Cdw Corporation · NASDAQ:CDW
Cdw — Q2 2015 Earnings Presentation
29 slides from Cdw's earnings presentation, Aug 3, 2015
Slide 1: CDW Corporation Webcast Conference Call
CDW Corporation Webcast Conference Call August 3, 2015 CDW.com | 800.800.4239
Slide 2: Today's Agenda
Today's Agenda ▪ 2nd Quarter Results ▪ Key Performance Drivers ▪ Acquisition of remaining 65% of Kelway ▪ Financial Results ▪ Outlook ▪ Q&A 2
Slide 3: Disclaimers
Disclaimers 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 results could materially differ
Slide 4: Record 2nd Quarter Financial Performance
Record 2nd Quarter Financial Performance ▪ Net Sales up 6.7% to $3.3 billion, 7.2% in constant currency ▪ Adjusted EBITDA up 8.4% to $268.0 million ▪ Non-GAAP Net Income Per Diluted Share up 20.1% to $0.81 4
Slide 5: Highlights Combined Power
Highlights Combined Power ▪ Balanced portfolio of channels ▪ Broad product and solution suite ▪ On-going success of our three-part strategy 5
Slide 6: Balanced Portfolio Drove Topline
Balanced Portfolio Drove Topline (Unaudited) ($ in millions) Three Months Ended June 30, Six Months Ended June 30, Corporate: 2015 2014 % Change * 2015 2014 % Change ** Medium / Large $ 1,492.1 $ 1,395.4 6.9% $ 2,805.9 $ 2,670.2 5.1% Small Business 269.3 260.8 3.3 529.4 491.6 7.7 Total Corporate $ 1
Slide 7: Our Three-Part Growth Strategy
Our Three-Part Growth Strategy Increase "share of wallet" from existing customers and sales from new customers Expand our solutions capabilities Build our services capabilities 7
Slide 8: Four Capital Allocation Priorities
Four Capital Allocation Priorities Priorities Objectives Actions Increase Dividends Annually Target 30% payout of 59% increase to $0.27/share FCF in 5 years Maintain Net Leverage Ratio ~2.5 to 3.0 times Currently at 3.0X (2) (1) Net Leverage Ratio Supplement Organic Growth with M&A Kelway acquisitio
Slide 9: Kelway Snapshot
Kelway Snapshot ▪ Founded in 1990 ▪ IT services and solutions provider focused on the mid-market ▪ Fiscal 2015 (3/31/15) US GAAP revenue of ~ $850MM ▪ ~ 1,000 Coworkers ▪ Headquartered in London, UK; roughly 90% UK/10% international ▪ Dedicated product export team ▪ International distribution and mu
Slide 10: Kelway Investment Strategic Rationale
Kelway Investment Strategic Rationale ▪ Strengthens customer value proposition - Access to cross border supply chain relationships and international technical expertise - More consistent brand experience ▪ Expands market opportunity - Increase share of wallet with multi-national US and UK based cust
Slide 11: Second Quarter Financial Results
Second Quarter Financial Results (Unaudited) ($ in millions, except per share amounts) Three Months Ended June 30, 2015 2014 % Change Net Sales $ 3,314.0 $ 3,106.0 6.7% Avg Daily Net Sales $ 51.8 $ 48.5 6.7% Gross Profit $ 534.5 $ 496.9 7.6% % of Net Sales 16.1% 16.0% SG&A/Advertising $ 328.6 $ 308.
Slide 12: Second Quarter Adjusted SG&A and Adjusted EBITDA
Second Quarter Adjusted SG&A and Adjusted EBITDA (Unaudited) ($ in millions) Three Months Ended June 30, 2015 2014 % Change Reported SG&A, including advertising $ 328.6 $ 308.7 6.5% Adjustments: Non-cash equity-based compensation (7.5) (4.3) Acquisition and integration costs (1.4) — Other expenses (
Slide 13: Interest, Taxes and Non-GAAP Net Income
Interest, Taxes and Non-GAAP Net Income (Unaudited) ($ in millions, except per share amounts) Three Months Ended June 30, 2015 2014 % Change Interest expense, net $ (37.8) $ (48.5) (21.9)% Other income, net $ 4.0 $ 0.1 nm* Income tax expense $ (63.9) $ (50.6) 26.2% Net income $ 108.2 $ 86.6 24.9% No
Slide 14: Second Quarter Non-GAAP Net Income
Second Quarter Non-GAAP Net Income (Unaudited) ($ in millions) Three Months Ended June 30, 2015 2014 Net income $ 108.2 $ 86.6 Amortization of intangibles (1) 40.2 40.3 Non-cash equity-based compensation 7.5 4.3 Net loss on extinguishments of long-term debt — 2.6 Interest expense adjustment related
Slide 15: Financial Results YTD
Financial Results YTD (Unaudited) ($ in millions, except per share amounts) Six Months Ended June 30, 2015 2014 % Change Net Sales $ 6,069.2 $ 5,758.3 5.4% Avg Daily Net Sales $ 47.8 $ 45.3 5.4% Gross Profit $ 991.0 $ 922.1 7.5% % of Net Sales 16.3% 16.0% SG&A/Advertising $ 633.5 $ 598.1 5.9% Income
Slide 16: Debt and ABL Availability
Debt and ABL Availability (Unaudited) ($ in millions) 6/30/2015 12/31/2014 6/30/2014 Cash and Cash Equivalents $ 335.7 $ 344.5 $ 227.6 Total Debt(1) $ 3,169.6 $ 3,157.0 $ 3,094.5 Senior Secured Debt $ 1,505.8 $ 1,513.5 $ 1,846.2 Net Debt (Total Debt net of Cash and Cash Equivalents)(1) $ 2,833.9 $ 2
Slide 17: Cash Conversion Cycle
Cash Conversion Cycle (Unaudited) 6/30/2015 12/31/2014 6/30/2014 Days of sales outstanding (DSO) * 41 42 40 Days of supply in inventory (DIO) * 13 13 14 Days purchases outstanding (DPO) * (35) (34) (35) Cash Conversion Cycle * 19 21 19 * Based on a rolling three-month average. 17
Slide 18: Impact of Kelway on 2H 2015
Impact of Kelway on 2H 2015 Incremental revenue growth between 500 and 600 basis points: ▪ Consolidating 5 months ▪ Given UK seasonality, Kelway results calendar year front-end loaded Contribute Non-GAAP EPS of between 6 and 8 cents/share: ▪ One month @ 35% minority interest; 5 months @ 100% ▪ Assum
Slide 19: 2015 Expectations
2015 Expectations + Targets Organic Kelway Net Sales U.S. IT 2H 2015 Growth growth +500-600bps +200-300bps Adjusted Mid-7% High-end of High-end of EBITDA target range margin target range Deleverage Leverage ~1/3 to 1/2x per year until 3.0x + Non-GAAP Mid-teens High-teens 6-8 cents EPS Growth 1
Slide 20: Thoughts on Modeling 2015
Thoughts on Modeling 2015 For P&L currently look for: ▪ First half/second half net organic sales balance ~47-48/52-53% ▪ 2H adjusted SG&A growth higher than sales growth due to higher coworker count; infrastructure and productivity investments; lapping lower cost to serve transactional sales plus in
Slide 21: Capital Allocation Priorities Support Medium Term Targets
Capital Allocation Priorities Support Medium Term Targets 2016-2018 Net Sales Growth U.S. IT growth +200-300bps* Adjusted EBITDA Mid-7% margin Leverage Maintain net debt/adj. EBITDA ratio at ~2.5-3.0x Non-GAAP Low double-digits* EPS Growth * Exceed in 2016 due to 7 months incremental Kelway 21
Slide 22: Questions and Answers
[Mak Questions and Answers DW, PEOPLE WHO GET IT el iL JBL
Slide 23: Adjusted EBITDA to Net Income Reconciliation
Adjusted EBITDA to Net Income Reconciliation (Unaudited) ($ in millions) Three Months Ended June 30, Six Months Ended June 30, % of % of % of % of Net Net Net Net 2015 sales 2014 sales 2015 sales 2014 sales Net income $ 108.2 $ 86.6 $ 162.9 $ 137.5 Depreciation and amortization(1) 52.6 52.0 105.1 10
Slide 24: Adjusted SG&A YTD
Adjusted SG&A YTD (Unaudited) ($ in millions) Six Months Ended June 30, 2015 2014 % Change Reported SG&A, including advertising: $ 633.5 $ 598.1 5.9% Adjustments: Non-cash equity-based compensation (12.2) (7.6) Acquisition and integration costs (1.7) — Other expenses (1) (2.3) (5.0) Depreciation and
Slide 25: Non-GAAP Net Income YTD
Non-GAAP Net Income YTD (Unaudited) ($ in millions) Six Months Ended June 30, 2015 2014 Net income $ 162.9 $ 137.5 Amortization of intangibles (1) 80.5 80.6 Non-cash equity-based compensation 12.2 7.6 Net loss on extinguishments of long-term debt 24.3 8.0 Interest expense adjustment related to extin
Slide 26: Second Quarter Free Cash Flow
Second Quarter Free Cash Flow (Unaudited) ($ in millions) Three Months Ended of June 30, 2015 2014 % Change Net cash provided by operating activities $ (78.7) $ (70.4) Capital expenditures (12.9) (11.7) Net change in accounts payable - inventory financing 83.5 61.4 Free Cash Flow $ (8.1) $ (20.7) (6
Slide 27: Free Cash Flow YTD
Free Cash Flow YTD (Unaudited) ($ in millions) Six Months Ended June 30, 2015 2014 % Change Net cash provided by operating activities $ 99.1 $ 175.9 Capital expenditures (22.9) (21.0) Net change in accounts payable - inventory financing 41.2 55.0 Free Cash Flow $ 117.4 $ 209.9 (44.1)% 27
Slide 28: Trailing Twelve Months Free Cash Flow
Trailing Twelve Months Free Cash Flow (Unaudited) ($ in millions) Trailing Twelve Months as of June 30, 2015 2014 % Change Net cash provided by operating activities $ 358.2 $ 335.1 Capital expenditures (56.9) (48.1) Net change in accounts payable - inventory financing 61.7 29.1 Free Cash Flow $ 363.
Slide 29: Constant Currency Net Sales Growth
Constant Currency Net Sales Growth (Unaudited) ($ in millions) Three Months Ended June 30, Six Months Ended June 30, 2015 2014 % Change 2015 2014 % Change Consolidated net sales, as reported $ 3,314.0 $ 3,106.0 6.7% $ 6,069.2 $ 5,758.3 5.4% Currency translation adjustment(1) — (15.1) — (30.0) Consol