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): February 9, 2021
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | |||||||||||||||
Suite 700 | |||||||||||||||||
| (Zip Code) | |||||||||||||||||
| (Address of principal executive offices) | |||||||||||||||||
(412 454-2200
(Registrant's telephone number, including area code)
Not applicable.
(Former name or former address, if changed since last report)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
| Title of Class | Trading Symbol(s) | Name of Exchange on which registered | ||||||||||||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). | ||||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ | ||||||||||||||
Item 2.02 Results of Operations and Financial Condition.
The information in this Item 2.02 is being furnished and shall not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. The information in this Item 2.02 shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.
On February 9, 2021, WESCO International, Inc. (the “Company”) issued a press release announcing its financial results for the fourth quarter and full year 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 fourth quarter and full year 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) | ||||||||
| February 9, 2021 | By: | /s/ David S. Schulz | ||||||
| (Date) | David S. Schulz | |||||||
| Executive Vice President and Chief Financial Officer | ||||||||
 | NEWS RELEASE | ||||
| WESCO International, Inc. / Suite 700, 225 West Station Square Drive / Pittsburgh, PA 15219 | |||||
WESCO International, Inc. Reports Fourth Quarter
and Full Year 2020 Results
Fourth quarter summary:
•Net sales of $4.1 billion, up 97% due to the Anixter merger
•Operating profit of $93 million; operating margin of 2.2%
–Adjusted operating profit of $172 million; adjusted operating margin of 4.2%
•Earnings per diluted share of $0.11
–Adjusted earnings per diluted share of $1.22
•Operating cash flow of $125 million
–Free cash flow of 161% of adjusted net income
•Leverage of 5.3x; net debt reduction of $109 million
Full year results:
•Net sales of $12.3 billion, up 48% due to the Anixter merger
•Operating profit of $347 million; operating margin of 2.8%
–Adjusted operating profit of $522 million; adjusted operating margin of 4.2%
•Earnings per diluted share of $1.51
–Adjusted earnings per diluted share of $4.37
•Operating cash flow of $544 million
–Free cash flow of 251% of adjusted net income
•Net debt reduction of $389 million; leverage improvement of 0.4x since Anixter merger
PITTSBURGH, February 9, 2021 /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 fourth quarter and full year 2020.
“Fiscal 2020 will be remembered as one of the most important in WESCO’s history. We completed the transformational acquisition of Anixter, doubling our size and changing our trajectory for years to come. We designed and launched a three-year integration plan which in just six months has delivered synergies in excess of our initial targets,” said John Engel, Chairman, President and CEO. “And at the same time, we delivered operating results during a global pandemic which demonstrate the strength of our franchise, the commitment of our extraordinary team of associates, and position us well for future growth as the economy continues its recovery and the secular trends supporting our future growth generate momentum across our business units."
"In the six months since completing the acquisition of Anixter we have already reduced net debt by $389 million. We are confident that we will exceed the synergy targets that we’ve set for our three-year plan. The combination of WESCO and Anixter creates cross-selling opportunities, with initiatives underway that have already delivered early successes. We enter 2021 with a record backlog, a new organizational structure, and the strongest management team we’ve fielded during my time with the Company."
“For 2021, WESCO is exceptionally well positioned to support our customers with an expanded set of products and differentiated services. The efficiencies we capture through our larger scale will combine with growth in electrification, automation, communications and security across our three global business units to drive our performance this year. As such, we expect to outperform in our end markets with sales increasing from 3% to 6% in all three of our business units. We also see our adjusted EBITDA margins expanding to 5.4% to 5.7% and adjusted EPS growing to between $5.50 to $6.00, with free cash flow generation reaching 100% or more of net income.”
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The following are results for the three months ended December 31, 2020 compared to the three months ended December 31, 2019:
•Net sales were $4.1 billion for the fourth quarter of 2020 compared to $2.1 billion for the fourth quarter of 2019, an increase of 96.7% due to the merger with Anixter that was completed on June 22, 2020, partially offset by the impact of weakened demand from the COVID-19 pandemic. Net sales for the fourth quarter of 2020 were up 4.4% sequentially compared to the third quarter that had an additional three work days.
•Cost of goods sold for the fourth quarter of 2020 was $3.4 billion compared to $1.7 billion for the fourth quarter of 2019, and gross profit was $772.0 million and $389.8 million, respectively. As a percentage of net sales, gross profit was 18.7% and 18.6% for the fourth quarter of 2020 and 2019, respectively. Cost of goods sold for the fourth quarter of 2020 includes merger-related fair value adjustments of $15.7 million, as well as an out-of-period adjustment of $23.3 million related to inventory absorption accounting. Adjusted for these amounts, gross profit as a percentage of net sales for the fourth quarter of 2020 was 19.6%.
•Selling, general and administrative expenses were $637.9 million, or 15.5% of net sales, for the fourth quarter of 2020, compared to $289.9 million, or 13.8% of net sales, for the fourth quarter of 2019. SG&A expenses for the fourth quarter of 2020 include merger-related costs of $40.1 million. Adjusted for this amount, SG&A expenses were $597.8 million, or 14.5% of net sales, for the fourth quarter of 2020. SG&A expenses for the fourth quarter of 2019 include $3.1 million of merger-related costs.
•Operating profit was $92.8 million for the fourth quarter of 2020, compared to $83.8 million for the fourth quarter of 2019. Operating profit as a percentage of net sales was 2.2% for the current quarter, compared to 4.0% for the fourth quarter of the prior year. Operating profit for the fourth quarter of 2020 includes merger-related costs and the out-of-period adjustment described above. Adjusted for these amounts, operating profit was $171.8 million, or 4.2% of net sales. Adjusted for merger-related costs of $3.1 million, operating profit was $86.9 million for the fourth quarter of 2019, or 4.1% of net sales.
•Net interest expense for the fourth quarter of 2020 was $74.3 million, compared to $16.4 million for the fourth quarter of 2019. The increase in interest expense was driven by financing activity related to the Anixter merger.
•The effective tax rate was a benefit of 4.7% for the fourth quarter of 2020 compared to expense of 22.0% for the fourth quarter of 2019. The lower effective tax rate in the current quarter was primarily due to one-time impacts from the merger with Anixter.
•Net income attributable to common stockholders was $5.6 million for the fourth quarter of 2020, compared to $53.1 million for the fourth quarter of 2019. Adjusted for the items mentioned above, net income attributable to common stockholders was $62.4 million for the fourth quarter of 2020.
•Earnings per diluted share for the fourth quarter of 2020 was $0.11, based on 51.1 million diluted shares, compared to $1.26 for the fourth quarter of 2019, based on 42.2 million diluted shares. As adjusted, earnings per diluted share for the fourth quarter of 2020 and 2019 was $1.22 and $1.32, respectively.
•Operating cash flow for the fourth quarter of 2020 was $125.0 million, compared to $107.7 million for the fourth quarter of 2019. Free cash flow for the fourth quarter of 2020 was $124.0 million, or 161% of adjusted net income, compared to $94.0 million, or 170% of adjusted net income, for the fourth quarter of 2019.
The following are results for the year ended December 31, 2020 compared to the year ended December 31, 2019:
•Net sales were $12.3 billion for 2020 compared to $8.4 billion for 2019, an increase of 47.6% due to the merger with Anixter that was completed on June 22, 2020, partially offset by the impact of weakened demand from the COVID-19 pandemic.
•Cost of goods sold for 2020 was $10.0 billion and gross profit was $2.3 billion, compared to $6.8 billion and $1.6 billion, respectively, for 2019. As a percentage of net sales, gross profit was 18.9% for both 2020 and 2019. Cost of goods sold for 2020 includes merger-related fair value adjustments of $43.7 million, as well as an out-of-period adjustment of $18.9 million related to inventory absorption accounting. Adjusted for these amounts, gross profit as a percentage of net sales for 2020 was 19.4%.
•Selling, general and administrative expenses were $1.9 billion, or 15.1% of net sales, for 2020, compared to $1.2 billion, or 14.0% of net sales, for 2019. SG&A expenses for 2020 include merger-related costs of $132.2 million, as well as a gain on the sale of a U.S. operating branch. of $19.8 million. Adjusted for these amounts, SG&A expenses for 2020 were $1.7 billion, or 14.2% of net sales, reflecting lower sales and the merger with Anixter, partially offset by cost reduction actions taken in response to the COVID-19 pandemic. SG&A expenses for 2019 include $3.1 million of merger-related costs.
•Operating profit was $347.0 million for 2020, or 2.8% of net sales, compared to $346.2 million for 2019, or 4.1% of net sales. Operating profit for 2020 includes merger-related costs, merger-related fair value adjustments, the out-of-period adjustment
2
described above and gain on the sale of a U.S. operating branch. Adjusted for these amounts, operating profit was $522.0 million, or 4.2% of net sales. Adjusted for merger-related costs of $3.1 million, operating profit was $349.3 million for 2019, or 4.2% of net sales.
•Net interest expense for 2020 was $226.6 million, compared to $65.7 million for 2019. The increase in interest expense was driven by financing activity related to the Anixter merger.
•The effective tax rate for 2020 was 18.6%, compared to 21.2% for 2019. The lower effective tax rate in the current year was primarily due to one-time impacts from the merger with Anixter.
•Net income attributable to common stockholders was $70.4 million for 2020, compared to $223.4 million for 2019. As adjusted for the items mentioned above, net income attributable to common stockholders was $203.6 million for 2020.
•Earnings per diluted share for 2020 was $1.51, based on 46.6 million diluted shares, compared to $5.14 for 2019, based on 43.5 million diluted shares. As adjusted, earnings per diluted share for 2020 and 2019 was $4.37 and $5.20, respectively.
•Operating cash flow for 2020 was $543.9 million, compared to $224.4 million for 2019. Free cash flow for 2020 was $586.1 million, or 251% of adjusted net income, compared to $180.3 million, or 80% of adjusted net income, for 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 December 31, 2020 compared to the three months ended December 31, 2019:
•EES reported net sales of $1.7 billion for the fourth quarter of 2020, compared to $1.2 billion for the fourth quarter of 2019, an increase of 35.2%. Operating profit was $64.2 million for the fourth quarter of 2020, compared to $63.0 million for the fourth quarter of 2019. Adjusted EBITDA was $93.8 million for the fourth quarter of 2020, or 5.6% of net sales, compared to $70.5 million for the fourth quarter of 2019, or 5.7% of net sales.
•CSS reported net sales of $1.4 billion for the fourth quarter of 2020, compared to $228.4 million for the fourth quarter of 2019, an increase of 499.5%. Operating profit was $85.4 million for the fourth quarter of 2020, compared to $11.3 million for the fourth quarter of 2019. Adjusted EBITDA was $111.8 million for the fourth quarter of 2020, or 8.2% of net sales, compared to $13.1 million for the fourth quarter of 2019, or 5.7% of net sales.
•UBS reported net sales of $1.1 billion for the fourth quarter of 2020, compared to $636.9 million for the fourth quarter of 2019, an increase of 71.3%. Operating profit was $64.2 million for the fourth quarter of 2020, compared to $50.5 million for the fourth quarter of 2019. Adjusted EBITDA was $79.2 million for the fourth quarter of 2020, or 7.3% of net sales, compared to $54.0 million for the fourth quarter of 2019, or 8.5% of net sales.
The following are results by segment for the year ended December 31, 2020 compared to the year ended December 31, 2019:
•EES reported net sales of $5.5 billion for 2020, compared to $4.9 billion for 2019, an increase of 12.7%. Operating profit was $260.2 million for 2020, compared to $261.8 million for 2019. Adjusted EBITDA was $294.9 million for 2020, or 5.4% of net sales, compared to $291.5 million for 2019, or 6.0% of net sales.
•CSS reported net sales of $3.3 billion for 2020, compared to $909.5 million for 2019, an increase of 265.4%. Operating profit was $217.2 million for 2020, compared to $43.8 million for 2019. Adjusted EBITDA was $289.6 million for 2020, or 8.7% of net sales, compared to $51.1 million for 2019, or 5.6% of net sales.
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•UBS reported net sales of $3.5 billion for 2020, compared to $2.6 billion for 2019, an increase of 36.1%. Operating profit was $231.7 million for 2020, compared to $184.9 million for 2019. Adjusted EBITDA was $264.6 million for 2020, or 7.5% of net sales, compared to $198.7 million for 2019, or 7.7% of net sales.
Webcast and Teleconference Access
WESCO will conduct a webcast and teleconference to discuss the fourth quarter and full year 2020 earnings as described in this News Release on Tuesday, February 9, 2021, at 10:00 a.m. E.T. The call will be broadcast live over the internet and can be accessed from the Investor Relations page of the Company's website at www.wesco.investorroom.com. The call will be archived on this internet site for seven days.
WESCO International, Inc. (NYSE: WCC), 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 2020 annual sales were over $16 billion, including Anixter International Inc., which it acquired in June 2020. WESCO offers a best-in-class product and services portfolio of Electrical and Electronic Solutions, Communications and Security Solutions, and Utility and Broadband Solutions. The Company employs over 18,000 people, maintains relationships with approximately 30,000 suppliers, and serves approximately 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 approximately 800 branches, warehouses and sales offices in approximately 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 certain legacy WESCO 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 certain legacy WESCO 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 | |||||||||||||||||
| December 31, 2020 | December 31, 2019 | ||||||||||||||||
| Net sales | $ | 4,128,841 | $ | 2,099,452 | |||||||||||||
| Cost of goods sold (excluding depreciation and amortization) | 3,356,890 | 81.3 | % | 1,709,658 | 81.4 | % | |||||||||||
| Selling, general and administrative expenses | 637,912 | 15.5 | % | 289,914 | 13.8 | % | |||||||||||
| Depreciation and amortization | 41,276 | 16,072 | |||||||||||||||
| Income from operations | 92,763 | 2.2 | % | 83,808 | 4.0 | % | |||||||||||
| Interest expense, net | 74,310 | 16,415 | |||||||||||||||
| Other, net | (931) | (194) | |||||||||||||||
| Income before income taxes | 19,384 | 0.5 | % | 67,587 | 3.2 | % | |||||||||||
| Provision for income taxes | (904) | 14,893 | |||||||||||||||
| Net income | 20,288 | 0.5 | % | 52,694 | 2.5 | % | |||||||||||
| Net income (loss) attributable to noncontrolling interests | 304 | (404) | |||||||||||||||
| Net income attributable to WESCO International, Inc. | 19,984 | 0.5 | % | 53,098 | 2.5 | % | |||||||||||
| Preferred stock dividends | 14,352 | — | |||||||||||||||
| Net income attributable to common stockholders | $ | 5,632 | 0.1 | % | $ | 53,098 | 2.5 | % | |||||||||
| Earnings per share attributable to common stockholders | $ | 0.11 | $ | 1.26 | |||||||||||||
| Weighted-average common shares outstanding and common share equivalents used in computing earnings per diluted common share (in thousands) | 51,069 | 42,210 | |||||||||||||||
| Reportable Segments | |||||||||||||||||
| Net sales: | |||||||||||||||||
| Electrical & Electronic Solutions | $ | 1,668,325 | $ | 1,234,118 | |||||||||||||
| Communications & Security Solutions | 1,369,201 | 228,409 | |||||||||||||||
| Utility & Broadband Solutions | 1,091,315 | 636,925 | |||||||||||||||
| $ | 4,128,841 | $ | 2,099,452 | ||||||||||||||
| Income from operations: | |||||||||||||||||
| Electrical & Electronic Solutions | $ | 64,229 | $ | 63,014 | |||||||||||||
| Communications & Security Solutions | 85,448 | 11,334 | |||||||||||||||
| Utility & Broadband Solutions | 64,219 | 50,500 | |||||||||||||||
| Corporate | (121,133) | (41,040) | |||||||||||||||
| $ | 92,763 | $ | 83,808 | ||||||||||||||
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WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollar amounts in thousands, except per share amounts)
(Unaudited)
| Twelve Months Ended | |||||||||||||||||
| December 31, 2020 | December 31, 2019 | ||||||||||||||||
| Net sales | $ | 12,325,995 | 8,358,917 | ||||||||||||||
| Cost of goods sold (excluding depreciation and amortization) | 9,998,329 | 81.1 | % | 6,777,456 | 81.1 | % | |||||||||||
| Selling, general and administrative expenses | 1,859,028 | 15.1 | % | 1,173,137 | 14.0 | % | |||||||||||
| Depreciation and amortization | 121,600 | 62,107 | |||||||||||||||
| Income from operations | 347,038 | 2.8 | % | 346,217 | 4.1 | % | |||||||||||
| Interest expense, net | 226,591 | 65,710 | |||||||||||||||
| Other, net | (2,395) | (1,554) | |||||||||||||||
| Income before income taxes | 122,842 | 1.0 | % | 282,061 | 3.4 | % | |||||||||||
| Provision for income taxes | 22,803 | 59,863 | |||||||||||||||
| Net income | 100,039 | 0.8 | % | 222,198 | 2.7 | % | |||||||||||
| Net loss attributable to noncontrolling interests | (521) | (1,228) | |||||||||||||||
| Net income attributable to WESCO International, Inc. | 100,560 | 0.8 | % | 223,426 | 2.7 | % | |||||||||||
| Preferred stock dividends | 30,139 | — | |||||||||||||||
| Net income attributable to common stockholders | $ | 70,421 | 0.6 | % | $ | 223,426 | 2.7 | % | |||||||||
| Earnings per share attributable to common stockholders | $ | 1.51 | $ | 5.14 | |||||||||||||
| Weighted-average common shares outstanding and common share equivalents used in computing earnings per diluted common share (in thousands) | 46,625 | 43,487 | |||||||||||||||
| Reportable Segments | |||||||||||||||||
| Net sales: | |||||||||||||||||
| Electrical & Electronic Solutions | $ | 5,479,760 | $ | 4,860,541 | |||||||||||||
| Communications & Security Solutions | 3,323,264 | 909,496 | |||||||||||||||
| Utility & Broadband Solutions | 3,522,971 | 2,588,880 | |||||||||||||||
| $ | 12,325,995 | $ | 8,358,917 | ||||||||||||||
| Income from operations: | |||||||||||||||||
| Electrical & Electronic Solutions | $ | 260,207 | $ | 261,788 | |||||||||||||
| Communications & Security Solutions | 217,163 | 43,835 | |||||||||||||||
| Utility & Broadband Solutions | 231,702 | 184,931 | |||||||||||||||
| Corporate | (362,034) | (144,337) | |||||||||||||||
| $ | 347,038 | $ | 346,217 | ||||||||||||||
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WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands)
(Unaudited)
| December 31, 2020 | December 31, 2019 | ||||||||||
| Assets | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | 449,135 | $ | 150,902 | |||||||
| Trade accounts receivable, net | 2,466,903 | 1,187,359 | |||||||||
| Inventories | 2,163,617 | 1,011,674 | |||||||||
| Other current assets | 426,971 | 190,476 | |||||||||
| Total current assets | 5,506,626 | 2,540,411 | |||||||||
| Goodwill and intangible assets | 5,252,664 | 2,046,315 | |||||||||
| Other assets | 1,120,924 | 430,909 | |||||||||
| Total assets | $ | 11,880,214 | $ | 5,017,635 | |||||||
| Liabilities and Stockholders' Equity | |||||||||||
| Current Liabilities | |||||||||||
| Accounts payable | $ | 1,707,329 | $ | 830,478 | |||||||
| Short-term borrowings and current portion of long-term debt | 528,830 | 26,685 | |||||||||
| Other current liabilities | 750,298 | 226,896 | |||||||||
| Total current liabilities | 2,986,457 | 1,084,059 | |||||||||
| Long-term debt, net | 4,369,953 | 1,257,067 | |||||||||
| Other noncurrent liabilities | 1,187,415 | 417,838 | |||||||||
| Total liabilities | 8,543,825 | 2,758,964 | |||||||||
| Stockholders' Equity | |||||||||||
| Total stockholders' equity | 3,336,389 | 2,258,671 | |||||||||
| Total liabilities and stockholders' equity | $ | 11,880,214 | $ | 5,017,635 | |||||||
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WESCO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands)
(Unaudited)
| Twelve Months Ended | |||||||||||
| December 31, 2020 | December 31, 2019 | ||||||||||
| Operating Activities: | |||||||||||
| Net income | $ | 100,039 | $ | 222,198 | |||||||
| Add back (deduct): | |||||||||||
| Depreciation | 55,086 | 26,579 | |||||||||
| Amortization of intangible assets | 66,514 | 35,528 | |||||||||
| Deferred income taxes | (33,538) | 13,205 | |||||||||
| Change in trade receivables, net | 47,879 | 11,453 | |||||||||
| Change in inventories | 203,827 | (47,297) | |||||||||
| Change in accounts payable | (54,127) | 23,505 | |||||||||
| Other, net | 158,251 | (60,804) | |||||||||
| Net cash provided by operating activities | 543,931 | 224,367 | |||||||||
| Investing Activities: | |||||||||||
| Capital expenditures | (56,671) | (44,067) | |||||||||
Other(1) | (3,678,478) | (16,733) | |||||||||
| Net cash used in investing activities | (3,735,149) | (60,800) | |||||||||
| Financing Activities: | |||||||||||
Debt borrowings, net(2) | 3,589,904 | 58,207 | |||||||||
| Equity activity, net | (3,434) | (153,049) | |||||||||
Other(3) | (105,729) | (14,924) | |||||||||
| Net cash provided by (used in) financing activities | 3,480,741 | (109,766) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | 8,710 | 758 | |||||||||
| Net change in cash and cash equivalents | 298,233 | 54,559 | |||||||||
| Cash and cash equivalents at the beginning of the period | 150,902 | 96,343 | |||||||||
| Cash and cash equivalents at the end of the period | $ | 449,135 | $ | 150,902 | |||||||
(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 $80.2 million of costs associated with the debt financing used to fund a portion of the merger with Anixter, and $30.1 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 pro forma sales, 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 items impacting comparability of results such as merger-related costs and fair value adjustments, an out-of-period adjustment related to inventory absorption accounting, gain on sale of a U.S. operating branch, and the related income tax effect of such items, allowing investors to more easily compare the Company's financial performance from period to period. Management does not use these non-GAAP financial measures for any purpose other than the reasons stated above.
9
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in thousands, except per share data)
(Unaudited)
| Three Months Ended | Twelve Months Ended | ||||||||||||||||||||||
| Gross Profit: | December 31, 2020 | December 31, 2019 | December 31, 2020 | December 31, 2019 | |||||||||||||||||||
| Net sales | $ | 4,128,841 | $ | 2,099,452 | $ | 12,325,995 | $ | 8,358,917 | |||||||||||||||
| Cost of goods sold (excluding depreciation and amortization) | 3,356,890 | 1,709,658 | 9,998,329 | 6,777,456 | |||||||||||||||||||
| Gross profit | $ | 771,951 | $ | 389,794 | $ | 2,327,666 | $ | 1,581,461 | |||||||||||||||
Adjusted gross profit(1) | $ | 810,909 | $ | 389,794 | $ | 2,390,213 | $ | 1,581,461 | |||||||||||||||
| Gross margin | 18.7 | % | 18.6 | % | 18.9 | % | 18.9 | % | |||||||||||||||
Adjusted gross margin(1) | 19.6 | % | 18.6 | % | 19.4 | % | 18.9 | % | |||||||||||||||
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, and an out-of-period adjustment related to inventory absorption accounting totaling $39.0 million and $62.5 million for the three and twelve months ended December 31, 2020, respectively.
| Three Months Ended | Twelve Months Ended | ||||||||||||||||||||||
| Adjusted Income from Operations: | December 31, 2020 | December 31, 2019 | December 31, 2020 | December 31, 2019 | |||||||||||||||||||
| Income from operations | $ | 92,763 | $ | 83,808 | $ | 347,038 | $ | 346,217 | |||||||||||||||
| Merger-related costs | 40,107 | 3,130 | 132,236 | 3,130 | |||||||||||||||||||
| Merger-related fair value adjustments | 15,674 | — | 43,693 | — | |||||||||||||||||||
| Out-of-period adjustment | 23,283 | — | 18,852 | — | |||||||||||||||||||
| Gain on sale of asset | — | — | (19,816) | — | |||||||||||||||||||
| Adjusted income from operations | $ | 171,827 | $ | 86,938 | $ | 522,003 | $ | 349,347 | |||||||||||||||
| Adjusted income from operations margin % | 4.2 | % | 4.1 | % | 4.2 | % | 4.2 | % | |||||||||||||||
| Three Months Ended | Twelve Months Ended | ||||||||||||||||||||||
| Adjusted Provision for Income Taxes: | December 31, 2020 | December 31, 2019 | December 31, 2020 | December 31, 2019 | |||||||||||||||||||
| Provision for income taxes | $ | (904) | $ | 14,893 | $ | 22,803 | $ | 59,863 | |||||||||||||||
Income tax effect of adjustments to income from operations(1) | 22,264 | 664 | 41,817 | 664 | |||||||||||||||||||
| Adjusted provision for income taxes | $ | 21,360 | $ | 15,557 | $ | 64,620 | $ | 60,527 | |||||||||||||||
(1) The adjustments to income from operations have been tax effected at rates of 28.2% and 23.9% for the three and twelve months ended December 31, 2020, respectively, and 21.2% for the three and twelve months ended December 31, 2019.
10
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in thousands, except per share data)
(Unaudited)
| Three Months Ended | Twelve Months Ended | ||||||||||||||||||||||
| Adjusted Earnings per Diluted Share: | December 31, 2020 | December 31, 2019 | December 31, 2020 | December 31, 2019 | |||||||||||||||||||
| Adjusted income from operations | $ | 171,827 | $ | 86,938 | $ | 522,003 | $ | 349,347 | |||||||||||||||
| Interest expense, net | 74,310 | 16,415 | 226,591 | 65,710 | |||||||||||||||||||
| Other, net | (931) | (194) | (2,395) | (1,554) | |||||||||||||||||||
| Adjusted income before income taxes | 98,448 | 70,717 | 297,807 | 285,191 | |||||||||||||||||||
| Adjusted provision for income taxes | 21,360 | 15,557 | 64,620 | 60,527 | |||||||||||||||||||
| Adjusted net income | 77,088 | 55,160 | 233,187 | 224,664 | |||||||||||||||||||
| Net income (loss) attributable to noncontrolling interests | 304 | (404) | (521) | (1,228) | |||||||||||||||||||
| Adjusted net income attributable to WESCO International, Inc. | 76,784 | 55,564 | 233,708 | 225,892 | |||||||||||||||||||
| Preferred stock dividends | 14,352 | — | 30,139 | — | |||||||||||||||||||
| Adjusted net income attributable to common stockholders | $ | 62,432 | $ | 55,564 | $ | 203,569 | $ | 225,892 | |||||||||||||||
| Diluted shares | 51,069 | 42,210 | 46,625 | 43,487 | |||||||||||||||||||
| Adjusted earnings per diluted share | $ | 1.22 | $ | 1.32 | $ | 4.37 | $ | 5.20 | |||||||||||||||
Note: Income from operations, the provision for income taxes and earnings per diluted share for the three and twelve months ended December 31, 2020 have been adjusted to exclude merger-related costs and fair value adjustments, an out-of-period adjustment related to inventory absorption accounting, gain on sale of a U.S. operating branch, and the related income tax effects. For the three and twelve months ended December 31, 2019, income from operations, the provision for income taxes and earnings per diluted share have been adjusted to exclude merger-related costs 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 December 31, 2020 | ||||||||||||||||||||||||||||||||
| EBITDA and Adjusted EBITDA by Segment: | EES | CSS | UBS | Corporate | Total | |||||||||||||||||||||||||||
| Net income attributable to common stockholders | $ | 66,164 | $ | 88,916 | $ | 64,195 | $ | (213,643) | $ | 5,632 | ||||||||||||||||||||||
| Net income attributable to noncontrolling interests | (178) | — | — | 482 | 304 | |||||||||||||||||||||||||||
| Preferred stock dividends | — | — | — | 14,352 | 14,352 | |||||||||||||||||||||||||||
| Provision for income taxes | — | — | — | (904) | (904) | |||||||||||||||||||||||||||
| Interest expense, net | — | — | — | 74,310 | 74,310 | |||||||||||||||||||||||||||
| Depreciation and amortization | 11,173 | 13,372 | 7,227 | 9,504 | 41,276 | |||||||||||||||||||||||||||
| EBITDA | $ | 77,159 | $ | 102,288 | $ | 71,422 | $ | (115,899) | $ | 134,970 | ||||||||||||||||||||||
| Other, net | (1,757) | (3,468) | 24 | 4,270 | (931) | |||||||||||||||||||||||||||
| Stock-based compensation expense | 141 | 6 | 77 | 2,495 | 2,719 | |||||||||||||||||||||||||||
| Merger-related costs | — | — | — | 40,107 | 40,107 | |||||||||||||||||||||||||||
| Merger-related fair value adjustments | 3,716 | 9,656 | 2,302 | — | 15,674 | |||||||||||||||||||||||||||
| Out-of-period adjustment | 14,589 | 3,273 | 5,421 | — | 23,283 | |||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 93,848 | $ | 111,755 | $ | 79,246 | $ | (69,027) | $ | 215,822 | ||||||||||||||||||||||
| Adjusted EBITDA margin % | 5.6 | % | 8.2 | % | 7.3 | % | 5.2 | % | ||||||||||||||||||||||||
| Three Months Ended December 31, 2019 | ||||||||||||||||||||||||||||||||
| EBITDA and Adjusted EBITDA by Segment: | EES | CSS | UBS | Corporate | Total | |||||||||||||||||||||||||||
| Net income attributable to common stockholders | $ | 63,612 | $ | 11,334 | $ | 50,500 | $ | (72,348) | $ | 53,098 | ||||||||||||||||||||||
| Net loss attributable to noncontrolling interests | (404) | — | — | — | (404) | |||||||||||||||||||||||||||
| Provision for income taxes | — | — | — | 14,893 | 14,893 | |||||||||||||||||||||||||||
| Interest expense, net | — | — | — | 16,415 | 16,415 | |||||||||||||||||||||||||||
| Depreciation and amortization | 7,226 | 1,703 | 3,465 | 3,678 | 16,072 | |||||||||||||||||||||||||||
| EBITDA | $ | 70,434 | $ | 13,037 | $ | 53,965 | $ | (37,362) | $ | 100,074 | ||||||||||||||||||||||
| Other, net | (194) | — | — | — | (194) | |||||||||||||||||||||||||||
| Stock-based compensation expense | 279 | 19 | 58 | 4,465 | 4,821 | |||||||||||||||||||||||||||
| Merger-related costs | — | — | — | 3,130 | 3,130 | |||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 70,519 | $ | 13,056 | $ | 54,023 | $ | (29,767) | $ | 107,831 | ||||||||||||||||||||||
| Adjusted EBITDA margin % | 5.7 | % | 5.7 | % | 8.5 | % | 5.1 | % | ||||||||||||||||||||||||
12
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in thousands, except per share data)
(Unaudited)
| Year Ended December 31, 2020 | ||||||||||||||||||||||||||||||||
| EBITDA and Adjusted EBITDA by Segment: | EES | CSS | UBS | Corporate | Total | |||||||||||||||||||||||||||
| Net income attributable to common stockholders | $ | 262,829 | $ | 217,211 | $ | 231,678 | $ | (641,297) | $ | 70,421 | ||||||||||||||||||||||
| Net loss attributable to noncontrolling interests | (842) | — | — | 321 | (521) | |||||||||||||||||||||||||||
| Preferred stock dividends | — | — | — | 30,139 | 30,139 | |||||||||||||||||||||||||||
| Provision for income taxes | — | — | — | 22,803 | 22,803 | |||||||||||||||||||||||||||
| Interest expense, net | — | — | — | 226,591 | 226,591 | |||||||||||||||||||||||||||
| Depreciation and amortization | 35,811 | 37,765 | 22,380 | 25,644 | 121,600 | |||||||||||||||||||||||||||
| EBITDA | $ | 297,798 | $ | 254,976 | $ | 254,058 | $ | (335,799) | $ | 471,033 | ||||||||||||||||||||||
| Other, net | (1,780) | (48) | 24 | (591) | (2,395) | |||||||||||||||||||||||||||
| Stock-based compensation expense | 991 | 59 | 298 | 15,366 | 16,714 | |||||||||||||||||||||||||||
| Merger-related costs | — | — | — | 132,236 | 132,236 | |||||||||||||||||||||||||||
| Merger-related fair value adjustments | 15,411 | 22,000 | 6,282 | — | 43,693 | |||||||||||||||||||||||||||
| Out-of-period adjustment | 2,325 | 12,634 | 3,893 | — | 18,852 | |||||||||||||||||||||||||||
| Gain on sale of asset | (19,816) | — | — | — | (19,816) | |||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 294,929 | $ | 289,621 | $ | 264,555 | $ | (188,788) | $ | 660,317 | ||||||||||||||||||||||
| Adjusted EBITDA margin % | 5.4 | % | 8.7 | % | 7.5 | % | 5.4 | % | ||||||||||||||||||||||||
| Year Ended December 31, 2019 | ||||||||||||||||||||||||||||||||
| EBITDA and Adjusted EBITDA by Segment: | EES | CSS | UBS | Corporate | Total | |||||||||||||||||||||||||||
| Net income attributable to common stockholders | $ | 264,570 | $ | 43,835 | $ | 184,931 | $ | (269,910) | $ | 223,426 | ||||||||||||||||||||||
| Net loss attributable to noncontrolling interests | (1,228) | — | — | — | (1,228) | |||||||||||||||||||||||||||
| Provision for income taxes | — | — | — | 59,863 | 59,863 | |||||||||||||||||||||||||||
| Interest expense, net | — | — | — | 65,710 | 65,710 | |||||||||||||||||||||||||||
| Depreciation and amortization | 28,569 | 7,155 | 13,583 | 12,800 | 62,107 | |||||||||||||||||||||||||||
| EBITDA | $ | 291,911 | $ | 50,990 | $ | 198,514 | $ | (131,537) | $ | 409,878 | ||||||||||||||||||||||
| Other, net | (1,554) | — | — | — | (1,554) | |||||||||||||||||||||||||||
| Stock-based compensation expense | 1,116 | 77 | 231 | 17,638 | 19,062 | |||||||||||||||||||||||||||
| Merger-related costs | — | — | — | 3,130 | 3,130 | |||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 291,473 | $ | 51,067 | $ | 198,745 | $ | (110,769) | $ | 430,516 | ||||||||||||||||||||||
| Adjusted EBITDA margin % | 6.0 | % | 5.6 | % | 7.7 | % | 5.2 | % | ||||||||||||||||||||||||
Note: EBITDA, Adjusted EBITDA and Adjusted EBITDA margin % are non-GAAP financial measures that provide indicators of the Company's performance and its ability to meet debt service requirements. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before other, net, non-cash stock-based compensation, merger-related costs and fair value adjustments, an out-of-period adjustment related to inventory absorption accounting, and gain on sale of a U.S. operating branch. Adjusted EBITDA margin % is calculated by dividing Adjusted EBITDA by net sales.
13
WESCO INTERNATIONAL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(dollar amounts in thousands, except per share data)
(Unaudited)
Pro Forma(1) | Reported | ||||||||||
| Twelve Months Ended | Twelve Months Ended | ||||||||||
| Financial Leverage: | December 31, 2020 | December 31, 2019 | |||||||||
| Net income attributable to common stockholders | $ | 115,572 | $ | 223,426 | |||||||
| Net loss attributable to noncontrolling interests | (521) | (1,228) | |||||||||
| Preferred stock dividends | 30,139 | — | |||||||||
| Provision for income taxes | 55,659 | 59,863 | |||||||||
| Interest expense, net | 255,842 | 65,710 | |||||||||
| Depreciation and amortization | 153,499 | 62,107 | |||||||||
| EBITDA | $ | 610,190 | $ | 409,878 | |||||||
| Other, net | 4,635 | (1,554) | |||||||||
| Stock-based compensation | 34,733 | 19,062 | |||||||||
| Merger-related costs and fair value adjustments | 206,748 | 3,130 | |||||||||
| Out-of-period adjustment | 18,852 | — | |||||||||
| Gain on sale of asset | (19,816) | — | |||||||||
| Adjusted EBITDA | $ | 855,342 | $ | 430,516 | |||||||
| December 31, 2020 | December 31, 2019 | ||||||||||
| Short-term borrowings and current portion of long-term debt | $ | 528,830 | $ | 26,685 | |||||||
| Long-term debt | 4,369,953 | 1,257,067 | |||||||||
Debt discount and debt issuance costs(2) | 88,181 | 8,876 | |||||||||
Fair value adjustments to Anixter Notes due 2023 and 2025(2) | (1,650) | — | |||||||||
| Total debt | 4,985,314 | 1,292,628 | |||||||||
| Less: cash and cash equivalents | 449,135 | 150,902 | |||||||||
| Total debt, net of cash | $ | 4,536,179 | $ | 1,141,726 | |||||||
| Financial leverage ratio | 5.3 | 2.7 | |||||||||
(1)Pro forma adjusted EBITDA includes the financial results of the legacy WESCO Utility and Datacom businesses in Canada, which are being divested under a Consent Agreement with the Competition Bureau of Canada.
(2)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, an out-of-period adjustment related to inventory absorption accounting, and gain on the sale of a U.S. operating branch. 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 | Twelve Months Ended | ||||||||||||||||||||||
| Free Cash Flow: | December 31, 2020 | December 31, 2019 | December 31, 2020 | December 31, 2019 | |||||||||||||||||||
| Cash flow provided by operations | $ | 124,993 | $ | 107,703 | $ | 543,931 | $ | 224,367 | |||||||||||||||
| Less: Capital expenditures | (14,109) | (13,744) | (56,671) | (44,067) | |||||||||||||||||||
| Add: Merger-related expenditures | 13,147 | — | 98,822 | — | |||||||||||||||||||
| Free cash flow | $ | 124,031 | $ | 93,959 | $ | 586,082 | $ | 180,300 | |||||||||||||||
| Percentage of adjusted net income | 161 | % | 170 | % | 251 | % | 80 | % | |||||||||||||||
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 twelve months ended December 31, 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
1 Fourth Quarter 2020 Webcast Presentation February 9, 2021 NYSE: WCC
2 Forward-Looking Statements All statements made herein that are not historical facts should be considered as forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. These statements include, but are not limited to, statements regarding the process to divest certain legacy WESCO 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 certain legacy WESCO 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 slide presentation includes certain non-GAAP financial measures. These financial measures include pro forma 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 items impacting comparability of results such as merger-related costs and fair value adjustments, an out-of-period adjustment related to inventory absorption accounting, gain on sale of a U.S. operating branch, and the related income tax effect of such items, allowing investors to more easily compare the Company's financial performance from period to period. Management does not use these non-GAAP financial measures for any purpose other than the reasons stated above.
3 Agenda Business Overview Financial Results Overview John Engel Chairman, President & CEO Executive Vice President & CFO Dave Schulz
4 2020 Summary Transformation well underway…substantial value creation has begun Exceeding Our Expectations • Successfully closed Anixter transaction; integration is going exceptionally well – Synergy capture exceeding expectations, raised external targets in November 2020 – Increased scale and complementary capabilities driving cross-sell pipeline and positive sales momentum – New organization up and running, high-performance culture in place • Rapid COVID response to support employee safety, customer operations and supply chain needs • Leveraged competitive capabilities to gain share against unprecedented macro challenges Outperforming The Markets • Leading scale and diversified portfolio • Service differentiation and complete supply chain solutions • Well positioned to capitalize on attractive secular growth trends LED Adoption Communications + Ongoing Emerging Significant upside potential on sales growth, cost, margin, and cash flow targets
5 Second Half Priorities and Achievements •Sales momentum accelerated in 2H 2020 and has continued into 2021 Take share Workday-adjusted sales up 4% sequentially in Q4 versus typical seasonal decline Cross selling initiatives underway with new wins captured in each business Entered 2021 with record year-end backlog Return to growth in January 2021 with sales per workday up LSD versus prior year Deliver Synergies Tracking to previously increased synergy targets with upside Reduced headcount by over 650 through integration initiatives Adjusted gross margin up YoY for second consecutive quarter due to improved sales processes and benefits of scale Integration management office fully established and driving daily execution Focus free cash flow generation on debt reduction Generated $124 million of free cash flow in Q4 and $586 million in FY 2020 Reduced net debt by $389 million and leverage by 0.4x in first six months post-acquisition Completed debt refinancing in January 2021 that reduces interest expense by $20 million per year
6 Fourth Quarter Results Overview Dave Schulz Executive Vice President & Chief Financial Officer
7 Cost Synergy Target Timeline •Introducing calendar year targets $39 $130 $200 $250 2H 2020 FY 2021 FY 2022 TTM 1H 2023 Cumulative Realized Cost Synergy Target $M COGS 20% OPEX 80% Target Cost Synergy Mix $37 $115 $160 $175 Cumulative one-time operating expenses
8 $180 $586 FY 2019 FY 2020 Free Cash Flow & Liquidity •Strong free cash flow generation and liquidity supports future growth Free Cash Flow Capital Deployment Cash & Debt Maturity Liquidity 251% of adjusted net income 80% of adjusted net income • Strong free cash flow in Q4 and FY 2020 • Net debt reduction of $109 million in Q4 and $389 million in 2H 2020 • Leverage reduced 0.4x since Anixter acquisition closed in June • Liquidity of ~$1.1 billion1 – Invested cash: $259 million – Revolver availability: $802 million – AR facility availability: $75 millionCash 2021 2022 2023 2024 2025 and beyond $259 $530 $1,009 $350 $3,079 $M $M As of 12/31/20 As of 12/31/20 1Excludes $175 million and $100 million of incremental AR facility and Revolver capacity, respectively, resulting from amendments completed on January 5, 2021 2 $500 million senior notes due 2021 were redeemed on January 14, 2021 Bonds Bank lines 2 On-track to rapidly delever to target leverage range of 2.0–3.5x by June 2023
9 Q4 2019 Pro Forma1 Q3 2020 Q4 2020 Versus Q4 2019 Versus Q3 2020 Sales $4,352 $4,142 $4,129 (5)% flat Adjusted Gross Profit2 850 814 811 (5)% flat % of sales 19.5% 19.6% 19.6% +10 bps flat Adjusted Income from Operations2 185 200 172 (7)% (14)% % of sales 4.3% 4.8% 4.2% (10) bps (60) bps Adjusted EBITDA2 229 252 216 (6)% (14)% % of sales 5.3% 6.1% 5.2% (10) bps (90) bps Adjusted Diluted EPS2 $1.66 $1.22 Fourth Quarter Results Overview Year-over-year margin improvement and accelerating sales momentum in Q4 1 Information as filed as an exhibit to Form 8-K on November 4, 2020. 2 Adjusted Gross profit, Adjusted Income from Operations, Adjusted EBITDA and Adjusted earnings per diluted share have been adjusted to exclude merger-related costs and fair value adjustments, an out-of-period adjustment related to inventory absorption accounting, gain on sale of a U.S. operating branch in the third quarter, and the related income tax effects. See appendix for reconciliation. $M Except per share amounts • Sequential sales +4% on comparable workday basis • Effective October 1, 2020 reinstated salaries and merit adjustments, and resumed retirement matching contributions • Record year-end backlog
10 Industry-leading businesses diversified by products, services, end markets and geographies WESCO’s Three Strategic Business Units (SBUs) Utility & Broadband Solutions (UBS) Electrical & Electronic Solutions (EES) Communications & Security Solutions (CSS) 40% of total company sales 33% of total company sales 27% of total company sales Construction | Industrial | OEM | CIG | Lighting Utility | Broadband | Integrated Supply Technology | Financial | Government | Healthcare | Education • Contractors and specialty integrators • Industrial, automation, commercial, institutional, and government • OEM and global complex manufacturing • Turn-key lighting and energy solutions • Cloud and data center • Contractors and integrators • Security solutions • Professional audio/video • In-building wireless • Safety solutions • IOUs, public power, and contractors • Global Service Providers, wireless and broadband operators • Integrated Supply solutions INDUSTRIES SERVING % of SALES (2020 Pro Forma) Legacy Anixter Legacy WESCO Legend
11 Construction Industrial / MRO OEM / CIG $115 $108 $94 Q4 2019 Pro Forma Q3 2020 Q4 2020 $1,833 $1,654 $1,668 Q4 2019 Pro Forma Q3 2020 Q4 2020 Electrical & Electronic Solutions (EES) •Improving sequential momentum and record backlog provides positive set-up for 2021 See appendix for non-GAAP reconciliations. Sales Adjusted EBITDA $M 6.2% of sales 6.5% of sales 5.6% of sales Reported +1% WD adjusted +6% Sequential Sequential Performance Drivers • Strong sequential sales improvement in 2nd half; initial cross-sell wins offering complete electrical package • Construction demand improving – Record year-end backlog – Some project delays but not cancellations • Increasing momentum in Industrial and OEM – MRO and project activity levels improving across all verticals – OEM recovery underway – Robust opportunity pipeline • Adjusted EBITDA driven by restoration of salary and benefits related to COVID cost actions in October U.S. Canada ROW 1 Information as filed as an exhibit to Form 8-K on November 4, 2020. 1 1
12 Communications & Security Solutions (CSS) Continue to take share with industry-leading value propositions in attractive high-growth markets Sequential Performance Drivers • Improving sales momentum in Q4 to close out a strong 2020 with continued share gains • Network infrastructure growth driven by increasing global enterprise accounts, data centers, in-building wireless, and professional A/V applications • Security solutions driven by expanding secure network and IP security applications; continued share gains and robust pipeline in place • Adjusted EBITDA and margins remain strong YoY $1,433 $1,389 $1,369 Q4 2019 Pro Forma Q3 2020 Q4 2020 $111 $121 $112 Q4 2019 Pro Forma Q3 2020 Q4 2020 7.7% of sales 8.7% of sales 8.2% of sales Reported (1)% WD adjusted +3% Sequential Network Infrastructure Security Solutions Other U.S. Canada ROW Sales Adjusted EBITDA See appendix for non-GAAP reconciliations. 1 Information as filed as an exhibit to Form 8-K on November 4, 2020. 1 1 $M
13 Sequential Performance Drivers • Strong results in 2020 with continued share gains • Utility strength continues with grid modernization activities, project backlog, lighting and automation driving demand • Strong broadband growth driven by 5G buildouts, FTTx deployments and increasing remote work applications • Adjusted EBITDA and margins remain strong YoY Utility & Broadband Solutions (UBS) Unmatched supply chain capabilities enable WESCO to continue to take share $1,086 $1,099 $1,091 Q4 2019 Pro Forma Q3 2020 Q4 2020 $79 $86 $79 Q4 2019 Pro Forma Q3 2020 Q4 2020 7.2% of sales 7.8% of sales 7.3% of sales Sequential Reported (1)% WD adjusted +4% Utility Integrated Supply Broadband U.S. Canada ROW Sales Adjusted EBITDA See appendix for non-GAAP reconciliations. 1 Information as filed as an exhibit to Form 8-K on November 4, 2020. 1 1 $M
14 Q1 2021 Drivers • Estimate ~$28 million of realized cost synergies • 2 fewer workdays in Q1 21 than prior year 2021 Outlook Sales growth and cost synergies drive growth and profitability in 2021 FY 2021 Outlook 2020 Pro Forma Sales1 $16.0B 2021 Outlook: Market growth 3% - 5% Plus: share gain / cross sell 1% - 2% Less: impact of one fewer workday in 2021 and divestitures (~1%) Reported Sales 3% - 6% 2020 Pro Forma Adjusted EBITDA $855M 2021 Outlook: Adjusted EBITDA Margin2 5.4% - 5.7% Effective Tax Rate ~23% Adjusted EPS2 $5.50 - $6.00 Free Cash Flow ~100% of Adjusted Net Income Capital Expenditures $100 - $120M Workdays 2021 2020 Jan 19 22 Feb 20 20 Mar 23 22 Q1 62 64 2021 Adjusted EBITDA Margin Outlook2 2020 Pro Forma Adjusted EBITDA Margin 5.3% Plus: improving mix, market outperformance, and operating leverage 50 – 80 bps Less: COVID restoration, incentive compensation, and benefits ~(90) bps Plus: ~$90M incremental realized synergies ~55 bps 2021 Adjusted EBITDA margin 5.4% - 5.7% Continuing to deliver on our integration commitments in 2021 1 Adjusted to account for a difference in workdays in Q2 2020 versus the pro forma financial information filed on Form 8-K on November 4, 2020. 2 Adjusted EBITDA is defined as EBITDA before other, net, non-cash stock-based compensation and merger-related costs; Adjusted EPS only excludes merger-related costs and the related income tax effects.
15 Summary •WESCO’s new era is off to an exceptional start • Excellent performance against a COVID-driven environment in 2020 • Strong execution, substantial progress made on integration in first six months – Delivering integration commitments while maintaining momentum in base business – New organization structure and strengthened management team in place – Generating initial cross-selling results in all three businesses – Synergies on track with high confidence on delivering upside • Excellent free cash flow generation demonstrates resilient business model and consistent strength through the cycle; on-track to rapidly delever • Entering 2021 from position of strength • Exceptionally well positioned to capitalize on evolving secular growth trends
APPENDIX
17 Glossary 1H: First half of fiscal year 2H: Second half of fiscal year A/V: Audio/visual COGS: Cost of goods sold CIG: Commercial, Institutional, and Government CSS: Communications & Security Solutions (business unit) EES: Electrical & Electronic Solutions (business unit) ETR: Effective tax rate FTTx: Fiber-to-the-x (last mile fiber optic network connections) HSD: High-single digit LSD: Low-single digit Executed synergies: Initiatives fully implemented – actions taken to generate savings Realized synergies: Savings that impact financial results versus pro forma 2019 One-time operating expenses: Operating expenses that are in or will be realized in the P&L (including cash and non-cash) Leverage: Debt, net of cash, divided by trailing-twelve-month adjusted EBITDA MRO: Maintenance, repair, and operating MSD: Mid-single digit PF: Pro Forma OEM: Original equipment manufacturer OPEX: Operating expenses ROW: Rest of world Seq: Sequential TTM: Trailing twelve months UBS: Utility & Broadband Solutions (business unit) WD: Workday YoY: Year-over-year Abbreviations Definitions
18 Workdays Q1 Q2 Q3 Q4 FY 2019 63 64 63 62 252 2020 64 64 64 61 253 2021 62 64 64 62 252
19 Adjusted EPS Reported Results Adjusted Results Reported Results Adjusted Results ($M, except for EPS) Income from operations 92.8$ 79.0$ 171.8$ 347.0$ 175.0$ 522.0$ Interest expense, net 74.3 - 74.3 226.6 - 226.6 Other, net (0.9) - (0.9) (2.4) - (2.4) Income before income taxes 19.4 79.0 98.4 122.8 175.0 297.8 Income tax (0.9) 22.2 2 21.3 22.8 41.8 2 64.6 Effective tax rate -4.6% 21.6% 18.6% 21.7% Net income 20.3 56.8 77.1 100.0 133.2 233.2 Less: Non-controlling interests 0.3 - 0.3 (0.5) - (0.5) Net income attributable to WESCO 20.0 56.8 76.8 100.5 133.2 233.7 Preferred stock dividends 14.4 - 14.4 30.1 - 30.1 Net income attributable to common stockholders 5.6 56.8 62.4 70.4 133.2 203.6 Diluted Shares 51.1 51.1 46.6 46.6 Adjusted Diluted EPS 0.11$ 1.22$ 1.51$ 4.37$ Q4 2020 YTD 2020 Adjustments (1) Adjustments (1) 2 The adjustments to income from operations have been tax effected at rates of 28.2% and 23.9% for the three and twelve months ended December 31, 2020, respectively. 1 Adjustments include merger-related costs and fair value adjustments, an out-of-period adjustment related to inventory absorption accounting, gain on sale of a U.S. operating branch, and the related income tax effects.
20 Adjusted EBITDA $M EES CSS UBS Corporate Total Net income attributable to common stockholders 66$ 89$ 64$ (213)$ 6$ Preferred stock dividends - - - 14 14 Provision for income taxes - - - (1) (1) Interest expense, net - - - 74 74 Depreciation and amortization 11 13 8 10 42 EBITDA 77$ 102$ 72$ (116)$ 135$ Other, net (2) (3) - 4 (1) Stock-based compensation expense - - - 3 3 Merger-related costs - - - 40 40 Merger-related fair value adjustments 4 10 2 - 16 Out-of-period adjustment 15 3 5 - 23 Adjusted EBITDA 94$ 112$ 79$ (69)$ 216$ Adjusted EBITDA margin % 5.6% 8.2% 7.3% 5.2% EBITDA, Adjusted EBITDA and Adjusted EBITDA margin % by Segment Three Months Ended December 31, 2020
21 Gross Profit and Free Cash Flow $M December 31, 2020 December 31, 2019 Net sales 4,129$ 2,099$ Cost of goods sold (1) 3,357 1,709 Gross profit 772$ 390$ Adjustments (2) 39 - Adjusted gross profit 811$ 390$ Gross margin 18.7% 18.6% Adjusted gross margin 19.6% 18.6% December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019 Cash flow provided by operations 125$ 108$ 544$ 224$ Less: capital expenditures (14) (14) (57) (44) Add: merger-related expenditures 13 - 99 - Free cash flow 124$ 94$ 586$ 180$ Adjusted net income 77 55 233 225 % of adjusted net income 161% 170% 251% 80% Twelve Months Ended, Gross Profit Three Months Ended, Free Cash Flow Three Months Ended,
22 Capital Structure and Leverage $M Pro Forma Reported December 31, 2020 December 31, 2019 Net income attributable to common stockholders 116$ 223$ Net loss attributable to noncontrolling interests (1) (1) Preferred stock dividends 30 - Provision for income taxes 56 60 Interest expense, net 256 66 Depreciation and amortization 153 62 EBITDA 610$ 410$ Other, net 5 (2) Stock-based compensation 35 19 Merger-related costs and fair value adjustments 207 3 Out-of-period adjustment 19 - Gain on sale of asset (20) - Adjusted EBITDA 855$ 430$ Maturity December 31, 2020 December 31, 2019 Receivables Securitization (variable) 950$ 415$ 2023 Inventory Revolver (variable) 250 - 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 47 28 Various Total debt 1 4,985$ 1,293$ Less: cash and cash equivalents 449 151 Total debt, net of cash 4,536$ 1,142$ Leverage 5.3x 2.7x Financial Leverage Twelve Months Ended, Debt As of, 1 Total debt is presented in the 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.