Cdw Corporation · NASDAQ:CDW
Cdw — Q4 2018 Earnings Presentation
33 slides from Cdw's earnings presentation, Feb 7, 2019
Slide 1: CDW Corporation Webcast Conference Call
CDW Corporation Webcast Conference Call February 7, 2019 CDW.com | 800.800.4239
Slide 2: Today's Agenda
Today's Agenda ▪ Fourth Quarter and YTD 2018 Results ▪ Performance Drivers ▪ 2019 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 Financial Performance
Strong Financial Performance Fourth Quarter: ▪ Net Sales increased $323 million from Q4 2017 to $4.1 billion – Up 8.6% on a reported basis and average daily sales basis – Up 9.0% ADS on a constant currency basis ▪ Net income down 18.2% to $159 million ▪ Adjusted EBITDA up 8.8% to $323 million ▪ Net
Slide 5: Highlights Combined Power of Business Model and Strategy
Highlights Combined Power of Business Model and Strategy ▪ Balanced portfolio of customer end-markets ▪ Diverse product and solutions suite ▪ Three-part strategy for growth 5
Slide 6: Balanced Portfolio Drove Topline Growth
Balanced Portfolio Drove Topline Growth (Unaudited) ($ in millions) Three Months Ended December 31, Year Ended December 31, 2018 2017(1) % Change(2) 2018 2017(1) % Change(2) Corporate $ 1,836.4 $ 1,599.3 14.8% $ 6,842.5 $ 6,172.8 10.8% Small Business 362.5 308.1 17.7 1,359.6 1,220.5 11.4 Public Gove
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: Scalar Decisions Inc. Acquisition Snapshot
Scalar Decisions Inc. Acquisition Snapshot ▪ Strategic acquisition closed on Feb. 1, 2019 ▪ Premier Canadian IT solutions and services provider ▪ Founded in 2004 ▪ Privately held ▪ ~350 coworkers ▪ Locations in Toronto, Montreal, Ottawa, Vancouver, Edmonton, Calgary and Winnipeg ▪ Solutions offering
Slide 9: Scalar Decisions Inc. Acquisition Rationale
Scalar Decisions Inc. Acquisition Rationale ▪ Complements three-part growth strategy and enhances customer value proposition – Captures share and acquires new customers through established geographic presence across Canada with minimal customer overlap – Enhances capabilities in high-growth solution
Slide 10: Q4 '18 Financial Results
Q4 '18 Financial Results (Unaudited) ($ in millions, except per share amounts) Three Months Ended December 31, 2018 2017(1) % Change Net sales $ 4,074.8 $ 3,752.1 8.6% Avg Daily Net Sales $ 64.7 $ 59.6 8.6% Gross profit $ 693.8 $ 613.7 13.1% % of Net Sales 17.0% 16.4% SG&A, including advertising $ 4
Slide 11: Q4 '18 Adjusted SG&A and Adjusted EBITDA
Q4 '18 Adjusted SG&A and Adjusted EBITDA (Unaudited) ($ in millions) Three Months Ended December 31, 2018 2017(1) % Change Reported SG&A, including advertising $ 450.9 $ 392.6 14.8% Adjustments: Equity-based compensation (10.8) (10.1) Depreciation and amortization: Amortization of acquisition-relate
Slide 12: Interest Expense and Income Taxes
Interest Expense and Income Taxes (Unaudited) ($ in millions, except per share amounts) Three Months Ended December 31, 2018 2017(1) % Change Interest expense, net $ (37.1) $ (37.1) (0.1)% Other income, net $ 0.8 $ 0.1 nm* Income tax (expense) benefit $ (47.3) $ 10.7 nm* Net income $ 159.3 $ 194.8 (
Slide 13: Q4 '18 GAAP Effective Tax Rate
Q4 '18 GAAP Effective Tax Rate Three Months Ended December 31, 2018 2017 Federal statutory rate 21.0% 35.0% State taxes(1) 2.7 2.3 Excess benefits from equity-based compensation(2) (2.4) (3.0) Mix impact from international income tax rates 0.1 (1.3) All other items impacting tax rate 1.5 2.1 Net def
Slide 14: Q4 '18 Non-GAAP Net Income
Q4 '18 Non-GAAP Net Income (Unaudited) ($ in millions) Three Months Ended December 31, 2018 Three Months Ended December 31, 2017(1) Income Income before Income tax Net Effective before Income tax Net Effective (expense) benefit income benefit(2) income tax rate income (expense)(2) income tax rate ta
Slide 15: Q4 '18 Earnings Per Share
Q4 '18 Earnings Per Share Three Months Ended December 31, 2018 2017(1) % Change Diluted EPS $ 1.05 $ 1.25 (16.4)% Non-GAAP net income $ 200.7 $ 152.7 31.5% Non-GAAP diluted EPS $ 1.32 $ 0.98 34.4% (1) Amounts for 2017 have been adjusted to reflect the full retrospective adoption of ASU No. 2014-09,
Slide 16: YTD Financial Results
YTD Financial Results (Unaudited) ($ in millions, except per share amounts) Year Ended December 31, 2018 2017(1) % Change Net sales $ 16,240.5 $ 14,832.9 9.5% Avg Daily Net Sales $ 63.9 $ 58.4 9.5% Gross profit $ 2,706.9 $ 2,450.2 10.5% % of Net Sales 16.7% 16.5% SG&A, including advertising $ 1,719.
Slide 17: YTD Adjusted SG&A and Adjusted EBITDA
YTD Adjusted SG&A and Adjusted EBITDA (Unaudited) ($ in millions) Year Ended December 31, 2018 2017(1) % Change Reported SG&A, including advertising $ 1,719.6 $ 1,583.7 8.6% Adjustments: Equity-based compensation (40.7) (43.7) Reinstatement of prior year unclaimed property balances(2) — (4.1) Deprec
Slide 18: YTD Non-GAAP Net Income
YTD Non-GAAP Net Income (Unaudited) ($ in millions) Year Ended December 31, 2018 Year Ended December 31, 2017(1) Income Income before Income Net Effective before Income Net Effective tax tax income expense(2) income tax rate income expense(2) income tax rate taxes taxes GAAP, as reported $ 840.5 $ (
Slide 19: YTD Earnings Per Share
YTD Earnings Per Share Year Ended December 31, 2018 2017(1) % Change Diluted EPS $ 4.19 $ 3.31 26.7% Non-GAAP net income $ 794.3 $ 605.9 31.1% Non-GAAP diluted EPS $ 5.17 $ 3.83 35.1% (1) Amounts for 2017 have been adjusted to reflect the full retrospective adoption of ASU No. 2014-09, Revenue from
Slide 20: Debt and Revolver Availability
Debt and Revolver Availability (Unaudited) ($ in millions) December 31, 2018 December 31, 2017 Cash and cash equivalents $ 205.8 $ 144.2 Total debt $ 3,208.6 $ 3,235.5 Net debt (total debt net of cash and cash equivalents) $ 3,002.8 $ 3,091.3 Revolver availability(1) $ 1,120.1 $ 1,063.2 Cash plus re
Slide 21: Cash Conversion Cycle
Cash Conversion Cycle (Unaudited) (in days) December 31, 2018 December 31, 2017(1) Days of sales outstanding (DSO)(2) 56 53 Days of supply in inventory (DIO)(2) 13 13 Days purchases outstanding (DPO)(2) (50) (47) Cash Conversion Cycle(2) 19 19 (1) Amounts for 2017 have been adjusted to reflect the f
Slide 22: New Profit Metric: Non-GAAP Operating Income
New Profit Metric: Non-GAAP Operating Income Transitioning from Adjusted EBITDA to Non-GAAP Operating Income(1) Advantages ▪ More fully recognizes costs of doing business as IT market continues to evolve ▪ Harmonizes non-GAAP adjustments throughout the income statement ▪ Enhances comparability to pu
Slide 23: 2019 Targets
2019 Targets(1) 2019(2) U.S. IT growth plus 200 to 300 bps Net Sales Growth plus ~100 bps from Scalar acquisition in constant currency Non-GAAP Operating Income Margin Mid 7%'s Non-GAAP Earnings ~10% growth in per diluted share constant currency (1) Annual targets are provided on a non-GAAP basis be
Slide 24: 2019 Capital Allocation Priorities
2019 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 25: Thoughts on Modeling Full Year 2019
Thoughts on Modeling Full Year 2019 ▪ Full-year constant currency Net sales within annual target of 200 to 300 bps above U.S. IT growth, plus ~100 bps from Scalar acquisition – One fewer selling day vs. 2018 in Q1 '19; one more vs. 2018 in Q3 '19 – 1H sales split slightly below historical norm of 48
Slide 26: Modeling Full Year 2019 Cash Flows
Modeling Full Year 2019 Cash Flows ▪ Cash flow: – Annual Free Cash Flow within 'rule of thumb' run rate post-tax cuts of 3 ¾% to 4 ¼% of Net sales – Capital expenditures, excluding Census, slightly above ~0.5% of Net sales on an annual basis – Cash tax rate in the 25.5% to 26.5% range – Achieve Cash
Slide 27: Questions and Answers
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Slide 28: Non-GAAP Operating Income - Historical Results
Non-GAAP Operating Income - Historical Results 2018 Q1 Q2 Q3 Q4 Full Year Operating income $ 204.1 $ 265.5 $ 274.8 $ 242.9 $ 987.3 Amortization of intangibles(1) 46.7 46.6 45.3 44.1 182.7 Equity-based compensation 8.1 11.0 10.8 10.8 40.7 Other(2) 0.5 0.7 3.0 1.7 5.9 Non-GAAP Operating Income $ 259.4
Slide 29: Adjusted EBITDA to Net Income Reconciliation
Adjusted EBITDA to Net Income Reconciliation (Unaudited) ($ in millions) Three Months Ended December 31, Year Ended December 31, % of Net % of Net % of Net % of Net 2018 Sales 2017(1) Sales 2018 Sales 2017(1) Sales Net income $ 159.3 $ 194.8 $ 643.0 $ 523.1 Depreciation and amortization(2) 66.9 65.7
Slide 30: Fourth Quarter Free Cash Flow
Fourth Quarter Free Cash Flow (Unaudited) ($ in millions) Three Months Ended December 31, 2018 2017 % Change ) Net cash provided by operating activities $ 303.6 $ 338.6 (10.3% Capital expenditures (32.7) (22.5) Net change in accounts payable - inventory financing 22.7 (42.6) Free Cash Flow $ 293.6 $
Slide 31: YTD Free Cash Flow
YTD Free Cash Flow (Unaudited) ($ in millions) Year Ended December 31, 2018 2017 % Change Net cash provided by operating activities $ 905.9 $ 777.7 16.5% Capital expenditures (86.1) (81.1) Net change in accounts payable - inventory financing (67.4) (84.0) Free Cash Flow $ 752.4 $ 612.6 22.8% 31
Slide 32: Consolidated Net Sales Growth on a Constant Currency Basis
Consolidated Net Sales Growth on a Constant Currency Basis (Unaudited) ($ in millions) Three Months Ended December 31, Year Ended December 31, 2018 2017(1) % Change(2) 2018 2017(1) % Change(2) Consolidated Net sales, as reported $ 4,074.8 $ 3,752.1 8.6% $ 16,240.5 $ 14,832.9 9.5% Foreign currency tr
Slide 33: 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 December 31, Year Ended December 31, 2018 2017(1) % Change 2018 2017(1) % Change Net income $ 159.3 $ 194.8 $ 643.0 $ 523.1 Amortization of intangib