WESCO International(US:WCC)2021-11-04 20:43Financial Data and Key Metrics Changes - Sales increased by 14% year-over-year on both reported and organic basis, with an 8% increase compared to pre-pandemic levels in 2019 [20][21] - Gross margin reached a record 21.3%, up 170 basis points from the prior year, driven by margin improvement programs and inflationary pricing [22][24] - Adjusted EBITDA was up 31% year-over-year, representing 7.0% of sales, which is 90 basis points above the prior year [26][27] Business Line Data and Key Metrics Changes - EES segment sales rose 19% year-over-year, with adjusted EBITDA up 60% and margin at 8.8%, reflecting strong construction sales and cross-sell initiatives [30][32] - CSS segment sales increased by 6% year-over-year, with adjusted EBITDA margin at 9.0%, driven by network infrastructure growth and strong demand [33][35] - UBS segment organic sales were up 15% year-over-year, with adjusted EBITDA up 34% and margin at 9.1%, benefiting from strong utility demand and broadband business growth [36][39] Market Data and Key Metrics Changes - Backlog reached a record level, up 60% year-over-year, with each business unit posting increases of more than 50% [21] - Preliminary October results showed sales up mid-teens year-over-year on a workday adjusted basis, indicating strong demand heading into Q4 [22][48] Company Strategy and Development Direction - The company is focused on capitalizing on cross-sell synergies from the Anixter merger, targeting $500 million in cumulative synergies by 2023 [10][11] - Emphasis on digital investments and sustainable supply chain solutions to enhance customer service and operational efficiency [18][19] - The company is positioned to benefit from secular growth trends, particularly in data centers and grid monetization [15][17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing economic recovery and the company's ability to manage supply chain challenges effectively [19][48] - The outlook for 2021 has been raised, expecting sales growth of 11% to 13%, with adjusted EBITDA margin guidance increased to 6.4% to 6.5% [46][49] - Management highlighted the importance of maintaining high customer service levels and managing inventory effectively to support demand [111][113] Other Important Information - The company has reduced leverage by 1.6 times since the Anixter acquisition, with a commitment to return to a target leverage range of 2 to 3.5 times [42][45] - Free cash flow for the quarter was $85 million, representing 54% of adjusted net income, with net working capital usage of $233 million [43][44] Q&A Session Summary Question: M&A Strategy and Readiness - Management indicated that M&A is a critical value creation lever and that they are actively managing a pipeline of opportunities, with a focus on maintaining a strong position for future acquisitions [59][61] Question: Customer Double Ordering - Management noted that they are not seeing double ordering from customers and emphasized their ability to manage supply chain challenges effectively [65][68] Question: Sales Guidance Assumptions - Management explained that the increase in sales guidance considers the strength of the business, backlog, and effective management of supply chain constraints [72][74] Question: Supply Chain Issues - Management acknowledged that while there are supply chain challenges, they are executing well and leveraging their scale and supplier partnerships to mitigate impacts [85][87] Question: Long-term EBITDA Margins - Management expressed confidence in significantly expanding EBITDA margins due to the combined company's stronger margin profile and ongoing integration efforts [116][119]