Cdw Corporation · NASDAQ:CDW
Cdw — Q3 2019 Earnings Presentation
30 slides from Cdw's earnings presentation, Oct 31, 2019
Slide 1: CDW Corporation Webcast Conference Call
CDW Corporation Webcast Conference Call October 31, 2019 CDW.com | 800.800.4239
Slide 2: Today's Agenda
Today's Agenda ▪ Third Quarter and YTD 2019 Results ▪ Performance Drivers ▪ Outlook ▪ 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: Excellent Q3 2019 and YTD Financial Performance
Excellent Q3 2019 and YTD Financial Performance Third Quarter: ▪ Net sales increased $535 million from Q3 2018 to $4.9 billion – Up 12.2% on a reported basis – Up 10.5% on an average daily basis ("ADS") – Up 10.9% on an ADS constant currency basis ▪ Operating income up 16.7% to $321 million ▪ Net in
Slide 5: Highlights Combined Power of Business Model and Strategy
Highlights Combined Power of Business Model and Strategy ▪ Balanced portfolio of customer end-markets ▪ Broad product and solutions portfolio ▪ Three-part strategy for growth 5
Slide 6: Balanced Portfolio Drove Topline Growth
Balanced Portfolio Drove Topline Growth (Unaudited) ($ in millions) Three Months Ended September 30, Nine Months Ended September 30, Average Daily % 2019 2018 % Change Change(1) 2019 2018 % Change(2) Corporate $ 1,913.5 $ 1,706.5 12.1% 10.4% $ 5,533.6 $ 5,006.1 10.5% Small Business 386.2 340.0 13.6
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 2019 Financial Results
Q3 2019 Financial Results (Unaudited) ($ in millions, except per-share amounts) Three Months Ended September 30, 2019 2018 % Change Net sales $ 4,907.7 $ 4,373.2 12.2% Average daily net sales $ 76.7 $ 69.4 10.5% Gross profit $ 816.5 $ 713.6 14.4% % of Net sales 16.6% 16.3% SG&A, including advertisin
Slide 9: Q3 2019 Non-GAAP SG&A and Non-GAAP Operating Income
Q3 2019 Non-GAAP SG&A and Non-GAAP Operating Income (Unaudited) ($ in millions) Three Months Ended September 30, 2019 2018 % Change Reported SG&A, including advertising $ 495.9 $ 438.8 13.0% Amortization of acquisition-related intangible assets (44.6) (45.3) Equity-based compensation (12.8) (10.8) S
Slide 10: Q3 2019 Non-Operating Expenses
Q3 2019 Non-Operating Expenses (Unaudited) ($ in millions) Three Months Ended September 30, 2019 2018 % Change Interest expense, net $ 42.3 $ 36.6 15.6% Other (expense) income, net $ (17.4) $ 0.2 nm* Income tax expense $ 59.2 $ 54.7 8.2% *Not meaningful 10
Slide 11: Q3 2019 GAAP Effective Tax Rate
Q3 2019 GAAP Effective Tax Rate (Unaudited) Three Months Ended September 30, 2019 2018 Federal statutory rate 21.0% 21.0% State taxes(1) 4.0 4.0 Excess benefits from equity-based compensation(2) (3.5) (3.0) All other items impacting tax rate 1.2 0.9 GAAP effective tax rate 22.7% 22.9% (1) Net of Fed
Slide 12: Q3 2019 Non-GAAP Net Income
Q3 2019 Non-GAAP Net Income (Unaudited) ($ in millions) Three Months Ended September 30, 2019 Three Months Ended September 30, 2018 Income Income Income Income before Net Effective before Net Effective tax tax income income tax rate income income tax rate expense(1) expense(1) taxes taxes GAAP, as r
Slide 13: Q3 2019 Earnings Per Share
Q3 2019 Earnings Per Share (Unaudited) ($ in millions, except per-share amounts) Three Months Ended September 30, 2019 2018 % Change Diluted EPS $ 1.37 $ 1.20 14.6% Non-GAAP net income* $ 249.9 $ 217.6 14.8% Non-GAAP diluted EPS* $ 1.70 $ 1.42 19.8% * Non-GAAP net income and Non-GAAP diluted EPS are
Slide 14: YTD Financial Results
YTD Financial Results (Unaudited) ($ in millions, except per-share amounts) Nine Months Ended September 30, 2019 2018 % Change Net sales $ 13,495.5 $ 12,165.7 10.9% Average daily net sales $ 70.7 $ 63.7 10.9% Gross profit $ 2,262.4 $ 2,013.1 12.4% % of Net sales 16.8% 16.5% SG&A, including advertisi
Slide 15: YTD Non-GAAP SG&A and Non-GAAP Operating Income
YTD Non-GAAP SG&A and Non-GAAP Operating Income (Unaudited) ($ in millions) Nine Months Ended September 30, 2019 2018 % Change Reported SG&A, including advertising $ 1,412.6 $ 1,268.7 11.3% Amortization of acquisition-related intangible assets (133.7) (138.6) Equity-based compensation (37.7) (29.9)
Slide 16: YTD Non-Operating Expenses
YTD Non-Operating Expenses (Unaudited) ($ in millions) Nine Months Ended September 30, 2019 2018 % Change Interest expense, net $ 121.1 $ 111.5 8.6% Other (expense) income, net $ (15.0) $ 1.0 nm* Income tax expense $ 162.5 $ 150.2 8.2% *Not meaningful 16
Slide 17: YTD 2019 GAAP Effective Tax Rate
YTD 2019 GAAP Effective Tax Rate (Unaudited) Nine Months Ended September 30, 2019 2018 Federal statutory rate 21.0% 21.0% State taxes(1) 4.0 4.0 Excess benefits from equity-based compensation(2) (2.9) (2.3) All other items impacting tax rate 0.6 1.0 GAAP effective tax rate 22.7% 23.7% (1) Net of Fed
Slide 18: YTD Non-GAAP Net Income
YTD Non-GAAP Net Income (Unaudited) ($ in millions) Nine Months Ended September 30, 2019 Nine Months Ended September 30, 2018 Income Income Income Income before Net Effective before Net Effective tax tax income income tax rate income income tax rate expense(1) expense(1) taxes taxes GAAP, as reporte
Slide 19: YTD Earnings Per Share
YTD Earnings Per Share (Unaudited) ($ in millions, except per-share amounts) Nine Months Ended September 30, 2019 2018 % Change Diluted EPS $ 3.72 $ 3.14 18.5% Non-GAAP net income* $ 673.0 $ 593.6 13.4% Non-GAAP diluted EPS* $ 4.54 $ 3.85 17.9% * Non-GAAP net income and Non-GAAP diluted EPS are non-
Slide 20: Debt and Revolver Availability
Debt and Revolver Availability ($ in millions) September 30, 2019 December 31, 2018 September 30, 2018 (unaudited) (unaudited) Cash and cash equivalents $ 166.9 $ 205.8 $ 255.1 Total debt $ 3,284.4 $ 3,208.6 $ 3,219.4 Net debt (total debt net of cash and cash equivalents) $ 3,117.5 $ 3,002.8 $ 2,964
Slide 21: Cash Conversion Cycle
Cash Conversion Cycle (Unaudited) (Based on a rolling three-month average) September 30, 2019 December 31, 2018 September 30, 2018 Days of sales outstanding 56 56 55 Days of supply in inventory 13 13 12 Days purchases outstanding (52) (50) (49) Cash conversion cycle 17 19 18 21
Slide 22: 2019 Capital Allocation Priorities
2019 Capital Allocation Priorities Priorities Objectives Actions Target ~25% payout on 28.8% increase in November 2019 Increase Dividends Annually Non-GAAP net income; to $1.52/share annually grow in-line with earnings Maintain Net Leverage ~2.5 to 3.0 times Net Currently at 2.2x(2) Ratio(1) leverag
Slide 23: 2019 Outlook
2019 Outlook(1) Annual 2019(2) US IT growth + 625 to 675 bps Net Sales Growth + ~100 bps from Scalar(3) acquisition in constant currency Non-GAAP Operating Mid 7%s Income Margin(4) Non-GAAP Earnings per Mid-teens growth Diluted Share Growth in constant currency (1) Annual targets are provided on a n
Slide 24: Modeling Thoughts for 2019
Modeling Thoughts for 2019 ▪ Full-year constant currency Net sales growth of 625 to 675 bps above U.S. IT growth, plus ~100 bps from Scalar acquisition – Currency headwinds expected at an annual average rate of ~60 bps ▪ Annual depreciation and amortization expenses, including Scalar and Aptris, exp
Slide 25: Modeling Thoughts for 2019 Cash Flows
Modeling Thoughts for 2019 Cash Flows ▪ Annual Free Cash Flow within 'rule of thumb' of 3.75% to 4.25% of Net sales ▪ Capital expenditures to be ~1.25% of Net sales on an annual basis – Business-as-usual capital expenditures of slightly above 0.50% of Net sales – Device as a Service capital expendit
Slide 26: Questions and Answers
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Slide 27: Non-GAAP Operating Income Reconciliation
Non-GAAP Operating Income Reconciliation (Unaudited) ($ in millions) Three Months Ended September 30, Nine Months Ended September 30, % of Net % of Net % of Net % of Net 2019 sales 2018 sales 2019 sales 2018 sales Operating income $ 320.6 6.5% $ 274.8 6.3% $ 849.8 6.3% $ 744.4 6.1% Amortization of i
Slide 28: Free Cash Flow
Free Cash Flow (Unaudited) ($ in millions) Three Months Ended September 30, Nine Months Ended September 30, 2019 2018 % Change 2019 2018 % Change Net cash provided by operating activities $ 267.8 $ 270.0 (0.8)% $ 682.3 $ 602.3 13.3% Capital expenditures (31.1) (19.8) (75.0) (53.4) Net change in acco
Slide 29: Net Sales Growth on a Constant Currency Basis
Net Sales Growth on a Constant Currency Basis (Unaudited) ($ in millions) Three Months Ended September 30, Nine Months Ended September 30, Average Daily 2019 2018 % Change % Change(1) 2019 2018 % Change(2) Net sales, as reported $ 4,907.7 $ 4,373.2 12.2% 10.5% $ 13,495.5 $ 12,165.7 10.9% (3) Foreign
Slide 30: 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, 2019 2018 % Change 2019 2018 % Change Net income $ 201.7 $ 183.7 9.8 % $ 551.2 $ 483.7 14.0% Amortizat