CDW Sees Supply Chain Issues Continuing This Year

‘While client device supply improved in some areas and we were able to help more customers adopt alternative providers, overall supply remained constrained, and we exited the year with an elevated backlog. Tight supply continued to impact prices which our teams were generally able to pass along,’ says CDW President and CEO Christine Leahy.

Supply chain constraints are likely to continue impacting IT sales for most or all of 2022, according to CDW, which Wednesday reported its fiscal year 2021 financials.

Al Miralles, CDW’s senior vice president and chief financial officer, responded to an analyst’s question during the Lincolnshire, Ill.-based national IT solution provider’s fiscal year 2021 conference call that supply chain constraints took some of the shine off what was otherwise a very strong finish to CDW’s fiscal 2021.

“As we look forward into 2022, we don’t really see any meaningful end in sight,” Al Miralles, CDW’s senior vice president and chief financial officer, said. “I would say, as we think about kind of our interactions and what we hear and observe from a partner and product perspective, maybe there's a silver lining there that some of the transparency has improved. So there's a better line of sight of lead times and where things stand, but I'm not sure that we would translate that into any indication of things are going to get better in the near term. And so, really, we're hunkered down on consistent similar outlook with respect to this supply chain environment and we'll continue to execute as we have during this time.”

[Related: MSP Connection: Cloud Growth, Remote Work Helped Drive Demand]

CDW President and CEO Christine Leahy told analysts that the fiscal year, which ended December 31, show that CDW has a resilient business model that has let it continue to deliver industry-leading performance year after year, including during the last couple years which were characterized by a global health crisis, supply interruptions, and changing customer priorities.

The last two years saw CDW, ranked No. 5 on CRN’s 2021 Solution Provider 500, able to help customers address their priorities during a time of supply challenges, Leahy said in her prepared remarks.

[Related: MSP Connection: Cloud Growth, Remote Work Helped Drive Demand]

“We leveraged our competitive advantages, our distribution centers, our extensive logistics capabilities, deep vendor partner relationships, and strong balance sheet and liquidity position to navigate the environment,” she said. “And our sellers and technical coworkers helped customers find alternative solutions from our deep portfolio whenever possible.”

As a result, CDW in 2020 delivered over 11 million client devices despite meaningful supply shortages in endpoint devices, and in 2021 continue to show growth in both categories, Leahy said.

During the fourth quarter, CDW sales of client devices increased by mid-single digits, Leahy said.

“While client device supply improved in some areas and we were able to help more customers adopt alternative providers, overall supply remained constrained, and we exited the year with an elevated backlog,” she said. “Tight supply continued to impact prices which our teams were generally able to pass along.”

Miralles said during his prepared remarks that the company’s overall backlog increased a few hundred million dollars in the fourth fiscal quarter.

“Backlog remained elevated year-over-year,” Miralles said. “We continue to make strategic investments in inventory, support our customers through this constrained supply environment, and the team once again did a great job leveraging CDW‘s competitive advantages, so the backlog did not increase even more.

Later, during the question and answer part of the call, when asked about supply constraints going forward, Miralles said the fourth fiscal quarter looked very similar to the prior quarters in terms of the supply environment, and CDW’s backlog increased consistent with those previous quarters by around a couple hundred million dollars.

CDW does not really see any meaningful end in sight to supply chain issues in 2022, he said.

When asked by an analyst how willing customers are to absorb price increases, Leahy said that while no one likes price increases, investment in technology is still the top priority for virtually all commercial customers.

“They‘re not cutting back on budgets at all,” she said. “In fact, they might be expanding them, but having to be very disciplined about cost containment. So, again, our expertise across the full spectrum allows us, with our customers, to have conversations that can drive cost reduction, cost management in a way that makes us even more valuable. But we’re not finding commercial customers or other customers, for that matter, who are reducing technology investments at all.”

Technology is essential to being competitive, to winning, to educating, to doing all the things that companies and organizations are trying to do, Leahy said.

“So, we‘re not seeing any material impact at this point,” she said. “And, obviously, we’re passing prices along.”

One analyst noted that other solution providers are saying some customers are increasingly moving towards off-premises and cloud-based infrastructure because of supply constraints, and asked Leahy whether CDW is also seeing that move.

“We are seeing acceleration to the cloud,” she said. “But we‘ve said this before, our clients are being very thoughtful about the strategy and what technology best serves their organizational needs. Whether it is agility, whether it is risk mitigation, cloud versus on-prem. So we are certainly having the conversations. ... But they’re making the decisions, I would say, with the right amount of discipline, and not just wholesale lift and shift because they can‘t get the product. They are being patient. Frustrated, but patient.”

During her prepared remarks, Leahy also addressed CDW’s October, 2021 acquisition of Sirius, one of the biggest channel-focused acquisitions ever.

The acquisition brought CDW an additional 2,600 employees and about $2.2 billion in annual revenue, she said.

“Top line performance for Sirius was relatively flat compared to 2020 as they overcame a number of large projects and the impact of supply interruptions,” she said. “Managed services, an area of focus for Sirius, delivered double-digit growth.”

Going forward, Sirius’ growth is expected to be in line with that of CDW as a whole, Leahy said.

However, Miralles said during the question and answer period, given the nature of the integrated sales, CDW will not be breaking out Sirius results going forward.

For its fourth fiscal quarter 2021, CDW reported net sales of $5.5 billion, up 11.7 percent over the $5.0 billion the company reported for its fourth fiscal quarter 2020.

That was $310 million higher than analyst expectations, according to Seeking Alpha.

This includes corporate segment net sales of $2.3 million, up 33.1 percent; small business segment net sales of $487 million, up 30.9 percent; public segment sales of $2.0 billion, down 13.1 percent despite a 19.9-percent rise in healthcare sales; and sales from CDW’s U.K. and Canadian operations of $699 million, up 19.5 percent.

The company also reported GAAP net income of $215.3 million, or $1.57 per share, down from $238.3 million, or $1.65 per share, from the same period last year. On a non-GAAP basis, the company reported net income of $285.4 million, or $2.08 per share, up from $263.7 million, or $1.82 per share.

Analysts had been expecting non-GAAP earnings per share of $1.93, according to Seeking Alpha.

For all of fiscal 2021, CDW reported net sales of $20.8 billion, up 12.7 percent from $18.5 billion.

Net income for the year was $988.6 million, or $7.04 per share, up from $788.5 million, or $5.45 per share, on a GAAP basis. On a non-GAAP basis, the company reported net income of $1.1 billion, or $7.97 per share, up from $954.4 million, or $6.59 per share.

CDW shares Wednesday closed down 4.3 percent at $189.96 per share. By Thursday noon, shares were down another 1.8 percent at $186.47 per share.