CDW Corporation (CDW) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals strong growth in professional services and software, driven by AI and cloud solutions, along with a positive outlook on gross margins and operating leverage. While some uncertainties exist, such as memory prices and supply chain challenges, CDW's strategic positioning and partnerships in AI, along with strong services growth, suggest a positive stock reaction. The Q&A section supports this with optimism about AI's impact and CDW's market strategy.
Key Financial Performance
Net Sales (Q4 2025) $5.5 billion, up 5% year-over-year. Growth attributed to strong double-digit growth across software, cloud, and professional and managed services.
Gross Profit (Q4 2025) $1.25 billion, up 9% year-over-year. Growth driven by higher-margin categories like software, cloud, and professional and managed services.
Non-GAAP Operating Income (Q4 2025) $503 million, up 1% year-over-year. Growth attributed to disciplined investments and execution.
Non-GAAP Net Income Per Share (Q4 2025) $2.57, up 4% year-over-year. Growth driven by strong performance in higher-margin categories and disciplined cost management.
Net Sales (Full Year 2025) Over $22 billion, up 7% year-over-year. Growth driven by diverse customer end markets and disciplined investments.
Gross Profit (Full Year 2025) Nearly $5 billion, up 6% year-over-year. Growth attributed to strong performance in software, cloud, and professional and managed services.
Non-GAAP Operating Income (Full Year 2025) Nearly $2 billion, up 3% year-over-year. Growth driven by disciplined investments and execution.
Non-GAAP Net Income Per Share (Full Year 2025) $10.02, up 5% year-over-year. Growth attributed to strong performance in higher-margin categories and disciplined cost management.
Adjusted Free Cash Flow (Full Year 2025) $1.1 billion. Used to fund capital allocation priorities, including $1 billion returned to shareholders via dividends and share repurchases.
Small Business Growth (2025) 18% growth year-over-year. Driven by cloud consumption, related services, and client device modernization.
Education Top Line Growth (Q4 2025) 13% growth year-over-year. Driven by a major Chromebook solutions rollout and solid growth in higher education.
Health Care Growth (Q4 2025) 5% growth year-over-year. Growth attributed to strong customer and partner relationships.
Government Growth (Q4 2025) 4% growth year-over-year. Strong double-digit growth in state and local offset the decline in federal due to the government shutdown.
Cloud Revenue and Gross Profit (Q4 2025) Strong double-digit growth. Driven by accelerating demand for cloud-enabled AI solutions.
Professional and Managed Services (Q4 2025) Double-digit growth. Driven by hybrid infrastructure engagements and AI-powered customer care solutions.
Software Top Line Growth (Q4 2025) 12% growth year-over-year. Driven by cloud and customers renewing software licenses tied to hybrid solutions.
Security Top Line and Gross Profit (Q4 2025) Single-digit growth year-over-year. Driven by demand for vulnerability assessments, identity and access management, and cloud deployment.
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Operating Highlights
AI Offerings: Expanded offerings with repeatable, scalable toolkits, including strategy, data modernization, Gen AI integration, and automation.
AI Solutions: Delivered solutions for both large enterprises and small businesses, including advanced AI capabilities for hybrid data centers and generative AI virtual agents for IT service management.
Cloud and Professional Services: Strong double-digit growth in cloud, professional, and managed services, contributing to the highest gross margin of the year.
Small Business Growth: Achieved 18% growth fueled by cloud consumption, client device modernization, and AI opportunities.
International Operations: UK and Canada operations delivered high single-digit growth despite challenging markets.
Public Sector Growth: State and local government growth offset federal headwinds; education sector saw a 13% increase driven by Chromebook rollouts and higher education growth.
Gross Profit and Margins: Gross profit for Q4 was $1.25 billion, up 9%, with the strongest gross margin of the year at 22.8%.
Capital Allocation: Returned nearly $1 billion to shareholders via dividends and share repurchases; completed a tuck-in acquisition to enhance capabilities.
Expense Management: Focused on structural alignment for future expense leverage, with coworker count slightly reduced year-over-year.
AI Strategy: Positioned to lead in the AI era with architectural depth, partner reach, and delivery scale.
Customer-Centric Solutions: Vertical use cases mapped to end-market outcomes and horizontal solutions addressing universal priorities like security and automation.
M&A Activity: Acquired select assets of Lexicon Tech Solutions to bolster end-to-end lifecycle capabilities for education customers.
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Risk or Challenges
Tariffs and Geopolitical Risks: Uncertainty around tariffs and geopolitical conditions could impact customer behavior and market dynamics, posing risks to revenue and operational stability.
Government Spending and Shutdowns: Significant changes in government spending priorities and the longest federal government shutdown on record have disrupted customer buying behaviors and created headwinds in the federal channel.
Economic Uncertainty: Cautious customer behavior driven by economic uncertainties and geopolitical unrest could limit growth opportunities and delay investments.
Supply Chain and Pricing Challenges: Memory-related price increases and supply chain concerns have led to some demand pull-forward, but these factors could disrupt operations and customer satisfaction.
Public Sector Dynamics: Lingering impacts of the government shutdown and unique dynamics in the public sector could affect growth in government and education channels.
Windows 11 Refresh Slowdown: Expected moderation in Windows 11 refresh activity has impacted hardware sales, particularly in the corporate channel.
Customer Caution on Capital Investments: Corporate customers are showing caution towards major capital investments in solutions hardware, which could limit revenue growth.
Performance-Based Expense Increases: Higher performance-based expenses and commissions have increased SG&A costs, potentially impacting profitability.
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Guidance & Outlook
2026 U.S. IT Addressable Market Growth: Expected to grow in the low single digits on a customer spend basis, with CDW targeting 200 to 300 basis points of outperformance.
Gross Profit Growth for 2026: Anticipated to grow in the low single digits for the full year, with slightly higher contribution in the second half.
Gross Margin for 2026: Expected to be slightly higher than 2025 levels, remaining well above rates from 3+ years ago.
Non-GAAP Net Income Per Diluted Share for 2026: Projected to grow mid-single digits year-over-year.
Currency Impact for 2026: Expected to be neutral to reported growth rates for the year.
First Quarter 2026 Gross Profit: Anticipated to decline mid-single digits sequentially but grow mid-single digits year-over-year.
First Quarter 2026 Non-GAAP Net Income Per Diluted Share: Expected to grow mid-single digits year-over-year.
Federal Channel Performance in Early 2026: Expected slow start to the year as pipeline rebuilds following the government shutdown.
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Shareholder Return Plan
Dividends paid in Q4 2025: $82 million
Total dividends paid in 2025: Nearly $1 billion
Dividend increase: Approximately 1% increase to $2.52 annually, marking the 12th consecutive year of increase
Dividend payout ratio target: Roughly 25% of non-GAAP net income going forward
Share repurchases in Q4 2025: $153 million
Total share repurchases in 2025: Nearly $1 billion
Shareholder return target for 2026: 50% to 75% of adjusted free cash flow to be returned to shareholders via dividends and share repurchases
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Key Q&A
Q:How does CDW view the impact of memory prices on demand and gross profit for the year?
A:Christine Leahy stated that it is hard to predict the pull-forward impact for the upcoming quarter, but they expect a similar or slightly higher pull-forward in Q1 compared to December. PCs have been strong but may see decelerating growth. The back half of the year has been tamped down due to limited visibility.
Q:What is the outlook for SG&A as a percentage of gross profit in 2026?
A:Albert Miralles explained that operating leverage is a top priority, and while SG&A as a percentage of gross profit may not decline significantly in 2026, progress will be seen as operating leverage accelerates and growth picks up.
Q:What are the drivers for CDW's 2026 outlook, particularly regarding gross margin and inflation?
A:Albert Miralles mentioned that gross margin expansion is expected, with stronger hardware growth in the first half and a shift to software, cloud, and services in the second half. This progression is expected to positively impact operating margin.
Q:How does CDW view the impact of AI on its business compared to cloud adoption?
A:Christine Leahy highlighted that CDW has partnerships with major AI players and sees AI momentum picking up across all markets. Unlike cloud, which was a consumption model, AI is embedded across the entire stack. CDW is positioned to help customers adopt and consume AI technologies, making them more relevant than ever.
Q:Where do customers plan to allocate IT budgets in 2026, and what is the outlook for networking and other categories?
A:Albert Miralles stated that client device growth remains strong, with demand for AI PCs and COVID refresh units. Cloud, SaaS, and security are expected to remain important. Networking is positive, while server and storage growth expectations are modest.
Q:What is the reason for the divergence in performance between corporate and small business segments?
A:Christine Leahy explained that larger companies are cautious and focused on cost optimization and experimentation with AI, while small businesses are more nimble and adopting AI quickly. CDW is helping both segments with adoption and consumption of AI technologies.
Q:How does CDW view its historical outperformance of the U.S. IT market, and what explains recent trends?
A:Christine Leahy noted that CDW's outperformance has been in the high end of the 200-300 basis point range, with a greater mix of netted down revenue impacting the differential. There are no competitive concerns, and CDW remains confident in its strategy and ability to take market share.
Q:What is the impact of memory price increases on CDW's business, and how does it compare to past chip shortages?
A:Albert Miralles stated that memory price increases are fluid and vary by partner and product. CDW is helping customers navigate these changes. While supply chain challenges could arise in the second half of the year, CDW excels in managing such situations.
Q:What type of services growth is CDW experiencing, and how is AI contributing to this growth?
A:Christine Leahy mentioned that CDW is engaged with small and mid-market customers in design, architecture, analytics, migration, deployment, and management of AI-related projects. Customers are increasingly outsourcing their environments to CDW, contributing to services growth.
Q:What is the outlook for non-netted down gross margins and the impact of supplier price increases?
A:Albert Miralles stated that non-netted down gross margins are strong due to services growth, mix out of client devices, and resilient product margins. Supplier price increases are being passed through as CDW operates on a cost-plus model.
Q:What is CDW's approach to managing memory price increases and potential shortages?
A:Albert Miralles explained that CDW is helping customers navigate price increases and optimize costs. While supply chain challenges could emerge in the second half of the year, CDW is well-positioned to manage these issues and support customer needs.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the percentage of memory price increases, stating that it varies greatly by partner and product. They also did not provide clear visibility into the second half of the year regarding supply chain challenges and growth prospects.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI Security
AI engagement
AI solution
AI stack
President
Windows
activity
approach
automation
cloud AI
cloud service
cost
customer behavior
deployment
digit state
driver portfolio
education
enterprise
financials
government shutdown
health care
implementation
infrastructure
life cycle
line cloud
line digit
memory
model
modernization
offering
price
record
relationship
result investment
sale income
scale AI
server
solution AI
stack life
story
technology ecosystem
value partner
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CDW Corporation (CDW) Q4 2025 Earnings Call Transcript
Positive2-4
The earnings call reveals strong growth in professional services and software, driven by AI and cloud solutions, along with a positive outlook on gross margins and operating leverage. While some uncertainties exist, such as memory prices and supply chain challenges, CDW's strategic positioning and partnerships in AI, along with strong services growth, suggest a positive stock reaction. The Q&A section supports this with optimism about AI's impact and CDW's market strategy.
CDW Slides
CDW Report
Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
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When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
