CDW Corp Q2 FY2025 earnings call

• High-level overview: Second quarter results underscore the power of full stack, full life cycle solutions with double-digit top line growth despite headwinds in federal and education. Customer focus was on client devices and mission-critical infrastructure, driving 5% gross profit growth. - Balanced portfolio: Diverse customer end markets include 5 U.S. sales channels and U.K./Canada operations. Each channel is a $1 billion+ business. - Product breadth: Hardware, software, and services performed well; hardware driven by infrastructure solutions and client devices, software by telephony and application suites, services by professional managed services. - AI Center of Excellence: Comprehensive approach to transform AI from concept to execution, with examples like helping a scaling apparel company improve IT support and a transport company with security solutions.

Consolidated net sales for the second quarter were $6 billion, up 10% compared to the same period in 2024. Gross profit was $1.2 billion, an increase of 5%. Non-GAAP operating income was $520 million, up 2%, and non-GAAP net income per share was $2.60, up 4%. Adjusted free cash flow was $210 million. Customer priorities included client devices (driven by Windows 10 end-of-life transition and productivity initiatives) and mission-critical infrastructure projects. Commercial performance was strong, with corporate net sales up 18% and small business up 13%. Health care in the U.K. and Canada performed well, offsetting declines in federal and education. Hardware increased 9%, software 16%, and services 8%. Revenue contribution: Each of the 5 U.S. sales channels (corporate, small business, health care, government, education) is over $1 billion annually; U.K. and Canadian operations together delivered sales of USD 2.5 billion last year.

• Maintaining 2025 outlook: U.S. IT market growth in low single digits, CDW gross premium 200-300 basis points. - Full year non-GAAP net income per diluted share to grow low single digits. - Third quarter gross profit expected to grow at low single-digit rate, flat to slightly above second quarter; operating expenses to increase slightly, with non-GAAP SG&A as percentage of gross profit consistent with Q2 2025 levels. - Full year gross profit growth expected to be low to mid-single digits, with second half contribution slightly above first half but lower than historical split.

• Market dislocation in government and education expected to continue. - Wildcards: Recessionary conditions, higher inflation, increased geopolitical unrest, outsized changes to announced tariffs.

Q: Erik Woodring from Morgan Stanley asked about outperformance versus market expectations and product segment cycles.

A: Christine Leahy noted expected outperformance due to diversified portfolio, and Al Miralles discussed hardware cycles with client devices in mid-cycle and infrastructure hardware on uptick.

Q: David Vogt from UBS inquired about corporate market strength and netted down revenues.

A: Christine Leahy mentioned pent-up demand and execution driving corporate growth; Al Miralles explained netted down revenues impact on gross margin.

Q: Amit Daryanani from Evercore ISI asked about growth deceleration in back half.

A: Christine Leahy cited softer federal and education markets; Al Miralles noted timing and comps affecting growth.

Q: Harry Read from Rothschild & Co. questioned SG&A and EPS growth.

A: Al Miralles explained SG&A efficiency ratio and operating leverage asymmetry.

Q: Samik Chatterjee from JPMorgan asked about customer response to bills and 4Q earnings.

A: Christine Leahy discussed commercial funding benefits; Al Miralles noted conservatism in Q3 and Q4 due to federal/education and corporate seasonality.

Q: Asiya Merchant from Citigroup asked about gross profit margin decrease.

A: Al Miralles explained quarter-over-quarter margin trends and competitive environment impact.

Q: Ruplu Bhattacharya from Citigroup asked about AI impact and M&A.

A: Christine Leahy mentioned AI impact across stack and focus on services-led M&A.

Q: Keith Housum from Northcoast Research asked about large deals and spending trends.

A: Al Miralles noted balanced end market contribution expected for remainder of year