CDW Opens New Frontiers With Services Sales, Foreign Expansion

CDW is aggressively expanding its services capabilities and has dramatically grown its cross-border capabilities since closing its acquisition of U.K.-based Kelway in August, the company said.

The Lincolnshire, Ill.-based company, No. 6 on the CRN Solution Provider 500, saw non-GAAP net income climb 21.1 percent in the quarter ended Dec. 31, to $123.7 million, or 73 cents per share. This edged out Seeking Alpha estimates of 72 cents per share.

Organic sales grew 5.8 percent, to $3.42 billion, after factoring out changes in foreign currency exchange rates, the company said, in line with Seeking Alpha projections for the quarter.

[Related: CDW Expects $200M Bump From Dell Partnership, Moving Away From Chromebook Sales]

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"Our performance demonstrates the strength of our business model," CDW Chairman and CEO Tom Richards said on the company's earnings call Tuesday. "2015 was a year of excellent financial performance and excellent strategic progress."

Wall Street responded unfavorably to the numbers, as CDW’s stock price dropped 0.7 percent Tuesday morning to $35.06 per share. The quarterly results were announced before the market opened.

CDW has already landed 10 or 11 deals worth in excess of $50 million that stem directly from the company's completing its first-ever foreign acquisition -- London-based Kelway -- six months ago, Richards said.

"You’re beginning to see the momentum build," Richards said. "Having said that, we're still at the tip of the iceberg."

To promote more cross-national business, Richards said, CDW is sending some of its sales leaders to London while some of Kelway's leadership is coming over to the United States. Multinational companies based in the U.S. and British companies with American operations will derive the most benefit from the acquisition at first, Richards said.

CDW purchased a 35 percent stake in Kelway in November 2014, then acquired the remaining 65 percent in August for $431 million in cash and stock. Kelway generates 90 percent of its business from the United Kingdom, and uses a hub-and-spoke strategy to serve the rest of the world.

CDW plans to leverage Kelway's hub-and-spoke plan to go beyond the U.K., Richards said, moving into a new region as demand from existing customers merits and then expanding to serve new customers once they gain a foothold.

In an effort to expand CDW's service capabilities, Richards said, the company also opened a physical location in another U.S. market with technical specialists and salespeople. The lion's share of CDW's services business is still project-driven, Richards said, since it's largely focused around implementing networking and communications solutions.

CDW's Infrastructure-as-a-Service (IaaS) and remote monitoring and management (RMM) offerings are designed to be consumed on an annuity basis, Richards said, but some customers still lack the necessary infrastructure to make recurring monthly payments. CDW is also providing more online management and service capabilities and automating the fulfillment of select cloud services, Richards said.

Richards said he expects CDW's services revenue will increasingly become recurring revenue-centric, but he's not sure at what pace that will happen.

Sales for CDW's corporate business climbed 3.9 percent in the quarter, to $1.76 billion, thanks to triple-digit growth in flash storage sales and 20 percent growth in its networking and communications practice. That success was offset by declines in desktop, notebook, mobile device and legacy storage sales, Richards said.

CDW's public sector sales grew 9.2 percent, to $1.27 billion, with strong sales across federal, state and local government customers contributing to the numbers. That, however, was offset by fluctuating demand for health-care products, a drop in K-12 device sales and decrease spending at colleges and universities because of state budget cuts.