Welcome and WESCO Overviewwesco.investorroom.com/download/2017+-+WCC+-+William...Welcome and WESCO...

John Engel Chairman, President, and Chief Executive Officer

Welcome and WESCO Overview

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William Blair & Company 37th Annual Growth Stock Conference, June 13, 2017

Safe Harbor Statement All statements made herein that are not historical facts should be considered as “forward-looking statements” within the meaning of the Private Securities Litigation Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. Such risks, uncertainties and other factors include, but are not limited to: adverse economic conditions; disruptions in operations or information technology systems; supply chain disruptions, changes in supplier strategy or loss of key suppliers; product or other cost fluctuations; expansion of business activities; personnel turnover or labor cost increases; tax law changes or challenges to tax matters; increase in competition; risks related to acquisitions, including the integration of acquired businesses; exchange rate fluctuations; legal or regulatory matters; litigation, disputes, contingencies or claims; debt levels, terms, financial market conditions or interest rate fluctuations; goodwill or intangible asset impairment; stock market, economic or political instability; and other factors described in detail in the Form 10-K for WESCO International, Inc. for the year ended December 31, 2016 and any subsequent filings with the Securities & Exchange Commission. The following presentation includes a discussion of certain non-GAAP financial measures. Information required by Regulation G with respect to such non-GAAP financial measures can be found in the appendix and obtained via WESCO’s website, www.wesco.com.

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WESCO: A Leading Global Supply Chain Solutions Provider

Capital Projects MRO OEM

…providing world-class brands and industry-leading service capabilities

Founded 1922 in

Pittsburgh, PA

$7.3 Billion in Revenue

One of the world’s largest distributors of electrical, industrial, and

communications products and services

#357 of the Fortune 500

9,000 employees

Including new construction and retrofits, renovations, and upgrades

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0.75 0.49

2.46

3.80

1999 2002 2009 2016

Financial Performance Adjusted Diluted EPS Sales 10%

CAGR

…solid long-term performance

5% CAGR

3.4 3.3 4.6

7.3

1999 2002 2009 2016

52 12

279 282

1999 2002 2009 2016

Free Cash Flow 11% CAGR

-15%

26%

14%

Average Annual TSR*

($ Billions)

($ Millions)

($)

Note: See appendix for non-GAAP reconciliations.

13% CAGR *Total Shareholder Return

Dec 1999-2002 2002-2009 2009-2016

13% average

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WESCO’s Go-to-Market Strategy

Capital Projects MRO

OEM

WESCO Characteristics

…providing full supply chain solutions to meet customers’ unique requirements

Serving Three Customer Demand Streams

Supporting a broad range of business models:

Standard Distribution Model

Supply Chain Solutions Partner • Integrated Supply

• Global Accounts

• Kitting, assembly and pre-fabrication

• Jobsite and field support

• Engineering and design support

• Local, branch-based distribution

500 Branches

75,000 Customers

1,000,000 SKUs

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WESCO’s Value Proposition

• Long-term customer relationships and deep familiarity with their operations

– Gaining additional business with existing customers

• Better outcomes for our customers – Identifying opportunities – Selecting the best solution – Reducing their project and

operating risks – Increasing their productivity and

reducing their costs – Supporting their global operations – Simplifying their supply chains and

outsourcing non-core activities

Combining our competitive differentiators…

• A broad product portfolio

• Technical expertise and a wide range of service offerings

• Blue-chip customer and supplier base

• A global footprint

• A culture of customer service excellence, cost control, and lean continuous improvement

…driving deeper customer relationships than traditional distributors and e-commerce providers

…into customized supply chain solutions

…that result in:

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…WESCO adds value throughout the supply chain

CUSTOMERS NEED: Procurement

Warehousing /Logistics Technical expert knowledge An efficient supply chain with

fewer suppliers

WESCO OFFERS: • Deep customer relationships • Product, process, and

technical expertise • Increased scale • Global sourcing • Financial strength and liquidity

SUPPLIERS NEED: Sales

Marketing Delivery Service

(1) Data Source: National Association of Electrical Distributors, 2017 NAED Market Overview, April 2017.

Approximately 75% of electrical products go to market through distribution(1)

The Importance of the Distributor

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…providing world class brands when and where needed

Competitive Differentiator: Product Portfolio and Supplier Relationships

Automation, Controls & Motors

8%

Lighting & Sustainability

12%

General Supplies

40%

Communications & Security

15%

Wire, Cable & Conduit

14%

Electrical Distribution & Controls

11%

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…value-added services drive customer loyalty and long-term relationships

Competitive Differentiator: Service Capabilities

2016 Sales: $7.3B

Our services and technical expertise drive the majority of our product sales

Capital Project Solutions

Supply Chain Solutions

Technical Expert Solutions

Customized Product Solutions

All Other Sales

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…enabled by investments in technical expertise and digital capabilities

Service Capabilities Examples

Supply Chain Solutions

• Integrated Supply • Global sourcing • Warehousing and logistics • Storeroom management • Vendor-managed inventory • Transaction cost review

Capital Project Solutions

• Engineering and design support • Lean construction processes • Materials management • Pre-fabrication and assembly • Jobsite trailers and “WESCO on

Wheels” customized carts

Technical Expert Solutions

• Energy usage analysis • Lighting renovation and retrofit • Data center assessment • Automation upgrades • Safety assessment and training • Product and application training

Customized Product Solutions

• Kitting • Assembly • Prefabricated systems • Cable management • Process streamlining

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WESCO’s Global Reach

WESCO Presence Service area

…serving our blue-chip customers wherever they are located

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WESCO Performance Objectives and Strategies

• Focus on growth markets • Accelerate One WESCO

growth initiatives • Differentiate through

services • Leverage digital

capabilities • Make accretive

acquisitions

…focused on driving profitable growth and shareholder value

Generate strong free cash flow and allocate capital to drive

growth and shareholder returns

Expand margins

Drive above-market sales growth

• Grow with strategic suppliers

• Simplify and standardize product offerings

• Drive pricing discipline and tools

• Optimize distribution network

• Tightly manage operating costs

Performance Objectives:

Strategies: • Invest in organic growth and acquisition opportunities

• Manage debt within target range

• Repurchase shares

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UTILITY CIG CONSTRUCTION INDUSTRIAL

…the portfolio and expertise to capitalize on new and specialized market growth opportunities

Drive Above-Market Sales Growth: Focus on Growth Markets

Alternative energy

Utility infrastructure

Grid automation

Supply chain services OEM and

direct materials Industrial networking Critical infrastructure

upgrade Lighting retrofit

LED lighting/ lighting renovation

Major projects Project services

Solar Digital transformation General infrastructure

Critical Infrastructure

Cloud computing

Broadband / FTTX

Digital transformation

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William Blair & Company 37th Annual Growth Stock Conference, June 13, 2017 Drive Above-Market Sales Growth: Accelerate One WESCO Growth Initiatives

…expanding customer relationships

Integrate our portfolio of products, services, and supplier relationships into

comprehensive supply chain solutions for our customers’ global MRO, OEM, and

capital project needs.

Illustration: Transforming a Typical Customer…

…to a One WESCO Customer

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William Blair & Company 37th Annual Growth Stock Conference, June 13, 2017 Drive Above-Market Sales Growth: Expand the Use of Digital Capabilities

Drive Customer Adoption • Dedicated eCommerce team • Focus on current WESCO customers and business models • Improved user experience • Easier to transact business

Value-Added Offerings

Standard Offerings

Digital Service Offerings

Develop New Revenue • Win business with digital capabilities • Develop new digital service offerings

• Mobile e-Stock application • Custom websites • 2nd tier fulfillment • Custom applications

• eCommerce Website • Punch-out and EDI

…driving customer adoption, retention, and value delivery

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William Blair & Company 37th Annual Growth Stock Conference, June 13, 2017 Drive Above-Market Sales Growth: Make Accretive Acquisitions

325 400

1,500 1,600 1,900 2,000

20102

20112

20124

20143

20153

20161

Acquisition Criteria Consistent with WESCO strategy

Rate of return greater than WESCO risk-adjusted average cost of capital

Accretive in first year of operation

Margins higher than WESCO

Cumulative Acquired Sales

($M, first 12 months)

#

…driving strategic growth and shareholder value

Strategy and Priorities

Acquired Sales by End Market since 2010

CIG Industrial

Utility

Construction

Consolidate core electrical products and services category in North America

Expand into adjacent product and services categories

Follow customers globally and establish local operations in high priority countries.

Markets & Customers

Geographies

Products & Suppliers

Core

1

2

3

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Acquisitions Have Strengthened WESCO

TVC Communications

(2010) EECOL Electric

(2012) Aelux / Lumigent

(2015)

Communications Supply

Corporation (2006) Carlton-Bates

(2005)

…expanding our portfolio and capabilities while increasing market share

AED Hill Country

Needham (2015-2016)

BROADBAND COMMUNICATIONS

ENTRY

ELECTRICAL EXPANSION

TURNKEY LIGHTING SOLUTIONS

DATACOM ENTRY OEM ENTRY CONSTRUCTION

STRENGTHENING

• Broadband communications markets

• New products and suppliers

• Doubled the size of WESCO’s Canadian business

• Added new electrical supplier

• Established leading market share position in Canada

• Optimal lighting solutions for new construction and retrofit/renovation/ upgrades

• Expanded service offerings

• IT, communications and security markets

• Data communications solutions and new suppliers

• IP security solutions

• Value-added distribution

• New products and suppliers

• Construction markets in U.S.

• Added new electrical supplier

• Strengthened geographic footprint

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Sourcing Optimization Pricing Optimization Inventory Optimization

Network Optimization Transportation Optimization

Expand Margins: Key Processes to Drive Operating Margin Expansion

…new capabilities and ways of working

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William Blair & Company 37th Annual Growth Stock Conference, June 13, 2017 Expand Margin: Operating Cost Leverage

…compares favorably to industry benchmarks

807 798

2015 2016

Sales per Employee ($ Thousands)

NAED: National Association of Electrical Distributors. Source of NAED data: most recent annual benchmark study, published in June 2016.

612 NAED

Operating Expenses (%)

15 15

2015 2016

19% NAED Benchmark

116

2015 - 2016 • Eliminated approximately 1,000 positions • Eliminated or consolidated 40 branches, including our

businesses in Australia and Brazil • Invested in resources to deliver competitive advantage and

improve margin: – Added end market sales & marketing leaders and product

category managers – Established and expanded eCommerce organization – Created WESCO’s first Global Supply Chain organization – Improved IT and business unit finance capabilities

2017 • Adding technical sales resources (reflected in 2017 Outlook) • Continuing to tightly manage operating costs

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1.5

2

2.5

3

3.5

4

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

Generate Strong Free Cash Flow, Allocate Capital to Drive Growth and Shareholder Returns

Leverage (Total Par Debt to TTM EBITDA)

…maintaining fiscal discipline and flexible capital structure

> $1B of free cash flow over

last 4 years

Note: See appendix for non-GAAP reconciliations.

Target Leverage

2.0x – 3.5x

3.4X

2015 2016 2017

Priorities for Driving Shareholder Value

• Support organic growth

• Fund accretive acquisitions

• Maintain target leverage

• Repurchase shares – Authorization from Board

– Offset dilution from annual equity awards

– Opportunistic purchases

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2017 Priorities

• Return to sales growth −Outperform end markets with One WESCO sales growth initiatives − Invest in and capitalize on growth markets −Maintain focus on execution and sales effectiveness

• Make accretive acquisitions to strengthen portfolio and take market share

• Sustain and expand operating margin − Improve margin through pricing and sourcing initiatives − Deliver productivity through LEAN operational excellence initiatives, organizational

streamlining and branch network optimization efforts

• Maintain strong free cash flow generation and flexible capital structure

…outperform the market while maintaining cost and cash management discipline

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Long-Term Growth Algorithm

• Market growth

• 1% to 2% from market outperformance

• 1% to 3% from acquisitions

• ~50% operating profit pull-through on organic growth

− gross margin improvement

− operating cost leverage

• ~30% effective tax rate

Annual Expectations over the Long-Term

• Greater than 90% of net income

…managing the business for strong EPS growth and cash flow

Sales EPS Free Cash Flow

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0%

2%

4%

6%

8%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E

…driven by volume leverage, supply chain initiatives and continued cost focus

Expecting Operating Margin Expansion

DRIVERS: Volume leverage

Procurement, pricing and distribution network optimization

Continued cost focus

EBIT %

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Invest in WESCO

• Industry leader with deep domain expertise in electrical, industrial, construction, and utility

• Proven business model and well positioned in large, fragmented markets

• Blue-chip customer and supplier base

• Proven acquirer and integrator in a consolidating industry

• Extensive global supply chain capability

• Operational excellence culture founded on lean principles

• Operating margin expansion results and future potential

• Strong free cash flow generation through economic cycle

…strong company with proven and effective supply chain solutions

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Appendix

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Financial Leverage

Twelve Months Ended March 31, 2017

Financial leverage ratio: Income from operations $ 330 Depreciation and amortization 66 EBITDA $ 396

March 31, 2017 Current debt and short-term borrowings $ 29 Long-term debt 1,310 Debt discount and deferred financing (1) 16 Total debt $ 1,355 Less: cash and cash equivalents $ 103 Total debt, net of cash $ 1,252

Financial leverage ratio 3.4X Financial leverage ratio, net of cash 3.2X

(1)Long-term debt is presented in the condensed consolidated balance sheet as of March 31, 2017 net of deferred financing fees and debt discount.

($ Millions)

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2016 Adjusted Diluted EPS FY 2016

Reported Results Adjustments Adjusted Results

Operating profit $ 332.0 - $ 332.0 Interest 76.6 - 76.6 Loss on debt redemption 123.9 (123.9) 1 -

Income before income taxes 131.5 123.9 255.4

Taxes 30.4 41.2 1 71.6 Effective tax rate 23.1% 28.0% Net income 101.1 82.7 183.8 Less: Non-controlling interest (0.5) - (0.5)

Net income attributable to WESCO $ 101.6 82.7 $ 184.3

Adjusted Earnings per Diluted Shares: Diluted earnings per common share (as reported) $2.10

Loss on debt redemption 2 2.54 Tax effect of loss on debt redemption 2 (0.84)

Adjusted diluted earnings per common share $3.80

(1) Represents the third quarter loss on debt redemption and related income tax benefit. (2) The loss on debt redemption and related income tax benefits are based on third quarter diluted shares of 48.7 million.

($ Millions, except for EPS)

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Free Cash Flow Reconciliation

FY 2016

Q1 2017

Cash flow provided by operations 300.2 47.6

Less: Capital expenditures (18.0) (4.5)

Free Cash Flow 282.2 43.1

Note: Free cash flow is provided by the Company as an additional liquidity measure. Capital expenditures are deducted from operating cash flow to determine free cash flow. Free cash flow is available to fund other investing and financing activities.

($ Millions)

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