WESCO International(WCC) - 2022 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION Financial Statements Presents unaudited Condensed Consolidated Financial Statements for the nine months ended September 30, 2022, with key financial statements and notes Condensed Consolidated Balance Sheet Highlights (unaudited) | Account | Sep 30, 2022 ($ thousands) | Dec 31, 2021 ($ thousands) | | :--- | :--- | :--- | | Total current assets | 7,897,087 | 6,350,111 | | Total assets | 14,080,564 | 12,617,699 | | Total current liabilities | 3,567,572 | 3,049,808 | | Total liabilities | 9,888,618 | 8,841,488 | | Total stockholders' equity | 4,191,946 | 3,776,211 | Condensed Consolidated Statements of Income Highlights (unaudited) | Metric | Q3 2022 ($ thousands) | Q3 2021 ($ thousands) | Nine Months 2022 ($ thousands) | Nine Months 2021 ($ thousands) | | :--- | :--- | :--- | :--- | :--- | | Net sales | 5,445,916 | 4,728,325 | 15,861,622 | 13,365,592 | | Income from operations | 401,592 | 229,466 | 1,056,330 | 581,589 | | Net income | 240,210 | 120,196 | 642,990 | 298,634 | | Diluted EPS | $4.30 | $2.02 | $11.42 | $4.91 | Condensed Consolidated Statements of Cash Flows Highlights (unaudited) | Activity | Nine Months 2022 ($ thousands) | Nine Months 2021 ($ thousands) | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | (410,621) | 172,670 | | Net cash (used in) provided by investing activities | (57,207) | 36,606 | | Net cash provided by (used in) financing activities | 477,251 | (410,204) | | Net change in cash and cash equivalents | 21,500 | (197,336) | Note 3. Revenue Revenue disaggregated by strategic business units (EES, CSS, UBS) and geography, showing significant year-over-year growth Net Sales by Segment (In thousands) | Segment | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Electrical & Electronic Solutions | $2,234,771 | $1,982,485 | $6,654,883 | $5,626,309 | | Communications & Security Solutions | $1,602,459 | $1,488,689 | $4,638,631 | $4,200,424 | | Utility & Broadband Solutions | $1,608,686 | $1,257,151 | $4,568,108 | $3,538,859 | | Total | $5,445,916 | $4,728,325 | $15,861,622 | $13,365,592 | Net Sales by Geography (In thousands) | Geography | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | United States | $4,050,924 | $3,407,437 | $11,745,090 | $9,656,183 | | Canada | $765,281 | $709,507 | $2,288,146 | $2,020,395 | | Other International | $629,711 | $611,381 | $1,828,386 | $1,689,014 | | Total | $5,445,916 | $4,728,325 | $15,861,622 | $13,365,592 | Note 7. Debt Total debt increased to $5.32 billion as of September 30, 2022, with credit facilities amended Outstanding Indebtedness (In thousands) | Debt Instrument | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Accounts Receivable Securitization Facility | $1,525,000 | $1,270,000 | | Revolving Credit Facility | $883,097 | $596,959 | | 7.125% Senior Notes due 2025 | $1,500,000 | $1,500,000 | | 7.250% Senior Notes due 2028 | $1,317,845 | $1,316,912 | | Total debt | $5,315,282 | $4,772,597 | - In March and August 2022, the company amended its Receivables Facility and Revolving Credit Facility to increase purchase limits and revolving commitments, extend maturity dates, and replace LIBOR with SOFR-based interest rate options[53][54][57] Note 12. Business Segments All segments reported substantial year-over-year growth in net sales and Adjusted EBITDA, with expanding Adjusted EBITDA margins Segment Performance - Nine Months Ended Sep 30, 2022 vs 2021 (In thousands) | Segment | Net Sales 2022 | Net Sales 2021 | Adjusted EBITDA 2022 | Adjusted EBITDA 2021 | | :--- | :--- | :--- | :--- | :--- | | EES | $6,654,883 | $5,626,309 | $653,630 | $453,894 | | CSS | $4,638,631 | $4,200,424 | $429,452 | $355,521 | | UBS | $4,568,108 | $3,538,859 | $491,652 | $299,030 | | Total | $15,861,622 | $13,365,592 | $1,274,478 | $856,054 | Segment Adjusted EBITDA Margin % | Segment | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | EES | 10.1% | 8.8% | 9.8% | 8.1% | | CSS | 9.8% | 9.0% | 9.3% | 8.5% | | UBS | 11.6% | 9.1% | 10.8% | 8.4% | | Total | 8.6% | 7.0% | 8.0% | 6.4% | Note 13. Subsequent Events Post-quarter, the company plans to terminate a pension plan, increased credit facility capacity, and acquired Rahi Systems for $217 million - On November 1, 2022, Wesco acquired Rahi Systems Holdings, Inc., a global hyperscale data center solutions provider, for $217 million, funded with cash and borrowings[94] - On October 31, 2022, the company amended its Receivables Facility and Revolving Credit Facility to increase their respective borrowing capacities to $1.625 billion and $1.725 billion[93] - The company intends to terminate the Anixter Inc. Pension Plan effective December 31, 2022, and anticipates that plan assets are sufficient to cover all benefit obligations[92] Management's Discussion and Analysis of Financial Condition and Results of Operations Strong financial performance driven by double-digit sales growth, margin expansion, and reduced financial leverage to 3.2 Results of Operations - Third Quarter 2022 vs 2021 Q3 2022 net sales grew 15.2% to $5.4 billion, with organic sales up 16.9%, and income from operations increased 75.0% Q3 2022 Net Sales Growth by Segment | Segment | Reported Growth | Organic Sales Growth | | :--- | :--- | :--- | | EES | 12.7% | 14.9% | | CSS | 7.6% | 9.6% | | UBS | 28.0% | 28.6% | | Total | 15.2% | 16.9% | - Cost of goods sold as a percentage of net sales improved by 80 basis points to 77.9% from 78.7% in Q3 2021, reflecting value-driven pricing and pass-through of inflationary costs[129] Q3 Earnings Per Share (Diluted) | Metric | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | GAAP EPS | $4.30 | $2.02 | | Adjusted EPS | $4.49 | $2.74 | Results of Operations - Nine Months 2022 vs 2021 Nine-month net sales increased 18.7% to $15.9 billion, with organic sales growth of 19.5%, and income from operations grew 81.6% Nine Months 2022 Net Sales Growth by Segment | Segment | Reported Growth | Organic Sales Growth | | :--- | :--- | :--- | | EES | 18.3% | 19.4% | | CSS | 10.4% | 11.5% | | UBS | 29.1% | 29.1% | | Total | 18.7% | 19.5% | - Cost of goods sold as a percentage of net sales improved by 90 basis points to 78.3% from 79.2% in the prior year period, driven by pricing discipline and gross margin improvement programs[161] Nine Months Earnings Per Share (Diluted) | Metric | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | | GAAP EPS | $11.42 | $4.91 | | Adjusted EPS | $12.29 | $6.80 | Liquidity and Capital Resources Total liquidity of $685.0 million with operating cash flow use of $410.6 million, and financial leverage ratio improved to 3.2 - The financial leverage ratio was reduced to 3.2 as of September 30, 2022, down from 3.9 as of December 31, 2021, and a reduction of 2.5 since the Anixter merger[190][193] - Net cash used in operations was $410.6 million for the first nine months of 2022, driven by an $886.3 million increase in inventories and a $737.6 million increase in trade accounts receivable[202] - The company was in compliance with all financial covenants as of September 30, 2022, and believes cash from operations and financing will be adequate for at least the next twelve months[188][189] Quantitative and Qualitative Disclosures About Market Risk No material changes to market risks previously disclosed in the 2021 Annual Report on Form 10-K - The company refers to its 2021 Form 10-K for disclosures on market risks, noting no material changes during the quarter[217] Controls and Procedures Disclosure controls and internal control over financial reporting were effective as of September 30, 2022, with no material changes - 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 September 30, 2022[218] - There were no changes in the company's internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[219] PART II—OTHER INFORMATION Legal Proceedings Various lawsuits and claims are ongoing, but management does not expect a material adverse effect on financial condition or liquidity - While the company faces various lawsuits and claims from its business operations, management does not expect these to have a material adverse effect on its financial condition, though they could impact results in a specific period[222] Risk Factors Russia's invasion of Ukraine heightened previously disclosed risks, though no material impact on business to date - The conflict in Ukraine has heightened existing risks related to political instability, supply chain disruptions, and inflation, but has not materially impacted Wesco's business thus far[223] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2022, 68,605 common shares were acquired at an average price of $109.91 to satisfy tax withholding obligations Issuer Purchases of Common Stock (Q3 2022) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2022 | 58,400 | $105.86 | | August 2022 | 6,363 | $134.93 | | September 2022 | 3,842 | $129.98 | | Total | 68,605 | $109.91 | Exhibits Lists exhibits filed with Form 10-Q, primarily CEO and CFO certifications and interactive data files (XBRL) - The exhibits filed with this report include CEO and CFO certifications pursuant to Rule 13a-14(a) and Section 1350 of the Sarbanes-Oxley Act, along with XBRL data files[225][227][229]