Harry Read

Harry Read questioned the accelerating year-on-year SG&A growth rate and sought clarity on the expected sharp deceleration in Q4, especially if gross profit growth slows. He also asked for a breakdown of whether this is driven by front-office or back-office wages and about the outlook for stock-based compensation (SBC) as a percentage of gross profit for Q4 and 2026.

Answer

Al Miralles, CFO of CDW, explained that the SG&A growth comparison is primarily distorted by lower performance-based compensation accruals in 2024. He stated that adjusting for these factors, gross profit and expense growth would be closer to parity, with 2025 being a transition year to normalize expenses. For SBC, Miralles noted that 2025 should appear more normalized compared to 2024, which benefited from a reduction in equity expense from a prior larger program.

Harry Read from Rothschild & Co. inquired about the acceleration in SG&A year-over-year growth and the expected sharp deceleration in Q4, asking for a breakdown of the drivers, particularly concerning front-office versus back-office wages. He also asked about the trend of stock-based compensation as a percentage of gross profit for Q4 and into 2026.

Answer

Al Miralles, CFO of CDW, explained that the year-over-year SG&A growth is primarily due to a challenging comparison against 2024, when incentive compensation accruals were significantly reduced. He noted that if adjusted, gross profit and expense growth would be closer to parity, and the company aims for future operating leverage. Regarding stock-based compensation, Mr. Miralles stated that 2025 figures should appear "reasonably normalized" compared to prior years, as 2024 was distorted by a reduction in equity expense from a larger, prior-year program.

Harry Read of Rothschild & Co Redburn asked about the drivers for the expected increase in SG&A as a percentage of gross profit, given that coworker count was down year-over-year. He also questioned if this was the primary factor for the guided deceleration in adjusted EPS growth.

Answer

CFO Al Miralles confirmed the SG&A efficiency ratio would be consistent with Q2. He explained the year-over-year increase is due to unfavorable comparisons with 2024, which benefited from significant reversals of incentive compensation accruals. He also noted the current expense base is structured for slightly higher gross profit growth.

Harry Read asked about CDW's hiring plans for the remainder of the year, current wage inflation trends, and whether the operating leverage seen in Q1 is expected to continue.

Answer

CEO Christine Leahy stated that the company is managing expenses prudently while making strategic hires, and sees no notable wage inflation. CFO Albert Miralles explained that Q1's strong operating leverage was amplified by the demand pull-forward and will not be as high for the rest of the year under the low single-digit growth outlook, which is reflected in the EPS guidance.

Harry Read asked about the drivers behind the underlying headcount reduction, questioning if it was due to AI efficiency or a muted demand forecast. He also inquired about the sustainable level for share-based compensation and other areas besides testing where AI is driving efficiencies.

Answer

CEO John Cotterell attributed the headcount trend to productivity gains and a value-shift from activities like testing to higher-rate skills in data, AI, and cloud. CFO Mark Thurston explained the recent drop in share-based compensation was due to a reversal of accruals for unmet performance targets and that a 3-5% of revenue range is more representative going forward. John Cotterell clarified that AI efficiencies are being applied across the entire business, not just testing, and often result in clients adding more work rather than cutting spend.

Harry Read asked about the drivers behind the underlying headcount reduction, whether it was due to AI efficiency or muted demand, and questioned the sustainability of the current share-based compensation levels.

Answer

CEO John Cotterell attributed the headcount change to a strategic shift from lower-value activities like testing to higher-value skills in AI and data, combined with productivity gains, keeping revenue per head stable. CFO Mark Thurston clarified that the recent drop in share-based compensation was an anomaly due to missed performance targets and that a 3% to 5% of revenue range is more representative for future modeling.

Harry Read asked if Insight was observing any differential impact from Microsoft's commission changes based on end-client type and also inquired about the company's current headcount strategy following last year's restructuring.

Answer

CEO Joyce Mullen confirmed that cloud performance, including the impact from Microsoft's program changes, was in line with their expectations, highlighting the 17% underlying growth in SaaS and IaaS. CFO James Morgado addressed headcount, stating that Insight will continue to be disciplined with SG&A, aiming for it to grow slightly slower than gross profit while preserving investments in sales and technical talent.