Executive Summary / Key Takeaways

• Resilient Performance Amidst Volatility: CDW demonstrated robust financial performance in Q3 and 9M 2025, with consolidated net sales up 4% and 7% respectively, driven by strong execution and a diversified portfolio despite a complex and uncertain macroeconomic environment.
• Services and AI as Core Differentiators: The company's strategic investments in full-stack, full-lifecycle services, particularly in cloud adoption, cybersecurity, and AI, are proving critical, with services contributing 9% to total top line in Q3 2025 and driving significant gross profit growth.
• Strategic Capital Allocation: CDW maintains a healthy balance sheet, actively returning capital to shareholders through its 12th consecutive annual dividend increase and opportunistic share repurchases, while maintaining net leverage within its target range.
• Cautious but Confident Outlook: Management maintains a prudent full-year 2025 outlook, anticipating low single-digit IT market growth with CDW outperforming by 200-300 basis points, acknowledging ongoing frictional impacts in public sector and general economic uncertainty.
• Competitive Moat in Integrated Solutions: CDW's competitive advantage lies in its vendor-agnostic, consultative approach, deep customer relationships, and comprehensive service offerings that wrap around complex IT solutions, differentiating it from pure distributors and hyperscalers.

The Enduring Value Proposition: CDW's Evolution in IT Solutions

CDW Corporation, a Fortune 500 company and member of the S&P 500 Index, has long been a pivotal force in the information technology (IT) solutions landscape. Founded in 1984 as CDW Computer Centers, Inc., the company has a rich history of adapting to and thriving amidst market shifts, from the financial crisis of 2008-2009 to the recent pandemic and supply chain disruptions. This enduring resilience has cemented its role as a trusted partner for businesses, government agencies, educational institutions, and healthcare providers across the United States, the United Kingdom, and Canada.

At its core, CDW operates as a multi-brand provider, offering a vast array of discrete hardware and software products alongside integrated IT solutions. Its overarching strategy centers on delivering "full stack, full life cycle solutions" that encompass on-premise and cloud capabilities across hybrid infrastructure, digital experience, and security. This vendor-agnostic approach, coupled with a deep understanding of diverse customer needs, allows CDW to cut through market noise and deliver tailored outcomes. The company's operational strength is underpinned by approximately 10,700 customer-facing coworkers, including highly-skilled specialists and engineers, who deeply understand the unique priorities of each market segment.

Technological Edge: Powering Modern Work and AI Adoption

CDW's competitive differentiation is increasingly rooted in its advanced technological capabilities and strategic investments in high-growth areas. The company's "full stack, full life cycle solutions" are designed to simplify IT for customers, offering tangible benefits over piecemeal approaches. This integrated model provides greater efficiency in deployment and management, fostering faster innovation cycles and robust growth for clients.

A significant area of focus is the company-wide evolution to embed Artificial Intelligence (AI) into its core operations and customer offerings. Internally, CDW is leveraging conversational AI on cdw.com to enhance product discovery and improve sales conversion, while intelligent agents streamline presales qualification. For customers, CDW delivers "enterprise-grade AI solutions that are practical, secure and scalable," moving beyond theoretical potential to measurable business impact. The company's AI Center of Excellence provides structured workshops, proof-of-concept services, rapid prototyping, and AI managed services, helping clients navigate the complexities of AI adoption. For instance, a recent engagement with a financial solutions company involved designing a cloud-based compute, database, and business intelligence solution that utilizes AI-driven analytics and natural language understanding. This project, which included a multi-million dollar software transaction and over $1 million in professional services fees, delivered significant monthly cloud spend commitments to CDW and improved scalability, agent performance, and customer experience. Additionally, a strategic partnership with Asato Corporation aims to deliver an AI-powered business observability platform, bringing AI-powered IT asset intelligence to a broad customer base.

In the healthcare sector, CDW's technological leadership is particularly evident. The company has developed proprietary solutions like the "patient room next AI and IoT-based solution" and established innovative Healthcare Transformation Centers. These centers, one of which is capable of simulating a 2,000-bed hospital, are equipped with the latest technology and staffed by experts. They deliver measurable clinical outcomes, such as reduced readmission rates through real-time patient data and advanced analytics, and enhanced patient satisfaction via mobile communication tools. These technological advancements contribute directly to CDW's competitive moat, driving higher service revenue, bolstering margins, and solidifying its market position as a trusted advisor.

Financial Performance: Resilience in a Dynamic Landscape

CDW's financial performance in the first nine months of 2025 reflects its strategic execution in a challenging environment. For the three months ended September 30, 2025, consolidated net sales increased by 4% to $5.7 billion, driven by increased customer demand for netcomm products, notebooks/mobile devices, desktops, software, and services. Gross profit for the quarter rose by 4.6% to $1.3 billion, with the gross profit margin expanding by 10 basis points to 21.9%, attributed to higher services rates and an increased contribution from netted-down revenue. Despite an 8% decrease in operating income to $443.3 million, non-GAAP operating income saw a modest decline of 0.6% to $530.6 million. Non-GAAP diluted earnings per share grew 3% to $2.71.

Year-to-date, for the nine months ended September 30, 2025, net sales climbed 7% to $16.9 billion. Gross profit increased 5% to $3.6 billion, though the gross profit margin for the nine-month period decreased by 40 basis points to 21.4%, primarily due to a decreased rate and increased mix in certain hardware categories. Non-GAAP operating income for the nine months increased 3.2% to $1.49 billion, and non-GAAP diluted earnings per share grew 5.8% to $7.45. Selling and administrative expenses increased by 12.9% in Q3 and 8.6% for the nine months, largely due to higher performance-based compensation, transformation costs, and amortization of acquisition-related intangible assets.

Cash flow generation remains a hallmark of CDW's financial strength. The cash conversion cycle improved significantly, decreasing to 11 days at September 30, 2025, from 17 days in the prior year, driven by an increase in days of purchases outstanding (DPO) and a reduction in days of inventory on hand (DIO). Adjusted free cash flow for the nine months ended September 30, 2025, totaled $668 million, representing 68% of non-GAAP net income, slightly below the company's 80% to 90% target but expected to recover by year-end.

Segmental Dynamics and Strategic Initiatives

CDW's diversified segment portfolio proved its value in the third quarter of 2025. The Corporate segment saw net sales increase by 4.4%, driven by netcomm products, software, and desktops, reflecting pent-up demand and customers' increasing comfort with macro volatility. Small Business delivered impressive 14.2% net sales growth, fueled by notebooks/mobile devices, software, and desktops, as these customers increasingly lean into technology for competitive advantage.

The Public segment experienced a modest 0.6% net sales increase. Within this, Government net sales grew 7.8%, with strong double-digit growth in state and local offsetting a decline in federal. Healthcare continued its robust performance, with gross profit outpacing its 6.9% net sales growth, driven by cloud solutions for clinical continuity and security. Education net sales declined 8.5%, with higher education growth offset by K-12 declines, though gross margin benefited from a mix shift away from lower-margin Chromebooks. The Other segment, comprising UK and Canadian operations, delivered a 9.1% net sales increase, with profitability growing faster than sales, demonstrating strong execution in unsettled international conditions.

Strategic initiatives continue to bolster CDW's market position. The acquisition of Mission Cloud Services in November 2024 for $330 million significantly enhanced CDW's capabilities in cloud migration, full-stack software development, DevOps engineering, and AI expertise, particularly as a premier AWS partner. This acquisition is expected to drive future growth and accretion by expanding CDW's service offerings and customer reach. Leadership changes, including the appointment of Mukesh Kumar as Chief Services and Solutions Officer in August 2025, underscore the company's commitment to aggressively investing in its services business, which is viewed as a main growth engine.

Competitive Positioning and Market Moats

CDW operates in a highly competitive IT solutions market, contending with a diverse set of rivals ranging from broadline distributors like TD SYNNEX (SNX) and Arrow Electronics (ARW) to specialized IT service providers such as Insight Enterprises (NSIT) and Avnet (AVT). CDW's competitive moat is primarily built on its comprehensive service offerings, deep customer relationships, and operational efficiency.

CDW differentiates itself from pure distributors by offering a consultative, vendor-agnostic approach that provides end-to-end solutions, rather than just transactional product sales. This allows CDW to wrap extensive services around marketplace purchases, providing expertise and support that customers value in navigating complex IT procurement. Its hybrid cloud expertise, which encompasses both multi-cloud and on-premise solutions, is a critical advantage, as many customers maintain hybrid infrastructures and require integrated management.

Against Insight Enterprises, CDW's established presence in the U.S. public sector and its reputation for streamlined procurement and implementation services provide a qualitative edge in customer loyalty. While Insight may demonstrate agility in global expansion, CDW's focus on end-to-end solutions simplifies IT for customers, particularly in complex projects. Financially, CDW has historically exhibited strong cash flow generation and operational efficiency, which compares favorably to Insight's solid but potentially less consistent profitability margins.

Compared to TD SYNNEX and Arrow Electronics, which excel in broad-scale distribution and supply chain efficiency, CDW's strategic positioning as a consultative partner allows it to capture higher-margin service revenue. CDW's ability to bundle hardware with professional services offers a more comprehensive package, enhancing customer support and positioning it as a full-service provider. While TD SYNNEX's scale might offer cost advantages, CDW's diversified approach and focus on tailored solutions provide a competitive edge in profitability from service-heavy segments.

CDW's vulnerabilities include potential supply chain dependencies and the need to continuously adapt to rapidly evolving technologies. However, its strategic investments in AI and specialized industry expertise, such as its Healthcare Transformation Centers, mitigate these risks by enhancing its innovation capabilities and strengthening its value proposition. The company's scale and established relationships also act as significant barriers to entry for new competitors, contributing to its sustained revenue growth and financial stability.

Outlook and Risks

CDW maintains a prudent full-year 2025 outlook, anticipating low single-digit growth for the U.S. IT market on a customer spend basis, with CDW targeting outperformance of 200 to 300 basis points. Gross profit growth is expected to be in the low to mid-single digits, and gross margins are projected to remain roughly consistent with 2024 levels. Non-GAAP diluted earnings per share are expected to grow in the low single digits year-over-year.

This outlook is underpinned by several assumptions, including continued "frictional impacts" in the Government and Education segments due to policy changes and funding uncertainty, and potential funding shortfalls for healthcare customers, particularly those reliant on Medicare payments. The company also anticipates ongoing economic uncertainty and caution, and its guidance explicitly "does not factor in potential wildcards such as recessionary conditions, higher inflation, increased geopolitical unrest and outsized changes announced tariffs."

Management acknowledges the "volatility" and "unpredictability" of the current market, which has led to a more measured approach to IT spending by customers. However, CDW believes that 2025 will be an "inflection point for the demand cycle," driven by customers' compelling needs for workload growth, increased security, and addressing aging client devices. The company is confident in its ability to pass through price increases related to tariffs, though this could mathematically impact gross margin percentages.

Conclusion

CDW Corporation stands as a testament to strategic adaptability and operational excellence in the dynamic IT solutions industry. Its consistent financial performance, marked by solid revenue growth and robust cash flow generation, underscores the strength of its diversified business model and its ability to meet evolving customer demands. The company's deep investments in full-stack, full-lifecycle services and cutting-edge AI capabilities are not merely incremental improvements; they are foundational pillars that enhance its competitive moat, drive profitable growth, and solidify its position as a trusted advisor.

While macroeconomic uncertainties and specific public sector headwinds present ongoing challenges, CDW's proactive management of its capital structure, commitment to shareholder returns, and relentless focus on customer outcomes position it favorably. The company's technological leadership, particularly in integrated AI solutions and specialized industry expertise like healthcare, provides a distinct advantage against competitors. As the IT market continues its complex evolution, CDW's strategic vision and disciplined execution are poised to unlock sustained value for investors, leveraging its differentiated offerings to capitalize on the inevitable demand for advanced technology solutions.