CDW Net Income Up 25 Percent In Q2, Completes Acquisition Of U.K.-Based Solution Provider
CDW reported net income of $108.2 million for its second quarter, an increase of 25 percent from the same period last year, and said on its earnings call Monday that it has acquired the remaining portion of U.K.-based IT solution provider Kelway.
CDW CEO Thomas Richards said on the earnings call that the acquisition was motivated by the success it had seen through its existing partnership with Kelway, in which it was able to win more deals overseas.
"The primary focus initially was to help us better serve those U.S.-based multinational companies that have international needs," Richards said during the Q&A portion of the call. "Prior to the partnership with Kelway, we would have to excuse ourselves sometimes from what I'll call 'combined international opportunities.' Obviously, the reverse is also true. Kelway has customers that have needs obviously, internationally, but back in the United States, so really the combination is about better serving those existing customers and looking for opportunities for both."
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Richards emphasized that the deal will better serve its customers who conduct a portion of their IT business internationally as Kelway offers products and services in both public and private sector markets. Kelway carries out roughly 90 percent of its business in the U.K., which is a significant area for many of CDW's U.S.-based customers, Richards said.
CDW acquired the remaining 65 percent of Kelway after taking a 35 percent stake in the company in November 2014. Richards said Kelway will be branded as "Kelway, A CDW Company." CDW paid $431 million in cash and stock, and will consolidate $80 million of Kelway's net debt.
For its second quarter, CDW, Vernon Hills, Ill., reported $3.31 billion in revenue, up 6.7 percent from $3.11 billion in the year-ago period.
The company's $108.2 million in net income for the second quarter was up from $86.6 million in the same period last year.
The $12.07 billion solution provider saw its stock climb by as much as 7.82 percent in early morning trading following the call. CDW is No. 6 on the 2015 CRN Solution Provider 500.
During the Q&A session of the call, Richards responded to a question as to whether CDW's M&A strategy will continue.
"The thing about CDW is we tend to do things in a deliberate way," Richards said. "We don’t take lightly the integration and what it takes to do this well, which is why we've been pretty thorough in the acquisition process …. We're going to take the same approach on integration. Right now we've got our hands full, and we want to stay focused on the integration of Kelway and our customers, because that's important to us."
CDW's government business, meanwhile, saw a 22.9 percent boost in revenue vs. last year, reporting $385 million in the June quarter of this year compared with $313.1 million in the year-ago quarter.
In the corporate market, CDW saw 6.3 percent growth in revenue to $1.76 billion in the second quarter compared with $1.66 billion in the same quarter last year. The majority of this growth came from CDW's medium-to large-business segment, which reported $1.49 billion in the June quarter, up 6.9 percent from $1.39 billion in the year-ago quarter.
Despite Richards having categorized the company's health-care business as "lumpy" on the company's first-quarter earnings call three months ago, CDW saw 2.7 percent growth in its health-care business in the June quarter. The solution provider reported $443.1 million in revenue in that segment for the quarter, up from $431.5 million in the same period last year.
"'Health care' continues to be my favorite word, 'lumpy,' from the perspective of we've got a lot going in health care with mergers, and the impact of a merger can go one of two ways when you're involved in one of those," Richards said. "The fact we got some growth out of health care this quarter is a nice sign and we'll take it."
PUBLISHED AUG. 3, 2015