CDW Corp Q3 FY2024 earnings call

• Market conditions were challenging with macro, IT spending, election uncertainty, and increased competition. - CDW-specific dynamics included financial discipline leading to lower sales and profit, exposure to larger deals causing lumpiness, and cloud/SaaS business not yet scaled enough. - Focus areas were growing cloud/software capabilities, enhancing customer experience, and improving agility and pipeline growth. - Segment performance varied by end market, with corporate, public, government, education, K-12, and international markets showing mixed results.

In the third quarter, CDW had gross profit of $1.2 billion, 2% lower than the prior year, and gross margin of 21.8%. Net sales were $5.5 billion, 3.5% lower on an average daily sales basis. Product segments: Hardware solutions were under pressure due to macro and IT spending challenges and secular shifts to as-a-service models. Client devices saw high single-digit growth, driven by client refresh and strong ASPs. Cloud solutions had double-digit gross profit growth, with strong demand despite hardware softness. Services, including professional and managed services, grew double digits. The combined U.K. and Canada business performed above expectations, up 5%, with both markets experiencing stronger demand.

For 2024, CDW expects a low single-digit gross profit decline, similar gross margin to 2023, and full year non-GAAP EPS down mid single digits. For the fourth quarter, it anticipates low to mid single-digit gross profit decline, operating expenses similar to Q4 2023, and non-GAAP EPS down high single digits.

• Macro and IT spending: Economic, geopolitical uncertainty, large project delays, sales cycle extensions. - Competition: Heightened competition and pricing intensity across end markets. - CDW-specific: Financial discipline leading to lower sales, exposure to large deals causing lumpiness, cloud/SaaS business not scaled enough.

Q: Adam Tindle asks about negative operating leverage and restructuring.

A: Al Miralles and Chris Leahy respond, discussing variable cost model, fixed cost base, and workforce reduction.

Q: David Vogt asks about market recovery and competition.

A: Chris Leahy and Al Miralles respond, talking about market share, catalysts for growth, and hardware cyclicality.

Q: Erik Woodring asks about market competition and product demand.

A: Chris Leahy responds, discussing irrational pricing, market dynamics, and competitive intensity