CDW (CDW) 8-KCDW Reports Third Quarter 2023 Earnings

Net sales in the third quarter of 2023 were $5,628 million, compared to $6,216 million in the third quarter of 2022, a decrease of 9.4 percent. There were 63 and 64 selling days for the three months ended September 30, 2023 and 2022, respectively. On an average daily sales basis, Net sales decreased 8.0 percent and Net sales on a constant currency basis decreased 8.4 percent. The decline in Net sales was driven by the Corporate and Small Business segments and our UK and Canadian operations. Continued economic uncertainty has led customers to focus their business priorities, resulting in a reduction or delays in their technology spend. Third quarter Net sales performance, on an average daily sales basis, included:

Gross profit in the third quarter of 2023 was $1,228 million, compared to $1,233 million for the third quarter of 2022, representing a decrease of 0.4 percent. Gross profit margin was 21.8 percent in the third quarter of 2023 versus 19.8 percent in the third quarter of 2022. The increase in Gross profit margin was primarily driven by higher product margin due to increased margin rate across various categories and lower mix in notebooks, and a more favorable contribution of netted down revenue, primarily software as a service.

Selling and administrative expenses were $749 million in the third quarter of 2023, compared to $767 million in the third quarter of 2022, representing a decrease of 2.3 percent. The decrease was primarily due to reduced discretionary expenses.

Operating income was $478 million in the third quarter of 2023, compared to $466 million in the third quarter of 2022, representing an increase of 2.6 percent. Non-GAAP operating income was $556 million in the third quarter of 2023, compared to $549 million in the third quarter of 2022, representing an increase of 1.3 percent. The Operating income margin and Non-GAAP operating income margin were 8.5 percent and 9.9 percent, respectively, for the third quarter of 2023 versus 7.5 percent and 8.8 percent, respectively, for the third quarter of 2022.

Interest expense, net includes interest expense and interest income. Interest expense, net was $57 million for third quarter of 2023 compared to $63 million for the third quarter of 2022, representing a decrease of 8.3 percent. Interest expense, net decreased as a result of lower debt levels and higher interest income earned on cash balances, partially offset by higher variable interest rate on the senior unsecured term loan.

The effective tax rate was 24.8 percent in the third quarter of 2023, compared to 25.4 percent in the third quarter of 2022, which resulted in tax expense of $104 million and $101 million, respectively. The decrease in the effective tax rate was primarily attributable to higher excess tax benefits on equity-based compensation.

Net income was $316 million in the third quarter of 2023, compared to $298 million in the third quarter of 2022, representing an increase of 5.9 percent. Non-GAAP net income was $369 million in the third quarter of 2023, compared to $357 million in the third quarter of 2022, representing an increase of 3.5 percent.

Weighted average diluted shares outstanding were 136 million for the third quarter of 2023, compared to 137 million for the third quarter of 2022. Net income per diluted share for the third quarter of 2023 was

$2.32, compared to $2.17 for the third quarter of 2022, representing an increase of 6.9 percent. Non-GAAP net income per diluted share for the third quarter of 2023 was $2.72, compared to $2.60 for the third quarter of 2022, representing an increase of 4.4 percent.

This release contains "forward-looking statements" within the meaning of the federal securities laws. All statements other than statements of historical fact are forward-looking statements. These statements relate to analyses and other information, which are based on forecasts of future results or events and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies. We claim the protection of The Private Securities Litigation Reform Act of 1995 for all forward-looking statements in this release.

These forward-looking statements are identified by the use of terms and phrases such as "anticipate," "assume," "believe," "estimate," "expect," "goal," "intend," "plan," "potential," "predict," "project," "target" and similar terms and phrases or future or conditional verbs such as "could," "may," "should," "will," and "would." However, these words are not the exclusive means of identifying such statements. Although we believe that our plans, intentions and other expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that we will achieve those plans, intentions or expectations. All forward-looking statements are subject to risks and uncertainties that may cause actual results or events to differ materially from those that we expected.

Important factors that could cause actual results or events to differ materially from our expectations, or cautionary statements, are disclosed under the sections entitled "Risk Factors" and "Trends and Key Factors Affecting our Financial Performance" included in our Annual Report on Form 10-K for the year ended December 31, 2022 and from time to time in our subsequent Quarterly Reports on Form 10-Q and our other US Securities and Exchange Commission ("SEC") filings and public communications. These factors include, among others, inflationary pressures; level of interest rates; CDW's relationships with vendor partners and terms of their agreements; the COVID-19 pandemic, including resurgences and the emergence of new variants, and actions taken in response thereto and the associated impact on our business, results of operations, cash flows, financial condition and liquidity; continued innovations in hardware, software and services by CDW's vendor partners; substantial competition that could reduce CDW's market share; the continuing development, maintenance and operation of CDW's information technology systems; potential breaches of data security and failure to protect our information technology systems from cybersecurity threats; potential failures to provide high-quality services to CDW's customers; potential losses of any key personnel, significant increases in labor costs or ineffective workforce management; potential adverse occurrences at one of CDW's primary facilities or third-party data centers, including as a result of climate change; increases in the cost of commercial delivery services or disruptions of those services; CDW's exposure to accounts receivable and inventory risks; the potential failure to achieve the anticipated benefits of the acquisition of Sirius in the expected timeframe or at all; future acquisitions or alliances; fluctuations in CDW's operating results; fluctuations in foreign currency; global and regional economic and political conditions, including impacts of the ongoing military conflict between Russia and Ukraine and related sanctions against Russia; potential interruptions of the flow of products from suppliers; decreases in spending on technology products and services, including impacts of adverse changes in government spending policies; potential failures to comply with Public segment contracts or applicable laws and regulations; current and future legal proceedings, investigations and audits, including intellectual property infringement claims; changes in laws, including regulations or interpretations thereof, or the potential failure to meet stakeholder expectations on environmental sustainability and corporate responsibility matters; CDW's level of indebtedness; restrictions imposed by agreements relating to CDW's indebtedness on its operations and liquidity; failure to maintain the ratings assigned to CDW's debt securities by rating agencies; changes in, or the discontinuation of, CDW's share repurchase program or dividend payments; and other risk factors or uncertainties identified from time to time in CDW's filings with the SEC. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by those cautionary statements as well as other cautionary statements that are made from time

to time in our other SEC filings and public communications. You should evaluate all forward-looking statements made in this release in the context of these risks and uncertainties.

We caution you that the important factors referenced above may not reflect all of the factors that could cause actual results or events to differ from our expectations. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this release are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Non-GAAP operating income excludes, among other things, charges related to the amortization of acquisition-related intangible assets, equity-based compensation and the associated payroll taxes, acquisition and integration expenses, transformation initiatives and workplace optimization. Non-GAAP operating income margin is defined as Non-GAAP operating income as a percentage of Net sales. Non-GAAP net income excludes, among other things, charges related to acquisition-related intangible asset amortization, equity-based compensation, acquisition and integration expenses, transformation initiatives, workplace optimization and the associated tax effects of each. Net sales on a constant currency basis is defined as Net sales excluding the impact of foreign currency translation on Net sales. Free cash flow is defined as cash flows provided by operating activities less capital expenditures. Adjusted free cash flow is defined as Free cash flow adjusted to include certain cash flows from financing activities incurred in the normal course of operations or as capital expenditures.

Non-GAAP operating income, Non-GAAP operating income margin, Non-GAAP net income, Non-GAAP net income per diluted share, Net sales on a constant currency basis, Free cash flow and Adjusted free cash flow are considered non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance or financial condition that either excludes or includes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with US GAAP. Non-GAAP measures used by management may differ from similar measures used by other companies, even when similar terms are used to identify such measures.

CDW believes Non-GAAP operating income, Non-GAAP operating income margin, Non-GAAP net income, and Net sales on a constant currency basis provide analysts, investors and management with helpful information regarding the underlying operating performance of CDW's business, as they remove the impact of items that management believes are not reflective of underlying operating performance. CDW uses these measures to evaluate period-over-period performance as management believes they provide a more comparable measure of the underlying business. We also present Free cash flow and Adjusted free cash flow as we believe these measures provide more information regarding our liquidity and capital resources. Certain non-GAAP financial measures are also used to determine certain components of performance-based compensation.

CDW's annual targets are provided on a non-GAAP basis because certain reconciling items are dependent on future events that either cannot be controlled, such as currency impacts or interest rates, or reliably predicted because they are not part of CDW's routine activities, such as refinancing activities or acquisition and integration expenses.

The financial statement tables that accompany this press release include a reconciliation of non-GAAP financial measures to the applicable most comparable US GAAP financial measures.

CDW Corporation will hold a conference call today, November 1, 2023 at 7:30 a.m. CT/8:30 a.m. ET to discuss its third quarter financial results. The conference call, which will be broadcast live via the Internet, and a copy of this press release along with supplemental slides used during the call, can be accessed on CDW’s website at investor.cdw.com. For those unable to participate in the live call, a replay of the webcast will be available at investor.cdw.com approximately 90 minutes after the completion of the call and will be accessible on the site for approximately one year.

CDW CORPORATION AND SUBSIDIARIES