Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- CDW Corp (CDW, Financial) delivered strong profitability and cash flow, driven by strategic investments in cloud, security, and services.
- Gross margin increased by 80 basis points year-over-year to 21.8%, indicating improved profitability.
- Client devices saw a second consecutive quarter of growth, with both year-over-year and sequential sales increases.
- State and local government sales increased mid-single digits, driven by security and AI-powered solutions.
- The company maintained a strong solutions pipeline, reflecting robust customer engagement and future growth potential.
Negative Points
- Net sales declined by 3.6% year-over-year, reflecting a challenging demand environment.
- Federal sales decreased by 6%, impacted by delayed fiscal 2024 budget authorization and funding releases.
- UK sales declined by high teens in US dollars due to worsening economic conditions and political volatility.
- Small business net sales declined by 3%, with ongoing postponement of infrastructure investments.
- International operations, including the UK and Canada, saw a combined decline of 13% in sales.
Q & A Highlights
Q: Could you talk about what is enabling the sequential gross margin expansion in June for your core business and if there's a structural change to what PC margins may look like going forward?
A: Al Miralles, Senior Vice President and Chief Financial Officer: Nothing too significant to report. We saw strength in storage and other categories that supplemented our client device margins. Client device margins continue to hold firm, including a higher mix of premium products.
Q: What factors contributed to the downward revision in gross profit expectations for 2024?
A: Christine Leahy, Chairman of the Board, President, Chief Executive Officer: The outlook change reflects current market conditions persisting. Corporate feels more stable but needs more data points. Small business remains volatile. Unique impacts in the UK and federal delays are bottlenecks. The outlook incorporates normal seasonality and moderate IT refresh.
Q: Are you seeing any visibility of signs of pickup in demand for netcomm and servers?
A: Christine Leahy, Chairman of the Board, President, Chief Executive Officer: There's interest in network modernization, but customers are still digesting previous purchases. On the server side, mid-market shows some strength, but customers are cautious and pivoting more to cloud solutions.
Q: How did the CrowdStrike debacle impact CDW and its customers?
A: Christine Leahy, Chairman of the Board, President, Chief Executive Officer: It didn't impact CDW much. The team quickly helped customers with fixes and workarounds, reinforcing our role as a trusted adviser. It highlighted the importance of ongoing customer relationships.
Q: How should we think about the trajectory of operating expenses in relation to revenue or gross profit dollar growth in the back half of the year?
A: Al Miralles, Senior Vice President and Chief Financial Officer: We expect expenses to balance out in the back half of the year, reflecting higher gross profit attainment and seasonal timing of expenses. The full year should look reasonably normal, with the back half showing better operating leverage.
Q: How are you thinking about AI-related spend in 2024 and its impact on hardware and services revenues?
A: Christine Leahy, Chairman of the Board, President, Chief Executive Officer: We're in the early stages of AI monetization, primarily in consultative areas. AI opens extensive conversations with customers. The long-term opportunity for CDW is full stack, and we see AI as an accelerant embedded in every layer of the stack.
Q: Are you seeing additional evidence of share gains in the fragmented box space?
A: Christine Leahy, Chairman of the Board, President, Chief Executive Officer: We continue to gain share across virtually every category, validated by our own data and partner reviews. We're well-positioned in a limited growth environment.
Q: What customer behavior are you seeing now in the month of July regarding cybersecurity and its impact on other areas of spending?
A: Christine Leahy, Chairman of the Board, President, Chief Executive Officer: Customer behavior is on high alert around cybersecurity, leading to heightened conversations. It does not seem to delay other engagements and projects.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
