01—Abstract
Summary
Summary of the 10-K filed February 28, 2020. Cited figures are marked; the original filing is the authoritative source.
CDW Corporation (CDW), a Fortune 500 company and S&P 500 member, is a market-leading provider of integrated IT solutions to small, medium and large business, government, education and healthcare customers in the US, UK and Canada.
For 2019 it reported Net sales of $18.03 billiona, up 11.0% from $16.24 billion in 2018 (11.5% on a constant currency basis), with Gross profit of $3.04 billion (16.9% of Net sales), Operating income of $1.13 billion (6.3% margin) and Net income of $736.8 million, or $4.99 per diluted share. Non-GAAP net income was $902.1 million. Growth was broad-based across product categories, with client devices, software and services leading, and the Public segment grew 11.5%, driven by Government (up 20.1%) and Healthcare (up 11.8%).
Cash generation and capital returns were solid. Operating cash flow was $1.03 billion, capital expenditures rose to $236.3 millionb, and the company repurchased 6.1 million shares for $657 million while paying dividends of $1.265 per share for the year. Total debt and capitalized lease obligations stood at $3.32 billion at December 31, 2019, with $1.0 billion available under the Revolving Loan.
The company acquired Scalar Decisions Inc. in Canada on February 1, 2019 for a total purchase price of $88 millionc and Aptris Inc. in October 2019. Management's Brexit and coronavirus commentary flags possible supply chain and demand effects, and the filing identifies vendor partner concentration (Apple, Cisco, Dell EMC, HP Inc., Lenovo and Microsoft accounted for about 60% of 2019 Net sales) and leverage as key risks.
02—Key points
Key Highlights
- Net sales rose 11.0% to $18.03 billion in 2019; constant currency growth was 11.5%.
- Gross profit margin improved 20 basis points to 16.9%, and operating income grew 14.8% to $1.13 billion.
- Non-GAAP net income increased 13.6% to $902.1 million, and diluted GAAP EPS was $4.99 versus $4.19 in 2018.
- Public segment Net sales grew 11.5%, led by Government (up 20.1%) and Healthcare (up 11.8%).
- Operating cash flow was $1.03 billion; the company repurchased $657 million of stock and paid $1.265 per share in dividends.
- Total debt and capitalized lease obligations were $3.32 billion at year end, and the company holds a $1.0 billion revolver availability.
- Heavy vendor concentration: products from Apple, Cisco, Dell EMC, HP Inc., Lenovo and Microsoft represented about 60% of 2019 Net sales.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, CDW kept $0.04.
- Revenue$18.03B100.0%
- Cost of revenue−$14.99B83.1%
- Gross profit$3.04B16.9%
- Operating costs−$1.91B10.6%
- Operating income$1.13B6.3%
- Interest, other & tax−$396.8M2.2%
- Net income$736.8M4.1%
Where FY2019 revenue went
$18.03B- Cost of revenue: $14.99B, 83% of revenue
- Net income: $736.8M, 4.1% of revenue
- SG&A: $1.91B, 11% of revenue
- Interest, other & tax: $396.8M, 2.2% of revenue
Kept 4.1% as net incomeNet income $736.8M · 4.1%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 28, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $18.03B$16.24B | +11.0% |
| Cost of Revenue | $14.99B$13.53B | +10.8% |
| Gross Profit | $3.04B$2.71B | +12.3% |
| SG&A Expenses | $1.91B$1.72B | +10.9% |
| Operating Income | $1.13B$987.30M | +14.8% |
| Net Income | $736.80M$643.00M | +14.6% |
| EPS (Basic) | $5.08$4.26 | +19.2% |
| EPS (Diluted) | $4.99$4.19 | +19.1% |
| Shares Outstanding (Basic) | 145.10M150.90M | −3.8% |
| Shares Outstanding (Diluted) | 147.80M153.60M | −3.8% |
05—Questions
Frequently Asked Questions
How did CDW perform financially in 2019?
Net sales increased 11.0% to $18.03 billion, operating income rose 14.8% to $1.13 billion, and net income grew to $736.8 million from $643.0 million. Diluted EPS was $4.99, compared with $4.19 in 2018.
Which customer segments drove growth?
The Corporate segment grew 9.6% to $7.50 billion, the Small Business segment grew 11.1% to $1.51 billion, and the Public segment grew 11.5% to $6.86 billion. Within Public, Government sales rose 20.1% and Healthcare rose 11.8%, while Education rose 3.6%. The Other segment (UK and Canada) grew 14.6% to $2.16 billion.
What is CDW's debt and liquidity position?
Total debt and capitalized lease obligations were $3.32 billion at December 31, 2019, of which $1.6 billion was secured. The company had $1.0 billion available under its Revolving Loan and an additional £50 million ($66 million) under the CDW UK revolving facility. Cash and cash equivalents were $154.0 million, and the company stated it was in compliance with its debt covenants.
What are the main risks highlighted in the filing?
Key risks include dependence on vendor partner relationships, which have no long-term contracts; concentration in products from a few OEMs; reliance on public sector spending; competition from resellers, manufacturers and cloud providers; supply chain disruption, including from coronavirus and trade restrictions; cybersecurity; and leverage limiting financial flexibility. Brexit uncertainty affecting the UK business is also cited.
What capital allocation actions did CDW take in 2019?
CDW repurchased 6.1 million shares for $657 million and paid dividends totaling $1.265 per share for 2019. The board authorized a $1.0 billion increase to the share repurchase program on February 7, 2019, and declared a quarterly dividend of $0.380 per share on February 6, 2020. The company also completed the Scalar acquisition for $88 million and issued $600 million of 4.25% Senior Notes due 2028.
06—Continue