CDW Q3 Earnings Call Highlights

Key Points

• CDW delivered record third-quarter results, with net sales rising 18% to $6.8 billion and non-GAAP diluted EPS increasing 20% to $3.26. Growth was driven by AI-ready infrastructure, data center modernization and cloud demand, including more than doubled server and storage sales.
• The company raised its full-year outlook, now expecting mid- to high-single-digit gross profit growth and low-double-digit non-GAAP EPS growth. Management cited healthy customer engagement, orders exceeding invoicing and a growing backlog.
• CDW completed its $525 million acquisition of Lovelytics to expand data and AI services, and raised its quarterly dividend about 8% to $0.68 per share, marking its 13th consecutive year of dividend growth.

CDW NASDAQ: CDW reported record third-quarter performance as demand for AI-ready infrastructure, data center modernization and cloud solutions drove double-digit sales and profit growth. The company also raised its full-year outlook, citing healthy customer engagement, written orders exceeding invoicing and a growing backlog, particularly in enterprise infrastructure.

Net sales increased 18% year over year to $6.8 billion, while gross profit rose 10% to $1.4 billion. Non-GAAP operating income climbed 17% to approximately $620 million, and non-GAAP diluted earnings per share increased 20% to $3.26. Adjusted free cash flow totaled $506 million in the quarter.

“The team executed with precision and delivered record performance in a dynamic technology environment shaped by prioritization of infrastructure modernization and AI adoption,” Chair and CEO Chris Leahy said.

Infrastructure Demand Drives Broad-Based Sales Growth

Leahy said customer spending was concentrated in infrastructure modernization, cloud, AI readiness, cybersecurity, resiliency and hybrid technology architectures. Sales growth was broad across the company’s customer markets, with commercial sales up 21%, international sales up 26%, government sales up 10% and education sales up 8%.

Hardware sales increased 21%, led by AI-related and modernization investment. Server and storage sales more than doubled, while networking and communications sales increased 9%. Client device sales rose 19%, even as unit volumes declined, because higher average selling prices and customer demand for more capable configurations more than offset lower volumes.

Chief Financial Officer Al Miralles said server and storage growth was primarily driven by unit growth and customer spending rather than pricing. Client device growth, meanwhile, reflected both pricing and demand for devices with greater processing capacity, memory and security features.

Software sales increased 14%, with double-digit growth in network management, virtualization and operating systems. The company also reported strong cloud growth across software-as-a-service and infrastructure-as-a-service offerings. Professional and managed services returned to growth, increasing 2%, though management said service revenue continues to be affected by the timing of large deployments and customers’ current emphasis on hardware and cloud investments.

Leahy said service opportunities are expected to develop over multiple quarters as projects progress from procurement into implementation, integration, optimization and ongoing management.

Margins Reflect Project and Product Mix

Third-quarter gross margin was 20.5%, down 140 basis points from a year earlier but up 40 basis points sequentially. Miralles said the year-over-year decline reflected the mix of large infrastructure projects, which carry higher hardware content, as well as growth in cloud and software transactions in which CDW acts as an agent and records revenue on a net basis.

Netted-down revenue streams increased 17.1% from a year earlier and represented a record 38.2% of gross profit, up 220 basis points year over year.

Management said margin pressure did not stem from broad like-for-like pricing compression. Instead, it reflected strong growth among enterprise and financial-services customers purchasing infrastructure products, including servers and storage. Those projects generated meaningful gross-profit dollars and could create follow-on opportunities in solutions and services, executives said.

Non-GAAP selling, general and administrative expense increased 5.6% to $766 million, slower than gross-profit growth. As a percentage of gross profit, non-GAAP SG&A improved 240 basis points year over year to 55.3%.

Miralles attributed the operating leverage largely to the company’s “Geared for Growth” initiative, which focuses on productivity, process improvements and the use of AI in operations. He said the company was at or above its expectations for progress, although savings and reinvestment may vary by quarter.

Lovelytics Acquisition Expands Data and AI Capabilities

CDW completed its $525 million acquisition of Lovelytics, a data and AI services firm, on Sept. 25. Management said the acquisition expands its capabilities in modern cloud, data analytics and AI services.

Leahy said CDW plans to use a “greenhouse approach” to integration, operating Lovelytics relatively independently initially while using CDW’s customer base as a channel for growth. The company added about 600 coworkers through the acquisition, bringing total headcount to 14,600.

Miralles said Lovelytics is small relative to CDW’s overall scale but is growing rapidly. He said the professional-services business is accretive to gross margins, while CDW’s focus will be on helping it scale.

During the quarter, CDW issued $1.5 billion of new senior notes. The company said it plans to use proceeds to repay $1 billion of senior notes maturing in December 2026 and to fund the Lovelytics acquisition. Net debt stood at $5.6 billion at quarter-end, and net leverage was 2.5 times, within the company’s targeted range of two to three times.

Outlook Raised; Dividend Increased

CDW raised its expectation for U.S. IT addressable-market growth in 2026 to a high-single-digit rate on a customer-spend basis. The company expects to outperform that market by 300 to 400 basis points, with the outperformance weighted more heavily toward infrastructure than client devices.

For the full year, CDW now expects gross profit to grow at a mid- to high-single-digit rate, compared with its prior outlook for mid-single-digit growth. The company continues to expect full-year gross margin to decline from 2025 because of anticipated product and end-market mix.

• Fourth-quarter gross profit is expected to rise at a mid-single-digit year-over-year rate.
• Fourth-quarter non-GAAP SG&A is expected to increase at a low-single-digit rate year over year and sequentially.
• Full-year non-GAAP diluted EPS growth is now projected in the low-double-digit range, up from the prior high-single-digit forecast.
• Full-year net interest expense is expected to be $255 million to $260 million, reflecting the new debt issuance.

The company returned $187 million to shareholders during the quarter through $108 million of share repurchases and $79 million in dividends. Year to date, it has returned approximately $892 million to shareholders and repurchased 5.3 million shares at an average price of about $123 per share.

CDW also increased its quarterly dividend by approximately 8% to $0.68 per share, or $2.72 annually, marking its 13th consecutive year of dividend growth.

About CDW (NASDAQ:CDW)

CDW Corporation NASDAQ: CDW is a provider of technology products and services for business, government, education and healthcare organizations. The company helps customers plan, procure, implement and manage information technology solutions from leading hardware, software and cloud vendors.

Its offerings include computers, servers, networking equipment, data-storage systems, cybersecurity products, collaboration tools, software licensing and cloud solutions. CDW also provides professional and managed services, including technology consulting, infrastructure deployment, cloud management, security support and lifecycle services.

Founded in 1984 as Computer Discount Warehouse, CDW serves customers primarily in the United States, Canada and the United Kingdom through sales teams, digital channels and technology partnerships.

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