CDW Corp Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Fourth Quarter Strength: Results exceeded expectations, driven by diverse customer end markets, a broad portfolio of solutions/services, and execution of the growth strategy. AI initiatives were a key focus, with solutions for large enterprises and small businesses.
• Full Year Performance: Managed through challenges like tariffs, funding shifts, and government shutdowns. Delivered strong net sales, gross profit, and non-GAAP earnings. Returned nearly $1 billion to shareholders via dividends and repurchases, and completed a tuck-in acquisition in Q4.
• Drivers of Performance: Diverse customer end markets (e.g., small business, state/local government offset federal headwinds), a broad solutions/services portfolio (cloud, software, professional services growth), and execution of the three-part growth strategy (AI integration, vertical/horizontal solutions).

Segment Performance

• Fourth Quarter 2025: Net sales were $5.5 billion, up 5%. Gross profit was $1.25 billion, up 9%. Non-GAAP operating income was $503 million, up 1%, and non-GAAP net income per share was $2.57, up 4% from 2024.
• Full Year 2025: Net sales exceeded $22 billion, up 7%. Gross profit nearly $5 billion, up 6%. Non-GAAP operating income nearly $2 billion, up 3%, and non-GAAP net income per share reached a record $10.02, up 5%.
• Customer Channels: Corporate was relatively flat (-1%) year over year. Small business saw exceptional growth of 18% fueled by cloud consumption and client device modernization. Health care increased 5%, government up 4% (state and local offset federal headwinds), and education up 13% due to strong K-12 and higher ed performance. International operations (UK and Canada) delivered high single-digit growth.

Guidance

• 2026 Outlook: Anticipates US IT market to grow low single digits, with CDW outperforming by 200-300 basis points. Gross profit expected to grow low single digits, with second-half contribution slightly above first half. Non-GAAP net income per diluted share expected mid-single digits growth.
• First Quarter 2026: Anticipates gross profit to decline mid-single digits sequentially but grow mid-single digits year over year due to memory pull forward. Federal channel expected to have a slow start as pipeline rebuilds post-shutdown.

Risks

• Supply Chain and Pricing: Concerns over memory pricing increases and potential supply chain shortages.
• Geopolitical and Economic: Uncertainty from geopolitical unrest, economic conditions, and lingering impacts of government shutdowns affecting customer spending behavior.

Question and Answer

• Q: David Vogt asked about memory pull forward and its impact on the year. A: Christine and Al discussed memory impact, noting a potential pull forward in Q1, and how it affects PC and server demand, with expectations of choppier demand but continued strength in client devices.
• Q: Adam Tindle inquired about AI vs cloud and customer behavior. A: Christine compared AI to cloud, stating AI is embedded across the stack and driving growth in cloud, SaaS, and security, with customers actively adopting AI for production-stage solutions.
• Q: Amit Daryanani asked about customer spending allocation and OpEx dynamics. A: Christine and Al discussed client device growth, importance of cloud/SaaS/security, and OpEx leverage in 2026, expecting operating leverage to kick in and optimize costs over the year.
• Q: Erik Woodring questioned outperformance relative to historical and corporate vs small business performance. A: Christine and Al discussed outperformance drivers (mix of netted down revenue), and differences in spending cycles between corporate (cautious adoption) and small business (nimble AI adoption).
• Q: Ruplu Bhattacharya asked about margins and AI projects. A: Albert discussed non-netted down margins, and Christine detailed AI engagement with small and mid-market customers, focusing on design, deployment, and managed services.
• Q: Keith Housum asked about memory industry impact. A: Albert discussed memory price increases, fluid supply chain, and how CDW helps customers navigate, noting robust demand but less visibility on supply in the second half.