Wesco International Inc. 2026 Q3 Earnings Call

Thank you, and good morning, everyone. Before we get started, I want to remind you that certain statements made on this call contain forward-looking information. Forward-looking statements are not guarantees of performance and by their nature are subject to uncertainty. Actual results may differ. Please see our webcast slides and the company's SEC filings for additional risk factors and disclosures. Any forward-looking information speaks only as of this date, and the company undertakes no obligation to update the information to reflect changed circumstances. Additionally, today, we will use certain non-GAAP financial measures. Required information about these measures is available on our webcast slides and in our press release, both of which are posted on our website at wesco.com. On the call this morning, we have John Engel, WESCO's Chairman, President, and Chief Executive Officer, and Neel Dev, Executive Vice President and Chief Financial Officer.

With that, I'll turn the call over to John.

Thank you very much, Scott. Well, good morning, everyone, and thank you for joining our call today. We're very pleased with our record third-quarter results, and we carry positive business momentum into the fourth quarter. Once again, sales, backlog, operating profit, and earnings per share all increased double digits versus the prior year. Importantly, they achieved records that exceeded our expectations. We are particularly pleased with our free cash flow generation during the quarter, which was strong given the sales growth that we delivered. The past five consecutive quarters of double-digit sales growth demonstrate WESCO's higher growth profile, which extends well beyond our important data center positioning. Customer demand is strong across the rest of our diversified portfolio and end markets, with sales up high single digits excluding data centers.

Our customers continue to invest in major capital and infrastructure projects, and they're increasingly relying on WESCO to manage their needs. This is all happening while we add more services to our portfolio and demonstrate the continued effectiveness of our One WESCO cross-selling strategy. Especially noteworthy, our backlog was up over 80% to a new record level for each of our three business units. The power of our customer value proposition, our global capabilities, and our leading portfolio of product services and solutions is clear as we continue to outperform the market. Our backlog growth is being fueled by multi-year customer commitments as our large customers recognize our unique capabilities across the communications, security, electrical, utility, and power markets. As a result, we are again significantly raising our full year 2026 outlook, reflecting our continued confidence in our continued strong execution.

Given the positive market momentum that we are seeing, I'm bullish that WESCO will continue to outperform our markets and deliver superior value to our customers, suppliers, and shareholders to close out 2026 and in 2027. With regards to 2027, we will provide our full-year outlook when we report our fourth quarter earnings in February of next year. With that said, we expect to continue to outperform our markets again next year, with sales up mid to high single digits, along with continued margin expansion. Before turning it over to Neel, I would like to highlight that we'll be hosting a virtual investor event on Tuesday, November 10th from 10:00 A.M. to 11:30 A.M. Eastern Time, where we'll discuss our leadership position in the data center space and our differentiated solutions across the data center life cycle.

WESCO is uniquely positioned with our comprehensive product services and solutions offerings for data center white space, gray space, and power infrastructure applications. Our three business leaders will discuss our One WESCO strategy, our leading value proposition, and our end-to-end capabilities for our data center customers during this upcoming virtual investor event. With that, I will now turn it over to Neel to take you through our third quarter results and our raised full-year outlook in more detail.

Neel. Thank you, John. Good morning, everyone.

As John highlighted, we delivered another exceptional quarter driven by strong execution, accelerating growth, and increasing contribution across the portfolio. Before turning to the quarter in more detail, let me start with a few highlights. We delivered record sales, adjusted EBITDA, and earnings per share. Organic sales increased 17%, reflecting strong execution across the business. Growth was broad-based, with data center sales up 55% year over year and non-data center sales growth of 7% year over year. Adjusted EBITDA increased 33%, with EBITDA margin expanded 100 basis points to 7.8%. We generated solid free cash flow after investing in working capital to support strong sequential sales growth.

Based on our strong year-to-date performance and continued momentum entering the fourth quarter, we are significantly raising our full-year outlook for sales, adjusted EBITDA, and adjusted EPS. With that, let me turn to our third quarter results, starting on slide 5. For the third quarter, we delivered excellent sales growth and record profitability across the business. Organic sales increased 17% to $7.2 billion, driven by strong volume growth in all three business units. Pricing contributed approximately 3%, and volume approximately 14%. Adjusted EBITDA increased 33% to a record $562 million, while EBITDA margin expanded approximately 100 basis points to 7.8%. Gross margin increased to 21.7%, and SG&A improved approximately 50 basis points as strong sales growth, productivity, and disciplined cost management drove operating leverage. It's important to note that our SG&A incorporates ongoing investments in expanding our footprint and capabilities to support our profitable growth.

Turning to slide 6, adjusted EPS increased 47% year-over-year to a record $5.77 per share. The improvement was driven primarily by strong operating performance, including higher sales and margin expansion. Turning to CSS on slide 7. CSS delivered record sales and profitability in the third quarter as strong data center demand continued to drive growth. Sales increased 22% to a record $2.9 billion, with organic growth of 21%, driven almost entirely by volume. WESCO Data Center Solutions grew approximately 40%, primarily driven by growth in hyperscale and multi-tenant data center customers. ENI and Security also delivered strong growth during the quarter, reflecting continued investment and customer demand in network infrastructure. Backlog ended the quarter at another record level, up approximately 140% year-over-year, underscoring the strength of data center demand and providing increased visibility into future revenue.

Adjusted EBITDA increased 42% to a record $313 million and adjusted EBITDA margin expanded 160 basis points to a record 10.7%. Data center business remains margin accretive to CSS and continues to be a meaningful contributor to our overall WESCO margin expansion objective. Turning to EES on slide 8. EES delivered record sales and profitability, highlighted by excellent growth in OEM and continued positive momentum in construction and industrial. We are pleased with the accelerating momentum and improving results over the first three quarters of this year. Sales increased 18% to a record $2.8 billion. OEM grew approximately 30%, reflecting broad-based strength across semiconductor and data center markets. Construction grew mid-teens on continued infrastructure and data center project activity. Industrial increased mid-single digit on healthy MRO demand. Data center sales increased more than 100% year-over-year, reflecting our expanding participation in data center infrastructure.

Excluding data center, EES grew high single digit, demonstrating healthy demand across our core end markets. Backlog increased approximately 40% year-over-year to a record level. Adjusted EBITDA increased 31% to a record $259 million, and EBITDA margin expanded 90 basis points to 9.3%. Margin expansion was driven by gross margin improvement and operating leverage resulting from the strong sales growth and effective cost management. Turning to UBS on slide 9. UBS delivered solid growth and maintained strong profitability in the third quarter while continuing to build on the improving trends we've seen throughout 2026. Sales increased 6% to $1.5 billion with organic sales up 7%. Utility grew high single digit, driven by strong IOU performance, improving public power trends, and continued infrastructure investments.

Broadband was flat year-over-year on the back of a challenging prior year comparison as sales in the third quarter of 2025 were up over 20%. Continued share gains supported by our performance in the current quarter. Backlog increased approximately 90% year-over-year to a record level, driven by Grid Services and strong order activity across utility and broadband. Adjusted EBITDA increased 6% to $158 million. EBITDA margin remained strong at 10.4%, improving 40 basis points sequentially. We are pleased with the EBITDA margin expansion over the past three quarters and maintained our double-digit EBITDA margin in the third quarter. This was achieved with a backdrop of a competitive public power landscape as we focused on pricing for our value proposition, driven strong operating cost leverage, and continue to diversify our customer base. Moving to slide 10. Data center sales are now approximately $6 billion on a trailing 12-month basis and represent approximately 23% of company sales.