01—Abstract
Summary
Summary of the 10-K filed February 27, 2019. Cited figures are marked; the original filing is the authoritative source.
CDW Corporation (Nasdaq: CDW) reported net sales of $16.24 billiona for 2018, up 9.5% from $14.83 billion in 2017 (constant currency growth of 9.2%).
Growth was driven by client device refresh and solutions demand, with the Corporate segment up 10.8%, Small Business up 11.4%, Public up 4.2%, and Other (UK and Canada) up 22.9%. Gross profit rose 10.5% to $2.71 billionb, with gross margin improving 20 basis points to 16.7%. Operating income increased 13.9% to $987.3 million, and net income rose to $643.0 million from $523.1 million, or $4.19 per diluted share.
Adjusted EBITDA was $1.30 billionc, up 9.8%, and Non-GAAP net income was $794.3 million, up 31.1%. Cash flow from operations was $905.9 million in 2018, compared with $777.7 million in 2017. Total debt and capitalized lease obligations were $3.21 billion at year-end, and net debt was $3.00 billion.
The company repurchased 6.3 million shares for $522 milliond during 2018 and paid dividends of $0.925 per share for the year. In February 2019 the Board declared a $0.295 quarterly dividend and authorized a $1.0 billion increase to the share repurchase program. The company also completed the acquisition of Scalar Decisions Inc. on February 1, 2019.
The filing highlights ongoing risks, including Brexit uncertainty affecting the UK business, dependence on vendor partner relationships and programs, public sector spending and procurement rules, and substantial indebtedness with $1.5 billion of variable rate debt outstanding. Management noted that the company had 9,019 coworkers at year-end 2018 and that its three largest wholesale distributors (Ingram Micro, SYNNEX and Tech Data) were each about 10% of US purchases.
02—Key points
Key Highlights
- Net sales rose 9.5% to $16.24 billion in 2018, with constant currency growth of 9.2%, led by the Corporate segment at $6.84 billion (up 10.8%).
- Operating income increased 13.9% to $987.3 million, and operating margin rose 30 basis points to 6.1%.
- Net income grew to $643.0 million ($4.19 per diluted share) from $523.1 million, and Non-GAAP net income increased 31.1% to $794.3 million.
- Adjusted EBITDA reached $1.30 billion, up 9.8%, while Adjusted EBITDA margin held at 8.0% of Net sales.
- Operating cash flow was $905.9 million in 2018, up from $777.7 million in 2017.
- The company repurchased $522 million of common stock in 2018, and the Board authorized a $1.0 billion increase to the repurchase program in February 2019.
- Total debt and capitalized lease obligations were $3.21 billion, with $1.1 billion available under the Revolving Loan at year-end 2018.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, CDW kept $0.04.
- Revenue$16.24B100.0%
- Cost of revenue−$13.53B83.3%
- Gross profit$2.71B16.7%
- Operating costs−$1.72B10.6%
- Operating income$987.3M6.1%
- Interest, other & tax−$344.3M2.1%
- Net income$643.0M4.0%
Where FY2018 revenue went
$16.24B- Cost of revenue: $13.53B, 83% of revenue
- Net income: $643.0M, 4.0% of revenue
- SG&A: $1.72B, 11% of revenue
- Interest, other & tax: $344.3M, 2.1% of revenue
Kept 4.0% as net incomeNet income $643.0M · 4.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 27, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $16.24B$14.83B | +9.5% |
| Cost of Revenue | $13.53B$12.38B | +9.3% |
| Gross Profit | $2.71B$2.45B | +10.5% |
| SG&A Expenses | $1.72B$1.41B | +22.0% |
| Operating Income | $987.30M$866.50M | +13.9% |
| Net Income | $643.00M$523.10M | +22.9% |
| EPS (Basic) | $4.26$3.37 | +26.4% |
| EPS (Diluted) | $4.19$3.31 | +26.6% |
| Shares Outstanding (Basic) | 150.90M155.40M | −2.9% |
| Shares Outstanding (Diluted) | 153.60M158.20M | −2.9% |
05—Questions
Frequently Asked Questions
What drove CDW's revenue growth in 2018?
The filing attributes sales growth to client device refresh, underlying demand for solutions, and strong growth from international operations. Other (UK and Canada) sales rose 22.9%, with foreign currency adding about 270 basis points to that growth.
How did profitability change in 2018?
Gross profit rose 10.5% to $2.71 billion, and gross margin increased 20 basis points to 16.7%, driven by a higher mix of net-basis revenue and improved product margin. Selling and administrative expenses grew 9.0% to $1.54 billion, and operating income rose 13.9% to $987.3 million.
What are the main risks highlighted for investors?
Key risks include dependence on vendor partner relationships and programs, which can be terminated on notice, and the concentration of purchases through three wholesale distributors. Public sector spending changes, Brexit uncertainty, and substantial indebtedness (including $1.5 billion of variable rate debt) are also cited.
How is the company returning capital to shareholders?
In 2018 CDW paid dividends of $0.925 per share and repurchased 6.3 million shares for $522 million. In February 2019 the Board declared a $0.295 quarterly dividend and authorized a $1.0 billion increase to the share repurchase program.
What significant event occurred after year-end 2018?
The company agreed in January 2019 to acquire Scalar Decisions Inc., a Canadian technology solutions provider, and the acquisition closed on February 1, 2019.
06—Continue