What drove the inflection in operating leverage in Q2, and what are the updates on the $100M-$200M savings from "geared for growth"?

Operating leverage inflection in Q2 was due to discipline and efficiency, not yet significant "geared for growth" benefits. "Geared for growth" efforts are at or beyond expectations, with benefits expected in H2 FY26 and into FY27, improving operating leverage and expense ratio. “our efforts on geared for growth through the first half have been significant. And our plan had always been that we'd see those benefits start to pay off in the back half of the year.”

Were there instances of inability to price on a cost-plus basis due to customer feedback, or like-for-like margin pressure in any segments?

No like-for-like margin pressure. The gross margin decline was due to mix shift towards infrastructure products, larger dollar tier orders, and more enterprise customers. CDW maintained pricing discipline and effectively passed through price increases. Netted down revenues were strong, growing 16%. “The driver was mix. It was mix into infrastructure products. It was mixed at larger dollar tier orders. And then as you noted, with more enterprise customers.”

How should investors think about services attach rate for AI deals and whether these deals are margin accretive over time?

Services are critical at every stage of AI adoption (readiness, deployment, integration, optimization, operations). Adoption is broadening beyond large enterprises, with productization for mid-market and smaller businesses. AI inferencing near users and data edge will drive incremental demand for edge infrastructure and related services. Services are expected to be an increasingly meaningful contributor to profit growth. “our services are embedded at every stage of the need around AI. Adoption is definitely broadening right now, as I mentioned, beyond large enterprise into, as you heard me say, healthcare, education, commercial and into smaller businesses as well.”

CDW

CDW (CDW) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Information Technology· Aug 5, 2026

Source: earnings call transcript

Executive summary

CDW Q2 FY26 — Record Sales and EPS Driven by AI Infrastructure Demand

CDW delivered record Q2 FY26 net sales and non-GAAP EPS, driven by robust demand for AI readiness and infrastructure modernization, particularly from enterprise customers. While gross margins faced pressure from a hardware-heavy mix, operating leverage improved as expected, and the company anticipates further efficiency gains from its "geared for growth" initiatives. Management raised its full-year outlook, expecting continued strength in underlying demand and a normalization of free cash flow conversion in the second half of the year.

Highlights

Net sales of $6.6 billion, up 10%, setting a new all-time quarterly record.
Non-GAAP earnings per diluted share of $2.91, up 12%, setting a new all-time quarterly record.
International net sales increased approximately 23%, led by a record quarter in Canada and strong momentum in the U.K.
Commercial net sales increased 9%, driven by infrastructure modernization, cloud, and AI-readiness initiatives.
Government net sales increased approximately 14%, driven by improving federal demand and continued momentum across state and local customers.

Concerns

Gross margin was 20.1%, down 70 basis points year-over-year, primarily due to a mix shift towards large hardware infrastructure opportunities.
Professional and managed services were impacted by deployment timing and customer prioritization of hardware and cloud investments.
Adjusted free cash flow year-to-date was $278 million, representing 42% of non-GAAP net income, below the stated 80%-90% conversion target.
Full year 2026 gross margin is expected to be modestly below full year 2025 levels.
Higher education continued to operate in a constrained funding environment, impacting Education segment growth.

Guidance & targets

Category	Target	Timeline	Confidence
Full-year 2026 U.S. IT addressable market growth	mid-single digits high materiality	FY26	High
Full-year 2026 CDW outperformance	200 to 300 basis points high materiality	FY26	High
Full-year 2026 gross profit growth	mid-single digits high materiality	FY26	High
Full-year 2026 gross margin	modestly below the full year 2025 high materiality	FY26	Medium
Full-year 2026 non-GAAP net income per diluted share growth	high end of high single-digit range high materiality	FY26	High
Currency impact on reported growth rates	slight benefit low materiality	FY26	Medium
Q3 gross profit growth	mid-single-digit year-over-year growth rate medium materiality	Q3 · FY26	High
Q3 non-GAAP SG&A	lower than the second quarter medium materiality	Q3 · FY26	High
Q3 non-GAAP operating expense as percentage of gross profit	down both year-over-year and quarter-over-quarter medium materiality	Q3 · FY26	High
Q3 non-GAAP net income per diluted share growth	high end of high single-digit growth year-over-year medium materiality	Q3 · FY26	High
Dividend payout ratio target	roughly 25% payout ratio of non-GAAP net income low materiality	Longer term	High
Net leverage target range	2 to 3x low materiality	Longer term	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Commercial Delivered another strong quarter, driven by demand for infrastructure modernization, cloud, and AI-readiness initiatives, with Healthcare remaining a standout performer. Corporate: 11% YoY growthHealthcare: 9% YoY growthFinancial Services: 2% YoY growth	—	9%	—	—
Government Driven by improving federal demand and continued momentum across state and local customers, prioritizing infrastructure, software life cycle management, and productivity initiatives.	—	14%	—	—
Education K-12 demand remained healthy with a strong mix of software services and life cycle offerings despite fulfillment timing shifts, while higher education continued to operate in a constrained funding environment. K-12 demand: healthyHigher education: constrained funding environment	—	1%	—	—
International Delivered exceptional growth, led by a record quarter in Canada and continued strong momentum in the U.K., with healthy demand across hardware, software, and cloud categories. Canada: record quarterU.K. and Canada local market growth: mid-teens or better	—	23%	—	—

Orderbook & backlog

Backlog significantly elevated Q2 FY26

Written demand exceeding invoicing.

Written demand robust Q2 FY26

exceeding invoicing

Risks & headwinds

Gross margin pressure due to mix shift Q2 FY26

Gross margin down 70 bps YoY to 20.1%

Mitigation:Focus on profitable engagements, generating meaningful gross profit dollars, and leveraging full stack model.

Impact on professional and managed services Q2 FY26

Services revenue growth 1%

Mitigation:Expect a pick up in life cycle and professional services as customers move from procurement to implementation to management.

Pricing pressures on notebooks and desktops Q2 FY26

Higher average selling prices more than offset lower unit volume

Mitigation:Strong execution and customer willingness to invest in mission-critical technology.

Constrained funding environment in Higher Education Q2 FY26

Higher education continued to operate in a constrained funding environment

Memory price inflation Q2 FY26

Memory price inflation also contributed to cloud adoption

Mitigation:Customers sought help finding alternatives to hardware expenditures, driving cloud adoption.

Dynamic technology and macro environment Q2 FY26

Customers navigated a dynamic technology and macro environment

Mitigation:Demand remains stronger where technology investments are tied to operational necessity, productivity, infrastructure, workplace modernization, and security.

Increased net interest expense Q2 FY26

Net interest expense increased approximately $3 million year-over-year

Mitigation:Driven by higher average borrowings during the quarter, but net leverage is within target range.

Adjusted free cash flow below target YTD FY26

Adjusted free cash flow year-to-date was $278 million or 42% of non-GAAP net income

Mitigation:Expect cash flow conversion to normalize over the balance of the year, primarily through inventory rationalization.

What to watch in Q3 FY26

Services revenue growth

Next quarter (Q3 FY26) and beyond

Current 1%

Target Pick up in life cycle and professional services

Why it matters

Services growth is expected to follow infrastructure investments and contribute meaningfully to profit growth, indicating the next phase of AI monetization.

We expect a pick up in life cycle and professional services as customers move from procurement to implementation to management.

Find out whether CDW delivers this. Inve re-checks your case every morning.

Q&A highlights

How does AI deployment by larger customers impact their spend with CDW, and what are the updates on AI potential tailwinds?

AI is a full-stack opportunity, influencing hardware, software, and services. Customers are focused on ROI, and CDW helps them with analysis and solutions. Use cases are scaling across industries (healthcare, retail, financial services). CDW is well-positioned due to its ability to integrate technologies, and sees tailwinds for services and hardware.

“AI is a part and parcel of most of what we're selling from the hardware itself to the software implementation and certainly in the services that we're bringing to bear. So it's really a full stack approach to the technology movement.”

asked by Adam Tindle · answered by Christine Leahy

2 min read 5 chapters

Detailed narrative

AI-Driven Demand and Strategic Relevance

AI is increasingly influencing customer activity, driving strong infrastructure demand, particularly among larger customers. CDW's full-stack capabilities and AI 360 framework are crucial for customers navigating AI complexity, integrating diverse environments, and managing security and governance. The company is leveraging AI internally to improve customer experience, coworker productivity, and operating leverage, with initiatives like CDW Assist Super Agent.

This strategic focus positions CDW to capture opportunities across infrastructure, security, data integration, and ongoing life cycle support as AI adoption scales.

Diversified Portfolio Performance

CDW's balanced portfolio across Commercial, Government, and Education segments, along with International operations, contributed to strong results. Commercial saw 9% growth from infrastructure modernization and AI readiness, with Healthcare up 9% and Corporate up 11%. Government benefited from improving federal demand and state/local momentum, growing 14%.

International delivered exceptional 23% growth, led by a record quarter in Canada and continued strong momentum in the U.K., with mid-teens or better local market growth.

Gross Margin and Operating Leverage Dynamics

Gross margin declined 70 basis points year-over-year to 20.1% due to a mix shift towards large hardware infrastructure opportunities and a lower relative contribution from services. However, these profitable engagements generated meaningful gross profit dollars. Operating leverage improved as expected, with non-GAAP SG&A decreasing 20 basis points year-over-year and 410 basis points quarter-over-quarter as a percentage of gross profit.

Further efficiency gains are anticipated from "geared for growth" initiatives in the second half of the year and into 2027.

Capital Allocation and Free Cash Flow

The company returned $344 million in share repurchases and $80 million in dividends during the quarter, bringing year-to-date repurchases to $545 million. Year-to-date adjusted free cash flow was $278 million, representing 42% of non-GAAP net income, below the 80-90% conversion target.

This was primarily due to working capital investments, including a $400 million increase in inventory since year-end, to support customer urgency. Management expects cash flow conversion to normalize in the second half, driven by inventory rationalization.

CFO Retirement and Transition

Al Miralles announced his plan to retire in 2027 after an extensive career. A search for his successor is underway, and he will remain in his current role until a successor is appointed, then serving in an advisory capacity to ensure a smooth transition. Chris Leahy thanked Al for his significant contributions to CDW's success as a trusted partner and leader.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.