Q4 2025 CDW Corp Earnings Call

February 4, 2026

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I will now hand over to your host, Steve O'Brien with investors relations, please go ahead.

Thank you, Gabby and good morning, everyone. Joining me today to review our fourth quarter and full year. 20205 results are Chris, Ley our chair and chief executive officer and Al Morales, our Chief Financial Officer. Our earnings release was distributed this morning and is available on our website investor cdw.com along with the supplemental slides that you can use to follow along during this call. I'd like to remind you that certain comments made it in this presentation are considered forward-looking statements under the private Securities. Litigation Reform, Act of 1995, those statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, additional information concerning these risks and uncertainties is contained in the earnings release and Form 8K. We furnished to the FCC today and in the company's other filings with the SEC, CDW assumes. No obligation to update the information. Presented during this webcast, our presentation also includes certain non-gaap Financial measures including non-gaap

Property income non-gaap operating income margin non-gaap. Net, income and non-gaap earnings per share. All non-gaap measures have been reconciled to the most directly comparable, gaap measures in accordance with FCC rules. You'll find reconciliation charts in the slides for today's webcast and in our earnings release and form. AK, please note all references to growth rates or dollar amounts changes in our remarks today are versus the comparable period in 2024.

With net sales, growth rates described on an average daily basis. Unless otherwise, indicated replay of this webcast will be posted to our website later today. I want to remind you that this conference call is the property of CDW and may not be recorded or rebroadcast without specific written permission from the company with that. Let me turn the call over to Chris.

Uh, thank you Steve. Uh, good morning everyone. I'll begin our call with an overview of our fourth quarter and full year performance, and share some thoughts on our strategic progress and expectations for 2026.

Then I'll hand it over to Al who will take you through a more detailed review of the financials as well as our Capital, allocation strategy and Outlook. We'll move quickly through our prepared remarks. To ensure we have plenty of time for questions.

Q4 2025 CDW Corp Earnings Call

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Q4 2025 CDW Corp Earnings Call

CDW

Wednesday, February 4th, 2026 at 1:30 PM

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Christine Leahy: servers, and security. To help customers address these priorities, the team delivered solutions and services that drew on our deep architectural and technical expertise, and drove strong double-digit growth across software, cloud, and professional managed services, higher-margin categories that contributed to our strongest gross margins of the year. Turning to the full year results, 2025 performance was driven by our clear strategy and disciplined investments, delivered in the face of remarkable complexity. 2025 was a year that tested every part of our company. We managed through uncertainty around tariffs, unexpected shifts in education and healthcare funding, significant changes in government spending priorities, and the longest federal government shutdown on record, factors that shaped customer buying behaviors in unconventional ways. We stayed focused, adapted quickly, and continued advancing our strategy.

Chris Leahy: servers, and security. To help customers address these priorities, the team delivered solutions and services that drew on our deep architectural and technical expertise, and drove strong double-digit growth across software, cloud, and professional managed services, higher-margin categories that contributed to our strongest gross margins of the year. Turning to the full year results, 2025 performance was driven by our clear strategy and disciplined investments, delivered in the face of remarkable complexity. 2025 was a year that tested every part of our company. We managed through uncertainty around tariffs, unexpected shifts in education and healthcare funding, significant changes in government spending priorities, and the longest federal government shutdown on record, factors that shaped customer buying behaviors in unconventional ways. We stayed focused, adapted quickly, and continued advancing our strategy.

Christine Leahy: The team executed with precision and leaned into their deep end market expertise and durable client relationships to help customers address their unique challenges. For the year, the team delivered over $22 billion in net sales, up 7%. Gross profit of nearly $5 billion, up 6%. Nearly $2 billion of non-GAAP operating income, up 3%, and record non-GAAP net income per share of $10.02, up 5%. Performance that generated $1.1 billion in adjusted free cash flow that we used to fund our capital allocation priorities, including the return of nearly $1 billion to shareholders via dividends and share repurchases, as well as a capability-enhancing tuck-in acquisition during the Q4. Now, let's take a deep, deeper look at how meeting customer needs drove our fourth quarter results.

Chris Leahy: The team executed with precision and leaned into their deep end market expertise and durable client relationships to help customers address their unique challenges. For the year, the team delivered over $22 billion in net sales, up 7%. Gross profit of nearly $5 billion, up 6%. Nearly $2 billion of non-GAAP operating income, up 3%, and record non-GAAP net income per share of $10.02, up 5%. Performance that generated $1.1 billion in adjusted free cash flow that we used to fund our capital allocation priorities, including the return of nearly $1 billion to shareholders via dividends and share repurchases, as well as a capability-enhancing tuck-in acquisition during the Q4. Now, let's take a deep, deeper look at how meeting customer needs drove our fourth quarter results.

Christine Leahy: As always, there were three drivers of performance: our diverse portfolio of customer end markets, the breadth of our product solutions and services portfolio, and the relentless execution of our three-part strategy for growth. First, our diverse customer end markets. As you know, we have five US customer channels: corporate, small business, healthcare, government, and education. Each channel is a meaningful billion-dollar-plus per year business on its own. Within each channel, teams are further segmented to focus on customer end markets, including geographies and verticals. We also have our UK and Canadian operations, which together delivered sales of $2.7 billion in 2025. Once again, the power of our diverse customer end markets was evident, as strong double-digit performance in both small business and state and local, more than offset expected federal headwinds from the government shutdown.

Chris Leahy: As always, there were three drivers of performance: our diverse portfolio of customer end markets, the breadth of our product solutions and services portfolio, and the relentless execution of our three-part strategy for growth. First, our diverse customer end markets. As you know, we have five US customer channels: corporate, small business, healthcare, government, and education. Each channel is a meaningful billion-dollar-plus per year business on its own. Within each channel, teams are further segmented to focus on customer end markets, including geographies and verticals. We also have our UK and Canadian operations, which together delivered sales of $2.7 billion in 2025. Once again, the power of our diverse customer end markets was evident, as strong double-digit performance in both small business and state and local, more than offset expected federal headwinds from the government shutdown.

Christine Leahy: Corporate top line was relatively flat year-over-year, down 1%, with strong cloud adoption offset by slowing hardware solutions and the expected moderation in Windows 11 refresh activity. Exceptional small business growth of 18% was fueled by cloud consumption and related services and continued activity in client device modernization, investments that underpin focus on innovative AI opportunities. Our international operations, UK and Canada, reported together as Other, delivered high single-digit growth within the challenging markets. In our public business, healthcare increased by 5% on top of last year's exceptional performance. Government increased by 4%, as strong double-digit growth in state and local more than offset the expected decline in federal due to the extended shutdown. K-12's deep customer and partner relationships, combined with our lifecycle services capabilities, drove a major Chromebook solutions rollout with New York City Department of Education.

Chris Leahy: Corporate top line was relatively flat year-over-year, down 1%, with strong cloud adoption offset by slowing hardware solutions and the expected moderation in Windows 11 refresh activity. Exceptional small business growth of 18% was fueled by cloud consumption and related services and continued activity in client device modernization, investments that underpin focus on innovative AI opportunities. Our international operations, UK and Canada, reported together as Other, delivered high single-digit growth within the challenging markets. In our public business, healthcare increased by 5% on top of last year's exceptional performance. Government increased by 4%, as strong double-digit growth in state and local more than offset the expected decline in federal due to the extended shutdown. K-12's deep customer and partner relationships, combined with our lifecycle services capabilities, drove a major Chromebook solutions rollout with New York City Department of Education.

Christine Leahy: This, together with solid growth in higher ed, delivered a strong 13% increase in education top line. The diversity of our customer end markets was clearly a driver of Q4 performance. The second driver of performance is our broad and deep portfolio of solutions and services. This quarter, our full stack, full lifecycle offering enabled us to meet the diverse customer priorities across our end markets. Portfolio performance was led by cloud and professional managed services. Cloud remains a major engine of performance, contributing roughly half of the quarter's gross profit growth. Both cloud revenue and gross profit rose at strong double-digit rates, fueled in part by accelerating demand for cloud-enabled AI solutions. Professional and managed services top line increased double digits, driven by hybrid infrastructure engagements targeting expense savings and budget optimization, implementation of AI-powered customer care and customer experience solutions, and agentic AI engagement.

Chris Leahy: This, together with solid growth in higher ed, delivered a strong 13% increase in education top line. The diversity of our customer end markets was clearly a driver of Q4 performance. The second driver of performance is our broad and deep portfolio of solutions and services. This quarter, our full stack, full lifecycle offering enabled us to meet the diverse customer priorities across our end markets. Portfolio performance was led by cloud and professional managed services. Cloud remains a major engine of performance, contributing roughly half of the quarter's gross profit growth. Both cloud revenue and gross profit rose at strong double-digit rates, fueled in part by accelerating demand for cloud-enabled AI solutions. Professional and managed services top line increased double digits, driven by hybrid infrastructure engagements targeting expense savings and budget optimization, implementation of AI-powered customer care and customer experience solutions, and agentic AI engagement.

Christine Leahy: Hardware increased by 2%, as double-digit increases in notebooks and servers was offset by declines in storage. Towards the end of the quarter, our teams helped customers navigate memory-related price increases and announced future increases. Client devices showed continued growth, up high single digits. Growth reflected a variety of cross currents, with the large education project and modest memory-related pull-in, offset by the expected slowdown in Windows 11 refresh by enterprises and the 43-day government shutdown. Software performance was excellent. Top line rose by 12% and gross profit even faster, driven by cloud, as well as in part by customers re-renewing software licenses tied to hybrid solutions that extend the life of their existing infrastructure. Security remains a key priority across all of our customers, with top line and gross profit both up single digits....

Chris Leahy: Hardware increased by 2%, as double-digit increases in notebooks and servers was offset by declines in storage. Towards the end of the quarter, our teams helped customers navigate memory-related price increases and announced future increases. Client devices showed continued growth, up high single digits. Growth reflected a variety of cross currents, with the large education project and modest memory-related pull-in, offset by the expected slowdown in Windows 11 refresh by enterprises and the 43-day government shutdown. Software performance was excellent. Top line rose by 12% and gross profit even faster, driven by cloud, as well as in part by customers re-renewing software licenses tied to hybrid solutions that extend the life of their existing infrastructure. Security remains a key priority across all of our customers, with top line and gross profit both up single digits....

Christine Leahy: Security services remained strong, led by demand for vulnerability assessments, identity and access management implementations, and customer training, along with engagements focused on cloud deployment, endpoint and application security, and safe adoption of AI. Security Solutions showcases how we embed services in every outcome we deliver, services that amplify and accelerate value for customers and partners alike. During the quarter, just as they did all year, the team did an exceptional job leveraging our deep expertise and broad portfolio of full stack, full lifecycle solutions to address customers' most pressing priorities. That leads to our third driver of results, relentless execution of our growth strategy. Our investments in high relevance, high-growth areas position CDW to deliver outcomes in a world where technology ecosystems are more dynamic and interconnected than ever.

Chris Leahy: Security services remained strong, led by demand for vulnerability assessments, identity and access management implementations, and customer training, along with engagements focused on cloud deployment, endpoint and application security, and safe adoption of AI. Security Solutions showcases how we embed services in every outcome we deliver, services that amplify and accelerate value for customers and partners alike. During the quarter, just as they did all year, the team did an exceptional job leveraging our deep expertise and broad portfolio of full stack, full lifecycle solutions to address customers' most pressing priorities. That leads to our third driver of results, relentless execution of our growth strategy. Our investments in high relevance, high-growth areas position CDW to deliver outcomes in a world where technology ecosystems are more dynamic and interconnected than ever.

Christine Leahy: As choices multiply and risk rises, our value to customers and partners only grows, and AI plays directly to our strengths. We have the architectural depth, partner reach, and delivery scale to lead in the AI era, and our services-forward model sets us apart. Our AI offerings span strategy, data modernization, GenAI integration, and automation, and we're rapidly expanding our offerings with repeatable, scalable toolkits. As always, our portfolio is built around the customer. Our vertical use cases map directly to desired end-market outcomes, from risk, fraud, and clinical efficiency to student success, citizen services, and merchandising. In parallel, our horizontal solutions address universal priorities, such as employee and customer experience, operations, security, and automation. Repeatable solutions like deployment playbooks and managed offerings. No matter the model, services are built in from day one. While still early, AI momentum is building across every market we serve.

Chris Leahy: As choices multiply and risk rises, our value to customers and partners only grows, and AI plays directly to our strengths. We have the architectural depth, partner reach, and delivery scale to lead in the AI era, and our services-forward model sets us apart. Our AI offerings span strategy, data modernization, GenAI integration, and automation, and we're rapidly expanding our offerings with repeatable, scalable toolkits. As always, our portfolio is built around the customer. Our vertical use cases map directly to desired end-market outcomes, from risk, fraud, and clinical efficiency to student success, citizen services, and merchandising. In parallel, our horizontal solutions address universal priorities, such as employee and customer experience, operations, security, and automation. Repeatable solutions like deployment playbooks and managed offerings. No matter the model, services are built in from day one. While still early, AI momentum is building across every market we serve.

Christine Leahy: Let me share two recent AI solutions, one from a large enterprise and one for a small business, that bring this model to life. First, a large enterprise. A large enterprise wanted to scale advanced AI capabilities within its hybrid data center environment to meet rising performance demands, manage data sensitivity, and control the cost of public cloud AI workloads. After a competitive RFP process, we earned the deal with a solution that leveraged our deep partnerships and our full stack, full lifecycle approach. One of the largest enterprise deployments of next-generation accelerated compute, the solution improves total cost of ownership with a potential 90-day payback, dramatically increases developer agility, and reduces long-term regulatory and data governance risk. This is the model emerging across our enterprise customers, complex, recurring, margin-accretive engagements where our integrated capabilities matter.

Chris Leahy: Let me share two recent AI solutions, one from a large enterprise and one for a small business, that bring this model to life. First, a large enterprise. A large enterprise wanted to scale advanced AI capabilities within its hybrid data center environment to meet rising performance demands, manage data sensitivity, and control the cost of public cloud AI workloads. After a competitive RFP process, we earned the deal with a solution that leveraged our deep partnerships and our full stack, full lifecycle approach. One of the largest enterprise deployments of next-generation accelerated compute, the solution improves total cost of ownership with a potential 90-day payback, dramatically increases developer agility, and reduces long-term regulatory and data governance risk. This is the model emerging across our enterprise customers, complex, recurring, margin-accretive engagements where our integrated capabilities matter.

Christine Leahy: While we help large enterprises implement full-scale AI stack build-outs, we also deliver solutions for smaller customers that embed AI directly into their workloads as a workforce multiplier. A great example of this in action is the approach we used to help a fast-growing multi-location automobile service business, whose lean IT team was struggling to support an expanding footprint. Our solution? A modern IT service management platform that utilizes a generative AI virtual agent as the first line of support. The generative agent instantly resolves common questions, triages tickets and services, routes and surfaces relevant knowledge in real time. Governance guardrails ensure safe handling of sensitive data, delivering efficiency gains without added risk. Their IT team is holding headcount while shifting to higher-value work. The kind of productivity-led ROI customers want from AI, and the entire engagement was delivered at an accessible price for a cost-conscious customer.

Chris Leahy: While we help large enterprises implement full-scale AI stack build-outs, we also deliver solutions for smaller customers that embed AI directly into their workloads as a workforce multiplier. A great example of this in action is the approach we used to help a fast-growing multi-location automobile service business, whose lean IT team was struggling to support an expanding footprint. Our solution? A modern IT service management platform that utilizes a generative AI virtual agent as the first line of support. The generative agent instantly resolves common questions, triages tickets and services, routes and surfaces relevant knowledge in real time. Governance guardrails ensure safe handling of sensitive data, delivering efficiency gains without added risk. Their IT team is holding headcount while shifting to higher-value work. The kind of productivity-led ROI customers want from AI, and the entire engagement was delivered at an accessible price for a cost-conscious customer.

Christine Leahy: Two great client stories that highlight our standout AI solutions. But with AI embedded across the entire stack, a key part of our AI story is that AI is not a discrete contributor, it is a pervasive one, with results embedded in our hardware, software, and services performance. That brings us to our expectations for 2026. Today's technology ecosystems are more dynamic, interconnected, and mission-critical than ever. At the same time, we continue to see unique dynamics in the public sector, including lingering impacts of last year's government shutdown, as well as economic and geopolitical conditions that continue to drive cautious customer behavior. Against this backdrop, we currently look for the US IT addressable market to grow in the low single digits in 2026 on a customer spend basis, with 200 to 300 basis points of CDW outperformance.

Chris Leahy: Two great client stories that highlight our standout AI solutions. But with AI embedded across the entire stack, a key part of our AI story is that AI is not a discrete contributor, it is a pervasive one, with results embedded in our hardware, software, and services performance. That brings us to our expectations for 2026. Today's technology ecosystems are more dynamic, interconnected, and mission-critical than ever. At the same time, we continue to see unique dynamics in the public sector, including lingering impacts of last year's government shutdown, as well as economic and geopolitical conditions that continue to drive cautious customer behavior. Against this backdrop, we currently look for the US IT addressable market to grow in the low single digits in 2026 on a customer spend basis, with 200 to 300 basis points of CDW outperformance.

Christine Leahy: Wild cards include meaningful changes in known, ongoing exogenous factors, which include public spending dynamics, tariffs, and geopolitical risks, as well as memory pricing and supply. As always, we will provide updated perspective on business conditions and refine our view of the market as we move throughout the year. Regardless of market conditions, our priority is clear: deliver sustainable, profitable growth by deepening customer value, sharpening efficiency, and deploying capital with discipline, investing where we see the greatest strategic impact and long-term returns. We are operating in a complex, yet exciting time. With our full court press on strategy and team with proven execution, we are well-positioned to capture share by delivering on our unique value proposition to customers and partners. Now, let me turn it over to Al, who will provide more detail on the financials and outlook. Al?

Chris Leahy: Wild cards include meaningful changes in known, ongoing exogenous factors, which include public spending dynamics, tariffs, and geopolitical risks, as well as memory pricing and supply. As always, we will provide updated perspective on business conditions and refine our view of the market as we move throughout the year. Regardless of market conditions, our priority is clear: deliver sustainable, profitable growth by deepening customer value, sharpening efficiency, and deploying capital with discipline, investing where we see the greatest strategic impact and long-term returns. We are operating in a complex, yet exciting time. With our full court press on strategy and team with proven execution, we are well-positioned to capture share by delivering on our unique value proposition to customers and partners. Now, let me turn it over to Al, who will provide more detail on the financials and outlook. Al?

Albert Miralles: Gross margin was also up 90 basis points compared to Q3, driven by the impact of a higher mix of netted down revenues, improved product margins, and a slight mix out of client devices sequentially, despite the category's continued solid growth. The diversity of our end markets also served us well in this quarter. Government increased on the strength of state and local, while federal modestly outperformed our expectations that did factor in a prolonged government shutdown. Small business and international continued to execute at a high level, while education also posted solid growth, with both K-12 and higher ed finishing the year strong. Healthcare also increased year-over-year, despite the comparison to a prior-year Q4, where sales increased 30%.

Albert Miralles: While corporate was relatively flat year-over-year, this was in line with our expectations and reflected both continued caution towards major capital investments in solutions hardware and customers being further along with their Windows 11-related re-refresh programs compared to other channels. The diversity of our portfolio also served us well in the quarter. Demand for licensed software was strong, and we saw robust growth in virtualization, application suites, network management, and storage, storage area management software, as customers look to extend the useful life of their network and data center assets. The need for and relevance of CDW's professional and managed services continue to grow, as reflected by net sales transferred over time, where CDW is principal, increasing 11% year-over-year. Cloud, SaaS, and security offerings were particularly strong in the quarter.

Al Miralles: While corporate was relatively flat year-over-year, this was in line with our expectations and reflected both continued caution towards major capital investments in solutions hardware and customers being further along with their Windows 11-related re-refresh programs compared to other channels. The diversity of our portfolio also served us well in the quarter. Demand for licensed software was strong, and we saw robust growth in virtualization, application suites, network management, and storage, storage area management software, as customers look to extend the useful life of their network and data center assets. The need for and relevance of CDW's professional and managed services continue to grow, as reflected by net sales transferred over time, where CDW is principal, increasing 11% year-over-year. Cloud, SaaS, and security offerings were particularly strong in the quarter.

Albert Miralles: We continue to structurally align our business for stronger future expense leverage, and we expect to make progress towards this in 2026 and deem 2025 to be a normal baseline for comparative purposes. Coworker count at the end of the quarter was approximately 14,800, and customer-facing coworker count was 10,500, both down slightly year-over-year and quarter-over-quarter. Our goal is to balance growth, expansion of capabilities, and exceptional customer experience with greater efficiency and cost leverage from our broader operations. Non-GAAP operating income was approximately $502 million, up 0.6% versus the prior year. Non-GAAP operating income margin of 9.1% was down 50 basis points from the prior year fourth quarter level, when expenses benefited from lower performance-based compensation and coworker-related costs.

Al Miralles: We continue to structurally align our business for stronger future expense leverage, and we expect to make progress towards this in 2026 and deem 2025 to be a normal baseline for comparative purposes. Coworker count at the end of the quarter was approximately 14,800, and customer-facing coworker count was 10,500, both down slightly year-over-year and quarter-over-quarter. Our goal is to balance growth, expansion of capabilities, and exceptional customer experience with greater efficiency and cost leverage from our broader operations. Non-GAAP operating income was approximately $502 million, up 0.6% versus the prior year. Non-GAAP operating income margin of 9.1% was down 50 basis points from the prior year fourth quarter level, when expenses benefited from lower performance-based compensation and coworker-related costs.

Albert Miralles: Market demand was relatively in line with what we initially anticipated, while customer sentiment was cautious throughout the year, impacted by the twists and turns of economic policies, geopolitical issues, and the early stages of many customers' AI journeys. Through all of that, our teams delivered for our customers, and we're proud of their execution in this environment. We grew net sales 6.8% and gross profit 5.9% during the year, holding gross margins reasonably flat at 21.7%. Again, showing that even when client devices are higher in the mix and solutions hardware demand is uneven, our margins remain resilient. Our non-GAAP net income per diluted share increased 5.2%, breaking through the $10 per share mark, an all-time record for CDW. Moving to the balance sheet.

Al Miralles: Market demand was relatively in line with what we initially anticipated, while customer sentiment was cautious throughout the year, impacted by the twists and turns of economic policies, geopolitical issues, and the early stages of many customers' AI journeys. Through all of that, our teams delivered for our customers, and we're proud of their execution in this environment. We grew net sales 6.8% and gross profit 5.9% during the year, holding gross margins reasonably flat at 21.7%. Again, showing that even when client devices are higher in the mix and solutions hardware demand is uneven, our margins remain resilient. Our non-GAAP net income per diluted share increased 5.2%, breaking through the $10 per share mark, an all-time record for CDW. Moving to the balance sheet.

Albert Miralles: At period end, net debt is $5 billion, down roughly $165 million from the prior quarter, driven by increased cash and cash equivalents. Liquidity increased under our new facility, with cash plus revolver availability of approximately $2.5 billion. The three-month average cash conversion cycle was 16 days, slightly below our target range of high teens to low twenties. This cash conversion metric reflects our effective management of working capital, including disciplined management of our inventory levels, even as hardware sales were firm and client device growth continued. As we've mentioned in the past, timing and market dynamics will influence working capital and the cash conversion cycle in any given quarter or year. We continue to believe our target cash conversion range remains the best guidepost for modeling working capital longer term.

Al Miralles: At period end, net debt is $5 billion, down roughly $165 million from the prior quarter, driven by increased cash and cash equivalents. Liquidity increased under our new facility, with cash plus revolver availability of approximately $2.5 billion. The three-month average cash conversion cycle was 16 days, slightly below our target range of high teens to low twenties. This cash conversion metric reflects our effective management of working capital, including disciplined management of our inventory levels, even as hardware sales were firm and client device growth continued. As we've mentioned in the past, timing and market dynamics will influence working capital and the cash conversion cycle in any given quarter or year. We continue to believe our target cash conversion range remains the best guidepost for modeling working capital longer term.

Albert Miralles: Adjusted free cash flow was an excellent $418 million in the quarter, bringing us to $1.09 billion for the full year. This reflects 82% of non-GAAP net income for the year, within our stated rule of thumb of converting 80% to 90% of non-GAAP net income to cash. We effectively utilized cash consistent with our 2025 capital allocation objectives during the quarter, including returning $153 million in share repurchases and $82 million in the form of dividends. As a reminder, we began 2025 targeting to return 50% to 75% of adjusted free cash flow to shareholders. We finished well ahead of that target, having returned nearly $1 billion to shareholders, or 90% of our adjusted free cash flow. And that brings me to our capital allocation priorities moving forward.

Al Miralles: Adjusted free cash flow was an excellent $418 million in the quarter, bringing us to $1.09 billion for the full year. This reflects 82% of non-GAAP net income for the year, within our stated rule of thumb of converting 80% to 90% of non-GAAP net income to cash. We effectively utilized cash consistent with our 2025 capital allocation objectives during the quarter, including returning $153 million in share repurchases and $82 million in the form of dividends. As a reminder, we began 2025 targeting to return 50% to 75% of adjusted free cash flow to shareholders. We finished well ahead of that target, having returned nearly $1 billion to shareholders, or 90% of our adjusted free cash flow. And that brings me to our capital allocation priorities moving forward.

Albert Miralles: Our first capital priority is to increase the dividend in line with non-GAAP net income growth. We announced on our last earnings call an approximately 1% increase in our dividend to $2.52 annually, our 12th consecutive year of an increase. We will continue to prudently manage our dividend with respect to the growth environment and target a roughly 25% payout ratio of non-GAAP net income going forward. Our second priority is to ensure we have the right capital structure in place. We ended Q4 at 2.4 times net leverage, within our targeted range of 2 to 3 times. We will continue to proactively manage liquidity while maintaining flexibility. Finally, our third and fourth capital allocation priorities of M&A and share repurchases remain important drivers of shareholder value.

Al Miralles: Our first capital priority is to increase the dividend in line with non-GAAP net income growth. We announced on our last earnings call an approximately 1% increase in our dividend to $2.52 annually, our 12th consecutive year of an increase. We will continue to prudently manage our dividend with respect to the growth environment and target a roughly 25% payout ratio of non-GAAP net income going forward. Our second priority is to ensure we have the right capital structure in place. We ended Q4 at 2.4 times net leverage, within our targeted range of 2 to 3 times. We will continue to proactively manage liquidity while maintaining flexibility. Finally, our third and fourth capital allocation priorities of M&A and share repurchases remain important drivers of shareholder value.

Albert Miralles: We continually evaluate M&A opportunities that could accelerate our three-part strategy for growth, as shown by our recent acquisition of the select assets of Lexicon Tech Solutions. This acquisition highlights our strategy of bolstering our end-to-end life cycle capabilities for education customers, with the potential to broaden the applicability to our other channels down the road. For 2026, we are maintaining our target to return 50 to 75% of adjusted free cash flow to shareholders via the dividend and share repurchases. While we remain active in the M&A market, our cash flow performance, both in 2025 and what is expected for 2026, will allow us to be opportunistic towards share repurchases as we deem our stock to be attractive at this valuation.

Albert Miralles: Customers have compelling needs to address priorities across the full IT stack, but this is balanced against the risk of supply chain and pricing challenges, ongoing geopolitical unrest, and general economic uncertainty and caution. A new year does not wipe the slate clean, but it does give us a chance at a fresh perspective. On that note, ahead of our Q1 2026 earnings call, we'll be updating the reporting of our customer channels. As a brief preview, we've made changes to reflect our current go-to-market structure. With this, you will see more information on government and education, including gross profit and operating income for each. We will continue to disclose net sales for our healthcare and corporate channels, and we'll additionally disclose net sales for our financial services vertical. These channels will be included in the segment we will be calling commercial.

Al Miralles: Customers have compelling needs to address priorities across the full IT stack, but this is balanced against the risk of supply chain and pricing challenges, ongoing geopolitical unrest, and general economic uncertainty and caution. A new year does not wipe the slate clean, but it does give us a chance at a fresh perspective. On that note, ahead of our Q1 2026 earnings call, we'll be updating the reporting of our customer channels. As a brief preview, we've made changes to reflect our current go-to-market structure. With this, you will see more information on government and education, including gross profit and operating income for each. We will continue to disclose net sales for our healthcare and corporate channels, and we'll additionally disclose net sales for our financial services vertical. These channels will be included in the segment we will be calling commercial.

Albert Miralles: Small business will be integrated within the commercial segment, and we will still maintain the preeminent small business support model in our industry, and our small business teams will also be aligned to the areas of industry expertise. While we've seen heightened uncertainty in recent years, 2025 was as dynamic a year as any. We believe we have navigated these complex environments with an appropriate level of prudence and precision. We believe that our updated go-to-market structure and the investments we've made to fortify this structure set us up for success in 2026 and beyond. Turning to our outlook. We will continue to deliver for our customers and partners, and as always, as the landscape changes throughout the year, we will provide you with updates each quarter.

Al Miralles: Small business will be integrated within the commercial segment, and we will still maintain the preeminent small business support model in our industry, and our small business teams will also be aligned to the areas of industry expertise. While we've seen heightened uncertainty in recent years, 2025 was as dynamic a year as any. We believe we have navigated these complex environments with an appropriate level of prudence and precision. We believe that our updated go-to-market structure and the investments we've made to fortify this structure set us up for success in 2026 and beyond. Turning to our outlook. We will continue to deliver for our customers and partners, and as always, as the landscape changes throughout the year, we will provide you with updates each quarter.

Albert Miralles: With these factors in mind, our full year 2026 expectation is for our addressable IT market to grow low single digits, and we target market outperformance of 200 to 300 basis points on a customer spend basis. With this, we expect gross profit to grow in the range of low single digits for the full year 2026, and we expect second half gross profit contribution to be slightly above the first half. Based on the anticipated mix of products and solutions for 2026, gross margin should be slightly higher than 2025 levels and remain well above rates from 3+ years ago. Finally, we expect our full year non-GAAP net income per diluted share to grow mid-single digits year over year, as we focus on operating leverage and effective execution of our capital allocation priorities.

Al Miralles: With these factors in mind, our full year 2026 expectation is for our addressable IT market to grow low single digits, and we target market outperformance of 200 to 300 basis points on a customer spend basis. With this, we expect gross profit to grow in the range of low single digits for the full year 2026, and we expect second half gross profit contribution to be slightly above the first half. Based on the anticipated mix of products and solutions for 2026, gross margin should be slightly higher than 2025 levels and remain well above rates from 3+ years ago. Finally, we expect our full year non-GAAP net income per diluted share to grow mid-single digits year over year, as we focus on operating leverage and effective execution of our capital allocation priorities.

Albert Miralles: Please remember, we hold ourselves accountable for delivering our financial outlook on a constant currency basis. On that note, our expectation is for currency to be neutral to reported growth rates for the year. Moving to modeling thoughts for Q1. We anticipate gross profit to decline at a mid-single digit rate sequentially, leading to mid-single digit year-over-year growth. We expect some demand to be pulled forward into Q1 to get ahead of price increases in certain memory-intensive product categories. Separately, our Q1 view reflects an expected slow start to the year for the federal channel as pipeline rebuilds following last quarter's government shutdown. Moving down the P&L. We expect Q1 operating expenses to be down from Q4 of 2025 on a dollar basis, whereas they are normally flat to up sequentially.

Al Miralles: Please remember, we hold ourselves accountable for delivering our financial outlook on a constant currency basis. On that note, our expectation is for currency to be neutral to reported growth rates for the year. Moving to modeling thoughts for Q1. We anticipate gross profit to decline at a mid-single digit rate sequentially, leading to mid-single digit year-over-year growth. We expect some demand to be pulled forward into Q1 to get ahead of price increases in certain memory-intensive product categories. Separately, our Q1 view reflects an expected slow start to the year for the federal channel as pipeline rebuilds following last quarter's government shutdown. Moving down the P&L. We expect Q1 operating expenses to be down from Q4 of 2025 on a dollar basis, whereas they are normally flat to up sequentially.

Yeah, David um let me uh try to share as much visibility as we have into uh the memory impacts from partners. And and what we're seeing uh, Visa be demand. Um, first of all I'd say is, we think about the upcoming quarter. It's, it's hard to tell yet what we expect to see from a pull forward perspective. I think look, we've Quantified it and, and, and believed to the best of our ability that we're going to see about the same amount of pull forward in q1, or slightly more than we actually saw in December. You know, when you think about the various products, I would just tell you that, um, PCS for us, for example, have been strong and privacy decelerating growth this coming year, but we still see strength. As we explained in our prepared remarks, it might be a little choppier during the course, of the year, as a result of memory, but we still see strength there. Um, what we've done is in the back, half of the year, we've really just camped that down a bit to take into account that we don't have visibility all the way to the back end of the year. But that's, that's how we're thinking about it.

Got it, thanks. Maybe the follow-up for Chris. Uh, I know a lot of the investor conversation recently has been around Ai and whether or not that the benefit or headwind to CDW. Reminds me a little bit of years ago when there was questions around Cloud for CDW. And as you mentioned in your prepared remarks, I think cloud is now driving a significant portion of the gross profit dollar growth in this model and it clearly was not a headwind. Uh, so Chris I wonder if you might kind of compare and contrast, uh, Cloud versus AI in terms of the investor narrative and what you're seeing in the customer behavior. And I remember at the time, uh, you had kind of a landmark, uh, where you've landed AWS on the line card many years ago, and that was kind of The Stomping point to say, you know, hey, you know, cloud is going to be a benefit. You see opportunity like that with AI, is there, you know, a strategic partnership with openai and Tropic somebody like that that could potentially materialize? What would be sort of the Turning Point? Thanks.

Christine Leahy: Yeah, Adam, thanks for the question. Let me start with the end and work backwards. With the various partners you've named, we've already got relationships with them, as you would expect, and smaller companies as well, but all the big players in the AI space, CDW has got partnership relationships with right now. I would say, look, while we're still in the early innings, and you heard me say this, AI momentum is picking up in all of our end markets. And, you know, a slight difference from cloud versus the AI revolution now is, cloud was, you know, just a consumption model, and AI is embedded across the entire stack and is changing the entire platform, so to speak. So when I think about where we sit right now, we're very optimistic about 2026 and beyond.

Chris Leahy: Yeah, Adam, thanks for the question. Let me start with the end and work backwards. With the various partners you've named, we've already got relationships with them, as you would expect, and smaller companies as well, but all the big players in the AI space, CDW has got partnership relationships with right now. I would say, look, while we're still in the early innings, and you heard me say this, AI momentum is picking up in all of our end markets. And, you know, a slight difference from cloud versus the AI revolution now is, cloud was, you know, just a consumption model, and AI is embedded across the entire stack and is changing the entire platform, so to speak. So when I think about where we sit right now, we're very optimistic about 2026 and beyond.

Beyond, um, we are seeing customers, absolutely move into production stage. And if I just take a moment on on the value, proposition that CW brings to bear. Look organizations. Don't struggle with, um, access to models they struggle with making, uh, making them work to see to solve problems real problems. And that's across their full technology estate. And so you think about CW that plays to our strengths and its structural advantages that we built over decades. Our clients depend on our expertise or integration and secured employment of AI enabled Tech Solutions. Uh, and so customers are looking to us now, uh, to really help them adapt and consume. And remember, there's been a lot of investment in capacity, um, for AI. Now, that capacity has to be consumed and we're right there to help them do it, um, you know, in neutral party. But the Deep technical expertise across the entire

Christine Leahy: We are seeing customers absolutely move into production stage. And if I just take a moment on the value proposition that CDW brings to bear, look, organizations don't struggle with access to models. They struggle with making them work, to solve problems, real problems. And that's across their full technology estate. And so you think about CDW, that plays to our strengths and its structural advantages that we've built over decades. Our clients depend on our expertise for integration and secure deployment of AI-enabled tech solutions. And so customers are looking to us now, to really help them adopt and consume. And remember, there's been a lot of investment in capacity for AI. Now, that capacity has to be consumed, and we're right there to help them do it.

Chris Leahy: We are seeing customers absolutely move into production stage. And if I just take a moment on the value proposition that CDW brings to bear, look, organizations don't struggle with access to models. They struggle with making them work, to solve problems, real problems. And that's across their full technology estate. And so you think about CDW, that plays to our strengths and its structural advantages that we've built over decades. Our clients depend on our expertise for integration and secure deployment of AI-enabled tech solutions. And so customers are looking to us now, to really help them adopt and consume. And remember, there's been a lot of investment in capacity for AI. Now, that capacity has to be consumed, and we're right there to help them do it.

5, um, you'll remember, I've got a q q1. We showed the greatest amount of operating leverage and we indicated given the shape of the year, uh, from the prior year around incentives. We expected asymmetry the biggest driver of what we saw for the year was just that it was the volatility variability through the quarters on the expense front relative to gross profits. Okay? So there's that number. That number 2 is obviously gross profit for us exceeded expectations. We are still a highly variable model and therefore Opex is going to respond to that higher gross profit and we definitely did. Uh we definitely did see that and then thirdly I would say look we have been investing and continue to invest and we think it's critical to feed into our strategies so that would be kind of the third theme but the first 2 components really kind of trumped the investment. Now, as we

Albert Miralles: Yep, happy to tackle that. So in 2025, you'll remember kinda Q1, we showed the greatest amount of operating leverage, and we indicated, given the shape of the year, from the prior year around incentives, we expected asymmetry. The biggest driver of what we saw for the year was just that. It was the volatility, variability through the quarters on the expense front relative to gross profit. Okay, so there's that. Number two is obviously gross profit for us exceeded expectations. We are still a highly variable model, and therefore, OpEx is gonna respond to that higher gross profit, and we definitely did see that. And then thirdly, I would say, look, we have been investing and continue to invest, and we think it's critical to feed into our strategy. So that would be kind of the third theme.

Al Miralles: Yep, happy to tackle that. So in 2025, you'll remember kinda Q1, we showed the greatest amount of operating leverage, and we indicated, given the shape of the year, from the prior year around incentives, we expected asymmetry. The biggest driver of what we saw for the year was just that. It was the volatility, variability through the quarters on the expense front relative to gross profit. Okay, so there's that. Number two is obviously gross profit for us exceeded expectations. We are still a highly variable model, and therefore, OpEx is gonna respond to that higher gross profit, and we definitely did see that. And then thirdly, I would say, look, we have been investing and continue to invest, and we think it's critical to feed into our strategy. So that would be kind of the third theme.

Great, thank you for, uh, for taking my questions. Um, Chris, I I realize this is kind of a backwards looking question, but it doesn't form the forward look and, you know, for for many years, uh, especially in years where Hardware spending was strong, you know, CDW would outgrow us, it market growth by maybe 5 4 to 500 basis points or even more. Um, in each of the last 3 years, we haven't really seen that only about 200 or 300 basis points of outperformance. Um, even in a market like 2025 where Hardware spending was robust, so I would just love to understand. Is there something, you know, structural about the market perhaps competition or something? We're not considering that just makes it harder to outperform in the ways that you used to, um, or or what, what can maybe explain that. Um, just relative to historical outperformance and then a quick follow up. Thank you.

We are in a little bit in a different in the spending cycles. And what we've seen with larger companies over the last couple of years actually, particularly, as AI has been introduced, is, um, uh, taking the time to, to understand how that technology integrates into their estate and how to do that. Uh, and to do exper experimentation and testing. So they have been more focused on cost optimization, extending the useful life of assets. Uh, the must dos like client devices, Etc. And now, we are actually seeing a number of larger companies, um, who are starting to move in to to, to production and starting to spend more in that area. You know. It's still a cautious time for all of our customers. So we are taking a prudent approach to spending this coming year. And as Alice said, we expect it to be uneven, but we are at the front end. I think of an uptick in what we're going to start seeing from the corporate side. Small business is, um,

Christine Leahy: Yeah, I'd say a couple things. We are in a little bit of a difference in the spending cycles, and what we've seen with larger companies over the last couple of years, actually, particularly as AI has been introduced, is taking the time to understand how that technology integrates into their estate and how to do that, and to do experimentation and testing. So they have been more focused on cost optimization, extending the useful life of assets, the must-dos, like client devices, et cetera. And now we are actually seeing a number of larger companies, who are starting to move into production and starting to spend more in that area. You know, it's still a cautious time for all of our customers, so we are taking a prudent approach to spend in this coming year.

Chris Leahy: Yeah, I'd say a couple things. We are in a little bit of a difference in the spending cycles, and what we've seen with larger companies over the last couple of years, actually, particularly as AI has been introduced, is taking the time to understand how that technology integrates into their estate and how to do that, and to do experimentation and testing. So they have been more focused on cost optimization, extending the useful life of assets, the must-dos, like client devices, et cetera. And now we are actually seeing a number of larger companies, who are starting to move into production and starting to spend more in that area. You know, it's still a cautious time for all of our customers, so we are taking a prudent approach to spend in this coming year.

Christine Leahy: Thanks, Ruplu, for the question. Yes, it absolutely is. And when you think about that customer set that you just mentioned, those are customers that don't have the resources, the breadth of skills and capabilities, the access to the partners, and the full kind of end-to-end capabilities. And so CDW has been both investing in over the years, but now highly engaged with customers in the small business space, the mid-market space, and the higher end of the mid-market space as well, to help on the design stage, the architectural stage, the analytics stage, the workshopping stage, and then taking that to the next several stages, which is obviously a migration and deployment. It's actually activating and operating. It's ensuring that the data that fuels all the benefits of AI are governed, they're clean, everything that needs to be done there.

Chris Leahy: Thanks, Ruplu, for the question. Yes, it absolutely is. And when you think about that customer set that you just mentioned, those are customers that don't have the resources, the breadth of skills and capabilities, the access to the partners, and the full kind of end-to-end capabilities. And so CDW has been both investing in over the years, but now highly engaged with customers in the small business space, the mid-market space, and the higher end of the mid-market space as well, to help on the design stage, the architectural stage, the analytics stage, the workshopping stage, and then taking that to the next several stages, which is obviously a migration and deployment. It's actually activating and operating. It's ensuring that the data that fuels all the benefits of AI are governed, they're clean, everything that needs to be done there.

Yeah, good morning, Keith, thanks for question. Um look it is it is quite fluid. Uh what we are seeing kind of cross OEM partners and kind of product Generations, is varying quite greatly. But uh, you're seeing kind of week to week, month to month, price increases, uh, flowing through and what we're seeing is uh, customers help us, helping customers navigate around that in some cases with these Partners, Keith uh, there may be certain configurations of machines, uh, where they're not seeing as much of the way, the way the price increase, and there's less risk of Supply. So I'll just say it's it's very fluid at the time. Now, to your question on uh Supply, what we see right now, very robust, customer demand, significant customer activity, kind of uh on this front and plenty of written demand that we

Albert Miralles: Yeah, good morning, Keith. Thanks for the question. Look, it is quite fluid. What we are seeing kind of across OEM partners and kind of product generations is varying quite greatly. But you're seeing kind of week to week, month to month price increases flowing through. And what we're seeing is us helping customers navigate around that. In some cases, with these partners, Keith, there may be certain configurations of machines where they're not seeing as much of the way the price increase, and there's less risk of supply. So I'll just say it's very fluid at the time. Now, to your question on supply, what we see right now, very robust customer demand, significant customer activity, kind of on this front, and plenty of written demand that we are experiencing.

Al Miralles: Yeah, good morning, Keith. Thanks for the question. Look, it is quite fluid. What we are seeing kind of across OEM partners and kind of product generations is varying quite greatly. But you're seeing kind of week to week, month to month price increases flowing through. And what we're seeing is us helping customers navigate around that. In some cases, with these partners, Keith, there may be certain configurations of machines where they're not seeing as much of the way the price increase, and there's less risk of supply. So I'll just say it's very fluid at the time. Now, to your question on supply, what we see right now, very robust customer demand, significant customer activity, kind of on this front, and plenty of written demand that we are experiencing.

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