CDW Q2 Earnings Call Highlights

Key Points

• Record Q2 performance: CDW’s net sales rose 10% to $6.6 billion, while non-GAAP EPS increased 12% to $2.91, driven by infrastructure modernization, AI readiness and security demand.
• AI and market momentum: Government, international and commercial sales posted strong growth, while hardware and software revenue increased by double digits. Management described AI as a multiyear opportunity spanning infrastructure, security, data integration and lifecycle services.
• Outlook raised, with cash-flow pressure: CDW raised its 2026 growth outlook and expects to outperform the U.S. IT market by 200–300 basis points, although gross margins are expected to remain below 2025 levels. First-half free-cash-flow conversion fell to 42% due largely to inventory investment, and CFO Al Morales plans to retire in 2027.

CDW NASDAQ: CDW reported record second-quarter results for 2026, as demand for infrastructure modernization, artificial intelligence readiness and security helped lift net sales 10% to $6.6 billion.

The technology solutions provider said gross profit increased 6% to $1.3 billion, while non-GAAP operating income rose 7% to $556 million. Non-GAAP earnings per diluted share climbed 12% to $2.91. Chief Executive Officer Chris Leahy said net sales, gross profit and non-GAAP EPS each established all-time quarterly records.

“Demand remained healthy with AI increasingly influencing customer activity despite cautious and deliberate customer spending,” Leahy said, pointing to customer investments in AI readiness and modernization as drivers of infrastructure demand.

Segment and Product Demand

Commercial net sales rose 9%, including an 11% increase in corporate sales, which CDW attributed to infrastructure modernization, cloud and AI-readiness programs. Healthcare sales grew 9%, supported by demand for uses including AI-enabled claims management and clinical documentation, while financial-services sales increased 2%.

Government sales increased about 14%, aided by improving federal demand and continued state and local momentum. Education sales rose about 1%, as healthy K-12 demand for software, services and lifecycle offerings offset a constrained funding environment in higher education.

International sales increased about 23%, led by a record quarter in Canada and continued momentum in the United Kingdom. Both markets delivered mid-teens or better growth in their local markets, according to the company.

• Hardware revenue increased 10%, with server, storage and networking posting double-digit growth.
• Combined notebook and desktop revenue rose 10%, as higher average selling prices more than offset lower unit volume.
• Software rose by the low double digits, driven by security, application suites, and storage and network-area-management software.
• Services revenue increased 1%, reflecting customers’ near-term emphasis on hardware and cloud investments as well as deployment timing.

Leahy said CDW expects lifecycle and professional-services demand to increase as customers transition from procurement to implementation and ongoing management of technology projects.

AI Opportunities and Margin Mix

Management described AI as a broad, multiyear opportunity rather than a single-product cycle. Leahy said the company is seeing AI-related opportunities across infrastructure, security, data integration and lifecycle support as customers move from experimentation and pilots toward implementation and scale.

She said the initial infrastructure phase of AI adoption has been most advanced among larger customers, but activity is broadening across industries and customer sizes. CDW is developing repeatable AI offerings for mid-market and smaller customers, according to Leahy.

The company cited a multiyear, multimillion-dollar engagement with a western state’s technology office, where CDW is helping create a framework for AI strategy, governance, infrastructure, security, data and application development. It also highlighted a multimillion-dollar AI security vulnerability-management engagement with a large financial-services customer.

Chief Financial Officer Al Morales said second-quarter gross margin declined 70 basis points year over year to 20.1%, primarily because of product and customer mix rather than like-for-like pricing pressure. Larger infrastructure orders and enterprise customers tend to carry somewhat lower margins, he said, while services mix was also lower during the quarter.

Morales said CDW maintained pricing discipline and passed through cost increases in its core business. Netted-down revenue streams increased 16.1% and represented 35.9% of gross profit, up 300 basis points from a year earlier.

Operating Leverage, Cash Flow and Capital Returns

Non-GAAP selling, general and administrative expense totaled $764 million, or 57.9% of gross profit, down 20 basis points from the prior year. Morales said the operating-income growth rate exceeded gross-profit growth because of expense discipline and efficiency efforts.

He said benefits from the company’s “Geared for Growth” initiative are expected to become more apparent in the second half of 2026 and continue into 2027. CDW ended the quarter with approximately 14,700 coworkers, including 10,300 customer-facing employees, both modestly lower than a year earlier.

Adjusted free cash flow for the first half was $278 million, or 42% of non-GAAP net income, below the company’s typical target of converting 80% to 90% of non-GAAP net income to cash. Morales attributed the shortfall largely to working-capital investment, including an approximately $400 million increase in inventory since the end of 2025. He said the company expects cash conversion to normalize during the remainder of the year as inventory is rationalized.

During the quarter, CDW returned $344 million through share repurchases and $80 million through dividends. The company had more than $1.1 billion remaining under its repurchase authorization after announcing an additional $1 billion authorization in the second quarter. Net debt stood at $5.5 billion, and net leverage was 2.5 times, within CDW’s target range of two to three times.

Raised Full-Year Outlook and CFO Transition

CDW raised its 2026 outlook, now expecting the U.S. IT addressable market to grow at a mid-single-digit rate on a customer-spend basis. The company expects to outperform that market by 200 to 300 basis points.

For the full year, CDW expects gross profit to grow at a mid-single-digit rate and non-GAAP EPS growth to reach the high end of the high-single-digit range. It expects second-half gross margins to remain below second-half 2025 levels due to anticipated product and end-market mix, leaving full-year gross margin modestly below 2025.

For the third quarter, management projected mid-single-digit gross-profit growth, lower non-GAAP SG&A than in the second quarter, and non-GAAP EPS growth at the high end of the high-single-digit range.

Separately, Leahy announced that Morales plans to retire in 2027 following an orderly transition. Morales will remain CFO until a successor is appointed and then serve in an advisory capacity. The company said its search for a successor is underway.

About CDW (NASDAQ:CDW)

CDW NASDAQ: CDW is a leading provider of information technology products and integrated solutions for business, government, education and healthcare customers. The company sources and resells hardware and software from major technology vendors and packages those products with professional services, managed services and lifecycle support. Its offerings span IT infrastructure, cloud and data center solutions, cybersecurity, networking, unified communications, endpoint devices, and software licensing and procurement services designed to simplify IT operations for customers.

CDW combines a broad product portfolio with consultative sales, implementation and technical support capabilities.

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