CDW Corporation

Hello everyone. Thank you for joining us and welcome to the CDW second quarter earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Steve O'Brien with Investor Relations. Steve, please go ahead.

Thank you, Joel. Good morning, everyone. Joining me today to review our second quarter 2026 results are Chris Leahy, our chair and chief executive officer, and Al Morales, our chief financial officer. Our earnings release was distributed this morning and is available on our website, investor.cdw.com, along with supplemental slides that you can use to follow along during the call. I'd like to remind you that certain comments made in this presentation are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. Those statements are subject to a number of risks and uncertainties that could cause actual results to differ materially. Additional information concerning these risks and uncertainties is contained in the earnings release we furnished to the SEC today and in the company's other filings with the SEC. CDW assumes no obligation to update the information presented during this webcast. Our presentation also includes certain non-GAAP financial measures. For instance, non-GAAP operating income, non-GAAP operating income margin, non-GAAP net income, and non-GAAP earnings per dividend share, non-GAAP selling and administrative expenses, non-GAAP effective tax rate, net sales on a constant currency basis, free cash flow, and adjusted free cash flow. Non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with FCC rules. You'll find the reconciliation charts and the slides made available on our website and in our earnings release. Please note all references to growth rates or dollar amount changes in our remarks today are versus the comparable period in 2025, with net sales growth rates described on an average daily basis unless otherwise indicated. Replay of this webcast will be posted to our website later today. This conference call's property is CDW and may not be recorded or rebroadcast without specific written permission from the company. With that, let me turn the call over to Chris.

Thank you, Steve, and good morning, everyone. Before we begin our review of the quarter, I want to briefly address the announcement we issued this morning regarding Al's planned retirement. We shared that Al plans to retire in 2027 after an extensive career following the completion of an orderly transition. He'll remain in his current role until his successor is appointed, and we will then continue to serve in the advisory capacity to ensure continuity. The search for a successor is currently underway. On a personal note, I want to thank Al for his many contributions to CDW's success. He has been a trusted partner to me, an exceptional leader for our coworkers, and a driving force behind the growth and evolution of our company. I'm grateful that we will continue to benefit from his expertise as we execute a seamless transition. With that, let me turn to the second quarter performance, strategic progress, and outlook. Al will then provide additional details on our financial results, capital allocation priorities, and expectations for the balance of the year. The team delivered strong results this quarter through disciplined execution and a clear focus on the priorities driving customer demand. Together, they delivered net sales of $6.6 billion up 10%, gross profit of $1.3 billion up 6%, non-GAAP operating income of $556 million up 7%, and non-GAAP earnings per diluted share of $2.91 up 12%. Net sales, gross profit, and non-GAAP earnings per share set new all-time quarterly records. These results demonstrate the strength and resilience of CUW's business model in a dynamic technology environment shaped by growing AI complexity, pricing volatility, and ongoing memory challenges. Demand remained healthy with AI increasingly influencing customer activity despite cautious and deliberate customer spending. Customer investment in AI readiness and modernization drove strong infrastructure demand. By bringing together the right technology, expertise, and execution, the team delivered double-digit top-line growth with substantial gross profit dollars. Strong gross profit combined with operating leverage and disciplined capital allocation drove 12% non-GAAP earnings per share growth. Today, AI infrastructure implementation is most advanced among our largest customers, which is typical of a major technology transformation cycle. Infrastructure investment comes first, followed by services, software, and lifecycle opportunities. As adoption expands, deployment activities broaden across customers of all sizes. What shapes demand may change from quarter to quarter, but technology remains essential and increasingly complex. Technology changes, customer priorities change, CDW's role does not. That enduring relevance is the foundation of our value proposition. Let's take a deeper look at how we met customer priorities this quarter. There were three primary drivers of performance. Our balanced portfolio of customer end markets, the breadth of our full stack capabilities, and our growth strategy, which sustains our relevance. First, our diversified customer portfolio. The diversity of our customer end markets is one of the defining strengths of our business model. Today, we operate across three U.S. segments, commercial, government, and education. Commercial serves customers through dedicated corporate, healthcare, and financial services teams. Within each end market, we align resources by customer size, enterprise, mid-market, and small business. Government is aligned around state and local and federal customers, while education serves both K-12 and higher education institutions. Our other segment represents our combined UK and Canadian operations. Each market has dedicated sales teams in deep industry and technical expertise. Let's take a look at how they perform this quarter. Commercial delivered another strong quarter with net sales increasing 9%. Corporate increased 11% driven by the demand for infrastructure modernization, cloud, and AI readiness initiatives. Healthcare remained a standout performer, growing 9%, driven by demand for mission critical outcomes, including AI enabled claims management and clinical documentation. Financial services increased 2% with continued healthy customer demand. Government net sales increased approximately 14%, driven by improving federal demand and continued momentum across state and local customers. Clients prioritized infrastructure, software lifecycle management, and productivity initiatives. Education net sales increased by approximately 1%. K-12 demand remained healthy with a strong mix of software services and lifecycle offerings despite fulfillment timing shifts. Higher education continued to operate in a constrained funding environment. International once again delivered exceptional growth Net sales increased approximately 23%, led by a record quarter in Canada and continued strong momentum in the UK. Demand remained healthy across hardware, software, and cloud categories, with both the UK and Canada delivering mid-teens or better local market growth. The second driver of our results this quarter is the breadth of our full-stack, full-life cycle offerings. which enables us to capture demand across evolving customer priorities and technology trends. During the quarter, success addressing healthy demand for modernization, AI readiness and resilience drove a 10% increase in hardware revenue. Server storage and netcom all delivered very healthy double digit growth. Notebook and desktop increased a combined 10% reflecting strong execution and customer willingness to invest in mission critical technology despite pricing pressures. Higher average selling prices more than offset lower unit volume. Software, cloud and security all delivered healthy top line and gross profit growth. Software increased by low double digits driven by security, application suites and storage and network area management software. Robust cloud growth reflected continued prioritization of application modernization AI Evaluation, and Hybrid Environment Optimization. Memory price inflation also contributed to cloud adoptions as some customers thought helped finding alternatives to hardware expenditures. For security, both top line and gross profit increased double digits, driven by demand for both protecting advanced technology architectures and strengthening governance and compliance capabilities. Services increased 1%. Just like every part of the business, services demand follows customer priorities. This quarter, customer focus on hardware and cloud investments, combined with deployment timing, influenced the mix of services demand. We expect a pickup in lifecycle and professional services as customers move from procurement to implementation to management. The third performance driver, our growth strategy, is crucial to sustaining our relevance. Our strategy is built around an enduring reality. Technology will continue to evolve, but the need for a trusted partner remains constant. As AI adds complexity across the technology landscape, that need has never been greater. Customers increasingly recognize that AI is not a point solution. It's an architectural challenge. AI workloads spam on-premises, public cloud, edge, and hybrid environments. and as AI scales, organizations must integrate complex technology environments while managing security, governance and risk. Accomplishing this requires a partner that can orchestrate the resources required and deliver the execution needed to turn AI investments into tangible outcomes. CDW is that partner. We bring together the right technology, expertise and execution as we help customers deploy AI with confidence The strategic implication is straightforward. AI increases our relevance because it increases complexity. And as customers move from AI experimentation to pilots to implementation to scaling, we are capturing opportunities today across infrastructure, security, data integration, and ongoing lifecycle support. Let me share a couple of recent examples that illustrate the role CW is playing across customers' AI journeys. A western state's technology office has made substantial progress in its AI journey, launching an AI sandbox, advancing statewide AI literacy, and incentivizing agency adoption. As AI activity accelerates, the state faces a challenge common across many organizations. a growing patchwork of AI initiatives without a consistent way to manage, govern, and scale them. Through our AI360 framework, we designed a solution that is helping the state move from isolated AI projects to a cohesive operating model that integrates strategy, governance, infrastructure, security, data, and application development. By bringing together the right technologies, partners, expertise, we are creating a scalable framework for evaluating, deploying, and governing AI across agencies, enabling the state to accelerate adoption while maintaining security, oversight, and ensuring measurable outcomes. This multi-year, multi-million dollar engagement demonstrates the scalability of our model, and we will drive recurring services revenue. We are now productizing the solution to deliver highly relevant and proven AI-driven outcomes at scale to state and local governments across the country. Another engagement, one with a large financial services company, demonstrates the broader services opportunity that is emerging as frontier AI innovation accelerates. Like many enterprise organizations, our customer is dealing with a growing gap between the volume and complexity of new AI-driven threats and the ability of security teams to remediate them quickly and consistently. They need a more coordinated, scalable approach to managing vulnerabilities across their entire technology estate. Through our Claude Mythos AI Security Vulnerability Program, the team brought in CW expertise across security, observability, cloud DevOps, systems engineering, hybrid infrastructure and global delivery to design a more automated approach to identifying and remediating vulnerabilities at scale. This multimillion-dollar engagement demonstrates the power of CDW's integrated capabilities. By bringing together expertise from across the organization, we are solving complex customer challenges and delivering mission-critical outcomes. Two great examples of how we are helping customers deliver AI-driven outcomes today. and the opportunity broadens from here. As inference moves closer to users and devices, AI deployments will require a wider range of technologies and services, creating additional opportunities for CDW to deliver customer outcomes, capture share and drive profitable growth. The same objective driving customer AI adoption, better business and mission outcomes, is shaping how we are leveraging AI within CDW. Our approach is straightforward. deploy AI to create measurable value to improve customer experience and outcomes, increase coworker productivity, and generate operating leverage. CDW Assist SuperAgent, our AI-powered sales tool, delivers on all three. It supports account planning, opportunity identification, customer engagement, and workflow automation. CDW SuperAgent is just one example of how we are putting AI to work. We are embedding AI throughout the business from sales and finance to operations. AI is simplifying processes, improving consistency and increasing efficiency. We are moving with discipline and speed supported by strong governance and security. AI is strengthening how we operate today while creating a meaningful opportunity to drive productivity and profitable growth over the long term. And that leads me to our full year outlook. Current market conditions remain constructive. Infrastructure demand is strong, cloud consumption trends are favorable, customer engagement is healthy, and AI-related activity continues to expand across industries and customer segments. Written demand, shipping activity, and backlog trends remain robust, with writings exceeding invoicing and backlog significantly elevated. Operating excellence and expense discipline remain priorities and we expect continued improvement in our operating leverage as we move throughout the year. Given this backdrop, we are increasing our full year outlook. We now expect the US IT addressable market to grow in the mid single digits in 2026 on a customer spend basis with 200 to 300 basis points of CDW outperformance. In an environment where technology decisions are becoming more consequential, CDW has never been more relevant. Our scale, broad capabilities, deep industry and technical expertise, and full staff, full lifecycle model ensure that our success is not tied to any single technology category. We help customers maximize the value of their technology investment and capture opportunity wherever demand emerges. Customers rely on us to simplify complexity and translate technology investments Thank you for joining us today. Our value proposition endures. With that, let me turn it over to Al for more detailed review of our financial performance.