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."

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 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.
  • 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 5, 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

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 

 

 

 

 

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 

 

 

 

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 

 

 

 

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.

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.

 

 

 

 

 

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 

 

 

Text Box: 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.(1)    The adjustments to income from operations have been tax effected at a rate of 22%.

 

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 

 

 

 

 

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 

%

                                         
 

Text Box: 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.

 

 

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 

%

 

                                                             

 

 

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.

 

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.