CDW Corp - Quarter Report: 2023 June (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-35985

CDW CORPORATION

(Exact name of registrant as specified in its charter)


Delaware						26-0273989
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

200 N. Milwaukee Avenue
Vernon Hills, Illinois						60061
(Address of principal executive offices)						(Zip Code)

(847) 465-6000

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	CDW	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of July 28, 2023, there were 134,047,853 shares of common stock, $0.01 par value, outstanding.

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CDW CORPORATION AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Balance Sheets as of June 30 , 2023 and December 31, 2022	3
	Consolidated Statements of Operations for the Three and S ix Months Ended June 3 0 , 2023 and 2022	4
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30 , 2023 and 2022	5
	Consolidated Statements of Cash Flows for the Six Months Ended June 30 , 2023 and 2022	6
	Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30 , 2023 and 2022	7
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	37
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	39
SIGNATURES		40

PART I—FINANCIAL INFORMATION

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Item 1. Financial Statements


CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars and shares in millions, except per share amounts)
	June 30, 2023		December 31, 2022
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	203.9	$	315.2
Accounts receivable, net of allowance for credit losses of $26.0 and $25.7, respectively	4,496.9		4,461.3
Merchandise inventory	789.8		800.2
Miscellaneous receivables	518.3		489.1
Prepaid expenses and other	479.1		498.2
Total current assets	6,488.0		6,564.0
Operating lease right-of-use assets	137.2		149.2
Property and equipment, net	194.4		188.8
Goodwill	4,428.2		4,342.7
Other intangible assets, net	1,424.6		1,490.7
Other assets	313.5		396.1
Total Assets	$	12,985.9	$	13,131.5
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable-trade	$	2,866.8	$	2,821.3
Accounts payable-inventory financing	616.2		519.0
Current maturities of long-term debt	42.2		56.3
Contract liabilities	442.1		485.5
Accrued expenses and other current liabilities:
Compensation	281.3		377.8
Advertising	147.4		130.5
Sales and income taxes	79.0		73.5
Other	522.3		483.2
Total current liabilities	4,997.3		4,947.1
Long-term liabilities:
Debt	5,721.0		5,866.4
Deferred income taxes	180.2		203.4
Operating lease liabilities	173.6		175.2
Other liabilities	300.6		336.1
Total long-term liabilities	6,375.4		6,581.1
Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock, $0.01 par value, 100.0 shares authorized; no shares issued or outstanding for both periods	—		—
Common stock, $0.01 par value, 1,000.0 shares authorized; 134.0 and 135.5 shares outstanding, respectively	1.3		1.4
Paid-in capital	3,599.5		3,518.1
Accumulated deficit	(1,862.8)		(1,763.8)
Accumulated other comprehensive loss	(124.8)		(152.4)
Total stockholders’ equity	1,613.2		1,603.3
Total Liabilities and Stockholders’ Equity	$	12,985.9	$	13,131.5

The accompanying notes are an integral part of the Consolidated Financial Statements.

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CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (dollars and shares in millions, except per-share amounts) (unaudited)
	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net sales	$	5,626.1	$	6,145.8	$	10,729.2	$	12,094.9
Cost of sales	4,444.6		4,977.6		8,458.3		9,822.6
Gross profit	1,181.5		1,168.2		2,270.9		2,272.3
Selling and administrative expenses	769.3		732.9		1,503.4		1,450.1
Operating income	412.2		435.3		767.5		822.2
Interest expense, net	(58.2)		(57.7)		(115.9)		(113.7)
Other expense, net	(0.6)		(0.4)		(1.9)		(0.9)
Income before income taxes	353.4		377.2		649.7		707.6
Income tax expense	(90.8)		(97.9)		(157.0)		(178.1)
Net income	$	262.6	$	279.3	$	492.7	$	529.5

Net income per common share:
Basic	$	1.95	$	2.07	$	3.65	$	3.92
Diluted	$	1.92	$	2.04	$	3.60	$	3.87

Weighted-average common shares outstanding:
Basic	134.6		135.2		135.1		135.1
Diluted	136.1		136.8		136.7		136.8

The accompanying notes are an integral part of the Consolidated Financial Statements.

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CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (dollars in millions) (unaudited)
	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net income	$	262.6	$	279.3	$	492.7	$	529.5
Other comprehensive income:
Unrealized gain from cash flow hedge, net of tax	—		1.0		—		1.4
Reclassification of cash flow hedge to net income, net of tax	—		0.8		—		1.6
Foreign currency translation, net of tax	18.0		(38.0)		27.6		(47.9)
Other comprehensive income (loss)	18.0		(36.2)		27.6		(44.9)
Comprehensive income	$	280.6	$	243.1	$	520.3	$	484.6

The accompanying notes are an integral part of the Consolidated Financial Statements.

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CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in millions) (unaudited)
	Six Months Ended June 30,
	2023		2022
Cash flows from operating activities:
Net income	$	492.7	$	529.5
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	136.6		142.5
Equity-based compensation expense	45.6		44.6
Deferred income taxes	(24.1)		(8.6)
Provision for credit losses	8.4		3.7
Other	20.8		9.1
Changes in assets and liabilities:
Accounts receivable	(13.0)		(19.8)
Merchandise inventory	17.0		(109.7)
Other assets	97.2		(177.2)
Accounts payable-trade	(39.7)		210.6
Other liabilities	(147.9)		136.4
Net cash provided by operating activities	593.6		761.1
Cash flows from investing activities:
Capital expenditures	(71.3)		(63.6)
Acquisitions of businesses, net of cash acquired	(75.5)		(28.0)

Net cash used in investing activities	(146.8)		(91.6)
Cash flows from financing activities:
Proceeds from borrowings under revolving credit facility	201.3		1,479.6
Repayments of borrowings under revolving credit facility	(275.7)		(1,672.5)

Repayments of long-term debt	(50.0)		(35.5)
Repayments of receivable financing liability	(40.5)		(34.4)

Net change in accounts payable-inventory financing	161.6		19.9

Repurchases of common stock	(396.1)		—
Proceeds from stock option exercises	20.5		15.1
Payment of incentive compensation plan withholding taxes	(32.8)		(20.6)
Dividend payments	(159.3)		(135.0)
Other	11.5		8.5
Net cash used in financing activities	(559.5)		(374.9)
Effect of exchange rate changes on cash and cash equivalents	1.4		(11.1)
Net (decrease) increase in cash and cash equivalents	(111.3)		283.5
Cash and cash equivalents—beginning of period	315.2		258.1
Cash and cash equivalents—end of period	$	203.9	$	541.6
Supplementary disclosure of cash flow information:
Interest paid	$	(117.0)	$	(106.4)
Income taxes paid, net	$	(174.9)	$	(160.9)

The accompanying notes are an integral part of the Consolidated Financial Statements.

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CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (dollars and shares in millions) (unaudited)
	Three Months Ended June 30, 2023
	Common Stock
	Shares	Amount		Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
Balance as of March 31, 2023	135.0	$	1.4	$	3,557.3	$	(1,847.0)	$	(142.8)	$	1,568.9
Net income	—	—		—		262.6		—		262.6
Equity-based compensation expense	—	—		24.8		—		—		24.8
Stock option exercises	—	—		7.7		—		—		7.7
Coworker Stock Purchase Plan	0.1	—		9.4		—		—		9.4
Repurchases of common stock	(1.1)	(0.1)		—		(196.0)		—		(196.1)
Dividends paid ($0.59 per share)	—	—		0.3		(79.7)		—		(79.4)
Incentive compensation plan stock withheld for taxes	—	—		—		(1.2)		—		(1.2)


Foreign currency translation and other	—	—		—		(1.5)		18.0		16.5
Balance as of June 30, 2023	134.0	$	1.3	$	3,599.5	$	(1,862.8)	$	(124.8)	$	1,613.2


	Three Months Ended June 30, 2022
	Common Stock
	Shares	Amount		Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
Balance as of March 31, 2022	135.1	$	1.4	$	3,403.7	$	(2,408.9)	$	(103.1)	$	893.1
Net income	—	—		—		279.3		—		279.3
Equity-based compensation expense	—	—		23.5		—		—		23.5
Stock option exercises	—	—		6.8		—		—		6.8
Coworker Stock Purchase Plan	0.1	—		7.4		—		—		7.4

Dividends paid ($0.50 per share)	—	—		0.4		(67.9)		—		(67.5)
Incentive compensation plan stock withheld for taxes	—	—		—		(0.2)		—		(0.2)
Unrealized gain on cash flow hedge	—	—		—		—		1.0		1.0
Reclassification of cash flow hedge to net income	—	—		—		—		0.8		0.8
Foreign currency translation	—	—		—		—		(38.0)		(38.0)
Balance as of June 30, 2022	135.2	$	1.4	$	3,441.8	$	(2,197.7)	$	(139.3)	$	1,106.2

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CDW CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (dollars and shares in millions) (unaudited)
	Six Months Ended June 30, 2023
	Common Stock
	Shares	Amount		Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
Balance as of December 31, 2022	135.5	$	1.4	$	3,518.1	$	(1,763.8)	$	(152.4)	$	1,603.3
Net income	—	—		—		492.7		—		492.7
Equity-based compensation expense	—	—		45.6		—		—		45.6
Stock option exercises	0.5	—		20.5		—		—		20.5
Coworker Stock Purchase Plan	0.1	—		14.4		—		—		14.4
Repurchases of common stock	(2.1)	(0.1)		—		(396.0)		—		(396.1)
Dividends paid ($1.18 per share)	—	—		0.9		(160.2)		—		(159.3)
Incentive compensation plan stock withheld for taxes	—	—		—		(32.8)		—		(32.8)


Foreign currency translation and other	—	—		—		(2.7)		27.6		24.9
Balance as of June 30, 2023	134.0	$	1.3	$	3,599.5	$	(1,862.8)	$	(124.8)	$	1,613.2


	Six Months Ended June 30, 2022
	Common Stock
	Shares	Amount		Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
Balance as of December 31, 2021	134.8	$	1.3	$	3,369.5	$	(2,570.7)	$	(94.4)	$	705.7
Net income	—	—		—		529.5		—		529.5
Equity-based compensation expense	—	—		44.6		—		—		44.6
Stock option exercises	0.3	0.1		15.0		—		—		15.1
Coworker Stock Purchase Plan	0.1	—		11.8		—		—		11.8

Dividends paid ($1.00 per share)	—	—		0.9		(135.9)		—		(135.0)
Incentive compensation plan stock withheld for taxes	—	—		—		(20.6)		—		(20.6)
Unrealized gain on cash flow hedge	—	—		—		—		1.4		1.4
Reclassification of cash flow hedge to net income	—	—		—		—		1.6		1.6
Foreign currency translation	—	—		—		—		(47.9)		(47.9)

Balance as of June 30, 2022	135.2	$	1.4	$	3,441.8	$	(2,197.7)	$	(139.3)	$	1,106.2

The accompanying notes are an integral part of the Consolidated Financial Statements.

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

1. Description of Business and Summary of Significant Accounting Policies

Description of Business

CDW Corporation (“Parent”), a Fortune 500 company and member of the S&P 500 Index, is a leading multi-brand provider of information technology (“IT”) solutions to small, medium and large business, government, education and healthcare customers in the United States (“US”), the United Kingdom (“UK”) and Canada. The Company’s broad array of offerings ranges from discrete hardware and software products to integrated IT solutions and services that include on-premise and cloud capabilities across hybrid infrastructure, digital experience and security.

Throughout this report, the terms the “Company” and “CDW” refer to Parent and its 100% owned subsidiaries.

Parent has two 100% owned subsidiaries, CDW LLC and CDW Finance Corporation. CDW LLC is an Illinois limited liability company that, together with its 100% owned subsidiaries, holds all material assets and conducts all business activities and operations of the Company. CDW Finance Corporation is a Delaware corporation formed for the sole purpose of acting as co-issuer of certain debt obligations and does not hold any material assets or engage in any business activities or operations.

Basis of Presentation

The accompanying unaudited interim Consolidated Financial Statements as of June 30, 2023 and for the three and six months ended June 30, 2023 and 2022 (the “Consolidated Financial Statements”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and the rules and regulations of the US Securities and Exchange Commission (the “SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The presentation of the Consolidated Financial Statements requires the Company to make estimates and assumptions that affect reported amounts and related disclosures. In the opinion of management, the Consolidated Financial Statements contain all adjustments (consisting of a normal, recurring nature) necessary to present fairly the Company’s financial position, results of operations, comprehensive income, cash flows and changes in stockholders’ equity as of the dates and for the periods indicated. The unaudited results of operations for such interim periods reported are not necessarily indicative of results for the full year.

These Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “December 31, 2022 Consolidated Financial Statements”). The significant accounting policies and estimates used in preparing these Consolidated Financial Statements were applied on a basis consistent with those reflected in the December 31, 2022 Consolidated Financial Statements.

Principles of Consolidation

The Consolidated Financial Statements include the accounts of Parent and its 100% owned subsidiaries. All intercompany transactions and accounts are eliminated in consolidation.

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

2. Recent Accounting Pronouncements

In September 2022, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. This ASU requires entities that use supplier finance programs in connection with the purchase of goods and services to disclose key terms of the programs and information about the obligations that are outstanding at the end of the reporting period. This disclosure requirement is intended to provide information about an entity’s use of supplier finance programs and their effect on the entity’s working capital, liquidity and cash flows. The ASU is effective for all entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the rollforward requirement, which is effective for fiscal years beginning after December 15, 2023. The Company adopted the standard during the first quarter of 2023 with the exception of the rollforward requirement, which will be adopted during the first quarter of 2024. The adoption of the standard only resulted in new disclosures for amounts presented within Accounts payable - inventory financing and did not affect the Company’s recognition, measurement or financial statement presentation of supplier finance program obligations on the Consolidated Financial Statements. For additional information on the new disclosures, see Note 4 (Inventory Financing Agreements).

3. Accounts Receivable and Contract Balances

Accounts Receivable

The following table details the total accounts receivable recognized and the related classification on the Consolidated Balance Sheets:


	June 30, 2023		December 31, 2022
Accounts receivable, current(1)	$	4,496.9	$	4,461.3
Accounts receivable, noncurrent(2)	149.6		203.0
Total accounts receivable	$	4,646.5	$	4,664.3

(1)Accounts receivable, current are presented within Accounts receivable, net of allowance for credit losses on the Consolidated Balance Sheets.

(2)Accounts receivable, noncurrent are presented within Other assets on the Consolidated Balance Sheets.

From time to time, the Company transfers certain accounts receivable, without recourse, to third-party financial companies as a method to reduce the Company’s credit exposure and accelerate cash collections. Such transfers are recognized as a sale and the related accounts receivable is derecognized from the Consolidated Balance Sheet upon receipt of payment from the third-party financing company. During the six months ended June 30, 2023 and 2022, the Company sold approximately $219 million and $229 million of accounts receivable, respectively.

Contract Balances

Contract assets and liabilities represent the difference in the timing of revenue recognition from receipt of cash from customers. Contract assets represent revenue recognized on performance obligations satisfied or partially satisfied for which the Company has no unconditional right to consideration. Contract liabilities consist of payments received from customers, or such consideration that is contractually due, in advance of providing the product or performing services. The following table details information about the Company’s contract balances recognized on the Consolidated Balance Sheets:


	June 30, 2023		December 31, 2022
Contract assets(1)	$	187.3	$	242.1
Contract liabilities(2)(3)	$	489.3	$	525.3

(1)Contract assets are presented within Prepaid expenses and other on the Consolidated Balance Sheets.

(2)Includes $47 million and $40 million of long-term contract liabilities that are presented within Other liabilities on the Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022, respectively.

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

(3)During the six months ended June 30, 2023 and 2022, the Company recognized revenue of $265 million and $200 million, respectively, related to its contract liabilities that were included in the beginning balance of the respective periods.

A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The following table represents the total transaction price for the remaining performance obligations as of June 30, 2023 related to non-cancelable contracts longer than 12 months in duration that is expected to be recognized over future periods.


	Within 1 Year		Years 1-2		Years 2-3		Thereafter
Remaining performance obligations	$	49.9	$	26.7	$	9.4	$	0.9

4. Inventory Financing Agreements

The Company has entered into agreements with financial institutions to facilitate the purchase of inventory from designated suppliers under certain terms and conditions to enhance liquidity. Under these agreements, the Company receives extended payment terms and agrees to pay the financial institution a stated amount of confirmed invoices from its designated suppliers. The Company does not incur any interest or other incremental expenses associated with these agreements as balances are paid when they are due. Additionally, the Company has no involvement in establishing the terms or conditions of the arrangements between its suppliers and the financial institution.

The amounts outstanding under these agreements as of June 30, 2023 and December 31, 2022 were $616 million and $519 million, respectively, and are separately presented as Accounts payable-inventory financing on the Consolidated Balance Sheets. The majority of such outstanding amounts relates to a floorplan sub-facility that is incorporated in the Company’s Revolving Loan Facility (as defined below). A portion of the Company’s availability under the Revolving Loan Facility is reserved to cover the obligation to pay the financial institution. For additional information regarding the Revolving Loan Facility, see Note 5 (Debt).

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

5. Debt


		As of June 30, 2023				As of December 31, 2022
	Maturity Date	Interest Rate		Amount		Interest Rate		Amount
Credit Facility

Senior unsecured revolving loan facility	December 2026	Variable		$	—	Variable		$	72.5


Term Loan
Senior unsecured term loan facility	December 2026	Variable		734.5		Variable		784.5

Unsecured Senior Notes
Senior notes due 2024	December 2024	5.500	%	575.0		5.500	%	575.0
Senior notes due 2025	May 2025	4.125	%	600.0		4.125	%	600.0
Senior notes due 2026	December 2026	2.670	%	1,000.0		2.670	%	1,000.0
Senior notes due 2028	April 2028	4.250	%	600.0		4.250	%	600.0
Senior notes due 2028	December 2028	3.276	%	500.0		3.276	%	500.0
Senior notes due 2029	February 2029	3.250	%	700.0		3.250	%	700.0
Senior notes due 2031	December 2031	3.569	%	1,000.0		3.569	%	1,000.0
Total unsecured senior notes				4,975.0				4,975.0

Receivable financing liability				76.4				115.4
Other long-term obligations				9.6				11.6
Unamortized deferred financing fees				(32.3)				(36.3)
Current maturities of long-term debt				(42.2)				(56.3)
Total long-term debt				$	5,721.0			$	5,866.4

As of June 30, 2023, the Company is in compliance with the covenants under its credit agreements and indentures.

Credit Facility

The Company has a variable rate senior unsecured revolving loan facility (the “Revolving Loan Facility”) from which it may draw tranches denominated in US dollars, British pounds or Euros. During the six months ended June 30, 2023, the interest rate was based on London Interbank Offer Rate (“LIBOR”) plus a margin or an alternate base rate plus a margin, where the margin is based on the Company’s senior unsecured rating. The Revolving Loan Facility is used by the Company for borrowings, issuances of letters of credit and floorplan financing. As of June 30, 2023, the Company could have borrowed up to an additional $1.0 billion under the Revolving Loan Facility. As of June 30, 2023, the Revolving Loan Facility had less than $1 million of undrawn letters of credit and $616 million reserved for the floorplan sub-facility.

On June 7, 2023, the Revolving Loan Facility was amended to replace LIBOR with the Secured Overnight Financing Rate (“SOFR”) as the interest rate benchmark, which will take into effect for the first interest rate period beginning after July 1, 2023.

Term Loan

The senior unsecured term loan facility (the “Term Loan Facility”) has a variable interest rate. The interest rate is based on LIBOR plus a margin, where the margin is determined by the Company’s senior unsecured credit rating. During the six months ended June 30, 2023, the Company prepaid $50 million on the Term Loan Facility without penalty. As a result of the prepayments made to date, no additional mandatory payments are required on the remaining principal amount until its maturity date on December 1, 2026.

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

On June 7, 2023, the Term Loan Facility was amended to replace LIBOR with SOFR as the interest rate benchmark, which will take into effect for the first interest rate period beginning after July 1, 2023.

Unsecured Senior Notes

The unsecured senior notes have a fixed interest rate, which is paid semi-annually.

Receivable Financing

The receivable financing liability relates to certain accounts receivable transferred to third-party financial institutions that did not qualify as a sale under the terms of the agreements. While the terms of such agreements are on a nonrecourse basis, the transfers of accounts receivable could not achieve certain criteria that would allow derecognition of the accounts receivable. The proceeds from these arrangements are recognized as a liability and the associated accounts receivable remains on the Consolidated Balance Sheet until the liability is settled. The Company did not execute any transfers under these agreements during the six months ended June 30, 2023.

Fair Value

The fair values of the unsecured senior notes were estimated using quoted market prices for identical liabilities that are traded in over-the-counter secondary markets. The fair value of the Term Loan Facility was estimated using dealer quotes for identical liabilities in markets that are not considered active. The unsecured senior notes and Term Loan Facility were classified as Level 2 within the fair value hierarchy. The carrying value of the Revolving Loan Facility approximates fair value.

The approximate fair values and related carrying values of the Company’s long-term debt, including current maturities and excluding unamortized discount and unamortized deferred financing costs, were as follows:


	June 30, 2023		December 31, 2022
Fair value	$	5,300.5	$	5,412.6
Carrying value	5,795.5		5,959.0

6. Income Taxes

Income tax expense was $91 million and $98 million for the three months ended June 30, 2023 and 2022, respectively. The effective tax rate, expressed by calculating the income tax expense as a percentage of Income before income taxes, was 25.7% and 26.0% for the three months ended June 30, 2023 and 2022, respectively.

Income tax expense was $157 million and $178 million for the six months ended June 30, 2023 and 2022, respectively. The effective tax rate, expressed by calculating the income tax expense as a percentage of Income before income taxes, was 24.2% and 25.2% for the six months ended June 30, 2023 and 2022, respectively.

The effective tax rate for both the three and six months ended June 30, 2023 and June 30, 2022 differed from the US federal statutory rate of 21.0% primarily due to state and local income taxes, partially offset by excess tax benefits on equity-based compensation.

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

7. Earnings Per Share

The numerator for both basic and diluted earnings per share is Net income. The denominator for basic earnings per share is the weighted-average shares outstanding during the period.

A reconciliation of basic weighted-average shares outstanding to diluted weighted-average shares outstanding is as follows:


	Three Months Ended June 30,		Six Months Ended June 30,
	2023	2022	2023	2022
Basic weighted-average shares outstanding	134.6	135.2	135.1	135.1
Effect of dilutive securities(1)	1.5	1.6	1.6	1.7
Diluted weighted-average shares outstanding(2)	136.1	136.8	136.7	136.8

(1)The dilutive effect of outstanding stock options, restricted stock units, performance share units and Coworker Stock Purchase Plan units is reflected in the diluted weighted-average shares outstanding using the treasury stock method.

(2)There were fewer than 0.3 million potential common shares excluded from diluted weighted-average shares outstanding for both the three and six months ended June 30, 2023 and 2022. Inclusion of these common shares in diluted weighted average shares outstanding would have had an anti-dilutive effect.

8. Commitments and Contingencies

The Company is party to various legal proceedings that arise in the ordinary course of its business, which include commercial, intellectual property, employment, tort and other litigation matters. The Company is also subject to audit by federal, state, international, national, provincial and local authorities, and by various partners, group purchasing organizations and customers, including government agencies, relating to purchases and sales under various contracts. In addition, the Company is subject to indemnification claims under various contracts. From time to time, certain customers of the Company file voluntary petitions for reorganization or liquidation under the US bankruptcy laws or similar laws of the jurisdictions for the Company’s business activities outside of the US. In such cases, certain pre-petition payments received by the Company could be considered preference items and subject to return to the bankruptcy administrator.

As of June 30, 2023, the Company does not believe that there is a reasonable possibility that any material loss exceeding the amounts already recognized for these proceedings and matters, if any, has been incurred. However, the ultimate resolutions of these proceedings and matters are inherently unpredictable. As such, the Company’s Consolidated Financial Statements could be adversely affected in any particular period by the unfavorable resolution of one or more of these proceedings or matters.

A subsidiary of the Company received a Civil Investigative Demand dated September 20, 2021 from the Department of Justice (“DOJ”) in connection with a False Claims Act investigation. The DOJ requested information related to teaming agreements with original equipment manufacturers and the Company is cooperating with the DOJ. At this stage of the matter, the Company is unable to assess the probability of any outcome or the range of possible loss, if any.

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

9. Segment Information

The Company’s segment information reflects the way the chief operating decision maker uses internal reporting to evaluate business performance, allocate resources and manage operations.

The Company has three reportable segments: Corporate, which is comprised primarily of private sector business customers with more than 250 employees in the US, Small Business, primarily servicing private sector business customers with up to 250 employees in the US, and Public, which is comprised of government agencies and education and healthcare institutions in the US. The Company has two other operating segments: CDW UK and CDW Canada, both of which do not meet the reportable segment quantitative thresholds and, accordingly, are included in an all other category (“Other”).

The Company has centralized logistics and headquarters functions that provide services to the segments. The logistics function includes purchasing, distribution and fulfillment services to support the Corporate, Small Business and Public segments. As a result, costs and intercompany charges associated with the logistics function are fully allocated to all of these segments based on a percent of Net sales. The centralized headquarters function provides services in areas such as accounting, information technology, marketing, legal and coworker services. Headquarters function costs that are not allocated to the segments are included under the heading of “Headquarters” in the tables below.

Information about the Company’s segments is as follows:


	Corporate		Small Business		Public		Other		Headquarters		Total
Three Months Ended June 30, 2023
Net sales	$	2,245.0	$	396.2	$	2,295.1	$	689.8	$	—	$	5,626.1
Operating income (loss)	206.5		42.4		210.3		32.4		(79.4)		412.2
Depreciation and amortization expense	(19.6)		(1.1)		(14.2)		(7.5)		(23.5)		(65.9)

Three Months Ended June 30, 2022
Net sales	$	2,660.7	$	500.0	$	2,243.0	$	742.1	$	—	$	6,145.8
Operating income (loss)	231.2		47.0		177.2		27.8		(47.9)		435.3
Depreciation and amortization expense	(23.6)		(1.9)		(16.5)		(8.1)		(21.0)		(71.1)

Six Months Ended June 30, 2023
Net sales	$	4,448.7	$	807.6	$	4,107.9	$	1,365.0	$	—	$	10,729.2
Operating income (loss)	399.8		83.9		337.8		68.9		(122.9)		767.5
Depreciation and amortization expense	(42.4)		(2.4)		(30.4)		(15.3)		(46.1)		(136.6)

Six Months Ended June 30, 2022
Net sales	$	5,288.3	$	1,024.0	$	4,276.0	$	1,506.6	$	—	$	12,094.9
Operating income (loss)	441.2		93.7		319.0		64.5		(96.2)		822.2
Depreciation and amortization expense	(48.6)		(3.3)		(32.8)		(16.5)		(41.3)		(142.5)

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

Geographic Areas and Revenue Mix


	Three Months Ended June 30, 2023
	Corporate		Small Business		Public		Other		Total
Geography(1)
United States	$	2,214.0	$	390.7	$	2,293.8	$	5.4	$	4,903.9
Rest of World	31.0		5.5		1.3		684.4		722.2
Total Net sales	2,245.0		396.2		2,295.1		689.8		5,626.1

Major Product and Services
Hardware	1,596.4		317.5		1,884.9		481.5		4,280.3
Software	388.8		58.6		274.1		142.6		864.1
Services	243.4		15.5		131.4		62.9		453.2
Other(2)	16.4		4.6		4.7		2.8		28.5
Total Net sales	2,245.0		396.2		2,295.1		689.8		5,626.1

Sales by Channel
Corporate	2,245.0		—		—		—		2,245.0
Small Business	—		396.2		—		—		396.2
Government	—		—		681.2		—		681.2
Education	—		—		1,026.8		—		1,026.8
Healthcare	—		—		587.1		—		587.1
Other	—		—		—		689.8		689.8
Total Net sales	2,245.0		396.2		2,295.1		689.8		5,626.1

Timing of Revenue Recognition
Transferred at a point in time where CDW is principal	1,891.3		354.9		2,080.7		607.3		4,934.2
Transferred at a point in time where CDW is agent	185.0		32.9		116.7		26.7		361.3
Transferred over time where CDW is principal	168.7		8.4		97.7		55.8		330.6
Total Net sales	$	2,245.0	$	396.2	$	2,295.1	$	689.8	$	5,626.1

(1)Net sales by geography is generally based on the ship-to address with the exception of certain services that may be performed at, or on behalf of, multiple locations. Such service arrangements are categorized based on the bill-to address.
(2)Includes items such as delivery charges to customers.

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)


	Three Months Ended June 30, 2022
	Corporate		Small Business		Public		Other		Total
Geography(1)
United States	$	2,655.4	$	500.0	$	2,243.0	$	4.1	$	5,402.5
Rest of World	5.3		—		—		738.0		743.3
Total Net sales	2,660.7		500.0		2,243.0		742.1		6,145.8

Major Product and Services
Hardware	1,989.3		419.7		1,797.1		515.8		4,721.9
Software	423.0		55.0		288.7		154.2		920.9
Services	228.9		19.8		152.4		68.6		469.7
Other(2)	19.5		5.5		4.8		3.5		33.3
Total Net sales	2,660.7		500.0		2,243.0		742.1		6,145.8

Sales by Channel
Corporate	2,660.7		—		—		—		2,660.7
Small Business	—		500.0		—		—		500.0
Government	—		—		609.5		—		609.5
Education	—		—		1,041.3		—		1,041.3
Healthcare	—		—		592.2		—		592.2
Other	—		—		—		742.1		742.1
Total Net sales	2,660.7		500.0		2,243.0		742.1		6,145.8

Timing of Revenue Recognition
Transferred at a point in time where CDW is principal	2,325.9		456.2		2,032.4		662.6		5,477.1
Transferred at a point in time where CDW is agent	172.3		33.4		103.5		19.3		328.5
Transferred over time where CDW is principal	162.5		10.4		107.1		60.2		340.2
Total Net sales	$	2,660.7	$	500.0	$	2,243.0	$	742.1	$	6,145.8

(1)Net sales by geography is generally based on the ship-to address with the exception of certain services that may be performed at, or on behalf of, multiple locations. Such service arrangements are categorized based on the bill-to address.
(2)Includes items such as delivery charges to customers.

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)


	Six Months Ended June 30, 2023
	Corporate		Small Business		Public		Other		Total
Geography(1)
United States	$	4,413.2	$	800.3	$	4,106.4	$	13.9	$	9,333.8
Rest of World	35.5		7.3		1.5		1,351.1		1,395.4
Total Net sales	4,448.7		807.6		4,107.9		1,365.0		10,729.2

Major Product and Services
Hardware	3,115.8		652.2		3,247.4		953.1		7,968.5
Software	841.8		114.8		575.6		276.6		1,808.8
Services	458.9		31.2		275.8		129.4		895.3
Other(2)	32.2		9.4		9.1		5.9		56.6
Total Net sales	4,448.7		807.6		4,107.9		1,365.0		10,729.2

Sales by Channel
Corporate	4,448.7		—		—		—		4,448.7
Small Business	—		807.6		—		—		807.6
Government	—		—		1,232.7		—		1,232.7
Education	—		—		1,692.5		—		1,692.5
Healthcare	—		—		1,182.7		—		1,182.7
Other	—		—		—		1,365.0		1,365.0
Total Net sales	4,448.7		807.6		4,107.9		1,365.0		10,729.2

Timing of Revenue Recognition
Transferred at a point in time where CDW is principal	3,752.7		720.2		3,689.3		1,197.8		9,360.0
Transferred at a point in time where CDW is agent	370.4		69.7		218.2		55.1		713.4
Transferred over time where CDW is principal	325.6		17.7		200.4		112.1		655.8
Total Net sales	$	4,448.7	$	807.6	$	4,107.9	$	1,365.0	$	10,729.2

(1)Net sales by geography is generally based on the ship-to address with the exception of certain services that may be performed at, or on behalf of, multiple locations. Such service arrangements are categorized based on the bill-to address.
(2)Includes items such as delivery charges to customers.

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)


	Six Months Ended June 30, 2022
	Corporate		Small Business		Public		Other		Total
Geography(1)
United States	$	5,272.2	$	1,024.0	$	4,276.0	$	8.7	$	10,580.9
Rest of World	16.1		—		—		1,497.9		1,514.0
Total Net sales	5,288.3		1,024.0		4,276.0		1,506.6		12,094.9

Major Product and Services
Hardware	3,972.9		863.2		3,443.4		1,124.5		9,404.0
Software	822.8		114.8		542.0		239.8		1,719.4
Services	454.2		34.9		281.5		136.5		907.1
Other(2)	38.4		11.1		9.1		5.8		64.4
Total Net sales	5,288.3		1,024.0		4,276.0		1,506.6		12,094.9

Sales by Channel
Corporate	5,288.3		—		—		—		5,288.3
Small Business	—		1,024.0		—		—		1,024.0
Government	—		—		1,153.4		—		1,153.4
Education	—		—		1,944.1		—		1,944.1
Healthcare	—		—		1,178.5		—		1,178.5
Other	—		—		—		1,506.6		1,506.6
Total Net sales	5,288.3		1,024.0		4,276.0		1,506.6		12,094.9

Timing of Revenue Recognition
Transferred at a point in time where CDW is principal	4,617.1		936.2		3,872.7		1,339.7		10,765.7
Transferred at a point in time where CDW is agent	352.9		67.7		199.8		48.8		669.2
Transferred over time where CDW is principal	318.3		20.1		203.5		118.1		660.0
Total Net sales	$	5,288.3	$	1,024.0	$	4,276.0	$	1,506.6	$	12,094.9

(1)Net sales by geography is generally based on the ship-to address with the exception of certain services that may be performed at, or on behalf of, multiple locations. Such service arrangements are categorized based on the bill-to address.
(2)Includes items such as delivery charges to customers.

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CDW CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions, except per share data, unless otherwise noted)

The following tables present Net sales by major category for the three and six months ended June 30, 2023 and 2022. Categories are based upon internal classifications.


	Three Months Ended June 30,
	2023				2022
	Net Sales		Percentage of Total Net Sales		Net Sales		Percentage of Total Net Sales
Notebooks/Mobile Devices	$	1,320.9	23.5	%	$	1,763.6	28.7	%
Netcomm Products(3)	916.4		16.3		623.9		10.2
Collaboration(3)	533.6		9.5		691.6		11.3
Data Storage and Servers(3)	536.1		9.5		626.5		10.2
Desktops	304.8		5.4		350.2		5.7
Other Hardware(3)	668.5		11.9		666.1		10.8
Total Hardware	4,280.3		76.1		4,721.9		76.9

Software(1)	864.1		15.4		920.9		15.0
Services(1)	453.2		8.1		469.7		7.6
Other(2)	28.5		0.4		33.3		0.5
Total Net sales	$	5,626.1	100.0	%	$	6,145.8	100.0	%

	Six Months Ended June 30,
	2023				2022
	Net Sales		Percentage of Total Net Sales		Net Sales		Percentage of Total Net Sales
Hardware:
Notebooks/Mobile Devices	$	2,385.5	22.2	%	$	3,477.4	28.8	%
Netcomm Products	1,660.9		15.5		1,191.6		9.9
Collaboration(3)	1,009.6		9.4		1,320.9		10.9
Data Storage and Servers(3)	1,078.0		10.0		1,247.3		10.3
Desktops	562.7		5.2		687.6		5.7
Other Hardware(3)	1,271.8		12.0		1,479.2		12.3
Total Hardware	7,968.5		74.3		9,404.0		77.9

Software(1)	1,808.8		16.9		1,719.4		14.2
Services(1)	895.3		8.3		907.1		7.5
Other(2)	56.6		0.5		64.4		0.4
Total Net sales	$	10,729.2	100.0	%	$	12,094.9	100.0	%

(1)Certain software and services revenues are recorded on a net basis as the Company is acting as an agent in the transaction. As a result, the category percentage of net revenues is not representative of the category percentage of gross profits.

(2)Includes items such as delivery charges to customers.

(3)Prior period amounts have been reclassified to conform with current period presentation.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless otherwise indicated or the context otherwise requires, as used in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the terms “we,” “us,” “the Company,” “our,” “CDW” and similar terms refer to CDW Corporation and its subsidiaries. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the unaudited interim Consolidated Financial Statements and the related notes included elsewhere in this report and with the audited Consolidated Financial Statements and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. This discussion contains forward-looking statements that are subject to numerous risks and uncertainties. Actual results may differ materially from those contained in any forward-looking statements. See “Forward-Looking Statements” at the end of this discussion.

Overview

CDW Corporation, a Fortune 500 company and member of the S&P 500 Index, is a leading multi-brand provider of information technology (“IT”) solutions to small, medium and large business, government, education and healthcare customers in the US, the UK and Canada. Our broad array of offerings ranges from discrete hardware and software products to integrated IT solutions and services that include on-premise and cloud capabilities across hybrid infrastructure, digital experience and security.

We are vendor, technology and consumption model “agnostic”, with a solutions portfolio including more than 100,000 products and services from more than 1,000 leading and emerging brands. Our solutions are delivered in physical, virtual and cloud-based environments through approximately 10,600 customer-facing coworkers, including sellers, highly-skilled technology specialists and advanced service delivery engineers. We are a leading sales channel partner for many original equipment manufacturers (“OEMs”), software publishers and cloud providers (collectively, our “vendor partners”), whose products we sell or include in the solutions we offer. We provide our vendor partners with a cost-effective way to reach customers and deliver a consistent brand experience through our established end-market coverage, technical expertise and extensive customer access.

We have three reportable segments, Corporate, Small Business and Public. Our Corporate segment primarily serves US private sector business customers with more than 250 employees. Our Small Business segment primarily serves US private sector business customers with up to 250 employees. Our Public segment is comprised of government agencies and education and healthcare institutions in the US. We also have two other operating segments: CDW UK and CDW Canada, each of which do not meet the reportable segment quantitative thresholds and, accordingly, are included in an all other category (“Other”).

We may sell all or only select products that our vendor partners offer. Each vendor partner agreement provides for specific terms and conditions, which may include one or more of the following: product return privileges, price protection policies, purchase discounts and vendor incentive programs, such as purchase or sales rebates and cooperative advertising reimbursements. We also resell software for major software publishers. Our agreements with software publishers allow the end-user customer to acquire software or licensed products and services. In addition to helping our customers determine the best software solutions for their needs, we help them manage their software agreements, including warranties and renewals. A significant portion of our advertising and marketing expenses are reimbursed through cooperative advertising programs with our vendor partners. These programs are at the discretion of our vendor partners and are typically tied to sales or other commitments to be met by us within a specified period of time.

Trends and Key Factors Affecting our Financial Performance

We believe the following key factors may have a meaningful impact on our business performance, influencing our ability to generate sales and achieve our targeted financial and operating results:

•General economic conditions are a key factor affecting our results as they impact our customers’ willingness and ability to spend on information technology. Macroeconomic uncertainty persists as a result of the current inflationary environment, corresponding increase in interest rates driven by monetary policy, overall decline in economic growth rates in the United States and other countries and recent market events related to certain financial institutions. This increased uncertainty in the current economic environment resulted in, and may continue to result in, a delay, pause or reduction of investments in technology by our customers.

•Customers are balancing priorities to focus more on solutions that lead to business optimization and cost management, or in many cases are reassessing the timing of IT refresh cycles and pausing or deferring their IT spend. We have orchestrated solutions by leveraging netcomm products, security, software and hybrid and cloud offerings to help customers achieve their objectives.

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•Changes in spending policies, budget priorities and funding levels, including current and future stimulus packages, are key factors influencing the purchasing levels of Government, Healthcare and Education customers. As the duration and ongoing impact of current economic conditions remain uncertain, current and future budget priorities and funding levels for Government, Healthcare and Education customers may be adversely affected, leading to lower IT spend.

•Technology trends drive customer purchasing behaviors in the market. Current technology trends are focused on delivering greater flexibility and efficiency, as well as designing and managing IT securely. These trends are driving customer adoption of solutions such as those delivered via cloud, software defined architectures and hybrid on-premise and off-premise combinations, as well as the evolution of the IT consumption model to more “as a service” offerings, including software as a service and infrastructure as a service, in addition to ongoing managed and professional service arrangements. Technology trends are likely to change as customers prioritize the projects that produce the most significant outcomes for their business.

Key Business Metrics

We monitor a number of financial and non-financial measures and ratios on a regular basis in order to track the progress of our business and make adjustments as necessary. We believe that the most important of these measures and ratios include average daily sales, Gross profit, Net income, Operating income, Operating income margin, Non-GAAP operating income, Non-GAAP operating income margin, Non-GAAP net income, Net sales on a constant currency basis, Net income per diluted share, Non-GAAP net income per diluted share, Free cash flow, Cash and cash equivalents, cash conversion cycle and debt levels including available credit. These measures and ratios are closely monitored by management, so that actions can be taken, as necessary, in order to achieve financial objectives.

In this section, we present 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 and Free cash flow, which are non-GAAP financial measures.

We believe Non-GAAP operating income, Non-GAAP operating income margin, Non-GAAP net income, Non-GAAP net income per diluted share and Net sales on a constant currency basis provide analysts, investors and management with helpful information regarding the underlying operating performance of our business, as they remove the impact of items that management believes are not reflective of underlying operating performance. Management 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 as we believe this measure provides more information regarding our liquidity and capital resources. Certain non-GAAP financial measures are also used to determine certain components of performance-based compensation. For the definitions of Non-GAAP measures and reconciliations to the most directly comparable US GAAP measure, see “Results of Operations - Non-GAAP Financial Measure Reconciliations.”

Second Quarter Overview

The results of certain key business metrics are as follows:


	Three Months Ended June 30,
(dollars in millions, except per share amounts)	2023		2022
Net sales	$	5,626.1	$	6,145.8
Gross profit	1,181.5		1,168.2
Operating income	412.2		435.3
Net income	262.6		279.3
Non-GAAP operating income	529.8		516.3
Non-GAAP net income	349.0		339.5
Net income per diluted share	1.92		2.04
Non-GAAP net income per diluted share	2.56		2.49
Average daily sales(1)	87.9		96.0
Net debt(2)	5,559.3		6,045.3
Cash conversion cycle (in days)(3)	14		19

(1) There were 64 selling days for both the three months ended June 30, 2023 and 2022.

(2) Defined as Total debt minus Cash and cash equivalents.

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(3) Cash conversion cycle is defined as days of sales outstanding in Accounts receivable and certain receivables due from vendors plus days of supply in Merchandise inventory minus days of purchases outstanding in Accounts payable and Accounts payable-inventory financing, based on a rolling three-month average.

Results of Operations

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Results of operations, in dollars and as a percentage of Net sales, are as follows:


	Three Months Ended June 30,
	2023				2022
	Dollars in Millions		Percentage of Net Sales		Dollars in Millions		Percentage of Net Sales
Net sales	$	5,626.1	100.0	%	$	6,145.8	100.0	%
Cost of sales	4,444.6		79.0		4,977.6		81.0
Gross profit	1,181.5		21.0		1,168.2		19.0
Selling and administrative expenses	769.3		13.7		732.9		11.9
Operating income	412.2		7.3		435.3		7.1
Interest expense, net	(58.2)		(1.0)		(57.7)		(0.9)
Other income (expense), net	(0.6)		—		(0.4)		—
Income before income taxes	353.4		6.3		377.2		6.2
Income tax expense	(90.8)		(1.6)		(97.9)		(1.6)
Net income	$	262.6	4.7	%	$	279.3	4.6	%

Net sales

Total Net sales decreased $520 million, or 8.5%, to $5,626 million for the three months ended June 30, 2023, compared to $6,146 million for the three months ended June 30, 2022. The decline in Net sales was driven by the Corporate and Small Business segments and our UK and Canadian operations, partially offset by an increase in the Public segment. The increase in economic uncertainty has led customers to focus their business priorities, resulting in a reduction of their technology spend, most notably in the Corporate and Small Business segments. For additional information, see the “Segment Results of Operations” below.

Gross profit

Gross profit increased $13 million, or 1.1%, to $1,182 million for the three months ended June 30, 2023, compared to $1,168 million for the three months ended June 30, 2022. As a percentage of Net sales, Gross profit margin increased 200 basis points to 21.0% for the three months ended June 30, 2023. The increase in Gross profit margin was primarily driven by higher product margin due to lower mix in notebooks and increased rate across various categories, and a higher mix of netted down revenue, primarily software as a service.

Selling and administrative expenses

Selling and administrative expenses increased $36 million, or 5.0%, to $769 million for the three months ended June 30, 2023, compared to $733 million for the three months ended June 30, 2022. The increase was primarily due to costs related to the reduction of our workforce and real estate portfolio (collectively “workplace optimization”), increased payroll expenses associated with higher year-over-year coworker count, partially offset by the impact of reduced discretionary expenses.

Operating income

Operating income decreased $23 million, or 5.3%, to $412 million for the three months ended June 30, 2023, compared to $435 million for the three months ended June 30, 2022. Operating income decreased primarily due to costs related to workplace optimization, increased payroll expenses associated with higher year-over-year coworker count, partially offset by the impact of reduced discretionary expenses.

Interest expense, net

Interest expense, net was $58 million for both the three months ended June 30, 2023 and June 30, 2022. Interest expense, net remained consistent due to higher variable interest rate on the senior unsecured term loan, partially offset by lower debt levels.

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Income tax expense

The lower effective tax rate for the three months ended June 30, 2023 as compared to the same period of the prior year was primarily attributable to higher excess tax benefits on equity-based compensation.

Segment Results of Operations

Net sales by segment, in dollars and as a percentage of total Net sales, and the year-over-year dollar and percentage change in Net sales are as follows:


	Three Months Ended June 30,
	2023				2022
(dollars in millions)	Net Sales		Percentage of Total Net Sales		Net Sales		Percentage of Total Net Sales		Dollar Change		Percent Change(1)
Corporate	$	2,245.0	39.9	%	$	2,660.7	43.3	%	$	(415.7)	(15.6)	%

Small Business	396.2		7.0		500.0		8.1		(103.8)		(20.8)

Public:
Government	681.2		12.1		609.5		9.9		71.7		11.8
Education	1,026.8		18.3		1,041.3		16.9		(14.5)		(1.4)
Healthcare	587.1		10.4		592.2		9.6		(5.1)		(0.9)
Total Public	2,295.1		40.8		2,243.0		36.4		52.1		2.3

Other	689.8		12.3		742.1		12.2		(52.3)		(7.0)

Total Net sales	$	5,626.1	100.0	%	$	6,145.8	100.0	%	$	(519.7)	(8.5)	%

(1)There were 64 selling days for both the three months ended June 30, 2023 and 2022.

Operating income by segment, in dollars and as a percentage of total Net sales, and the year-over-year percentage change are as follows:


	Three Months Ended June 30,
	2023				2022
(dollars in millions)	Operating Income		Operating Margin		Operating Income		Operating Margin		Percent Change in Operating Income
Segments:(1)
Corporate	$	206.5	9.2	%	$	231.2	8.7	%	(10.7)	%
Small Business	42.4		10.7		47.0		9.4		(9.8)
Public	210.3		9.2		177.2		7.9		18.7
Other(2)	32.4		4.7		27.8		3.7		16.5
Headquarters(3)	(79.4)		nm*		(47.9)		nm*		65.8
Total Operating income	$	412.2	7.3	%	$	435.3	7.1	%	(5.3)	%

* nm - Not meaningful

(1)Segment operating income includes the segment’s direct operating income, allocations for certain Headquarters’ costs, allocations for income and expenses from logistics services, certain inventory adjustments and volume rebates and cooperative advertising from vendors.

(2)Includes the financial results for our other operating segments, CDW UK and CDW Canada, which do not meet the reportable segment quantitative thresholds.

(3)Includes Headquarters’ function costs that are not allocated to the segments.

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Corporate

Corporate segment Net sales for the three months ended June 30, 2023 decreased $416 million, or 15.6%, compared to the three months ended June 30, 2022. This decrease in Net sales was across various hardware categories and software, partially offset by an increase in services.

Corporate segment Operating income was $207 million for the three months ended June 30, 2023, a decrease of $24 million, or 10.7%, compared to $231 million for the three months ended June 30, 2022. Corporate segment Operating income decreased primarily driven by lower Gross profit dollars.

Small Business

Small Business segment Net sales for the three months ended June 30, 2023 decreased $104 million, or 20.8%, compared to the three months ended June 30, 2022. This decrease in Net sales was primarily driven by a decline in notebooks/mobile devices.

Small Business segment Operating income was $42 million for the three months ended June 30, 2023, a decrease of $5 million, or 9.8%, compared to $47 million for the three months ended June 30, 2022. Small Business segment Operating income decreased primarily due to lower Gross profit dollars partially offset by lower performance-based compensation consistent with lower Gross profit attainment.

Public

Public segment Net sales for the three months ended June 30, 2023 increased $52 million, or 2.3%, compared to the three months ended June 30, 2022. This increase was primarily within netcomm products across all sales channels, partially offset by collaboration and notebooks/mobile devices specifically within the Education and Healthcare sales channels.

Public segment Operating income was $210 million for the three months ended June 30, 2023, an increase of $33 million, or 18.7%, compared to $177 million for the three months ended June 30, 2022. Public segment Operating income increased primarily due to higher Gross profit dollars and lower payroll expenses.

Other

Net sales in Other, which is comprised of results from our UK and Canadian operations, for the three months ended June 30, 2023 decreased $52 million, or 7.0%, compared to the three months ended June 30, 2022. This decrease was driven by decreased Net sales across various categories related to both the Canadian and UK operations.

Other Operating income was $32 million for the three months ended June 30, 2023, an increase of $5 million, or 16.5%, compared to $28 million for the three months ended June 30, 2022. Other Operating income increased primarily due to higher Gross profit dollars related to the UK operations.

Non-GAAP Financial Measure Reconciliations

We have included reconciliations of Non-GAAP operating income, Non-GAAP operating income margin, Non-GAAP net income, Non-GAAP net income per diluted share, and Net sales on a constant currency basis for the three months ended June 30, 2023 and 2022 below.

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.

Non-GAAP operating income, Non-GAAP operating income margin, Non-GAAP net income, Non-GAAP net income per diluted share, and Net sales on a constant currency basis 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.

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Non-GAAP operating income and Non-GAAP operating income margin


	Three Months Ended June 30,
(dollars in millions)	2023		% of Net Sales		2022		% of Net Sales		% Change
Operating income, as reported	$	412.2	7.3	%	$	435.3	7.1	%	(5.3)	%
Amortization of intangibles(1)	37.3				40.7
Equity-based compensation	24.8				23.5
Acquisition and integration expenses	8.7				14.9
Transformation initiatives(2)	4.6				1.2
Workplace optimization(3)	42.0				—
Other adjustments	0.2				0.7
Non-GAAP operating income	$	529.8	9.4	%	$	516.3	8.4	%	2.6	%

(1)Includes amortization expense for acquisition-related intangible assets, primarily customer relationships, customer contracts and trade names.

(2)Includes costs related to strategic transformation initiatives focused on optimizing various operations and systems.

(3)Includes costs related to the workforce reduction program and charges related to the reduction of our real estate lease portfolio.

Non-GAAP net income and Non-GAAP net income per diluted share


	Three Months Ended June 30,
	2023						2022
(dollars in millions)	Income before income taxes		Income tax expense(1)		Net income		Income before income taxes		Income tax expense(1)		Net income		Net Income % Change
US GAAP, as reported	$	353.4	$	(90.8)	$	262.6	$	377.2	$	(97.9)	$	279.3	(6.0)	%
Amortization of intangibles(2)	37.3		(9.6)		27.7		40.7		(10.6)		30.1
Equity-based compensation	24.8		(7.1)		17.7		23.5		(5.9)		17.6
Acquisition and integration expenses	8.7		(2.3)		6.4		14.9		(3.8)		11.1
Transformation initiatives(3)	4.6		(1.2)		3.4		1.2		(0.3)		0.9
Workplace optimization(4)	42.0		(10.9)		31.1		—		—		—
Other adjustments	0.2		(0.1)		0.1		0.8		(0.3)		0.5
Non-GAAP	$	471.0	$	(122.0)	$	349.0	$	458.3	$	(118.8)	$	339.5	2.8	%

Net income per diluted share, as reported					$	1.92					$	2.04
Non-GAAP net income per diluted share					$	2.56					$	2.49
Shares used in computing US GAAP and Non-GAAP net income per diluted share					136.1						136.8

(1)Income tax on non-GAAP adjustments includes excess tax benefits associated with equity-based compensation.

(2)Includes amortization expense for acquisition-related intangible assets, primarily customer relationships, customer contracts and trade names.

(3)Includes costs related to strategic transformation initiatives focused on optimizing various operations and systems.

(4)Includes costs related to the workforce reduction program and charges related to the reduction of our real estate lease portfolio.

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Net sales on a constant currency basis


	Three Months Ended June 30,
(dollars in millions)	2023		2022		% Change(1)
Net sales, as reported	$	5,626.1	$	6,145.8	(8.5)	%
Foreign currency translation(2)	—		(14.9)
Net sales, on a constant currency basis	$	5,626.1	$	6,130.9	(8.2)	%

(1)There were 64 selling days for both the three months ended June 30, 2023 and 2022.

(2)Represents the effect of translating the prior year results of CDW UK and CDW Canada at the average exchange rates applicable in the second quarter of 2023.

Six Months Overview

The results of certain key business metrics are as follows:


	Six Months Ended June 30,
(dollars in millions, except per share amounts)	2023		2022
Net sales	$	10,729.2	$	12,094.9
Gross profit	2,270.9		2,272.3
Operating income	767.5		822.2
Net income	492.7		529.5
Non-GAAP operating income	964.1		978.4
Non-GAAP net income	627.7		641.0
Net income per diluted share	3.60		3.87
Non-GAAP net income per diluted share	4.59		4.69
Average daily sales(1)	83.8		95.2
Net debt(2)	5,559.3		6,045.3
Cash conversion cycle (in days)(3)	14		19
Cash provided by operating activities	593.6		761.1
Free cash flow	683.9		717.4

(1) There were 128 and 127 selling days for the six months ended June 30, 2023 and 2022, respectively.

(2) Defined as Total debt minus Cash and cash equivalents.

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Results of Operations

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Results of operations, in dollars and as a percentage of Net sales, are as follows:


	Six Months Ended June 30,
	2023				2022
	Dollars in Millions		Percentage of Net Sales		Dollars in Millions		Percentage of Net Sales
Net sales	$	10,729.2	100.0	%	$	12,094.9	100.0	%
Cost of sales	8,458.3		78.8		9,822.6		81.2
Gross profit	2,270.9		21.2		2,272.3		18.8
Selling and administrative expenses	1,503.4		14.0		1,450.1		12.0
Operating income	767.5		7.2		822.2		6.8
Interest expense, net	(115.9)		(1.1)		(113.7)		(0.9)
Other expense, net	(1.9)		—		(0.9)		—
Income before income taxes	649.7		6.1		707.6		5.9
Income tax expense	(157.0)		(1.5)		(178.1)		(1.5)
Net income	$	492.7	4.6	%	$	529.5	4.4	%

Net sales

Total Net sales decreased $1,366 million, or 11.3%, to $10,729 million for the six months ended June 30, 2023, compared to $12,095 million for the six months ended June 30, 2022. The decline in Net sales occurred across all operating segments. The increase in economic uncertainty has led customers to focus their business priorities, resulting in a deferral or reduction of their technology spend. For additional information, see the “Segment Results of Operations” below.

Gross profit

Gross profit decreased $1 million, or 0.1%, to $2,271 million for the six months ended June 30, 2023, compared to $2,272 million for the six months ended June 30, 2022. As a percentage of Net sales, Gross profit margin increased 240 basis points to 21.2% for the six months ended June 30, 2023. The increase in Gross profit margin was primarily driven by higher product margin due to lower mix in notebooks and increased rate across various categories and a higher mix of netted down revenue, primarily software as a service.

Selling and administrative expenses

Selling and administrative expenses increased $53 million, or 3.7%, to $1,503 million for the six months ended June 30, 2023, compared to $1,450 million for the six months ended June 30, 2022. The increase was driven by costs related to workplace optimization, increased payroll expenses associated with higher year-over-year coworker count, partially offset by reduced discretionary expenses.

Operating income

Operating income decreased $55 million, or 6.7%, to $768 million for the six months ended June 30, 2023 compared to $822 million for the six months ended June 30, 2022. Operating income decreased driven by costs related to workplace optimization, increased payroll expenses associated with higher year-over-year coworker count, partially offset by the impact of reduced discretionary expenses.

Interest expense, net

Interest expense, net, increased $2 million, or 1.9%, to $116 million for the six months ended June 30, 2023, compared to $114 million for the six months ended June 30, 2022. This increase was driven by a higher variable interest rate on the senior unsecured term loan, partially offset by lower debt levels.

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Income tax expense

The lower effective tax rate for the six months ended June 30, 2023 as compared to the same period of the prior year was primarily attributable to higher excess tax benefits on equity-based compensation.

Segment Results of Operations

Net sales by segment, in dollars and as a percentage of total Net sales, and the year-over-year dollar and percentage change in Net sales are as follows:


	Six Months Ended June 30,
	2023				2022
(dollars in millions)	Net Sales		Percentage of Total Net Sales		Net Sales		Percentage of Total Net Sales		Dollar Change		Percent Change		Average Daily Sales Percent Change(1)
Corporate	$	4,448.7	41.5	%	$	5,288.3	43.7	%	$	(839.6)	(15.9)	%	(16.5)	%

Small Business	807.6		7.5		1,024.0		8.5		(216.4)		(21.1)		(21.7)

Public:
Government	1,232.7		11.5		1,153.4		9.5		79.3		6.9		6.0
Education	1,692.5		15.8		1,944.1		16.1		(251.6)		(12.9)		(13.6)
Healthcare	1,182.7		11.0		1,178.5		9.7		4.2		0.4		(0.4)
Total Public	4,107.9		38.3		4,276.0		35.3		(168.1)		(3.9)		(4.7)

Other	1,365.0		12.7		1,506.6		12.5		(141.6)		(9.4)		(10.1)

Total Net sales	$	10,729.2	100.0	%	$	12,094.9	100.0	%	$	(1,365.7)	(11.3)	%	(12.0)	%

(1)There were 128 and 127 selling days for the six months ended June 30, 2023 and 2022, respectively.

Operating income by segment, in dollars and as a percentage of total Net sales, and the year-over-year percentage change are as follows:


	Six Months Ended June 30,
	2023				2022
(dollars in millions)	Operating Income		Percentage of Net Sales		Operating Income		Percentage of Net Sales		Percent Change in Operating Income
Segments:(1)
Corporate	$	399.8	9.0	%	$	441.2	8.3	%	(9.4)	%
Small Business	83.9		10.4		93.7		9.2		(10.5)
Public	337.8		8.2		319.0		7.5		5.9
Other(2)	68.9		5.0		64.5		4.3		6.8
Headquarters(3)	(122.9)		nm*		(96.2)		nm*		27.8
Total Operating income	$	767.5	7.2	%	$	822.2	6.8	%	(6.7)	%

* nm - Not meaningful

(2)Includes the financial results for our other operating segments, CDW UK and CDW Canada, which do not meet the reportable segment quantitative thresholds.

(3)Includes Headquarters’ function costs that are not allocated to the segments.

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Corporate

Corporate segment Net sales for the six months ended June 30, 2023 decreased $840 million, or 15.9%, compared to the six months ended June 30, 2022. On an average daily sales basis, Corporate segment Net sales decreased 16.5%. This decrease in Net sales was across various hardware categories, primarily notebooks/mobile devices, partially offset by an increase in software.

Corporate segment Operating income was $400 million for the six months ended June 30, 2023, a decrease of $41 million, or 9.4%, compared to $441 million for the six months ended June 30, 2022. Corporate segment Operating income decreased primarily due to lower Gross profit dollars and increased payroll expenses.

Small Business

Small Business segment Net sales for the six months ended June 30, 2023 decreased $216 million, or 21.1%, compared to the six months ended June 30, 2022. On an average daily sales basis, Small Business segment Net sales decreased 21.7%. This decrease in Net sales was primarily driven by a decline in notebooks/mobile devices.

Small Business segment Operating income was $84 million for the six months ended June 30, 2023, a decrease of $10 million, or 10.5%, compared to $94 million for the six months ended June 30, 2022. Small Business segment Operating income decreased primarily due to lower Gross profit dollars, partially offset by lower performance-based compensation consistent with lower Gross profit attainment.

Public

Public segment Net sales for the six months ended June 30, 2023 decreased $168 million, or 3.9%, compared to the six months ended June 30, 2022. On an average daily sales basis, Public segment Net sales decreased 4.7%. This decrease was primarily within notebooks/mobile devices and collaboration hardware specifically within the Education and Healthcare sales channels, partially offset by netcomm products across all sales channels.

Public segment Operating income was $338 million for the six months ended June 30, 2023, which was an increase of $19 million, or 5.9%, compared to $319 million for the six months ended June 30, 2022. Public segment Operating income increased primarily due to lower payroll costs.

Other

Net sales in Other, which is comprised of results from our UK and Canadian operations, for the six months ended June 30, 2023 decreased $142 million, or 9.4%, compared to the six months ended June 30, 2022. On an average daily sales basis, Other Net sales decreased 10.1%. This decrease was driven by decreased Net sales in various hardware categories, partially offset by an increase in software related to both the Canadian and UK operations.

Other Operating income was $69 million for the six months ended June 30, 2023, which was an increase of $4 million or 6.8%, compared to $65 million for the six months ended June 30, 2022. Other Operating income increased primarily due to higher Gross profit dollars related to the UK operations.

Non-GAAP Financial Measure Reconciliations

We have included reconciliations of 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 and Free cash flow for the six months ended June 30, 2023 and 2022 below.

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 and 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

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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.

Non-GAAP operating income and Non-GAAP operating income margin


	Six Months Ended June 30,
(dollars in millions)	2023		% of Net Sales		2022		% of Net Sales		% Change
Operating income, as reported	$	767.5	7.2	%	$	822.2	6.8	%	(6.7)	%
Amortization of intangibles(1)	78.9				81.6
Equity-based compensation	45.6				44.6
Acquisition and integration expenses	17.6				26.6
Transformation initiatives(2)	9.6				2.4
Workplace optimization(3)	42.9				—
Other adjustments	2.0				1.0
Non-GAAP operating income	$	964.1	9.0	%	$	978.4	8.1	%	(1.5)	%

(1)Includes amortization expense for acquisition-related intangible assets, primarily customer relationships, customer contracts and trade names.

(2)Includes costs related to strategic transformation initiatives focused on optimizing various operations and systems.

(3)Includes costs related to the workforce reduction program and charges related to the reduction of our real estate lease portfolio.

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Non-GAAP net income and Non-GAAP net income per diluted share


	Six Months Ended June 30,
	2023						2022
(dollars in millions)	Income before income taxes		Income tax expense(1)		Net income		Income before income taxes		Income tax expense(1)		Net income		Net Income % Change
US GAAP, as reported	$	649.7	$	(157.0)	$	492.7	$	707.6	$	(178.1)	$	529.5	(6.9)	%
Amortization of intangibles(2)	78.9		(20.5)		58.4		81.6		(21.2)		60.4
Equity-based compensation	45.6		(22.4)		23.2		44.6		(15.6)		29.0


Acquisition and integration expenses	17.6		(4.6)		13.0		26.6		(6.8)		19.8
Transformation initiatives(3)	9.6		(2.5)		7.1		2.4		(0.6)		1.8
Workplace optimization(4)	42.9		(11.1)		31.8		—		—		—
Other adjustments	2.0		(0.5)		1.5		1.0		(0.5)		0.5
Non-GAAP	$	846.3	$	(218.6)	$	627.7	$	863.8	$	(222.8)	$	641.0	(2.1)	%

Net income per diluted share, as reported					$	3.60					$	3.87
Non-GAAP net income per diluted share					$	4.59					$	4.69
Shares used in computing US GAAP and Non-GAAP net income per diluted share					136.7						136.8

(1)Income tax on non-GAAP adjustments includes excess tax benefits associated with equity-based compensation.

(2)Includes amortization expense for acquisition-related intangible assets, primarily customer relationships, customer contracts and trade names.

(3)Includes costs related to strategic transformation initiatives focused on optimizing various operations and systems.

(4)Includes costs related to the workforce reduction program and charges related to the reduction of our real estate lease portfolio.

Net sales on a constant currency basis


	Six Months Ended June 30,
(dollars in millions)	2023		2022		% Change		Average Daily % Change(1)
Net sales, as reported	$	10,729.2	$	12,094.9	(11.3)	%	(12.0)	%
Foreign currency translation(2)	—		(78.0)
Net sales, on a constant currency basis	$	10,729.2	$	12,016.9	(10.7)	%	(11.4)	%

(1)There were 128 and 127 selling days for the six months ended June 30, 2023 and 2022, respectively.

(2)Represents the effect of translating the prior year results of CDW UK and CDW Canada at the average exchange rates applicable in year to date 2023.

Free cash flow


	Six Months Ended June 30,
(dollars in millions)	2023		2022
Net cash provided by operating activities	$	593.6	$	761.1
Capital expenditures	(71.3)		(63.6)
Net change in accounts payable - inventory financing(1)	161.6		19.9

Free cash flow	$	683.9	$	717.4

(1)Free cash flow is adjusted to include cash flows from financing activities that relate to the purchase of inventory.

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Seasonality

While we have not historically experienced significant seasonality throughout the year, sales in our Corporate segment, which primarily serves US private sector business customers with more than 250 employees, have historically been higher in the fourth quarter than in other quarters due to customers spending their remaining technology budget dollars at the end of the year. Additionally, sales in our Public segment have historically been higher in the third quarter than in other quarters primarily due to the buying patterns of the federal government and education customers. Since 2020, we have experienced variability compared to historic seasonality trends. Seasonality by channel is expected to continue to be different than historical experience.

Liquidity and Capital Resources

Overview

We finance our operations and capital expenditures with cash from operations and borrowings under our revolving loan facility. As of June 30, 2023, we had $1.0 billion of availability for borrowings under our revolving loan facility. Our liquidity and borrowing plans are established to align with our financial and strategic planning processes and ensure we have the necessary funding to meet our operating commitments, which primarily include the purchase of inventory, payroll and general expenses. We also take into consideration our overall capital allocation strategy, which includes dividend payments, assessment of debt levels, acquisitions and share repurchases. We believe we have adequate sources of liquidity and funding available for at least the next year; however, there are a number of factors that may negatively impact our available sources of funds. The amount of cash generated from operations will be dependent upon factors such as the successful execution of our business plan, general economic conditions and working capital management.

Long-Term Debt and Financing Arrangements

During the six months ended June 30, 2023, we prepaid $50 million on our senior unsecured term loan facility without penalty. No additional mandatory payments are required on the remaining principal amount until its maturity date on December 1, 2026.

As of June 30, 2023, we had total unsecured indebtedness of $5.8 billion and we were in compliance with the covenants under our credit agreements and indentures.

We may from time to time repurchase one or more series of our outstanding unsecured senior notes, depending on market conditions, contractual commitments, our capital needs and other factors. Repurchases of our senior notes may be made by open market or privately negotiated transactions and may be pursuant to Rule 10b5-1 plans or otherwise.

For additional information regarding our debt and refinancing activities, see Note 5 (Debt) to the accompanying Consolidated Financial Statements.

Inventory Financing Agreements

We have entered into agreements with certain financial intermediaries to facilitate the purchase of inventory from various suppliers under certain terms and conditions. These amounts are classified separately as Accounts payable-inventory financing on the Consolidated Balance Sheets. We do not incur any interest expense associated with these agreements as balances are paid when they are due. For additional information, see Note 4 (Inventory Financing Agreements) to the accompanying Consolidated Financial Statements.

Share Repurchase Program

During the six months ended June 30, 2023, we repurchased 2 million shares of our common stock for $396 million under the previously announced share repurchase program. For additional information on our share repurchase program, see “Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds.”

Dividends

A summary of 2023 dividend activity for our common stock is as follows:

Dividend Amount

Declaration Date

Record Date

Payment Date

$0.590

February 7, 2023

February 24, 2023

March 10, 2023

$0.590

May 3, 2023

May 25, 2023

June 13, 2023

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On August 2, 2023, we announced that our Board of Directors declared a quarterly cash dividend on our common stock of $0.590 per share. The dividend will be paid on September 12, 2023 to all stockholders of record as of the close of business on August 25, 2023.

The payment of any future dividends will be at the discretion of our Board of Directors and will depend upon our results of operations, financial condition, business prospects, capital requirements, contractual restrictions (including in current or future agreements governing our indebtedness), restrictions imposed by applicable law, tax considerations and other factors that our Board of Directors deems relevant.

Cash Flows

Cash flows from operating, investing and financing activities are as follows:


	Six Months Ended June 30,
(dollars in millions)	2023		2022
Net cash provided by operating activities	$	593.6	$	761.1

Investing Activities:
Capital expenditures	(71.3)		(63.6)
Acquisitions of businesses, net of cash acquired	(75.5)		(28.0)

Net cash used in investing activities	(146.8)		(91.6)

Financing Activities:
Net change in accounts payable - inventory financing	161.6		19.9

Other cash flows used in financing activities	(721.1)		(394.8)
Net cash used in financing activities	(559.5)		(374.9)

Effect of exchange rate changes on cash and cash equivalents	1.4		(11.1)
Net (decrease) increase in cash and cash equivalents	$	(111.3)	$	283.5

Operating Activities

Cash flows provided by operating activities are as follows:


	Six Months Ended June 30,
(dollars in millions)	2023		2022		Change
Net income	$	492.7	$	529.5	$	(36.8)
Adjustments for the impact of non-cash items(1)	187.3		191.3		(4.0)
Net income adjusted for the impact of non-cash items	680.0		720.8		(40.8)
Changes in assets and liabilities:
Accounts receivable	(13.0)		(19.8)		6.8
Merchandise inventory(2)	17.0		(109.7)		126.7
Accounts payable-trade(3)	(39.7)		210.6		(250.3)
Other	(50.7)		(40.8)		(9.9)
Cash flows provided by operating activities	$	593.6	$	761.1	$	(167.5)

(1)Includes items such as depreciation and amortization, deferred income taxes, provision for credit losses and equity-based compensation expense.

(2)The change is primarily due to lower stocking positions driven by customer demand in 2023.

(3)The change is primarily driven by timing of payments and lower sales activity in 2023.

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In order to manage our working capital and operating cash needs, we monitor our cash conversion cycle, defined as days of sales outstanding in accounts receivable plus days of supply in inventory minus days of purchases outstanding in accounts payable, based on a rolling three-month average. Components of our cash conversion cycle are as follows:


	June 30,
(in days)	2023	2022
Days of sales outstanding (DSO)(1)	67	64
Days of supply in inventory (DIO)(2)	14	18
Days of purchases outstanding (DPO)(3)	(67)	(63)
Cash conversion cycle	14	19

(1)Represents the rolling three-month average of the balance of Accounts receivable, net at the end of the period, divided by average daily Net sales for the same three-month period. Also incorporates components of other miscellaneous receivables.

(2)Represents the rolling three-month average of the balance of Merchandise inventory at the end of the period divided by average daily Cost of sales for the same three-month period.

(3)Represents the rolling three-month average of the combined balance of Accounts payable-trade, excluding cash overdrafts, and Accounts payable-inventory financing at the end of the period divided by average daily Cost of sales for the same three-month period.

The cash conversion cycle decreased to 14 days at June 30, 2023, compared to 19 days at June 30, 2022. The overall decrease was primarily driven by a reduction in DIO resulting from lower stocking positions. In addition, netted down revenue has an unfavorable impact to DSO and a favorable impact to DPO as the corresponding receivables and payables reflect the gross amounts due from customers and due to vendors while the corresponding sales and cost of sales are reflected on a net basis within Net sales.

Investing Activities

Net cash used in investing activities increased $55 million for the six months ended June 30, 2023 compared to June 30, 2022. This increase was primarily due to higher acquisition activity in 2023 and increased capital expenditures.

Financing Activities

Net cash used in financing activities increased $185 million for the six months ended June 30, 2023 compared to June 30, 2022. This increase was primarily driven by share repurchases in 2023 with no similar activity in 2022 and net repayments on our revolving loan facility, partially offset by mixing into vendors with extended payment terms under our inventory financing arrangements. For additional information regarding the inventory financing agreements and debt activities, see Note 4 (Inventory Financing Agreements) and Note 5 (Debt) to the accompanying Consolidated Financial Statements.

Issuers and Guarantors of Debt Securities

Each series of our outstanding unsecured senior notes (the “Notes”) are issued by CDW LLC and CDW Finance Corporation (the “Issuers”) and are guaranteed by CDW Corporation (“Parent”) and certain of each CDW LLC’s direct and indirect, 100% owned, domestic subsidiaries (the “Guarantor Subsidiaries” and, together with Parent, the “Guarantors”). All guarantees by Parent and the Guarantors are joint and several, and full and unconditional; provided that guarantees by the Guarantor Subsidiaries are subject to certain customary release provisions contained in the indentures governing the Notes.

The Notes and the related guarantees are the Issuers’ and the Guarantors’ senior unsecured obligations and are:

•structurally subordinated to all existing and future indebtedness and other liabilities of our non-guarantor subsidiaries; and

•rank equal in right of payment with all of the Issuers’ and the Guarantors’ existing and future unsecured senior debt.

The following tables set forth Balance Sheet information as of June 30, 2023 and December 31, 2022, and Statement of Operations information for the six months ended June 30, 2023 and for the year ended December 31, 2022. The financial information includes the accounts of the Issuers and the accounts of the Guarantors (the “Obligor Group”). The financial information of the Obligor Group is presented on a combined basis and the intercompany balances and transactions between the Obligor Group have been eliminated.

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Balance Sheet Information


(dollars in millions)	June 30, 2023		December 31, 2022
Current assets	$	5,615.7	$	5,588.3

Goodwill	3,939.7		3,939.7
Other assets	1,885.3		2,032.6
Total Non-current assets	5,825.0		5,972.3

Current liabilities	4,548.2		4,369.3

Long-term debt	5,720.3		5,792.9
Other liabilities	577.8		641.9
Total Long-term liabilities	6,298.1		6,434.8

Statement of Operations Information


(dollars in millions)	Six Months Ended June 30, 2023		Year Ended December 31, 2022
Net sales	$	9,331.9	$	20,741.8
Gross profit	1,993.4		4,156.6
Operating income	680.8		1,584.7
Net income	404.5		1,005.8

Commitments and Contingencies

The information set forth in Note 8 (Commitments and Contingencies) to the accompanying Consolidated Financial Statements is incorporated herein by reference.

Critical Accounting Policies and Estimates

Our critical accounting policies have not changed from those reported in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022.

Recent Accounting Pronouncements

The information set forth in Note 2 (Recent Accounting Pronouncements) to the accompanying Consolidated Financial Statements is incorporated herein by reference.

Forward-Looking Statements

This report 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 report.

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 “Trends and Key Factors Affecting our Financial Performance” above, the section entitled “Risk Factors” 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

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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; 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 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 report 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

See “Quantitative and Qualitative Disclosures of Market Risks” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. As of June 30, 2023, there have been no material changes in this information.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, has concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, and that information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely discussions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the three months ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

The information set forth in Note 8 (Commitments and Contingencies) to the accompanying Consolidated Financial Statements included in “Part I, Item 1. Financial Statements” of this report is incorporated herein by reference.

Item 1A. Risk Factors

See “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None.

Issuer Purchases of Equity Securities

On February 8, 2023, we announced that our Board of Directors authorized a $750 million increase to our share repurchase program (which was incremental to the amount remaining under the $1.25 billion authorization announced on February 10, 2021) under which we may repurchase shares of our common stock from time to time in privately negotiated transactions, open market purchases or other transactions as permitted by securities laws and other legal requirements. The timing and amounts of any purchases will be based on market conditions and other factors including but not limited to share price, regulatory requirements and capital availability. The program does not require the purchase of any minimum dollar amount or number of shares and the program may be modified, suspended or discontinued at any time.

Information relating to the Company’s purchases of its common stock during the three months ended June 30, 2023 is as follows:


Period	Total Number of Shares Purchased (in millions)	Average Price Paid per Share	Total Number of Shares Purchased as Part of a Publicly Announced Program (in millions)	Maximum Dollar Value of Shares that May Yet be Purchased Under the Program(1) (in millions)
April 1 through April 30, 2023	0.2	178.96	0.2	592.3
May 1 through May 31, 2023	0.5	170.04	0.5	511.3
June 1 through June 30, 2023	0.4	174.62	0.4	441.5
Total	1.1		1.1

(1)The amounts presented in this column are the remaining total authorized value to be spent after each month’s repurchases.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

On May 3, 2023, Christine Leahy, Chair, President and Chief Executive Officer of the Company, terminated a Rule 10b5-1 trading plan adopted on February 16, 2023 for the sale of stock options covering up to an aggregate of 51,437 shares of common stock of the Company, effective immediately. No shares were sold under the trading plan.

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Item 6. Exhibits


Exhibit						Description

3.1						Seventh Amended and Restated Certificate of Incorporation of CDW Corporation, previously filed as Exhibit 3.1 with CDW Corporation ’s Form 8-K filed on May 22, 2023 and incorporated herein by reference.

3.2						Amended and Restated Bylaws of CDW Corporation, previously filed as Exhibit 3.2 with CDW Corporatio n ’s Form 8-K filed on May 22, 2023 and incorporated herein by reference.

10.1*						Amendment No. 1 to Credit Agreement, dated as of June 7, 2023, by and among CDW LLC, the lenders from time to time party thereto and JPMorgan Chase Bank, N.A. as administrative agent.

10.2*						Amendment No. 1 to Revolving Credit Agreement, dated as June 7, 2023, by and among CDW LLC, CDW Finance Holdings Limited, the lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent.

31.1*						Certification of Chief Executive Officer Pursuant to Rule 15d-14(a) under the Securities Exchange Act of 1934.

31.2*						Certification of Chief Financial Officer Pursuant to Rule 15d-14(a) under the Securities Exchange Act of 1934.

32.1**						Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350.

32.2**						Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350.

101.INS*						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*						Inline XBRL Taxonomy Extension Schema Document.

101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104*						Cover Page Interactive Data File (embedded within the Inline XBRL document).

________________

* Filed herewith

** These items are furnished and not filed.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CDW CORPORATION

Date:

August 2, 2023

By:

/s/ Albert J. Miralles

Albert J. Miralles

Senior Vice President and Chief Financial Officer

(Duly authorized officer and principal financial officer)