CDW Financial Model

CDW reports revenue primarily by customer channel, but gross margin is driven by product type (Hardware, Software, Services). The model must forecast by customer channel to match the 10-K.

• Corporate Segment
• Revenue driver formula: Prior Year Corporate Revenue x (1 + Corporate Growth Rate)
• Historical growth rate: 1-7% (highly dependent on corporate IT budget cycles; $9.44 billion in 2025).
• Key growth levers and headwinds: Enterprise digital transformation, AI infrastructure upgrades, offset by macroeconomic uncertainty delaying large capital projects.
• Seasonality: Strongest in Q4 as corporations exhaust annual IT budgets.

• Public Segment
• Revenue driver formula: (Government Rev + Education Rev + Healthcare Rev)
• Historical growth rate: 2-6% ($8.54 billion in 2025).
• Key growth levers and headwinds: Federal and state budget cycles, E-Rate funding for schools, healthcare digitisation.
• Seasonality: Highly seasonal. Q3 is the strongest quarter due to the US Federal Government fiscal year-end (September) and the back-to-school season for Education.

• Small Business Segment
• Revenue driver formula: Prior Year Small Business Revenue x (1 + Small Business Growth Rate)
• Historical growth rate: Cyclical, ranging from negative to +13% ($1.73 billion in 2025).
• Key growth levers and headwinds: Most sensitive to macroeconomic conditions and interest rates.

• Other (UK and Canada)
• Revenue driver formula: Prior Year Other Revenue x (1 + Other Growth Rate) + FX Impact
• Historical growth rate: 5-10% ($2.72 billion in 2025).
• Key growth levers and headwinds: International expansion, currency translation (GBP and CAD to USD).

*Revenue Recognition Note:* CDW recognises software-as-a-service (SaaS) and certain warranties on a "netted down" basis. They record only the agent fee or commission as revenue, which carries a 100% gross margin. This mix shift artificially depresses top-line revenue growth while expanding gross margin percentages.

• Total assets: Approximately $13 billion to $14 billion.
• Key asset categories: Accounts Receivable, Inventory, Goodwill, and Intangible Assets.
• Goodwill & intangibles: Represents over 40% of total assets, a legacy of the Sirius acquisition and the company's own LBO history.
• Working capital profile:
• Days Sales Outstanding (DSO): 60 - 70 days.
• Days Inventory Outstanding (DIO): 15 - 20 days (extremely efficient due to the drop-ship model where vendors ship directly to the end customer).
• Days Payable Outstanding (DPO): 50 - 60 days.
• Net working capital as % of revenue: Typically 8% to 10%.
• Working capital dynamic: CDW requires working capital to grow. When revenue spikes, accounts receivable spikes faster than payables, consuming cash.
• PP&E: Very low (under 2% of assets). Primarily distribution centres and internal IT systems.
• Right-of-use assets: Operating leases for office space and distribution centres, approximately $200 million.

• Capex as % of revenue: 0.5% to 1.0% (highly asset-light).
• Maintenance vs. growth split: 60% maintenance (IT systems, facility upkeep), 40% growth (e-commerce platform enhancements).
• Capitalised software: Material component of capex, representing internal-use software development.
• M&A pattern: Bolt-on acquirer focused on adding technical capabilities (cloud, cybersecurity, managed services) rather than purely buying revenue.

• Total debt: Approximately $5.5 billion.
• Debt/EBITDA ratio: Target is 2.0x to 3.0x. Currently operating at ~2.4x.
• Credit rating: Investment grade (Baa2/BBB).
• Key debt instruments: Senior unsecured notes (various maturities) and a revolving credit facility.
• Maturity profile: Well-laddered with maturities extending beyond 2030.
• Interest rate profile: Predominantly fixed-rate senior notes.
• Share repurchase programme: Highly active. The Board authorised a $750 million increase in February 2025.
• Dividend policy: Progressive dividend policy. Currently paying $0.63 per quarter ($2.52 annualised), representing a payout ratio of approximately 25-30% of Net Income.

• Operating cash flow conversion: OCF / Net Income typically ranges from 1.1x to 1.4x, driven by high non-cash D&A charges.
• Free cash flow margin: 4.0% to 5.5% of revenue.
• Major non-cash items: Amortisation of intangibles is the largest bridge between Net Income and OCF.
• Working capital cash flow impact: A major swing factor. In high-growth years, working capital consumes hundreds of millions in cash. In flat or down years, working capital unwinds and generates massive cash flow.
• Capex intensity: Minimal, ensuring almost all operating cash flow converts to free cash flow.

1. Assumptions: Hardcoded drivers for macroeconomic inputs, segment growth rates, margin profiles, working capital days, and capital allocation targets.
2. Scenarios: Base, Bull, and Bear toggles linked to the Assumptions sheet.
3. Revenue & Gross Margin: Forecasts Net Sales by segment (Corporate, Small Business, Public, Other) and calculates Gross Profit based on an implied Hardware/Software/Services mix.
4. Operating Expenses: SG&A breakdown (coworker costs vs. other), D&A schedule, and stock-based compensation.
5. Income Statement: GAAP and Non-GAAP views, mirroring the 10-K structure down to Net Income and EPS.
6. Balance Sheet: Assets, Liabilities, and Equity. Must include specific lines for Goodwill, Intangibles, and Accounts Receivable.
7. Working Capital: Schedules for AR, Inventory, and AP driven by DSO, DIO, and DPO.
8. Debt Schedule: Tranches of Senior Notes, Revolver balance, interest expense calculation, and mandatory repayments.
9. Cash Flow Statement: Indirect method starting from Net Income, adjusting for D&A, working capital changes, capex, dividends, and buybacks.
10. Valuation (DCF): Unlevered free cash flow build, WACC calculation, terminal value, and implied share price.
11. Returns & Capital Allocation: Tracks the dividend payout, share repurchase capacity based on the 2.0x-3.0x leverage target, and ending share count.

1. `Corporate Segment Revenue = Prior Year Corporate Revenue * (1 + Corporate Growth Rate)`
2. `Public Segment Revenue = Government Revenue + Education Revenue + Healthcare Revenue`
3. `Total Net Sales = Corporate + Small Business + Public + Other`
4. `Gross Profit = Total Net Sales * Blended Gross Margin %` *(Note: Blended margin expands as Software/Services outgrow Hardware)*
5. `SG&A Expense = Total Net Sales * SG&A % of Revenue`
6. `Non-GAAP Operating Income = GAAP Operating Income + Amortisation of Intangibles + Equity-Based Compensation + Transformation Costs`
7. `Accounts Receivable = (DSO / 365) * Total Net Sales`
8. `Inventory = (DIO / 365) * Cost of Goods Sold`
9. `Accounts Payable = (DPO / 365) * Cost of Goods Sold`
10. `Change in Net Working Capital = (Current Year AR + Current Year Inventory - Current Year AP) - (Prior Year AR + Prior Year Inventory - Prior Year AP)`
11. `Interest Expense = Average Total Debt * Weighted Average Interest Rate`
12. `Share Repurchases = Free Cash Flow - Dividends Paid - Debt Principal Repayments` *(Assuming excess cash is returned to shareholders)*
13. `Ending Diluted Shares = Beginning Diluted Shares - (Share Repurchases / Average Share Price)`
14. `Dividends Paid = Annual Dividend Per Share * Ending Diluted Shares`

• The Assumptions sheet dictates the growth rates and margin profiles on the Revenue & Gross Margin and Operating Expenses sheets.
• Revenue & Gross Margin feeds the top line of the Income Statement and drives the AR calculation on the Working Capital sheet.
• Operating Expenses feeds the Income Statement and provides the D&A add-back for the Cash Flow Statement.
• The Working Capital sheet calculates the change in NWC, which is a critical line item on the Cash Flow Statement.
• The Cash Flow Statement determines the cash available for debt paydown or share repurchases, feeding the Debt Schedule and Returns & Capital Allocation sheet.
• The Debt Schedule calculates interest expense, which creates a circularity with the Income Statement (Net Income -> Cash Flow -> Debt Balance -> Interest Expense).

• Income Statement: Revenue and Gross Profit are positive. Expenses (COGS, SG&A, Interest, Taxes) are positive numbers subtracted in subtotal formulas.
• Balance Sheet: All assets, liabilities, and equity balances are positive.
• Cash Flow Statement: Net Income and non-cash add-backs are positive. Cash inflows (e.g., increase in AP, debt issuance) are positive. Cash outflows (e.g., increase in AR, capex, dividends, share buybacks) are negative.
• Working Capital Schedule: DSO, DIO, and DPO are positive integers.

• Working Capital Cash Flow Reversal: Builders often fail to capture that a decline in revenue generates massive cash flow for CDW as AR unwinds. Ensure the Change in NWC formula correctly outputs a positive cash flow when assets decrease.
• Netted Down Revenue Distortion: Software-as-a-Service sales are booked net of cost. A shift toward SaaS lowers top-line revenue growth but increases Gross Margin %. The model must not penalise profitability for lower top-line growth if driven by this mix shift.
• Acquisition Amortisation: CDW has heavy amortisation from the Sirius acquisition. This must be added back to calculate Non-GAAP Operating Income and Non-GAAP EPS, which is the metric management and Wall Street focus on.
• Segment Realignment: CDW is changing its reporting segments in 2026 to Commercial, Government, and Education. The model should be built using the 2025 structure (Corporate, Small Business, Public, Other) as historical data for the new segments is not yet fully available.
• Average Daily Sales: CDW frequently references "Average Daily Sales" because selling days vary by quarter (e.g., 63 vs 64 days). For an annual model, this washes out, but quarterly builds must adjust for selling days.
• Circularity in Share Repurchases: Using excess cash to buy back shares reduces the share count, which increases EPS, which changes the share price assumption, which changes the number of shares bought back. Break this by using a hardcoded average share price for the buyback calculation.
• Interest Income vs Expense: CDW reports "Interest expense, net". Ensure the model captures interest earned on cash balances to offset gross interest expense.
• Constant Currency: The "Other" segment (UK/Canada) is subject to FX swings. The model should forecast in constant currency and apply an FX overlay if necessary.

• "Gross margin should be in the 21.5% - 23.0% range; flag if outside this band as it implies an unrealistic product mix."
• "Operating margin (GAAP) should remain between 7.0% and 8.5%."
• "DSO must remain between 60 and 70 days; DIO must remain under 25 days due to the drop-ship model."
• "Net Leverage (Net Debt / Adjusted EBITDA) should remain between 2.0x and 3.0x per management's stated capital allocation policy."
• "Balance sheet must balance: Total Assets = Total Liabilities + Equity in every period."
• "Free Cash Flow conversion (FCF / Non-GAAP Net Income) should be > 80%."
• "Capex as a % of revenue should not exceed 1.5%."
• "Dividend payout ratio should remain between 20% and 35% of Net Income."

• Filings: SEC EDGAR (Form 10-K, 10-Q, 8-K) and the CDW Investor Relations website (investor.cdw.com) for supplemental earnings slides and Non-GAAP reconciliations.
• Key Peers for Benchmarking: Insight Enterprises (NSIT), TD Synnex (SNX), PC Connection (CNXN), and ePlus (PLUS).
• Industry Data Sources: Gartner and IDC for global IT spending forecasts, device shipment data (PCs, servers), and cloud infrastructure growth rates.
• Consensus Estimates: Bloomberg or FactSet for Wall Street consensus on revenue growth and Non-GAAP EPS.
• Proprietary Data: Canalys for IT channel partner market share and vendor program changes.

• CDW Corporation Form 10-K for the fiscal year ended December 31, 2024 and 2025.
• CDW Q4 2025 Earnings Press Release and Webcast Slides (February 4, 2026).
• CDW Dividend Declaration Press Release (February 4, 2026).
• CDW Q1 and Q3 2025 Earnings Press Releases.
• Finbox and Investing.com financial summaries for CDW Corporation.