S&P 500   5,087.03
DOW   39,069.11
QQQ   438.07
Top-Rated AMD nears major breakout level
AI Stock Caught Trading Under Secret Name (Ad)
Roku stock and the mother of all entry opportunities
AI powerhouse NVIDIA will hit $1000 soon
AI Stock Caught Trading Under Secret Name (Ad)
Nvidia, Royal Caribbean rise; Rivian, Etsy fall, Thursday, 2/22/2024
Rivian shares gets discounted; shares can move lower 
Here's Why Bitcoin Could Rise to $165,000 Starting Exactly On April 22, 2024. (Ad)
The Trade Desk: 3 reasons to buy before a new all-time high
Wall Street sees a solid year ahead for homebuilders, though mortgage rates remain a wildcard
S&P 500   5,087.03
DOW   39,069.11
QQQ   438.07
Top-Rated AMD nears major breakout level
AI Stock Caught Trading Under Secret Name (Ad)
Roku stock and the mother of all entry opportunities
AI powerhouse NVIDIA will hit $1000 soon
AI Stock Caught Trading Under Secret Name (Ad)
Nvidia, Royal Caribbean rise; Rivian, Etsy fall, Thursday, 2/22/2024
Rivian shares gets discounted; shares can move lower 
Here's Why Bitcoin Could Rise to $165,000 Starting Exactly On April 22, 2024. (Ad)
The Trade Desk: 3 reasons to buy before a new all-time high
Wall Street sees a solid year ahead for homebuilders, though mortgage rates remain a wildcard
S&P 500   5,087.03
DOW   39,069.11
QQQ   438.07
Top-Rated AMD nears major breakout level
AI Stock Caught Trading Under Secret Name (Ad)
Roku stock and the mother of all entry opportunities
AI powerhouse NVIDIA will hit $1000 soon
AI Stock Caught Trading Under Secret Name (Ad)
Nvidia, Royal Caribbean rise; Rivian, Etsy fall, Thursday, 2/22/2024
Rivian shares gets discounted; shares can move lower 
Here's Why Bitcoin Could Rise to $165,000 Starting Exactly On April 22, 2024. (Ad)
The Trade Desk: 3 reasons to buy before a new all-time high
Wall Street sees a solid year ahead for homebuilders, though mortgage rates remain a wildcard
S&P 500   5,087.03
DOW   39,069.11
QQQ   438.07
Top-Rated AMD nears major breakout level
AI Stock Caught Trading Under Secret Name (Ad)
Roku stock and the mother of all entry opportunities
AI powerhouse NVIDIA will hit $1000 soon
AI Stock Caught Trading Under Secret Name (Ad)
Nvidia, Royal Caribbean rise; Rivian, Etsy fall, Thursday, 2/22/2024
Rivian shares gets discounted; shares can move lower 
Here's Why Bitcoin Could Rise to $165,000 Starting Exactly On April 22, 2024. (Ad)
The Trade Desk: 3 reasons to buy before a new all-time high
Wall Street sees a solid year ahead for homebuilders, though mortgage rates remain a wildcard

CDW Q4 2021 Earnings Call Transcript


Listen to Conference Call View Latest SEC 10-K Filing

Participants

Corporate Executives

  • Kevin White
    Director of Investor Relations
  • Christine A. Leahy
    President and Chief Executive Officer
  • Albert J. Miralles
    Senior Vice President and Chief Financial Officer

Presentation

Operator

Hello, and welcome to today's CDW Fourth Quarter 2021 Earnings Call. My name is Bailey, and I will be the moderator for today's call. [Operator Instructions]

I would now like to pass the conference over to Kevin White, Director of Investor Relations. Kevin, please go ahead.

Kevin White
Director of Investor Relations at CDW

Thank you, Bailey. Good morning, everyone. Joining me today to review our fourth quarter and full year results are Chris Leahy, our President and Chief Executive Officer; and Al Miralles, our Chief Financial Officer. Our fourth quarter earnings release was distributed this morning and is available on our website, investor.cdw.com, along with supplemental slides that can be used 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 Reform Act of 1995. Those statements are subject to risks and uncertainties that could cause actual results to differ materially. Additional information concerning these risks and uncertainties is contained in the earnings release and the Form 8-K we furnished to the SEC today and company's other filings with the SEC. 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, non-GAAP operating income margin, non-GAAP net income and non-GAAP earnings per share. All 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 and in our earnings release and Form 8-K we furnished to the SEC today. Please note that our financial results presented include the results from our acquisition of Sirius Computer Solutions, which closed on December 1, 2021. References to growth rates on dollar amount changes in our remarks today are versus the comparable period in 2020 unless otherwise indicated. Also note, there was one extra selling day in the fourth quarter of 2021 compared to the fourth quarter of 2020, and net sales growth rates are provided as an average daily sales. References to growth rates for hardware, software and services today represent U.S. net sales only and include Sirius. They do not include the results from CDW U.K. or Canada. References to growth rates for specific products and solutions, including cloud, security, today represent U.S. net sales only and exclude Sirius. The historic combined information of CDW and Sirius discussed herein is for illustrative purposes only and is not necessarily indicative of the results that would have been achieved, had the acquisition occurred at the beginning of the period presented. A replay of the webcast will be posted to our website later today. I also want to remind you that this conference call is a property of CDW and may not be recorded or rebroadcast without specific written permission from the company.

With that, let me turn the call over to Chris.

Christine A. Leahy
President and Chief Executive Officer at CDW

Thank you, Kevin. Good morning, everyone. Thank you for joining us today. I'll begin our call with an overview of our full year and fourth quarter performance and share some thoughts on our strategic progress and expectations for 2022. Then I'll hand the call over to Al, who will take you through a more detailed review of the financials as well as our capital allocation strategy and outlook. We'll move quickly through our prepared remarks to ensure we have plenty of time for questions. 2021 was a year of both strong financial performance and strategic progress. The teams delivered a $21 billion in net sales with excellent profitability. Margins improved, and our 13% increase in sales translated to a 17% increase in both non-GAAP operating income and non-GAAP net income. Share repurchases amplified this growth, and non-GAAP net income per share increased 21% to $7.97. These exceptional results demonstrate the power of our resilient business model, a model that has enabled us to deliver industry-leading performance year after year, including through the past two years of a global health crisis, unprecedented supply interruptions and evolving customer priorities. You see the power of our model and the performance across our balanced portfolio of customer end markets over the past two years.

As you know, we have five U.S. sales channels: Corporate; Small Business; Healthcare; Government, which includes federal and state and local customers; and Education with K-12 and Higher Ed. We also have our U.K. and Canadian operations, each serving public and commercial customers. All of these operations represent meaningful businesses in their own right. Often, different factors impact customer end markets, sometimes macro and sometimes, industry specific. This was the case over the past two years as customers across our diverse end markets experienced the impact of the pandemic very differently. In 2020, public customer spend, fueled by education and government, offset commercial and international declines, and net sales increased 2%. In 2021, our 13% sales increase was powered by strong commercial and international customer spend, which more than offset flat public sales. The past two years also highlighted the power of our business model in our product and solutions performance.

With more than 100,000 products and solutions from over 1,000 leading and emerging brands, we are well-positioned to meet our customers' needs, whether transactional or highly complex. In 2020, customers prioritize remote enablement and continuity. Transactions increased driven by the ability to deliver endpoint solutions to meet unprecedented work-from-home and learn-from-home needs. At the same time, solutions declined as customers focused their spend on addressing critical endpoint projects. In 2021, while work-from-home and learn-from-home enablement remained key priorities, customers reprioritized investments to enable the future and add resiliency to their operations to strengthen and secure infrastructure, platforms and endpoints. Both transactions and solutions increased. Our ability to help customers address their priorities during two years of unprecedented supply challenge is another example of the power of our business model. 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. And our sellers and technical coworkers helped customers find alternative solutions from our deep portfolio whenever possible. In 2020, we were able to deliver more than 11 million client devices despite meaningful supply shortages in endpoint devices. In 2021, while facing extended lead times for transactions and solutions, we delivered solid growth in both categories. As you can see, our resilient business model had a significant impact on our ability to profitably grow during an unprecedented period. Looking at performance over the past two years.

Net sales are up 15% since 2019, and our annual net sales compound growth rate was 7.5%. Profitability improved at a faster rate with compound annual growth rates for gross profit and non-GAAP operating income of 8% and 10%, respectively. Of course, our business model is not the only component of our formula to profitably outgrow the U.S. market. Our success would not be possible without the dedication of our talented team of 14,000 coworkers, including the more than 2,600 new Sirius coworkers, who joined us in December. During the past two years, time and again, CDW coworkers demonstrated why they are so vital to our ability to successfully deliver industry-leading performance year after year. Let's take a closer look at what the teams delivered for the fourth quarter. For the quarter, net sales were $5.5 billion, including $197 million of results from Sirius, which closed on December 1. On an average daily sales and constant currency basis, net sales increased 9.6%. Non-GAAP net income was $285 million in the quarter, up 8.2%.

And non-GAAP net income per share was $2.08, up 14% from last year. The teams leveraged the combination of our broad and deep portfolio, extensive technical knowledge and unique logistical and distribution capabilities to advise, design and orchestrate full outcomes to address customers' priorities across all of our customer end markets, outcomes that deliver five key organizational benefits: innovation, lower cost, agility, risk mitigation and enhanced experiences for customers and coworkers. Let's take a look. Corporate delivered a 33% increase with excellent performance across both transactions and solutions. Digital transformation, agility and security remain top priorities. Endpoint solutions remained a key focus area, and the team delivered another quarter of strong double-digit growth in client devices. Small Business delivered another exceptional quarter, up 31% with strong growth across both transactions and solutions. The team continued to help customers with remote enablement. Security performance was up mid-teens as the team helped customers address risk mitigation needs, delivering penetration testing and Internet response as well as backup and recovery solutions. On the public side of the business, excellent performance in both Healthcare and Higher Ed was not enough to offset expected declines in Government and K-12. And total public net sales declined 13%. Healthcare's 20% increase continue to reflect return to projects that have been put on hold. Security remained a top priority. Cloud adoption was strong, in part, driven by efficiency needs as customers dealt with COVID-19 and acute care.

The expected decline in federal reflected the lumpy nature of government contracts as the team faced two meaningful overlaps in the fourth quarter of 2020, the wind-down of our Device-as-a-Service solution for the U.S. Census Bureau and a large client device program. Results also reflected the impact of slowness in contracting practices we shared last quarter. We are beginning to see green shoots, and there is no change to our expectation that trends will reverse later in 2022. State and local posted a high single-digit decline. The team delivered a high single-digit increase in solutions, driven by helping customers upgrade security. This could not overcome the team's 2020 strong fourth quarter performance when they help customers take advantage of the year-end use-it-or-lose-it care funds. As we shared last quarter, we continue to help our customers work through the planning required to evaluate multiple funding opportunities and multiyear phasing and expect funded projects to begin implementation as we move through 2022. Higher Ed's strong double-digit performance was offset by the expected decline in K-12. And overall, Education sales increased 9% on top of 2020's fourth quarter remarkable 142% growth. Higher Ed growth reflected our ability to meet growing demand for student success programs.

These programs use technology to give institutions an edge, including comprehensive endpoint solutions, improved security, campus connectivity as well as enhancing the dorm room experience. The K-12 team delivered excellent net sales performance against very tough unseasonal fourth quarter '22 compares. Consistent with expectations we've previously shared, net sales declined. Although down year-over-year, fourth quarter client device sales were more than double a typical pre-COVID fourth quarter. Both the U.K. and Canada delivered high-teens local market growth. Combined in our other results, average daily sales for these two markets increased 20% in U.S. dollars. Customer priorities in both markets were similar to those in the U.S. Our success addressing customer priorities is evident in our fourth quarter portfolio performance, where we delivered balanced growth across transactions and solutions, both increasing mid-single digits. On the transaction side, client devices increased mid-single digits. 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. Video and audio delivered another impressive quarter. Solutions growth was driven by strong software and servers performance.

Writings remain strong as customers turn to CDW for expertise across the full technology solution stack and entire life cycle. Lead times extended in several key solutions areas, notably NetComm, enterprise storage and servers. Remaining solutions orders increased at year-end. Once again, the team delivered strong double-digit growth in cloud, driven by robust growth in security, Infrastructure as a Service and productivity. Security cloud growth was driven by the success of our comprehensive strategy of security assessment, data protection and threat mitigation with many solutions delivered via cloud and software. Overall, security spend in the quarter increased mid-teens. Our ability to meet customer needs in the quarter across the IT continuum translated into a mid-single-digit U.S. hardware sales 20%-digit increase in software and more than 50% increase in services. Services growth reflected the ongoing success of our strategy and was balanced across professional and managed services. Recent acquisitions are paying off, contributing meaningfully to this quarter's growth. So as you can see, our fourth quarter delivered a strong finish to an excellent year of financial performance. 2021 was also a year of excellent strategic progress against our 3-part strategy for growth, which is to first, acquire new customers and capture share; second, enhance our solutions capabilities; and third, extend our services capabilities. In 2021, we made excellent progress against all three of these pillars. Acquisitions made during the year, Focal Point, Amplified IT and Sirius as well as integration progress for our 2020 acquisitions of IGNW and Aptris, furthered our strategy to bolster our services capabilities. Deep services capabilities are critical to our ability to deliver full organizational outcomes across the full stack in the entire life cycle. This is an important source of differentiation in the marketplace.

Let me share a quick example of how this is showing up in our performance. Our acquisition of Amplified IT in August deepened our already strong offering in the Education space, particularly in the Google ecosystem, which is the largest education platform in the U.S. Amplified IT's expertise as a systems integrator enables us to facilitate end-to-end solutions for education customers. This leads to greater customer engagement and stickiness and provides insights into opportunities to further help our customers across the full IT life cycle. During the fourth quarter, the CDW Amplified for Education team worked closely with Google and Internet2] teams to make it easier for institutions to adopt Google Workspace for Education Plus. In addition to ease of procurement, with the Amplified IT team on board, we were able to deliver additional value to customers through a much-needed deep technical expertise and services, expertise and services that deliver organizational outcomes, enhance collaboration, streamline instruction and a secure learning environment. This joint campaign generated more than 30 net new awards in the fourth quarter with more than $11 million in total contract value over the next several years. This is a great example of how we leverage our powerful business model to quickly deliver customer benefits from newly acquired capabilities. It is also a great example of how our acquisitions enhance our ability to deliver full outcomes across the full stack in the entire IT life cycle.

Internal investments made in 2021 also enhanced our ability to deliver on this strategy. These included digital investments in proprietary portals to drive customer and seller productivity. We also added 1,000 new coworkers in addition to the nearly 3,000 coworkers who joined us via acquisition. Just over half of all new coworkers in 2021 are in technical roles. Whether acquired or homegrown, investments in our 3-part growth strategy are integral to our ability to consistently and profitably outgrow the U.S. IT market. That brings me to our thoughts about 2022. In 2022, we will continue to execute against our 3-part strategy with a focus on the recent integrations. A top priority in this area is the disciplined integration of Sirius. Work is moving at pace, led by a dedicated seasoned executive. The team's mission is just as it's been with all of our acquisitions, to ensure our customers are able to quickly reap the benefits of our combination. And we are making excellent and swift progress in that area. For example, I'm pleased to share that our new Sirius coworkers had a CDW e-mail address on Day 1, a seemingly small accomplishment, but with really big impact.

Turning to 2022 financial performance. Our outlook is built off a combined 2021 CDW and Sirius net sales figure of $23 billion, which includes $2.2 billion of full year Sirius results. 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. Managed services, an area of focus for Sirius, delivered double-digit growth. In 2022, as Sirius is integrated into the fabric of CDW, we expect its operations to grow in line with total CDW. Given current market dynamics, our 2022 baseline outlook calls for U.S. IT market growth of 3.5%, plus 200 to 300 basis points in constant currency of CDW outperformance. This outlook reflects our view on three key drivers. First, we expect a moderation in U.S. GDP growth. Second, we expect the impact of supply on our results in 2022 to remain fairly consistent with its impact at year-end 2021. And third, we expect customer priorities in 2022 will increasingly require integrated solutions that leverage our services, cloud and hybrid expertise. Wildcards remain ongoing supply and macro impacts, particularly in Small Business.

Of course, as we always do, we will update you on our thoughts as we move through the year. I'm extremely proud of the excellent financial performance and strategic progress we've made during the past two years. In 2022, we will continue to do what we do best, leverage our competitive advantages to help our customers address their IT priorities and achieve their strategic objectives and out-execute the competition. If the pandemic has shown us anything, it is that technology is essential to all sectors of our economy and will play an increasingly important role in the years ahead. That means our role as a trusted strategic partner to our customers is more important now than ever, and I remain confident that we have the right strategy in place.

And with that, let me turn it over to Al, who will share more detail on our financial performance. Al?

Albert J. Miralles
Senior Vice President and Chief Financial Officer at CDW

Thanks, Chris, and good morning, everyone. I'll start my prepared remarks with more detail in the fourth quarter, move to capital allocation priorities and finish up with our 2022 outlook. Turning to our fourth quarter P&L on slide eight. Consolidated net sales were $5.5 billion, including one-month contribution from Sirius of $197 million. Consolidated net sales were up 11.7% on a reported basis and 9.9% on an average daily sales basis as we had one extra selling day. On a constant currency average daily sales basis, consolidated net sales were 9.6%, including 3.9 points of contribution in Sirius. Consistent with the last quarter, net sales and channels most impacted by COVID-19 last year, Corporate, Small Business and International, continue to rebound, posting strong double-digit growth in the quarter and delivering sales above 2019 levels. This quarter's growth also benefit from strong double-digit performance in Healthcare but was tempered by the expected decline in Government and Education.

On the supply side, our overall backlog increased a few hundred million dollars in the quarter, reflecting constraints similar to last year. Backlog remained elevated year-over-year. We continue to make strategic investments in inventory to 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. Gross profit for the quarter was 976 -- 10.8% on a reported basis and resulted in a strong [Technical Issues] Gross margin was positively impacted by the increase in the mix of net service contract revenue, primarily Software as a Service, in addition to strong professional services performance. This was more than offset by lower product margin and overlapping high-margin configurations in the prior year. Sirius' gross profit margin was consistent with their historical performance and was modestly accretive to the overall gross margin for the quarter. Turning to SG&A on slide nine. Non-GAAP SG&A increased 9.2%. This reflected the impact of consolidating one month of incremental Sirius expenses. Sirius' sales compensation as a percentage of net sales are higher than our core operations given the higher mix of solutions and services revenues. The overall increase also reflected higher performance-based compensation consistent with higher attainment against financial goals and investments in the business, including increased coworker count. Worker counts at the end of the quarter were 13,924, up 2,826 from the third quarter and 3,942 over prior year.

The increase in coworker count during the quarter reflects the addition of over 12 -- $2,600 -- 2,600 Sirius coworkers and other organic and inorganic work investments to support high-growth solution areas and our own digital transformation. GAAP operating income was $339 million, up 2.1%. Non-GAAP operating income, which better reflects operating performance, was $425 million, up 12.9%. Non-GAAP operating income margin was 7.7%. As we shared on last quarter's call, investments made in the fourth quarter drove an operating margin, which delivered our full year outlook. Sirius' non-GAAP operating margin was consistent with their historic performance and was marginally accretive for the quarter. Moving to slide 10. Interest expense was $43 million, up 16.9%. The increase reflected the incremental expense on the $2.5 billion of notes issued in December to finance the Sirius acquisition. Our GAAP effective tax rate, shown on slide 11, was 25.1%. To get to our non-GAAP effective tax rate, we adjust taxes consistent with non-GAAP net income add-backs, as shown on slide 12. For the quarter, our non-GAAP effective tax rate was 24.5%, up 230 basis points versus last year's rate, primarily due to onetime tax benefits recognized in the prior year. As you can see on slide 13, the fourth quarter weighted average diluted shares outstanding of 138 million. GAAP net income per share was $1.57, down 4.5%. Our non-GAAP net income was $285 million in the quarter, up 8.2%. Non-GAAP net income per share was $2.08, up 14% from last year and reflects the impact of share repurchases. Turning to full year results on slides 14 through 19.

As Chris mentioned, 2021 performance reflected exceptional execution against an effective strategy, along with the power of our business model and balanced portfolio. Net sales were $20.8 billion, an increase of 12.7% on a reported basis and average daily sales basis. On a constant currency average daily sales basis, full year consolidated net sales grew 11.9%, including 110 basis point contribution from Sirius. Gross profit was $3.6 billion, up 11.2%. And gross profit margin was 17.1%, down approximately 30 basis points year-over-year. In 2021, software and services accounted for approximately 41% of gross -- total gross profit, up 100 basis points from last year. The increase reflects investment in our services and solution capabilities and a continued shift in the netted down revenues like Software as a Service. Before moving down the rest of the full year P&L, I want to take a moment to put netted down revenues into perspective. Netted down revenues results from Software as a Service, software insurance and warranty solutions as well as aging commission fees. We are not the primary obligor for these solutions and thus record gross profit as our revenue and why you sometimes hear us refer to these as 100% gross margin items. In the past, we've shared examples of how this accounting treatment has a dampening effect on our absolute net sales dollars but is neutral to gross profit dollars and thus results in higher gross margins, all else equal.

Over the last five years, our netted down revenue streams as a percentage of total gross revenues or customer spend has increased 10 percentage points. The greater mix reflects increased customer spend on fast-growing netted down revenue streams like cloud and security. Long term, as we continue to execute on our growth strategy and invest in the capabilities necessary to ensure we are meeting the evolving needs of our customers, we expect to mix further in the high-growth netted down revenue streams. This mix dynamics will pressure net sales while remaining neutral to gross profit and expanding gross margins. This, of course, is subject to hardware refresh cycles and other mix components of the business. While much of what I've described is tied in the accounting treatment, it is also a reflection of our success in the execution of our strategy to capture share, enhance capabilities and high-growth solutions and expand services. Returning to the full year P&L. Operating income was $1.4 billion. And non-GAAP operating income was $1.6 billion, up 17.1%. Net income was $989 million, and non-GAAP net income was $1.1 billion, up 17.2%. Non-GAAP net income per share was $7.97, up 20.9%. Turning to the balance sheet on slide 20. On December 31, cash and cash equivalents were $258 million, and net debt was $6.6 billion. Liquidity remains strong with cash plus revolver availability of approximately $1.2 billion. Moving to slide 21.

The three-month average cash conversion cycle was 24 days, up seven days from last year's fourth quarter. In addition to our strategy of holding customer-driven stocking positions, the increase reflected mixing out of vendors with longer payment cycles and the timing of customer receipts. This is partially offset by the timing of payments at the end of the year. Full year free cash flow is $477 million, as shown on slide 22. This is lighter than last year's record $1.2 billion of free cash flow, which benefited from timing, onetime items and advantageous vendor payment terms. In 2021, our free cash flow was also impacted by increased working capital to support our strong full year growth. We also leveraged our strong balance sheet and distribution capabilities to make strategic investments in inventory to support our customers in this unprecedented supply environment. As a result, 2021 free cash flow was below our rule of thumb of 3.75% to 4.25% of sales. Timing differences, onetime items and noted investments resulted in asymmetrical free cash flows across 2020 and 2021. In aggregate, 2020 and 2021 free cash flow is balanced out and equated to 4.3% of net sales, slightly above the high end of our free cash flow rule of thumb. In 2021, we delivered on our capital allocation objectives. We deployed more than $1.7 billion of cash to shareholders, which included $235 million of dividends and $1.5 billion of share repurchases at an average price of approximately $172 per share.

Turning to 2022 capital allocation priorities on slide 23. Our objectives remain consistent with what we shared last quarter. First, increase the dividend in line with non-GAAP net income. Last November, we increased the dividend 25% to $2 annually. To guide future increases, we will continue to target a dividend at approximately 25% of non-GAAP net income and to grow in line with earnings. Second, ensure we have the right capital structure in place with a targeted net leverage ratio of 2.5 to 3 times. We ended this year at 3.4 times above our range due to the financing of the Sirius acquisition. We intend to optimize the use of cash flow after paying dividends to focus on reducing debt until we return to our net leverage range. We continue to expect to achieve this by the end of 2022. As a result of this focus, we'll put a lower priority on our third and fourth capital allocation priorities of M&A and share repurchases until net leverage is in our target range. Moving to the outlook for 2022 on slide 24. As Chris mentioned, our outlook is built off the combined 2021 CDW and Sirius results, which presents these numbers as if we owned Sirius at the start of 2021. Let me walk you through how this looks.

Starting with sales. Given what we're seeing in the market now, our baseline outlook assumes U.S. market growth of 3.5%. We currently expect combined net sales to grow 200 to 300 basis points faster than the market in constant currency. On a combined basis, CDW's net sales would have been $22.9 billion in 2021, including $2.17 billion from Sirius. We expect Sirius to grow in line with total CDW. Right now, 2022 feels like a normal demand environment and expect it will reflect a greater mix in the netted down revenues as we overlap strong client device sales.

Our baseline outlook assumes that supply does not materially impact net sales beyond what we've been experiencing. We would expect it to be at the lower end of our premium range if we mix more into netted down revenue streams than expected and/or experience elevated levels of supply constraints. We would be at the higher end, if hardware growth is strong and supply improves. Currency is expected to be neutral for the full year, assuming an exchange rate of $1.37 to the British pound and $0.80 to Canadian dollar. Moving down the P&L.

We expect non-GAAP operating income margin to be in the low 8% range. Our non-GAAP earnings per share would have been $8.49 in 2021 on a full year combined basis compared to our reported $7.97, which included one month of Sirius. We expect non-GAAP earnings per share to grow high single digits in 2022, call it, 9.25%, plus or minus 50 basis points in constant currency on a combined basis. This equates to approximately 16% to 17% growth in constant currency on a reported basis. As Chris mentioned, the integration work with Sirius is progressing. And given the nature of the integrated sales, we will not be breaking out Sirius results going forward. Please remember, we hold ourselves accountable for delivering our combined financial outlook on an annual constant currency basis. Slide 24 provides our expected net sales split for the year. We expect net sales in the first half of the year in line with our historic norm of 48% to 49%. Sirius' sales split is slightly higher in the second half than historic CDW. Historically, we see a sequential decline from Q4 to Q1.

This year, on a reported basis, we expect first quarter sequential growth in the low single digits, reflecting three months of contribution from Sirius versus one month in Q4. We expect first quarter constant currency non-GAAP earnings per share growth, relative to Q1 2021, to be in the low mid-teens, reflecting seasonality and channel mix. Modeling thoughts for annual depreciation, amortization, interest expense and the non-GAAP effective tax rate can also be found on slide 25. In addition, you can see our long-term free cash flow rule of thumb remains unchanged at 3.75% to 4.25% of net sales, assuming current tax rates. We expect capex to run approximately 70 to 75 basis points as a percentage of net sales, reflecting our continued view that now is the time to continue to accelerate investment in our own digital transformation, enabling us to further fortify our competitive position and make CDW the trusted partner of choice for customers and vendor partners. That concludes the financial summary. As we always do, we will provide updated views on the macro environment and our business on future earnings calls.

And with that, I'll ask the operator to open it up for questions. [Operator Instructions] Thank you.


Questions and Answers

Operator

Thank you. [Operator Instructions] Okay. Our first question comes from Amit Daryanani from Evercore. Amit, please go ahead.

Amit Daryanani
Analyst at Evercore ISI

Thanks for taking my questions. Good morning everyone. I guess my first question really around this EPS guide for '22. I think you talked about 16%, 17% EPS growth for '22. Can you just talk about what are you really pursuing out of the Sirius acquisition in that EPS number? And really, there's two parts that I'd love to kind of get some clarity on it. A, do you have any cost synergies from the transactions embedded in that number? And then secondly, Chris, I'd love to understand how you think about the sales synergies narrative from Sirius as we go forward?

Albert J. Miralles
Senior Vice President and Chief Financial Officer at CDW

Good morning, Amit, this is Al. So just a couple of things to note. So I think we've given you some component parts to get a sense for EPS. So number one, obviously, our reported EPS for 2021 was $7.97. That includes one month of contribution for Sirius. We've also provided you what would be a combined CDW and Sirius results for 2021 is if they were together for the full year. That's $8.49. So the way you should think about it is, if you walk forward from that $8.49 to our outlook there of 9.25% growth, you get a sense for the combined entities and what they contribute.

The other data point I would just give you is that we noted that, from a topline perspective, we'd expect that Sirius would grow at the same rate as we provided in that topline outlook. To your question on synergies, so here's what I would say. Look, we're very focused on the integration of the combined entities. And we expect through that, we're going to find value in terms of synergies on the revenue front. We're certainly looking hard at procurement efficiencies, systems consolidation, facilities consolidation, all of those components. And we expect we're going to get value. But Amit, I would just mention that it's critically important as we talk about our strategy that we continue to invest in our strategy. And I would say, as it pertains to synergies, reinvest. And so while we expect we're going to see value, we expect that a lot of those -- the values we get from the synergy that you reinvested in 2022.

Amit Daryanani
Analyst at Evercore ISI

Perfect. Thank you. And then as I think about the balance between transactional versus solutions, how do you think that stacks up in calendar 2022? And do you think the supply environment maybe stops getting more simply through 2022? Or how do you kind of think of that? I'd love to get a sense of the mix and then supply environment.

Albert J. Miralles
Senior Vice President and Chief Financial Officer at CDW

Sure, Amit. This is Al. Look, I would say, comments on the supply environment. Q4 looked very similar to the prior quarters in terms of the supply environment. Our backlog increased consistent with those previous quarters call it, a couple of hundred million of backlog increase. Look, there are some puts and takes in terms of what supply chain look like in Q4. And I would say probably a bit more challenged on the solution side of the business. And I think that's natural as these efforts evolve over time.

As we look forward into 2022, we don't really see any meaningful end in sight, 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 the things stands, but I'm not sure that -- that we would translate that into any indications that things are going to get better in the near term. And so really, we're hunkered down on consistent, similar outlook with respect to the supply chain environment and we will continue execute as we have during this time.

Amit Daryanani
Analyst at Evercore ISI

Perfect. Thank you.

Albert J. Miralles
Senior Vice President and Chief Financial Officer at CDW

Perfect. Thank you.

Operator

Thank you, Amit for your question. The next question comes from Adam Tindle of Raymond James. Adam, please go ahead.

Adam Tindle
Analyst at Raymond James

Okay. Thank you, and good morning. Al, I just wanted to start on 2022 guidance. And the revenue buildup implies around 6% growth for the full year, but it looks like you're going to be starting at about half that level based on the Q1 guidance and as we think about compares getting tougher as the year progresses. There is questions around, how long the device ecosystem tailwind are going to last as the year progresses. Maybe you can double-click on those fears and why you built in acceleration in year-over-year growth as the year progresses to start with? Thank you.

Albert J. Miralles
Senior Vice President and Chief Financial Officer at CDW

Sure. Thanks, Adam. Look, yeah, I think you hit a lot of the right points. So look, on the full year, we're confident in our growth expectations. There certainly is a timing effect. And there are a few puts and takes in that regard. So number one, in terms of sequentially from Q4 to Q1, we've got the positive of that. We'll have three months of contribution from Sirius. That certainly helps from a top line perspective. You will recall we have some tough comps, otherwise and particularly in Education with Q1. So that has a bit of an offsetting effect. So when we add up that along with our typical seasonality, we would be back to kind of our 48/52 split in terms of seasonality. Now, look there's the wildcards and those wildcards include what type of product throughput are we seeing. And will it be more hardware-focused versus services and solution. And I would just, the obvious wildcard is supply and that will certainly change the shape and direction of timing by quarter.

Adam Tindle
Analyst at Raymond James

Okay. Understood. And maybe just as a follow-up, you onboarded over 2,500 employees from Sirius and I just had a question on integration, Chris. You talked about the CDW culture, how it permeates and customer-facing coworkers' compensation metrics are generally aligned with key metrics like gross profit dollar growth and returns on capital. As you think about the Sirius employees that you're taking on, maybe you can touch on their comp metrics and any potential land changes to that? And Al, if you could touch on the systems integration piece of this, that would be helpful. Thank you.

Christine A. Leahy
President and Chief Executive Officer at CDW

Good morning Adam, sure, I'd love to. Integration is going really quite well. And it's I'd say moving with more speed. We're very disciplined as you know, but we also understand moving with the appropriate amount of speed to make sure that our customers are benefiting from the combined organization. It's critically important. You also know the lenses we look through when we assess potential acquisitions, and culture is right up there on the list since it's so important to us.

And the Sirius coworkers, now CDW coworkers are fully aligned with our culture; customer first, coworker first and collaborative, I would say. And we're already seeing benefits of us coming together, winning deals together, going to meet customers together.

In terms of the comp schemes, this is what I would tell you, Adam, they're similarly performance-based with similar metrics. From an integration perspective, we are taking the 2022 year very methodically because we, of course, want to get compensation right. But from a cost and incentive lens, very similar to CDW. And again, the teams are already coming together, collaborating with each other on deals, sending referrals across to each other. And it's -- I'm really pleased with how it's going.

Albert J. Miralles
Senior Vice President and Chief Financial Officer at CDW

Adam, this is Al. I'll just add a couple of things. So, number one, just from a compensation perspective, Chris hit the key points there in terms of alignment. Just keep in mind because of their business has a higher proportion of services solutions, that variable fixed component of the business looks a little different. They have a higher cost to serve with their technical staff and so that will shift. I don't think that's a diametrical shift immediately, but we'll see that over time as we integrate.

On your question on systems consolidation, look, it's a little early days. I think we've laid down the foundation of kind of the initial evaluation of systems, and I think we're pleased to see that there's really strong infrastructure from a Sirius perspective. And so we're really lining up for an approach of best-in-breed.

From a systems perspective, we think there's going to be opportunities to take on some of the technology tools they have as well as vice versa. So, we'll share more as we have that, but we're making good progress on that front.

Adam Tindle
Analyst at Raymond James

Very helpful. Thanks and congrats on the results.

Christine A. Leahy
President and Chief Executive Officer at CDW

Thanks, Adam.

Operator

Thank you, Adam. Our next question comes from Matthew Sheerin from Stifel. Matthew, please go ahead.

Matthew Sheerin
Analyst at Stifel Nicolaus

Yes. Thank you and good morning. Chris, I was hoping that you could expand a little bit on your outlook for the year in terms of end market. What should we be thinking about on the commercial side of the business, which has been accelerating versus the public sector, which you've talked about tough comps in Education and Government?

Christine A. Leahy
President and Chief Executive Officer at CDW

Sure. Good morning, Matt. As I -- as we look at 2022, I'll just -- let me try to simplify by segment. What we've seen in the commercial space, both Corporate and Small Business has been, I would say, very positive signs of recovery. And our expectations are for continued solid growth, but at a decelerated rate from 2021. We talked about Education and the unseasonal -- unseasonality there.

The one thing I would say about Education, the emergency connectivity funds availability goes through the middle of the summer, so the end of Q2. So we're going to see one would expect some nice uplift there. But then growth will be a little muted for the rest of the year. Higher ed, doing great work in higher ed and expect to continue to see solid growth throughout the year. Healthcare, I would tell you is recovering very nicely, and we would expect it to recover above the 2019 levels if we go back two years, so solid growth there.

Government, we are not changing our expectation that we're going to expect to see turnaround there in the federal space and in state and local, frankly, as we see funds start to flow a little bit more into the state and local, but certainly going to see a return to growth in government in our view.

And then international, that will continue to be solid again if -- but at a decelerated rate very similar to what I said about the commercial space. Now of course, the key wildcards are supply, and that obviously can be a plus or a minus. And then the macro environment and what we see happen both with the virus, but equally inflation, employment and all of that. But right now, we feel -- look, we feel like there's very good momentum going into the year. There's strong demand, and we're feeling very positive about where we're positioned to meet that demand.

Matthew Sheerin
Analyst at Stifel Nicolaus

Okay. Great. That's very helpful. And just regarding your commentary just about the product and component constraints, we're hearing from other resellers that some customers are moving or accelerating the move toward off-prem cloud-based computing storage, et cetera, because of those constraints. Are you seeing that at all from your customers?

Christine A. Leahy
President and Chief Executive Officer at CDW

Yes. Matt, what I would say is, it's part of the conversation, and we are seeing acceleration to the cloud. 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. And the great news is, with the breadth of our expertise, our customers are really appreciating that we can sit down and explore all options with them. That's really unique in the marketplace. But they're not -- 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.

So I think that's the way I'd answer the question, certainly acceleration to the cloud, but thoughtful as they go. And on-prem is also -- I think we're going to see some strength in on-prem this year as customers return to the office and infrastructure refresh continues to happen.

Matthew Sheerin
Analyst at Stifel Nicolaus

Okay. Thanks very much.

Operator

Thank you, Mathew. The next question comes from Ruplu Bhattacharya from Bank of America. Please go ahead.

Ruplu Bhattacharya
Analyst at Bank of America

Hi. Good morning. Thank you for taking my questions. I wanted to ask a couple of more questions on the revenue growth guide for both the fiscal 2022 as well as for the first quarter. Al, is there a way to quantify what you've baked in, in terms of headwind from supply shortages in the full year guide? So either on a dollar basis or on a year-over-year growth headwind basis? And are you assuming that PC demand sustains throughout the full year?

Albert J. Miralles
Senior Vice President and Chief Financial Officer at CDW

Sure, Ruplu. Let me start with that and see if Chris may have something to add there. So we are assuming no change in the supply environment relative to what we experienced in 2021. So just recall, if you look back the last three quarters, we've quoted that our backlog has increased several hundred million dollars through 2021. That's notwithstanding that written demand continue to be extremely strong. So if you look at our actual printed results, there are times we look at it and say, you can't really see the effect of the significant backlog. So I think our expectation would be that supply chain will continue to work as it has. And I think you may have some pluses and minus through that in terms of solutions versus transactions and by product. But lo and behold, I think that supply chain assumptions are very what we've seen in 2021.

Ruplu Bhattacharya
Analyst at Bank of America

And on PC demand, any thoughts on how that's sustained throughout the year?

Christine A. Leahy
President and Chief Executive Officer at CDW

Yeah. Ruplu, I'll take that. Good morning. Yeah, on PC demand, look, I think we will see Q1 is going to be a tough quarter because of the overlaps, for sure. And as we move through the year, we expect to continue to see corporate, commercial, small business, international, continued strength there provided that the recovery that we're seeing continues and provided the macro environment continues. When you think about the puts and takes across 2022, supply can be a plus or minus. I mentioned the emergency connectivity funds for K-12. That will be a plus. Macro can be a plus or minus. But generally speaking, here's what I'd say about PCs, and it's consistent with our commentary of the past. We really do see client devices as a tool for employees, as a tool for people generally, and expectations of using them for productivity has increased.

And the demand for client devices for remote and then as people frankly come back to the office and are working in the office and remotely and anywhere also add demand to the market. The other thing we've talked about is technology cycles and technology innovation and upgrades happening more quickly than we've typically seen in the past. And when you think about remote and virtual, think about breakage. And so you've got a couple of pressure points putting cycle times, compressing the cycle times. The last thing I would say is new use cases. We continue to see endpoint devices in new use cases in the digital transformation. So, I guess think about PCs this year as still solid performance, moderating growth, especially compared to last year. And by the time we get to the end of the year, when you look at where we are and you think about the refresh opportunities from 2017 and 2018, those are going to be opening up. And then we've got Win 10 end of life coming.

So, we -- people are buying PCs. We are in a very good position to make sure that we get our fair share of inventory to supply them. And while we see moderating growth, we don't see -- we just see it as a positive contribution to our overall performance.

Ruplu Bhattacharya
Analyst at Bank of America

Okay. Thanks for the details there Chris. Can I just ask a follow-up on the first quarter revenue guide? I think you're guiding low single-digit year-on-year growth. I mean, to me, it seems a little bit lower-than-normal seasonality on a quarter-on-quarter basis. And that's with the fact that you have the Sirius acquisition layered in as well for three months.

So, Al, can you just -- how much of that would you say is because you have more netted down items, which are impacting the sales growth versus other year-on-year headwinds? So, any way to quantify that sequential decline in revenues on a daily basis between 4Q and 1Q?

Albert J. Miralles
Senior Vice President and Chief Financial Officer at CDW

Sure, Ruplu. Let me address that. So, first, just on a year-over-year basis, the growth is not muted. It's in the teens in terms of growth. I think just on the comment on the sequential is the one, obviously, coming off of a very strong Q4. But the comps for education, much more significant in Q1 relative to Q4 there. And so that mutes the impact. You get a bit of a kind of counter [Phonetic] going the other way with again Sirius, but there are some of the puts and takes. If you just focus on that year-over-year, that was very strong.

Ruplu Bhattacharya
Analyst at Bank of America

Okay.

Christine A. Leahy
President and Chief Executive Officer at CDW

I would just add. Sorry, it's Chris here. I would just add that as we think about 2022 and 2021 generally, I think we would call 2022 a more normalized, I'll call it, buying environment. We had tremendous hardware sales in 2021 and client demand. And we've said that -- and we -- our strategy is around building our services and cloud capabilities. And we do expect that 2022 is going to require additional services and cloud capabilities, which net down. So, I think we'll see more normalized netting down for 2022.

Ruplu Bhattacharya
Analyst at Bank of America

Okay. That makes sense. Congrats on the strong execution in the quarter. Thank you.

Christine A. Leahy
President and Chief Executive Officer at CDW

Thank you.

Operator

Thank you for your question. The next question comes from Erik Woodring from Morgan Stanley. Erik please go ahead.

Erik Woodring
Analyst at Morgan Stanley

Hey good morning. Congrats on the quarter. Nice speaking with you guys. Just given your commentary around supply chain headwinds, just curious to get your take on how you think inventory will trend in 2022. And if you need to continue kind of growing your strategic pre-purchases or if that can become a tailwind for you in 2022? And then I have a follow-up. Thanks.

Albert J. Miralles
Senior Vice President and Chief Financial Officer at CDW

Good morning Eric, this is Al. So, first, again, just backdrop, our expectation is that as we sit here now, supply chain would look similar to 2021. I think we've mentioned before, there is a component of backlog and supply chain and includes pull forward of business. And I think as our partners became more and more clued into and kind of have gotten clarity of lead times and so forth, they've encouraged us and encouraged customers to get in line. And I think through 2021, that has happened, and we would expect that will continue to happen.

In terms of how that plays out and what that might look like, I think that now I think we could look at our backlog and say, we've got a pretty balanced portfolio there of pull-forward business as well as carrying business. And so for those very reasons, we don't believe that the backlog will ultimately result or play out as a full flush or a big bang, if you will. It's going to feather in over time. So, I think it's going to be probably a bit episodic in terms of continued progress from individual partners and products in terms of how that plays out and how fast it moves. But again, as we sit here now, we would say we would not expect that to be anything that happens near term. And our hope is that later 2022, we start to see that feather out.

Erik Woodring
Analyst at Morgan Stanley

Okay. Thank you. And then maybe just a quick look back. Organic growth of, call it, eight points in 4Q was pretty strong and ahead of, I think, like your annual guidance would have implied. So, just as you look across segments, maybe some commentary on where you believe you've outperformed your expectations versus three months ago? And then maybe, was that a product of share gains? Was that a product of stronger market growth? Just any way to decipher some of the outperformance in 4Q? Again, thanks.

Christine A. Leahy
President and Chief Executive Officer at CDW

Sure. Yes, happy to do that. As we look at Q4 and the strength across the segments, the nice thing is it was balanced across transactions and solutions. And I do think -- I'm not going to go back in the supply chain, but I do think supply chain ended up impacting growth in some categories across each. But that said, look, I think in every element, whether it was client devices or infrastructure or cloud, I feel confident that the team has really been outperforming the market in a very balanced way.

When you think about the acquisitions we've made and our ability to integrate them very quickly into the organization as practice groups and as part of the larger CDW, areas like security and Focal Point. And what we bring to market there and the speed that we're growing there or our digital velocity practice and our ServiceNow automation practice and how that is flowing into 54% growth in our services category. So, I feel very good that we are outperforming, taking share and in particular, in those high-growth areas where we are investing.

Erik Woodring
Analyst at Morgan Stanley

That's awesome. Thanks, Chris.

Operator

Thank you, Eric. The next question comes from Jim Suva from Citigroup. Jim, please go ahead.

Jim Suva
Analyst at Smith Barney Citigroup

Thank you. I only have one question. It's probably directed towards Chris. In your prepared comments, you talked about in 2020, a big strength here, K-12, and then in 2021, more of a pivot to enterprise. So Chris, I'm just kind of asking as we look into, say, 2022, the end markets, what strength or maybe is it cloud? Is it services or type of products that you see maybe being stronger in, say, 2022 versus 2021? Thank you.

Christine A. Leahy
President and Chief Executive Officer at CDW

Sure. So customers are still -- across all of the segments, customers are still prioritizing, whether it's remote, work from home, learn from home, just remote work, work from anywhere and virtual settings. So solutions that address those needs are going to continue to drive a solid performance.

At the same time, I think the pandemic is really likely going to impact our customers in a slightly different way as we think about 2022, because we're all more prepared to deal with it. So we are seeing customers absolutely pivot or enhance their investment portfolio and focus on infrastructure, both on-prem refresh, on-prem new technology, particularly software driven as well as cloud options to drive resiliency, to drive agility, to drive securing platforms and endpoint devices. So 2022, as we think about the products, what we're seeing from customers suggest a very balanced year across the portfolio. That's really how I'd describe it going into 2022.

Jim Suva
Analyst at Smith Barney Citigroup

Thank you so much and congratulations.

Christine A. Leahy
President and Chief Executive Officer at CDW

Thanks.

Operator

Thank you, Jim. The next question comes from Shannon Cross from Cross Research. Shannon, please go ahead.

Shannon Cross
Analyst at Cross Research

Thank you very much. Chris, can you talk a bit about what you're hearing from your customers in terms of their willingness to absorb price increases? Just sort of in general, what you're hearing with relation to the inflationary environment because obviously, that's going to be something key to the industry, frankly, being able to offset some of the other pressures? And then I have a follow-up. Thank you.

Christine A. Leahy
President and Chief Executive Officer at CDW

Yeah. Sure, Shannon. I guess, what -- here's what I am hearing. Nobody likes price increases, but virtually all commercial customers, technology is the number one investment, people and technology. So if there's a budget to spend, they're not cutting back on budgets at all. 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.

So that's the good news. And again, technology is essential to being competitive, to winning, to educating, to do all the things that companies are trying to do and organizations are trying to do. So we're not seeing any material impact at this point. And we're -- obviously, we're passing prices along. Al, I don't know if you'd add anything?

Albert J. Miralles
Senior Vice President and Chief Financial Officer at CDW

Yeah. Just a couple of comments, Shannon. So obviously, ASPs have varied quite a bit by product and right, it is partially a function of availability and just supply chain environment. I would say that, in pockets, customers are getting more creative. They're willing to accept substitutes in terms of different products, and they're willing to kind of think about solutions in different ways. And that's certainly helped to free up some capacity. I'd say, our partners have done an exceptional job doing the same. So there definitely is price pressure. I would say that, largely, customers are getting through that. Written demand continues to be extremely strong. And then just for us, right, our job is and what we're focused on is how do we serve our customers best and bring them the best solutions. And as it pertains to financial impacts, obviously, I think we've done a really nice job making sure that we can pass through those price increases where they happen and insulate ourselves from a gross profit perspective.

Shannon Cross
Analyst at Cross Research

Okay. Thank you. And then you've guided to low 8% for operating margin. Is that absolutely all from the acquisition? Or where -- are there any mix issues or benefits actually we should take into account as we think about the core business? And then, again, I know you talked a little bit about synergies, but I'm just kind of curious if you can bucket what's really driving the margin improvement?

Albert J. Miralles
Senior Vice President and Chief Financial Officer at CDW

Sure. So, first, notwithstanding Sirius, we would expect that we would have made progress on our gross margins and our NGOI margins. You add Sirius and that's obviously accretive as well. And we actually think the power of the organizations coming together that's going to make that really meaningful. Just keep in mind, so we are providing outlook to that low 8%, and it's the combination of that inorganic and organic.

Just keep in mind, there are wildcards, right? That will be influenced by things like supply chain. It will be influenced by how much of the business is transactional versus solutions. But again, as we sit here today, we feel really good about our prospects to continue to make progress on our margins.

Shannon Cross
Analyst at Cross Research

Great. Thank you so much.

Operator

Thank you, Shannon. [Operator Instructions] The next question comes from Samik Chatterjee from JPMorgan. Please go ahead.

Samik Chatterjee
Analyst at JPMorgan Chase & Co.

Thanks for taking my question and squeezing me in here. I guess a couple of quick ones. First one for Al really. I think if I go back to the time that you announced the Sirius acquisition, the pro forma gross profit margin was expected to do 18.5. So, I was just looking if you can give me some color on I think about the exit rate for gross margins relative to the pro forma number that you had talked about? And then I have a follow-up. Thank you.

Albert J. Miralles
Senior Vice President and Chief Financial Officer at CDW

Sure. So yes, really pointing back to what we provided on the investor meeting for Sirius, we noted that their gross margins are higher than ours. And so we would certainly expect that, that accretive effect is going to come through and again, in addition to our progress otherwise. Now, look we don't provide outlook, so I'm not going to quote for you specifically what our gross margins would be. But I think if you apply the math on where we're coming out from an NGOI margin outlook perspective, you get a good sense of the progress we expect we're going to make.

Samik Chatterjee
Analyst at JPMorgan Chase & Co.

Okay. Got it. And a follow-up on Sirius again, which is I think you talked about flat revenue in 2021. You're expecting growth in 2022 to look more in line with the rest of CDW, and you talked about reinvestments in that business as well. So, how should we think about this? Is this more of a reinvestment into accelerating growth in Sirius, which would then contribute more towards your content outperformance -- [Indecipherable] that the purpose of driving the reinvestment. How should we think about acceleration in the growth from here on? Thank you.

Christine A. Leahy
President and Chief Executive Officer at CDW

Okay. Got it. And a follow-up on Sirius again, which is I think you talked about flat revenue in 2021. You're expecting growth in 2022 to look more in line with the rest of CDW, and you talked about reinvestments in that business as well. So, how should we think about this? Is this more of a reinvestment into accelerating growth in Sirius, which would then contribute more towards your content outperformance -- [Indecipherable] that the purpose of driving the reinvestment. How should we think about acceleration in the growth from here on? Thank you.

Albert J. Miralles
Senior Vice President and Chief Financial Officer at CDW

>: And maybe just one thing I would add there, in terms of your comments about the value we add and the synergies, so look, I think we've talked about the more immediate impacts that can be made from an accretive perspective on margin. And we do fully believe that putting the combined entities together will be powerful and will lead to value.

Look, if we think long run -- certainly, short run, that's going to provide benefits. When we think long run, taking those synergies and those values and saying, let's continue to put them back into the business, from a long run perspective, that's where the real upside is. So, we think that 2022 will show great progress in terms of our accretion on margin, on our progress, on our strategy. And those investments and reinvestments will further reinforce that build towards the future.

Samik Chatterjee
Analyst at JPMorgan Chase & Co.

Thank you. Thanks for taking my question.

Operator

Thank you. Our final question comes from Keith Housum from Northcoast Research. Keith, please go ahead.

Keith Housum
Analyst at Northcoast Research

Great. Thanks. I appreciate it and good morning guys. In terms of the price increases within the industry, I guess I was hoping a little bit of color in terms of how you guys are thinking about how the price increases are impacting, I guess, the US GDP growth that you guys expect as well as a contribution to your topline?

Albert J. Miralles
Senior Vice President and Chief Financial Officer at CDW

Yes, Keith. This is Al. So look, I don't know if I have one single answer in terms of the impact. I will say that -- and reiterate the written demand continues to be super strong. So, as we think about the growth of prices, which have been meaningful in different pockets across our product set, it does not stop demand. And I think that is, like Chris said, a testament to the power of technology and the importance of technology and the fact that our vast customer base is looking to go forward and continue to invest in their own efforts in digital transformation. And so really, if you look from a topline perspective, in terms of revenue, we don't think it's had a meaningful impact. Written demand is definitely still there. And our belief is that will largely continue.

Keith Housum
Analyst at Northcoast Research

Yes. I guess I'm only trying to unpack a little bit further is that it's consistent across a lot of the people that we talk to that there's a lot of demand out there. Prices have increased. But yes, it seems like IT -- US IT forecasts are in this 3.5% to 5.5% [Phonetic] growth, just kind of questioning why the number is not perhaps higher.

Christine A. Leahy
President and Chief Executive Officer at CDW

Let me just add. We will, obviously, as we always do, update as we go through the course of the year. But right now, what we're seeing is a moderation in estimates for GDP. Inflationary trends, uncertain where those will be. And the wildcards in the macro environment, labor shortages, et cetera, I think you're hearing people at the beginning of the year taking a clear-eyed view of what to expect in 2020 [Phonetic]. Look, ASPs could drive it up, but we'll know more as we start to move through the year on all of these things.

Keith Housum
Analyst at Northcoast Research

Okay. All right. Thanks guys. I appreciate it.

Operator

Thank you. There are no additional questions waiting at this time. So I'll pass the conference over to Chris Leahy, CEO and President. Chris, please go ahead.

Christine A. Leahy
President and Chief Executive Officer at CDW

Thank you, Bailey. I want to recognize the incredible dedication of our coworkers around the globe and their extraordinary commitment to serving our customers, our partners and all CDW stakeholders.

And thank you to our customers for the absolute privilege and opportunity to serve you. To our investors and analysts participating in this call, we appreciate you and your continued interest and support of CDW. And we look forward to talking to you again next quarter. Thank you. Have a great day.

Operator

[Operator Closing Remarks]

Alpha Street Logo

 


Featured Articles and Offers

Search Headlines:

More Earnings Resources from MarketBeat

Upcoming Earnings: