Business context and reporting period
CDW Corporation’s Form 10-Q covers the three months ended March 31, 2024. CDW is a multi-brand IT solutions provider serving business, government, education and healthcare customers in the U.S., U.K. and Canada. Results are compared with the first quarter of 2023; amounts below are in millions unless stated otherwise.
Key financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $4,872.7 | $5,103.1 | (4.5%) |
| Gross profit / margin | $1,063.3 / 21.8% | $1,089.4 / 21.3% | Profit (2.4%); margin +0.5 pts |
| Operating income / margin | $328.0 / 6.7% | $355.3 / 7.0% | (7.7%) |
| Net income | $216.1 | $230.1 | (6.1%) |
| Diluted EPS | $1.59 | $1.68 | (5.4%) |
| Non-GAAP operating income / margin | $403.5 / 8.3% | $434.3 / 8.5% | Income (7.1%) |
| Non-GAAP net income / diluted EPS | $260.8 / $1.92 | $278.7 / $2.03 | Income (6.4%) |
| Operating cash flow | $440.0 | $365.4 | +$74.6 |
| Adjusted free cash flow | $364.4 | $411.3 | (11.4%) |
Gross margin improved primarily because netted-down revenue, especially software-as-a-service, contributed more; this was partly offset by lower product margin and a higher notebook/mobile-device mix. Selling and administrative expense was essentially flat at $735.3. Lower net interest expense ($51.3 versus $57.7) reflected greater interest income and lower debt, partly offset by a higher variable rate on the term loan. The effective tax rate was 21.9%, versus 22.3%.
Liquidity, debt and capital allocation
Cash and equivalents were $803.8 at quarter-end, up from $588.7 at December 31, 2023. Total debt, including current maturities, was approximately $5.63 billion; company-defined net debt was $4.83 billion. CDW reported $1.3 billion of additional borrowing availability under its revolving facility, with no revolver borrowings outstanding, and compliance with debt covenants. Management said available liquidity should be adequate for at least the next year, while noting that operating cash generation depends on business execution, economic conditions and working-capital management.
Cash conversion cycle improved to 16 days from 18 a year earlier. The company paid $83.3 in dividends, repurchased $52.1 of shares, and reported capital expenditures of $29.5. On May 1, 2024, the board declared a further quarterly dividend of $0.62 per share, payable June 11 to holders of record May 24.
Material changes and segment performance
Sales declined across all reported segments amid cautious customer spending. By segment, Corporate sales fell 3.1% to $2,135.9, Small Business fell 7.4% to $380.9, Public fell 4.9% to $1,724.7, and Other (U.K. and Canada) fell 6.5% to $631.2. Education was the weakest Public channel, down 10.4%. Small Business operating income rose 12.0% to $46.5, while Corporate operating income fell 7.9% to $178.0, Public fell 1.2% to $126.0, and Other fell 30.7% to $25.3.
Hardware represented 72.8% of sales and declined 3.9%; software sales declined 7.4%, while services declined 3.7%. Notebook/mobile-device sales increased, offset in part by weakness in netcomm products and collaboration. Operating cash flow increased year over year, supported by working-capital movements, including accounts receivable and trade payables. Adjusted free cash flow decreased, in part reflecting the year-over-year swing in inventory-financing cash flows.
Outlook, management commentary and risks
The filing provides no specific numerical revenue or earnings guidance. Management cited ongoing economic uncertainty, inflation and elevated interest rates, with customers delaying, reducing or reassessing IT spending and refresh cycles. Customers are prioritizing optimization, cost management and security; demand trends include cloud, hybrid infrastructure, software-defined architectures and generative AI. Public-sector sales have historically been higher in the second and third quarters due to education and government purchasing patterns.
Risks highlighted include weaker customer or government spending, vendor-partner terms and product availability, competition, cybersecurity and IT-system risks, receivables and inventory exposure, foreign-exchange movements, indebtedness and debt restrictions, and legal proceedings, investigations and audits. CDW is cooperating with a U.S. Department of Justice Civil Investigative Demand concerning a False Claims Act investigation into manufacturer teaming agreements. The company said it did not believe a material loss beyond amounts already recognized was reasonably possible for its disclosed proceedings and matters, while noting outcomes are inherently unpredictable.
Non-GAAP results exclude specified items, including acquisition-related amortization, equity compensation, integration and transformation costs, and workplace optimization; they are supplemental measures and may not be comparable with similarly named measures at other companies.
Important facts for investors to verify
- Whether customer spending stabilizes and sales recover across Corporate, Small Business, Public and international markets, particularly Education and U.K. operations.
- Whether improved gross margin can persist as product mix, netted-down software revenue and hardware demand change.
- Debt maturities and refinancing needs, including $575 million of 5.5% notes due December 2024 and $600 million of 4.125% notes due May 2025; confirm liquidity and covenant capacity.
- How working-capital movements affect operating cash flow and adjusted free cash flow in subsequent quarters.
- Developments in the DOJ investigation and other legal, audit or contractual contingencies.
- Future share repurchases and dividends, which remain subject to board discretion, business conditions and capital needs.