01—Abstract
Summary
Summary of the 10-K filed March 1, 2018. Cited figures are marked; the original filing is the authoritative source.
CDW Corporation (together with its subsidiaries, the "Company," "CDW" or "we") is a Fortune 500 provider of integrated IT solutions to small, medium and large business, government, education and healthcare customers in the United States, Canada and the United Kingdom.
In 2017 the Company reported Net sales of $15.19 billiona, up 8.7% from $13.98 billion in 2016, with growth in all customer markets except Healthcare. Gross profit rose to $2.45 billion, but gross profit as a percentage of Net sales declined to 16.1% from 16.6%, driven by a mix shift toward lower-margin hardware. Income from operations was $866.1 million, up from $819.2 million, and net income was $523.0 million, or $3.31 diluted per share, compared with $424.4 million in 2016.
The 2017 tax line benefited from the Tax Cuts and Jobs Act, with income tax expense of $137.3 millionb and an effective rate of 20.8%. Cash flow and capital return were strong. Net cash provided by operating activities was $777.7 million, up from $604.0 million.
During 2017 the Company repurchased 9 million shares for $534 millionc and paid $106.9 million in dividends, and $858 million remained under the share repurchase program at year-end. Total debt and capitalized lease obligations were $3.24 billion, and the Company reported $144.2 million of cash, with a $996 million borrowing availability under its Revolving Loan after borrowing base limitations. Adjusted EBITDA, a non-GAAP measure defined in the Company's credit agreements, was $1.19 billion, and Non-GAAP net income was $605.8 million.
Risk factors highlighted by the filing include reliance on vendor partner relationships (sales of products from Cisco and HP Inc. represented over 25%d of 2017 consolidated Net sales), substantial indebtedness, exposure to public sector spending and procurement rules, and competition from resellers, manufacturers, cloud providers and e-tailers. The Company also disclosed that the SEC concluded its investigation of its vendor partner program incentives in May 2017 without recommending enforcement action.
02—Key points
Key Highlights
- Net sales grew 8.7% to $15.19 billion in 2017, led by Corporate (up 7.8%) and Public (up 8.0%) segments; Other (Canada and UK) grew 14.5%.
- Gross profit margin fell 50 basis points to 16.1% as hardware sales, which carry lower margins, grew faster than the rest of the business.
- Net income rose to $523.0 million ($3.31 diluted EPS) from $424.4 million, helped by a $96 million one-time deferred tax revaluation benefit from the Tax Cuts and Jobs Act.
- Adjusted EBITDA reached $1.19 billion, up from $1.12 billion, with Adjusted EBITDA margin of 7.8% versus 8.0% in 2016.
- Operating cash flow increased to $777.7 million from $604.0 million, and the Company repurchased $534 million of stock in 2017.
- Quarterly dividend was raised to $0.21 per share in the fourth quarter of 2017, and the Board declared another $0.21 quarterly dividend on February 7, 2018.
- Concentrated vendor exposure: Cisco and HP Inc. products each represented over 25% of 2017 consolidated Net sales in aggregate for those two vendors, and seven major OEMs together accounted for nearly 60% of Net sales.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, CDW kept $0.04.
- Revenue$14.83B100.0%
- Cost of revenue−$12.38B83.5%
- Gross profit$2.45B16.5%
- Operating costs−$1.58B10.7%
- Operating income$866.5M5.8%
- Interest, other & tax−$343.4M2.3%
- Net income$523.1M3.5%
Where FY2017 revenue went
$14.83B- Cost of revenue: $12.38B, 83% of revenue
- Net income: $523.1M, 3.5% of revenue
- SG&A: $1.41B, 9.5% of revenue
- Other operating costs: $173.7M, 1.2% of revenue
- Interest, other & tax: $343.4M, 2.3% of revenue
Kept 3.5% as net incomeNet income $523.1M · 3.5%Other operating costs $173.7M · 1.2%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed March 1, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $14.83B$13.67B | +8.5% |
| Cost of Revenue | $12.38B$11.34B | +9.2% |
| Gross Profit | $2.45B$2.33B | +5.2% |
| SG&A Expenses | $1.41B$1.35B | +4.8% |
| Operating Income | $866.50M$820.00M | +5.7% |
| Net Income | $523.10M$425.10M | +23.1% |
| EPS (Basic) | $3.37$2.60 | +29.6% |
| EPS (Diluted) | $3.31$2.56 | +29.3% |
| Shares Outstanding (Basic) | 155.40M163.60M | −5.0% |
| Shares Outstanding (Diluted) | 158.20M166.00M | −4.7% |
05—Questions
Frequently Asked Questions
How did CDW perform financially in 2017?
Net sales rose 8.7% to $15.19 billion, gross profit increased to $2.45 billion, and income from operations grew to $866.1 million. Net income was $523.0 million, compared with $424.4 million in 2016, though the 2017 result included a one-time tax benefit from the Tax Cuts and Jobs Act.
What drove margin pressure in 2017?
Gross profit as a percentage of Net sales decreased to 16.1% from 16.6%. Management attributed this mainly to product margin compression from higher hardware sales, which generally carry lower margins, and an ongoing competitive marketplace.
How is CDW managing its debt and capital returns?
At December 31, 2017, total debt and capitalized lease obligations were $3.24 billion, and net debt was $3.09 billion. The Company refinanced its Term Loan at a lower margin, issued $600 million of 5.0% Senior Notes due 2025, and redeemed its 6.0% Senior Notes due 2022. It repurchased $534 million of stock in 2017 and had $858 million remaining under its repurchase program.
What are the main risks to CDW's business according to the filing?
The filing highlights dependence on vendor partners, which do not provide long-term contracts, and concentration in Cisco and HP Inc. products. Other risks include public sector spending and procurement rules, competition from resellers and cloud providers, substantial indebtedness with variable-rate exposure, cybersecurity threats, and foreign currency exposure to the British pound and Canadian dollar.
06—Continue