CDW 4Q20: Coronavirus Made The Company, Customers Stronger

“Our value proposition resonated with customers. We combined our services and broad solutions portfolio with our extensive technical knowledge and logistical and distribution capabilities to deliver the best outcomes for our customers. This led to meaningful outperformance compared to the US IT market. We emerged from 2020 stronger and even more committed to executing our strategy,” says CDW CEO Christine Leahy.

CDW and its customer base have not only recovered from the impact of the COVID-19 coronavirus pandemic, but in fact seem to have thrived from it.

That recovery is a big part of the solution provider’s growth in its fiscal 2020 fourth quarter, and the full fiscal year, company executives said Tuesday during its quarterly financial analyst conference call.

The year 2020 was an extraordinary year, said CDW CEO Christine Leahy (pictured) during her opening remarks on the conference call.

[Related: Rising To The Occasion: The 2020 Solution Provider 500]

“I am very proud of how the CDW team quickly and smartly adapted to help our customers and partners during a challenging time,” Leahy said. “The diversity of our solutions portfolio and customer end-markets served us well in 2020, providing balance and driving our exceptional results. During the year our team helped customers across the full IT solution stack in the full IT life cycle, from client devices to cloud, from design to managed services. We executed against our strategy and continued to invest in high-growth solutions and services capabilities.”

Performance for CDW’s customer end-markets varied as demand increased in some and decreased in others, Leahy said.

“But all experienced change or disruption to their technology needs and to their operations last year due to COVID-19,” she said. “Our value proposition resonated with customers. We combined our services and broad solutions portfolio with our extensive technical knowledge and logistical and distribution capabilities to deliver the best outcomes for our customers. This led to meaningful outperformance compared to the US IT market. We emerged from 2020 stronger and even more committed to executing our strategy.”

During the fourth quarter of fiscal 2020, which ended December 31, CDW, which ranked number 5 on the CRN 2020 Solution Provider 500 list, continued helping customers with remote enablement and resource optimization, cost reduction, security, hybrid and cloud solutions, and digital transformation, Leahy said.

“During the fourth quarter, we continued to leverage our distribution centers, extensive logistics capabilities, deep vendor partner relationships, and strong balance sheet and liquidity position to navigate supply challenges and support our customers, in particular, for Chromebooks for K-12 customers where demand greatly outstripped supply,” she said.

While some customers were doing well and investing in technology during the quarter, other customers in challenged industries or geographies who were impacted by spikes in COVID-19 cases, were still cautious, Leahy said.

CDW’s overall sales grew 2.4 percent during the quarter, but its government business saw 30 percent growth in sales over the same quarter one year earlier, in part due to a large device-as-a-service deal with the U.S. Census Bureau, which was mostly completed by the end of the quarter, she said. “All devices were returned to us for decommissioning and we started the process to resell the clean units through third-party re-marketers,” she said.

CDW’s fourth fiscal quarter 2020 education business grew by over 140 percent over the previous year driven by phenomenal growth in the K-12 market, Leahy said.

“K-12 customers continued to focus on equity and access and remote learning, which drove triple-digit growth for notebooks, related accessories and solutions, as customers turned to us for holistic capabilities,” she said. “Higher education increased low double digits as schools continued to help students with remote enablement [and] a focus on creating connected communities to enhance the student experience.”

CDW’s healthcare business, on the other hand, declined during the quarter as customers continued to be cautious with their IT spending due to ongoing budget pressure, focusing on such areas as remote enablement, telehealth, and support infrastructure, she said.

Hardware sales in the fiscal fourth quarter grew by double digits thanks to increased notebook PC sales, while services including the device decommission services for the Census project along with configuration services grew by low double digits, Leahy said.

CDW also saw strong growth in customer spending in the cloud, Leahy said.

“Cloud customer spend increased strong double digits across all customer-end markets, driven by robust growth in collaboration, Infrastructure-as-a-Service, security and productivity,” she said. “We expect strong customer demand for cloud solutions to continue.”

Security was also a bright spot for CDW as customer spending in that technology segment over the course of 2020 contributed about $2 billion to the company’s revenue, Leahy said.

“The diversity of our customer-end markets serves us well when macro or other external challenges impact various industries and customers differently,” she said. “Our extensive product services and solutions portfolio positions us to meet our customers’ total needs across the spectrum of IT and can pivot quickly to trends in customer demand.”

The COVID-19 coronavirus pandemic created new issues requiring creative solutions, which led customers to rely on CDW more than ever as an extension of their team, Leahy said.

“This is the value that CDW brings to our customers,” she said. “We pair our broad solutions portfolio with our deep technical expertise to deliver the full outcomes that customers need.”

Looking forward, Leahy said the near-term global health and macroeconomic environment is still uncertain. CDW expects the U.S. IT market to return to growth in 2021 with a growth rate of between 2.5 percent and 3.0 percent.

“There are many wildcards, though, including COVID-19 government restrictions and vaccine rollout; policies from the new administration, including stimulus programs and tax changes, and supply constraints, in particular, for Chromebooks,” she said. “We are encouraged about our Q1 performance to date and how our teams are executing, but we are also cautious about the macro environment.”

Leahy, responding to an analyst’s question, said it is not yet certain what percentage of the workforce of CDW’s clients are moving back to the office, or will do so as the pandemic subsides. She said about 20 percent of CDW’s customers have already brought employees back to the office.

“But others are still planning for what their workforce ought to look like,” she said. “I mean, I‘m sure you hear the types of things that companies are saying they need to be in-person for now--collaboration, innovation, acculturation--these are things companies are saying, ‘We need to be in the office for that.’ So we’re helping them to design spaces that are more suitable for that.”

Leahy said the years 2020 and 2021 have become a very interesting time for business.

“While there was a lot of talk about where this would settle out, the hard work really begins in the planning and what that looks like and how you create efficiency and productivity for your workforce,” she said. “And we‘re right in the throes of that. And I think we’re going to see a number of flavors, frankly. So we’re helping customers with all kinds of flavors.”

Acquisitions were an important part of CDW’s strategy for the last year, Leahy said. CDW in July acquired IGNW, a provider of cloud-native services, software development and data orchestration capabilities, and followed that up with the recent and previously-undisclosed acquisitions of two smaller solution providers, Aeritae and Southern Dakota Solutions, which expanded CDW’s ServiceNow team, she said.

For its fiscal 2020 fourth quarter CDW recorded revenue of $4.96 billion, or about 9.2 percent over the $4.54 billion the company recorded for its fiscal 2019 fourth quarter.

Net income for the quarter on a GAAP basis was $238.3 million, or $1.65 per share, up from the $185.6 million, or $1.27 a share, the company reported one year earlier. On a non-GAAP basis, net income for the quarter was $263.7 million, or $1.82 per share, up from last year’s $229.1 million, or $1.57 per share.

CDW beat revenue expectations by $580 million, GAAP earnings per share by 43 cents, and non-GAAP earnings per share by 31 cents, according to Seeking Alpha.

For all of fiscal 2020, CDW reported revenue of $18.47 billion, up 2.4 percent over the $18.03 billion the company reported for fiscal 2019.

Net income for the year on a GAAP basis was $788.5 million, or $5.45 per share, up from $736.8 million in 2019, or $4.00 per share. On a non-GAAP basis, net income for fiscal 2020 was $954.4 million, or $6.59 per share, up from $902.1 million in 2019, or $6.10 per share.

CDW had a total of 9,982 employees at the end of the year, which was just two higher than at the end of the third quarter. Over the year, total headcount rose by 86 people, driven by an increase of about 150 customer-facing co-workers, including from the IGNW acquisition, which was partially offset by a decrease in the number of non-customer-facing employees.

Looking ahead, Collin Kebo, CDW senior vice president and chief financial officer, said CDW expects U.S. IT market growth to be between 2.5 percent and 3.0 percent, and that CDW’s net sales should grow 200 to 300 basis points faster than the market for the full year of 2021.

CDW also expects non-GAAP operating income margin to increase around 7 percent over fiscal 2020 and expects to report non-GAAP earnings per share in the mid to high single-digits, he said.

When asked by an analyst about which factors will drive growth in fiscal 2021, Leahy said remote work and remote “everything” will continue to be a big factor.

“Everyone will not be going straight back to work, and we think it will be a work-from-everywhere kind of situation,” she said.

A continuing trend towards digital acceleration will play to CDW’s strengths across its full stack offerings including cloud, services, software, and hardware.

“[This] plays very well with our customers because customers are always full stack and they‘re looking for a full solution,” she said. “So as they think about combined multi-vendor, multi-component solutions, CDW is a great partner for them. And we can take them from the very front end of advising and designing to building, implementing, integrating, orchestrating and managing.”