Attached files
| file | filename |
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| 8-K - 8-K - WESCO INTERNATIONAL INC | wcc-20201105.htm |
| EX-99.2 - EX-99.2 - WESCO INTERNATIONAL INC | wcc-3q2020slides.htm |
 | 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.
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NON-GAAP FINANCIAL MEASURES
In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles ("U.S. GAAP") above, this earnings release includes certain non-GAAP financial measures. These financial measures include 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.
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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