WESCO International(WCC) - 2023 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION Financial Statements This section presents the unaudited Condensed Consolidated Financial Statements for WESCO International, Inc. as of September 30, 2023, and for the three and nine-month periods then ended, including Balance Sheets, Statements of Income and Comprehensive Income, Statements of Cash Flows, Statements of Stockholders' Equity, and accompanying notes Condensed Consolidated Balance Sheets Total assets increased to $15.17 billion as of September 30, 2023, from $14.81 billion at year-end 2022, driven by increases in cash and cash equivalents and inventories, while total liabilities slightly decreased to $10.29 billion, leading to an increase in total stockholders' equity to $4.88 billion Condensed Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total current assets | $8,611.4 | $8,330.5 | | Total assets | $15,168.6 | $14,811.7 | | Total current liabilities | $3,653.6 | $3,817.3 | | Total liabilities | $10,286.1 | $10,362.1 | | Total stockholders' equity | $4,882.5 | $4,449.6 | Condensed Consolidated Statements of Income and Comprehensive Income For Q3 2023, net sales grew to $5.64 billion from $5.45 billion year-over-year, but net income attributable to common stockholders slightly decreased to $219.0 million from $225.2 million, while for the nine-month period, net sales increased to $16.91 billion from $15.86 billion, and net income attributable to common stockholders decreased to $580.5 million from $598.5 million Income Statement Highlights (in millions, except per share data) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $5,644.4 | $5,445.9 | $16,911.8 | $15,861.6 | | Income from operations | $380.5 | $401.6 | $1,090.7 | $1,056.3 | | Net income attributable to common stockholders | $219.0 | $225.2 | $580.5 | $598.5 | | Diluted EPS | $4.20 | $4.30 | $11.08 | $11.42 | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, the company generated $423.9 million in cash from operating activities, a significant improvement from a $410.6 million use of cash in the same period of 2022, primarily due to better working capital management, with net cash used in financing activities totaling $253.4 million driven by debt repayments, dividends, and share repurchases Cash Flow Summary for Nine Months Ended Sep 30 (in millions) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $423.9 | $(410.6) | | Net cash used in investing activities | $(61.2) | $(57.2) | | Net cash (used in) provided by financing activities | $(253.4) | $477.2 | | Net change in cash and cash equivalents | $104.1 | $21.5 | Notes to Condensed Consolidated Financial Statements The notes provide detailed disclosure on accounting policies, revenue disaggregation, acquisitions, goodwill, debt, stock-based compensation, and segment performance, highlighting the integration of the Rahi Systems acquisition, revenue growth in the CSS and UBS segments, and a lower effective tax rate due to discrete benefits - The company operates through three strategic business units: Electrical & Electronic Solutions (EES), Communications & Security Solutions (CSS), and Utility & Broadband Solutions (UBS)[28] - On November 1, 2022, the company acquired Rahi Systems Holdings, Inc., a provider of global hyperscale data center solutions, which contributed $131.1 million and $417.6 million of net sales for the three and nine months ended September 30, 2023, respectively[44][47] - During Q3 2023, the company repurchased 325,449 shares of its common stock for $50.5 million under its $1 billion share repurchase authorization[61] Net Sales by Segment (in millions) | Segment | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Electrical & Electronic Solutions | $2,190.7 | $2,234.8 | $6,526.1 | $6,654.9 | | Communications & Security Solutions | $1,778.0 | $1,602.4 | $5,360.9 | $4,638.6 | | Utility & Broadband Solutions | $1,675.7 | $1,608.7 | $5,024.8 | $4,568.1 | | Total | $5,644.4 | $5,445.9 | $16,911.8 | $15,861.6 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the financial results for the third quarter and first nine months of 2023, highlighting single-digit sales growth driven by price inflation, secular trends, and the Rahi Systems acquisition, alongside margin performance, integration synergies, digital transformation initiatives, segment-level performance, liquidity, capital resources, and cash flow analysis Company Overview Wesco is a leading global provider of business-to-business distribution, logistics, and supply chain solutions, employing approximately 20,000 people, serving 150,000 customers, and operating through three segments: Electrical & Electronic Solutions (EES), Communications & Security Solutions (CSS), and Utility & Broadband Solutions (UBS) - Wesco operates approximately 800 branches, warehouses, and sales offices in over 50 countries[94] - The EES segment supplies electrical equipment, automation, lighting, and MRO products to construction, industrial, and OEM markets[96] - The CSS segment is a leader in network infrastructure and security markets, with offerings in safety and energy management[97] - The UBS segment provides products and services to utilities, public power companies, and broadband operators, and also includes Wesco's integrated supply business[98] Results of Operations For Q3 2023, net sales increased 3.6% to $5.6 billion, with organic sales up 2.8%, and Adjusted EBITDA was $457.0 million; for the nine months, net sales grew 6.6% to $16.9 billion, with organic sales up 5.3%, driven by price realization and volume, particularly in the CSS and UBS segments, partially offset by higher SG&A expenses from wage inflation and digital transformation initiatives Q3 2023 vs Q3 2022 Net Sales Growth | Metric | Value | | :--- | :--- | | Reported Growth | 3.6% | | Acquisition Impact | 2.4% | | Workday Impact | (1.6%) | | Organic Sales Growth | 2.8% | YTD 2023 vs YTD 2022 Net Sales Growth | Metric | Value | | :--- | :--- | | Reported Growth | 6.6% | | Acquisition Impact | 2.6% | | Foreign Exchange Impact | (0.8%) | | Workday Impact | (0.5%) | | Organic Sales Growth | 5.3% | - SG&A expenses for the first nine months of 2023 increased by $194.7 million year-over-year, driven by higher salaries from wage inflation and the Rahi Systems acquisition, increased sales commissions, and costs for digital transformation initiatives[142][143][144] - Net interest expense increased 41.1% to $292.3 million for the first nine months of 2023, reflecting higher borrowings and an increase in variable interest rates[147] Segment Results In Q3 2023, CSS led growth with an 11.0% increase in net sales, driven by the Rahi acquisition and 4.1% organic growth, while UBS grew 4.2% (5.8% organic) on strong utility market demand, and EES sales declined 2.0% (0.2% organic decline) due to downturns in construction and manufactured structures, with Adjusted EBITDA margins of 8.7% for EES, 9.9% for CSS, and 11.7% for UBS Q3 2023 Segment Performance | Segment | Net Sales (in millions) | YoY Change | Organic Sales Growth | Adjusted EBITDA (in millions) | Adjusted EBITDA Margin | | :--- | :--- | :--- | :--- | :--- | :--- | | EES | $2,190.7 | (2.0%) | (0.2%) | $191.5 | 8.7% | | CSS | $1,778.0 | 11.0% | 4.1% | $175.5 | 9.9% | | UBS | $1,675.7 | 4.2% | 5.8% | $196.4 | 11.7% | YTD 2023 Segment Performance | Segment | Net Sales (in millions) | YoY Change | Organic Sales Growth | Adjusted EBITDA (in millions) | Adjusted EBITDA Margin | | :--- | :--- | :--- | :--- | :--- | :--- | | EES | $6,526.1 | (1.9%) | (0.5%) | $563.5 | 8.6% | | CSS | $5,360.9 | 15.6% | 7.9% | $510.5 | 9.5% | | UBS | $5,024.8 | 10.0% | 10.9% | $572.7 | 11.4% | Liquidity and Capital Resources As of September 30, 2023, the company had total liquidity of $1.1 billion, including cash and available borrowings, with the financial leverage ratio improving to 2.7x from 2.9x at year-end 2022, and operating cash flow for the first nine months was a strong inflow of $423.9 million, with capital allocation priorities focused on debt reduction, digital transformation, and returning capital to shareholders - Total liquidity as of September 30, 2023, was $1,102.7 million, consisting of $366.4 million in cash and over $736 million in available borrowing capacity[167] - The financial leverage ratio (Total debt, net of cash / Adjusted EBITDA) decreased to 2.7x as of September 30, 2023, compared to 2.9x as of December 31, 2022[173][175] - Capital allocation priorities include debt reduction, digital transformation initiatives, dividends, and share repurchases[170] - Net cash from operating activities was a $423.9 million inflow for the first nine months of 2023, a significant turnaround from the $410.6 million outflow in the prior-year period, driven by improved working capital management[181] Quantitative and Qualitative Disclosures About Market Risk This section refers to the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022, for a discussion of market risks, indicating no material changes since that filing - The company states there are no material changes to the market risks previously disclosed in its 2022 Annual Report on Form 10-K[194] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and internal control over financial reporting, concluding that these controls were effective as of September 30, 2023, with no material changes to internal controls reported during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of the end of the period[195] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[196] PART II—OTHER INFORMATION Legal Proceedings The company is involved in various lawsuits and claims related to its business operations, but management does not believe the ultimate outcome of any pending matters will have a material adverse effect on the company's financial condition or liquidity - The company is subject to various lawsuits and claims from time to time, and management believes these are unlikely to have a material adverse effect on its financial condition or liquidity[198] Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022 - There have been no material changes to the risk factors disclosed in the company's 2022 Annual Report on Form 10-K[199] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2023, the company purchased a total of 402,485 shares, including 325,449 shares repurchased as part of its publicly announced plan, with approximately $938.9 million remaining available for future repurchases under the authorized program as of the end of the quarter Issuer Purchases of Common Stock (Q3 2023) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Plan | Approx. Dollar Value Remaining Under Plan (in millions) | | :--- | :--- | :--- | :--- | :--- | | July 2023 | 76,415 | $178.46 | — | $988.9 | | August 2023 | 325,769 | $153.64 | 325,449 | $938.9 | | September 2023 | 301 | $143.82 | — | $938.9 | | Total | 402,485 | $158.34 | 325,449 | | - The company's Board of Directors authorized a repurchase program of up to $1 billion of common and preferred stock on May 31, 2022, which has no expiration date[200] Other Information This section reports that Glynis A. Bryan received approval from the Federal Energy Regulatory Commission and became a director of Wesco International and a member of its Audit Committee, effective October 16, 2023 - Glynis A. Bryan became a director and member of the Audit Committee effective October 16, 2023, after receiving approval from the Federal Energy Regulatory Commission[201] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications pursuant to Sarbanes-Oxley Act Rules 13a-14(a) and Section 1350, and the Inline XBRL documents Signatures