Cdw Corporation · NASDAQ:CDW
Cdw — Q3 2018 Earnings Presentation
31 slides from Cdw's earnings presentation, Oct 31, 2018
Slide 1: CDW Corporation Webcast Conference Call
CDW Corporation Webcast Conference Call October 31, 2018 CDW.com | 800.800.4239
Slide 2: Today's Agenda
Today's Agenda ▪ Third Quarter and YTD 2018 Results ▪ Performance Drivers ▪ 2018 Annual Medium Term Targets ▪ Modeling Thoughts ▪ Q&A 2
Slide 3: Disclaimers
Disclaimers Forward-Looking Statements This presentation contains forward-looking statements, which are any predications, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual resul
Slide 4: Strong Q3 2018 and YTD Financial Performance
Strong Q3 2018 and YTD Financial Performance Third Quarter: ▪ Net Sales increased $440 million from Q3 2017 to $4.4 billion – Up 11.2% on a reported basis and average daily sales basis – Up 11.4% ADS on a constant currency basis ▪ Net income up 42.1% to $184 million ▪ Adjusted EBITDA up 9.3% to $355
Slide 5: Highlights Combined Power of Business Model and Strategy
Highlights Combined Power of Business Model and Strategy ▪ Balanced portfolio of customer end-markets ▪ Diverse product and solutions suite ▪ Three-part strategy for growth 5
Slide 6: Balanced Portfolio Drove Topline Growth
Balanced Portfolio Drove Topline Growth (Unaudited) ($ in millions) Three Months Ended September 30, Nine Months Ended September 30, 2018 2017(1) % Change(2) 2018 2017(1) % Change(2) Corporate $ 1,706.5 $ 1,552.8 9.9% $ 5,006.1 $ 4,573.5 9.5% Small Business 340.0 305.4 11.3 997.1 912.4 9.3 Public Go
Slide 7: Our Three-Part Growth Strategy
Our Three-Part Growth Strategy Capture share and acquire new customers Enhance capabilities in high-growth, solutions areas Expand services capabilities 7
Slide 8: Q3 '18 Financial Results
Q3 '18 Financial Results (Unaudited) ($ in millions, except per share amounts) Three Months Ended September 30, 2018 2017(1) % Change Net sales $ 4,373.2 $ 3,933.2 11.2% Avg Daily Net Sales $ 69.4 $ 62.4 11.2% Gross profit $ 713.6 $ 642.2 11.1% % of Net Sales 16.3% 16.3% SG&A, including advertising
Slide 9: Q3 '18 Adjusted SG&A and Adjusted EBITDA
Q3 '18 Adjusted SG&A and Adjusted EBITDA (Unaudited) ($ in millions) Three Months Ended September 30, 2018 2017(1) % Change Reported SG&A, including advertising $ 438.8 $ 398.2 10.2% Adjustments: Equity-based compensation (10.8) (10.0) Reinstatement of prior year unclaimed property balances(2) — (4.
Slide 10: Interest Expense and Income Taxes
Interest Expense and Income Taxes (Unaudited) ($ in millions, except per share amounts) Three Months Ended September 30, 2018 2017(1) % Change Interest expense, net $ 36.6 $ 37.8 (3.0)% Other income, net $ 0.2 $ 0.7 (76.7)% Income tax expense $ 54.7 $ 77.6 (29.6)% Net income $ 183.7 $ 129.3 42.1% (1
Slide 11: Q3 '18 GAAP Effective Tax Rate
Q3 '18 GAAP Effective Tax Rate Three Months Ended September 30, 2018 2017 Federal statutory rate 21.0% 35.0% State taxes(1) 4.0 3.0 Excess benefits from equity-based compensation(2) (3.0) (0.3) Mix impact from international income tax rates 0.1 (1.0) All other items impacting tax rate 0.8 0.8 GAAP e
Slide 12: Q3 '18 Non-GAAP Net Income
Q3 '18 Non-GAAP Net Income (Unaudited) ($ in millions) Three Months Ended September 30, 2018 Three Months Ended September 30, 2017(1) Income Income Income Income before tax Net Effective before tax Net Effective income expense(2) income tax rate income (expense) income tax rate taxes taxes benefit(2
Slide 13: Two Ways to calculate Non-GAAP Net Income
Two Ways to calculate Non-GAAP Net Income Adjusted EBITDA: GAAP Income before Income taxes: - Depreciation and amortization + Amortization of purchased intangibles + Amortization of purchased OR intangibles + Equity-based compensation - Interest expense + Other unusual or non-recurring items = Non-G
Slide 14: Q3 '18 Earnings Per Share
Q3 '18 Earnings Per Share Three Months Ended September 30, 2018 2017(1) % Change Diluted EPS $ 1.20 $ 0.83 44.4% Non-GAAP net income $ 217.6 $ 168.3 29.3% Non-GAAP diluted EPS $ 1.42 $ 1.08 31.4% (1) Amounts for 2017 have been adjusted to reflect the full retrospective adoption of ASU No. 2014-09, R
Slide 15: YTD Financial Results
YTD Financial Results (Unaudited) ($ in millions, except per share amounts) Nine Months Ended September 30, 2018 2017(1) % Change Net sales $ 12,165.7 $ 11,080.8 9.8% Avg Daily Net Sales $ 63.7 $ 58.0 9.8% Gross profit $ 2,013.1 $ 1,836.5 9.6% % of Net Sales 16.5% 16.6% SG&A, including advertising $
Slide 16: YTD Adjusted SG&A and Adjusted EBITDA
YTD Adjusted SG&A and Adjusted EBITDA (Unaudited) ($ in millions) Nine Months Ended September 30, 2018 2017(1) % Change Reported SG&A, including advertising $ 1,268.7 $ 1,190.9 6.5% Adjustments: Equity-based compensation (29.9) (33.6) Integration expenses — (2.5) Reinstatement of prior year unclaime
Slide 17: YTD Non-GAAP Net Income
YTD Non-GAAP Net Income (Unaudited) ($ in millions) Nine Months Ended September 30, 2018 Nine Months Ended September 30, 2017(1) Income Income Income Income before tax Net Effective before tax Net Effective income expense(2) income tax rate income expense(2) income tax rate taxes taxes GAAP, as repo
Slide 18: YTD Earnings Per Share
YTD Earnings Per Share Nine Months Ended September 30, 2018 2017(1) % Change Diluted EPS $ 3.14 $ 2.06 52.4% Non-GAAP net income $ 593.6 $ 453.2 31.0% Non-GAAP diluted EPS $ 3.85 $ 2.85 35.3% (1) Amounts for 2017 have been adjusted to reflect the full retrospective adoption of ASU No. 2014-09, Reven
Slide 19: Debt and Revolver Availability
Debt and Revolver Availability (Unaudited) ($ in millions) September 30, 2018 December 31, 2017 September 30, 2017 Cash and cash equivalents $ 255.1 $ 144.2 $ 97.9 Total debt $ 3,219.4 $ 3,235.5 $ 3,429.9 Senior secured debt $ 1,526.1 $ 1,540.3 $ 1,735.4 Net debt (total debt net of cash and cash equ
Slide 20: Cash Conversion Cycle
Cash Conversion Cycle (Unaudited) (in days) September 30, 2018 December 31, 2017(1) September, 2017(1) Days of sales outstanding (DSO)(2) 55 53 54 Days of supply in inventory (DIO)(2) 12 13 13 Days purchases outstanding (DPO)(2) (49) (47) (48) Cash Conversion Cycle(2) 18 19 19 (1) Amounts for 2017 h
Slide 21: Four Capital Allocation Priorities
Four Capital Allocation Priorities Priorities Objectives Actions Target 30% payout of 40% increase November 2018 Increase Dividends Annually FCF in 5 years(1) to $1.18/share annually Maintain Net ~2.5 to 3.0 times Currently at 2.3x(3) Leverage Ratio(2) Net Leverage Ratio Supplement Organic Expand CD
Slide 22: 2018 Annual Medium Term Targets
2018 Annual Medium Term Targets(1) 2018(2) U.S. IT growth of 'a tick above' 4¼% Net Sales Growth plus 'a tick above' 425 bps outperformance in constant currency High 7's to 8% Adjusted EBITDA Margin Margin Just above thirty % Non-GAAP Earnings growth in constant per diluted share currency (1) Annual
Slide 23: Thoughts on Modeling Full Year 2018
Thoughts on Modeling Full Year 2018 ▪ Full-year constant currency Net sales growth 'a tick above' 425 bps higher than US IT – Currency tailwinds expected at an annual average rate of ~ 30 bps ▪ Adjusted EBITDA ~5 bps less than high end of annual target of high 7's to 8% ▪ Quarterly Depreciation and
Slide 24: Modeling Full Year 2018 Cash Flows
Modeling Full Year 2018 Cash Flows ▪ Cash flow: – Capital expenditures slightly above ~0.5% of Net sales on an annual basis – Achieve Cash Conversion Cycle within target range of high teens to low 20s – Annual Free Cash Flow at the low end of new 'rule of thumb' run rate post-tax cuts of 3 ¾% to 4 ¼
Slide 25: Questions and Answers
al Questions and Answers DU PEOPLE WHO GET IT 4 |
Slide 26: ASC 606 Impact
ASC 606 Impact (unaudited) Three Months Ended September 30, 2017 Nine Months Ended September 30, 2017 ($ in millions, except per share amounts) 606 605 Change 606 605 Change Net sales $ 3,933.2 $ 4,033.9 $ (100.7) $ 11,080.8 $ 11,353.0 $ (272.2) Gross profit 642.2 642.0 0.2 1,836.5 1,835.6 0.9 Gross
Slide 27: Adjusted EBITDA to Net Income Reconciliation
Adjusted EBITDA to Net Income Reconciliation (Unaudited) ($ in millions) Three Months Ended September 30, Nine Months Ended September 30, % of Net % of Net % of Net % of Net 2018 Sales 2017(1) Sales 2018 Sales 2017(1) Sales Net income $ 183.7 $ 129.3 $ 483.7 $ 328.3 Depreciation and amortization(2)
Slide 28: Third Quarter Free Cash Flow
Third Quarter Free Cash Flow (Unaudited) ($ in millions) Three Months Ended September 30, 2018 2017 % Change Net cash provided by operating activities $ 270.0 $ 62.9 329.3% Capital expenditures (19.8) (21.9) Net change in accounts payable - inventory financing 20.3 43.7 Free Cash Flow $ 270.5 $ 84.7
Slide 29: YTD Free Cash Flow
YTD Free Cash Flow (Unaudited) ($ in millions) Nine Months Ended September 30, 2018 2017 % Change Net cash provided by operating activities $ 602.3 $ 439.1 37.2% Capital expenditures (53.4) (58.6) Net change in accounts payable - inventory financing (90.1) (41.4) Free Cash Flow $ 458.8 $ 339.1 35.3%
Slide 30: Consolidated Net Sales Growth on a Constant Currency Basis
Consolidated Net Sales Growth on a Constant Currency Basis (Unaudited) ($ in millions) Three Months Ended September 30, Nine Months Ended September 30, 2018 2017(1) % Change(2) 2018 2017(1) % Change(2) Consolidated Net sales, as reported $ 4,373.2 $ 3,933.2 11.2% $ 12,165.7 $ 11,080.8 9.8% Foreign c
Slide 31: Non-GAAP Net Income Per Diluted Share, on a Constant Currency Basis
Non-GAAP Net Income Per Diluted Share, on a Constant Currency Basis (Unaudited) ($ and shares in millions, except per share amounts) Three Months Ended September 30, Nine Months Ended September 30, 2018 2017(1) % Change 2018 2017(1) % Change Net income $ 183.7 $ 129.3 $ 483.7 $ 328.3 Amortization of