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    CDW
    Earnings call· Jun 2026(Q2 FY26)

    CDW Q2 FY26 earnings call CDW

    Aug 5, 2026 Source

    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

    5

    • 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

    5

    • 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

    12
    CategoryTargetConfidence
    Full-year 2026 U.S. IT addressable market growth
    mid-single digits
    high materiality
    High
    Full-year 2026 CDW outperformance
    200 to 300 basis points
    high materiality
    High
    Full-year 2026 gross profit growth
    mid-single digits
    high materiality
    High
    Full-year 2026 gross margin
    modestly below the full year 2025
    high materiality
    Medium
    Full-year 2026 non-GAAP net income per diluted share growth
    high end of high single-digit range
    high materiality
    High
    Currency impact on reported growth rates
    slight benefit
    low materiality
    Medium
    Q3 gross profit growth
    mid-single-digit year-over-year growth rate
    medium materiality
    High
    Q3 non-GAAP SG&A
    lower than the second quarter
    medium materiality
    High
    Q3 non-GAAP operating expense as percentage of gross profit
    down both year-over-year and quarter-over-quarter
    medium materiality
    High
    Q3 non-GAAP net income per diluted share growth
    high end of high single-digit growth year-over-year
    medium materiality
    High
    Dividend payout ratio target
    roughly 25% payout ratio of non-GAAP net income
    low materiality
    High
    Net leverage target range
    2 to 3x
    low materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    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%——

    Operational metrics

    28
    Net sales
    $6.6Bup 10%
    Q2 FY26

    Set a new all-time quarterly record.

    Gross profit
    $1.3Bup 6.3%
    Q2 FY26

    Set a new all-time quarterly record.

    Non-GAAP operating income
    $556Mup 7%
    Q2 FY26

    Delivering some incremental leverage as expected.

    Non-GAAP operating income margin
    8.5%
    Q2 FY26

    Compared to 6.3% gross profit growth.

    Non-GAAP EPS
    $2.91up 12%
    Q2 FY26

    Set a new all-time quarterly record, above expectation for high single-digit growth.

    Gross margin
    20.1%down 70 bps YoY
    Q2 FY26

    Reflected contribution from large hardware infrastructure opportunities tied to modernization and AI readiness, particularly associated with enterprise customers, and lower relative contribution from services.

    Non-GAAP SG&A
    $764M
    Q2 FY26

    Consistent with expectation that the expense ratio would continue to decrease.

    Non-GAAP SG&A as % of gross profit
    57.9%down 20 bps YoY and 410 bps QoQ
    Q2 FY26

    Consistent with expectation for decreasing expense ratio.

    Net interest expense
    up $3MYoY
    Q2 FY26

    Driven by higher average borrowings during the quarter.

    Non-GAAP effective tax rate
    26%
    Q2 FY26

    Within target range.

    Non-GAAP net income
    $370Mup 7.8% YoY
    Q2 FY26

    Strong performance.

    Net debt
    $5.5B
    Q2 FY26

    At period end.

    Liquidity
    $2B
    Q2 FY26

    At period end.

    Cash conversion cycle
    21 days
    Q2 FY26

    Within target of high teens to low 20s. Reflects timing, market dynamics, higher hardware sales, and proactive inventory positioning.

    Adjusted free cash flow conversion
    42%
    YTD FY26

    For the first half, below 80%-90% target.

    Share repurchases
    $344M
    Q2 FY26

    Part of capital allocation objectives.

    Dividends
    $80M
    Q2 FY26

    Part of capital allocation objectives.

    Share repurchases
    $545Mcompared to $653M over entirety of 2025
    H1 FY26

    Total returned to shareholders in the form of repurchases through the first half.

    Remaining share repurchase authorization
    >$1.1B
    Q2 FY26

    Capacity under share repurchase program.

    Coworker count
    ~14,700down modestly YoY and QoQ
    Q2 FY26

    Overall coworker count.

    Customer-facing coworker count
    10,300down modestly YoY and QoQ
    Q2 FY26

    Specific count of customer-facing coworkers.

    Hardware revenue growth
    10%
    Q2 FY26

    Success addressing healthy demand for modernization, AI readiness, and resilience.

    Software revenue growth
    low double digits
    Q2 FY26

    Driven by security, application suites, and storage/network area management software.

    Security revenue growth
    double digits
    Q2 FY26

    Driven by demand for protecting advanced technology architectures and strengthening governance/compliance.

    Services revenue growth
    1%
    Q2 FY26

    Influenced by customer focus on hardware and cloud investments, combined with deployment timing.

    Netted down revenue streams growth
    16.1%
    Q2 FY26

    Picking back up again as expected.

    Netted down revenue streams as % of gross profit
    35.9%up 300 bps YoY and 140 bps QoQ
    Q2 FY26

    Strong contribution to gross profit.

    Inventory increase
    $400Msince the end of the year
    YTD FY26

    Working capital investment to support customer urgency and secure products.

    Industry KPIs

    6
    MetricValueDetails
    Orders book to billrobust
    Order visibility backlog policyrobust
    Recurring software services mix35.9%%
    Supply demand imbalance lead timesdelays in product delivery
    End market revenue mix organic growthCommercial: 9%, Corporate: 11%, Healthcare: 9%, Financial Services: 2%, Government: 14%, Education: 1%, K-12: healthy, Higher Education: constrained, International: 23%, Canada: record quarter, U.K.: strong momentum, U.K. and Canada local market growth: mid-teens or better%
    Operating margin incremental leverage8.5%%

    Orderbook & backlog

    2
    Backlogsignificantly elevatedQ2 FY26

    Written demand exceeding invoicing.

    Written demandrobustQ2 FY26

    exceeding invoicing

    Risks & headwinds

    8
    Gross margin pressure due to mix shiftQ2 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 servicesQ2 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 desktopsQ2 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 EducationQ2 FY26

    Higher education continued to operate in a constrained funding environment

    Memory price inflationQ2 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 environmentQ2 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 expenseQ2 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 targetYTD 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

    5

    Services revenue growth

    Next quarter (Q3 FY26) and beyond
    Current1%
    TargetPick 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.

    Q&A highlights

    5

    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 read5 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    AI-generated summary of the company’s earnings call. Not investment advice.