July 31, 2024

Participants: Chris Leahy (CEO), Al Miralles (CFO), Steve O’Brien (Investor Relations)

Overview of Performance

CDW reported its second-quarter results for 2024, highlighting a cautious market environment characterized by elongated sales cycles and a focus on cost savings. The company faced challenges in specific end markets, particularly in the UK and federal funding sectors.

• Net Sales: $5.4 billion (down 3.6% year-over-year)
• Gross Profit: $1.2 billion (flat year-over-year)
• Gross Margin: 21.8% (up 80 basis points)
• Non-GAAP Operating Income: $510 million (down 3.7%)
• Non-GAAP Earnings Per Share: $2.50 (down 2.6%)

Key Performance Drivers

1. End Market Dynamics:
   • Corporate sales declined by 2%, but cloud and security solutions supported profitability.
   • Small business sales also fell by 3%, with a focus on cost-effective software and cloud solutions.
   • Government sales decreased by 2%, with federal sales down 6% due to delayed budget authorizations.
   • Healthcare sales were flat, while education sales declined by roughly 1%.
2. Product Performance:
   • Client devices saw low double-digit growth, while storage increased by double digits.
   • Networking and collaboration hardware continued to decline as customers postponed investments.
3. International Operations:
   • UK and Canadian operations reported a 13% decline, with UK sales down in the high teens.

CEO Comments

Chris Leahy emphasized the importance of CDW’s role as a trusted adviser in a challenging market. He noted that while the demand environment remains cautious, the company is well-positioned to help customers navigate their technology roadmaps.

• Market Outlook: Leahy stated that current market conditions are expected to persist, with no significant improvement anticipated in the second half of 2024. He highlighted the need for clarity and confidence among customers regarding economic conditions and technology investments.
• Strategic Focus: The company continues to prioritize cloud, security, and services, which have shown strong growth. Leahy shared an example of a successful engagement with an insurance company that required a cloud-based solution, resulting in significant revenue for CDW.

CFO Comments

Al Miralles provided detailed financial insights, noting that gross profit was slightly below expectations due to lower demand for certain hardware categories.

• Financial Metrics:
  • Non-GAAP SG&A expenses totaled $673 million (up 3.2% year-over-year).
  • Adjusted free cash flow was $138.4 million for the quarter, with a year-to-date total of $503 million.
• Capital Allocation: Miralles outlined the company’s commitment to returning 50% to 75% of adjusted free cash flow to shareholders through dividends and share repurchases. The company repurchased approximately $202 million in shares and paid $83 million in dividends during the quarter.
• 2024 Outlook: The company expects flat-to-low single-digit gross profit growth for the full year, reflecting the slow start to 2024 and the anticipated lack of recovery in federal spending.

Conclusion

CDW’s Q2 2024 earnings call highlighted the company’s resilience in a challenging market environment, with a focus on strategic investments in cloud and security solutions. While the outlook remains cautious, CDW is committed to delivering value to its customers and maintaining strong financial performance.