CDW Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. CDW provides IT products, solutions and services to business, government, education and healthcare customers in the U.S., U.K. and Canada. Amounts below are in millions, except per-share data and percentages.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Net sales | $5,146.4 | $4,365.7 | $9,983.9 | $8,754.9 |
| Gross profit | $882.8 | $747.2 | $1,678.0 | $1,503.7 |
| Operating income | $369.9 | $283.4 | $693.3 | $529.2 |
| Net income | $274.1 | $189.1 | $506.7 | $357.0 |
| Diluted EPS | $1.93 | $1.31 | $3.56 | $2.47 |
| Gross margin | 17.2% | 17.1% | 16.8% | 17.2% |
| Operating margin | 7.2% | 6.5% | 6.9% | 6.0% |
Q2 sales rose 17.9% year over year (16.3% constant currency); first-half sales rose 14.0% (12.7% constant currency). Q2 non-GAAP operating income was $418.1 million and non-GAAP net income was $286.1 million; first-half amounts were $785.8 million and $535.5 million, respectively. These are company-defined non-GAAP measures.
Q2 sales growth was led by Corporate (+27.3%) and Small Business (+59.8%); Public grew 2.9%, with Education up 26.8% but Government down 28.7%. For the first half, Education sales increased 51.9% and Government declined 20.1%. Hardware represented 82.1% of first-half sales.
Cash, debt and liquidity
- First-half operating cash flow was $344.9 million, down from $515.8 million. Working-capital uses included accounts receivable ($140.5 million) and inventory ($127.9 million); management cited higher sales, customer-driven stocking amid supply constraints, and timing effects.
- Cash was $501.2 million at June 30, 2021, down from $1,410.2 million at year-end. Net debt was $3,427.8 million, versus $2,941.1 million a year earlier. Long-term debt was $3,909.2 million, with $19.8 million of current maturities.
- CDW reported $1.2 billion of additional borrowing availability under its revolving credit facility and compliance with debt covenants. It stated that liquidity was adequate for at least the next year.
- First-half investing cash outflow was $214.1 million, including $211.6 million for an acquisition. Financing cash outflow was $1,042.5 million, including $735.3 million of share repurchases and $112.3 million of dividends.
- The cash conversion cycle improved to 21 days from 25 days a year earlier.
Changes, outlook and notable items
- Q2 gross margin improved 10 basis points, while first-half gross margin declined 40 basis points. Management attributed the first-half pressure mainly to lower product margins, notebook mix and comparison with higher-margin configuration services in the prior year.
- Operating margin improved year over year in both periods, supported by lower acquisition-related intangible amortization and, for the first half, lower bad-debt expense. Interest expense also declined. First-half net income included a $36 million gain on sale of an equity-method investment.
- COVID-19-related uncertainty and supply constraints—primarily component availability, extended lead times and unpredictability—remained key risks. Management cited demand for digital transformation, security, hybrid/cloud solutions and devices, alongside uncertainty in customer budgets and historical seasonality.
- CDW acquired Amplified IT in March 2021; its reported results were insignificant for the period. The acquisition’s purchase-price allocation was preliminary. After quarter-end, CDW completed the acquisition of cybersecurity services firm Focal Point on July 30, 2021.
- No specific financial guidance was provided in the supplied filing text. The board declared a $0.40-per-share quarterly dividend payable September 10, 2021.
- Legal proceedings, audits and indemnification matters arise in the ordinary course. CDW said it did not believe a material loss beyond amounts already recognized was reasonably possible, while noting outcomes are inherently unpredictable.
Investor facts to verify
- Whether component shortages, lead times and inventory requirements affect sales growth, margins and working capital.
- How much reported earnings growth depends on the $36 million investment-sale gain, lower amortization and other non-GAAP adjustments.
- Whether cash generation can support debt service, acquisitions, dividends and share repurchases: first-half operating cash flow fell while repurchases totaled $735.3 million.
- Progress and integration costs for Amplified IT and the post-period Focal Point acquisition, including final purchase accounting.
- Performance by segment, particularly the divergence between Education growth and Government declines, and the effects of changing customer budgets and post-pandemic seasonality.