CDW (NASDAQ:CDW) capped fiscal 2025 with a fourth-quarter performance that management said exceeded expectations, highlighting strength in software, cloud, and services as customers prioritized operating efficiency, security, and targeted infrastructure upgrades. Executives also outlined a 2026 outlook that assumes a low-single-digit U.S. IT spending environment, with CDW targeting 200 to 300 basis points of market outperformance.
Fourth-quarter results topped internal expectations
For the fourth quarter, CDW reported net sales of $5.5 billion, up 5% year over year. Gross profit was $1.25 billion to $1.3 billion (management cited both figures in prepared remarks), increasing about 9%, while non-GAAP operating income was about $502 million to $503 million, up roughly 1%. Non-GAAP diluted EPS was $2.57, up 4%.
CFO Al Miralles said fourth-quarter gross profit growth came in above the company’s expectations for a low- to mid-single-digit increase. He also noted a moderate pull-forward of about $50 million in net sales tied to memory-related price increases and supply chain concerns, but characterized the overall impact on quarterly growth as minor.
CDW’s fourth-quarter gross margin was 22.8%, up 50 basis points year over year and up 90 basis points sequentially. Miralles attributed the sequential improvement to a higher mix of “netted down” revenues, improved product margins, and a slight sequential mix out of client devices.
End-market diversity helped offset federal headwinds
Management emphasized the benefit of CDW’s mix of customer channels and geographies. Leahy said strong double-digit performance in small business and state and local government more than offset “expected federal headwinds” related to the 43-day government shutdown.
- Corporate sales were down 1%, as strong cloud adoption was offset by slowing hardware solutions and moderation in Windows 11 refresh activity.
- Small business sales grew 18%, fueled by cloud consumption, related services, and continued client device modernization.
- Healthcare increased 5%, despite a difficult comparison to a prior-year quarter that management said was up 30%.
- Government increased 4%, with double-digit growth in state and local offsetting a decline in federal tied to the shutdown.
- Education grew 13%, supported by a Chromebook rollout for the New York City Department of Education and solid higher-ed growth.
- International operations (U.K. and Canada, reported together as “other”) delivered high single-digit growth in what management called challenging markets.
Software, cloud, and services led the mix shift
Management repeatedly pointed to cloud and services as key contributors to gross profit growth. Leahy said cloud contributed roughly half of the quarter’s gross profit growth, with both cloud revenue and gross profit rising at strong double-digit rates, helped in part by demand for cloud-enabled AI solutions.
Professional and managed services revenue increased at a double-digit pace, driven by hybrid infrastructure engagements focused on expense savings and budget optimization, AI-powered customer care and customer experience implementations, and “agentic AI” engagements.
In hardware, sales were up 2%, as double-digit growth in notebooks and servers was offset by declines in storage. Leahy and Miralles said the company helped customers navigate memory-related pricing increases late in the quarter. Client devices grew at a high single-digit rate, with the education project and modest pull-in offsetting slower enterprise Windows 11 refresh activity and the government shutdown.
Software revenue grew 12%, with gross profit rising faster, driven by cloud and customers renewing software licenses tied to hybrid solutions that extend the life of existing infrastructure, according to Leahy. Security revenue and gross profit each increased at single-digit rates, with services demand led by vulnerability assessments, identity and access management implementations, and customer training.
Miralles also highlighted the continued shift in revenue mix toward “netted down” categories such as cloud, SaaS, and certain security offerings. He said netted down revenues represented 36.1% of gross profit in the quarter, up from 35.8% in the prior-year quarter.
Expenses and cash flow: higher variable costs, strong conversion
Non-GAAP SG&A in the fourth quarter was $752 million, up 14.6% year over year. Miralles said the increase was primarily driven by commissions tied to higher gross profit achievement and higher performance-based expenses. Non-GAAP operating margin was 9.1%, down 50 basis points, which Miralles attributed to the prior-year quarter benefiting from lower performance-based compensation and coworker-related costs.
CDW ended the quarter with approximately 14,800 coworkers, including 10,500 customer-facing coworkers, both down slightly year over year and sequentially. Miralles said the company aims to balance growth and capability expansion with increased efficiency and cost leverage.
Adjusted free cash flow was $418 million in the quarter and $1.09 billion for the full year, representing 82% of non-GAAP net income, within management’s stated conversion expectation of 80% to 90%.
2025 recap and 2026 outlook: modest market, targeted outperformance
For full-year 2025, CDW reported over $22 billion in net sales (up 7%), nearly $5 billion of gross profit (up 6%), nearly $2 billion of non-GAAP operating income (up 3%), and record non-GAAP EPS of $10.02 (up 5%). Leahy said the year was shaped by factors including uncertainty around tariffs, shifts in education and healthcare funding, changes in government spending priorities, and the longest federal government shutdown on record.
On capital allocation, management said it returned nearly $1 billion to shareholders in 2025 through dividends and share repurchases—about 90% of adjusted free cash flow, above its initial 50% to 75% target. CDW reiterated a 2026 target to return 50% to 75% of adjusted free cash flow via dividends and buybacks, while also remaining active in M&A. Miralles referenced the company’s acquisition of select assets of Lexicon Tech Solutions, describing it as a tuck-in to bolster lifecycle capabilities for education customers.
For 2026, Leahy and Miralles said CDW expects the U.S. IT addressable market to grow in the low single digits on a customer spend basis, with CDW targeting 200 to 300 basis points of outperformance. Miralles said CDW expects low-single-digit gross profit growth for the year and mid-single-digit growth in full-year non-GAAP EPS, with a modest improvement in gross margin versus 2025.
Management also pointed to “wild cards” including public spending dynamics, tariffs, geopolitical risks, and memory pricing and supply. For the first quarter, Miralles forecast mid-single-digit year-over-year gross profit growth, an expected slow start in the federal channel as pipeline rebuilds following the shutdown, and mid-single-digit year-over-year growth in non-GAAP EPS.
Executives fielded multiple questions on memory-related pricing dynamics, saying impacts vary by partner and product configuration and that visibility is higher for the first half than the second half of the year. They also discussed AI as a broad-based catalyst rather than a discrete revenue line. Leahy said CDW is already partnered with major AI ecosystem players and is seeing customers move from experimentation into production, with AI-related work embedded across the stack through infrastructure, software, cloud, and services engagements.
About CDW (NASDAQ:CDW)
CDW (NASDAQ: CDW) is a leading provider of information technology products and integrated solutions for business, government, education and healthcare customers. The company sources and resells hardware and software from major technology vendors and packages those products with professional services, managed services and lifecycle support. Its offerings span IT infrastructure, cloud and data center solutions, cybersecurity, networking, unified communications, endpoint devices, and software licensing and procurement services designed to simplify IT operations for customers.
CDW combines a broad product portfolio with consultative sales, implementation and technical support capabilities.
