CDW Corporation (NASDAQ:CDW) is a leading multi-brand provider of information technology (IT) solutions to business, government, education, and healthcare customers in the United States, the United Kingdom, and Canada. With a market capitalization of $31.85 billion, the company has established itself as a trusted partner in delivering comprehensive IT solutions that cater to the diverse needs of its customers.

Financials

In the fiscal year 2023, CDW reported impressive financial results, showcasing the resilience and adaptability of its business model. The company's annual net income reached $1,104.3 million, while its annual revenue stood at $21,376.0 million. The company's annual operating cash flow was $1,598.7 million, and its annual free cash flow amounted to $1,450.5 million, demonstrating its strong liquidity position and ability to generate substantial cash flows.

During the first quarter of 2024, CDW faced a challenging market environment, with gross profit declining by 2.4% year-over-year to $1.1 billion. Non-GAAP operating income decreased by 7.1% to $404 million, and non-GAAP net income per diluted share declined by 5.5% to $1.92. The company attributed these results to a combination of factors, including heightened macroeconomic uncertainty, the impact of federal budget delays, and the added complexity of customers navigating the evolving IT landscape, particularly in the area of artificial intelligence (AI).

Business Overview

CDW's business is organized into three reportable segments: Corporate, Small Business, and Public. The Corporate segment, which serves US private sector business customers with more than 250 employees, saw a 3.1% year-over-year decline in net sales during the first quarter of 2024. This was primarily due to a decrease in sales of netcomm products, partially offset by an increase in sales of notebooks and mobile devices.

The Small Business segment, which serves US private sector business customers with up to 250 employees, experienced a 7.4% year-over-year decline in net sales. This decrease was across various hardware categories, but the team was able to drive meaningful increases in cloud and software customer spend, which helped to offset the impact.

The Public segment, which is comprised of government agencies and education and healthcare institutions in the US, saw a 4.9% year-over-year decline in net sales. This was primarily due to a decrease in netcomm products across all sales channels and a decrease in collaboration within the Education market, partially offset by an increase in notebooks and mobile devices across all sales channels.

Geographically, CDW's operations in the US accounted for the majority of its net sales, contributing $4,220.6 million, or 86.6%, during the first quarter of 2024. The company's international operations, which include the UK and Canada, generated $652.1 million, or 13.4% of net sales.

In terms of product and service mix, hardware sales decreased by 4% year-over-year, accounting for 72.8% of total net sales in the first quarter of 2024. Software sales declined by 7%, representing 17.9% of total net sales, while services sales decreased by 4%, making up 8.7% of total net sales.

Outlook

Despite the headwinds, CDW remains confident in its ability to navigate the changing market conditions and capitalize on emerging opportunities. The company's Chief Executive Officer, Christine Leahy, highlighted the strong engagement with customers, as they work together to implement mission-critical projects, prioritize technology investments, and develop long-term plans to leverage the power of AI and other transformative technologies.

The company's management team remains focused on addressing the key priorities of its customers, which include cloud workload growth, increasing security threats, aging client devices, and the adoption of AI to capture insights and achieve productivity goals. CDW is well-positioned to support its customers in navigating these challenges, leveraging its full-stack, full-outcomes, and full life-cycle portfolio, as well as its deep vertical expertise.

Looking ahead, CDW has provided an updated outlook for the full year 2024. The company expects low single-digit gross profit growth, with gross margin remaining similar to the full year 2023 levels. Additionally, the company anticipates its full-year non-GAAP earnings per diluted share to be up in the low single-digit range year-over-year.

Conclusion

Despite the near-term headwinds, CDW's management team remains confident in the company's long-term growth prospects. The company's resilient business model, strong customer relationships, and strategic investments in emerging technologies, such as AI, position it well to capitalize on the evolving IT landscape and deliver value to its shareholders.