Business Description
CDW Corporation is a Fortune 500 company and a leading multi-brand provider of information technology (IT) solutions to a diverse range of customers, including small, medium, and large businesses, government, education, and healthcare sectors in the United States, United Kingdom, and Canada . The company's offerings span discrete hardware and software products to integrated IT solutions and services, which include on-premise and cloud capabilities across hybrid infrastructure, digital experience, and security . CDW is vendor, technology, and consumption model unbiased, providing a broad selection of products and multi-branded solutions .
- Hardware - Offers a wide range of physical IT products, including computers, networking equipment, and data storage solutions.
- Software - Provides various software products, including operating systems, productivity applications, and enterprise software solutions.
- Services - Delivers IT services that encompass consulting, implementation, and managed services to support customer IT environments.
- Corporate Segment - Serves US private sector businesses with more than 250 employees, offering tailored IT solutions and services.
- Public Segment - Caters to government agencies, education, and healthcare institutions, providing specialized IT solutions and services.
- Small Business Segment - Focuses on US businesses with up to 250 employees, delivering IT products and services suited to smaller enterprises.
- Other (UK and Canada Operations) - Includes operations in the UK and Canada, offering a similar range of IT solutions and services as in the US.
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Q2 2024 Summary
What went well
- CDW is gaining market share across virtually every category, including security, services, and cloud, even in a low-demand market.
- Strong pipeline and customer engagement suggest that as customer cautiousness decreases, CDW is well-positioned to convert its pipeline into growth.
- Sustained growth expected in cloud, security, and services, which are not slowing down and provide cost optimization opportunities for customers, aligning with CDW's broad portfolio and capabilities.
What went wrong
- Delayed Revenue Conversion Due to Customer Caution: Despite a strong pipeline, CDW is not seeing customers' "appetite to convert," indicating potential delays in revenue realization due to cautious customer spending.
- Persistent Weakness in Networking and Server Demand: CDW continues to face slow demand in networking and server products as customers digest prior purchases and exercise caution in new spending, with a pivot towards cloud solutions over traditional infrastructure upgrades.
- Shift Towards Cloud Solutions Affecting Traditional Revenue Streams: Customers are increasingly opting for cloud and elastic solutions instead of on-premise infrastructure investments, which may negatively impact CDW's traditional hardware revenue segments.
Q&A Summary
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Guidance and Forecasting Changes
Q: Why did you miss guidance, and what's changed in forecasting?
A: Al acknowledged recent volatility impacting their guidance, noting that the miss was due to unanticipated weakness in the federal business and international markets. Excluding these factors, results were close to historical seasonality. Going forward, they expect mid-single-digit sequential growth, following a more normal glide path with a 48-52 split between first and second half. -
Pipeline Conversion and Demand Outlook
Q: What's the outlook for demand and pipeline conversion?
A: Christine stated that while the business feels more stable, the appetite to convert pipeline into sales is lacking. They continue to engage closely with customers, focusing on cost optimization solutions. As stability increases, she expects pipeline conversion to improve, leading to growth. -
Gross Margin Sustainability
Q: Can core gross margins continue to grow?
A: Al expects gross margins to remain similar to the first half and much like 2023 overall. Netted down revenues, particularly from cloud and SaaS renewals, are expected to remain strong. Product margins have held firm, and they anticipate this trend to continue. -
Impact of AI on Business
Q: How is AI affecting your business and customers?
A: Christine mentioned they're in the early stages of AI monetization, investing in people and enablement. AI is causing customers to reevaluate their compute, storage, and networking architectures. While this assessment phase may delay some sales cycles, they see AI as an accelerant that will be embedded in every layer of the stack. -
End Markets Performance and Recovery
Q: Any signs of recovery in networking and server markets?
A: On networking, customers prioritize modernization but are still digesting previous purchases. Supply chain normalization hasn't yet translated into increased demand. In mid-market servers, there's some strength, but customers are cautious, pivoting towards cloud solutions. -
Market Share Gains
Q: Are you gaining market share despite the sluggish macro?
A: Christine is confident they're continuing to gain share across virtually every category, including security, services, cloud, and client devices. This is validated by both their data and partner reviews. -
Operating Expenses and Leverage
Q: How should we think about your OpEx trajectory?
A: Al explained that the first half showed higher expenses due to seasonality and lower gross profit production. They expect operating leverage to improve in the back half as expenses balance out and gross profit increases. -
Security Business and CrowdStrike Impact
Q: How did the CrowdStrike issue affect you?
A: Christine noted that the impact was minimal, but it reinforced the importance of their trusted adviser role. They swiftly helped customers with fixes and see such events as opportunities to strengthen customer relationships. Customers are on high alert around cybersecurity, leading to heightened conversations but not delaying other projects. -
Netted Down Revenues Mix
Q: Can you elaborate on netted down revenues?
A: Al clarified that netted down revenues include software assurance, warranty, SaaS, and cloud. The strength is primarily in SaaS and cloud, covering various workloads. Software assurance and warranty have lagged due to their attachment to hardware and licensed software, which have been slower. -
Government Business Outlook
Q: Are there offsets to federal weakness?
A: Al stated they expect normal seasonality in government business, with strength in state and local offsetting federal softness. Overall, they foresee regular seasonality with a slight downtick in federal for Q3 and Q4.
Key Metrics
Revenue by Segment - in Millions of USD | FY 2013 | Q1 2014 | Q2 2014 | Q3 2014 | Q4 2014 | FY 2014 | Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | FY 2015 | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | FY 2017 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | FY 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | FY 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | FY 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | FY 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Corporate | 2,203.7 | 2,245.0 | 2,226.5 | 2,285.6 | 8,960.8 | 2,135.9 | 2,195.2 | 2,161.2 | ||||||||||||||||||||||||||||||||||||||||||||||
Small Business | 411.4 | 396.2 | 378.4 | 37 | 1,556.0 | 380.9 | 382.9 | 379.7 | ||||||||||||||||||||||||||||||||||||||||||||||
- Medium/Large Business | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Small Business | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Public | 1,812.8 | 2,295.1 | 2,422.1 | 1,775.7 | 8,305.7 | 1,724.7 | 2,243.3 | 2,335.7 | ||||||||||||||||||||||||||||||||||||||||||||||
- Government | 551.5 | 681.2 | 775.7 | 660.7 | 2,669.1 | 543.3 | - | 691.0 | ||||||||||||||||||||||||||||||||||||||||||||||
- Education | 665.7 | 1,026.8 | 1,026.7 | 579.1 | 3,298.3 | 596.8 | - | 995.7 | ||||||||||||||||||||||||||||||||||||||||||||||
- Healthcare | 595.6 | 587.1 | 619.7 | 535.9 | 2,338.3 | 584.6 | - | 649.0 | ||||||||||||||||||||||||||||||||||||||||||||||
Other | 28.1 | 28.5 | 28.6 | 27.6 | 112.8 | 26.4 | 27.5 | 27.8 | ||||||||||||||||||||||||||||||||||||||||||||||
Hardware | 3,688.2 | 4,280.3 | 4,181.4 | 3,552.7 | 15,702.6 | 3,546.1 | 4,061.9 | 3,958.6 | ||||||||||||||||||||||||||||||||||||||||||||||
- Notebooks/Mobile Devices | 1,064.6 | 1,320.9 | 1,228.9 | 1,076.1 | 4,690.5 | 1,141.3 | 1,438.2 | 1,370.4 | ||||||||||||||||||||||||||||||||||||||||||||||
- Netcomm Products | 744.5 | 916.4 | 877.1 | 647.4 | 3,185.4 | 569.9 | 639.6 | 667.6 | ||||||||||||||||||||||||||||||||||||||||||||||
- Collaboration | 476.0 | 533.6 | 490.1 | 41 | 1,909.7 | 415.3 | 489.3 | 460.3 | ||||||||||||||||||||||||||||||||||||||||||||||
- Data Storage and Servers | 541.9 | 536.1 | 575.6 | 587.1 | 2,240.7 | 540.6 | 546.6 | 506.0 | ||||||||||||||||||||||||||||||||||||||||||||||
- Desktops | 257.9 | 304.8 | 264.6 | 241.8 | 1,069.1 | 258.4 | 295.5 | 291.4 | ||||||||||||||||||||||||||||||||||||||||||||||
- Other Hardware | 603.3 | 668.5 | 745.1 | 590.3 | 2,607.2 | 620.6 | 652.7 | 662.9 | ||||||||||||||||||||||||||||||||||||||||||||||
Software | 944.7 | 864.1 | 997.0 | 993.5 | 3,799.3 | 874.4 | 855.6 | 1,048.3 | ||||||||||||||||||||||||||||||||||||||||||||||
Services | 442.1 | 453.2 | 421.3 | 444.7 | 1,761.3 | 425.8 | 478.4 | 481.9 | ||||||||||||||||||||||||||||||||||||||||||||||
Total Revenue | 5,103.1 | 5,626.1 | 5,628.3 | 5,018.5 | 21,376.0 | 4,872.7 | 5,423.4 | 5,516.6 | ||||||||||||||||||||||||||||||||||||||||||||||
Revenue by Geography - in Millions of USD | FY 2013 | Q1 2014 | Q2 2014 | Q3 2014 | Q4 2014 | FY 2014 | Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | FY 2015 | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | FY 2017 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | FY 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | FY 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | FY 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | FY 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
United States | 4,429.9 | 4,903.9 | 5,003.8 | 4,417.3 | 18,754.9 | 4,220.6 | 4,809.1 | 4,863.1 | ||||||||||||||||||||||||||||||||||||||||||||||
Rest of World | 673.2 | 722.2 | 624.5 | 601.2 | 2,621.1 | 652.1 | 614.3 | 653.5 | ||||||||||||||||||||||||||||||||||||||||||||||
Other | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Total Revenue | 5,103.1 | 5,626.1 | 5,628.3 | 5,018.5 | 21,376.0 | 4,872.7 | 5,423.4 | 5,516.6 | ||||||||||||||||||||||||||||||||||||||||||||||
KPIs - Metric | FY 2013 | Q1 2014 | Q2 2014 | Q3 2014 | Q4 2014 | FY 2014 | Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | FY 2015 | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | FY 2017 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | FY 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | FY 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | FY 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | FY 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
Cash Conversion Cycle **[0001402057-23-000052_cdw-20221231.htm:56]****[0001402057-23-000091_cdw-20230331.htm:25]****[0001402057-23-000132_cdw-20230630.htm:19]****[0001402057-23-000169_cdw-20230930.htm:21]****[0001402057-24-000015_cdw-20231231.htm:58]****[0001402057-24-000088_cdw-20240331.htm:17]****[0001402057-24-000138_cdw-20240630.htm:34]****[0001402057-24-000182_cdw-20240930.htm:22]** | 18 | 14 | 15 | 17 | - | 16 | 17 | 17 | ||||||||||||||||||||||||||||||||||||||||||||||
Days of Sales Outstanding **[0001402057-23-000052_cdw-20221231.htm:56]****[0001402057-23-000091_cdw-20230331.htm:25]****[0001402057-23-000132_cdw-20230630.htm:31]****[0001402057-23-000169_cdw-20230930.htm:37]****[0001402057-24-000015_cdw-20231231.htm:58]****[0001402057-24-000088_cdw-20240331.htm:26]****[0001402057-24-000138_cdw-20240630.htm:34]****[0001402057-24-000182_cdw-20240930.htm:35]** | 72 | 67 | 73 | 77 | - | 75 | 72 | 79 | ||||||||||||||||||||||||||||||||||||||||||||||
Days of Supply in Inventory **[0001402057-23-000052_cdw-20221231.htm:56]****[0001402057-23-000091_cdw-20230331.htm:25]****[0001402057-23-000132_cdw-20230630.htm:31]****[0001402057-23-000169_cdw-20230930.htm:37]****[0001402057-24-000015_cdw-20231231.htm:58]****[0001402057-24-000088_cdw-20240331.htm:26]****[0001402057-24-000138_cdw-20240630.htm:34]****[0001402057-24-000182_cdw-20240930.htm:35]** | 15 | 14 | 14 | 13 | - | 14 | 13 | 14 | ||||||||||||||||||||||||||||||||||||||||||||||
Days of Purchases Outstanding **[0001402057-23-000052_cdw-20221231.htm:56]****[0001402057-23-000091_cdw-20230331.htm:25]****[0001402057-23-000132_cdw-20230630.htm:31]****[0001402057-23-000169_cdw-20230930.htm:37]****[0001402057-24-000015_cdw-20231231.htm:58]****[0001402057-24-000088_cdw-20240331.htm:26]****[0001402057-24-000138_cdw-20240630.htm:34]****[0001402057-24-000182_cdw-20240930.htm:35]** | 69 | 67 | 72 | 73 | - | 73 | 68 | 76 |
Executive Team
Questions to Ask Management
- Given the continued slow demand for networking and server solutions over the past three quarters, what specific strategies is CDW implementing to stimulate growth in these areas, and do you foresee any signs of recovery in the near term?
- With a solid pipeline but challenges in conversion due to customer uncertainty, how does CDW plan to accelerate pipeline conversion to revenue, and what are your expectations for improved demand conditions, especially considering the macroeconomic environment?
- In light of recent cybersecurity incidents like the CrowdStrike debacle, how has this affected CDW's relationships with security vendors and customers, and what impact do you anticipate on your cybersecurity business growth trajectory?
- Considering the worsening market conditions in the U.K. and ongoing federal funding challenges, how are these factors impacting CDW's overall performance, and what measures are you taking to mitigate these risks and achieve your growth targets?
- As customers, particularly in the SMB and mid-market segments, accelerate their shift toward cloud solutions over on-premise upgrades, how is CDW adapting its business model to address this trend, and what impact do you expect on your traditional hardware and infrastructure sales?
Past Guidance
Q2 2024 Earnings Call
- Issued Period: Q2 2024
- Guided Period: FY 2024
- Guidance:
- Gross Margin: Expected to be similar to the full year 2023 and the first half of 2024.
- Non-GAAP Earnings Per Diluted Share: Expected to be flat to up slightly year-over-year.
- Gross Profit Growth: Anticipated flat to low single-digit growth for the full year.
- Seasonality: Expected to be roughly in line with historical levels, with the first half contributing approximately 48% of net sales and gross profit.
- Adjusted Free Cash Flow: Expected to be in the range of 80% to 90% of non-GAAP net income for the full year.
- Third Quarter Gross Profit Growth: Anticipated low single-digit growth compared to the prior year.
- Third Quarter Operating Expenses: Expected to be moderately higher than Q3 2023 on a dollar basis, but at a similar ratio relative to gross profit.
- Third Quarter Non-GAAP Earnings Per Diluted Share: Expected to grow in the mid-single-digit range year-over-year.
- Fourth Quarter: Expected to be meaningfully lower compared to the third quarter, due to seasonally lower demand from education and government customers .
Q1 2024 Earnings Call
- Issued Period: Q1 2024
- Guided Period: FY 2024
- Guidance:
- U.S. IT Market Growth: Expected to be in the low single digits, with CDW targeting to grow 200 to 300 basis points above the market.
- Full Year Gross Profit Growth: Expected to be in the low single-digit range.
- Full Year Gross Margin: Expected to be similar to the full year 2023.
- Full Year Non-GAAP Earnings Per Diluted Share: Expected to be up in the low single digits year-over-year.
- Second Quarter Gross Profit Growth: Anticipated to be in the low single-digit range compared to the prior year.
- Second Quarter Operating Expenses: Expected to be moderately higher than Q2 2023 on a dollar basis.
- Second Quarter Non-GAAP Earnings Per Diluted Share Growth: Expected to be in the low single-digit range year-over-year.
- Adjusted Free Cash Flow for 2024: Expected to be in the range of 80% to 90% of non-GAAP net income.
- Capital Allocation: Committed to returning 50% to 75% of adjusted free cash flow to shareholders via dividends and share repurchases.
- Net Leverage Ratio: Targeted to be within the range of 2 to 3x .
Q4 2023 Earnings Call
- Issued Period: Q4 2023
- Guided Period: FY 2024
- Guidance:
- IT Market Growth: Expected to grow by low single digits in 2024.
- Market Share Gain: Aiming to gain 200 to 300 basis points of market share.
- Gross Profit Growth: Expected low to mid-single-digit growth.
- Non-GAAP Earnings Per Diluted Share: Anticipated mid-single-digit increase year-over-year.
- Adjusted Free Cash Flow: Expected to be in the range of 80% to 90% of non-GAAP net income.
- First Quarter 2024 Guidance:
- Gross Margin: Expected to be comparable to 2023's level.
- Operating Expenses: Expected to be higher at the beginning of 2024.
- Non-GAAP Earnings Per Diluted Share: Expected to be in the low to mid-single-digit range year-over-year for the first quarter .
Q3 2024 Earnings Call
- Issued Period: Q3 2024
- Guided Period: N/A
- Guidance: The documents do not provide information about CDW's guidance from the Q3 2024 earnings call. The available information is from the Q2 2024 earnings call.
Competitors
Competitors mentioned in the company's latest 10K filing.
- Hardware resellers
- Manufacturers who sell directly to customers
- Large service providers and system integrators
- Communications service providers
- Cloud providers
- E-commerce companies
- Office supply retailers
These competitors are mentioned in the context of CDW's competitive landscape, which is expected to evolve with new technologies and consumption models such as cloud-based solutions, hyper-converged infrastructure, and embedded software solutions .