CDW Corporation

Hello everyone and welcome to today's CDW to acquire serious conference call. My name is Emily and I'll be coordinating the call today. During the presentation, you will have the opportunity to ask a question by pressing start followed by one on your telephone keypad. I now have the pleasure of handing over to our host of today's call, Kevin White, Director of Investor Relations at CDW. Please go ahead.

Thank you, Emily. Good morning, everyone. Thank you for joining us on short notice. With me this morning is Chris Leahy, CDW's President and Chief Executive Officer, and Al Morales, CDW's Chief Financial Officer. Today, we will be discussing our acquisition of IT solution provider, Sirius, which we announced earlier this morning. We will not comment on our upcoming third quarter results, general market trends, or other topics unrelated to this transaction. We look forward to speaking with you in early November to discuss our third quarter results. The press release related to this acquisition was distributed this morning and is available on our website, investor.cdw.com, along with supplemental slides that you can use to follow along during the call. I'd like to remind you that certain comments made in this presentation are considered forward-looking statements under the Private Securities Litigations Reform Act of 1995. Those statements are subject to risk and uncertainties that could cause actual results to differ materially. Additional information concerning these risks and uncertainties is contained in a serious acquisition press release. CDW assumes no obligation to update the information presented during this webcast. Our presentation also includes certain non-GAAP financial measures, including non-GAAP operating income margin and non-GAAP earnings per diluted share. CDW's non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules. You'll find reconciliation charts in the slides for today's webcast. Please refer to the basis of the presentation slide for information about serious financial information included in this presentation. Replay of this webcast will be posted to our website later today. I also want to remind you that this conference call is property of CDW and may not be recorded or rebroadcast without the specific written permission for the company. Following the prepared remarks, we will open it up to questions. With that, I would like to turn it over to Chris.

Thank you, Kevin. Good morning, everyone, and thank you for joining us on short notice to discuss today's news. This is an exciting day for CDW as we announce the acquisition of Sirius, which accelerates our services and solutions capabilities and further enhances our ability to meet our customers' increasingly interconnected and complex technology challenges. Before we jump into details on today's news, I thought it would be helpful to remind everyone of our long-term strategy of investing in the capabilities necessary to ensure we meet the evolving needs of our customers. Evolving with the market is core to who we are. As you can see from this chart, M&A is an important part of our strategy to continuously expand our strategic capabilities and better serve our customers. Let me quickly tick through the acquisitions we've made and the capabilities they have enhanced over the past couple of years. Aptris, which delivered automation and ServiceNow capabilities. Scalar, a pure-play services and solutions provider in Canada. IG&W, which accelerated our digital velocity solutions. Amplified IT, which enabled us to provide cloud-managed services for K-12. And Focal Point, which enhanced our cybersecurity offerings. And now Sirius. These recent investments provide capabilities that sit at the front end of the IT value chain. This is where we advise and consult with customers to determine what they need and then orchestrate customer-centric solutions to those needs. Increasingly complex needs that require technology resources to be deployed in use cases such as employees working remotely, healthcare delivered virtually, and education delivered flexibly. No matter how you slice it, technology is more vital than ever. Each of these acquisitions checked every thought in our three-part strategy for growth, which is to capture, share, and acquire new customers, enhance capabilities in high-growth solutions areas, and expand services capabilities. And each was identified through the rigorous approach we took to evaluate M&A opportunities. This disciplined and methodical approach has four steps. Step one is to ensure any opportunity furthers our strategy. Second, from an operational standpoint, we answer two critical questions. Does it fit our model? And are we fully confident in our ability to successfully integrate? Third, we dig into culture. CDW's culture is a differentiator, and in any M&A opportunity, culture must be fully aligned, as a customer and coworker-centric approach is critical. And finally, it needs to be financially compelling. We believe today's announcement is a home run across all four of our key criteria. This transaction is expected to create value for all of our stakeholders, our customers, coworkers, partners, communities, and investors. There are four key takeaways about this deal. It accelerates our services and solutions capabilities. It adds services scale and further balances our portfolio. It is expected to be immediately accretive, and it represents an excellent cultural fit. The terms are straightforward. It is an all-cash deal valued at approximately $2.5 billion. We expect to close in December 2021, subject to regulatory approvals and other customary closing conditions, and we have fully committed financing. Before we discuss the strategic and financial benefits, let me take a few minutes and provide a brief overview of Sirius. Turning to slide seven. Sirius is a leading provider of secure, mission-critical technology-based solutions. It has a services-led approach. With 40 years of experience, Sirius has grown to be one of the largest and most well-regarded IT solutions integrators in North America. They focus on four key IT growth areas, hybrid infrastructure, security, digital and data innovation, and cloud and managed services. They are a consultative solution provider across the full ecosystem of leading and emerging vendors. More than half of their 2,600 talented coworkers are technical. Like CDW, Sirius has a culture of putting the customer first. And like CDW, this isn't just platitudes. Sirius's top 200 customers have an impressive nine-plus-year average tenure, and its overall customer satisfaction rating is 9.3 out of 10. They also share our culture of engaging coworkers with positive Glassdoor reviews. Nearly two-thirds of Sirius' coworkers had a tenure of five years or more and one-third, 10 years or more. And finally, Sirius' financial profile is attractive and meaningful. In 2020, the company generated net sales of $2 billion and delivered a 9.6% NGOI margin. Let's take a look at how bringing together our two results-serving companies will accelerate CW's ability to deliver solutions for our customers' increasingly complex needs and deliver value to all our stakeholders. We look at the transaction benefit across two lenses, strategic and financial. Strategically, Sirius accelerates our services and solutions capabilities and adds scale to our services portfolio. Financially, Sirius further balances our portfolio mix and is expected to be immediately accretive and enhance our margin mix. I will talk more about that in a few minutes. But first, let's take a deeper look into what Sirius brings to CDW. At CDW, it always begins with the customer, where they are, where they're going, and what they need to get there. Today, organizations are dramatically accelerating the digital transformation initiative. This acceleration requires greater service capabilities be integrated into their IT ecosystem, and this dramatically increases complexity. Slide nine provides a simple schematic showing how customers approach today's IT digital transformation challenges. As you can see, customers leverage hybrid infrastructure, combining the best of on-prem and cloud platforms, maximizing the best outcome from these platforms requires a constant transformation journey, and customers need help, help to design, orchestrate, and manage workloads on-prem, on-journey, and in the cloud. Given the velocity of change today, customers need this help more than ever. This velocity is being driven by four key trends, continuous disruption, resource constraints, increasing threats, and digital innovation. To address these trends, customers are increasingly leveraging the cloud and investing in hybrid infrastructure. They want to build resilient operations, strengthen and secure their infrastructure platforms and endpoints, and industrialize remote enablement. They also want to use data and analytics to innovate for competitive advantage. We have been building capabilities to deliver these outcomes for some time. Today, we provide comprehensive full stack solutions, be it on premise, on Journey, or in the cloud. Our hybrid infrastructure full stack today includes a range of technology solutions, including infrastructure as a service, platform as a service, cloud native and infrastructure services, and software-defined infrastructure, just to name a few. Our digital experience full stack includes services around mobility, collaboration, client management, and much more. We have been building our capabilities through the full IT solutions lifecycle also, ensuring we can help our customers maximize their success from design to management, providing advisory services, design, implementation, and managed services. Sirius broadens and deepens these existing capabilities, particularly in managed and professional services. Their services include fully managed migration and upgrade, on-demand and value recovery, implementation, and maintenance services customers need to not only manage but get ahead of the curve in their digital transformation. The bottom line is that the addition of Sirius strengthens our role as the trusted advisor to our customer. They help ensure we remain the advisor with the portfolio breadth, depth, and scale and expertise our customers need in today's challenging environment. An advisor who can first determine which technology solutions are best suited for our customer-specific challenges. Second, successfully implement and integrate those technologies as an optimally performing, cohesive solution. And third, deliver the customer's desired outcomes and provide the fastest return on their investment. So you can see why adding series of capabilities to our solution set makes strategic sense. But it's not just capabilities they bring. They also bring additional scale. And as you know, scale is one of CDW's key competitive advantages. Specifically, Sirius brings 1,500 highly certified technical coworkers with deep technical expertise. This would increase CDW's total technical coworkers by over 45% to 4,700 strong, a meaningful increase in today's competitive market for IT talent. Sirius also brings additional national in-market sales and technical coverage across the U.S. They have 40 offices across the country that provide both sales and technical expertise. And given its 40 years as a systems integrator, Sirius brings processes and systems platforms purpose-built for delivering services and solutions. They also have complementary customer end markets. Currently, their customer mix includes corporate, healthcare, and government and education, which matches well with our profile. These 3,900 customers represent excellent potential for cross-sell. Importantly, the addition of Sirius will increase the scale of our services portfolio, taking our approximately $900 million annual revenue in 2020 to approximately $1.3 billion in combined annual sales, an increase of 45%, a meaningful increase that will impact our portfolio. And that leads us to the financial benefits of this transaction. With that, let me turn it over to Al Morales. For those of you who don't know Al, he is our new Senior Vice President and Chief Financial Officer. Al brings 30 years of financial and operating experience to CDW and a proven track record of successful leadership and driving results across sophisticated services business. It's been great to have Al on the team. Al?