CDW 2026年第三季財報電話會議：AI基礎設施帶動營收成長18%，上調展望

重點摘要

• CDW 公布 2026 年第三季淨銷售額為 68 億美元，年增 18%，主要受惠於 AI 相關基礎設施投資、資料中心現代化與雲端需求。
• 毛利增加 10.3% 至 14 億美元。受銷售組合轉向大型硬體基礎設施項目影響，毛利率年減 140 個基點（bps）至 20.5%。
• Non-GAAP 營業利益成長 16.8% 至約 6.2 億美元，Non-GAAP 稀釋後每股盈餘（EPS）增加 20.4% 至 3.26 美元。
• 硬體銷售額成長 21%，其中資料儲存與伺服器更實現超過 100% 的成長。軟體成長 14%，客戶端裝置成長 19%，專業與託管服務恢復成長 2%。
• 管理層上調全年展望。CDW 目前預計毛利成長率將落在個位數中高段，Non-GAAP 稀釋後每股盈餘（EPS）成長率將落在雙位數低段。
• 新接訂單持續高於開票金額，帶動在手訂單增加，尤其是在企業基礎設施領域。管理層表示，根據訂單、開票與在手訂單指標，提前採購的現象並不顯著。

關鍵財務數據

今年累計調整後自由現金流達 7.85 億美元，相當於 Non-GAAP 淨利的 73%。CDW 今年累計向股東回饋約 8.92 億美元，其中包括 6.53 億美元的股票回購。

公司將季股利提高約 8% 至每股 0.68 美元，相當於每年 2.72 美元。這標誌著公司連續第 13 年調升股利。

業務與營運績效

各客戶領域的需求廣泛。商業銷售額成長 21%，國際銷售額成長 26%，政府部門成長 10%，教育部門成長 8%。英國與加拿大均實現超過 20% 的成長。

硬體銷售額成長 21%。資料儲存與伺服器銷售額翻倍以上，網絡與通訊則成長 9%。管理層將伺服器與儲存設備的成長主因歸功於出貨量與客戶消費規模，而非價格調漲。

儘管出貨量下滑，客戶端裝置銷售額仍成長 19%。平均售價提高完全抵銷了出貨量減少的影響，反映出產品漲價以及客戶對更高記憶體、更強算力和更高安全性配置的需求。

受惠於網絡管理、虛擬化與作業系統雙位數的成長，軟體銷售額成長 14%。雲端業務在 SaaS、IaaS 及工作負載方面均表現強勁成長。

專業與託管服務恢復成長 2%。管理層預期隨著基礎設施專案推進其生命週期，未來幾個季度將湧現更多導入、整合、資安、治理與託管服務的商機。

淨額認列收入流增加 17.1%，創下占毛利 38.2% 的歷史新高，年增 220 個基點。此組合包含 CDW 作為代理商提供之雲端、SaaS 與 IaaS 解決方案。

CDW 於 9 月 25 日完成了以 5.25 億美元收購 Lovelytics 的交易。此項收購為公司帶來了現代雲端、資料工程、分析、生成式 AI 與機器學習能力。管理層表示，Lovelytics 作為專業服務業務，毛利率較高，但相較於 CDW 的整體規模，其規模依然較小。

管理層財務指引

管理層將 2026 年美國 IT 可服務市場（按客戶支出計算）的成長率預估上調至個位數高段。CDW 預計將超越該市場表現 300 至 400 個基點，且優於市場的表現將更偏向基礎設施領域。

針對 2026 全年，管理層目前預計：

• 毛利成長率將落在個位數中高段，高於先前預期的個位數中段。
• Non-GAAP 稀釋後每股盈餘成長率將落在雙位數低段，高於先前預期的個位數高段。
• 受預期產品與客戶組合影響，毛利率將低於 2025 全年水準。
• 淨利息支出為 2.55 億至 2.6 億美元，反映發行 15 億美元優先債券的影響。
• 匯率對已列報成長率的影響相對中性。

針對 2026 年第四季，管理層預計毛利將年增個位數中段，季減個位數低至中段。Non-GAAP 銷售、一般與管理費用預計年增與季增均落在個位數低段，而 Non-GAAP 稀釋後每股盈餘預計年增雙位數低段。

風險與關注領域

• 銷售持續轉向大型伺服器、儲存與其他硬體專案，雖有助於挹注毛利總金額，但可能對毛利率形成壓力。
• 客戶端裝置的成長仰賴較高的平均售價與更豐富的配置，而出貨量則有所下降。
• 服務業務的成長對部署時程仍具敏感性，因為導入與託管服務的需求通常隨基礎設施採購之後發生。
• 由硬體主導的成長需要額外的營運資金。今年累計調整後自由現金流轉換率仍低於 CDW 長期基準（Non-GAAP 淨利的 80% 至 90%）。
• 管理層將技術環境描述為複雜且快速演變，客戶預算集中於基礎設施、資安、韌性、雲端最佳化與 AI 準備度。
• 借款增加與優先債券的發行提高了公司的全年利息支出展望。

分析師問答重點

管理層表示，伺服器與儲存設備的成長主要由數量需求而非價格驅動。客戶端裝置則是主要例外，出貨量減少被較高的價格以及對更高效能配置的需求所抵銷。

在供應狀況方面，CDW 表示產品供應與交付變得更有秩序，比今年早期少了許多意外。公司在該季度消化並轉化了在手訂單，同時以更強勁的新接訂單予以補充，帶動在手訂單持續成長。

管理層將本季度的營運槓桿效益主要歸因於「Geared for Growth」專案，包括生產力提升、AI 整合至工作流程以及報價到收款（quote-to-cash）效率改善。管理層同時提醒，費用節省與再投資不會在每個季度均勻分布。

關於 AI 的經濟效益，管理層強調 AI 並非單一產品類別。單一硬體組件可能會稀釋毛利率，但 CDW 的目標是跨基礎設施、資料、應用程式、資安、治理與服務等領域更廣泛的商機。

管理層表示，未觀察到因擔憂零組件供應或未來價格而導致顯著提前採購的情形。相反地，當前的訂單、開票與在手訂單趨勢證明了底層需求的持久性。

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完整財報電話會議逐字稿

管理層陳述

Operator

Hello, everyone. Thank you for joining us, and welcome to the CDW Third Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Steve O'Brien with Investor Relations. Steve, please go ahead.

Steven O'Brien

Thank you, Joel. Good morning, everyone. Joining me today to review our third quarter 2026 results are Chris Leahy our Chair and Chief Executive Officer; and Al Miralles, 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 diluted share, non-GAAP selling and administrative expenses and 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 SEC rules.

You'll find reconciliation charts in the slides made available on our website and in our earnings release. Please note, all references to growth rates or dollar amounts 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 is property of 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.

Christine Leahy

Thank you, Steve, and good morning, everyone. I'll begin with an overview of our third quarter performance progress and outlook. Al will then provide detail on the financial results, capital allocation and expectations for the balance of the year.

The team executed with precision and delivered record performance in a dynamic technology environment shaped by prioritization of infrastructure monetization and AI adoption. For the quarter, net sales increased 18% to $6.8 billion. Gross profit was $1.4 billion, 10% above last year. Expense efficiency delivered operating leverage and non-GAAP operating income increased by 17% to $620 million, while we continue to invest in our coworkers industry specialization and AI capabilities.

Opportunistic share repurchases contributed to 20% growth in non-GAAP net income per diluted share of $3.26 and disciplined working capital management converted performance into adjusted free cash flow of more than $500 million. These results demonstrate the power of our model capture demand wherever it is most impactful to our customers and convert it into profitable growth.

Meeting customer priorities drove record quarterly sales in both hardware and software with both contributing to double-digit gross profit growth. Momentum in AI enterprise adoption drove strong infrastructure investment, propelling hardware growth ahead of software. This delivered significant profit dollars today and opportunities for solutions and services over time.

Capturing demand where it matters most to customers means mix will vary quarter-to-quarter. We expect that. What does not change is the underlying trajectory. Our strategy is driving stronger economics over time. Over the past 5 years, gross profit has increased at more than twice the rate of net sales. This quarter's performance reflects the power of strong execution and value of our deep industry and technology expertise.

Let's take a look at the 3 drivers of performance this quarter. The breadth and depth of our customer end markets, our full stack full life cycle portfolio and our growth strategy, which underpins our value proposition in an AI forward world.

First, our customer end markets. Our 3 U.S. segments are commercial, government and education our U.K. and Canadian operations are reported as Other. Within each, we align resources by customer type, size and complexity. Our unmatched scale powers this level of segmentation. Customer breadth sharpens our view of where demand is moving, and our deep specialization turns that insight into precise execution for each customer end market.

With hundreds of thousands of customers, we had a unique view of technology priorities and how they are evolving. And what we see is convergence. Customers are modernizing and optimizing their foundations, advancing their AI priorities and demanding measurable returns on technology investments.

We also see a familiar pattern in technology adoption. AI is starting with infrastructure for large sophisticated customers expanding across the stack and then out to the mid-market, small business and public sector. Across those markets, customer priorities are consistent. What differs is the outcomes customers are solving for. You see that in this quarter's broad-based growth, commercial top line increased 21%, international 26%; government 10% and education, 8%.

For commercial, capacity and productivity drove investment. Corporate customers built more resilient, scalable environments to support increasingly complex workloads, driving investment across infrastructure modernization, cloud, AI readiness and more capable client devices.

Small businesses emphasize productivity, cost control and security. For Financial Services, it was speed with control, investing to act on data faster, strength and resiliency and improved decision-making while maintaining security, governance and cost discipline. For Healthcare, doing more with constrained resources remain the top priority, investments centered on improving clinical workflows and operating efficiency while managing continued reimbursement and funding pressures.

For government, technology investment was tied directly to mission. Federal and state and local customers prioritized operating efficiency and control of critical data and infrastructure. Education institutions invested to secure learning environments, improved student outcomes and ensure responsible AI adoption with K-12 extending device lives and higher education emphasizing optimization, security and greater value from data. And international reflected many of these same priorities, modernization, resilience and efficiency drove more than 20% growth in both the U.K. and Canada.

Success addressing distinct end market priorities underscores the value of our second performance driver, our full stack full life cycle portfolio which delivers multiple paths to growth. Investments in modernization and AI prioritization pulled through demand across the technology stack, driving excellent performance across hardware and software. Availability of product and delivery conditions showed signs of normalizing with fewer surprises than earlier in the year.

Hardware increased 21%, driven by modernization, including AI-related investments from foundational infrastructure to significant AI factory deployments. Data storage and servers more than doubled while NetComm increased 9%, investments that create follow-on opportunities across the life cycle.

Client device performance was also strong, up 19%. Customers invested in greater processing power, memory and security to support evolving workloads and extend device lives. Although unit volumes declined, higher average selling prices more than offset the decline, reflecting both price increases and demand for more capable configurations.

Modern technology environments are inherently hybrid, spanning hardware, software, cloud and services. And these environments become more interconnected, customer investment increasingly extends across multiple parts of the technology stack. You see this in our software and cloud performance. Software increased 14%, driven by double-digit growth across network management, virtualization and operating systems. Cloud delivered stellar growth, reflecting broad demand across SaaS and ID solutions and workloads. Services lead, enable and extend the technology life cycle.

Professional and managed services returned to growth, up 2%. Performance continued to reflect the timing of large deployments with services opportunities following as deployments move through the technology life cycle. Our ability to capture opportunities across the full technology life cycle is underpinned by our third performance driver, our growth strategy.

Our growth strategy is anchored in our North Star, relevance. Relevance defines how we win. Scale sustains it with reach and insight. Specialized expertise turns that insight into action and repeatable solutions extend our impact. And today, relevance matters more than ever. Today's technology decisions are business decisions and mission decisions. As the stakes rise and AI investment grows, decisions are more consequential than ever. And getting those decisions right starts with the right foundation, data.

Turning enterprise data and context into trusted intelligence is essential to scaling AI. AI adoption is creating an explosion of data, much of it fragmented across applications, cloud and infrastructure. trusted, secure and usable information is essential. Our recent addition of Lovelytics deepens the expertise we bring to this foundational work across data strategy and engineering, analytics, generative AI and machine learning and data migration and modernization.

AI is in a consequential phase of its acceleration. The market is shifting from experimentation and task level productivity to production, workflow, redesign and performance. As it moves from fulfilling more tasks to changing how work gets done, AI unlocks greater productivity, capacity, speed, innovation, better decision-making and results, realizing that potential starts with the outcome.

CDW's AI-first perspective puts outcomes first, then builds the strategy around what must connect across both the technology and the organization to deliver it. Customers will move at different speeds and from different starting points, but the 6 AI imperatives are the same.

Enterprise data needs to become trusted intelligence. Infrastructure must be ready. AI needs to move into applications and workflows and security, governance and economics must keep pace. Bringing those elements together is at the heart of what CDW does, we orchestrate environment, connecting across the technology stack to deliver outcomes.

Our position at the center of the technology ecosystem makes this orchestration possible. No single vendor can address every requirement. We connect partner innovation and customer needs, bringing together the right technology expertise and services. Few providers can bring it all together, CDW can.

Significant AI capacity has been built. Return on that investment depends on adoption and sustained consumption. We know how to drive both. Our cloud performance demonstrates our success connecting innovation to customer needs and turning partner capacity into sustained consumption. AI is broader and more complex making our role even more valuable.

AI momentum is building across the enterprise market, and we are selectively serving customers in this space, including those at the cutting edge, while staying disciplined on economics and returns. Now the next phase of adoption is underway, broadening into the mid-market, small business and public sector.

Across these markets, teams are accelerating adoption and turning it into sustained consumption. Here's a customer example that shows what that looks like in practice. A major international airport goal was clear: [ move is ] critical terminal transportation system toward near 0 outages. The team developed a solution that seamlessly brings together AI, computer vision, LiDAR, telemetry, machine learning and advanced infrastructure. This integrated solution continuously monitors the entire system and identifies potential issues before they disrupt operations, enabling corrective actions sooner.

The outcomes matter. Greater system reliability, reduced downtime, more efficient use of maintenance resources and better experience for the millions of passengers who rely on one of the world's busiest airports. And for CDW, related production monitoring and cloud analytics opportunities total about $2 million.

This is orchestration in action, connecting technology, services and expertise to deliver a critical business outcome. It's also a great example of how we are turning what was once bespoke into repeatable solutions and what is repeatable into scalable outcomes. We built an AI IoT solution that is extensible across multiple operational environments from transportation systems to water and power infrastructure.

This is how our AI flywheel works, solve, learn, repeat and scale across industries, customer sizes and stages of adoption. Because for our customers, the larger AI opportunity is not simply doing tasks faster, the opportunity isn't changing how customers operate to deliver meaningful outcomes. Helping customers achieve this quickly and efficiently requires even more than a broad portfolio and the ability to connect technologies that requires the scale to turn insight into precision to deliver faster, more cost-effective time to value. And our scale is a compounding advantage that extends well beyond AI.

As technology change accelerates across the ecosystem, our deep customer understanding positions us to capture demand wherever customers invest. That leads me to our outlook. Current market conditions remain constructive. Customer engagement and written demand remained healthy. Writings continue to outpace invoicing and backlog is building, particularly in enterprise infrastructure.

Given this backdrop, we are increasing our full year outlook. We now expect the U.S. IT addressable market to grow at a high single-digit rate in 2026 on a customer spend basis and we see 300 to 400 basis points of CDW outperformance compared to the market.

The opportunity ahead is significant. Technology is undergoing tectonic change. In an AI forward world, we translate customer investment into outcomes and partner innovation into adoption and sustained consumption. Demand will shift, technology will evolve what endures is our relevance, powered by advantages that compound, unmatched scale, deep customer relationships, specialized expertise and a unique position at the center of the technology ecosystem. That gives us confidence in our strategy, the opportunity ahead and the forward earnings power behind today's dividend increase. With that, let me turn it over to Al.

Albert Miralles

Thank you, Chris, and good morning, everyone. I'll begin with details on our third quarter performance, move to capital allocation priorities and then finish with our outlook for the remainder of 2026. As Chris mentioned, this quarter, demand was strongest in AI-driven hybrid infrastructure and data center modernization, particularly in servers, storage and cloud, and we're also seeing those investments pull-through opportunities across networking, data governance, security and services.

The AI market is increasing both the scale and complexity of customer technology environments. Customers are evaluating how infrastructure, cloud, data, application security and endpoints work together in a secure, governed and cost-effective architecture reinforcing the value of CDW's full stack full life cycle model.

Third quarter gross profit of $1.4 billion increased 10.3% year-over-year. This is well above our expectation for a mid-single-digit year-over-year increase. Spending is increasingly tied to measurable efficiency gains, data governance and cost optimization with focus on ROI.

Third quarter gross profit gross margin was 20.5%, down 140 basis points year-over-year, but up 40 basis points from the second quarter. As we've discussed in prior quarters, gross margin will vary with changes in product and end market mix. In the current environment, our mix continues to be weighted towards large infrastructure projects, which carry higher hardware content.

We experienced meaningful growth in cloud, SaaS and IaaS solutions which are transferred at a point in time where CDW is aging, also known as our netted down business. Demand also remains strong among large enterprise and financial services customers, making significant investments in hardware infrastructure, particularly servers and storage. These large projects generated meaningful gross profit dollars and helped to drive upside to that end in the third quarter. Over time, they also create opportunities for additional solutions and services.

Netted down revenue streams increased 17.1% year-over-year and accelerated from the second quarter growth. They represented a record 38.2% of gross profit, up 220 basis points year-over-year and 230 basis points quarter-over-quarter. Professional and managed services returned to growth in the quarter, while continuing to be impacted by deployment timing and customer prioritization of hardware and cloud investments. As infrastructure, security and AI projects through from procurement, implementation, integration and ongoing management, we continue to expect services opportunities to follow.

Turning to expenses for the third quarter. Non-GAAP SG&A totaled $766 million, up 5.6% year-over-year. The increase is primarily incentive related reflecting higher performance-based compensation tied to stronger gross profit growth. As expected, we began to capture benefits associated with our geared for growth efforts. As a percentage of gross profit, non-GAAP SG&A was 55.3%, an improvement of 240 basis points year-over-year and 260 basis points from the second quarter, consistent with our prior expectation for improvement on both a year-over-year and sequential basis.

Keep in mind that Geared for Growth's long-term objective is durable operating leverage which incorporates both expense efficiencies and savings used for reinvestment. Seasonality impacts the expense leverage ratio, so improvement will not always be linear on a sequential basis.

Coworker count totaled 14,600, while customer-facing coworker count was approximately 10,500. Our head count in the quarter reflects the addition of approximately 600 new coworkers from the Lovelytics acquisition. We remain laser-focused on our goal to balance growth, expansion of capabilities and exceptional customer experience with greater efficiency and cost leverage from our broader operations.

Non-GAAP operating income was approximately $620 million, up 16.8% year-over-year demonstrating strong operating leverage. Notwithstanding the lower gross margin profile of the business compared to the prior year, non-GAAP operating income margin was solid at 9.2%, highlighting the flexibility of our operating model.

Net interest expense was in line with our expectations at $66 million. This year, interest expense has been influenced by higher average borrowings under our revolving loan facility and lower interest income on cash balances. Our non-GAAP effective tax rate was within our range at 26%. Non-GAAP net income was $410 million, up 14.8% year-over-year. Third quarter non-GAAP net income per diluted share was $3.26 up 20.4% year-over-year, well above our expectation for growth at the high end of high single digits, impacted by the strong operating performance combined with our opportunistic share repurchases through 2026.

Moving to the balance sheet. At period end, net debt of $5.6 billion and liquidity was $3.4 billion with cash plus revolver availability. During the quarter, we issued $1.5 billion of new senior notes. We will use the net proceeds to repay our $1 billion December 2026 senior notes at maturity with the remainder used to fund the Lovelytics acquisition.

The 3-month average cash conversion cycle was 20 days, within our targeted range of high teens to low 20s. We continue to believe our target cash conversion range remains the best guidepost for modeling working capital longer term. Adjusted free cash flow was $506 million in the quarter or 123% of non-GAAP net income driven by profit growth and disciplined working capital management.

That brings year-to-date adjusted free cash flow to $785 million or 73% of non-GAAP net income, slightly below our stated long-term rule of thumb of converting 80% to 90% of non-GAAP net income to cash, but demonstrating significant progress towards this annual role.

We have line of sight towards achieving our cash flow objectives. This year, we've been focused on managing these objectives in a way that supports our customers and drive shareholder value even as ongoing hardware-driven growth has warranted investing in working capital.

In the quarter, we utilized cash consistent with our 2026 capital allocation objectives. Returning $108 million through share repurchases and $79 million through dividends. Year-to-date, we've returned approximately $892 million to shareholders or 114% of adjusted free cash flow, well ahead of our 2026 target of returning 50% to 75%. Year-to-date, share repurchases of $653 million already matched our total for all of 2025. We have repurchased a total of 5.3 million shares this year at an average price of approximately $123 per share.

That brings me to our capital allocation priorities moving forward. Our first capital priority is to increase the dividend in line with non-GAAP net income growth. Today, we announced approximately 8% increase in our quarterly dividend to $0.68 per share or $2.72 annually, our 13th consecutive year of an increase. We continue to prudently manage our dividend with respect to the growth environment and target a roughly 25% payout ratio of non-GAAP net income.

Our second priority is to ensure we have the right capital structure in place. We ended the third quarter at 2.5x net leverage within our targeted range of 2 to 3x. We continue to proactively manage liquidity while maintaining flexibility.

Finally, our third and fourth capital allocation priorities of M&A and share repurchases remain important drivers of shareholder value. On September 25, we completed the acquisition of Lovelytics, a leading data and AI services firm for $525 million. Lovelytics expands our capabilities and our services and solution offerings in modern cloud, data and AI. And while we remain active in the M&A market, we will also continue to be opportunistic or towards share repurchases with approximately $1 billion remaining under authorization.

Now turning to our outlook. Budgets remain concentrated on the areas of greatest strategic importance including infrastructure modernization, security and resiliency, cloud adoption and optimization, AI-ready data and applications and targeted device investments, healthy written production and an elevated backlog support our view that underlying demand will remain durable in Q4.

At the same time, we remain balanced given the complex and rapidly evolving technology landscape. Factoring in these variables, we now expect gross profit to grow at a mid- to high single-digit rate for the full year 2026, up from our prior expectation of mid-single digits. This leads to a first half versus second half split in the range of 48% to 52%, which is aligned to historical half -- second half weighted seasonality.

Based on the anticipated mix of products and end markets, we continue to expect full year 2026 gross margin to be down compared to the full year 2025. The outlook for net interest expense is now higher in the range of $255 million to $260 million, driven by the $1.5 billion notes issuance during the third quarter.

Finally, we now expect full year non-GAAP net income per diluted share growth to be in the low double-digit range year-over-year, up from our prior expectation for a high single-digit growth. Please remember, we hold ourselves accountable for delivering our financial outlook on a constant currency basis. On that note, our expectation is for currency to be relatively neutral to reported growth rates for the full year.

Moving to modeling thoughts for the fourth quarter. We anticipate gross profit to increase at a mid-single-digit rate year-over-year, which equates to a seasonal low to mid-single-digit decline sequentially. Moving down the P&L, we expect fourth quarter non-GAAP SG&A to increase at a low single-digit rate year-over-year and sequentially. Non-GAAP operating expense as a percentage of gross profit will demonstrate continued efficiency improvement on a year-over-year basis, driven by our geared for growth efforts.

Finally, we expect fourth quarter non-GAAP net income per diluted share to increase to a low double-digit rate year-over-year. With that, I want to thank our coworkers for an exceptional quarter of execution. Our performance reflects the strength of our customer relationships, the power of our business model and our ability to help customers navigate increasing complexity. This concludes the financial summary. I will now ask the operator to open up for questions. And we would ask each of you to limit your questions to one with a brief follow-up. Thank you.

Operator

[Operator Instructions]. Your first question is from David Vogt with UBS.

分析師問答

David Vogt

Appreciate all the detail. Maybe Chris and Al, can you talk to the demand drivers in the quarter? I know you mentioned a lot of infrastructure programs and projects in the quarter. But can you maybe speak to a little bit more granular what you're seeing from a pricing backdrop, a supply chain backdrop and sort of a demand backdrop.

For example, like how much of the strength that you're seeing in server stores, networking infrastructure is price-driven versus demand driven? And are you shipping -- or are you able to satisfy the demand that you see out there? Are there any sort of supply constraints that are maybe potentially impacting your ability to convert that demand into revenue?

Christine Leahy

David, thanks for the question. And I'd start by saying that we're seeing demand remain resilient. And when you think about what's been driving in it. Obviously, pricing is impacting results. But look, there are needs that the customers are leaning into that we've been seeing very high on the list.

So think AI readiness, I think data growth, network modernization, cybersecurity, resiliency and hybrid architectures, all really in the in the preparation stage for utilizing AI. And what we are seeing is working with customers to make trade-offs in their budgets, in some cases, move to fewer units and higher capacity. But at the end of the day, we see the durability of that demand continuing. In terms of the pricing itself, I'll let Al address that.

Albert Miralles

Yes. Thanks for the question, David. I would say that the market is still driven by supply variables as well as pricing. But if we look across our different product set, the growth was substantially driven by units, and I'll give you one exception in a second. So if we look at the areas of greatest strength, server storage, definitely strong unit growth strong volume of customer spend coming through. While those buyers are influenced by price, that was not the driver of our growth. It was more so on the unit side.

Now the one stand out in that regard, no surprise would be client devices, that is client devices grew at a nice clip at 19%, units were down and ASPs were up. But I will just note as well on clients. The one kind of kick for us is the ASPs were up partially because customers are choosing to move to more richer configurations. So it's not just price movement.

David Vogt

Great. And maybe just as a quick follow-up. So if I just take your comments around pricing on quant devices units and your netted down mix. Maybe you can flesh out where you saw a little bit of margin pressure. Is it just the configurations within server storage at lower margin or the infrastructure, other infrastructure assets? I'm just trying to get a sense because it looks like your product gross margin ex netted down, maybe ticked down slightly sequentially in the quarter?

Albert Miralles

Yes. Happy to take that, David. So first, like Chris said, the demand was broad-based across all of our end markets. That being said, our results reflected significant upside relative to our expectations. A good piece of that overperformance came from our enterprise customers and our financial services customers focused on infrastructure. That was not a phenomena of like-for-like margin compression, more a function of mixing strong into particular products and mixing strong into particular end markets like those 2 noted, will have an impact on your margin.

And we do believe that, that is part and parcel to where we are in the adoption cycle with AI. And so at the end of the day, we are most guided by how do we drive gross profit growth, how do we get operating leverage. And so while we care about kind of where we stop the gross margin, it's not the only variable for the quarter.

Operator

Your next question is from Amit Daryanani with Evercore.

Amit Daryanani

Congrats on a nice set of numbers here guys. Chris, I just sort of talk about the high single-digit IT spend expectation for the year you talked about. Can you just talk about how the mix been hardware and software sort of tracking? And when you talk to your vendors, you sort of share that sentiment that, hey, demand is much ahead of supply right now, and you sort of echo that as well.

Does that suggest that these high single-digit IT spend growth rates could persist beyond [ down ] to '26? Just trying to get a sense of the durability of the goodness we're seeing over here, especially if demand seems to be in a crisis supply.

Christine Leahy

Amit, thanks for the question. And yes, look, as I mentioned in the last question, the demand that we're seeing is based on a number of factors, all of which are our customers are not choosing not to purchase. They're just getting really disciplined in what they're buying and how they're buying.

But at the end of the day, the data explosion, the need to be ready for cybersecurity risks that are exponentially expanding and the need for optimization across hybrid infrastructure. We're just finding that to be durable is what I would say. As I think forward, I don't want to project too much forward, but the bottom line is they're evaluating what they need based on the component parts of sorry, being successful in AI. We don't see that dampening any time soon. So I don't want to project into 2027. But what I -- what we see now is strength. We think the underlying demand drivers will continue, and we would expect to take advantage of those in 2027.

Amit Daryanani

And then just a follow-up. I think your gross margin first profit dollars are up 10% year-over-year. Your operating income dollars that were up like 17%. So clearly, some fairly impressive OpEx leverage in the model in the quarter. Can you just talk about what exactly is driving that? Is that the Geared for Growth perhaps ahead of track? You could update us on that. Or were there other factors that helped that OpEx leverage in the quarter?

Albert Miralles

Yes, I'll take this. Yes, substantially, what you're seeing there in terms of the operating leverage is our Geared for Growth efforts kicking in and those savings coming to fruition in the quarter. So we had previously given indications of what that run rate expense base could look like as we go into 2027, to go into 2028. I would say we are at or above expectations in terms of the progress there in.

The one caveat I would give you is a great print for us in that regard in terms of that SG&A ratio at 55%. But there will be variability in terms of when the savings land relative to our reinvestment. And so therefore, I'll take you back to our commitment is year-over-year improvement in our operating leverage. That does not mean that every quarter will be perfectly linear with respect to the SG&A ratio, but super pleased with our progress to date.

Operator

Your next question is from Keith Housum with Northcoast Research.

Keith Housum

In terms of the Lovelytics acquisition that just closed here, I guess you got some deep dive a little bit deeper into it in terms of the acquisition you're making in terms of how you guys are going to manage them and integrate within the existing CDW portfolio and the type of revenue synergies that we can expect going forward from the acquisition.

Christine Leahy

Yes, sure. I'll start. Look, Lovelytics, we're very excited about the acquisition. It's not just a great company. It's a great team of people. And as we've said, it really expands our modern cloud data analytics and AI capabilities that are very much at the front end of AI adoption.

Look, in terms of the integration, we are doing our greenhouse approach, and we've shared that with investors. Before with a company like Lovelytics, the size that they are, the capabilities they have, we like to operate them almost separately for a period of time in CDW as a channel.

The reason is, look, we don't want to overwhelm them. We want to keep the growth going, and we want to be really disciplined about the opportunities from our broad base of customers that we bring to Lovelytics. So far, so good. It's worked in the past, and we're really looking forward to growing that business and utilizing their skill sets across our broad customer base.

Albert Miralles

And maybe, Keith, I'll just add to your question on how does that get baked into our outlook. Like Chris said, super excited about this business. Our focus, particularly in Q4, is getting off to a great start with respect to our integration and scaling the business.

Our incorporation of Lovelytics in the Q4 outlook is measured, as you would expect from us. And as we look into 2027, we will certainly provide more in terms of what we think the contribution effect is. But you should think of this business as smaller relative to the obvious overall scale of CDW, but growing very fast. And so we're really excited about the prospects of what the future holds here.

Keith Housum

Great. If I could just follow up on that. In terms of the financial profile, is it accretive to margins? Or is it a case of more it's a rounding here, and I won't be able to see it?

Albert Miralles

Gross margins, for sure, accretive, right? It is a professional services business. So the margins are quite rich. Our focus is going to be how do we help them to continue to scale. So we get all of the advantages of those richer margins.

Operator

Your next question is from Ruplu Bhattacharya with Bank of America.

Ruplu Bhattacharya

The first one is on gross margins. You've talked about AI several times. What percent of revenue or what percent of gross profit were AI infrastructure sales are margins lower on the AI sales? And beyond that, did vendor incentives or competitive pricing have any influence on gross margin? And I have a follow-up.

Christine Leahy

Ruplu, let me start on that one, and let me zoom way out to start. So when we think about AI, it's not a single product category. It's a multiyear opportunity and a full stack solution. So it's a great question. But if you look at the growth in infrastructure, whether you take a single piece of the hardware or a single GPU, yes, that can be dilutive to our underlying business margins of 21%. But we look at it in the context of our customers' broader imperative to get value out of AI and what's required to deliver on their outcomes.

So we don't think about it as just selling a single component, but selling solutions across the entirety of the infrastructure, data, application layer, workflows, security, and economics. And we are so well positioned with our full stack full life cycle to help our customers connect and orchestrate the spectrum of technology, services and expertise [indiscernible] to help them and to ensure that they work within the confines of their current environment. So that's how we think about bringing value to our customers and ultimately richer economics to the business.

Ruplu Bhattacharya

Okay. Chris. For my follow-up, can I ask you raised your target for customer spend to 300 to 400 bps premium to U.S. IT growth, what is driving that more? Is that data center equipment? Or is that on the client devices side? And is any of that -- could any of that be related to a pull forward of purchasing because of fears of component availability or higher pricing going forward? Or do you think that client budgets are actually going up?

Christine Leahy

Yes, it's a great question. I'd say this. it's both, but more heavily weighted to infrastructure. And we know historically, when we have very, very strong hardware performance that we outperformed the market by several hundred basis points versus our typical 200 to 300 million, and we expect to do the same here.

In terms of pull forward, immaterial, frankly, because when we look at all the leading indicators, we look at writings, we look at invoicing, we look at backlog, we are not seeing what I would say is a flush or pull forward. So we feel confident in our -- in the numbers that we've put out there.

Operator

Your next question is from Guy Hardwick with Barclays.

Guy Drummond Hardwick

Most of my questions have been answered, but perhaps you could just give a little bit more color as to see tremendous performance in double-digit GP growth at only mid-single-digit growth in SG&A. Just wondering to what extent was the RIF material to that?

And at what point do you guys have to think you've stopped reinvesting in the business? It seems that you guys are net hiring in terms of other roles into some more advanced roles, maybe AI skills, et cetera. So these people will generally be more expensive than perhaps people who have left the organization. So maybe you can give us sort of a few quarters forward-looking outlook in terms of how kind of investments in the business versus the Geared for Growth program.

Albert Miralles

Yes, happy to take that. So in the quarter, just a reminder, geared for growth is focused on broad productivity incorporation integration of AI in our work processes, looking deeply at our quote-to-cash efforts to figure out how do we kind of create a better experience and streamline the work we do and drivers of efficiency there in.

All of those efforts are in played out with respect to Q3, there certainly is a coworker component that drove some of those savings. I won't parse out all of the details, but I think you can get a sense from that as you unpack the coworker count. So our coworker count was 14,600, about 600 of that is from Lovelytics, so you can get a sense for just the impacts vis-a-vis productivity.

Importantly, and you noted it, we are investing back in the business. And a couple of things I'd note, and Chris may jump in here as well. We are investing in our services capabilities, including deepening our data and AI practice areas, and you saw that with the Lovelytics acquisition. We continue to hone and improve upon our go-to-market engine. And then again, I'll just say that we're focused on our end-to-end customer experience both to cash and how do we really make a better experience for our customers. So -- there are some of the big areas that we've been focused on investing. Some of those are coming to fruition, but expect them to accelerate as we look into 2027.

Christine Leahy

Yes. The only thing I would add is that these efforts are not purely cost lowering accounts. We're basically changing the way that we operate the business to create durable capacity, to both invest on a continued basis back into the business and to provide returns to our shareholders. So the focus is both on growth overall and efficiency.

Operator

Your next question is from Joseph Cardoso with JPMorgan.

Joseph Cardoso

Maybe for my first one, I wanted to touch on the commentary around order intake outpacing invoicing and how that's translating into backlog? And maybe more importantly, your visibility. Just curious, given all the dynamics you're seeing if that is driving a greater visibility and how we then historically and how that's translating -- and should we be thinking about that translating to something more multi-quarter in nature and where maybe that backlog build is happening as it relates to the portfolio? And then I do have a follow-up.

Albert Miralles

Yes. First, on the visibility, I would say, consistent with last quarter, visibility continues to improve. We feel like order times and delivery are largely within reason. There's always exceptions, but for the most part, it's operating in a pretty orderly fashion. So there's that supply chain element.

In terms of just the balance of written orders, invoicing, backlog, here's what I'd say, because the supply chain environment continues to be reasonably orderly. We had good conversion of the backlog during the quarter, but we replenished that backlog with stronger written orders. That is, and Chris mentioned this written orders are exceeding invoicing, which means that our backlog continues to grow. And so things are operating as we'd expect. Those health metrics, we view is very positive and a really good indication of both customer engagement and spend potential as we look forward.

Joseph Cardoso

Got it. And then maybe as my follow-up, it's good to see the services return to growth here. But I think, again, pointing to this deployment dynamic, maybe can you just help us think through the timing about a potential services catch-up? Or should we really be thinking about this more longer in the tooth in nature, just given kind of you guys pointing to like more of the life cycle and maybe the addressable opportunity over that?

And maybe just as a second part to this, just curious, is the higher hardware prices making services look maybe a little bit softer from a comparison purpose? And any -- and if we ignore that kind of dynamic, is there any underlying change in terms of the level of attach you're seeing from a hardware perspective, just given maybe a distortion on the pricing side?

Christine Leahy

Yes. Joe, let me take that. Let me just start with the end, which is where customers are focused and therefore, where we are focused. And you're right, I mean, customers have been allocating their budgets to infrastructure, hardware, cloud and just the foundational needs to become AI-ready. So that's where the budgets have been going, and that's obviously where we help our customers. We follow them where they need to go. And that does impact the timing to some extent of services.

But look, services did return to growth, and we're happy to see that. It was earlier than we expected on the professional services side. So delighted to see that good job by the team. And what I would say is we are continuing to see constructive engagement and pipeline around implementation around optimization, security, governance, data and just ongoing operations. So the full life cycle.

I mean, it is just the nature of life cycle that procurement and deployment and implementation occur at different stages. And when you think about the broader consulting integration and managed services needs, those tend to come in the middle and at the end of the projects. I would think about this over the course of several quarters.

I think you said long in the [indiscernible], it won't be an immediate catch up. It will just be the natural unfolding of the life cycle. I mean if I just give you a tangible way to think about it, and I'll use Lovelytics data, on the front of an engagement there, we're going to do advisory services, and that might include AI and data strategy and an assessment around maturity and a road map build and use case prioritization, et cetera.

That's great. That's strategic. But then we move into the implementation, and that will be more when we are actually deploying. An example would be to migrate legacy data warehouses. That's in the implementation and deployment stage and then ultimately, operating to keep the environment secure, you'll see managed services for example, with FinOps to be a single point to monitor and control cost. So that is the way that the life circle cycle of services flows out, and we expect it to be that as we move forward. And as I said, we're happy to see we're back to growth, albeit modest, but still ahead of what we expected.

Operator

I will now turn the call back to Chris Leahy, CEO, for closing remarks.

Christine Leahy

Thank you very much. And let me close by recognizing the dedication and hard work of our nearly 15,000 coworkers around the globe. Their commitment to serving our customers is what makes our success possible. Thank you to our customers for the privilege of helping you achieve your goals and to our partners for their continued collaboration as we bring the best of the technology ecosystem together for our customers. And thank you to those listening for the time and continued interest in CDW. We look forward to speaking with you next quarter.

Operator

This concludes today's call. Thank you so much for attending. You may now disconnect.