Cdw Corporation · NASDAQ:CDW
Cdw — Q4 2019 Earnings Presentation
30 slides from Cdw's earnings presentation, Feb 6, 2020
Slide 1: CDW Corporation Webcast Conference Call
CDW Corporation Webcast Conference Call February 6, 2020 CDW.com | 800.800.4239
Slide 2: Today's Agenda
Today's Agenda ▪ Fourth Quarter and Full Year 2019 Results ▪ Performance Drivers ▪ 2020 Targets ▪ 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 Q4 and Full Year Financial Performance
Excellent Q4 and Full Year Financial Performance Fourth Quarter: ▪ Net sales increased $462 million from Q4 2018 to $4.5 billion – Up 11.3% on a reported and average daily basis ("ADS") – Up 11.3% on a constant currency basis ▪ Operating income up 16.8% to $284 million ▪ Net income up 16.5% to $186
Slide 5: Highlights Combined Power of Business Model and Strategy
Highlights Combined Power of Business Model and Strategy ▪ Balanced portfolio of customer end-markets ▪ Diverse product and solutions portfolio ▪ Three-part strategy for growth 5
Slide 6: Balanced Portfolio Drove Topline Growth
Balanced Portfolio Drove Topline Growth (Unaudited) ($ in millions) Three Months Ended December 31, Year Ended December 31, 2019 2018 % Change(1) 2019 2018 % Change(1) Corporate $ 1,965.4 $ 1,836.4 7.0% $ 7,499.0 $ 6,842.5 9.6% Small Business 391.1 362.5 7.9 1,510.3 1,359.6 11.1 Public Government 65
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: Q4 2019 Financial Results
Q4 2019 Financial Results (Unaudited) ($ in millions, except per share amounts) Three Months Ended December 31, 2019 2018 % Change Net sales $ 4,536.9 $ 4,074.8 11.3% Average daily net sales $ 72.0 $ 64.7 11.3% Gross profit $ 777.5 $ 693.8 12.1% % of Net sales 17.1% 17.0% SG&A, including advertising
Slide 9: Q4 2019 Non-GAAP SG&A and Non-GAAP Operating Income
Q4 2019 Non-GAAP SG&A and Non-GAAP Operating Income (Unaudited) ($ in millions) Three Months Ended December 31, 2019 2018 % Change Reported SG&A, including advertising $ 493.7 $ 450.9 9.5% Amortization of acquisition-related intangible assets (44.8) (44.1) Equity-based compensation (10.8) (10.8) Sca
Slide 10: Q4 2019 Non-Operating Expenses
Q4 2019 Non-Operating Expenses (Unaudited) ($ in millions) Three Months Ended December 31, 2019 2018 % Change Interest expense, net $ (38.3) $ (37.1) 3.2% Other (expense) income, net $ (9.5) $ 0.8 nm* Income tax expense $ (50.4) $ (47.3) 6.7% * Not meaningful 10
Slide 11: Q4 2019 GAAP Effective Tax Rate
Q4 2019 GAAP Effective Tax Rate (Unaudited) Three Months Ended December 31, 2019 2018 Federal statutory rate 21.0% 21.0% State taxes(1) 3.0 2.7 Excess benefits from equity-based compensation(2) (2.6) (2.4) All other items impacting tax rate — 1.6 GAAP effective tax rate 21.4% 22.9% (1) Net of Federa
Slide 12: Q4 2019 Non-GAAP Net Income
Q4 2019 Non-GAAP Net Income (Unaudited) ($ in millions) Three Months Ended December 31, 2019 Three Months Ended December 31, 2018 Income Income before Income before Income income tax Net Effective income tax Net Effective taxes expense(1) income tax rate taxes expense(1) income tax rate GAAP, as rep
Slide 13: Q4 2019 Earnings Per Share
Q4 2019 Earnings Per Share (Unaudited) ($ in millions, except per share amounts) Three Months Ended December 31, 2019 2018 % Change Diluted EPS $ 1.27 $ 1.05 20.8% Non-GAAP net income* $ 229.1 $ 200.7 14.2% Non-GAAP diluted EPS* $ 1.57 $ 1.32 18.4% * Non-GAAP net income and Non-GAAP diluted EPS are
Slide 14: Full Year Financial Results
Full Year Financial Results (Unaudited) ($ in millions, except per share amounts) Year Ended December 31, 2019 2018 % Change Net sales $ 18,032.4 $ 16,240.5 11.0% Average daily net sales $ 71.0 $ 63.9 11.0% Gross profit $ 3,039.9 $ 2,706.9 12.3% % of Net sales 16.9% 16.7% SG&A, including advertising
Slide 15: Full Year Non-GAAP SG&A and Non-GAAP Operating Income
Full Year Non-GAAP SG&A and Non-GAAP Operating Income (Unaudited) ($ in millions) Year Ended December 31, 2019 2018 % Change Reported SG&A, including advertising $ 1,906.3 $ 1,719.6 10.9% Amortization of acquisition-related intangible assets (178.5) (182.7) Equity-based compensation (48.5) (40.7) Sc
Slide 16: Full Year Non-Operating Expenses
Full Year Non-Operating Expenses (Unaudited) ($ in millions) Year Ended December 31, 2019 2018 % Change Interest expense, net $ (159.4) $ (148.6) 7.3% Other (expense) income, net $ (24.5) $ 1.8 nm* Income tax expense $ (212.9) $ (197.5) 7.8% * Not meaningful 16
Slide 17: Full Year 2019 GAAP Effective Tax Rate
Full Year 2019 GAAP Effective Tax Rate (Unaudited) Year Ended December 31, 2019 2018 Federal statutory rate 21.0% 21.0% State taxes(1) 3.7 3.7 Excess benefits from equity-based compensation(2) (2.8) (2.3) All other items impacting tax rate 0.5 1.1 GAAP effective tax rate 22.4% 23.5% (1) Net of Feder
Slide 18: Full Year Non-GAAP Net Income
Full Year Non-GAAP Net Income (Unaudited) ($ in millions) Year Ended December 31, 2019 Year Ended December 31, 2018 Income Income before Income before Income income tax Net Effective income tax Net Effective taxes expense(1) income tax rate taxes expense(1) income tax rate GAAP, as reported $ 949.7
Slide 19: Full Year Earnings Per Share
Full Year Earnings Per Share (Unaudited) ($ in millions, except per share amounts) Year Ended December 31, 2019 2018 % Change Diluted EPS $ 4.99 $ 4.19 19.1% Non-GAAP net income* $ 902.1 $ 794.3 13.6% Non-GAAP diluted EPS* $ 6.10 $ 5.17 18.0% * Non-GAAP net income and Non-GAAP diluted EPS are non-GA
Slide 20: Debt and Revolver Availability
Debt and Revolver Availability (Unaudited) ($ in millions) December 31, 2019 December 31, 2018 Cash and cash equivalents $ 154.0 $ 205.8 Total debt $ 3,317.3 $ 3,208.6 Net debt (total debt net of cash and cash equivalents) $ 3,163.3 $ 3,002.8 Revolver availability $ 1,106.2 $ 1,120.1 Cash plus revol
Slide 21: Cash Conversion Cycle
Cash Conversion Cycle (Unaudited) (Based on a rolling three-month average) December 31, 2019 December 31, 2018 Days of sales outstanding 57 56 Days of supply in inventory 14 13 Days purchases outstanding (53) (50) Cash conversion cycle 18 19 21
Slide 22: 2020 Capital Allocation Priorities
2020 Capital Allocation Priorities Priorities Objectives Actions Target ~25% payout of 28.8% increase in November 2019 Increase Dividends Annually Non-GAAP net income; to $1.52/share annually grow in-line with earnings Maintain Net Leverage ~2.5 to 3.0 times Net Currently at 2.2x(2) Ratio(1) leverag
Slide 23: 2020 Targets
2020 Targets 2020(1)(2) US IT growth Net Sales Growth plus 200 - 300 bps in constant currency Non-GAAP Operating Income Margin(3) Mid 7%s Non-GAAP Earnings Per ~10% growth Diluted Share Growth in constant currency (1) Annual targets are provided on a non-GAAP basis because certain reconciling items
Slide 24: Modeling Thoughts for 2020
Modeling Thoughts for 2020 ▪ Full-year constant currency Net sales slightly above annual target of 200 to 300 bps above U.S. IT growth – One extra selling day vs. 2019 in Q1 '20; one fewer vs. 2019 in Q4 '20 – 1H sales split in-line with historical norm of 48% to 49% of full-year Net sales – First q
Slide 25: Modeling Thoughts for 2020 Cash Flows
Modeling Thoughts for 2020 Cash Flows ▪ Annual Free Cash Flow within 'rule of thumb' of 3 ¾% to 4 ¼% of Net sales ▪ Capital expenditures ~0.7% of Net sales on an annual basis ▪ Cash tax rate in the 25.25% to 26.25% range ▪ Achieve Cash Conversion Cycle within target range of high teens to low 20s 25
Slide 26: Questions and Answers
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Slide 27: Non-GAAP Operating Income Reconciliation
Non-GAAP Operating Income Reconciliation (Unaudited) ($ in millions) Three Months Ended December 31, Year Ended December 31, % of Net % of Net % of Net % of Net 2019 sales 2018 sales 2019 sales 2018 sales Operating income 283.8 6.3% $ 242.9 6.0% 1,133.6 6.3% $ 987.3 6.1% Amortization of intangibles(
Slide 28: Free Cash Flow
Free Cash Flow (Unaudited) ($ in millions) Three Months Ended December 31, Year Ended December 31, 2019 2018 % Change 2019 2018 % Change Net cash provided by operating activities $ 344.9 $ 303.6 13.6 % $ 1,027.2 $ 905.9 13.4% Capital expenditures(1) (161.3) (32.7) (236.3) (86.1) Net change in accoun
Slide 29: Net Sales Growth on a Constant Currency Basis
Net Sales Growth on a Constant Currency Basis (Unaudited) ($ in millions) Three Months Ended December 31, Year Ended December 31, 2019 2018 % Change(1) 2019 2018 % Change(1) Net sales, as reported $ 4,536.9 $ 4,074.8 11.3% $18,032.4 $16,240.5 11.0% Foreign currency translation(2) — 0.8 — (67.8) Net
Slide 30: Non-GAAP Net Income Per Diluted Share, on a Constant Currency Basis
Non-GAAP Net Income Per Diluted Share, on a Constant Currency Basis (Unaudited) ($ in millions, except per share amounts) Three Months Ended December 31, Year Ended December 31, 2019 2018 % Change 2019 2018 % Change Net income $ 185.6 $ 159.3 16.5% $ 736.8 $ 643.0 14.6% Amortization of intangibles 4