WESCO International, Inc. (WCC) Earnings

Management highlights

- **Overall Performance** * Delivered four consecutive quarters of double-digit sales growth, with all key metrics (sales, adjusted EBITDA, adjusted EPS, backlog) hitting new records that exceeded internal plans * Free cash flow generation was positive and above expectations; $32 million in Q2 2026, $246 million for the first half of 2026 * Leverage improved to 3x net debt to adjusted EBITDA, down from 3.4x at year-end 2025, after the 2028 notes redemption that extended the company's debt maturity profile * $50 million in share repurchases in the first half of 2026 (including $25 million in Q2) to offset dilution from equity compensation - **Strategic Milestones** * Closed the acquisition of Singapore-based Newark Engineering on July 1, 2026, adding mission-critical engineered cooling solutions, lifecycle services, and expanded presence in the fast-growing Southeast Asian data center market, completing a systematic buildout of end-to-end data center lifecycle capabilities * Won a significant multi-year grid services award from a hyperscale data center customer, marking a major milestone for UBS by diversifying its customer base beyond traditional utility and broadband end markets and expanding data center offerings to include end-to-end power solutions * All three segments achieved strong margin progress: CSS and UBS now hold double-digit EBITDA margins, while EES reached 9.2% EBITDA margin, marking meaningful progress toward long-term margin goals - **Growth Drivers** * Data center remains a core secular growth driver, reaching $1.5 billion in Q2 sales (up 45% year-over-year), accounting for just over 20% of total trailing 12-month sales; even excluding data centers, the company delivered mid-single-digit sales growth in Q2, driven by multiple other secular trends including global infrastructure buildout, power demand growth, and reshoring to North America * OneWESCO cross-selling strategy continues to drive growth across all segments, as the integrated end-to-end model from grid to rack allows the company to capture larger scope of work on large-scale projects

Guidance

- Full year 2026 organic sales growth guidance raised to 9-11%, up from the prior 5-8% range; reported sales growth is now expected to be 10-12%, with total reported sales of ~$26 billion at the midpoint of the range - Adjusted EBITDA margin guidance raised to 6.9-7.1%, representing a more than $100 million increase in the midpoint of adjusted EBITDA compared to prior guidance - Adjusted diluted EPS guidance raised to $16-$17.50, a $0.75 increase at the midpoint - Free cash flow guidance for full year 2026 is set at $300-$600 million, to account for incremental working capital investments required to support double-digit sales growth - Segment-level sales guidance: CSS growth raised to mid-to-high teens (with CSS data center sales growth expected to be 30%+); EES growth raised to high single-digit; UBS growth raised to mid single-digit - Third quarter 2026 expected to deliver low double-digit year-over-year sales growth, with adjusted EBITDA margin expected to be slightly lower sequentially than Q2 due to expected project mix - Preliminary July 2026 data shows mid-teens growth in sales per workday, indicating strong demand to start the third quarter

Segment performance

Overall company: Record total sales of $6.7 billion, up 13% year-over-year (both reported and organic); adjusted EBITDA of $487 million, up 24% year-over-year, with an adjusted EBITDA margin of 7.3% (up 60 basis points); adjusted EPS of $4.57, up 35% year-over-year. Total backlog grew 60% year-over-year to a new record, with all three segments hitting record backlog. 1. Communications & Security Solutions (CSS): Reported and organic sales growth of 18% year-over-year, driven by 45% growth in Wesco data center solutions; backlog grew 95% year-over-year. Adjusted EBITDA increased 37% year-over-year, with adjusted EBITDA margin expanding 140 basis points to a record 10.2% (the first double-digit margin quarter in CSS history). CSS contributes ~20% of total company sales. 2. Electrical & Electronic Solutions (EES): Sales grew 11% year-over-year, with 6% volume growth and 5% price growth (1 percentage point from commodity inflation); data center sales grew over 70% year-over-year and now represent 8% of EES sales; backlog grew 30% year-over-year. Adjusted EBITDA increased 27% year-over-year, with adjusted EBITDA margin expanding 110 basis points to 9.2%. 3. Utility & Broadband Solutions (UBS): Sales grew 7% year-over-year, with mid-single-digit growth in utility and mid-teens growth in broadband; backlog grew 80% year-over-year, driven by a large multi-year grid services award. Adjusted EBITDA increased 2% year-over-year, and the segment returned to a 10% adjusted EBITDA margin.

Risks & headwinds

- Construction labor constraints: Industry-wide labor tightness, as strong data center investment has increased demand for construction labor that exceeds current supply, which could shift the timing of non-data center construction projects - Power infrastructure constraints: Industry-wide power supply shortages are the largest limiting factor for new infrastructure projects, including both data center and non-data center developments - Public power competitive dynamics remain a near-term margin headwind for the UBS segment, though the segment has returned to growth and margins have stabilized - Working capital intensity: Sustained double-digit top-line growth requires incremental working capital investments that compress near-term free cash flow

Analyst Q&A

• Q: Growth this quarter is very broad-based beyond just data centers. What are the core drivers, sustainability, and visibility for this growth rate?

  A: Wesco is well positioned to capture strong AI-driven data center growth, which is a cross-segment OneWESCO opportunity, not just a CSS opportunity. The company is not a one-trick pony, with 75-80% of the portfolio exposed to multiple secular trends including global infrastructure buildout, power chain growth, reshoring to North America, and an emerging industrial super cycle. All three segments have record backlog with eye-popping growth, supporting strong visibility that justifies the raised full-year guidance and sets up strong performance for 2027.

• Q: How does the Newark Engineering acquisition advance international data center aspirations, and how does it fit with the prior Rahi acquisition?

  A: Post-Anixter merger, Wesco has systematically acquired targeted bolt-ons starting with Rahi (2022) to expand end-to-end data center lifecycle capabilities, which now include Newark's mission-critical cooling and thermal management expertise that was previously missing from the portfolio. Hyperscale and enterprise data center customers are global with global expansion plans, and Wesco already has operations in 55 countries; Newark strengthens Southeast Asian market access (a high-growth data center region) and adds new in-house design, fabrication, installation, and service capabilities that can be leveraged globally via the OneWESCO cross-selling model.

• Q: Has the data center gross margin dynamic shifted, and what is the margin profile of the new UBS grid services award?

  A: Six to seven quarters ago, when CSS data center sales first inflected higher, there was temporary gross margin pressure as only front-end project work was initially booked. Management always expected margins would improve as projects progressed, additional products and services were pulled through, and service content increased, which is exactly what is now being seen in results. The new grid services award for UBS is margin accretive to the overall segment, and public power margins have stabilized after a period of pressure.

• Q: Is any end market being crowded out by redirection of capital and resources to AI and data center spending?

  A: There is no material crowding-out impact on Wesco's non-data center businesses, which still delivered mid-single-digit overall growth and high single-digit growth for EES ex-data centers. The main industry-wide constraints are power supply availability and construction labor, where strong data center demand has made supply tighter, which can shift the timing of other construction projects but has not reduced overall demand for Wesco's offerings. Non-residential construction (Wesco's core end market) still delivered high single-digit growth in Q2.