Cdw Corporation · NASDAQ:CDW
Cdw — Q4 2017 Earnings Presentation
30 slides from Cdw's earnings presentation, Feb 7, 2018
Slide 1: CDW Corporation Webcast Conference Call
CDW Corporation Webcast Conference Call February, 7 2018 CDW.com | 800.800.4239
Slide 2: Today's Agenda
Today's Agenda ▪ Fourth Quarter and YTD 2017 Results ▪ Key Performance Drivers and Strategic Progress ▪ Financial Results ▪ ASC 606 and 2017 Tax Cuts and Jobs Act ▪ 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: Highlights Combined Power
Highlights Combined Power ▪ Nimble business model ▪ Diverse product suite ▪ Balanced portfolio of customer end-markets 4
Slide 5: Strong Financial Performance
Strong Financial Performance Full Year: ▪ Net Sales increased $1.2 billion from 2016 to $15.2 billion – Up 8.7% on a reported basis – Up 8.9% on a constant currency basis ▪ Adjusted EBITDA up 6.1% to $1.2 billion ▪ Non-GAAP net income per diluted share up 11.7% to $3.83 Fourth Quarter: ▪ Net Sales i
Slide 6: Balanced Portfolio Drove Topline
Balanced Portfolio Drove Topline (Unaudited) ($ in millions) Three Months Ended December 31, Years Ended December 31, Average Average % Daily % % Daily % 2017 2016 Change Change(1) 2017 2016 Change(1) Change(1) Corporate(2) $ 1,641.4 $ 1,517.8 8.1% 6.4% $ 6,347.0 $5,889.8 7.8% 7.8% Small Business(2)
Slide 7: Fourth Quarter Financial Results
Fourth Quarter Financial Results (Unaudited) ($ in millions, except per share amounts) Three Months Ended December 31, 2017 2016 % Change Net sales $ 3,838.6 $ 3,492.4 9.9% Avg Daily Net Sales $ 60.9 $ 56.3 8.2% Gross profit $ 614.4 $ 577.9 6.3% % of Net Sales 16.0% 16.5% SG&A, including advertising
Slide 8: Fourth Quarter Adjusted SG&A and Adjusted EBITDA
Fourth Quarter Adjusted SG&A and Adjusted EBITDA (Unaudited) ($ in millions) Three Months Ended December 31, 2017 2016 % Change Reported SG&A, including advertising $ 392.8 $ 380.7 3.2% Adjustments: Equity-based compensation (10.1) (11.1) Integration expenses — (1.1) Depreciation and amortization: A
Slide 9: Interest, Taxes and Non-GAAP Net Income
Interest, Taxes and Non-GAAP Net Income (Unaudited) ($ in millions, except per share amounts) Three Months Ended December 31, 2017 2016 % Change Interest expense, net $ (37.1) $ (33.9) 9.5% Other income (expense), net $ 0.1 $ (0.5) nm** Income tax benefit (expense) $ 10.6 $ (59.6) nm** Net income $
Slide 10: 2017 GAAP Effective Tax Rate
2017 GAAP Effective Tax Rate Three Months Ended December 31, 2017 2016 Federal statutory rate 35.0% 35.0% State taxes 2.3% 3.0% Excess benefits from equity-based compensation (3.0)% (0.3)% Mix impact from lower international income tax rates (1.3)% (1.2)% All other items impacting tax rate 2.2% 0.1%
Slide 11: Fourth Quarter Non-GAAP Income before Income Taxes and Non-GAAP Net Income
Fourth Quarter Non-GAAP Income before Income Taxes and Non-GAAP Net Income (Unaudited) ($ in millions) Three Months Ended December 31, 2017 Three Months Ended December 31, 2016 Income Income Income Income before tax benefit Net Effective before tax benefit Net Effective income (expense) income tax r
Slide 12: YTD Financial Results
YTD Financial Results (Unaudited) ($ in millions, except per share amounts) Years Ended December 31, 2017 2016 % Change Net sales $ 15,191.5 $ 13,981.9 8.7% Avg Daily Net Sales $ 59.8 $ 55.0 8.7% Gross profit $ 2,449.9 $ 2,327.2 5.3% % of Net Sales 16.1% 16.6% SG&A, including advertising $ 1,583.8 $
Slide 13: Debt and Revolver Availability
Debt and Revolver Availability (Unaudited) ($ in millions) December 31, 2017 December 31, 2016 Cash and cash equivalents $ 144.2 $ 263.7 Total debt $ 3,235.5 $ 3,234.4 Senior secured debt $ 1,540.3 $ 1,552.1 Net debt (total debt net of cash and cash equivalents) $ 3,091.3 $ 2,970.7 Outstanding borro
Slide 14: Cash Conversion Cycle
Cash Conversion Cycle (Unaudited) December 31, 2017 December 31, 2016 Days of sales outstanding (DSO)* 52 51 Days of supply in inventory (DIO)* 12 12 Days purchases outstanding (DPO)* (45) (44) Cash Conversion Cycle* 19 19 * Based on a rolling three-month average. 14
Slide 15: 2018 Expected Tax Rates
2018 Expected Tax Rates Federal Statutory Tax rate 21% State Taxes ~ 4% Expanded Base (US) ~ 0.5% International ~ 0.5% Excess Tax benefits from equity-based compensation ~ (1.5%) Subtotal ~ 3.5% GAAP Effective Tax Rate 24-25% Non-GAAP Tax Adjustments * ~ 2% Non-GAAP Effective Tax Rate 26-27% * Inclu
Slide 16: Non-GAAP Income before Income Taxes and Non-GAAP Net Income
Non-GAAP Income before Income Taxes and 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-rec
Slide 17: ASC 606 Impact
ASC 606 Impact December 31, 2017 December 31, 2016 Growth rate New New New Current standard Current standard Current standard Bps ($ millions) Standard (ASC 606) Change Standard (ASC 606) Change Standard (ASC 606) Change Net sales $ 15,191.5 $ 14,832.9 $ (358.6) $ 13,981.9 $ 13,672.7 $ (309.2) 8.7%
Slide 18: Annual Medium Term Targets
Annual Medium Term Targets Previous 2018* 2019* 2016-2018 Net sales growth of Net sales growth of Net sales growth U.S. IT growth U.S. IT growth of U.S. IT growth Net sales +200-300bps in +200-300 bps in +200-300 bps in constant currency constant currency constant currency High 7's to 8% Adjusted Hi
Slide 19: Free Cash Flow 'Rule of Thumb'
Free Cash Flow 'Rule of Thumb' 2013 - 2016 2017 2018 - 2019 2 ½ - 3% 3 - 3 ½% 3 ¾ - 4 ¼% of Net sales of Net sales of Net sales 19
Slide 20: Four Capital Allocation Priorities
Four Capital Allocation Priorities Priorities Objectives Actions Target 30% payout of Increase Dividends Annually 31% increase November 2017 FCF in 5 years(1) to $0.84/share Maintain Net ~2.5 to 3.0 times Currently at 2.6x(3) Leverage Ratio(2) Net Leverage Ratio Supplement Organic Expand CDW strateg
Slide 21: Thoughts on Modeling FY 2018
Thoughts on Modeling FY 2018 ▪ Full-year constant currency Net sales growth within our annual medium term target of 200 to 300 bps above US IT, coming in at the mid-to-low end of the range – 1H/2H sales ~ in line with historical average split of 48-49 / 51-52% – Currency tailwinds expected at an ann
Slide 22: Modeling Q1 and FY 2018 Cash Flows
Modeling Q1 and FY 2018 Cash Flows ▪ Q1 '18: – Sales ~ in-line with typical seasonality below our fourth quarter – Adjusted EBITDA growth less than full year growth – Non-GAAP EPS growth within full year growth range ▪ Cash flow: – Annual Free Cash Flow at the low end of new 'rule of thumb' run rate
Slide 23: Questions and Answers
al Questions and Answers DU PEOPLE WHO GET IT 4 |
Slide 24: Adjusted EBITDA to Net Income Reconciliation
Adjusted EBITDA to Net Income Reconciliation (Unaudited) ($ in millions) Three Months Ended December 31, Years Ended December 31, % of Net % of Net % of Net % of Net 2017 Sales 2016 Sales 2017 sales 2016 sales Net income $ 195.2 5.1% $ 103.2 3.0% $ 523.0 3.4% $ 424.4 3.0% Depreciation and amortizati
Slide 25: YTD Adjusted SG&A and Adjusted EBITDA
YTD Adjusted SG&A and Adjusted EBITDA (Unaudited) ($ in millions) Years Ended December 31, 2017 2016 % Change Reported SG&A, including advertising $ 1,583.8 $ 1,508.0 5.0% Adjustments: Equity-based compensation (43.7) (39.2) Integration expenses (2.5) (7.3) Depreciation and amortization: Amortizatio
Slide 26: YTD Non-GAAP Income before Income Taxes and Non-GAAP Net Income
YTD Non-GAAP Income before Income Taxes and Non-GAAP Net Income (Unaudited) ($ in millions) Year Ended December 31, 2017 Year Ended December 31, 2016 Income Income Income Income before tax benefit Net Effective before tax benefit Net Effective income (expense) income tax rate income (expense) income
Slide 27: Fourth Quarter Free Cash Flow
Fourth Quarter Free Cash Flow (Unaudited) ($ in millions) Three Months Ended December 31, 2017 2016 % Change Net cash provided by operating activities $ 338.6 $ 104.4 Capital expenditures (22.5) (22.1) Net change in accounts payable - inventory financing (42.6) 104.4 Free Cash Flow $ 273.5 $ 186.7 4
Slide 28: YTD Free Cash Flow
YTD Free Cash Flow (Unaudited) ($ in millions) Years Ended December 31, 2017 2016 % Change Net cash provided by operating activities $ 777.7 $ 604.0 Capital expenditures (81.1) (63.5) Net change in accounts payable - inventory financing (84.0) 143.6 Free Cash Flow $ 612.6 $ 684.1 (10.5)% 28
Slide 29: 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, Years Ended December 31, Average Average % Daily % % Daily % 2017 2016 Change Change(1) 2017 2016 Change Change(1) Consolidated Net sales, as reported $3,838.6 $ 3,492.4 9.9% 8.2% $
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 December 31, Years Ended December 31, % % 2017 2016 Change 2017 2016 Change Net income $ 195.2 $ 103.2 $ 523.0 $ 424.4 Amortization of intangibles 4