14
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in thousands, except per share data)
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| Free Cash Flow: | September 30, 2020 | September 30, 2019 | September 30, 2020 | September 30, 2019 | |||||||||||||||||||
| Cash flow provided by operations | $ | 286,250 | $ | 125,439 | $ | 418,938 | $ | 116,664 | |||||||||||||||
| Less: Capital expenditures | (15,399) | (8,921) | (42,562) | (30,323) | |||||||||||||||||||
| Add: Merger-related expenditures | 36,591 | — | 85,674 | — | |||||||||||||||||||
| Free cash flow | $ | 307,442 | $ | 116,518 | $ | 462,050 | $ | 86,341 | |||||||||||||||
| Percentage of adjusted net income | 315 | % | 181 | % | 292 | % | 51 | % | |||||||||||||||
Note: Free cash flow is a measure of liquidity. Capital expenditures are deducted from operating cash flow to determine free cash flow. Free cash flow is available to fund investing and financing activities. For the three and nine months ended September 30, 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.
15
Third Quarter 2020 Webcast Presentation November 5, 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"), this presentation includes certain non-GAAP financial measures. These financial measures include pro forma sales, gross profit, gross margin, adjusted gross profit, adjusted gross margin, earnings before interest, taxes, depreciation and amortization (EBITDA), adjusted EBITDA, adjusted EBITDA margin, pro forma adjusted EBITDA, financial leverage, pro forma financial leverage, free cash flow, adjusted income from operations, adjusted operating margin, adjusted provision for income taxes, adjusted net income, adjusted net income attributable to WESCO International, Inc., adjusted net income attributable to common stockholders, and adjusted earnings per diluted share. The Company believes that these non-GAAP measures are useful to investors as they provide a better understanding of sales performance, and the use of debt and liquidity on a comparable basis. Additionally, certain non-GAAP measures either focus on or exclude 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
Q3 Summary • Results exceeded our expectations across the board on sales, profit, and free cash flow • Exceptionally strong profitability with adjusted EBITDA margin up versus prior year – COVID-19 cost reduction actions significantly exceeded expectations – Realized cost synergies of $15 million in Q3 • Sales down 5% versus pro forma prior year – Sequential sales improvement through the quarter – EES and CSS up double digits sequentially; taking share in all three SBUs • Record Q3 backlog for WESCO + Anixter • Exceptionally strong free cash flow generation of $307 million or 315% of adjusted net income • Leverage of 4.8x including first year synergies, down 0.5x sequentially; Net debt down $280 million sequentially • Improving momentum in Q4 with preliminary October workday-adjusted sales down 3% versus prior year pro forma sales • Outstanding progress on Anixter Integration ̶ Executed full year 1 target cost synergies in first four months since close ̶ Raising year 1, 2 and 3 synergy targets ̶ Significant upside potential on our sales growth, cost, margin, and free cash flow targets •Excellent first full quarter of WESCO + Anixter 3
WESCO’s Three Strategic Business Units (SBUs) Legend Legacy WESCO Legacy Anixter Electrical & Electronic Communications & Utility & Broadband Solutions (EES) Security Solutions (CSS) Solutions (UBS) % of SALES 42% 33% 25% (2019 Pro Forma) of total company sales of total company sales of total company sales Construction | Industrial | OEM | Technology | Financial | Government | Utility | Broadband | INDUSTRIES CIG | Lighting Healthcare | Education Integrated Supply • Contractors and specialty integrators • Cloud and data center • IOUs, public power, and contractors SERVING • Industrial, automation, commercial, • Contractors and integrators • Global Service Providers, wireless and institutional, and government • Security solutions broadband operators • OEM and global complex manufacturing • Professional audio/video • Integrated Supply solutions • Turn-key lighting and energy solutions • In-building wireless • Safety solutions Industry-leading businesses diversified by products, services, end markets and geographies 4
Secular Trends Driving Growth Across All SBUs Key Secular Trends EES CSS UBS IoT and Automation Increase in number of automated processes Data Center Capacity Increased bandwidth and power demands Communications 5G build-out, fiber-to-the-x, and proliferation of streaming and mobile data consumption Supply Chain Relocation Return of supply chains to the U.S. and Canada Connected Real Estate Converged infrastructure driven by bandwidth needs Increased Security Expansion of coverage in metro areas LED Adoption Material increase in rate of LED adoption Electrification Increasing electrification of infrastructure, EVs, and renewables Mobility and Accessibility 24/7/365 connectivity driving bandwidth demand Utility Grid Investments in grid reliability and hardening Remote Connectivity Increased reliance on remote communications for work, school, and home Secure Networks Secure networks and data centers •SBUs with leading scale and well positioned to benefit from evolving secular growth trends 5
Financial Benefits of Transformational Combination Estimated Run Rate Impact After Year 3 ✓ Expands adjusted EBITDA margin 100+ bps and delivers 50 - 60% EPS accretion ✓ Doubles standalone EPS growth rate ✓ Generates annual free cash flow greater than $600 million ✓ Provides cross-selling and international expansion opportunities to significantly accelerate sales growth Substantial revenue, cost, margin and cash synergies drive significant value creation 6
Second Half Priorities – Q3 Achievements 1) Build on improving sales momentum 4) Rapidly execute Anixter merger synergies Sales up 8% sequentially on pro forma basis Executed the full year 1 run rate target of $68 million in EES and CSS up double digits sequentially on pro first four months forma basis Raising year 1, 2 and 3 synergy targets 2) Maintain disciplined cost management 5) Focus free cash flow generation on debt COVID-19 cost reduction initiatives exceeded expectations repayment Operating expenses down $44 million versus prior year Generated $307 million of free cash flow on a pro forma basis Reduced net debt by $280 million Leverage reduced from 5.3x to 4.8x including increased year 1 synergies 3) Deploy Anixter’s gross margin improvement 6) Begin reporting under new Strategic Business Unit programs that generated 7 consecutive quarters of structure improvement through Q2 2020 Completed Gross margin up 20 bps versus prior year and sequentially on a pro forma basis •Continuing to keep our commitments 7
Integration Update Q3 Progress Revised Cost Synergies Synergy Type ($ millions) • Excellent progress on integration with accelerating synergy generation and capture • Executed full year 1 run rate synergy target of $68 million March November Field in four months since close with $15 million realized in Q3; Operations G&A revised synergy expectations 20% 72% 30% • Cross-sell pilot program established with initial of total 40% $250 encouraging results of total Supply $180 Chain Corporate • Divestiture of legacy WESCO Canadian Utility and Datacom $100 35% Overhead businesses on track $200 15% $140 • Initial integration progress gives us confidence that we will $68 revisit our synergy targets as we build success upon Year 1 Year 2 Year 3 success • Significant upside potential on our three-year sales Increasing estimated one-time growth, cost, margin, and free cash flow targets operating costs from ~$140 million to ~$175 million over the first three years •Increasing synergy targets due to outstanding execution and additional opportunities identified 8
Third Quarter Results Overview $ in millions Except per share amounts Q3 2019 Q2 2020 Versus Versus Q3 2020 Pro Forma1 Pro Forma1 Q3 2019 Q2 2020 Sales $4,370 $3,819 $4,142 (5)% 8% Adjusted Gross Profit2 847 741 814 (4)% 10% % of sales 19.4% 19.4% 19.6% 20 bps 20 bps Adjusted EBIT3 196 160 200 3% 25% % of sales 4.5% 4.2% 4.8% 30 bps 60 bps Adjusted EBITDA 239 211 252 5% 19% % of sales 5.5% 5.5% 6.1% 60 bps 60 bps Adjusted Diluted EPS $1.66 •Year-over-year and sequential increases in margins and profitability 1 Information as filed as an exhibit to Form 8-K on November 4, 2020. 2 Adjusted Gross Margin excludes the effect of measuring the inventories acquired in the merger with Anixter at their acquisition date fair value. 3 Q2 2020 pro forma period adjusted to exclude $101 million of merger-related costs. 9
Electrical & Electronic Solutions (EES) $ in millions Sales • Construction demand improving in North America Versus Pro Forma – Record Q3 backlog Seq. YOY – U.S. up MSD sequentially versus pro forma +13% (10)% – Some project delays but not cancellations $1,830 $1,654 $1,464 • Increasing momentum in industrial & OEM Q3 2019 Q2 2020 Q3 2020 – Improving short cycle conditions in most Pro Forma Pro Forma verticals Adjusted EBITDA – Robust opportunity pipeline 6.6% of sales 5.8% of sales 6.5% of sales • Adjusted EBITDA and margin up sequentially $122 $84 $108 Awarded multiple contracts for switchgear and electrical materials including Q3 2019 Q2 2020 Q3 2020 lighting for the upgrade of a water treatment facility in Ontario, Canada Pro Forma Pro Forma •Improving sequential momentum and record backlog provides positive setup for 2021 Adjusted EBITDA excludes the impact from foreign exchange and other non-operating expenses, stock-based compensation, merger-related costs, merger-related fair value adjustments, and gain on the sale of an asset. See appendix for non-GAAP reconciliations. 10
Communications & Security Solutions (CSS) $ in millions Sales • Improving momentum during the quarter; Versus Pro Forma continued share gains Seq. YOY +10% (2)% • Security sales up LSD versus market down MSD $1,415 $1,260 $1,389 • Global Accounts up LSD led by strong results in Q3 2019 Q2 2020 Q3 2020 hyperscale datacenters, global security and Pro Forma Pro Forma systems integrators Adjusted EBITDA • Adjusted EBITDA and margin up sequentially 7.9% of sales 8.7% of sales 8.7% of sales $121 Awarded a multi-million dollar contract to provide a comprehensive $112 $110 solution of products and material management services for the construction of two datacenters in Mexico Q3 2019 Q2 2020 Q3 2020 Pro Forma Pro Forma •Outperforming market with industry-leading value propositions; exceptionally well-positioned in these high growth markets See appendix for non-GAAP reconciliations. 11
Utility & Broadband Solutions (UBS) $ in millions Sales • Broadband sales up MSD versus prior year; up Versus Pro Forma HSD sequentially driven by 5G buildouts and Seq. YOY FTTx deployments flat (2)% • Traditional utility businesses flat versus prior $1,125 $1,099 $1,095 year on combined basis Q3 2019 Q2 2020 Q3 2020 Pro Forma Pro Forma • Continuing to expand scope of services with Adjusted EBITDA utility customers and FTTx projects 6.8% of sales 7.5% of sales 7.8% of sales • Adjusted EBITDA and margin up sequentially $83 $86 $77 Awarded a multi -year contract to provide electrical transmission and Q3 2019 Q2 2020 Q3 2020 distribution materials and inventory management services for a public utility Pro Forma Pro Forma •Outperforming the market and building on industry leadership and unmatched supply chain capabilities See appendix for non-GAAP reconciliations. 12
Free Cash Flow & Liquidity Free Cash Flow Capital Allocation Priorities and Results $ in millions 292% • Continue to rapidly delever to target range of of adjusted net income 2.0 – 3.5x net debt to adjusted EBITDA by June 2023 51% $462 of adjusted net income • Strong results in Q3 $86 – Free cash flow generation of $307 million YTD 2019 YTD 2020 – Net debt reduction of $280 million – Leverage ratio reduced from 5.3x in Q2 to 4.8x Q3 free cash flow: $307 million or 315% of adjusted net income in Q3 including increased year 1 synergies Cash & Debt Maturity Liquidity $ in millions As of 9/30/20 As of 9/30/20 $3,500 • Liquidity of ~$1.1 billion – Invested cash: $213 million $213 $0 $949 $350 $530 – Revolver availability: $727 million Cash 2021 2022 2023 2024 2025 and – AR facility availability: $135 million beyond •Outstanding free cash flow generation and strong liquidity supports future growth 13
Summary • Excellent profitability performance in a COVID-driven environment • Substantial progress made on integration execution in first four months – Increased year 1, 2 and 3 cost synergy targets to reflect accelerating execution of integration initiatives and significant upside to original targets – Already generating cross-selling revenue synergies – Executed first year synergies in first four months; increased year 1 target to $100 million – Continue to drive initiatives to exceed sales growth, margin expansion and cash generation synergy targets of the transformational combination of WESCO + Anixter • Excellent free cash flow generation demonstrating resilient business model and strength through the cycle • Exceptionally well positioned for evolving secular growth trends •WESCO’s new era is off to an exceptional start 14
ADDITIONAL INFORMATION
Electrical & Electronic Solutions (EES) Key Growth Drivers • Accelerating electrification billion • Aging public infrastructure and need for government investments $7.2 in sales • Continued LNG development • Increasing LED adoption • Customer skilled labor shortages; demanding more from supply chain partners million • Increasing automation and growth of IoT and IIoT applications $458 in adjusted EBITDA • Relocation of supply chains to North America Pro Forma 2019 • Increasing customer supply chain consolidation and outsourcing 2,900+ specialized salespeople and By Application By Region Pro Forma TTM as of 9/30/20 technical support personnel Construction 30+ countries OEM / CIG REST OF U.S. CANADA 70,000 customers WORLD 67% of sales 22% of sales 600 warehouses and branches 11% of sales 1 million+ products Industrial/ MRO •Best-in-class solutions offering with attractive secular trends driving growth 16
Communications & Security Solutions (CSS) Key Growth Drivers billion • Increased bandwidth and data center demands in sales • Increased reliance on remote communications for school, work, and home $5.6 • Return to work solutions • 24/7/365 connectivity driving IP convergence and increasing demand million • 5G build-out, FTTx, proliferation of streaming and mobile data consumption $434 in adjusted EBITDA • Smart Cities including city-wide surveillance • Growth of secure networks Pro Forma 2019 1,600 technical sales specialists, By Application By Region Pro Forma TTM as of 9/30/20 multi-level technical support Other 50+ countries Security REST OF U.S. CANADA 125,000 customers Solutions WORLD 70% of sales 8% of sales 320 warehouses and branches 22% of sales 450,000+ products Network Infrastructure •Leading global scale and capabilities provide sustainable differentiators 17
Utility & Broadband Solutions (UBS) Key Growth Drivers billion • Investments in grid modernization, reliability and hardening $4.4 in sales • Continued consolidation in public utilities and outsourcing of supply chain to drive cost savings and efficiency • Power generation mix shift from nuclear and fossil fuels to renewable sources million • 24/7/365 connectivity driving increased bandwidth needs $307 in adjusted EBITDA Pro Forma 2019 385 technical sales specialists By Application By Region Pro Forma TTM as of 9/30/20 235 customer sites managed Broadband 8,500 customers REST OF U.S. CANADA Integrated Supply WORLD 140 warehouses and branches Utility 87% of sales 10% of sales 3% of sales 670,000+ products •Leading market position, with strong growth profile and track record, drives continued upside 18
Fourth Quarter FAQs • Expect sequential sales to moderate due to normal seasonality and fewer workdays (3 fewer workdays than Q3 2020) • Continued focus on cost management: – Maintain control over discretionary spending – Additional realized synergies in Q4 • Effective October 1, returned all employees to full salary, instituted 2020 merit adjustments, and resumed 401(k) company match • Continued elimination of non-essential capital expenditures • Remit first cash interest payments on 2025 and 2028 senior notes in December •Continued focus on execution of integration initiatives 19
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 2021 62 64 64 62 252 20
APPENDIX
Adjusted EPS Q3 2020 YTD Q3 2020 Reported Adjusted Reported Adjusted Results Adjustments 1 Results Results Adjustments 1 Results (in millions, except for EPS) Income from operations $ 178 22 $ 200 $ 254 100 $ 355 Interest expense, net 75 - 75 152 - 152 Other, net (1) - (1) (1) - (1) Income before income taxes 104 22 127 103 100 204 Income tax 24 5 2 29 24 22 2 46 Effective tax rate 23.3% 23.1% 22.9% 22.5% Net income 80 17 97 80 78 158 Less: Non-controlling interests (1) - (1) (1) - (1) Net income attributable to WESCO 81 17 98 81 78 159 Preferred stock dividends 15 - 15 16 - 16 Net income attributable to common stockholders 66 17 84 65 78 143 Diluted Shares 50.5 50.5 45.1 45.1 EPS $ 1.31 $ 1.66 $ 1.44 $ 3.17 1 Merger-related costs and fair value adjustments, gain on sale of an operating branch in the U.S. and the related income tax effects. 2 The adjustments have been tax effected at a rate of 22%. 22
Capital Structure and Leverage $ in millions Pro Forma Reported Twelve Months Ended, EBITDA and Adjusted EBITDA September 30, December 31, 2020 2019 Net income attributable to common stockholders $ 264 $ 223 Net loss attributable to noncontrolling interests (1) (1) Preferred stock dividends 16 - Income tax expense 40 60 Interest expense, net 217 64 Depreciation and amortization 145 62 EBITDA $ 681 $ 408 Other, net 2 1 Stock-based compensation 44 19 Merger-related costs and fair value adjustments 167 3 Gain on sale of asset (20) - Adjusted EBITDA $ 874 $ 431 Cost Synergies1 85 - Pro Forma Adjusted EBITDA $ 959 $ 431 As of, Maturity Debt September 30, December 31, 2019 AR Revolver (variable) $ 890 $ 415 2023 Inventory Revolver (variable) 325 - 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) 1,315 - 2028 Other 54 28 Various Total debt2 $ 4,997 $ 1,293 Less: cash and cash equivalents 352 151 Total debt, net of cash $ 4,645 $ 1,142 Leverage 5.3x 2.6x Pro Forma Leverage 4.8x 2.6x 1 Reflects $85 million of incremental year 1 synergies above $15 million already realized. 2 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: 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. 23
Gross Profit and Free Cash Flow $ in millions Gross Profit Three Months Ended, September September 30, 2020 30, 2019 Net sales $ 4,142 $ 2,148 Cost of goods sold 3,356 1,748 Gross profit $ 786 $ 400 Merger-related fair value adjustments to inventory 28 - Adjusted gross profit1 $ 814 $ 400 Gross margin 19.0% 18.6% Adjusted gross margin 1 19.6% 18.6% Free Cash Flow Three Months Ended, September September 30, 2020 30, 2019 Cash flow provided by operations $ 286 $ 126 Less: capital expenditures (15) (9) Add: merger-related expenditures 36 - Free cash flow2 $ 307 $ 117 Adjusted net income 97 64 % of adjusted net income 315% 181% 1 Gross profit is calculated by deducting cost of goods sold, excluding depreciation and amortization, from net sales. Gross margin is calculated by dividing gross profit by net sales. Adjusted gross profit and adjusted gross margin exclude the effect of merger-related fair value adjustments to inventory of $28.0 million for the three and nine months ended September 30, 2020. 2 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. 24
Adjusted EBITDA $ in millions EBITDA and Adjusted EBITDA by Segment Three Months Ended September 30, 2020 EES CSS UBS Corporate Total Net income attributable to common stockholders $ 107 $ 91 $ 74 $ (206) $ 66 Net loss attributable to noncontrolling interests - - - (1) (1) Preferred stock dividends - - - 15 15 Income tax expense - - - 24 24 Interest expense, net - - - 75 75 Depreciation and amortization 10 19 8 9 46 EBITDA $ 117 $ 110 $ 82 $ (84) $ 225 Other, net (1) (1) - 1 (1) Stock-based compensation expense - - - 6 6 Merger-related costs - - - 14 14 Merger-related fair value adjustments 12 12 4 - 28 Gain on sale of asset (19) - - - (19) Adjusted EBITDA $ 108 $ 121 $ 86 $ (63) $ 252 Adjusted EBITDA margin % 6.5% 8.7% 7.8% 6.1% Note: EBITDA and Adjusted EBITDA are non-GAAP financial measures that provide indicators of the Company's performance and its ability to meet debt service requirements. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before foreign exchange and other non-operating expenses, non-cash stock-based compensation, costs and fair value adjustments associated with the merger with Anixter, and gain on sale of asset. 25