CDW Corporation (CDW) Q4 2025 Earnings Call Transcript

CDW Corporation (NASDAQ: CDW) Q4 2025 Earnings Call dated Feb. 04, 2026

Corporate Participants:

Steven O’Brien — Senior Vice President, Investor Relations

Chris Leahy — Chair and Chief Executive Officer

Al Miralles — Chief Financial Officer and Executive Vice President, Enterprise Business Operations

Analysts:

David Vogt — Analyst

Adam Tindle — Analyst

Amit Daryanani — Analyst

Erik Woodring — Analyst

Ruplu Bhattacharya — Analyst

Keith Housum — Analyst

Presentation:

operator

Hello everyone and thank you for joining the CDW fourth quarter 2025 earnings call. My name is Gabrielle and I will be coordinating your call today. During the presentation, you can register a question by pressing Star followed by one on your telephone keypad. If you change your mind, please press Star followed by two on your telephone keypad. Please kindly limit yourself to one question and one follow up. If you have any further questions, please rejoin the queue. I will now hand over to your host Steven O’Brien with Investors Relations. Please go ahead.

Steven O’Brien — Senior Vice President, Investor Relations

Thank you, Gabby and good morning everyone. Joining me today to review our fourth quarter and full year 2025 results are Chris Leahy, our Chair and Chief Executive Officer Officer, and Al Miralles, our Chief Financial Officer. Our earnings release was distributed this morning and is available on our website investor.cdw.com along with supplemental slides that you can use to follow along during this call. I’d like to remind you that certain comments made in this presentation are considered forward looking statements under the Private Securities Litigation Reform act of 1995. Those statements are subject to a number of risks and uncertainties that could cause actual results to differ materially.

Additional information concerning these risks and uncertainties is contained in the earnings release and Form 8K we furnished to the SEC today and in the Company’s other filings with the sec. CDW assumes no obligation to update the information presented during this webcast. Our presentation also includes certain non GAAP financial measures, including non GAAP operating income, non GAAP operating income margin, non GAAP net Income and non GAAP earnings per share. All non GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules. You’ll find reconciliation charts in the slides for today’s webcast and in our Earnings Release and Form 8K.

Please note all references to growth rates or dollar amounts Changes in our remarks today are versus the comparable period in 2024 with net sales growth rates described on an average daily basis unless otherwise indicated. Replay of this webcast will be posted to our website later today. I want to remind you that this conference call is the property of CDW and may not be recorded or rebroadcast without specific written permission from the company. With that, let me turn the call over to Chris.

Chris Leahy — Chair and Chief Executive Officer

Thank you Steve Good morning everyone. I’ll begin our call with an overview of our fourth quarter and full year performance and share some thoughts on our strategic progress and expectations expectations for 2026. Then I’ll hand it over to Al who will take you through a more detailed review of the financials as well as our capital allocation strategy and outlook. We’ll move quickly through our prepared remarks to ensure we have plenty of time for questions. The team delivered a strong finish to a complex year and fourth quarter results exceeded our expectations. Results that demonstrate the resilience of our business model, committed execution and power of our strategy.

For the quarter, the team delivered net sales of $5.5 billion, up 5%, gross profit of $1.25 billion, up 9%, non GAAP operating income of $503 million, up 1% and non GAAP net income per share of $2.57, up 4% over 2024. Customers remained laser focused on operating efficiency and cost leverage. Must do priorities also included client devices, servers and security. To help customers address these priorities, the team delivered solutions and services that drew on our deep architectural and technical expertise and drove strong double digit growth across software, cloud and professional services. Higher margin categories that contributed to our strongest gross margin of the year.

Turning to the Full year results, 2025 performance was driven by our clear strategy and disciplined investments. Delivered in the face of remarkable complexity, 2025 was a year that tested every part of our company. We managed through uncertainty around tariffs, unexpected shifts in education and health care funding, significant changes in government spending priorities and the longest federal government shutdown on record factors that shaped customer buying behaviors in unconventional ways. We stayed focused, adapted quickly and continued advancing our strategy. The team executed with precision and leaned into their deep end market expertise and durable client relationships to help customers address their unique challenges.

For the year, the team delivered over $22 billion in net sales, up 7%, gross profit of nearly $5 billion, up 6% nearly $2 billion of non GAAP operating income up 3% and record non GAAP net income per share of $10.02 up 5% performance that generated $1.1 billion in adjusted free cash flow that we used to fund our capital allocation priorities, including the return $1 billion to shareholders via dividends and share repurchases, as well as a capability enhancing tuck in acquisition during the fourth quarter. Now let’s take a deeper look at how meeting customer needs drove our fourth quarter results.

As always, there were three drivers of performance our diverse portfolio of customer end markets, the breadth of our product solutions and services portfolio and the relentless execution of our three part strategy for growth. First, our diverse customer end markets. As you know, we have five US Customer channels Corporate, Small business, Healthcare, Government and Education. Each channel is a meaningful billion dollar plus per year business on its own. Within Each channel teams are further segmented to focus on customer end markets including geographies and verticals. We also have our UK and Canadian operations which together delivered sales of US$2.7 billion in 20.

Once again the power of our diverse customer end markets was evident as strong double digit performance in both small business and state and local more than offset expected federal headwinds from the government shutdown. Corporate top line was relatively flat year over year down 1% with strong cloud adoption offset by slowing hardware solutions and the expected moderation in Windows 11 refresh activity. Exceptional small business growth of 18% was fueled by cloud consumption and related services and continued activity in client device modernization investments that underpin focus on innovative AI opportunities. Our international operations UK and Canada reported together as other delivered high single digit growth within the challenging market.

In our public business, healthcare increased by 5% on top of last year’s exceptional performance. Government increased by 4% as strong double digit growth in state and local more than offset the expected decline in federal due to the extended shutdown. K12 deep customer and partner relationships combined with our lifecycle services capabilities drove a major Chromebook solutions rollout with New York City Department of Education. This together with solid growth in higher ed delivered a strong 13% increase in education Top line the diversity of our customer end markets was clearly a driver of fourth quarter performance. The second driver of performance is our broad and deep portfolio of solutions and services.

This quarter our full stack full lifecycle offering enabled us to meet the diverse customer priorities across our end market portfolio performance was led by cloud and professional managed services. Cloud remains a major engine of performance contributing roughly half of the quarter’s gross profit growth. Both cloud revenue and gross profit rose at strong double digit rates fueled in part by accelerating demand for cloud enabled AI solutions. Professional and managed services top line increased double digits driven by hybrid infrastructure engagements targeting expense savings and budget optimization, implementation of AI powered customer care and customer experience solutions and agentic AI engagements.

Hardware increased by 2% as double digit increases in notebooks and servers was offset by declines in storage. Towards the end of the quarter our teams helped customers navigate memory related price increases and announced future increases. Client devices showed continued growth up high single digits and growth reflected a variety of cross currents with the large education project and modest memory related pull in offset by the expected slowdown in Windows 11 refresh by enterprises and the 43 day government shutdown. Software performance was excellent, top line rose by 12% and gross profit even faster driven by cloud as well as in part by customers renewing software licenses tied to hybrid solutions that extend the life of their existing infrastructure.

Security remains a key priority across all of our customers, with top line and gross profit both up single digits. Security services remained strong, led by demand for vulnerability assessments, identity and access management, implementations and customer training, along with engagements focused on cloud deployment, endpoint and application security, and safe adoption of AI security solutions showcases how we embed services in every outcome. We deliver services that amplify and accelerate value for customers and partners alike. During the quarter, just as they did all year, the team did an exceptional job leveraging our deep expertise and broad portfolio of full stack full lifecycle solutions to address customers most pressing priorities and that leads to our third driver of results.

Relentless execution of our growth strategy. Our investments in high relevance high growth areas position CDW to deliver outcomes in a world where technology ecosystems are more dynamic and interconnected than ever. As choices multiply and risk rises, our value to customers and partners only grows in AI plays directly to our strengths. We have the architectural depth, partner reach and delivery scale to lead in the AI era and our services forward model sets us apart. Our AI offerings span strategy, data modernization, gen AI integration and automation and we’re rapidly expanding our offerings with repeatable scalable toolkits. As always, our portfolio is built around the customer.

Our vertical use cases map directly to desired end market outcomes from risk and fraud and clinical efficiency to student success, citizen services and merchandising. In parallel, our horizontal solutions address universal priorities such as employee and customer experience, operations, security and automation. Solutions like deployment, playbooks and managed offerings. No matter the model, services are built in from day one while still early AI momentum is building across every market we serve. Let me share two recent AI solutions, one from a large enterprise and one for a small business that bring this model to life. First, a large enterprise A large enterprise wanted to scale advanced AI capabilities within its hybrid data center environment to meet rising performance demands, manage data sensitivity and control the cost of public cloud AI workloads.

After a competitive RFP process, we earned the deal with a solution that leveraged our deep partnerships and our full stack full lifecycle approach. One of the largest enterprise deployments of next generation accelerated computer. The solution improves total cost of ownership with a potential 90 day payback, dramatically increases developer agility and reduces long term regulatory and data governance risk. This is the model emerging across our enterprise customers complex recurring margin accretive engagements where our integrated capabilities matter. While we help large enterprises implement full scale AI stack build outs, we also deliver solutions for smaller customers that embed AI directly into their workflows as a workforce multiplier.

A great example of this in action is the approach we use to help a fast growing multi location automobile service business whose lean IT team was struggling to support an expanding footprint. Our solution A modern IT service management platform that utilizes a generative AI virtual agent at the first line of support. The generative agent instantly resolves common questions, triages, tickets and services and services surfaces relevant knowledge in real time governance. Guardrails ensure safe handling of sensitive data delivering efficiency gains without added risk. Their IT team is holding headcount while shifting to higher value work. The kind of productivity led ROI customers want from AI and the entire engagement was delivered at an accessible price for a cost conscious customer.

Two great client stories that highlight our standout AI solutions, but with AI embedded across the entire stack. A key part of our AI story is that AI is not a discrete contributor, it is a pervasive one with results embedded in our hardware, software and services performance. And that brings us to our expectations for 2026. Today’s technology ecosystems are more dynamic, interconnected and mission critical than ever. At the same time, we continue to see unique dynamics in the public sector, including lingering impacts of last year’s government shutdown as well as economic and geopolitical conditions that continue to drive cautious customer behavior.

Against this backdrop, we currently look for the US IT addressable market to grow in the low single digits in 202026 on a customer spend basis with 200 to 300 basis points of CUW outperformance. Wildcards include meaningful changes in known ongoing exogenous factors which include public spending dynamics, tariffs and geopolitical risks as well as memory, pricing and supply. As always, we will provide updated perspective on business conditions and refine our view of the market as we move throughout the year. Regardless of market conditions, our priority is clear deliver sustainable profitable growth by deepening customer value, sharpening efficiency and deploying capital with discipline investing where we see the greatest strategic impact and long term returns.

We are operating in a complex yet exciting time with our full court press on strategy and team. With proven execution, we are well positioned to capture shareholders by delivering on our unique value proposition to customers and partners. Now let me turn it over to Al who will provide more detail on the financials and outlook. Al?

Al Miralles — Chief Financial Officer and Executive Vice President, Enterprise Business Operations

Thank you Chris and good morning everyone. I will start my prepared remarks with details on our fourth quarter performance, quickly recap 2025 as a whole, move to capital allocation priorities and then finish with our outlook for 2026. Fourth quarter gross profit of $1.3 billion was up 8.6% year over year. This was above our expectations for a low to mid single digit year over year increase as our teams captured growth in client devices alongside increased demand for software and services. While we saw some moderate levels of pull forward in the range of $50 million in net sales driven by memory related price increases and supply chain concerns, the overall impact to fourth quarter growth was minor.

Fourth quarter gross margin of 22.8% was up 50 basis points over the prior year’s fourth quarter gross margin was also up 90 basis points compared to the third quarter driven by the impact of a higher mix of netted down revenues, improved product margins and a slight mix set of client devices sequentially. Despite the category’s continued solid growth, the diversity of our end markets also served us well in this quarter. Government increased on the strength of state and local while federal modestly outperformed our expectations that had factored in a prolonged government shutdown. Small business and international continue to execute at a high level while education also posted solid growth with both K12 and higher ed finishing the year strong.

Healthcare also increased year over year despite the comparison to a prior year fourth quarter where sales increased 30% while corporate was relatively flat year over year. This was in line with our expectations and reflected both continued caution towards major capital investments in solutions, hardware and customers being further along with their Windows 11 related refresh programs compared to other channels. The diversity of our portfolio also served us well in the quarter. Demand for licensed software was strong and we saw robust growth in virtualization, application suites, network management and storage area management software as customers look to extend the useful life of their network and data center assets.

The need for and relevance of CDW’s professional and managed services continue to grow as reflected by net sales transferred over time. Were CDW’s principal increasing 11% year over year. Cloud SaaS and security offerings were particularly strong in the quarter. These are offerings included in the category of net sales transferred at a point in time where CDW is agent or netted down sales which increased 8%. Netted down revenues continue to represent an important and durable trend within our business representing 36.1% gross profit up from 35.8% in Q4 of 24 and up slightly from 36% in the third quarter.

Turning to expenses for the fourth quarter, non GAAP SGA totaled $752 million up 14.6% year over year and were consistent with our expectation that asymmetrical timing compared to 2024 would inflate the year over year growth comparison. This increase in expenses was primarily driven by commissions related to higher gross profit achievement and the impact of higher performance based expenses compared to the prior year. We continue to structurally align our business for stronger future expense leverage and we expect to make progress towards this in 2026 and deemed 2025 to be a normal baseline for comparative purposes. Coworker count at the end of the quarter was approximately 14,800 and customer facing coworker count was 10,500 both down slightly year over year and quarter over quarter.

Our goal is to balance growth, expansion of capabilities and exceptional customer experience with greater efficiency and cost leverage from a broader operations. Non GAAP operating income was approximately $502 million up 0.6% versus the prior year. Non GAAP operating income margin of 9.1% was down 50 basis points from the prior year fourth quarter level when expenses benefited from lower performance based compensation and coworker related costs. Debt interest expense was up roughly $2 million year over year and 3.5 million from the third quarter as we entered into a new expanded five year senior unsecured credit facility. Our non GAAP effective tax rate was moderately below the low end of our target range at 24.2%.

Non GAAP net income was $336 million in the quarter, up 0.9% on a year over year basis with fourth quarter weighted average diluted shares of 130.6 million. Non GAAP net income per diluted share with $2.57 up 3.8% versus the prior year period and above our prior expectation of down slightly year over year. Shifting gears to briefly review full year results. 2025 was a year of transition and a return to growth. Market demand was relatively in line with what we initially anticipated. While customer sentiment was cautious throughout the year, impacted by the twist in terms of economic policies, geopolitical issues and the early stages of many customers.

AI journeys through all of that. Our teams delivered for our customers and we’re proud of their execution in this environment. We grew net sales 6.8% and gross profit 5.9% during the year, holding gross margins reasonably flat at 21.7% again showing that even when client devices are higher in the mix and solutions hardware demand is uneven. Our margins remain resilient. Our non GAAP net income per diluted share increased 5.2%, breaking through the Duck$10 per share market, an all time record for CDW. Moving to the balance sheet at period end net debt was $5 billion, down roughly $165 million from the prior quarter Driven by increased cash and cash equivalents, liquidity increased under our new facility with cash plus revolver availability of approximately $2.5 billion.

The three month average cash conversion cycle was 16 days, slightly below our target range of high teens to low 20s. This cash conversion metric reflects our effective management of working capital, including disciplined management of our inventory levels even as hardware sales were firm and client device growth continued. As we’ve mentioned in the past, timing and market dynamics will influence working capital and the cash conversion cycle in any given quarter or year. We continue to believe our target cash conversion range remains the best guidepost for modeling working capital longer term adjusted free cash flow was an excellent $418 million in the quarter, bringing us to $1.09 billion for the full year.

This reflects 82% of non GAAP net income for the year. Within our stated rule of thumb of converting 80 to 90% of non GAAP net income to cash, we effectively utilize cash consistent with our 2025 capital allocation objectives during the quarter, including returning $153 million in share repurchases and $82 million in the form of dividends. As a reminder, we began 2025 targeting to return 50 to 75% of adjusted free cash flow to shareholders. We finished well ahead of that target, having returned nearly a billion dollars to shareholders or 90% of our adjusted free cash flow.

And that brings me to our capital allocation priorities moving forward. Our first capital priority is to increase the dividend in line with non GAAP net income growth. We announced on our last earnings call an approximately 1% increase in our dividend to $2.52 annually, our 12th consecutive year of an increase. We will continue to prudently manage our dividend with respect to the growth environment and target a roughly 25% payout ratio of non GAAP net income going forward. Our second priority is to ensure we have the right capital structure in place. We ended the fourth quarter at 2.4 times net leverage within our targeted range of 2 to 3 times.

We will continue to proactively manage liquidity while maintaining flexibility. Finally, our third and fourth capital allocation priorities of M and A and share repurchases remain important drivers of shareholder value. We continually evaluate M and A opportunities that could accelerate our three part strategy for growth as shown by our recent acquisition of the select assets of Lexicon Tech Solutions. This acquisition highlights their strategy of bolstering our end to end life cycle capabilities for education customers with the potential to broaden the applicability to our other channels down the road for 2026. We are maintaining our target to return 50 to 75% of adjusted free cash flow to shareholders via the dividend and share repurchases.

While we remain active in the M and A market. Our cash flow performance both in 2025 and what is expected for 2026 will allow us to be opportunistic towards share repurchases as we deem our stock to be attractive at this valuation. Customers have compelling needs to address priorities across the full IT stack, but this is balanced against the risk of supply chain and pricing challenges, ongoing geopolitical unrest and general economic uncertainty and caution, A new year does not wipe the slight claim, but it does give us a chance at a fresh perspective. On that note, ahead of our Q1 2026 earnings call, we’ll be updating the reporting of our customer channels.

As a brief preview, we’ve made changes to reflect our current go to market structure. With this you will see more information on government and education including gross profit and operating income for each. We will continue to disclose net sales for our health care and corporate channels and will additionally disclose net sales for our financial services vertical. These channels will be included in the segment we will be calling commercial. Small business will be integrated within the commercial segment and we will still maintain the preeminent small business support model in our industry and our small business teams will also be aligned to the areas of industry expertise.

While we’ve seen heightened uncertainty in recent years and 2025 was as dynamic a year as any, we believe we have navigated these complex environments with an appropriate level of prudence and precision. We believe that our updated go to market structure and the investments we’ve made to fortify this structure, we are set up for success in 2026 and beyond. Turning to our outlook, we will continue to deliver for our customers and partners and and as always, as the landscape changes throughout the year, we will provide you with updates each quarter with these factors in mind. Our full year 2026 expectation is for our addressable IT market to grow low single digits and we target market outperformance of 2 to 300 basis points on a customer spend basis.

With this, we expect gross profit to grow in the range of low single digits for the full year 2026 and we expect second half gross profit contribution to be slightly above the first half based on the anticipated mix of products and solutions for 2026, gross margins should be slightly higher than 2025 levels and remain well above rates from 3 plus years ago. Finally, we expect our full year non GAAP net income per diluted share to grow mid single digits year over year. As we focus on operating leverage and effective execution of our capital allocation priorities, please remember we hold ourselves accountable for delivering our financial outlook on a constant currency basis.

On that note, our expectation is for currency to be neutral to reported growth rates for the year. Moving to modeling thoughts for the first quarter, we anticipate gross profit to decline at a mid single digit rate sequentially leading to mid single digit year over year growth. We expect some demand to be pulled forward into Q1 to get ahead of price increases in certain memory intensive product categories. Separately, our first quarter view reflects an expected slow start to the year for the Federal Channel as pipeline rebuilds following last quarter’s government shutdown. Moving down the P and l We expect first quarter operating expenses to be down from the fourth quarter of 2025 on a dollar basis, whereas they are normally flat to up sequentially.

However, as we normally see, the first quarter operating margin will likely be at the lowest quarter quarterly level for the year. Finally, we expect the first quarter non GAAP net income per diluted share to be up mid single digits year over year. That concludes the financial summary. As always, we provide updated views on the macro environment and our business on our future results calls. With that I will ask the operator to open it up for questions and we would ask each of you to limit your questions to one with a brief follow up. Thank you.

Questions and Answers:

operator

Thank you very much. Al to ask a question please press Star followed by one on your telephone keypad. Now if you change your mind, please press Star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question is from David Vogt from UBS. Your line is now open. Please go ahead.

David Vogt

Great. Thanks guys for taking my question and appreciate all the details. Chris and Al So maybe Chris for you. Al talked about a little bit of a pull forward in Q4. We’re getting a little bit of a pull forward in Q1. From a memory perspective, how do we think about what that means for the balance of the year? I know the guidance talks about an even split from gross profit, but just from a demand perspective, what are your partners telling you in terms of how to think about these memory sensitive product categories like PCs and servers and just maybe help us qualitatively think about how the year should progress given where memory prices are today?

Chris Leahy

Yeah, David, let me try to share as much visibility as we have into the memory impacts from partners and and what we’re seeing vis a vis demand. First of all I’d say as we think about the upcoming quarter, it’s hard to tell yet what we expect to see from a pull forward perspective. I think, look, we’ve quantified it and believe to the best of our ability that we’re going to see about the same amount of pull forward in Q1 or slightly more than we actually saw in December. You know, when you think about the various products, I would just tell you that PCs for us, for example, have been strong, pricey, decelerating growth this coming year, but we still see strength.

As we explained in our prepared remarks, it might be a little choppier during the course of the year as a result of memory, but we still see strength there. What we’ve done is in the back half of the year, we’ve really just tamped that down a bit to take into account that we don’t have visibility all the way to the back end of the year. But that’s, that’s how we’re thinking about it.

David Vogt

Great. And maybe one for Al. As a quick follow up, you talked about SG and A being sort of a baseline in calendar 25 and working towards, you know, operating leverage in 26. And I’m just penciling in really quick math. It looks like just based on your commentary, the SG and A as a percentage gross profit doesn’t really decline that much in 26. Can you kind of talk to that? Is that, is that the right way to think about it? And why shouldn’t it decline a little bit more given, you know, obviously all the investments that you’ve made in 25 and 26 being a bit of a, you know, better year in terms of conversion.

Al Miralles

Yeah, thanks. Good morning, David, and thanks for the question. A couple things. First, what you’re seeing in our outlook, as you typically would beginning of the year is prudent, but what you should take from it is the shape of the outlook that we’re providing, right? Low single digit and gross profit and then mid single digits down. Tbs, we expect that we are going to have operating leverage and it’s a top priority. Obviously we’re past the compares from the prior year. We’ve got a lot of focus on how do we continue to optimize our cost base here.

But you will see kind of that operating leverage kick in and progress through the year. The impact on an SGA ratio, you will see it right, but that’s going to follow more as the operating leverage progresses and accelerates and particularly as we start to see growth pick up in a more meaningful way. So our Outlook shows the shape of how we’d like it to work. If we can amplify the growth, if we can continue to make progress on optimizing our expenses, David, it’s going to be more significant in terms of progress down the P and L as well as that SGA ratio coming down.

David Vogt

Great. Thanks guys.

operator

Thank you, David. Our next question is from Adam Tindle from Raymond James. Your line is now open. Please go ahead.

Adam Tindle

Okay, thanks. Good morning. I just wanted to start on the outlook. As I think about 2026, the drivers presumably PC mix will come down. You’ve got obviously these memory price increase happening so you know, potential for inflation hitting. But when I think about the drivers here, it’s low single digit market growth, 200 to 300 basis point outperformance of that and low single digit gross profit dollar growth. So it seems like the implication here is, you know, not much improvement in gross margin despite PC mix coming down and inflation, you know, potentially coming through the model.

Last time we saw this, you know, increase in component costs, it was a benefit to gross margin. I just wonder if you zone into that point what might be similar or different than a few years ago where we were getting benefits from inflation in this model. Thanks.

Al Miralles

Yeah, good morning Adam. So I’ll take that. I do think that we are expecting that we will see gross margin expansion. You know, we’ll call it kind of modest pickup, but there is opportunity for that to accelerate. If I give you a little bit more detail, kind of what that could look like in the way of the shape of the year, given the landscape we’re dealing with in the memory environment, we will likely see stronger hardware growth in the first half and we will likely then see that fade a bit in lieu of more netted down revenues, software, cloud, et cetera as well.

We would hope that we will see progression through the year on services. So just shape of the gross margin first half probably a bit lighter second half pickup on the factors that I just mentioned. So that’s what it looks like. I do think that if, if that plays out we would see that drop down into our operating margin. Obviously you got a lot of moving parts right now, Adam, on these different fronts, but that, that’s the way we see it looking as we sit here now.

Adam Tindle

Got it, thanks. Maybe to follow up for Chris. I know a lot of the investor conversation recently has been around AI and whether or not that’s a benefit or headwind to cdw. Reminds me a little bit of years ago when there was questions around cloud for CDW and as you mentioned in your prepared remarks, I think Cloud is now driving a significant portion of the gross profit dollar growth in this model and clearly was not a headwind. So Chris, I wonder if you might kind of compare and contrast Cloud versus AI in terms of the investor narrative and what you’re seeing in the customer behavior.

And I remember at the time you had kind of a landmark where you landed AWS on the line card many years ago and that was kind of the stomping point to say, you know, hey, you know, cloud is going to be a benefit. Do you see opportunity like that with AI is there, you know, strategic partnership with OpenAI Anthropic, somebody like that that could potentially materialize what would be sort of the turning point. Thanks.

Chris Leahy

Yeah, Adam, thanks for the question. Let me start with the end and work backwards with the various partners you’ve named. We’ve already got relationships with them, as you would expect, and smaller companies as well, but all the big players in the AI space DAW has got partnership relationships with. Right now. I would say look, while we’re still in the early innings and you heard me say this AI momentum is picking up in all of our end markets and, and a slight difference from Cloud versus the AI revolution now is Cloud was just a consumption model and AI is embedded across the entire stack and it’s changing the entire platform, so to speak.

So when I think about where we sit right now, we’re very optimistic about 2026 and beyond. We are seeing customers absolutely move into production stage. And if I just take a moment on the value proposition that CDW brings to bear. Look, organizations don’t struggle with access to models. They struggle with making them work to solve problems, real problems. And that’s across their full technology estate. And so you think about cdw that plays to our strengths and it’s structural advantages that we built over decades. Our clients depend on our expertise for integration and secure deployment of AI enabled tech solutions.

And so customers are looking to us now to really help them adopt and consume. And remember, there’s been a lot of investment in capacity for AI. Now that capacity has to be consumed and we’re right there to help them do it. You know, a neutral party with a deep technical expertise across the entire tech stack, a trusted advisor with intimate knowledge of our customers, complex tech estates, and increasingly an expert in identifying how these technologies can be applied. So we bring the ability to orchestrate and optimize across the technology landscape. And we believe that these capabilities, the expertise in our customer intimacy and the customer Relationships make us more relevant now than ever. You asked about an inflection point. I think we are at the point of inflection with our customers and AI and we’re seeing that in every component part of our business.

operator

Thank you Adam. Our next question is from Amit Daryanani from Evercore. Your line is now open. Please go ahead.

Amit Daryanani

Yep, thanks. Good morning. I guess maybe the first 1 Chris, with IT budgets growing in the low single digit range. Love to kind of understand where do you see customers allocating incremental dollars by category? Just anything in terms of 26 spend across hardware versus solution would be helpful. And I don’t think I heard you talk a lot about Netcom and how that’s stacking up so. So we’d love to see where that’s in the customer priority list.

Al Miralles

Good morning Amit. And I’ll take this and just maybe rattle through kind of our thoughts and what’s underpinning our outlook. So as we sit here now, client device growth we continue to feel good about obviously it’s a different landscape we’ve been in and maybe a little less kind of focused on Windows 11 I think kind of where the focus there would be still plenty of units from COVID Refresh as well. As we are seeing a pickup on AI PCs. So in this memory intensive environment I think we’d expect that client devices could be a little more uneven than usual.

But the activity we’re seeing and the customer interactions we’re seeing suggest there’s still plenty of demand on the client front. Cloud, SaaS, security, kind of those evergreen categories that have been really strong for us we expect will continue to be really important and we would say kind of for the full year those categories will have higher weight and so we’d expect that netted down revenues will continue to be very durable in the solutions space. It’s a mixed bag and it’s been a mixed bag. We do Amit feel more positive on the network side of things.

2025 was a solid year on networking and we think that there are reasons and drivers for that to continue on the server and storage front a bit more choppy just as it it’s been and so kind of our expectations on that front are pretty modest in the way of growth.

Amit Daryanani

Got it. Super helpful. And then Al, you spoke a little bit about the OPEX Dynamics in the 26 so if you could maybe expand on this a little bit because the last few quarters you’ve seen OPEX growth be ahead of revenue growth by a few hundred basis points. Do you think it’s more a reflection of internal investment that you folks are making versus incentives or cost inflation. I’d love to just understand what happened in the last six months. And then as you think about leverage showing up in the model in 26, can you expand on? Do you see that stacking up more across headcount control or incentive comp or inflation? I’d love to just understand what drives the leverage in 26 as you go forward. Thank you.

Al Miralles

Yep, happy to tackle that. So in 2025, and you’ll remember, kind of Q1, we showed the greatest amount of operating leverage. And we indicated given the shape of the year from the prior year around incentives, we expected asymmetry. The biggest driver of what we saw for the year was just that it was the volatility variability through the quarters on the expense front relative to gross profit. Okay, so there’s that number two is obviously gross profit for us exceeded expectations. We are still a highly variable model and therefore OPEX is going to respond to that higher gross profit.

And we definitely did. We definitely did see that. And then thirdly, I would say, look, we have been investing and continue to invest and we think it’s critical to feed into our strategy. So that would be kind of the third theme. But the first two components really kind of trump the investment now as we move into 2026, we are now, like we said, at a better baseline, more comparable baseline on the variable components of comp. So we’re going to have that. We will continue to invest, but we are laser focused on opportunities to optimize our fixed cost base.

And we think there are opportunities with really good line of sight. And so that’s what we’re going after. You’re going to see it first show up in terms of quarterly operating leverage with a progressive kind of level of speed through the year and then ultimately is going to knock down that SG&A ratio back in towards the range that we’d like it to be.

Amit Daryanani

Helpful. Thank you.

operator

Thank you, Amit. Our next question is from Erik Woodring from Morgan Stanley. Your line is now open. Please go ahead.

Erik Woodring

Great. Thank you for taking my questions, Chris. I realize this is kind of a backwards looking question, but it does inform the forward look. And you know, for many years, especially in years where hardware spending was strong, you know, CDW would outgrow US IT market growth by maybe 4 to 500 basis points or even more. In each of the last three years, we haven’t really seen that, only about 200 to 300 basis points of outperformance even in a market like 2025 where hardware spending was robust. So I would just love to understand is there something structural about the market, perhaps competition or something we’re not considering that just makes it harder to outperform in the ways that you used to or what can maybe explain that? Just relative historical outperformance. And then a quick follow up. Thank you.

Chris Leahy

Sure Erik, thanks for the question. As I think about the outperformance and we look at the addressable market in the last couple of years, you know our outperformance has been in the high end of the 2 to 300 basis point range in our view. In addition, the mix of our business is continue to mix into netted down revenue. So while we have, while you have less compression on the top line, the more hardware you have, we now have a much greater mix of netted down. So that’s going to impact the differential as well. I would say.

There’s nothing in my mind that from a competitive perspective that concerns us. We’re still the number one trusted advisor to our customers. When we look at various category by category we well outperform the market. And look we’re really confident and pleased with the strategy that we’ve put in place and how that is helping us to drive over index gross margin and AL just went through will give us the opportunity to leverage that down the P and L to amplify earnings. And that’s a result of that capabilities that we’ve built into the system. But we feel very confident about our ability to continue to take share moving forward across every category.

Erik Woodring

Okay, that’s really helpful, thank you Chris. And then just as a follow up the last two quarters we’ve seen a pretty notable divergence in corporate versus small business performance. Obviously SMB, very strong double digit growth, corporate more so inching along. Just what do you think can help to explain this? Is this just kind of differences in where we are in spending cycles for these cohorts and what does this mean for kind of these two cohorts as we think about 2026? Thank you so much.

Chris Leahy

Yeah, I’d say a couple things. We are in a little bit of difference in the spending cycles and what we’ve seen with larger companies over the last couple of years actually particularly as AI has been introduced, is taking the time to understand how that technology integrates into their estate and how to do that and to do experimentation and testing. So they have been more focused on cost optimization, extending the useful life of assets, the must dos like client devices et cetera and now we are actually seeing a number of larger companies who are starting to move into production and starting to spend more in that area.

You know, it’s still a cautious time for all of our customers. So we are taking a prudent approach to spend in this coming year. And as Alice said, we expect it to be uneven. But we are at the front end, I think of an uptick in what we’re going to start seeing from the corporate side. Small business is much more nimble in terms of their ability to adopt AI. They’re very cloud forward and so they are at the front end of taking more packaged solutions, applying them for a fast ROI and doing it quickly. And now.

So I just think you’re seeing differences in not just maturity, that’s not the best way to describe it, but it’s where all of our customers are in the adoption cycle. And the key thing is that we’re helping them with both design but then obviously the adoption and then importantly consumption. Because all of the capacity that’s been built for AI consumption capabilities has got to now be used by our customers and we are right in the middle of helping them do that.

Erik Woodring

Great. Thank you so much for the color, Chris.

operator

Thank you, Erik. Our next question is from Ruplu Bhattacharya from the Bank of America. Your line is now open. Please go ahead.

Ruplu Bhattacharya

Hi, thank you for taking my questions. Al. Based on the netted down items as a percent of gross profit looks like margins in the core business ex netted down is actually trending well. I mean it was up 70bps. Looks like 60 sequentially and year on year. Can you remind us as suppliers are raising prices, how does that impact CDW and can margins in the core business continue to grow? And I have a follow up for Chris.

Al Miralles

Yeah, good morning Ruplo. Non netted down gross margins, you’re right, strong. Three things kind of I’d owe that to our services. Growth have been strong. I would say sequentially we had a bit of a mix out of client which aids our margins. And then thirdly root blue, just margins and product margins in general have been resilient and we’ve seen that now for a number of quarters. So that certainly feels good. As we scroll forward and we think about some of the phenomena we have going on right now with memory, we feel good about margins. You know, I think what we’re likely going to see is increases in asp but just reminder that we are cost plus provider and therefore we are passing through our gross margin and right during this period that we’re seeing activity already.

I think that concept is holding up and we expect that will hold up. So on the non netted down margin front for 2026 I would say we expect firmness and if we see some deceleration of client there could be some upside as well.

Ruplu Bhattacharya

Okay, thanks for the details there, I appreciate that. Can I ask Chris a question? CDW has delivered very strong services growth now for the past many quarters. What type of work are you seeing and are you engaging more with customers on the AI related projects? Are you seeing small medium business, the middle market customers? Are they looking at AI and is this an area of focus and investment for CDW? Thank you.

Chris Leahy

Thanks Ruplu for the question. Yes, it absolutely is. And when you think about that customer set that you just mentioned, those are customers that don’t have the resources, the breadth of skills and capabilities, the access to the partnership and the full kind of end to end capabilities. And so CDW has been both investing in over the years but now highly engaged with customers in the small business space, the mid market space and the higher end of the mid market space as well to help on the design stage, the architectural stage, the analytics stage, the workshopping stage, and then taking that to the next several stages which is obviously a migration and deployment is it’s actually activating and operating.

It’s ensuring that the data that fuels all the benefits of AI are governed, are clean. Everything that needs to be done there. And then more and more what we are seeing, and you see this in our results, is customers turning to us for managing their environments. So operating their environment securely and reliably is a important part of our value proposition. And those customers are in particular are looking more and more to outsource that. So that’s a benefit to us as well.

Ruplu Bhattacharya

Okay, thanks for all the details appreciated.

operator

Thank you Ruplu. Our next question is from Keith Housum from North Coast Research. Your line is now open. Please go ahead.

Keith Housum

Great, thank you. Good morning guys. Thanks for the opportunity here. In terms of just trying to unpack the memory industry wide issue going on right now. I’m just trying to understand a bit further here in terms of comparing that to perhaps the chip shortages that we saw several years ago. Is there a thought process here that the increases in prices have started already and how much of your portfolio is impacted or potentially impacted by what could be rising prices or eventual shortages as well, any visibility to where could we actually see shortages and what would be the impact on demand here?

Al Miralles

Yeah, good morning Keith, thanks for the question. Look it is quite fluid. What we are seeing kind of cross OEM partners and kind of product generations is varying quite greatly. But you’re seeing kind of week to week, month to month price increases flowing through. And what we’re seeing is customers help us helping customers navigate around that. In some cases with these partners, Keith, there may be certain configurations of machines where they’re not seeing as much of the way the price increase and there’s less risk of supply. So I’ll just say it’s very fluid at the time.

Now to your question on supply, what we see right now, very robust customer demand, significant customer activity kind of on this front, and plenty of written demand that we are experiencing so far. We are not seeing any significant roadblocks on the supply chain side of things, but we are counting on that. You could see that as the year plays out. Our greatest visibility is obviously what’s right in front of us for Q1 and to a bit lesser degree, Q2. But when we think about the demand we’re seeing and the activity with customers and the supply component, we feel good about the growth prospects.

In the first half, Obviously we look to the second half, the visibility is less, Keith, and we think that that’s where the supply chain challenges could start to come into play. So we have an outlook that is modest in that regard and presumes that we can see dampening of growth during that second half of the year.

Keith Housum

Okay, helpful. I appreciate it. So far, like year to date, I guess. What do you see in terms of like the percentage price increases? Are we seeing, you know, single digits? Are we well into the double digits any type of context can provide there?

Al Miralles

Yeah, I don’t know if I have a single answer for you, Keith. Like I said, it does vary greatly by partner, by product. Right. So, you know, in some cases it’s small single digits, some cases it’s a bit more. And it is fluid in terms of kind of where it will go. We could see in some cases escalation. But just remember, Keith, when we went go back to the periods where we’ve had this before, this is where we excel. This is where we work with our customers and help them navigate both the partner universe and ecosystem, but also the configurations that might work for them, but also optimizes their cost. And so look, we’re right in our sweet spot, albeit it’s a challenging time. This is where kind of we bring the most value.

Keith Housum

Thank you.

operator

Thank you, Keith. I will now hand back to CDW Management for closing remarks.

Chris Leahy

Thank you, Gabby. Let me close by recognizing the incredible dedication and hard work of our co workers around the globe. Their ongoing commitment to serving our customers is what makes us successful. Thank you to our customers for the privilege and opportunity to help you achieve your goals. And thank you to those of you listening for your time and continued interest in CW Alan, I look forward to talking to you again next quarter.

operator

Thank you. This concludes today’s CEW fourth quarter 2025 earnings call. Thank you for joining. You may now disconnect your lines.