CDW CEO Leahy: Investing In The Future Includes Bets On Data Analytics, AI

‘Customers recognize the evolutionary benefits of AI, yet they face incredible complexity and choice, complexity and choice that plays to our strengths and our value proposition as a trusted partner and adviser,’ says CDW Chairperson and CEO Christine Leahy on the company’s second fiscal quarter earnings call.


Economic uncertainty negatively impacted CDW’s second fiscal quarter’s top line and bottom line, but the company said the impact mainly hit transactional sales while helping pivot customers to more high-value solutions.

CDW Chairperson and CEO Christine Leahy Tuesday told financial analysts during the company’s second fiscal quarter 2023 conference call that CDW executed well in a market facing persistent challenges, with commercial top-line revenue under pressure while public revenue returned to more normal seasonality.

“In an ongoing period of economic uncertainty, our ability to drive outcomes and address customer priorities across the entire IT continuum enabled the team to pivot to where our customers need us most, an ability that reflects the impact of strategic investments we have made to enhance our high relevance and high-growth solutions and services,” Leahy said. “While transactional business remained under pressure, increases in solutions contributed to meaningful margin expansion, margin expansion that together with ongoing expense discipline delivered strong profitability.”

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Economic uncertainty continued to weigh on CDW’s commercial market, and both the company’s corporate and small-business results reflected ongoing cautious customer behavior, caution that Leahy said drove elongated sales cycles, smaller deal sizes and greater focus on mission-critical projects.

“[It was] caution that also drove customer focus on short-term ROI, with both corporate and small business posting double-digit increases in cloud spend,” she said. “For corporate, overall sales declined 16 percent. Mission-critical projects continue to move forward and slowly ticked up throughout the quarter. Large commercial customer spending sequentially improved.”

However, Leahy said, continued postponement of upgrades and the utilization of existing products resulted in a double-digit decline in client device sales.

“While we remain cautious on the outlook for client devices, corporate delivered its first sequential volume increase in the past four quarters, providing some indication of demand stability,” she said. “Notably, client device ASPs [average sales prices] held, buoyed by a mix into higher- value, higher-functionality units.”

CDW in the quarter experienced momentum around projects focused on increased productivity and enhanced customer and coworker experiences, and that drove excellent growth in cloud spend, Leahy said.

“Focus on mission-critical priorities around security and efficiency drove double-digit customer spend increases in both cloud and software,” she said.

Public performance partially mitigated commercial market pressure and was seasonally higher than in the first fiscal quarter, Leahy said. Sales increased 2 percent year over year with strong performance in government, another quarter of stable performance in health care and an upturn in education, she said.

CDW’s federal government business delivered double-digit growth in the quarter, largely driven by the team’s ability to help agencies implement more efficient solutions to manage and protect data, Leahy said. The state and local team also delivered double-digit growth.

“Excellent services performance reflected the team’s success, helping state and local municipalities address talent gaps through enhanced training as well as professional services engagement,” she said. “Cloud adoption drove strong software and security performance.”

Health-care performance was relatively flat, with talent needs and data center projects remaining focus areas as customers increasingly leveraged technology to address complex industry challenges, Leahy said. “Customer hesitancy around cloud continued to dissipate and adoption increased meaningfully in the quarter,” she said.

CDW’s education business saw a double-digit increase in higher education but still lower year-over-year K-12 performance, resulting in an overall education sales decrease of 1 percent, Leahy said.

“Higher-education institutions’ ongoing emphasis on student enrollment drove investments in enhanced security as well as campus connectivity and dorm room experiences,” she said. “The team’s ability to deliver these solutions drove double-digit growth across cloud, netcom, storage, software and security. Client devices were flat as the volume decline was offset by a mix into higher-value units, which drove strong ASP performance.”

All three of CDW’s portfolio categories—hardware, software and services—were impacted by commercial pressure with deferral of major hardware projects resulting in lower volumes in services and solutions, resulting in a year-over-year drop in hardware sales of 11 percent, Leahy said.

However, she said, the company’s netcom, or network and communications, sales had meaningful increases across all customer end markets.

“This strong performance was largely driven by improvements in supply and continued work on customer’s network modernization projects,” she said.

Services were relatively flat year on year, with growth in some areas offset by services attached to transactional and solutions hardware, Leahy said.

Professional services were solid and while managed services activity was solid, given extended sales cycles the impact on net sales was minimal, she said.

Security remained a key focus area for customers with spending up single digits, Leahy said, with top growth categories including endpoint security, e-mail security, identity management and physical security.

Cloud remained an important driver of performance across CDW, with productivity, Infrastructure as a Service, and security the top three workloads in the quarter, she said. Each of thecustomer end markets posted double-digit increases in cloud, customer spend and gross profit, she said.

CDW continues to invest in future technologies to help drive growth going forward, Leahy said. One such technology is data analytics underpinned by the intimate knowledge the company has about its customers thanks to deep and long-lasting relationships, she said.

“They are also underpinned by our broad and comprehensive product portfolio, which provides extensive historical information about buying patterns across industries and verticals,” she said. “This proprietary customer and product knowledge powers our data analytics that helps create robust and data-driven predictive models, models that identify customer needs and create personalized and targeted outreach to drive tailored services, products and solutions, solutions that help our customers accelerate their strategies and achieve their missions.”

Just as important is CDW’s investment in AI, the adoption of which feels very much like other transformative technologies of the past, Leahy said.

“Customers recognize the evolutionary benefits of AI, yet they face incredible complexity and choice, complexity and choice that plays to our strengths and our value proposition as a trusted partner and adviser,” she said. “And just as we have in the past, we have made and will continue to make the investments necessary to ensure we are ready, ready to lead the market and ready to help our customers maximize the return on their AI investments.”

For its second fiscal quarter 2023, which ended June 30, CDW reported net sales of $5.63 billion, which was down about 8.5 percent over the $6.15 billion the company reported for the second fiscal quarter 2022.

This included the company’s corporate revenue of $2.25 billion, down 15.6 percent; small-business revenue of $396.2 million, down 20.8 percent; government revenue of $681.2 million, up 11.8 percent; education revenue of $1.03 billion, down 1.4 percent, health-care revenue of $587.1 million, down 0.9 percent; and other revenue of $689.8 percent, down 7 percent.

Total revenue beat analyst expectations by $250 million, according to Seeking Alpha.

CDW also reported GAAP net income for the quarter of $262.6 million, or $1.92 per share, down from last year’s $279.3 million, or $2.04 per share. On a non-GAAP basis, CDW reported net income of $349.0 million, or $2.56 per share, up from last year’s $339.5 million, or $2.49 per share.

Non-GAAP earnings beat analyst expectations by 23 cents per share, according to Seeking Alpha.

Investors reacted positively to CDW’s second-quarter financials, driving share prices for the day up over 5 percent to close at $197 per share. However, share prices fell by 96 cents per share in after-hours trading.