CDW · Q3 2025 Earnings

Cautious

CDW Corporation

Reported November 4, 2025

30-second summary

Revenue grew 4% YoY to $5.74B and non-GAAP EPS of $2.71 cleared the qualitative bar set last quarter, but the more important signal is the Q4 guide: non-GAAP EPS "down slightly YoY and down sequentially," the first explicitly negative quarterly EPS framing in this coverage. Corporate decelerated from +17.6% in Q2 to +4.4% in Q3, Education stayed down 8.5%, and management openly cited the government shutdown as the reason "continued prudence is warranted." Full-year EPS, gross profit, and margin guidance were all reaffirmed unchanged — but the Q4 math implies H2 momentum is fading, not building.

Headline numbers

EPS

Q3 FY2025

$2.71

Revenue

Q3 FY2025

$5.74B

+4.0% YoY

Gross margin

Q3 FY2025

21.9%

Operating margin

Q3 FY2025

7.7%

Key financials

Q3 FY2025

Metric	Q3 FY2025	YoY	Q2 FY2025	QoQ
Revenue	$5.74B	+4.0%	$5.98B	-4.0%
EPS	$2.71	—	$2.60	+4.2%
Gross margin	21.9%	—	20.8%	+110bps
Operating margin	7.7%	—	7.0%	+70bps

Guidance

CDW reaffirmed full-year guidance across metrics while introducing Q4 FY2025 forward guidance signaling modest sequential and year-over-year declines in gross profit and non-GAAP EPS.

Guidance is issued for both next quarter and the full year. Both may appear below.

Actuals vs prior guidance

Metric	Period	Prior guide	Actual	Δ	Result
Non-GAAP Net Income Per Diluted Share	Q3 FY2025	flat to modestly up year over year	$2.71	in-line with qualitative guidance	Met
Gross Profit Growth	Q3 FY2025	low single-digit rate year over year	implied low single-digit growth	in-line	Met

New guidance

Metric	Period	Guide	YoY
Gross Profit Growth	Q4 FY2025	low to mid single digit year-over-year	—
Gross Profit Sequential Change	Q4 FY2025	down low to mid single digits sequentially	—
Non-GAAP Net Income Per Diluted Share	Q4 FY2025	down slightly year over year and down sequentially	—

Reaffirmed unchanged this quarter: Gross Profit Growth Expectation (low to mid single-digit), Gross Margin Expectation (roughly consistent to 2024 levels), CDW Market Outperformance Target (200 to 300 basis points on a constant currency basis), US IT Market Growth Expectation (low single digits on a customer spend basis), Non-GAAP Net Income Per Diluted Share (low single digits year over year)

Segment performance

Q3 FY2025

Segment	Q3 FY2025	YoY
Corporate	$2.255B	+4.4%
Small Business	$0.434B	+14.2%
Government	$0.745B	+7.8%
Education	$0.911B	-8.5%
Healthcare	$0.694B	+6.9%
Other (UK and Canada)	$0.698B	+9.1%

Platform metrics

Q3 FY2025

Segment	Q3 FY2025
Average Daily Sales	$89.6 million
Customer Base	250,000+ customers
Vendor Partners	1,000+ leading and emerging brands
Days of Sales Outstanding	92 days
Cash Conversion Cycle	11 days
Constant Currency Revenue Growth	3.8%

Profitability

Q3 FY2025

Segment	Q3 FY2025
Non-GAAP Operating Margin	9.2%
Gross Profit Margin	21.9%

Management tone

Narrative arc: Q2 "Strong print, refuse to upgrade" → Q3 "Deceleration acknowledged, shutdown adds new caution"

Prudence escalated from posture to explicit operational caveat. Last quarter management framed prudence as a general stance against unmodeled macro tail risks. This quarter it became event-specific: "Given the recent government shutdown, we believe our continued prudence is warranted." Melanie Ross confirmed in Q&A that the Q4 guide assumes the shutdown persists through the entire quarter. The shift from generic to specific caution suggests management is no longer guessing about downside — they are watching it.

Government sector framing flipped from stable performer to post-DOGE navigation. Q2 framing: federal budget uncertainty causing slow growth (+2.7%). This quarter: "Both teams navigated the post-DOGE landscape with agility and precision... our remaining 2025 outlook assumes continued frictional impacts." Government actually accelerated to +7.8% YoY, but the language around it became more cautious, not less — a tell that management does not view the Q3 print as a stabilization signal.

Healthcare went from durable to "actively monitored." Q2 healthcare grew +24.1% and was framed as a momentum vertical. Q3 grew +6.9% and management introduced a specific risk: "We are watching for signs of customer hesitancy caused by changes in funding, particularly among healthcare clients relying on Medicare payments, which can constitute up to 30% of their cash flow." Inserting a quantified exposure metric (30% of customer cash flow) into the risk narrative is a meaningful escalation.

The AI/services pivot moved from anecdote to structural claim. Last quarter management said AI revenue was "starting on hardware side but strongest at consulting." This quarter Al delivered the cleanest framing yet: "Services was a standout performer, up 9% top line, and contributing 9% of total CDW top line this quarter, up from 5% in 2020." Netted-down revenues now represent 36% of gross profit. The mix-shift narrative is becoming the de facto bull case as transactional growth slows.

2026 deferred with unusual explicitness. "I know many of you may be wondering what we expect for 2026. As is our custom, we are in the middle of our planning process and will provide our thoughts on our year-end conference call." The phrasing is standard but the timing is not — analysts pressed directly, and management's refusal to even directionally frame 2026 is the strongest signal yet that visibility has deteriorated.

Recurring themes management leaned on this quarter:

AI adoption shifting from trial to proving business outcomesServices growth outpacing traditional hardware (9% top-line, now 9% of revenue vs 5% in 2020)Netted-down revenues (agent/SaaS models) becoming structural growth driver at 36% of gross profitGovernment and education markets experiencing post-DOGE friction requiring agile navigationEnd-market diversification as key hedge against macro uncertaintyCustomer focus on mission-critical priorities (security, client device refresh, cloud) over discretionary capex

Risks management surfaced:

Government shutdown duration and spillover impacts to healthcare and education segmentsRecessionary conditions not yet factored into outlook but remain a wildcardHealthcare Medicare funding changes affecting customer cash flow (up to 30% exposure)Tariff policy changes and geopolitical unrest as unmodeled scenariosHardware demand lumpiness in data center infrastructure and enterprise projects

Q&A highlights

Eric Woodring · Morgan Stanley

Eric asked Chris to expand on why the spending environment has been described as complex or challenging for four consecutive earnings, and how this complexity differs from historical cycles. He also asked Al what gross profit dollar growth rate is needed to return to 10%+ EPS growth.

Chris attributed complexity primarily to volatility and unpredictability over the past nine months, citing policy bouncing, funding changes, geopolitical uncertainty, and macro uncertainty around inflation. This has caused hesitancy on larger technology commitments. Al noted that 2025 is a transition year; adjusting for prior-year compensation impacts, gross profit and non-GAAP operating income are closer to parity. To achieve high single-digit to double-digit EPS growth, CDW needs sustained gross profit growth, continued gross margin progress, profitable growth, and operating leverage to return the efficiency ratio to the 55-56% range.

Volatility and unpredictability described as the primary driver of complex environment9-month period of uncertainty cited as primary constraint2025 characterized as transition year with traction above expectationsTarget efficiency ratio of 55-56% range

Amit Daryani · Epicor ISI

Amit asked about the impact of the federal government shutdown on Q4 guidance, what federal contribution is embedded in December quarter assumptions, and whether lost sales during shutdown would be recovered post-reopening or if that was optimistic.

Melanie Ross confirmed the team took a conservative view of Q4, assuming the shutdown persists through the quarter. While Q4 is not a zero quarter with pipeline, backlog, and run-rate business from open agencies, pipeline building is constrained. Management expects the shutdown impact to be timing-related rather than lost sales, consistent with historical shutdowns. Management does not view recovery as optimistic but rather as what they typically see based on past experience.

Conservative Q4 guidance embedding assumption of shutdown persisting through quarterQ4 is not a zero quarter with existing pipeline and backlogHistorically, shutdown impacts are timing shifts, not lost salesRecovery typically takes extended timeframe but is expected

Sami Chatterjee · JPMorgan

Sami asked about strong services growth drivers, particularly AI deployment opportunities, M&A strategy for services consolidation, and what's causing uneven data center upgrade spending from corporate customers.

Al highlighted 14% growth in managed and professional services, with key practice areas being data and AI, security, and cloud. Services grew from 5% to 9% of net sales. Management expects services to be an outlier growth contributor. On data center unevenness, Al attributed it primarily to macro/geopolitical uncertainty and environment volatility rather than specifically AI decision-making or public cloud evaluation, causing companies to defer larger project spending.

Managed and professional services grew 14% in quarterServices increased from 5% to 9% of net sales over past yearsKey growth areas: data and AI, security, cloudData center upgrades uneven due to macro uncertainty, not primarily AI-driven decisions

Keith Hogan · North Coast Research

Keith asked about PC and endpoint market momentum and expectations for 2026, and also inquired about federal government funding levels for education and healthcare.

Chris characterized the PC cycle as mid-to-late inning (sixth inning rounding to seventh inning stretch) with continued healthy demand expected over the next couple quarters. Key drivers include Windows 10 end-of-life replacement and growing AI PC adoption. On education funding, Chris explained that federal COVID subsidies were temporary and states are the primary K-12 funders. Higher ed is showing strong investment in technology for student competition. On healthcare, management is monitoring potential policy changes affecting income streams but notes healthcare systems are heavily investing in technology for clinical continuity, security, and competition.

PC market characterized as sixth to seventh inning stretchHealthy PC demand expected next couple quartersWindows 10 end-of-life and AI PCs as growth driversAI PC adoption picking up from lower base

David Vote · UBS

David asked Chris to parse out healthcare impacts from prior efficiency efforts versus government shutdown, and how to think about healthcare market growth into 2026. Also asked Al about margin accretion as the mix shifts from client devices to margin-rich solutions.

Chris noted healthcare has been very strong recently due to CDW's investments in industry expertise and innovation centers. While management will monitor funding shifts and income stream changes, they expect to see secondary benefits from M&A and consolidation within healthcare requiring technology support. The future of care initiatives are viewed as sustainable long-term. On margins, Al noted near-term stability in non-netted-down margins with modest pickup potential as mix shifts from client devices to services, pending 2026 planning details.

Healthcare has been strong in recent quartersCDW investments in healthcare expertise and innovation centers paying offPotential M&A and consolidation in healthcare could drive technology demandNon-netted-down margins have held stable last couple quarters

Answers to last quarter's watch list

Education segment trajectory — Improved at the margin: -8.5% in Q3 vs. -10.9% in Q2. Management still expects "continued frictional impacts" through year-end.

Continue monitoring

Corporate segment durability — Decelerated sharply from +17.6% to +4.4%. Management attributed Q3 weakness to enterprise project deferrals tied to macro and geopolitical uncertainty, not a demand reset, but the Q2 print clearly did not extrapolate.

Resolved negatively

Gross margin progression — Recovered meaningfully to 21.9% (+110bps YoY) vs. Q2's 20.8% (-100bps YoY), driven by services mix shift. The FY "roughly consistent with 2024" (21.8%) commitment now looks comfortably achievable.

Resolved positively

FCF conversion catch-up — Free cash flow figures were not disclosed in the headline release; management did not provide an explicit cash conversion update on the call.

Continue monitoring

Federal segment under new administration — Government revenue accelerated to +7.8% YoY (from +2.7% in Q2), but management's commentary on "post-DOGE navigation" and Q4 conservatism around shutdown impact suggests the print overstates underlying stability.

Continue monitoring

Services revenue disclosure — Management gave the cleanest disclosure yet: services is now 9% of net sales (up from 5% in 2020), grew 9% on the top line, with managed and professional services up 14%; netted-down revenues are 36% of gross profit. Still no formal segment, but the directional disclosure is materially improved.

Resolved positively

What to watch into next quarter

Q4 EPS landing zone — The guide is "down slightly YoY and down sequentially." Q4 2024 non-GAAP EPS was the relevant baseline; watch whether the actual print lands at or below management's qualitative guide, and whether the FY low-single-digit EPS growth commitment survives.

Corporate segment stabilization — After decelerating from +17.6% to +4.4%, watch whether Q4 holds at low-single-digit growth or breaks lower. A sub-3% Corporate print would put the "macro uncertainty, not structural" framing in serious doubt.

Government shutdown duration impact — Q4 guidance assumes the shutdown persists the full quarter. Watch the Q4 Government segment growth rate vs. the +7.8% Q3 baseline; a sharp deceleration would validate the conservative guide, while resilience would signal Q4 EPS upside.

Services share of gross profit — Currently 36% of gross profit from netted-down revenues, services 9% of net sales. Watch whether this share continues climbing in Q4 — sustained mix shift is the cleanest path to defending the 21.9% gross margin level into 2026.

2026 framework on the Q4 call — Management explicitly deferred 2026 commentary. Watch the Q4 call for whether the framework lands at low-single-digit EPS again (signaling no recovery in visibility) or steps up to mid-single-digit+ (signaling shutdown/policy overhang easing).

Healthcare Medicare exposure — Management flagged that Medicare payments can constitute up to 30% of healthcare customer cash flow. Watch Q4 Healthcare growth — a deceleration below mid-single-digits would suggest the funding hesitancy risk is materializing.

Sources

CDW Corporation Q3 2025 Earnings Release, filed with SEC, https://www.sec.gov/Archives/edgar/data/1402057/000140205725000191/cdw-2025930earningsrelease.htm
CDW Corporation Q3 2025 earnings call commentary (transcript references throughout)

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