Executive Summary / Key Takeaways

• CDW demonstrated resilience and strategic execution in Q1 2025, delivering solid revenue, gross profit, and non-GAAP EPS growth driven by strength in client devices, software, and services across diverse end markets, notably Public sector healthcare and education.
• The company's strategic focus on high-growth, high-relevance areas like cloud, security, AI, and integrated services, including the acquisition of Mission Cloud Services, is enhancing its value proposition and driving growth in netted-down revenue streams, which reached a record 36.5% of gross profit in Q1.
• CDW maintains its full-year 2025 outlook for the US IT market to grow in the low-single-digits on a customer spend basis, targeting a CDW growth premium of 200 to 300 basis points, underpinned by cautious optimism and anticipated leveling demand in solutions hardware.
• Despite facing headwinds from macroeconomic uncertainty, elongated sales cycles, public sector funding friction, and intense competition, CDW leverages its balanced portfolio, technical expertise (including 10,850 customer-facing coworkers), and financial discipline to gain market share and maintain profitability.
• Strong cash flow generation and a flexible capital structure support shareholder returns, with the company targeting 50-75% of adjusted free cash flow for dividends and share repurchases, alongside opportunistic M&A.

The Resilient Architect of Hybrid IT Solutions

CDW Corporation, a Fortune 500 company and member of the S&P 500 Index, has evolved significantly since its founding in 1984 as CDW Computer Centers, Inc. What began as a provider of discrete hardware and software products has transformed into a leading multi-brand provider of integrated information technology solutions and services. This strategic evolution, marked by expanding capabilities in on-premise, cloud, and hybrid infrastructure, digital experience, and security, positions CDW as a critical partner for businesses, government agencies, educational institutions, and healthcare organizations across the United States, the United Kingdom, and Canada.

The company operates through a balanced portfolio of customer end-markets: Corporate (large US private sector), Small Business (small US private sector), Public (US government, education, healthcare), and Other (UK and Canada). This diversification is a foundational strength, helping to offset varied performance across sectors influenced by distinct economic and external factors. CDW's core strategy revolves around a three-part framework: acquiring new customers and capturing share, enhancing solution capabilities, and expanding services capabilities. This strategy is executed through approximately 10,850 customer-facing coworkers, including sellers, specialists, and engineers, who deliver solutions from over 1,000 leading and emerging brands.

In a complex and often uncertain IT landscape, CDW differentiates itself through its vendor, technology, and consumption model unbiased approach. This allows the company to architect and implement full-stack, multi-branded solutions tailored to customer needs. A key differentiator lies in its deep technical and industry expertise, supported by a significant workforce of technical professionals. This expertise enables CDW to move beyond transactional sales to become a trusted advisor, particularly valuable as customers navigate the complexities of cloud adoption, cybersecurity threats, and the emerging potential of AI. Despite lacking proprietary, quantifiable technology differentiators, CDW holds an estimated 15-20% aggregate market share in its primary markets, outpacing the industry average growth, suggesting its model resonates with customers.

The competitive landscape is dynamic, featuring large distributors like TD SYNNEX (SNX), global consulting firms like Accenture (ACN), and peer IT solution providers like Insight Enterprises (NSIT). CDW's model, blending value-added reselling with integrated services, positions it uniquely. Compared to distributors, CDW offers significantly higher gross margins (TTM 21.86% vs. SNX TTM 7%) and deeper technical engagement, enabling faster project delivery and stronger customer loyalty. While consulting giants like Accenture command higher margins (TTM Gross 33%), CDW's approach often provides more cost-effective integrated solutions, particularly for mid-market clients. CDW's scale and extensive partner relationships also act as significant barriers to entry for smaller players. However, the company faces pressure from competitors pursuing aggressive pricing, particularly in transactional hardware deals, and must continuously innovate to keep pace with the advanced capabilities offered by some consulting firms and direct cloud providers.

Strategic Investments Fueling Performance

CDW's strategic investments are directly shaping its financial performance and competitive standing. Over the past five years, the company has focused on building capabilities in high-growth, high-relevance areas. Cloud adoption and optimization, cybersecurity, IT workflow optimization, and AI expertise are central to this effort. Recent investments have emphasized embedding services throughout the portfolio, recognizing their vital role in interconnected solutions.

A notable strategic move was the acquisition of Mission Cloud Services on November 27, 2024, for a base purchase price of $330 million. As a premier AWS partner and leader in cloud adoption and migration, Mission complements CDW's existing services and as-a-service offerings. It brings capabilities in cloud migration, full-stack and cloud-native software development, DevOps engineering, consulting, and cloud-based workflow automation. This acquisition expands CDW's AWS Connect opportunities and provides managed services via the AWS Marketplace, allowing customers to utilize their cloud commitments. This enhances CDW's ability to deliver mission-critical outcomes, particularly in cloud and AI-driven projects.

The company's focus on deepening technical and industry expertise is exemplified by its investments in areas like Healthcare. CDW's Healthcare transformation centers, equipped with the latest technology and staffed by experts, allow healthcare organizations to explore, develop, and test customized solutions. These centers aim to deliver measurable clinical outcomes, such as reduced readmission rates and enhanced patient satisfaction, by leveraging technologies like AI and IoT for real-time data access, advanced analytics, and streamlined care coordination. This blend of deep industry knowledge and technological capability strengthens CDW's trusted advisor role and drives higher-value engagements.

The evolution of the IT consumption model towards "as a service" offerings, including SaaS and IaaS, is a significant trend that CDW is actively capitalizing on. These solutions, often prioritized by customers for operating efficiency and expense elasticity, contribute significantly to CDW's netted-down revenue. This category, where CDW acts as an agent, reached a record 36.5% of gross profit in Q1 2025, up from 35.1% in the prior year period. This trend is expected to continue outpacing the growth of the overall portfolio, driven by strong cloud infrastructure and SaaS demand. While this shift can impact reported net sales growth (as revenue is recognized net), it bolsters gross profit and contributes to more durable revenue streams.

Navigating Dynamics: Recent Performance and Financial Health

CDW's performance in the first quarter of 2025 reflects the interplay of strategic execution and prevailing market dynamics. Net sales increased by 6.7% year-over-year to $5,199.1 million, with average daily sales up 8%. This growth was primarily driven by customer demand for notebooks/mobile devices, desktops, software, and services, partially offset by declines in certain hardware categories like NetComm and storage. Management noted improved customer spending in certain end-markets despite persistent economic uncertainty.

Gross profit grew by 5.5% to $1,122.3 million. The gross profit margin slightly decreased by 20 basis points to 21.6%. This margin dynamic was influenced by an increased mix towards lower-margin client devices, which was largely offset by the higher contribution from netted-down revenue. Selling and administrative expenses increased by 3.5% to $760.9 million, primarily due to higher performance-based compensation, transformation costs, and acquisition-related intangible amortization, partially offset by lower coworker-related costs. This resulted in operating income increasing by 10.2% to $361.4 million. Non-GAAP operating income rose 10% to $444.0 million, yielding a non-GAAP operating income margin of 8.5%.

Net income for the quarter was $224.9 million, up 4.1% year-over-year. Diluted earnings per share were $1.69, up from $1.59 in Q1 2024. Non-GAAP net income was $286.5 million, up 9.9%, leading to non-GAAP diluted earnings per share of $2.15, an increase of 11.9%. The higher effective income tax rate in Q1 2025 (26.0%) compared to Q1 2024 (21.9%) primarily contributed to the difference between net income and non-GAAP net income growth rates.

From a segment perspective, all operating segments posted average daily sales growth in Q1 2025. Corporate and Small Business saw strong and balanced commercial performance. The Public segment was a standout, increasing 10.6% on an ADS basis, driven by Healthcare (up 20%) and Education (up 11%), while Government increased slightly. The "Other" segment (UK and Canada) also grew 9.5% on an ADS basis, led by the UK.

CDW maintains a strong liquidity position. As of March 31, 2025, the company had $471.4 million in cash and cash equivalents and $216.7 million in short-term investments. Availability under the revolving credit facility stood at $1.3 billion. Total unsecured indebtedness was $5.9 billion, with net debt at approximately $5.2 billion, within the company's targeted net leverage range of 2-3x. The company was in compliance with all debt covenants.

Cash flow generation remains robust, though operating cash flow in Q1 2025 ($287.2 million) decreased compared to Q1 2024 ($440.0 million). This decrease was primarily attributed to changes in working capital, specifically increases in accounts receivable and merchandise inventory, partially offset by accounts payable. The cash conversion cycle decreased slightly to 15 days at March 31, 2025, from 16 days in the prior year, driven by lower days of supply in inventory. Days of sales outstanding and days of purchases outstanding increased, influenced by multi-year transactions and the timing effects of netted-down revenue. Net cash used in financing activities increased, primarily due to higher share repurchases ($200 million in Q1 2025 vs. $52.1 million in Q1 2024).

CDW's capital allocation strategy prioritizes increasing the dividend (targeting ~25% payout ratio of non-GAAP net income), maintaining the right capital structure, and returning 50-75% of adjusted free cash flow to shareholders via dividends and share repurchases. The company also opportunistically evaluates M&A. The recent $750 million increase to the share repurchase authorization underscores the commitment to shareholder returns, leveraging strong free cash flow generation.

Outlook and Future Trajectory

Looking ahead, CDW maintains its full-year 2025 outlook, reflecting a balance between the better-than-expected Q1 results and a continued level of prudence regarding the market environment. The company anticipates the US IT market to grow in the low-single-digits on a customer spend basis and targets outperforming this market growth by 200 to 300 basis points.

This outlook is based on several assumptions. Management expects current market conditions, characterized by cautious customer sentiment, deliberation, elongated sales cycles, project scrutiny, and hesitancy on large projects, to persist in the near term. While underlying demand drivers like workload growth, security threats, aging client devices, and AI potential remain compelling, the pace of conversion is influenced by macroeconomic uncertainty and the complex technology landscape. The outlook specifically assumes frictional impacts in the government and education channels, which may need more time to adjust to recent government efficiency initiatives and budget priorities, and a level of general economic caution that could mute growth. It does not factor in recessionary conditions.

Based on the anticipated mix of products and solutions, CDW expects low-single-digit gross profit growth for the full year 2025. Gross margins are expected to remain relatively stable and within the range of 2024 levels, supported by the scaling of cloud, SaaS, and services businesses, balancing the prospect of a return to growth in solutions hardware. Full-year non-GAAP earnings per diluted share are projected to grow low-single-digits year-over-year, reflecting a focus on profitable growth and effective capital allocation.

For the second quarter of 2025, CDW anticipates mid to high-single-digit gross profit growth sequentially, leading to low-single-digit year-over-year growth. This forecast incorporates the estimated $100 million client device pull-forward into Q1 ahead of potential tariffs, as well as anticipated sub-seasonal spending in government and education. Q2 non-GAAP earnings per diluted share are expected to grow at a mid-teens rate sequentially, reaching a level nearly flat with Q2 2024.

While the outlook is prudent, management is cautiously optimistic about 2025 as a potential inflection point for the demand cycle. They anticipate leveling demand for solutions hardware, including areas like NetComm, as customers complete digestion cycles and face easier year-over-year comparisons. The strength in client devices, driven by refresh needs and the Windows 10 (MSFT) expiration, is expected to continue, with AI PCs potentially providing further acceleration next year. The durable growth trends in cloud, security, and services are also expected to persist, offering opportunities for cost optimization and offsetting capital investments.

Risks and Considerations

Despite the positive momentum in Q1 and the maintained outlook, several risks and challenges could impact CDW's performance and the investment thesis. General economic conditions remain a key factor, with ongoing uncertainty around global trade, inflation, and interest rates potentially affecting customer spending. Changes in government, healthcare, and education spending policies and funding levels could also influence purchasing.

Technology complexity and the rapid evolution of the landscape contribute to elongated sales cycles and project delays, particularly for large infrastructure investments. The market is also experiencing unprecedented hardware cyclicality, stemming from pandemic-era demand and subsequent digestion, which continues to pressure certain product categories. Heightened competition and increased pricing intensity across all end markets, including instances of what management described as "irrational pricing" from competitors, could impact margins if CDW deviates from its financial discipline.

Specific headwinds include potential frictional impacts and slower decision-making in the federal government sector due to new policy priorities and budget adjustments. The UK market also faces ongoing volatility and pressure driven by macroeconomic and political uncertainty. Legal proceedings, such as the DOJ's Civil Investigative Demand related to E-Rate Program bids, introduce potential uncertainty, although the company is cooperating and currently unable to assess the probability or range of potential loss.

CDW's strategy to mitigate these risks involves leveraging its diversified portfolio, focusing on high-growth/high-relevance solutions and services (cloud, security, AI), maintaining financial discipline, accelerating digital capabilities, and deepening technical/industry expertise to reinforce its trusted advisor role. The company's ability to help customers optimize spend and navigate complexity in the current environment is crucial to sustaining performance.

Conclusion

CDW Corporation's first quarter 2025 results underscore the strength of its strategic execution and the resilience of its business model in a cautious IT spending environment. By successfully leveraging its balanced portfolio, deep technical expertise, and investments in high-growth areas like cloud, security, and services, the company delivered solid top-line and profitability growth, outpacing the broader market. The record contribution from netted-down revenue highlights the successful pivot towards consumption-based and service-oriented solutions, aligning with evolving customer priorities for efficiency and cost optimization.

While macroeconomic uncertainty, public sector friction, and competitive pressures persist, CDW's maintained full-year outlook, targeting a significant growth premium over the market, signals confidence in its ability to capture demand driven by fundamental IT needs and emerging technologies like AI. The company's strong financial health, robust cash flow generation, and commitment to shareholder returns provide a solid foundation. For investors, CDW represents a compelling opportunity to participate in the ongoing transformation of the IT landscape, backed by a proven operator capable of navigating complexity and capitalizing on strategic growth vectors, even as the market awaits a broader recovery in capital spending.