Core Viewpoint - CDW Corporation has been downgraded to a hold rating due to a weaker spending environment and weak Q4 guidance, although Q4 2025 results exceeded expectations [1] Group 1: Company Performance - CDW Corporation's Q4 2025 results were better than anticipated, indicating potential resilience despite a challenging spending environment [1] Group 2: Analyst Perspective - The analyst expresses a long-term investment philosophy focused on identifying undervalued companies with growth potential, emphasizing the importance of buying quality companies at a discount [1]

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Core Insights - CDW's fourth-quarter performance exceeded expectations, driven by strong growth in software, cloud, and professional managed services, leading to the highest gross margin of the year at 22.8% [3][5][7] Financial Performance - For Q4, CDW reported net sales of $5.5 billion, a 5% increase year over year, with gross profit ranging from $1.25 billion to $1.3 billion, reflecting a 9% increase [4][7] - Non-GAAP diluted EPS for the quarter was $2.57, up 4%, while non-GAAP operating income was approximately $502 million to $503 million, up roughly 1% [4][7] Market Dynamics - The company anticipates a low-single-digit growth in the U.S. IT market for 2026, targeting 200 to 300 basis points of outperformance [5][18] - CDW's revenue mix is shifting towards higher-margin categories such as cloud and SaaS, with netted down revenues representing 36.1% of gross profit in Q4, up from 35.8% year over year [13] Segment Performance - Double-digit growth was observed in software, cloud, and professional managed services, with cloud contributing approximately half of the gross profit growth for the quarter [3][9] - Small business sales grew by 18%, driven by cloud consumption and modernization of client devices, while corporate sales declined by 1% due to slowing hardware solutions [8][11] Operational Efficiency - Non-GAAP SG&A expenses increased by 14.6% year over year to $752 million, primarily due to higher commissions and performance-based expenses [14] - Adjusted free cash flow for Q4 was $418 million, with a full-year total of $1.09 billion, representing 82% of non-GAAP net income [15] Capital Allocation - CDW returned nearly $1 billion to shareholders in 2025 through dividends and share repurchases, exceeding its initial target of 50% to 75% of adjusted free cash flow [17] - The company plans to continue returning 50% to 75% of adjusted free cash flow to shareholders in 2026 while remaining active in M&A [17]

Core Insights - CDW Corporation reported fourth-quarter 2025 non-GAAP EPS of $2.57, exceeding the Zacks Consensus Estimate of $2.44, with a year-over-year increase of 3.8% [1] - The company achieved net sales of $5.51 billion in the fourth quarter, reflecting a 6.3% year-over-year growth, driven by increased customer spending in software, notebooks, mobile devices, and services [2] Financial Performance - For the full year 2025, net sales rose 6.8% year over year to $22.4 billion, with strong gross profit growth and disciplined working capital management allowing the return of approximately $982 million to shareholders through dividends and share repurchases [3] - Gross profit increased by 8.6% year over year to $1.25 billion, with gross margin expanding to 22.8% from 22.3% due to a higher contribution from software and services [10] Segment Analysis - The Corporate segment reported net sales of $2.37 billion, down 0.6% year over year, indicating caution among large enterprise customers [6] - The Small Business segment saw net sales rise 18.4% year over year to $457 million, reflecting improved investment activity among SMB customers [6] - The Public segment's revenues totaled $2.02 billion, up 7% year over year, with the Education sector leading growth at 12.9% [7] Future Outlook - CDW reaffirmed its long-term growth ambition, targeting 200–300 basis points of growth above the U.S. IT addressable market in 2026, driven by demand across hardware, software, services, and AI-related guidance [4] - The company announced a quarterly dividend of 63 cents, payable on March 10, 2026, to shareholders on record as of February 25 [4] Market Reaction - Following the strong performance, CDW's shares increased by 7% in pre-market trading, although shares have declined 38.8% over the past year compared to a 31.9% decline in the Zacks Computers-IT Services industry [5]

Core Insights - CDW reported revenue of $5.51 billion for the quarter ended December 2025, reflecting a year-over-year increase of 6.3% and exceeding the Zacks Consensus Estimate by 4.6% [1] - Earnings per share (EPS) for the quarter was $2.57, up from $2.48 in the same quarter last year, surpassing the consensus estimate of $2.44 by 5.54% [1] Revenue Breakdown - Small Business net sales reached $457 million, exceeding the average estimate of $408.83 million by analysts, representing a year-over-year increase of 20.3% [4] - Other net sales were reported at $668.9 million, slightly above the estimated $653.99 million, marking a 10.2% increase year-over-year [4] - Corporate net sales totaled $2.37 billion, falling short of the $2.41 billion estimate, but still showing a 1.1% year-over-year growth [4] - Public Healthcare net sales were $725.8 million, surpassing the estimate of $659.85 million, with a year-over-year increase of 6.3% [4] - Public Government net sales reached $650.5 million, exceeding the average estimate of $591.84 million, reflecting a 6% year-over-year change [4] - Public Education net sales were reported at $639.3 million, above the estimate of $528.22 million, indicating a 14.7% year-over-year increase [4] - Total Public net sales amounted to $2.02 billion, significantly higher than the $1.78 billion estimate, representing an 8.7% year-over-year growth [4] Stock Performance - CDW shares have returned -6.1% over the past month, contrasting with the Zacks S&P 500 composite's increase of 0.9% [3] - The stock currently holds a Zacks Rank 4 (Sell), suggesting potential underperformance relative to the broader market in the near term [3]

Financial Data and Key Metrics Changes - For Q4 2025, the company reported net sales of $5.5 billion, an increase of 5% year-over-year, and gross profit of $1.25 billion, up 9% [5][6] - Non-GAAP operating income was $503 million, up 1%, and non-GAAP net income per share was $2.57, up 4% compared to 2024 [6][7] - Full-year 2025 results showed net sales of over $22 billion, up 7%, with gross profit nearly $5 billion, up 6%, and non-GAAP net income per share reaching $10.02, up 5% [7][8] Business Line Data and Key Metrics Changes - Strong double-digit growth was observed in software, cloud, and professional managed services, contributing to the highest gross margin of the year [6][10] - Corporate sales were relatively flat, down 1%, while small business sales grew by 18%, driven by cloud consumption and client device modernization [9][10] - The healthcare segment increased by 5%, and education saw a 13% increase, driven by strong relationships and lifecycle services capabilities [10][11] Market Data and Key Metrics Changes - The U.K. and Canadian operations together delivered sales of $2.7 billion in 2025, with strong performance in small business and state and local markets [9] - The government segment increased by 4%, with strong growth in state and local offsetting declines in federal due to the government shutdown [10] - The company expects the U.S. IT addressable market to grow in the low single digits in 2026, with CDW targeting outperformance of 200-300 basis points [17][34] Company Strategy and Development Direction - The company emphasizes a three-part strategy for growth, focusing on diverse customer end markets, a broad portfolio of solutions, and relentless execution [8][13] - Investments in high-growth areas, particularly AI, are seen as critical for future success, with a focus on delivering integrated solutions across the technology stack [13][14] - The company plans to maintain a disciplined capital allocation strategy, targeting a return of 50%-75% of adjusted free cash flow to shareholders [29][30] Management's Comments on Operating Environment and Future Outlook - Management highlighted the complexity of the operating environment, including government shutdowns and geopolitical risks, but expressed confidence in the company's ability to adapt and grow [7][17] - The outlook for 2026 includes expectations for low single-digit growth in gross profit and mid-single-digit growth in non-GAAP net income per diluted share [34][35] - Management noted that AI momentum is building across all markets, positioning the company to leverage its expertise in helping customers adopt AI solutions [56] Other Important Information - The company reported adjusted free cash flow of $1.1 billion for 2025, with nearly $1 billion returned to shareholders through dividends and share repurchases [8][28] - The company is actively evaluating M&A opportunities to enhance its lifecycle capabilities and has made a recent acquisition to bolster its education segment [30] Q&A Session Summary Question: Impact of memory price changes on demand - Management indicated that while there is some pull forward in demand due to memory price increases, they expect to see continued strength in PCs despite potential deceleration in growth [38][39] Question: SG&A expenses and operating leverage - Management acknowledged that SG&A expenses are expected to remain high initially but emphasized that operating leverage will improve as growth picks up throughout 2026 [42][44] Question: Allocation of IT budgets in 2026 - Management expects client device growth to remain strong, with cloud, SaaS, and security continuing to be key areas of investment for customers [58][60] Question: Differences in performance between corporate and small business segments - Management noted that small businesses are more agile in adopting AI, while larger corporations are taking a cautious approach, focusing on cost optimization and extending asset life [72][73]

Financial Data and Key Metrics Changes - For Q4 2025, the company reported net sales of $5.5 billion, an increase of 5% year-over-year, and gross profit of $1.25 billion, up 9% [5][6] - Full-year 2025 results showed net sales of over $22 billion, up 7%, with gross profit nearly $5 billion, up 6% [8][9] - Non-GAAP operating income for Q4 was $503 million, up 1%, and non-GAAP net income per share was $2.57, up 4% [6][21] - Full-year non-GAAP net income per diluted share reached $10.02, up 5% [8][27] Business Line Data and Key Metrics Changes - Strong double-digit growth was observed in software, cloud, and professional managed services, contributing to the highest gross margin of the year [6][12] - Corporate sales were relatively flat, down 1%, while small business sales grew by 18% [10][11] - The healthcare segment increased by 5%, and education saw a 13% increase in top line [11][12] Market Data and Key Metrics Changes - U.K. and Canadian operations delivered sales of $2.7 billion in 2025, with strong performance in small business and state and local markets [10] - The public sector showed growth in healthcare and government, with state and local growth offsetting declines in federal due to the government shutdown [11][12] Company Strategy and Development Direction - The company aims to deliver sustainable, profitable growth by deepening customer value and deploying capital with discipline [19][32] - A focus on AI solutions is evident, with the company positioning itself to lead in the AI era through its full stack, full lifecycle offerings [15][16] - The company plans to maintain a target of returning 50%-75% of adjusted free cash flow to shareholders through dividends and share repurchases [31][32] Management's Comments on Operating Environment and Future Outlook - Management noted that the IT addressable market is expected to grow in the low single digits in 2026, with CDW targeting 200-300 basis points of outperformance [18][35] - The company anticipates gross profit growth in the low single digits for 2026, with a slight increase in gross margin compared to 2025 [36][37] - Management expressed optimism about AI adoption among customers and its potential to drive growth [56][57] Other Important Information - The company reported adjusted free cash flow of $1.09 billion for the full year, representing 82% of non-GAAP net income [30] - The company has made a tuck-in acquisition to enhance capabilities in the education sector [31][32] Q&A Session Summary Question: Impact of memory price changes on demand - Management indicated that there is uncertainty regarding the impact of memory prices on demand, but they expect a similar pull forward in Q1 as seen in Q4 [40][41] Question: SG&A expenses and operating leverage - Management acknowledged that SG&A expenses are expected to show operating leverage in 2026, with a focus on optimizing costs [43][45] Question: IT budget allocation for 2026 - Management expects client device growth to remain strong, with cloud, SaaS, and security categories continuing to be important [59][60] Question: Corporate versus small business performance - Management noted differences in spending cycles, with small businesses being more agile in adopting AI compared to larger corporations [70][72]

Financial Data and Key Metrics Changes - For Q4 2025, the company reported net sales of $5.5 billion, an increase of 5% year-over-year, and gross profit of $1.25 billion, up 9% [5][6] - Non-GAAP operating income was $503 million, up 1%, and non-GAAP net income per share was $2.57, up 4% compared to 2024 [6][8] - Full-year 2025 results showed net sales of over $22 billion, up 7%, with gross profit nearly $5 billion, up 6%, and non-GAAP net income per share reaching $10.02, up 5% [8][27] Business Line Data and Key Metrics Changes - The company experienced strong double-digit growth in software, cloud, and professional managed services, which contributed to the highest gross margin of the year [6][12] - Corporate sales were relatively flat, down 1%, while small business sales grew by 18%, driven by cloud consumption and client device modernization [10][11] - The healthcare segment increased by 5%, and education saw a 13% increase, driven by strong relationships and lifecycle services capabilities [11][12] Market Data and Key Metrics Changes - The U.S. IT addressable market is expected to grow in the low single digits in 2026, with the company targeting 200-300 basis points of outperformance [18][35] - The company’s U.K. and Canadian operations delivered sales of $2.7 billion in 2025, with strong performance in small business and state and local markets [10][11] - The government segment saw a 4% increase, with strong growth in state and local offsetting declines in federal due to the government shutdown [11][21] Company Strategy and Development Direction - The company aims to deliver sustainable, profitable growth by deepening customer value, sharpening efficiency, and deploying capital with discipline [19][32] - The focus is on high relevance, high growth areas, particularly in AI, where the company believes it has the architectural depth and partner reach to lead [15][19] - The company is actively evaluating M&A opportunities to bolster its end-to-end lifecycle capabilities, as demonstrated by the acquisition of Lexicon Tech Solutions [32] Management's Comments on Operating Environment and Future Outlook - Management noted that 2025 was a year of transition and resilience amid economic uncertainties, including tariffs and government spending changes [7][27] - The company expects gross profit to grow in the low single digits for 2026, with a slight increase in gross margin compared to 2025 [35][36] - Management highlighted the importance of AI adoption and consumption, indicating that customers are increasingly looking for help in integrating AI into their operations [55][72] Other Important Information - The company generated $1.1 billion in adjusted free cash flow in 2025, returning nearly $1 billion to shareholders through dividends and share repurchases [9][30] - Non-GAAP SG&A expenses for Q4 totaled $752 million, up 14.6% year-over-year, primarily due to higher performance-based expenses [24][25] - The company plans to increase its dividend in line with non-GAAP net income growth, targeting a payout ratio of approximately 25% going forward [31][32] Q&A Session Summary Question: Impact of memory pricing on demand - Management indicated that they expect a similar amount of pull forward in Q1 as seen in Q4, with strong demand for PCs despite potential deceleration in growth [40][41] Question: SG&A as a percentage of gross profit - Management acknowledged that while operating leverage is a priority, the SG&A ratio will improve as growth picks up and expenses are optimized [42][44] Question: Drivers of IT budget allocation in 2026 - Management expects client device growth to remain strong, with cloud, SaaS, and security continuing to be important categories for spending [57][58] Question: Corporate versus small business performance divergence - Management noted that larger companies are taking time to integrate AI, while small businesses are more agile in adopting new technologies [71][72]

Core Viewpoint - CDW reported quarterly earnings of $2.57 per share, exceeding the Zacks Consensus Estimate of $2.44 per share, and showing an increase from $2.48 per share a year ago, indicating a positive earnings surprise of +5.54% [1] Financial Performance - CDW achieved revenues of $5.51 billion for the quarter ended December 2025, surpassing the Zacks Consensus Estimate by 4.60% and up from $5.19 billion year-over-year [2] - The company has consistently exceeded consensus EPS estimates over the last four quarters [2] Stock Performance and Outlook - CDW shares have declined approximately 7.4% since the beginning of the year, contrasting with the S&P 500's gain of 1.1% [3] - The future performance of CDW's stock will largely depend on management's commentary during the earnings call and the earnings outlook [3][4] Earnings Estimates - The current consensus EPS estimate for the upcoming quarter is $2.14 on revenues of $5.18 billion, and for the current fiscal year, it is $10.39 on revenues of $22.51 billion [7] - The trend of estimate revisions for CDW was unfavorable prior to the earnings release, resulting in a Zacks Rank 4 (Sell) for the stock, indicating expected underperformance in the near future [6] Industry Context - The Computers - IT Services industry, to which CDW belongs, is currently in the top 40% of over 250 Zacks industries, suggesting a favorable industry outlook [8] - Another company in the same industry, Unisys, is expected to report quarterly earnings of $0.60 per share, reflecting a year-over-year change of +81.8% [9]

CDW Corporation Webcast Conference Call February 4, 2026 Today's Agenda Fourth Quarter and Full Year 2025 Results Performance Drivers Outlook Q&A 2 Forward-Looking Statements Statements in this presentation that are not statements of historical fact are forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements regarding the future financial performance, 2026 outlook, capital allocation priori ...