CDW : First Quarter 2024 Non-GAAP Reconciliations

CDW Corporation

Non-GAAP Reconciliations First Quarter 2024

CDW.com | 800.800.4239

Non-GAAP Financial Measures - Definitions

Generally, a non-GAAP financial measure is a numerical measure of a company's performance or financial condition that either excludes or includes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with US GAAP. Non-GAAP measures used by management may differ from similar measures used by other companies, even when similar terms are used to identify such measures. Our outlook includes non-GAAP financial measures because certain reconciling items are dependent on future events that either cannot be controlled, such as currency impacts or interest rates, or reliably predicted because they are not part of our routine activities, such as refinancing activities or acquisition and integration expenses. Our non-GAAP financial measures include non-GAAP performance and non-GAAP financial condition measures. For a reconciliation of non-GAAP financial measures to the most comparable US GAAP financial measures, refer to the slides herein.

Non-GAAP Performance Measures:

We believe our non-GAAP performance measures provide analysts, investors and management with useful information regarding the underlying operating performance of our business, as they remove the impact of items that management believes are not reflective of underlying operating performance. Management uses these measures to evaluate period-over-period performance as management believes they provide a more comparable measure of the underlying business.

Non-GAAP operating income and Non-GAAP selling and administrative expenses excludes, among other things, charges related to the amortization of acquisition-related intangible assets, equity-based compensation and the associated payroll taxes, acquisition and integration expenses, transformation initiatives and workplace optimization. Non-GAAP operating income margin is defined as Non-GAAP operating income as a percentage of Net sales.

Non-GAAP net income and Non-GAAP net income per diluted share excludes, among other things, charges related to acquisition-related intangible asset amortization, equity-based compensation, acquisition and integration expenses, transformation initiatives, workplace optimization and the associated tax effects of each.

Non-GAAP net income per diluted share on a constant currency basis is defined as Non-GAAP net income per diluted share excluding the impact of foreign currency translation on Non-GAAP net income.

Net sales on a constant currency basis is defined as Net sales excluding the impact of foreign currency translation on Net sales.

Non-GAAP Financial Condition Measures:

We also present non-GAAP financial condition measures as we believe they provide analysts, investors and management with more information regarding our liquidity and capital resources. Certain non-GAAP financial measures are also used to determine certain components of performance-based compensation.

Free cash flow is defined as Net cash provided by operating activities less capital expenditures. Adjusted free cash flow is defined as Free cash flow adjusted to include certain cash flows from financing activities incurred in the normal course of operations or as capital expenditures.

Return on working capital ("ROWC") is defined as the percentage of Non-GAAP operating income After-tax divided by working capital.

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Non-GAAP Operating Income and Non-GAAP Operating Income Margin Reconciliation

(Unaudited)
($ in millions)
		Three Months Ended March 31,
		2024		% of Net			2023		% of Net
			sales				sales
Operating income, as reported	$	328.0	6.7 %	$	355.3	7.0 %
Amortization of intangibles(1)		37.7					41.6
Equity-based compensation		19.4					20.8
Acquisition and integration expenses		0.7					8.9
Transformation initiatives (2)		6.1					5.0
Workplace optimization(3)		7.3					0.9
Other adjustments		4.3					1.8
Non-GAAP operating income
$	403.5	8.3 %	$	434.3	8.5 %

1. Includes amortization expense for acquisition-related intangible assets, primarily customer relationships, customer contracts and trade names.
2. Includes costs related to strategic transformation initiatives focused on optimizing various operations and systems.
3. Includes costs related to the workforce reduction program and charges related to the reduction of our real estate lease portfolio.

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Non-GAAP Net Income and Non-GAAP Effective Tax Rate Reconciliation

(Unaudited) ($ in millions)

		Three Months Ended March 31, 2024			Three Months Ended March 31, 2023
		Income			Income								Income			Income
		before					Net		Effective			before					Net		Effective
		income			tax						income			tax
		taxes		expense(1)			income		tax rate			taxes		expense(1)			income		tax rate
US GAAP, as reported	$	276.6	$	(60.5)	$	216.1	21.9 %	$	296.3	$	(66.2)	$	230.1	22.3 %
Amortization of intangibles(2)		37.7			(9.8)			27.9					41.6			(10.9)			30.7
Equity-based compensation		19.4			(16.1)			3.3					20.8			(15.3)			5.5
Acquisition and integration expenses		0.7			(0.2)			0.5					8.9			(2.3)			6.6
Transformation initiatives (3)		6.1			(1.6)			4.5					5.0			(1.3)			3.7
Workplace optimization(4)		7.3			(1.9)			5.4					0.9			(0.2)			0.7
Other adjustments		4.3			(1.2)			3.1					1.8			(0.4)			1.4
Non-GAAP	$	352.1	$	(91.3)	$	260.8	25.9 %	$	375.3	$	(96.6)	$	278.7	25.7 %

1. Income tax on non-GAAP adjustments includes excess tax benefits associated with equity-based compensation.
2. Includes amortization expense for acquisition-related intangible assets, primarily customer relationships, customer contracts and trade names.
3. Includes costs related to strategic transformation initiatives focused on optimizing various operations and systems.
4. Includes costs related to the workforce reduction program and charges related to the reduction of our real estate lease portfolio.

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Non-GAAP Net Income Per Diluted Share

(Unaudited)

($ and shares in millions, except per share amounts)

	Three Months Ended March 31,
	2024				2023
US GAAP Net income	$	216.1	$	230.1
Weighted-average common shares outstanding - Diluted		136.0			137.3
Net income per diluted share	$	1.59		$	1.68
Non-GAAP net income	$	260.8	$	278.7
Weighted-average common shares outstanding - Diluted		136.0			137.3
Non-GAAP net income per diluted share	$	1.92	$	2.03

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Net Sales Growth on a Constant Currency Basis

(Unaudited) ($ in millions)

		Three Months Ended March 31,
		2024			2023	%
					Change(1)
Net sales, as reported	$	4,872.7	$	5,103.1	(4.5)%
Foreign currency translation(2)		-			19.7
Net sales, on a constant currency basis	$	4,872.7	$	5,122.8	(4.9)%

1. There were 64 selling days for both the three months ended March 31, 2024 and 2023. Average Daily Sales is defined as Net sales divided by the number of selling days.
2. Represents the effect of translating the prior period results of CDW UK and CDW Canada at the average exchange rates applicable in the current period.

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Non-GAAP Net Income Per Diluted Share, on a Constant Currency Basis

(Unaudited)

($ and shares in millions, except per share amounts)

		Three Months Ended March 31,
		2024			2023	%
					Change
US GAAP Net income	$	216.1	$	230.1	(6.1)%
Amortization of intangibles		37.7			41.6
Equity-based compensation		19.4			20.8
Acquisition and integration expenses		0.7			8.9
Transformation initiatives		6.1			5.0
Workplace optimization		7.3			0.9
Other adjustments		4.3			1.8
Aggregate adjustment for income taxes		(30.8)			(30.4)
Non-GAAP net income*	$	260.8	$	278.7	(6.4)%
Foreign currency translation(1)		-			1.0
Non-GAAP net income, on a constant currency basis	$	260.8	$	279.7	(6.8)%
Shares used in computing Non-GAAP net income per diluted share and Non-GAAP net income per diluted
	136.0			137.3
share, on a constant currency basis
Non-GAAP net income per diluted share	$	1.92	$	2.03	(5.5)%
Non-GAAP net income per diluted share, on a constant currency basis	$	1.92	$	2.04	(5.9)%

1. Represents the effect of translating the prior period results of CDW UK and CDW Canada at the average exchange rates applicable in the current year.

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Non-GAAP Selling and Administrative Expenses

(Unaudited)
($ in millions)
		Three Months Ended March 31,
		2024			2023		% Change
Selling and adminstrative expenses, as reported	$	735.3	$	734.1	0.2 %
Amortization of acquisition-related intangible assets(1)		(37.7)			(41.6)
Equity-based compensation		(19.4)			(20.8)
Acquisition and integration expenses		(0.7)			(8.9)
Transformation initiatives(2)		(6.1)			(5.0)
Workplace optimization(3)		(7.3)			(0.9)
Other adjustments		(4.3)			(1.8)
Non-GAAP selling and administrative expenses	$	659.8	$	655.1	0.7 %

1. Includes amortization expense for acquisition-related intangible assets, primarily customer relationships, customer contracts and trade names.
2. Includes costs related to strategic transformation initiatives focused on optimizing various operations and systems.
3. Includes costs related to the workforce reduction program and charges related to the reduction of our real estate lease portfolio.

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Free Cash Flow and Adjusted Free Cash Flow Reconciliation

	Three Months Ended March 31,
	2024			2023
Net cash provided by operating activities	$	440.0	$	365.4
Capital expenditures		(29.5)			(31.7)
Free cash flow		410.5			333.7
Net change in accounts payable - inventory financing		(46.1)			77.6
Adjusted free cash flow(1)	$	364.4	$	411.3

1. Defined as Cash flows provided by operating activities less capital expenditures, adjusted to include cash flows from financing activities that relate to the purchase of inventory.

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Non-GAAP Operating Income and Non-GAAP Operating Income Margin Reconciliation 2014-2019

(Unaudited)
($ in millions, except percentages)
		2014			2015(1)(2)			2016			2017			2018			2019
Net sales	$	12,074.5	$	12,988.7	$	13,672.7	$	14,832.9	$	16,240.5	$	18,032.4
Operating income, as reported	$	673.0	$	742.0	$	820.0	$	866.5	$	987.3	$	1,133.6
Amortization of intangibles(3)		161.2			173.9			187.2			185.1			182.7			178.5
Equity-based compensation		16.4			31.2			39.2			43.7			40.7			48.5
IPO and secondary offering expenses		1.4			0.8			-			-			-			3.6
Acquisition and integration expenses		-			10.2			7.3			2.5			1.2			-
Other adjustments		(0.6)			2.8			(5.4)			9.0			4.7			4.2
Non-GAAP operating income	$	851.4	$	960.9	$	1,048.3	$	1,106.8	$	1,216.6	$	1,368.4
Operating income margin		5.6 %			5.7 %			5.9 %			5.7 %			6.1 %			6.3 %
Non-GAAP operating income margin		7.1 %			7.4 %			7.7 %			7.5 %			7.5 %			7.6 %
Depreciation and amortization in selling and	$	43.0	$	48.1	$	60.3	$	68.8	$	77.0	$	80.1
administrative expenses(4)

1. 2015 and prior years have not been updated to reflect the adoption of Topic 606.
2. In August 2015, CDW UK was acquired and included in our consolidated financial statements.
3. Includes amortization expense for acquisition-related intangible assets, primarily customer relationships, customer contracts and trade names.
4. Excludes amortization expense for acquisition-related intangible assets.

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