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CDW Reports Record First Quarter Net Sales
Reinforces Strength of Strategy and Power of Business Model
(Dollars in millions, except per share amounts) | Three Months Ended March 31, 2018 |
Three Months Ended March 31, 20171 |
% Chg. | |||||
Net Sales | $ | 3,606.4 | $ | 3,256.0 | 10.8 | |||
Average Daily Sales2 | 56.4 | 50.9 | 10.8 | |||||
Gross Profit | 603.9 | 553.5 | 9.1 | |||||
Net Income | 127.0 | 58.2 | 118.3 | |||||
Adjusted EBITDA3 | 279.8 | 250.1 | 11.9 | |||||
Net Income per Diluted Share | $ | 0.82 | $ | 0.36 | 129.6 | |||
Non-GAAP Net Income per Diluted Share3 | $ | 1.05 | $ | 0.75 | 40.5 | |||
1 Amounts for 2017 have been adjusted to reflect the full retrospective adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). | ||||||||
2 There were 64 selling days for both the three months ended March 31, 2018 and 2017. | ||||||||
3 Non-GAAP measures used in this release that are not based on accounting principles generally accepted in the United States of America are each defined and reconciled to the most directly comparable GAAP measure in the attached schedules. | ||||||||
"We are off to an excellent start to the year as we successfully addressed customer priorities and delivered strong topline growth and profitability while continuing to invest in our future," said
"Excellent operating results were amplified by a lower tax rate and share repurchases, delivering a 41 percent increase in non-GAAP net income per diluted share," said
“We expect to exceed our annual target to outpace US IT market growth by 200 to 300 basis points in 2018. To accomplish this, we will continue our laser-focus on meeting the needs of our more than 250,000 customers in
A quarterly cash dividend of
First Quarter of 2018 Highlights:
Total net sales in the first quarter of 2018 were
- Total Corporate segment net sales in the first quarter of 2018 were
$1,566 million , 8.7 percent higher than the first quarter of 2017. - Total Small Business segment net sales in the first quarter of 2018 were
$328 million , 12.2 percent higher than the first quarter of 2017. - Total Public segment net sales in the first quarter of 2018 were
$1,230 million , 6.6 percent higher than the first quarter of 2017. Public results were led by sales to both Government and Healthcare customers, which increased 11.7 percent and 7.3 percent, respectively. Sales to Education customers increased 1.0 percent. - Net sales for CDW's
UK and Canadian operations, combined as “Other” for financial reporting purposes, were$483 million , 30.6 percent higher than the first quarter of 2017. BothUK andCanada results were also up double digits in local currency.
Gross profit for the first quarter of 2018 was
Total selling and administrative expenses and advertising expense were
Interest expense was
The effective tax rate for the first quarter of 2018 was 23.4 percent, which resulted in tax expense of
Net income was
Adjusted EBITDA, which excludes expenses related to equity-based compensation, income from equity investment, integration expenses, and certain other items, was
Weighted average diluted shares outstanding were 155 million for the first quarter of 2018, compared to 163 million for the first quarter of 2017. Net income per diluted share for the first quarter of 2018 was
Forward-Looking Statements
Statements in this release that are not statements of historical fact are forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including without limitation statements regarding the future financial performance of CDW. These statements involve risks and uncertainties that could cause actual results to differ materially from those described in such statements. These risks and uncertainties include, among others, global and regional economic and political conditions; decreases in spending on technology products and services; CDW's relationships with vendor partners and availability of their products; continued innovations in hardware, software and services offerings by CDW's vendor partners; substantial competition that could reduce CDW's market share; CDW's substantial indebtedness and ability to generate sufficient cash to service such indebtedness; restrictions imposed by agreements relating to CDW's indebtedness on its operations and liquidity; changes in, or the discontinuation of, CDW's share repurchase program or dividend payments; the continuing development, maintenance and operation of CDW's information technology systems; potential breaches of data security and failure to protect our information technology systems from cybersecurity threats; potential failures to comply with Public segment contracts or applicable laws and regulations; potential failures to provide high-quality services to CDW's customers; potential losses of any key personnel; potential interruptions of the flow of products from suppliers; potential adverse occurrences at one of CDW's primary facilities or customer data centers; increases in the cost of commercial delivery services or disruptions of those services; CDW's exposure to accounts receivable and inventory risks; fluctuations in foreign currency; future acquisitions or alliances; fluctuations in CDW's operating results; current and future legal proceedings and audits; changes in laws, including the recent U.S. tax legislation, regulations or interpretations thereof; and other risk factors or uncertainties identified from time to time in CDW's filings with the
Non-GAAP Financial Information
EBITDA is defined as consolidated net income before interest expense, income tax expense, depreciation and amortization. Adjusted EBITDA, which is a measure defined in the Company’s credit agreements, means EBITDA adjusted for certain items which are described in the financial statement tables that accompany this press release. Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of Net sales. Non-GAAP income before income taxes and Non-GAAP net income exclude, among other things, charges related to the amortization of acquisition-related intangible assets, equity-based compensation and the associated tax benefits, integration expenses, and gains and losses from the extinguishment of long-term debt. Consolidated Net sales growth on a constant currency basis is defined as consolidated net sales growth excluding the impact of foreign currency translation on net sales compared to the prior period.
EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Non-GAAP income before income taxes, Non-GAAP net income, Non-GAAP net income per diluted share and consolidated Net sales growth on a constant currency basis are considered non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance or financial position that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP.
The Company believes these measures provide analysts, investors and management with helpful information regarding the underlying operating performance of the Company’s business, as they remove the impact of items that management believes are not reflective of underlying operating performance. The Company uses these measures to evaluate period-over-period performance as management believes they provide a more comparable measure of the underlying business. Additionally, Adjusted EBITDA is a measure in the credit agreement governing our Senior Secured Term Loan Facility (“Term Loan”) used to evaluate the Company’s ability to make certain investments, incur additional debt and make restricted payments, such as dividends and share repurchases, as well as whether the Company is required to make additional principal prepayments on the Term Loan beyond the quarterly amortization payments.
Our annual targets are provided on a non-GAAP basis because certain reconciling items are dependent on future events that either cannot be controlled, such as currency impacts or interest rates, or reliably predicted because they are not part of the Company's routine activities, such as refinancing activities or acquisition and integration expenses.
The financial statement tables that accompany this press release include a reconciliation of non-GAAP financial measures to the applicable most comparable GAAP financial measures. Non-GAAP measures used by the Company may differ from similar measures used by other companies, even when similar terms are used to identify such measures.
About CDW
CDW is a leading multi-brand technology solutions provider to business, government, education and healthcare organizations in
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CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions, except per share amounts)
(unaudited)
Three Months Ended March 31, | |||||||||||
2018 | 2017(i) | % Change(ii) | |||||||||
Net sales | $ | 3,606.4 | $ | 3,256.0 | 10.8 | % | |||||
Cost of sales | 3,002.5 | 2,702.5 | 11.1 | ||||||||
Gross profit | 603.9 | 553.5 | 9.1 | ||||||||
Selling and administrative expenses | 362.7 | 347.4 | 4.4 | ||||||||
Advertising expense | 37.1 | 35.4 | 4.8 | ||||||||
Income from operations | 204.1 | 170.7 | 19.6 | ||||||||
Interest expense, net | (37.7 | ) | (39.7 | ) | (5.1 | ) | |||||
Net loss on extinguishments of long-term debt | — | (57.4 | ) | nm* | |||||||
Other (expense) income, net | (0.7 | ) | 0.9 | nm* | |||||||
Income before income taxes | 165.7 | 74.5 | 122.5 | ||||||||
Income tax expense | (38.7 | ) | (16.3 | ) | 137.3 | ||||||
Net income | $ | 127.0 | $ | 58.2 | 118.3 | % | |||||
Net income per common share: | |||||||||||
Basic | $ | 0.83 | $ | 0.36 | 128.6 | % | |||||
Diluted | $ | 0.82 | $ | 0.36 | 129.6 | % | |||||
Weighted-average shares outstanding: | |||||||||||
Basic | 152.2 | 159.4 | |||||||||
Diluted | 154.8 | 162.8 |
* Not meaningful
(i) Amounts for 2017 have been adjusted to reflect the full retrospective adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).
(ii) There were 64 selling days for both the three months ended
CDW CORPORATION AND SUBSIDIARIES
NON-GAAP FINANCIAL MEASURE RECONCILIATIONS
The Company has included reconciliations of Non-GAAP income before income taxes, Non-GAAP net income, Non-GAAP net income per diluted share, EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, and consolidated Net sales growth on a constant currency basis for the three months ended
NON-GAAP INCOME BEFORE INCOME TAXES, NON-GAAP NET INCOME
AND NON-GAAP NET INCOME PER DILUTED SHARE
(dollars in millions, except per share amounts)
(unaudited)
Three Months Ended March 31, 2018 | Three Months Ended March 31, 2017(i) | |||||||||||||||||||||||||||||||
Income before Income Taxes |
Income Tax Expense(ii) |
Net Income |
Effective Tax Rate |
Income before Income Taxes |
Income Tax Expense |
Net Income |
Effective Tax Rate |
Net Income % Change |
||||||||||||||||||||||||
As reported | $ | 165.7 | $ | (38.7 | ) | $ | 127.0 | 23.4 | % | $ | 74.5 | $ | (16.3 | ) | $ | 58.2 | 21.9 | % | 118.3 | % | ||||||||||||
Amortization of intangibles(iii) | 46.7 | (12.3 | ) | 34.4 | 46.1 | (16.6 | ) | 29.5 | ||||||||||||||||||||||||
Equity-based compensation | 8.1 | (7.0 | ) | 1.1 | 12.1 | (15.8 | ) | (3.7 | ) | |||||||||||||||||||||||
Net loss on extinguishments of long-term debt | — | — | — | 57.4 | (20.7 | ) | 36.7 | |||||||||||||||||||||||||
Integration expenses(iv) | — | — | — | 0.5 | (0.2 | ) | 0.3 | |||||||||||||||||||||||||
Other adjustments(v) | 0.5 | (0.2 | ) | 0.3 | 1.4 | (0.5 | ) | 0.9 | ||||||||||||||||||||||||
Non-GAAP | $ | 221.0 | $ | (58.2 | ) | $ | 162.8 | 26.3 | % | $ | 192.0 | $ | (70.1 | ) | $ | 121.9 | 36.5 | % | 33.6 | % | ||||||||||||
GAAP net income per diluted share | $ | 0.82 | $ | 0.36 | ||||||||||||||||||||||||||||
Non-GAAP net income per diluted share | $ | 1.05 | $ | 0.75 | ||||||||||||||||||||||||||||
Shares used in computing GAAP and Non-GAAP net income per diluted share | 154.8 | 162.8 |
(i) Amounts for 2017 have been adjusted to reflect the full retrospective adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).
(ii) Income tax on non-GAAP adjustments includes excess tax benefits associated with equity compensation, and the impact of global intangible low tax income (“GILTI”) on equity-based compensation and amortization of intangibles.
(iii) Includes amortization expense for acquisition-related intangible assets, primarily customer relationships, customer contracts and trade names.
(iv) Comprised of expenses related to CDW UK.
(v) Includes other expenses such as payroll taxes on equity-based compensation during the three months ended
CDW CORPORATION AND SUBSIDIARIES
ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN
(dollars in millions)
(unaudited)
Three Months Ended March 31, | |||||||||||||
2018 | % of Net sales |
2017(i) | % of Net sales |
||||||||||
Net income | $ | 127.0 | 3.5 | % | $ | 58.2 | 1.8 | % | |||||
Depreciation and amortization | 66.6 | 64.2 | |||||||||||
Income tax expense | 38.7 | 16.3 | |||||||||||
Interest expense, net | 37.7 | 39.7 | |||||||||||
EBITDA | 270.0 | 7.5 | % | 178.4 | 5.5 | % | |||||||
Adjustments: | |||||||||||||
Equity-based compensation | 8.1 | 12.1 | |||||||||||
Net loss on extinguishments of long-term debt | — | 57.4 | |||||||||||
Income from equity investment(ii) | (0.3 | ) | (0.2 | ) | |||||||||
Integration expenses(iii) | — | 0.5 | |||||||||||
Other adjustments(iv) | 2.0 | 1.9 | |||||||||||
Total adjustments | 9.8 | 71.7 | |||||||||||
Adjusted EBITDA | $ | 279.8 | 7.8 | % | $ | 250.1 | 7.7 | % |
(i) Amounts for 2017 have been recast to reflect the full retrospective adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).
(ii) Represents the Company's share of net income from its equity investment.
(iii) Comprised of expenses related to CDW UK.
(iv) Includes other expenses such as payroll taxes on equity-based compensation during the three months ended
CDW CORPORATION AND SUBSIDIARIES
CONSOLIDATED NET SALES GROWTH ON A CONSTANT CURRENCY BASIS
(dollars in millions)
(unaudited)
Three Months Ended March 31, | |||||||||||
2018 | 2017(i) | % Change(ii) | |||||||||
Consolidated Net sales, as reported | $ | 3,606.4 | $ | 3,256.0 | 10.8 | % | |||||
Foreign currency translation(iii) | — | 34.9 | — | ||||||||
Consolidated Net Sales on a Constant Currency Basis | $ | 3,606.4 | $ | 3,290.9 | 9.6 | % |
(i) Amounts for 2017 have been adjusted to reflect the full retrospective adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).
(ii) There were 64 selling days for both the three months ended
(iii) Represents the effect of translating the prior year results of CDW UK and CDW Canada at the average exchange rates applicable in the current year.
CDW CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
March 31, 2018 | December 31, 2017(i) | March 31, 2017(i) | |||||||||
Assets | (unaudited) | ||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 221.0 | $ | 144.2 | $ | 251.7 | |||||
Accounts receivable, net of allowance for doubtful accounts of $6.2, $6.2 and $8.2, respectively | 2,274.0 | 2,329.3 | 1,986.0 | ||||||||
Merchandise inventory | 485.8 | 411.5 | 460.6 | ||||||||
Miscellaneous receivables | 310.2 | 343.0 | 241.9 | ||||||||
Prepaid expenses and other | 188.9 | 168.3 | 162.4 | ||||||||
Total current assets | 3,479.9 | 3,396.3 | 3,102.6 | ||||||||
Property and equipment, net | 153.1 | 161.1 | 162.4 | ||||||||
Goodwill | 2,488.8 | 2,479.6 | 2,459.1 | ||||||||
Other intangible assets, net | 859.0 | 897.0 | 1,015.1 | ||||||||
Other assets | 47.1 | 32.7 | 40.5 | ||||||||
Total assets | $ | 7,027.9 | $ | 6,966.7 | $ | 6,779.7 | |||||
Liabilities and Stockholders’ Equity | |||||||||||
Current liabilities: | |||||||||||
Accounts payable - trade | $ | 1,288.5 | $ | 1,317.7 | $ | 1,064.3 | |||||
Accounts payable - inventory financing | 523.7 | 498.0 | 445.0 | ||||||||
Current maturities of long-term debt | 25.8 | 25.5 | 18.5 | ||||||||
Contract liabilities | 193.6 | 158.8 | 170.1 | ||||||||
Accrued expenses and other liabilities | 550.9 | 522.1 | 526.9 | ||||||||
Total current liabilities | 2,582.5 | 2,522.1 | 2,224.8 | ||||||||
Long-term liabilities: | |||||||||||
Debt | 3,209.7 | 3,210.0 | 3,262.0 | ||||||||
Deferred income taxes | 188.9 | 196.3 | 350.4 | ||||||||
Other liabilities | 49.9 | 52.7 | 32.2 | ||||||||
Total long-term liabilities | 3,448.5 | 3,459.0 | 3,644.6 | ||||||||
Total stockholders’ equity | 996.9 | 985.6 | 910.3 | ||||||||
Total liabilities and stockholders’ equity | $ | 7,027.9 | $ | 6,966.7 | $ | 6,779.7 |
(i) Amounts for 2017 have been adjusted to reflect the full retrospective adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).
CDW CORPORATION AND SUBSIDIARIES
NET SALES DETAIL
(dollars in millions)
(unaudited)
Three Months Ended March 31, | |||||||||||
2018 | 2017(i) | % Change(ii) | |||||||||
Corporate | $ | 1,565.8 | $ | 1,440.6 | 8.7 | % | |||||
Small Business | 327.6 | 292.0 | 12.2 | ||||||||
Public | |||||||||||
Government | 418.5 | 374.6 | 11.7 | ||||||||
Education | 397.2 | 393.2 | 1.0 | ||||||||
Healthcare | 414.3 | 385.9 | 7.3 | ||||||||
Total Public | 1,230.0 | 1,153.7 | 6.6 | ||||||||
Other | 483.0 | 369.7 | 30.6 | ||||||||
Total Net Sales | $ | 3,606.4 | $ | 3,256.0 | 10.8 | % |
(i) Amounts for 2017 have been adjusted to reflect the full retrospective adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).
(ii) There were 64 selling days for both the three months ended
CDW CORPORATION AND SUBSIDIARIES
DEBT AND WORKING CAPITAL INFORMATION
(dollars in millions)
(unaudited)
March 31, 2018 | December 31, 2017 | March 31, 2017 | |||||||||
Debt and Revolver Availability | |||||||||||
Cash and cash equivalents | $ | 221.0 | $ | 144.2 | $ | 251.7 | |||||
Total debt | 3,235.5 | 3,235.5 | 3,280.5 | ||||||||
Senior secured debt | 1,539.5 | 1,540.3 | 1,545.7 | ||||||||
Outstanding borrowings under Revolver(i) | — | — | 38.0 | ||||||||
Borrowing base under ABL Revolver(ii) | 1,598.3 | 1,608.2 | 1,409.1 | ||||||||
Revolver availability(i) | 1,057.4 | 1,063.2 | 1,025.6 | ||||||||
Cash plus Revolver availability(i) | 1,278.4 | 1,207.4 | 1,277.3 | ||||||||
Total net leverage ratio(iii) | 2.5 | 2.6 | 2.7 | ||||||||
Working Capital(iv) | |||||||||||
Days of sales outstanding (DSO)(v) | 54 | 53 | 51 | ||||||||
Days of supply in inventory (DIO)(v) | 12 | 13 | 14 | ||||||||
Days of purchases outstanding (DPO)(v) | (49 | ) | (47 | ) | (46 | ) | |||||
Cash conversion cycle(v) | 17 | 19 | 19 |
(i) Amount in effect at period-end, including CDW UK's Revolving Credit Facility, which is a multi-currency revolving credit facility with an aggregate amount of £50 million (
(ii) Amount in effect at period-end, applicable to the Company's ABL Revolving Credit Facility.
(iii) Defined in the Company's credit agreement, on a consolidated basis, as the ratio of total debt at period-end excluding any unamortized discount and/or premium and unamortized deferred financing costs, less cash and cash equivalents, to trailing twelve months (TTM) Adjusted EBITDA, a non-GAAP measure defined in the Company's credit agreement.
(iv) Amounts for 2017 have been adjusted to reflect the full retrospective adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).
(v) Based on a rolling three-month average.
CDW CORPORATION AND SUBSIDIARIES
CASH FLOW INFORMATION
(in millions)
(unaudited)
Three Months Ended March 31, | |||||||
2018 | 2017 | ||||||
Cash flows from operating activities | $ | 222.2 | $ | 369.9 | |||
Capital expenditures | (15.9 | ) | (19.6 | ) | |||
Cash flows used in investing activities | (15.9 | ) | (19.6 | ) | |||
Net change in accounts payable - inventory financing | 24.9 | (135.7 | ) | ||||
Other cash flows from financing activities | (156.1 | ) | (226.5 | ) | |||
Cash flows used in financing activities | (131.2 | ) | (362.2 | ) | |||
Effect of exchange rate changes on cash and cash equivalents | 1.7 | (0.1 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 76.8 | (12.0 | ) | ||||
Cash and cash equivalents - beginning of period | 144.2 | 263.7 | |||||
Cash and cash equivalents - end of period | $ | 221.0 | $ | 251.7 | |||
Supplementary disclosure of cash flow information: | |||||||
Interest paid | $ | (42.7 | ) | $ | (48.4 | ) | |
Taxes paid, net | $ | (10.6 | ) | $ | (6.3 | ) |
Source: CDW Corporation