01—Abstract
Summary
Summary of the 10-Q filed May 1, 2024. Cited figures are marked; the original filing is the authoritative source.
CDW Corporation's first-quarter 2024 10-Q reports net sales of $4,872.7 milliona, down from $5,103.1 million in the prior-year quarter, a decline of 4.5%.
The filing states the decrease occurred across all operating segments, with customers cautious and delaying or reducing technology spending amid economic uncertainty. Gross profit fell to $1,063.3 millionb from $1,089.4 million, though gross profit margin rose to 21.8% from 21.3%, driven by a favorable contribution of netted-down revenue, primarily software as a service. Operating income declined to $328.0 million from $355.3 million, and net income decreased to $216.1 million from $230.1 million.
Diluted EPS was $1.59c versus $1.68, and non-GAAP diluted EPS was $1.92 versus $2.03. Cash flow and balance sheet metrics were stronger. Net cash provided by operating activities rose to $440.0 million from $365.4 million, and the cash conversion cycle improved to 16 days from 18.
Net debt was $4,828.5 milliond compared with $5,516.2 million a year earlier. Cash and cash equivalents ended the quarter at $803.8 million. The company repurchased 0.2 million shares for $52.1 million and paid dividends of $83.3 million.
Its Board declared a quarterly dividend of $0.620 per share on May 1, 2024, payable June 11, 2024. Segment results were mixed. Corporate net sales fell 3.1% and its operating income fell 7.9%, while Small Business operating income rose 12.0% on higher gross profit and lower bad debt expense.
Public segment net sales fell 4.9%, with education down 10.4%, and Other (UK and Canada) net sales fell 6.5%. The filing also discloses a Department of Justice Civil Investigative Demand under the False Claims Act, to which the company is cooperating, and states it does not believe a material loss beyond amounts already recognized is reasonably possible.
02—Key points
Key Highlights
- Net sales declined 4.5% to $4,872.7 million from $5,103.1 million, with the decrease occurring across all operating segments.
- Gross profit margin increased to 21.8% from 21.3%, driven by a more favorable contribution of netted-down revenue, partially offset by a higher mix of lower-margin notebooks/mobile devices.
- Operating income fell 7.7% to $328.0 million, and net income decreased 6.1% to $216.1 million; diluted EPS was $1.59 versus $1.68.
- Non-GAAP diluted EPS was $1.92 versus $2.03, and Adjusted free cash flow was $364.4 million versus $411.3 million.
- Net cash provided by operating activities increased to $440.0 million from $365.4 million, and the cash conversion cycle improved to 16 days from 18.
- Net debt decreased to $4,828.5 million from $5,516.2 million, and the company had $1.3 billion of availability under its Revolving Loan Facility.
- The Board authorized a $750 million increase to the share repurchase program on February 7, 2024; the company repurchased $52.1 million of stock in the quarter.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2024, CDW kept $0.04.
- Revenue$4.87B100.0%
- Cost of revenue−$3.81B78.2%
- Gross profit$1.06B21.8%
- Operating costs−$735.3M15.1%
- Operating income$328.0M6.7%
- Interest, other & tax−$111.9M2.3%
- Net income$216.1M4.4%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2024filed May 1, 2024Financial Statements
Q1 FY2024 against Q1 FY2023
| Line item | Q1 FY2024Q1 FY2023 | Change |
|---|---|---|
| Revenue | $4.87B$5.10B | −4.5% |
| Cost of Revenue | $3.81B$4.01B | −5.1% |
| Gross Profit | $1.06B$1.09B | −2.4% |
| SG&A Expenses | $735.30M$734.10M | +0.2% |
| Operating Income | $328.00M$355.30M | −7.7% |
| Net Income | $216.10M$230.10M | −6.1% |
| EPS (Basic) | $1.61$1.70 | −5.3% |
| EPS (Diluted) | $1.59$1.68 | −5.4% |
| Shares Outstanding (Basic) | 134.40M135.60M | −0.9% |
| Shares Outstanding (Diluted) | 136.00M137.30M | −0.9% |
05—Questions
Frequently Asked Questions
Why did CDW's net sales decline in the first quarter of 2024?
The filing states that net sales decreased $230 million, or 4.5%, to $4,873 million, with declines in all operating segments. Management attributes this to customers being cautious and measured in technology spending, resulting in reduced or delayed purchases. Public segment education sales fell 10.4%, and Corporate segment sales fell 3.1%.
How did profitability change compared with the prior-year quarter?
Gross profit fell 2.4% to $1,063.3 million, but gross profit margin improved to 21.8% from 21.3%, mainly due to a higher contribution of netted-down revenue, primarily software as a service. Operating income declined 7.7% to $328.0 million, and operating margin was 6.7% versus 7.0%. Selling and administrative expenses were roughly flat at $735.3 million, reflecting higher workplace optimization costs offset by lower performance-based compensation.
What is the company's liquidity and debt position?
As of March 31, 2024, CDW had cash and cash equivalents of $803.8 million and $1.3 billion of availability under its Revolving Loan Facility. Total unsecured indebtedness was $5.6 billion, and the company stated it was in compliance with its credit agreement and indenture covenants. Net debt was $4,828.5 million, down from $5,516.2 million a year earlier.
What returns did the company provide to shareholders?
During the quarter, CDW paid dividends of $83.3 million ($0.62 per share) and repurchased 0.2 million shares for $52.1 million. On May 1, 2024, the Board declared a quarterly dividend of $0.620 per share, payable June 11, 2024 to holders of record on May 24, 2024. In February 2024 the Board authorized a $750 million increase to the share repurchase program.
Are there any significant legal or regulatory matters disclosed?
A subsidiary received a Civil Investigative Demand dated September 20, 2021 from the US Department of Justice in connection with a False Claims Act investigation concerning teaming agreements with original equipment manufacturers, and the company is cooperating. The company states it does not believe there is a reasonable possibility of a material loss exceeding amounts already recognized, while acknowledging such outcomes are inherently unpredictable.
06—Continue