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CDW Scores Wins In Gov’t, Education Amid Revenue Slump

‘It‘s hard to paint a picture, a single picture of where IT budgets are going,” CDW CEO Chris Leahy tells investors during the company’s earnings call.

Midway through CDW CEO Chris Leahy’s second year on the job, the massive systems integrator and distributor has won big deals in government and education but a drop-off in the SMB and corporate technology spend is giving her pause before predicting how the company will perform for the rest of 2020.

“It‘s hard to paint a picture, a single picture of where IT budgets are going,” she told investors during an earnings call Wednesday. “That said, we are having robust conversations with all of our customers, those that are spending today and those who are planning tomorrow. So, how budgets work? It’s really going to be a reflection on the economy in this health crisis, which we continue to believe is just unpredictable. There’s not a lot of visibility there.”

Leahy said government sales – driven by a deal with the U.S. Census Bureau, as well as other civilian projects – were up 24 percent. Education in kindergarten through 12th grade were also higher as school districts sought Chromebooks and other remote learning solutions.

However, higher education, healthcare, and the corporate and small business spend were down sharply. Leahy said corporate and small business customer spending was prioritized in three areas: remote work, which drove endpoint device sales; infrastructure optimization which took the form of strong cloud sales, and extended maintenance contracts.

“For the quarter net sales performance varied by month and by customer end market,” she said. “We entered April with a healthy backlog of remote workforce enablement solution, which contributed to strong performance in April. As the quarter progressed, for some of our customer end markets projects were postponed and demand declined, as the economic toll of the crisis impacted customer spend. In other customer end markets, IT investment was prioritized and remained healthy.”

CDW’s revenue was down 5.7-percent in the second quarter ended June 30. The company generated $4.36 billion in sales, off $264 million from the year ago quarter. Net income was also off 3.8 percent to $189.1 million for a diluted earnings per share of $1.31 down 2-cents from $1.33 a year ago. Shares closed Wednesday at $116.75, down $2.77.

While topline numbers may not show it, the company notched some big wins in the battle for hearts and minds this quarter, Leahy said, helping enterprise customers navigate the perils of moving their entire workforces remote. In one case a financial services company handed CDW a check and left it up to them to install the best solutions.

“Only 30% of its workforce had worked from home capability,” Leahy told investors. “The customer delegated an emergency blanket purchase order for $3.5 million for our team to have full responsibility to develop the right solution across client devices, remote access, security and it‘s data centers. We leveraged our long standing relationships with the customer to get it right, and with our vendor partners to get supply.”

Losses seen earlier this year in the most impacted end markets have “stabilized,” she said. Leahy said while there are encouraging signs for CDW’s more resilient customers, “It’s premature to call this a trend.”

She said as a result, the company is withholding 2020 guidance.

“What I would leave you with is, technology is the top of everybody‘s minds. And for those customers that are focused on just surviving, they’ve got rent to pay, they’ve got payroll to pay. They’re not going to be paying for IT right now. But we are talking with those customers about what’s to come in the next quarter and beyond.”

Part of that is the return to work, which CDW has used as a sales motion to boost revenue in the third quarter and beyond.

“Customers have turned to us for return to work technology solutions beyond our traditional offerings, including enhanced video surveillance, temperature scanners and device sanitizing solutions,” she said. “We now offer a full suite of IT enabled solutions to meet these demands. Our teams have productized different solutions for our various customer end markets. This is a great example of our thought leadership and ability to pivot to growth opportunities.”

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