CDW Corporation — Q1 2021 Form 10-Q
Business context and reporting period
CDW is a multi-brand IT solutions provider serving business, government, education and healthcare customers in the U.S., U.K. and Canada. This unaudited filing covers the three months ended March 31, 2021, compared with the same quarter of 2020; balance-sheet comparisons are with December 31, 2020.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Net sales | $4,837.5 million | $4,389.2 million; up 10.2%. Average daily sales rose 12.0%; constant-currency average daily sales rose 10.9%. |
| Gross profit and margin | $795.2 million; 16.4% | $756.5 million; 17.2%. Margin decreased 80 basis points. |
| Operating income and margin | $323.4 million; 6.7% | $245.8 million; 5.6%. Income increased 31.6%; margin rose 110 basis points. |
| Net income and diluted EPS | $232.6 million; $1.63 | $167.9 million; $1.16. |
| Operating cash flow | $344.6 million | $223.0 million. |
| Cash and cash equivalents | $878.6 million at March 31 | Down from $1,410.2 million at December 31, 2020. |
| Debt and liquidity | Total indebtedness approximately $3.9 billion; net debt $3,052.1 million. Revolver availability $1.3 billion. | Company reported compliance with debt covenants. |
Net sales growth was led by Public, up 26.0%, including Education sales up 98.1%; Small Business rose 10.5%. Corporate sales fell 5.5%, and Government and Healthcare sales declined 9.2% and 3.8%, respectively. Hardware was 82.0% of sales, versus 79.0% a year earlier; notebooks and mobile devices increased to 32.9% of sales from 25.3%.
Gross margin pressure reflected lower product margins, notebook mix and comparison with higher configuration-services revenue in the prior year. Operating income benefited from lower bad-debt expense, intangible amortization, travel and entertainment, and other expenses. Non-GAAP operating income was $367.7 million, up 21.0%, with a 7.6% margin versus 6.9%; non-GAAP net income was $249.4 million, up 24.7%. These are company-defined non-GAAP measures.
Cash used in investing was $233.6 million, including $212.9 million for the Amplified IT acquisition; capital expenditures were $20.7 million. Cash used in financing was $643.5 million, including $358.4 million of share repurchases, $56.5 million of dividends and a net $180.3 million reduction in inventory financing. The cash conversion cycle was 22 days, up from 20 days a year earlier.
Material changes and notable items
- On March 15, CDW acquired Amplified IT, a Google Cloud education partner, for net cash consideration of $212.9 million. The purchase-price allocation remained incomplete; goodwill increased by $212.9 million in the Public segment.
- The revolving credit facility was amended, increased from $1.45 billion to $1.60 billion and extended to March 2026; CDW UK became eligible to borrow. CDW also repaid its UK term loan using the amended facility.
- CDW repurchased 2.4 million shares for $358 million. The quarterly dividend was $0.40 per share, and a further $0.40 dividend was declared May 5, payable June 10, 2021.
- Adoption of income-tax accounting guidance produced a $19 million adjustment to retained earnings, reflecting derecognition of a deferred tax liability related to the U.K. acquisition.
Outlook, commentary and risks
The filing provides no specific financial guidance. Management said COVID-19 continued to drive customer demand for remote-work and remote-learning solutions while creating macroeconomic uncertainty, supply constraints, component availability issues and extended, unpredictable lead times. Management also cited changing public-sector budgets and funding, customer spending decisions, vendor relationships and product supply, competition, cybersecurity, receivables and inventory exposure, foreign exchange, indebtedness and legal or regulatory matters as risks. Seasonality was atypical in Q1, and management cautioned that pandemic-related uncertainty could continue to make seasonality differ from historical patterns.
CDW reported no reasonable possibility of a material loss exceeding amounts already recognized for its ordinary-course legal proceedings and other matters, while noting outcomes are inherently unpredictable. Management stated that liquidity sources were adequate for at least the next year and that disclosure controls were effective; these are management assessments, not assurances of future results.
Investor verification points
- Track whether supply constraints and extended lead times affect sales fulfillment, costs and product margins, particularly as hardware and notebooks gain mix.
- Assess the durability of Education-led growth and the weaker trends in Corporate, Government and Healthcare sales.
- Review Amplified IT’s final purchase-price allocation, integration and contribution to results.
- Monitor cash conversion, working-capital funding, cash balances, debt and revolver availability alongside repurchases and dividends.
- Reconcile reported results with CDW’s non-GAAP measures and their exclusions, and monitor legal, vendor, cybersecurity and pandemic-related risks.