CDW Corp (CDW) Q3 2025 Earnings Summary

Executive Summary

EPS beat on margin mix and services strength while revenue was in line/slightly below: Non-GAAP EPS $2.71 vs. $2.62 consensus (+3% YoY) and revenue $5.74B vs. $5.75B consensus; gross margin expanded 110 bps QoQ to 21.9% as netted-down/cloud/services mix rose . EPS est/act from S&P Global: $2.62 est., $2.71 act.; revenue est. $5.749B, act. $5.737B*
Segment trends mixed: Small Business +14% YoY, Corporate +4%, Government +7.8%, Healthcare +6.9%, Education -8.5%, UK/Canada (“Other”) +9.1%; services up 9% and contributed ~one-third of gross profit growth .
FY outlook maintained: target outgrow US IT spend by 200–300 bps; 2025 gross margin roughly consistent with 2024; low-to-mid single-digit GP growth; FY non-GAAP EPS up low single digits; Q4 modeled as down slightly YoY and sequential on EPS with higher SG&A/GP% .
Capital returns: dividend raised 1% to $0.630/share (12th consecutive increase) and YTD $747M returned (112% of adjusted FCF); net leverage 2.5x; liquidity ~$1.8B cash+revolver .
Stock narrative/catalysts: durable services/cloud/security mix and AI engagement vs. prudence on public/federal shutdown and uneven infrastructure spend; continued emphasis on outgrowing the market and cash conversion (CCC 11 days) .

What Went Well and What Went Wrong

What Went Well

Services and cloud/security mix drove margins: gross margin 21.9% (+110 bps QoQ) on higher netted‑down revenue and strong managed/professional services (services +14% within +9% services top-line) .
SMB and International outperformance: Small Business net sales +14.2% YoY; UK/Canada combined +9.1% YoY with profitability growing faster than net sales .
Clear strategic positioning and AI momentum: “We made progress on our company‑wide evolution to embed AI into the core of how we operate, serve and grow,” including conversational AI on cdw.com and intelligent agents; AI customer wins highlighted in prepared remarks .

What Went Wrong

Operating leverage absent despite GP growth: GAAP operating income down 8% YoY, non‑GAAP operating income down 0.6% YoY; SG&A up 12.9% YoY (comp, transformation, amortization), with non‑GAAP SG&A/GP at 57.7% (above 55–56% “sweet spot”) .
Public/Education softness and infrastructure lumpiness: Education net sales -8.5% YoY; infrastructure/storage demand remained uneven after Q2 strength .
Conservative near‑term setup: management modeling Q4 EPS down slightly YoY and sequentially amid federal shutdown friction, higher SG&A/GP%, and macro/geopolitical uncertainty .

Financial Results

Headline metrics vs. prior periods

Metric	Q3 2024	Q2 2025	Q3 2025
Revenue ($USD Millions)	$5,516.6	$5,976.6	$5,737.4
Gross Profit ($USD Millions)	$1,200.7	$1,241.2	$1,255.5
Gross Margin %	21 cbp: 21.8%	20.8%	21.9%
Operating Income ($USD Millions)	$481.6	$420.2	$443.3
Operating Margin %	8.7%	7.0%	7.7%
Non‑GAAP Op. Income ($USD Millions)	$534.0	$519.7	$530.6
Non‑GAAP Op. Margin %	9.7%	8.7%	9.2%
GAAP Diluted EPS ($)	$2.34	$2.05	$2.21
Non‑GAAP Diluted EPS ($)	$2.63	$2.60	$2.71

Q3 2025 vs. S&P Global consensus

Metric	Q3 2025 Estimate	Q3 2025 Actual	Beat/Miss
Revenue ($USD Billions)	$5.749*	$5.737	Slight miss (~$0.012B)*
Non‑GAAP EPS ($)	$2.62*	$2.71	Beat (~$0.09)*
EBITDA ($USD Millions)	$559.1*	$519.3*	Miss (~$39.8)*

*Values retrieved from S&P Global.

Segment net sales trends

Segment ($USD Millions)	Q3 2024	Q2 2025	Q3 2025
Corporate	$2,161.2	$2,581.5	$2,255.4
Small Business	$379.7	$431.3	$433.8
Government	$691.0	$656.5	$744.7
Education	$995.7	$906.7	$911.2
Healthcare	$649.0	$728.5	$693.9
Other (UK+Canada)	$640.0	$672.1	$698.4
Total	$5,516.6	$5,976.6	$5,737.4

KPIs and balance sheet/cash

KPI	Q1 2025	Q2 2025	Q3 2025
Gross Margin %	21.6%	20.8%	21.9%
Non‑GAAP Op. Margin %	8.5%	8.7%	9.2%
Weighted Avg. Diluted Shares (MM)	133.5	132.4	131.8
Net Debt ($MM)	5,164.9	5,151.7	5,175.9
Cash + Revolver Availability ($MM)	1,736.4	1,694.1	1,757.3
Cash Conversion Cycle (days)	15	16	11

Non‑GAAP adjustments include amortization of intangibles, equity‑based comp, transformation initiatives, acquisition & integration, and workplace optimization (see reconciliations) .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
US IT market growth (customer spend basis)	FY25	Low single digits	Low single digits	Maintained
CDW outperformance vs. market	FY25	+200–300 bps	+200–300 bps	Maintained
Gross margin vs. 2024	FY25	Roughly consistent with 2024	Roughly consistent with 2024	Maintained
Gross profit growth	FY25	Low to mid single digits; 2H slightly > 1H, below 48/52 split	Same	Maintained
Non‑GAAP EPS growth	FY25	Low single digits YoY	Low single digits YoY	Maintained
Q4 gross profit	Q4‑25	—	YoY low to mid single‑digit growth; down low to mid single‑digits QoQ	New modeling color
Q4 non‑GAAP SG&A/GP	Q4‑25	—	Higher than Q4‑24 and Q3‑25	New modeling color
Q4 non‑GAAP EPS trend	Q4‑25	—	Down slightly YoY and sequentially	New modeling color
Quarterly dividend	Q4‑25	$0.625/share (Aug’25)	$0.630/share (+1%)	Raised

Earnings Call Themes & Trends

Topic	Previous Mentions (Q2 & Q1)	Current Period (Q3 2025)	Trend
AI/technology initiatives	Focus on complex infrastructure, client refresh; cloud/security emphasis	Embedding AI across operations (conversational AI, intelligent agents); customer AI deployments highlighted	Accelerating
Client devices cycle	Client device refresh supported topline in Q1/Q2	Healthy growth; in “6th inning”; AI PCs rising as tailwind	Durable near‑term
Services mix	Services growing contribution (implied in GP resilience)	Services +9% top line; managed/professional +14%; ~one‑third of GP growth	Positive mix shift
Public sector	Q2: Public +2.2% with strong Healthcare; Education weaker	Federal shutdown friction; conservative Q4 stance; Gov +7.8% YoY in Q3	Cautious
Healthcare	Q1/Q2 strong healthcare growth	7% top-line growth; watch funding/Medicare exposure	Watch
International (UK/Canada)	Q2: +11.6%	Q3: +9.1% with profitability > net sales	Consistently strong
Macro/tariffs	Cited dynamic environment	Ongoing macro, tariffs, geopolitical uncertainty; prudence in outlook	Persistent headwind

Management Commentary

CEO: “The team delivered resilient performance in Q3 as we continued to guide customers through evolving market dynamics and deliver mission critical outcomes across the full IT stack and lifecycle” .
CFO: “Gross margin… up meaningfully 110 basis points quarter over quarter driven by… higher mix of netted down revenues, continued strong growth in services and a slight mix out of client devices sequentially” .
Strategy & AI: “We made progress on our company‑wide evolution to embed AI into the core of how we operate, serve and grow… embedding AI across the enterprise” .
Capital returns: “Announcing an approximately 1% increase in our dividend to $2.52 annually… twelfth consecutive year of an increase” .
Go‑to‑market alignment: CDW announced leadership changes to integrate growth/innovation with services & solutions, aiming to “amplify CDW’s go‑to‑market strategy” .

Q&A Highlights

Federal shutdown impact: Management assumes shutdown persists through Q4; pipeline/backlog supports some activity, but guide is conservative; historically more of a timing shift than lost sales .
SMB momentum: SMB growth +14% YoY driven by resilience and tech adoption; management cautious on extrapolating SMB trends to other segments .
PC cycle and AI PCs: Still healthy demand; late‑mid innings (around 6th); AI PCs picking up and viewed as a tailwind over next few quarters .
Operating leverage path: Variable comp compares distort 2025; to return to 10%+ EPS growth requires sustained GP growth, stable/improving margins, and expense leverage back to 55–56% SG&A/GP range .
Infrastructure lumpiness: Enterprise solutions projects uneven amid macro/geopolitical uncertainty; Q2 strength followed by softer Q3; refresh still “inevitable” but timing choppy .

Estimates Context

Q3 2025 EPS beat; revenue roughly in line/slightly below: Non‑GAAP EPS $2.71 vs. $2.62 est.; revenue $5.737B vs. $5.749B est.; EBITDA below est. ($519M vs. $559M)*. Results suggest mix and margin outperformance offset muted infrastructure hardware and Education softness .
Intra‑year trend vs. estimates: CDW beat Q1 and Q2 consensus EPS and revenue as well (Q1: $2.15 vs. $1.96 EPS est.; $5.199B vs. $4.936B revenue est.; Q2: $2.60 vs. $2.49 EPS est.; $5.977B vs. $5.512B revenue est.)*.
Implications: Management’s conservative Q4 EPS commentary (down slightly YoY and sequentially) could prompt modest downward revisions to near‑term EPS, while services/cloud mix and margin stability support 2026 trajectory .
*Values retrieved from S&P Global.

Key Takeaways for Investors

Mix tailwinds intact: Services/cloud/security and netted‑down revenue expanded gross margin QoQ despite choppy infrastructure demand, enabling an EPS beat on slightly softer revenue .
End‑market divergence persists: SMB and UK/Canada strong; Education softer; Government resilient ex‑shutdown; investors should focus on exposure to segments with clearer funding/visibility .
Near‑term prudence: Q4 modeled down slightly on EPS with higher SG&A/GP%; federal shutdown and macro/tariff wildcards argue for conservative near‑term expectations .
Cash flow discipline: CCC improved to 11 days; liquidity ~$1.8B; dividend increased with a ~25% payout target of non‑GAAP NI—a supportive total‑return profile .
2025 playbook unchanged: Maintain outgrowth premium (200–300 bps) and margin consistency vs. 2024; monitor whether services momentum sustains expense leverage back to 55–56% SG&A/GP .
2026 setup: If infrastructure project cadence normalizes and AI/PC tailwinds persist, operating leverage could re‑emerge toward the historical algorithm, contingent on macro stabilization .