CDW Cdw Corp - 10-K

Item 1A. Risk Factors

There are many factors that could adversely affect our business, results of operations, and cash flows, some of which are beyond our control. The following is a description of some important factors that may cause our business prospects, results of operations, and cash flows in future periods to differ materially from those currently expected or desired. Factors not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, results of operations, and cash flows.

Business and Operational Risks

Our business depends on our vendor partner and wholesale distributor relationships and the terms of the agreements governing those relationships.

Our solutions portfolio includes products and services from OEMs, software publishers, and cloud providers. We are authorized by these vendor partners to sell all or some of their products and services via direct marketing activities. Our authorization with each vendor partner is subject to specific terms and conditions regarding such things as sales channel restrictions, product return privileges, services performance commitments, price protection policies, purchase discounts, and vendor partner programs and funding, including purchase rebates, sales volume rebates, purchasing incentives, and cooperative advertising reimbursements. However, our contracts with our vendor partners are primarily short-term and many of these arrangements are terminable upon notice by either party. A reduction in vendor partner programs or funding or our failure to timely react to changes in vendor partner programs or funding could have an adverse effect on our business, results of operations, or cash flows. In addition, a reduction in the amount or a change in the terms of credit granted to us by our vendor partners could increase our need for, and the cost of, working capital and could have an adverse effect on our business, results of operations, or cash flows.

From time to time, vendor partners may terminate or limit our right to sell some or all of their products or change the terms and conditions or reduce or discontinue the incentives that they offer us. For example, there is no assurance that, as our vendor partners continue to sell directly to end users and through resellers, they will not limit or curtail the availability of their products to solutions providers like us. Any such termination or limitation or the implementation of such changes could have a negative impact on our business, results of operations, or cash flows.

We purchase the products included in our portfolio both directly from our vendor partners and from wholesale distributors. A significant portion of our sales are derived from products manufactured by Apple, Cisco, Dell Technologies, HP Inc., Lenovo, and Microsoft. In addition, purchases from two wholesale distributors, Ingram Micro and TD SYNNEX, represent over 25% of our total purchases. The loss of, or change in business relationship with, any of these or any other wholesale distributors or key vendor partners, or the diminished availability of their products, including due to backlogs for their products, could reduce the supply and impact the cost of products we sell and negatively impact our competitive position.

Further, the sale, spin-off, or combination of any of our key vendor partners or wholesale distributors or certain of their business units, including any such sale to or combination with a vendor with whom we do not currently have a commercial relationship or whose products we do not sell, or our inability to develop relationships with new and emerging vendors and vendors that we have not historically represented in the marketplace, could have an adverse impact on our business, results of operations, or cash flows.

Our sales are dependent on continued innovations in technology by our vendor partners and the competitiveness of their offerings, and our ability to partner with new and emerging technology providers.

The technology industry is characterized by rapid innovation and the frequent introduction of new and enhanced hardware, software, and services, such as cloud-based and other “as a service” solutions, hyper-converged infrastructure, embedded software solutions, and solutions that incorporate AI. We have been and will continue to be dependent on innovations in technology, as well as the adoption of those innovations by customers. Also, customers may delay spending while they evaluate new technologies. A decrease in the rate of innovation, a lack of adoption of innovations by our customers, or delays in technology spending by our customers, could have an adverse effect on our business, results of operations, or cash flows.

In addition, if we are unable to anticipate and expand our capabilities to keep pace with changes in technology and new hardware, software, and services, for example by providing the appropriate training to our account managers, specialists, and engineers to enable them to effectively sell and deliver such new solutions to customers, our business, results of operations, or cash flows could be adversely affected.

We also are dependent upon our vendor partners for the development and marketing of hardware, software, and services to compete effectively with hardware, software, and services of vendors whose products and services we do not currently offer or that we are not authorized to offer in one or more customer channels. In rapidly evolving categories such as cloud-based

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solutions, AI, and software “as a service” solutions, our dependence on our vendor partners for innovation can add additional complexity as vendor channel strategies and authorization models may change more frequently. To the extent that a vendor’s offering that is in high demand is not available to us for resale in one or more customer channels, and there is not a competitive offering from another vendor that we are authorized to sell in such customer channels, our business, results of operations, or cash flows could be adversely impacted.

Issues relating to the use or capabilities of AI, including social, ethical, and safety issues, in hardware, software, and services offerings may result in reputational harm, liability, or increased costs.

Social, ethical, and safety issues relating to the use of new and evolving technologies such as AI-based technologies, including generative AI in our hardware, software, and service offerings, as well as in our internal platforms, may result in reputational harm and liability. We are increasingly utilizing AI in our business, including interactions with our coworkers, customers, and vendor partners and in the hardware, software, and services we offer, and we also plan to further invest resources to embed AI capabilities throughout our operations and enterprise to drive scale and efficiency. As with many innovations, AI presents risks and challenges that could affect its adoption and usage, and therefore our business. If we are unable to effectively and timely capitalize on the growth opportunities made available by the adoption of AI to drive our scale and efficiency, our business, results of operations, or cash flows could be adversely impacted. Further, the responsible development and deployment of AI requires ongoing investment in research, development and governance, which could adversely affect our results of operation or cash flows. AI technologies are complex and rapidly evolving, and we face significant competition in the market and from other companies regarding such technologies.

As we invest in, use, enable, or offer solutions that draw controversy due to their perceived or actual impact on society and the environment, we may experience brand or reputational harm, competitive harm, and legal liability. The rapid development and deployment of tools that leverage AI is also causing governments to consider and implement regulation of AI. Such increased focus and potential government regulation of AI may also increase the burden and cost of compliance in this area, subjecting us to brand or reputational harm, competitive harm, and legal liability. Failure to address AI issues by us or others in our industry could undermine public confidence in AI and slow adoption of AI in our products and services.

Additionally, the development, adoption, and use of AI by us or our vendor partners could result in unintended consequences, including exposing us to additional risks related to cybersecurity, privacy, and data security, such as the risk of increased vulnerability to cybersecurity threats and exposure or theft of proprietary or sensitive information (which could result in such information being made available to our competitors and other members of the public), impacts to the stability of our operations, the generation of factually incorrect or biased outputs, reliance on outdated or unverified data, potential intellectual property infringements, the inability to protect generated content while facing unfavorable licensing terms, and the inability to attract and retain key personnel.

Substantial competition could reduce our market share and significantly harm our financial performance.

We operate in a highly competitive industry and compete with resellers, manufacturers who sell directly to customers, large service providers and system integrators, communications service providers, cloud providers, e-commerce companies, and office supply retailers, among others. There may be new market entrants with non-traditional business, service, and delivery models, resulting in increased competition and changing industry dynamics. Existing or future competitors also may seek to compete with us for acquisitions, which could have the effect of increasing the price of potential targets and reducing the number of suitable acquisitions. These factors, in addition to competitive pressures resulting from the fragmented nature of our industry, could affect our sales, profit margins, and earnings.

We expect the competitive landscape to continue to evolve as new technologies and consumption models emerge, such as cloud-based and other “as a service” solutions, hyper-converged infrastructure, embedded software solutions, and solutions that incorporate AI. Our continued competitiveness depends upon our ability to anticipate and evolve at pace and scale with new technologies, services, and solutions through strategic and timely investments in innovation, expansion of offerings, and the capabilities necessary to implement them.

While innovation can help our business as it creates new offerings for us to sell, it can also disrupt our business model and create new and stronger competitors. For instance, while cloud-based solutions present an opportunity for us, cloud-based solutions and technology solutions as a service could increase the amount of sales directly to customers rather than through solutions providers like us, or could reduce the amount of hardware we sell. For example, growing hyperscaler marketplaces such as AWS Marketplace, Google Cloud Marketplace, and Microsoft Marketplace and evolving partner authorization and incentive models could change the role of traditional resellers, which may limit access to offerings, pressure margins, and restrict participation in certain channels. In addition, some of our hardware and software vendor partners sell, and could intensify their efforts to sell their products directly to our customers. Moreover, traditional OEMs have increased their services capabilities through mergers and acquisitions, which could potentially increase competition in the market to provide

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comprehensive technology solutions to customers. If we are unable to effectively respond to the evolving competitive landscape, or respond in a manner that is less effective than that of our competitors, our business, results of operations, or cash flows could be adversely impacted.

We focus on providing high-quality service to gain new customers and retain existing customers. To the extent we face increased competition to gain and retain customers, we may be required to reduce prices, increase advertising expenditures, or take other actions which could adversely affect our business, results of operations, or cash flows. Additionally, some of our competitors may reduce their prices in an attempt to stimulate sales, which may require us to reduce prices. This would require us to sell a greater number of products to achieve the same level of Net sales and Gross profit. If such a reduction in prices occurs and we are unable to attract new customers and sell increased quantities of products, our sales growth and profitability could be adversely affected.

The success of our business depends on the continuing development, maintenance, and operation of our information technology systems.

Our success is dependent on the accuracy, proper utilization, and continuing operation, maintenance, and development of our information technology systems, including our business systems, such as our sales, customer management, financial and accounting, marketing, purchasing, warehouse management, and e-commerce and mobile systems, as well as our operational platforms, including voice and data networks and power systems, which may include third-party hosted systems or systems that may utilize cloud technologies outside of our control. As we increasingly rely on cloud-based enterprise applications to support critical business functions, our operational performance depends in part on the availability, reliability, and proper integration of these externally hosted systems. The quality and our utilization of the information generated by our information technology systems, and our success in implementing new systems and upgrades, including our transformation initiatives, could adversely affect, among other things, our ability to:

• conduct business with our customers, including delivering services and solutions to them;

• provide the means to effectively manage global operations across time zones;

• keep pace with changes and innovation and compete effectively;

• effectuate comprehensive and reliable data collection, maintenance, and governance;

• manage our inventory, accounts receivable, and accounts payable;

• support planned growth in services and solutions and continued evolution of the business;

• purchase, sell, ship, and invoice our hardware and software products and provide and invoice our services efficiently and on a timely basis;

• maintain an effective internal control environment around our financial close process and regulatory reporting requirements;

• execute the financial close processes and deliver our required financial reporting with the SEC; and

• maintain our cost-efficient operating model while scaling our business.

Our information technology systems are inherently exposed to varied technological threats beyond our control. While we have taken steps to protect our information technology systems from a variety of threats, both internal and external, and from human error, there can be no guarantee that those steps will be effective. Furthermore, although we have redundant systems at a separate location to back up our primary systems, there can be no assurance that these redundant systems will operate properly if and when required. Moreover, software vulnerabilities within the third-party information technology software and systems we use are discovered and reported on nearly a daily basis. Any disruption to or infiltration of our information technology systems could significantly impact our ongoing business operations, harm our reputation, and adversely affect our results of operations and our ability to comply with customer, partner, legal, or regulatory obligations.

We maintain and periodically upgrade many of our information technology systems, some of which are complex, costly, and time consuming. If our information technology systems are not properly maintained or enhanced, the attention of our coworkers could be diverted and our ability to provide the level of service our customers demand could be constrained for some time. Further, new information technology systems and updates to existing information technology systems may not properly integrate with other information technology systems. Also, once implemented, the new information technology systems, updates to existing information technology systems, and related technology may not provide the intended efficiencies or

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anticipated benefits, or could be defective, contain a security vulnerability, or be improperly installed or managed, and could add costs, complications, and disruptions to our ongoing operations. Implementation of new systems or significant changes to existing systems may also require updates to related business processes and internal controls, which could increase the risk of errors or delays until such controls are fully established.

From time to time, we may acquire new companies, businesses, or sites with cybersecurity and data protection systems which may not conform with our standards. It may require significant time and expense to upgrade and integrate such systems and controls, and if we are unable to do so in a timely manner, or at all, failures or breaches of such systems could harm our reputation, business, and results of operations due to failure to comply with customer, partner, legal, or regulatory obligations.

Breaches of data security and the failure to protect our information technology systems from cybersecurity threats could adversely impact our business.

Our business involves the handling, storage, and transmission of proprietary information and sensitive or confidential data, including personal information of coworkers, customers, partners, and others, which we must do in compliance with applicable law. In connection with our services business, some of our coworkers have access to our customers’ confidential data and other information. Additionally, third parties, such as data center colocation and hosted solution partners, provide services to us and also provide services as a component of our services delivery to customers and to customer systems. These third parties may also utilize or embed AI capabilities in providing their services to us and our customers. These third parties or others that are a part of our supply chain, and their use of AI capabilities, could also be a source of security risk in the event of a failure to protect their own products, security systems and infrastructure and we may not be able to control the manner in which these third parties respond to any security breach. We have privacy and data security policies, practices, and controls in place that are designed to prevent security breaches; however, as newer technologies evolve, as more business is conducted over the internet and remotely, as we acquire more business operations from organizations with differing cybersecurity and data protection controls, and as the portfolio of the service providers we exchange confidential information, software, and hardware with expands, we have been subject to breaches in security and are increasingly likely to be exposed to risks from breaches in security, including those arising from human error, negligence, or mismanagement or from illegal or fraudulent acts, such as cyberattacks. Further, as AI continues to evolve, malicious actors could use AI to enhance the sophistication and coordination of their attacks, which could pose significant challenges to our security defenses. Additionally, as technology vendors consolidate and aggregate applications into unified platforms, the risk and magnitude of business disruption from security breaches increases due to vendor and system concentration.

We, and third parties upon which we rely, regularly experience malicious attacks and other attempts to gain unauthorized access to our systems, and attacks against us by state-sponsored organizations and nation-states may increase during periods of intense diplomatic or armed conflicts. Further, security breaches may go undetected and persist in our environments for extended periods. Although we have not experienced a material security breach to date, the evolving and escalating nature of cybersecurity threats, in light of new and sophisticated methods used by criminals and cyberterrorists, state-sponsored organizations, and nation-states, including computer viruses, malware, ransomware, phishing, misrepresentation, social engineering, and forgery, make it increasingly challenging to anticipate, detect, and defend against these threats. We and our third-party partners have implemented various security controls to meet compliance and privacy requirements while defending against these evolving security threats. However, breaches in security could expose us, our supply chain, our customers, or other individuals to significant disruptions and a risk of public disclosure, loss, or misuse of confidential data.

Security breaches could result in legal claims or proceedings, liability, or regulatory penalties under laws protecting the privacy of personal information (including those under the European Union’s General Data Protection Regulation and the California Privacy Rights Act), significant remediation costs as well as the loss of partners and existing or potential customers and, ultimately, damage to our brand and reputation and adversely impact our business. While we maintain insurance coverages that are intended to address certain aspects of data security, such insurance may be insufficient to cover all losses or all types of claims that may arise and may not continue to be available to us on economically reasonable terms or at all. Moreover, media or other reports of perceived vulnerabilities in our network security or perceived lack of security within our environment, even if inaccurate, could materially adversely impact our reputation and business. The cost and operational consequences of implementing further data protection measures could be material. Such breaches, costs, and consequences could adversely affect our business, results of operations, or cash flows.

If we or our third-party service providers fail to provide high-quality services to our customers, our reputation, brand, business, results of operations, or cash flows could be adversely affected.

Our services include professional services, managed services, warranties, configuration services, partner services, and telecom services. Additionally, we deliver and manage mission critical software, systems, and network solutions for our customers. We also offer certain services, such as implementation and installation services and repair services, to our customers through

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various third-party service providers engaged to perform these services on our behalf. If we or our third-party service providers fail to provide high-quality services to our customers or such services result in an unplanned disruption of our customers’ businesses, this could, among other things, result in legal claims and proceedings and liability for us. Moreover, as we expand our services and solutions business and provide increasingly complex services and solutions, including solutions that incorporate AI, we may be exposed to additional operational, regulatory, and other risks. We also could incur liability for failure to comply with the rules and regulations applicable to the new services and solutions we provide to our customers. If any of the foregoing were to occur, our reputation with our customers, our brand, and our business, results of operations, or cash flows could be adversely affected.

If we lose any of our key personnel, are unable to attract and retain the talent required for our business, our labor costs significantly increase, or our approach to workforce management is ineffective, our business could be disrupted, and our financial performance could suffer.

Our success is heavily dependent upon our ability to attract, develop, engage, and retain key personnel to manage, lead, innovate, and grow our business, including our key executive, management, sales, services, specialists, and engineers. Additionally, we rely on offshore operations to execute and deliver on certain functions within the organization.

Our future success will depend to a significant extent on the efforts of our leadership team, as well as the effectiveness of our succession planning and efforts to develop and promote top talent. Our future success also will depend on our ability to retain and motivate our customer-facing coworkers, who have been given critical CDW knowledge regarding, and the opportunity to develop strong relationships with, many of our customers. In addition, as we seek to expand our offerings of value-added services and solutions, our success will even more heavily depend on attracting and retaining highly-skilled specialists and engineers, for whom the market is extremely competitive.

In order to attract, retain, and motivate key personnel in a competitive marketplace, it is important to provide a competitive compensation package. If our compensation package is not viewed as being competitive, our ability to attract, retain, and motivate key personnel could be adversely affected. Additionally, as minimum wage rates increase or related laws and regulations change, we have and may need to continue to increase the wages paid to our hourly or salaried coworkers as wage rates and salaries become pressured. A sustained labor shortage or increased turnover rates within our coworker base could lead to increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain coworkers, and could adversely affect our business, results of operations, or cash flows. Additionally, if we fail to effectively manage our workforce, we may need to terminate or reposition coworkers within our Company to eliminate an abundance of or to reconfigure resources, which could damage our coworker relations and our ability to attract and retain key personnel.

If we are unable to attract, develop, engage, and retain key personnel, or if our approach to workforce management, including management of our offshore operations, is ineffective, our relationships with our vendor partners and customers and our ability to expand our offerings of value-added services and solutions could be adversely affected. Moreover, if we are unable to continue to train our sales, services, and technical personnel effectively to meet the rapidly changing technology needs of our customers, the overall quality and efficiency of such personnel could decrease. Such consequences could adversely affect our business, results of operations, or cash flows.

We have outsourced certain business processes to third-party outsource partners and any service failures or disruptions related to these outsourcing arrangements could adversely affect our business.

We rely on our outsource partners, including offshore partners, to execute and deliver on certain business processes within the organization. While we make significant effort to conduct appropriate diligence before entering into arrangements with an outsourcing partner, failure by these outsource partners to meet their contractual, regulatory, and other obligations to us, including cybersecurity protections, or our failure to adequately monitor their performance, could negatively impact our operations, expected cost savings or efficiencies, and could result in work stoppages, strikes, or performance issues with such outsource partners. As a result of these outsourcing arrangements, we may experience interruptions or delays in our processes, loss or theft of proprietary or sensitive data, or other cybersecurity issues, compliance issues, challenges in maintaining and reporting financial and operational information, and increased costs to remediate any unanticipated issues that arise, any of which could materially and adversely affect our business, financial condition, and results of operations.

A natural disaster or other adverse occurrence at one of our primary facilities or a third-party provider location could damage our business.

If the warehouse and distribution equipment or operations at one of our distribution centers or such facilities or operations of our outsource partners were to be seriously damaged, such as in a fire, or disrupted by a natural disaster, which may increase in number or severity as a result of climate change, or other adverse occurrence, including disruption related to political or social unrest, we could experience significant interruptions in our services and may incur material incremental operating costs. While

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we could utilize another distribution center or third-party distributors to ship products to our customers, this also may not be sufficient to avoid interruptions in our service and may not enable us to meet all of the needs of our customers and could cause us to incur incremental operating costs. In addition, we operate numerous facilities which may contain both business-critical data and confidential information of our customers and third parties, such as data center colocation, managed services sites, and hosted solution partners, and third parties provide services as a component of our services delivery to customers. A natural disaster or other adverse occurrence at any of our major data storage locations, managed services sites, or third-party provider locations could negatively impact our business, results of operations, or cash flows.

Increases in the cost of commercial delivery services or disruptions of those services could materially adversely impact our business.

We generally ship hardware products to our customers by third party commercial delivery services and invoice customers for delivery charges. If we are unable to pass on to our customers future increases in the cost of commercial delivery services and transportation costs (including those that may result from an increase in fuel or personnel costs or a need to use higher cost delivery channels during periods of increased demand), our profitability could be adversely affected. Additionally, strikes, inclement weather, natural disasters, or other service interruptions by such shippers or periods of increased demand on delivery services could materially adversely affect our ability to deliver or receive products on a timely basis.

We are exposed to accounts receivable and inventory risks.

We extend credit to our customers for a significant portion of our sales. We are subject to the risk that our customers may not pay for the products they have purchased or may pay at a slower rate than we have historically experienced. These risks are heightened during periods of global or industry-specific economic downturn or uncertainty, during periods of rising interest rates or, in the case of public sector customers, during periods of budget constraints, budget cuts, or a government shutdown. Further, evolving product delivery models, such as multi-year subscriptions, may result in prolonged risk as customer terms extend in duration. Significant failures of customers to timely pay all amounts due to us could adversely affect our business, results of operations, or cash flows.

We are also exposed to inventory risks as a result of the rapid technological changes that affect the market and pricing for the products we sell. In addition to drop-ship arrangements with many of our OEMs and wholesale distributors, we seek to minimize our inventory exposure through a variety of inventory management procedures and policies, including our rapid-turn inventory model, as well as vendor price protection and product return programs. However, if we were unable to maintain our rapid-turn inventory model, if there were unforeseen product developments that created more rapid obsolescence or if our vendor partners were to change their terms and conditions, our inventory risks could increase. We also from time to time take advantage of discounted pricing associated with certain opportunistic bulk inventory purchases offered by our vendor partners or we may decide to carry high inventory levels of certain products that have limited or no return privileges due to customer demand or request or to manage supply chain interruptions. If we purchase inventory in anticipation of customer demand that does not materialize, or if customers reduce, delay, or decommit from orders, and if we were unable to return the inventory to a vendor partner, we would be exposed to an increased risk of inventory obsolescence which could adversely affect our business, results of operations, or cash flows.

We could be exposed to additional costs and risks if we continue to make strategic investments or acquisitions or enter into joint ventures or alliances.

We may continue to pursue transactions, including strategic investments, acquisitions, joint ventures, or alliances, in an effort to extend or complement our existing business. These types of transactions involve numerous business risks, including finding suitable transaction partners and negotiating terms that are acceptable to us, the diversion of management’s attention from other business priorities, extending our product or service offerings into areas in which we have limited experience, entering into new geographic markets, an acquisition target’s differing or inadequate cybersecurity and data protection controls, the potential loss of key coworkers or business relationships, and successfully integrating acquired businesses. There can be no assurance that the intended benefits of our investments, acquisitions, joint ventures, and alliances will be realized, or that those benefits will offset these numerous risks or other unforeseen factors, any of which could adversely affect our business, results of operations, or cash flows.

In addition, our financial results could be adversely affected by financial adjustments required by generally accepted accounting principles in the United States of America in connection with these types of transactions where significant goodwill or intangible assets are recorded. To the extent the value of goodwill or identifiable intangible assets becomes impaired, we may be required to incur material charges relating to the impairment of those assets.

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Our future operating results may fluctuate significantly due to the volatility and rapidly changing state of the technology industry, which may result in volatility in the market price of our stock and could impact our ability to operate our business effectively.

We may experience significant variations in our future quarterly results of operations. These fluctuations may cause the market price of our common stock to be volatile and may result from many factors, including the state of the technology industry in general, shifts in demand and pricing for hardware, software, and services, and the introduction of new products or upgrades. Further, if our customers’ businesses are adversely affected by global or regional economic conditions such as cost inflation or rising interest rates, they may delay or reduce purchases from us, which could adversely affect our results of operations.

Our operating results are also highly dependent on Gross profit. Our Gross profit fluctuates due to numerous factors, some of which may be outside of our control, including general macroeconomic conditions including inflation; pricing pressures; changes in product costs from our vendor partners; the availability of price protection, purchase discounts, and incentive programs from our vendor partners; changes in product, order size, and customer mix; the risk of some items in our inventory becoming obsolete; increases in product and delivery costs that we cannot pass on to customers; and general market and competitive conditions.

In addition, our cost structure is based, in part, on anticipated sales and gross margins. Therefore, we may not be able to adjust our cost structure quickly enough to compensate for any unexpected sales or gross margin shortfall, and any such inability could have an adverse effect on our business, results of operations, or cash flows.

We are engaged in a number of strategic and transformational initiatives intended to enable customer‑facing coworkers, accelerate profitable growth, and deliver a full portfolio of capabilities. However, the execution of these initiatives is subject to significant risks and uncertainties, and there can be no assurance regarding the timing or realization of anticipated benefits.

Fluctuations in foreign currency have an effect on our reported results of operations.

Our exposure to fluctuations in foreign currency rates results primarily from the translation exposure associated with the preparation of our Consolidated Financial Statements. While our Consolidated Financial Statements are reported in US dollars, the financial statements of our subsidiaries outside the US are prepared using the local currency as the functional currency and translated into US dollars. As a result, fluctuations in the exchange rate of the US dollar relative to the local currencies of our international subsidiaries, particularly the British pound and the Canadian dollar, could cause material fluctuations in our reported results of operations. We also have foreign currency exposure to the extent sales and purchases are not denominated in a subsidiary’s functional currency, which could have an adverse effect on our business, results of operations, or cash flows.

Macroeconomic and Industry Risks

Global and regional economic and political conditions may have an adverse impact on our business.

Political events, trade, and other international disputes, geopolitical tensions, war, terrorism, natural disasters, public health issues, including pandemics, industrial accidents, significant labor disputes and other business interruptions can harm or disrupt international commerce and the global economy, and could have a material adverse effect on the Company and its customers, suppliers, outsource partners, logistics providers, distributors, cellular network carriers, and other channel partners.

Weak or unstable economic conditions, inflation, and actions taken by central banks to counter inflation, sustained uncertainty about global political conditions, periods of intense diplomatic or armed conflict, government spending cuts or prolonged governmental shutdowns, and the impact of new government policies (including the introduction of new or increased taxes, the imposition of minimum taxes, or new or increased limitations on deductions, credits, or other tax benefits, or any other changes to tax laws), or a tightening of credit markets, including as a result of rising interest rates or bank failures, could cause our customers and potential customers to postpone or reduce spending on technology products or services or put downward pressure on prices, which could have an adverse effect on our business, results of operations, or cash flows.

Decreases or delays in spending on technology products and services by our customers due to, among other things, customer spending decisions and government spending and funding policies may have an adverse impact on our business.

Our sales are impacted by customer decisions on budget priorities and technology spending, including decisions to defer any such spending. Our customer’s spending decisions and budget priorities have and can be impacted by government spending and funding policies, especially but not exclusively for our public sector, healthcare and education customers, and our other customers that do business with our public sector customers or otherwise rely directly or indirectly on government funding. Federal government spending policies and budget priorities often shift during a change in federal administration, which has and can create increased levels of uncertainty with respect to these policies and priorities. An adverse change or anticipated change in government spending or funding policies (such as budget cuts or limitations or funding delays), shifts in budget priorities,

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changes in purchasing protocols, reductions in revenue levels, or significant or prolonged government shutdowns could cause our customers to reduce or delay their purchases or to terminate or not renew their contracts with us, which could adversely affect our business, results of operations, or cash flows. Additionally, such adverse change in government spending policies, shifts in budget priorities, or reductions in revenue levels could impact cash collections from contracts which could adversely affect our business, results of operations, or cash flows. Our vendor partners may also be negatively impacted by changes in government spending policies and budget priorities, which could impact their ability to fulfill their contractual obligations to us.

The interruption of the flow of products from suppliers could disrupt our supply chain.

Our business depends on the timely supply of products in order to meet the demands of our customers. Manufacturing interruptions or delays, including as a result of the financial instability or bankruptcy of manufacturers, significant labor disputes such as strikes, natural disasters (which may increase in number or severity as a result of climate change), political or social unrest, armed conflict, pandemics or other public health crises, or other adverse occurrences affecting any of our suppliers’ facilities, could disrupt our supply chain and cause volatility in our level of inventory and delays in completion of orders and installations for our customers. We have experienced and could in the future experience product constraints due to the failure of suppliers to accurately forecast customer demand, or to manufacture sufficient quantities of product to meet customer demand (including as a result of shortages of product components), among other reasons. For example, more recent tightening in the availability of high-performance memory and storage as demand has increased significantly and OEMs are prioritizing datacenters and AI workloads, pushing commercial devices and many server configurations into longer lead times and higher pricing. As demand for AI increases, supply capacity for high-performance memory and storage may continue to be limited until supply capacity increases. This memory shortage could ultimately result in shortages of finished goods such as client devices and servers where memory is a key component of the bill of materials for their production. Additionally, the relocation of key distributors utilized in our purchasing model could increase our need for, and the cost of, working capital and have an adverse effect on our business, results of operations, or cash flows.

Moreover, supply chain disruptions have caused and could in the future cause us to experience more volatility in our level of inventory and delays in completion of orders and installations for our customers and could exacerbate inflationary pressures, such as those that prevailed in recent years. Supply chain pressures have and could in the future cause us to experience changes in average selling prices and our gross margins on certain products as customers have become and could in the future become more price sensitive.

Our supply chain is also exposed to risks related to international operations. While we purchase our products primarily in the markets we serve (for example, products for US customers are sourced in the US), our vendor partners manufacture or purchase a significant portion of the products we sell outside of the US, primarily in Asia. Political, social, or economic instability in Asia, or in other regions in which our vendor partners purchase or manufacture the products we sell, could cause disruptions in trade, including exports to the US. Other events related to international operations that could cause disruptions to our supply chain include:

• the imposition of additional trade law provisions or regulations, including the adoption or expansion of trade restrictions or sanctions;

• the imposition of additional duties, tariffs, and other charges on imports and exports, including any resulting retaliatory tariffs or charges and any reductions in the production of products subject to such tariffs and charges;

• foreign currency fluctuations; and

• restrictions on the transfer of funds.

We cannot predict whether the countries in which the products we sell, or any components of those products, are purchased or manufactured will be subject to new or additional trade restrictions or sanctions imposed by the US or foreign governments, including the likelihood, type, or effect of any such restrictions. Periods of intense diplomatic or armed conflict, may result in new and rapidly evolving trade restrictions and sanctions. Trade restrictions, including new or increased tariffs or quotas, embargoes, sanctions, safeguards, and customs restrictions against the products we sell, could increase the cost or reduce the supply of product available to us and adversely affect our business, results of operations, or cash flows. In addition, our exports are subject to regulations, some of which may be inconsistent, and noncompliance with these requirements could have a negative effect on our business, results of operations, or cash flows.

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Legal and Regulatory Risks

The failure to comply with our public sector contracts or applicable laws and regulations could result in, among other things, termination, fines, or other liabilities, and changes in procurement regulations could adversely impact our business, results of operations, or cash flows.

Revenues from our public sector customers are derived from sales to governmental entities, educational institutions, and healthcare customers through various contracts and open market sales of products and services. Sales to public sector customers are highly regulated and present different risks and challenges from private commercial agreements. Noncompliance with contract provisions, government procurement regulations, or other applicable laws or regulations (including the False Claims Act, the Medicare and Medicaid Anti-Kickback Statute, or similar laws of the jurisdictions for our business activities outside of the US) or security clearance and confidentiality requirements could result in civil, criminal, and administrative liability, including substantial monetary fines or damages, termination of government contracts or other public sector customer contracts, and suspension, debarment, or ineligibility from doing business with governmental entities or other customers in the public sector. In addition, contracts in the public sector are generally terminable at any time for convenience of the contracting agency or group purchasing organization (“GPO”) or upon default and public sector contracts may be subject to periodic funding approval, rejections, or delays, which could adversely impact public sector demand for our products and services. Furthermore, our inability to enter into or retain contracts with GPOs may threaten our ability to sell to customers in those GPOs and compete effectively. The effect of any of these possible actions or failures could adversely affect our business, results of operations, or cash flows. In addition, the adoption of new or modified procurement regulations and other requirements may increase our compliance costs and reduce our gross margins, which could have a negative effect on our business, results of operations, or cash flows.

We are exposed to risks from legal proceedings and audits, including intellectual property infringement claims, which may result in substantial costs and expenses or interruption of our normal business operations.

We are party to various legal proceedings that arise in the ordinary course of our business, which include commercial, employment, tort, and other litigation.

We are also subject to intellectual property infringement claims against us in the ordinary course of our business, either because of the products and services we sell or the business systems and processes we use to sell such products and services, in the form of cease-and-desist letters, licensing inquiries, lawsuits, and other communications and demands. In our industry, such intellectual property claims have become more frequent as the complexity of technological products and the intensity of competition in our industry have increased. Furthermore, increased use of AI by the Company, third-party outsource partners, or our vendor partners could lead to more frequent intellectual property claims against us. Increasingly, many of these assertions are brought by non-practicing entities whose principal business model is to secure patent licensing revenue, but we may also be subject to demands from inventors, competitors, or other patent holders who may seek licensing revenue, lost profits, or an injunction preventing us from engaging in certain activities, including selling certain products or services.

In addition, we are subject to proceedings, investigations, and audits by federal, state, international, national, provincial, and local authorities, including as a result of our significant sales to governmental entities. For example, the Company received a Civil Investigative Demand, issued by the US Department of Justice (“DOJ”) on June 11, 2024, in connection with a False Claims Act investigation. The DOJ requested information relating to bids the Company submitted for contracts funded in whole or in part by the Schools and Libraries Program (E-Rate Program).

We also are subject to audits by various partners, GPOs, and customers, including government agencies, relating to purchases and sales under various contracts. In addition, we are subject to indemnification claims under various contracts.

Current and future litigation, infringement claims, governmental proceedings and investigations, audits, or indemnification claims that we face may result in substantial costs and expenses and significantly divert the attention of our management regardless of the outcome. In addition, these matters could lead to increased costs or interruptions of our normal business operations. Litigation, infringement claims, governmental proceedings and investigations, audits, or indemnification claims involve uncertainties and the eventual outcome of any such matter could adversely affect our business, results of operations, or cash flows.

Failure to comply with complex and evolving laws and regulations applicable to our operations or failure to meet stakeholder expectations on environmental sustainability and corporate responsibility matters could adversely affect our business, results of operations, or cash flows.

Our global operations span a variety of legal regimes, subjecting us to numerous complex, diverse, evolving, and at times potentially inconsistent or conflicting laws and regulations in a number of areas, including labor and employment, advertising,

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e-commerce, tax, trade, import and export controls, economic and trade sanctions, anti-corruption, data privacy and security requirements, competition, environmental, social, and governance, and health and safety. The evaluation of and compliance with these laws, regulations, and similar requirements, including evolving laws and regulations and regulatory overhaul during any change in federal administration, may be onerous and expensive, and may have other adverse impacts on our business, results of operations, or cash flows, the risk of which will be heightened as we expand the products and services we offer, expand into new markets and channels, and expand internationally. For example, we may be subject to increased costs and use of operational resources associated with complying with a myriad of new, changing, and sometimes conflicting environmental, social, and governance related laws and regulations. If we fail to comply with new laws, regulations, treaties, or reporting requirements, our reputation and business could be adversely impacted.

We have implemented policies and procedures designed to help ensure compliance with applicable laws and regulations, but there can be no guarantee against coworkers, contractors, or agents violating such laws and regulations or our policies and procedures. Additionally, there is increased focus by stakeholders on environmental sustainability and corporate responsibility matters, and other stakeholders may disagree with the Company’s commitments and initiatives on such matters. Our disclosure on these matters and our failure, or perceived failure, to meet our commitments (including with respect to sustainability) or otherwise effectively address these matters may erode customer trust or confidence, particularly if such failures or perceived failures receive considerable publicity or result in litigation and could have a negative impact on our business.

As a public company, we also are subject to increasingly complex public disclosure, corporate governance, and accounting requirements that increase compliance costs and require significant management focus.

Risks Related to Our Indebtedness

Our level of indebtedness and obligations pursuant to the agreements and instruments reflecting our indebtedness could adversely affect our business, results of operations, and cash flows.

As of December 31, 2025, we had $5.6 billion of total debt outstanding and $353 million of obligations outstanding under our inventory financing agreements, and the ability to borrow an additional $1.9 billion under our senior unsecured revolving loan facility (the “Revolving Loan Facility”). Our indebtedness could have important consequences, including the following:

• requiring us to dedicate a substantial portion of our cash flow from operations to debt service payments on our and our subsidiaries’ debt, which reduces the funds available for working capital, capital expenditures, acquisitions, and other general corporate purposes;

• increasing our future borrowing costs and reducing our access to capital if major debt rating agencies lower or withdraw any rating assigned to any of our debt;

• requiring us to comply with restrictive covenants (including, among other things, limitations on incurring or guaranteeing additional indebtedness and merging or consolidating with other companies or disposing of substantially all of our assets) in our senior unsecured credit facilities and indentures, which may limit the manner in which we conduct our business;

• making it more difficult for us to obtain financing from our vendor partners, including OEMs, software publishers, and cloud providers, and our wholesale distributors;

• limiting our flexibility in planning for, or reacting to, changes in the industry in which we operate;

• placing us at a competitive disadvantage compared to any of our less-leveraged competitors;

• increasing our vulnerability to both general and industry-specific adverse economic conditions; and

• limiting our ability to obtain additional debt or equity financing to fund future working capital, capital expenditures, acquisitions, or other general corporate requirements and increasing our cost of borrowing.

A breach of any restrictive covenants under our senior unsecured credit facilities or indentures may result in a default under the terms of that agreement or instrument, upon which we may suffer adverse consequences, including the acceleration of the amounts outstanding thereunder, the trigger of cross-default provisions under other agreements or instruments, and an inability to borrow additional amounts.

Additionally, certain of our borrowings, primarily borrowings under our senior unsecured credit facilities, are at variable rates of interest and expose us to interest rate risk, which under certain conditions could cause our debt service obligations to increase significantly. As of December 31, 2025, we had $635 million of variable rate debt outstanding. When interest rates increase, our

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debt service obligations on the variable rate indebtedness increase even though the amount borrowed remains the same, and could negatively impact our net income absent any derivative instruments. From time to time, we may execute derivative instruments to reduce interest rate volatility, subject to acceptable terms. We cannot assure that we will enter into such derivative instruments in the future or that such instruments will be effective.

In addition, we are a holding company that does not conduct any business operations of our own. As a result, we are largely dependent upon cash dividends and distributions and other transfers from our subsidiaries to meet our obligations. The agreements governing the indebtedness of our subsidiaries impose restrictions on our subsidiaries’ ability to pay dividends or other distributions to us. The deterioration of the earnings from, or other available assets of, our subsidiaries for any reason could also limit or impair their ability to pay dividends or other distributions to us.

Risks Related to Ownership of Our Common Stock

Our common stock price may be volatile and may decline regardless of our operating performance, and holders of our common stock could lose a significant portion of their investment.

The market price and trading volumes for our common stock may be volatile. Our stockholders may not be able to resell their shares of common stock at or above the price at which they purchased such shares, due to fluctuations in the market price of our common stock, which may be caused by a number of factors, many of which we cannot control, including the risk factors described in this Annual Report on Form 10-K and the following:

• changes in financial estimates by any securities analysts who follow our common stock, our failure to meet these estimates or failure of securities analysts to maintain coverage of our common stock;

• downgrades by any securities analysts who follow our common stock;

• future sales of our common stock by our officers, directors, and significant stockholders;

• market conditions or trends in our industry or the economy as a whole including market expectations of changes in interest rates;

• investors’ perceptions of our prospects;

• announcements by us or our competitors of significant contracts, acquisitions, joint ventures, or capital commitments; and

• changes in key personnel.

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies, including companies in our industry. These fluctuations have often been unrelated to or disproportionately impacted by the operating performance of these companies. In the past, securities class action litigation has followed periods of market volatility. If we were involved in securities litigation, we could incur substantial costs, and our resources and the attention of management could be diverted from our business.

We may fail to meet announced guidance or market expectations associated with our financial results, which could adversely affect the market price of our stock. Any guidance we provide is based on certain assumptions, which may or may not prove to be correct. Failure to meet announced guidance or market expectations going forward, particularly with respect to our operational and financial results and expectations regarding the success of our strategies and related guidance, whether due to our assumptions not being met or the impact of various risks and uncertainties, may result in either or both a decline in or increased volatility in the market price of our stock. In addition, price and volume fluctuations in the stock market as a whole may affect the market price of our stock in ways that may be unrelated to our financial performance.

While we expect to continue to pay a quarterly cash dividend on our common stock, any determination to pay dividends in the future will be at the discretion of our Board of Directors and depends 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 our Board of Directors deems relevant. If we do not pay dividends or continue to repurchase shares of our common stock in the future, realization of a gain on an investment in our common stock will depend entirely on the appreciation of the price of our common stock, which may never occur due to the potential volatility of the market price of our common stock.

Item 7. 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 Consolidated Financial Statements and the related notes included elsewhere in this report. 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” above.

Overview

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 business, government, education, and healthcare customers in the United States (“US”), the United Kingdom (“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 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”).

Effective January 1, 2026, we realigned our customer-facing organization to better meet the evolving needs of our customers and end markets. As a result, we will have the following three reportable segments: “Commercial,” “Government,” and “Education.” Our “Commercial” segment will be comprised of corporate, financial services, and healthcare customers in the US, each of which will represent a unique customer channel. Small business customers will be included across the customer channels within our “Commercial” segment. Our “Government” segment will be comprised of federal, state, and local agencies in the US. The “Education” segment will be comprised of primary, secondary, and higher education institutions in the US. CDW UK and CDW Canada will remain unchanged in this new reporting structure, in an all other category (“Other”). We will reflect this change in segment presentation, including the recasting of historical results, in our periodic and annual reports beginning with the period ending March 31, 2026.

We are vendor, technology, and consumption model unbiased, 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 10,500 customer-facing coworkers, including sellers, highly-skilled specialists, and engineers. We are a leading sales channel partner for many original equipment manufacturers (“OEMs”), software publishers, and cloud providers (collectively, our “vendor partners”) and wholesale distributors, 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 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.

For a discussion of results for the year ended December 31, 2024, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2024, compared with the year ended December 31, 2023, filed with the Securities and Exchange Commission on February 21, 2025.

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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 can impact our customers’ willingness and ability to spend on IT. The prevailing economic conditions remain challenging, largely due to ongoing uncertainty surrounding evolving global trade policies and geopolitical conditions along with other drivers. These dynamics may continue to influence supply chains, drive inflationary pressures, and affect interest rates. The uncertainty in the current economic environment has impacted and may continue to impact the timing of our customers’ investments in technology.

• Customers are evaluating the complex technology landscape in order to balance priorities and focus on solutions that lead to business optimization, cost management, and security risk management, among other factors, resulting in a more measured approach to their IT spending. We have orchestrated solutions that leverage security, software, artificial intelligence (“AI”), and hybrid and cloud offerings to help customers achieve their objectives.

• Changes and uncertainty related to spending policies, budget priorities, timing and funding levels 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, including any US government shutdowns, 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, while balancing product availability creating an inflationary environment. These trends are driving customer adoption of cloud, AI, software defined architectures and hybrid on-premise and off-premise combinations. The trends are further driven by the evolution of the IT consumption model to more “as a service” solutions, including software as a service and infrastructure as a service, in addition to ongoing managed and professional service arrangements. Technology trends are likely to evolve and customers will prioritize spend that will produce the most important outcomes for their business.

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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. Financial measures are presented both in accordance with the accounting principles generally accepted in the United States of America (“GAAP”), and non-GAAP, which excludes or includes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP. We believe that the most important of these measures and ratios include Gross profit, Gross profit margin, Operating income, Operating income margin, Non-GAAP operating income, Non-GAAP operating income margin, Net income, Non-GAAP net income, Net income per diluted share, Non-GAAP net income per diluted share, Average daily sales, Net cash provided by operating activities, Adjusted free cash flow, Cash conversion cycle, and Net debt. These measures and ratios are closely monitored by management, so that actions can be taken, as necessary, in order to achieve financial objectives.

For the definitions, discussion of management’s use of non-GAAP measures and reconciliations to the most directly comparable GAAP measure, see “Results of Operations - Non-GAAP Financial Measure Reconciliations.”

The results of certain key business metrics for the comparative periods are as follows:

Year Ended December 31,

(dollars in millions, except per share amounts)

Net sales

Gross profit

Gross profit margin

Operating income

Operating income margin

Non-GAAP operating income

Non-GAAP operating income margin

Net income

Non-GAAP net income

Net income per diluted share

Non-GAAP net income per diluted share

Average daily sales (1)

(1) Defined as Net sales divided by the number of selling days. There were 254 selling days for both the years ended December 31, 2025 and 2024.

(dollars in millions)

December 31, 2025

December 31, 2024

Net debt (1)

Cash conversion cycle (in days) (2)

Net cash provided by operating activities

Adjusted free cash flow (3)

(1) Defined as total debt minus Cash and cash equivalents and Short-term investments.

(2) Defined as days of sales outstanding related to the current portion of Accounts receivable and certain receivables due from vendors, plus days of supply in Merchandise inventory, minus days of purchases outstanding related to the current portion of Accounts payable-trade and Accounts payable-inventory financing, based on a rolling three-month average.

(3) Defined as Net cash provided by operating activities less Capital expenditures, adjusted to include cash flows from financing activities that relate to the purchase of inventory.

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Results of Operations

Results of operations, including Gross profit margin and Operating income margin, expressed as Gross profit and Operating income as a percentage of Net sales, respectively, for the years ended December 31, 2025 and 2024 are below. For additional information on Net sales, Gross profit, and Operating income by segment, see the “Segment Results of Operations.”

Year Ended December 31,

(dollars in millions)

Percent Change

Net sales

Cost of sales

Gross profit

Gross profit margin

Selling and administrative expenses

Operating income

Operating income margin

Interest expense, net

Other expense, net

Income before income taxes

Income tax expense

Net income

*nm - not meaningful

The year ended December 31, 2025 compared with the year ended December 31, 2024

Net sales increased $1,425 million, or 6.8%, with higher Net sales across all operating segments. Broadly, while economic and geopolitical uncertainty persists, all of our segments continued to experience improved customer spending during the period. The increase in customer demand drove Net sales growth primarily in notebooks/mobile devices, software, desktops, services, and netcomm products.

Gross profit increased $271 million, or 5.9%, due to higher Net sales, partially offset by lower gross profit margin. Gross profit margin decreased 20 basis points, to 21.7%, primarily driven by decreased rates in certain hardware categories.

Selling and administrative expenses increased $267 million, or 9.0%, primarily due to higher performance-based compensation, transformation related costs, and coworker-related costs.

Operating inco me increased $4 million, or 0.3%, to $1,656 million for the year ended December 31, 2025, compared to $1,651 million for the year ended December 31, 2024.

Interest expense, net includes interest expense and interest income. Interest expense, net increased $13 million, or 6.0%, primarily due to lower interest income earned on cash balances.

Income tax expense increased $3 million, or 0.9%. The effective income tax rate, expressed by calculating income tax expense as a percentage of Income before income taxes , was 25.3% and 24.9% for 2025 and 2024, respectively. T he increase in e ffective income tax rate was primarily attributable to lower excess tax benefits on equity-based compensation.

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Segment Results of Operations

Net sales by segment for the comparative periods are as follows:

Year Ended December 31,

(dollars in millions)

Net Sales

Percentage

of Total Net Sales

Net Sales

Percentage

of Total Net Sales

Dollar

Change

Percent

Change (1)

Corporate

Small Business

Public:

Government

Education

Healthcare

Total Public

Other (2)

Total Net sales

(1) There were 254 selling days for both the years ended December 31, 2025 and 2024. Average daily sales is defined as Net sales divided by the number of selling days.

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

Gross profit by segment for the comparative periods are as follows:

Year Ended December 31,

(dollars in millions)

Gross Profit

Gross Profit Margin (3)

Gross Profit

Gross Profit Margin (3)

Dollar Change

Percent Change

Segments: (1)

Corporate

Small Business

Public

Other (2)

Total Gross profit

(1) Segment gross profit includes the segment’s direct gross profit, allocations for gross profit from logistics services, and allocations for certain inventory adjustments, 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) Gross profit margin represents segment Gross profit as a percentage of segment Net sales.

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Operating income by segment for the comparative periods are as follows:

Year Ended December 31,

(dollars in millions)

Operating Income

Percentage of Segment Net Sales

Operating Income

Percentage of Segment Net Sales

Dollar Change

Percent Change

Segments: (1)

Corporate

Small Business

Public

Other (2)

Headquarters (3)

Total Operating income

*nm - not meaningful

(1) Segment operating income includes the segment’s direct operating income, allocations for certain headquarters function 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.

The year ended December 31, 2025 compared with the year ended December 31, 2024

Corporate segment Net sales increased $605 million, or 6.8%, primarily due to increased customer demand primarily in software, notebooks/mobile devices, netcomm products, and desktops.

Corporate segment Gros s profit dollars increased $102 million, or 4.9%, due to higher Net sales, partially offset by lower gross profit margin. Gross profit margin decreased 50.0 basis points, to 23.3% , due to decreased rates in certain hardware categories, primarily data storage and servers.

Corporate segment Operating income increased $10 million, or 1.1%, primarily due to higher Gross profit dollars, partially offset by higher performance-based compensation, amortization expense on acquisition-related intangible assets, and coworker-related costs.

Small Business se gment Net sales increased $203 million, or 13.3%, primarily due to increased customer demand primarily in notebooks/mobile devices, software, and desktops.

Small Business segment Gross profit dollars increased $41 million, or 11.6%, due to higher Net sales, partially offset by lower gross profit margin. Gross profit marg in decreased 40.0 basis points, to 22.8%, due to mixing into certain lower margin hardware categories, primarily notebooks/mobile devices, partially offset by a higher contribution of netted down revenue.

Small Business segment Operating income increased $22 million, or 12.3%, primarily due to higher Gross profit dollars, partially offset by an increased provision for expected credit losses and higher performance-based compensation.

Public segment Net sales increased $378 million, or 4.6%, primarily due to an increased customer demand in software and services across all customer channels, notebooks/mobile devices in the education and healthcare customer channels.

Public segment Gross profit doll ars increased $63 million, or 3.8%, due to higher Net sales. Gross profit margin remained relatively consistent at 20.2%.

Public segment Operating incom e increased $4 million, or 0.6%, primarily due to higher Gross profit dollars, partially offset by higher performance-based compensation, transformation related costs, and coworker-related costs.

Net sales in Other increased $240 million, or 9.7%, primarily due to an increase in notebooks/mobile devices, desktops, and services within UK and Canada operations.

Other Gross profit dollars increased $65 million, or 13.2%, due to higher Net sales and Gross profit margin. Gross profit margin increased 60 basis points, to 20.4%, primar ily due to a higher contribution of netted down revenue.

Other Operating income increased $42 million, or 37.6%, primarily due to higher Gross profit dollars, partially offset by higher performance-based compensation within the UK and Canada operations.

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Non-GAAP Financial Measure Reconciliations

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 GAAP. Non-GAAP financial measures used by management may differ from similar measures used by other companies, even when similar terms are used to identify such measures.

Our non-GAAP performance measures include 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, and our non-GAAP financial condition measures include Free cash flow and Adjusted free cash flow. These non-GAAP performance measures and non-GAAP financial condition measures are collectively referred to as “non-GAAP financial measures.” The GAAP measures most directly comparable to 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 Operating income, Operating income margin, Net income, Net income per diluted share, and Net sales, respectively. The GAAP measure most directly comparable to Free cash flow and Adjusted free cash flow is Net cash provided by operating activities.

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 and Non-GAAP net income per diluted share exclude, 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, workplace optimization, and their associated income tax effects. Net sales on a constant currency basis is defined as Net sales excluding the impact of foreign currency translation on Net sales. Free cash flow is defined as Net cash provided by operating activities less capital expenditures. Adjusted free cash flow is defined as Free cash flow adjusted to include certain cash flows from financing activities incurred in the normal course of operations or as capital expenditures.

We believe our non-GAAP financial measures provide analysts, investors, and management with useful 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 non-GAAP financial condition measures as we believe they provide analysts, investors, and management with more information regarding our liquidity and capital resources. Certain non-GAAP financial measures are also used to determine certain components of performance-based compensation.

We have included reconciliations of our non-GAAP financial measures to the most comparable GAAP financial measures for the years ended December 31, 2025 and 2024 below.

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

Year Ended December 31,

(dollars in millions)

Percent of Net Sales

Percent of Net Sales

Operating income, as reported

Amortization of intangibles (1)

Equity-based compensation

Transformation initiatives (2)

Acquisition and integration expenses

Workplace optimization (3)

Other adjustments

Non-GAAP operating income

(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 workforce reductions 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

Year Ended December 31,

(dollars and shares in millions, except per share amounts)

Income before income taxes

Income tax

expense (1)

Net income

Income before income taxes

Income tax

expense (1)

Net income

GAAP, as reported

Amortization of intangibles (2)

Equity-based compensation

Transformation initiatives (3)

Acquisition and integration expenses

Workplace optimization (4)

Other adjustments

Non-GAAP

Net income per diluted share, as reported

Non-GAAP net income per diluted share

Shares used in computing GAAP and Non-GAAP net income per diluted share

(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 workforce reductions and charges related to the reduction of our real estate lease portfolio.

Net sales on a constant currency basis

Year Ended December 31,

(dollars in millions)

Percent Change (1)

Net sales, as reported

Foreign currency translation (2)

Net sales, on a constant currency basis

(1) There were 254 selling days for both the years ended December 31, 2025 and 2024. Average daily sales is defined as Net sales divided by the number of selling days.

(2) Represents the effect of translating Net sales for the year ended December 31, 2024, of CDW UK and CDW Canada at the average exchange rates applicable in 2025.

Free cash flow and Adjusted free cash flow

Year Ended December 31,

(dollars in millions)

Net cash provided by operating activities

Capital expenditures

Free cash flow

Net change in accounts payable - inventory financing

Adjusted free cash flow (1)

(1) Defined as Net cash provided by operating activities less Capital expenditures, adjusted to include cash flows from financing activities that relate to the purchase of inventory.

Seasonality

While we have not historically experienced seasonality throughout the year, sales in our Public segment have historically been higher in the second and third quarter than in other quarters primarily due to the buying patterns of education and government customers.

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Liquidity and Capital Resources

Overview

We finance our operations and capital expenditures with cash from operations and borrowings under our variable rate senior unsecured revolving loan facility (the “Revolving Loan Facility”). As of December 31, 2025, we had $1.9 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 nece ssary 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 av ailable 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.

Our material contractual obligations consist of debt and related interest payments and operating leases. For additional information regarding future maturities of debt and operating leases, see Note 8 (Debt) and Note 11 (Leases), respectively, to the accompanying Consolidated Financial Statements included in Part II, Item 8 of this report.

Long-Term Debt and Financing Arrangements

During the second quarter of 2025, we repaid the $211 million remaining aggregate principal amount of the 4.125% Senior Notes due 2025 at maturity.

In December 2025, we entered into a new credit agreement consisting of a five‑year $2.25 billion senior unsecured revolving loan facility (the “Revolving Loan Facility”) and a five‑year $634.5 million senior unsecured term loan facility (the “Term Loan Facility”). The Revolving Loan Facility replaced our previous senior unsecured revolving loan facility and increased the borrowing capacity available to us by $650 million. The Term Loan Facility replaces the previous senior unsecured term loan facility, and the principal amount of the term loan remains unchanged.

As of December 31, 2025, we had total unsecured indebtedness of $5.6 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 8 (Debt) to the accompanying Consolidated Financial Statements included in Part II, Item 8 of this report.

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 to enhance working capital. These amounts are classified separately as Accounts payable-inventory financing on the Consolidated Balance Sheets. We do not incur any interest expense or other incremental expenses associated with these agreements as balances are paid when they are due. For additional information, see Note 7 (Inventory Financing Agreements) to the accompanying Consolidated Financial Statements included in Part II, Item 8 of this report.

Share Repurchase Program

During 2025, we repurchased 4.0 million shares of our common stock for $653 million under the previously announced share repurchase program. For additional information about our share repurchase program, refer to Note 12 (Stockholders’ Equity) to the accompanying Consolidated Financial Statements included in Part II, Item 8 of this report.

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Dividends

A summary of 2025 dividend activity for our common stock is as follows:

Dividend Amount

Declaration Date

Record Date

Payment Date

February 4, 2025

February 25, 2025

March 11, 2025

May 6, 2025

May 26, 2025

June 10, 2025

August 5, 2025

August 25, 2025

September 10, 2025

November 3, 2025

November 25, 2025

December 10, 2025

O n February 4, 2026, we announced that our Board of Directors declared a quarterly cash dividend on our common stock of $0.630 per share. The dividend will be paid on March 10, 2026, to all stockholders of record as of the close of business on February 25, 2026.

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:

Year Ended December 31,

(dollars in millions)

Net cash provided by operating activities

Net cash provided by (used in) investing activities

Net cash used in financing activities

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

Net increase (decrease) in cash, cash equivalents, and restricted cash

Operating Activities

Cash flows from operating activities are as follows:

Year Ended December 31,

(dollars in millions)

Change

Net income

Adjustments for the impact of non-cash items (1)

Net income adjusted for the impact of non-cash items

Changes in assets and liabilities:

Accounts receivable

Merchandise inventory

Accounts payable-trade

Other assets and liabilities

Net cash provided by operating activities

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

Net cash provided by operating activities decreased $72 million in 2025 compared to 2024. This decrease was primarily attributable to Accounts receivable, partially offset by Accounts payable-trade. The decrease from Accounts receivable and the increase from Accounts payable-trade was primarily due to higher sales activity in 2025 and timing of collections and payments.

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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 (DSO) in accounts receivable plus days of supply in inventory (DIO) minus days of purchases outstanding (DPO) in accounts payable, based on a rolling three-month average. Netted down revenue results in an increase to both DSO and 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. Additionally, as customers continue to shift to multi-year software purchases, unbilled receivables and DSO are expected to continue to increase. This customer shift in purchasing is also expected to increase accounts payable and DPO, as the timing of vendor payments aligns with customer collections. Components of our cash conversion cycle are as follows:

December 31,

(in days)

Days of sales outstanding (DSO) (1)

Days of supply in inventory (DIO) (2)

Days of purchases outstanding (DPO) (3)

Cash conversion cycle

(1) Represents the rolling three-month average of the balance of the current portion 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 the current portion 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 16 days at December 31, 2025, compared to 18 days at December 31, 2024. The improvement was primarily due to DIO, which declined by 2 days as a result of lower average stocking positions. DSO and DPO both increased due to an increase in netted down revenue and multi-year transactions.

Investing Activities

Net cash provided by investing activities increased $729 million for the year ended December 31, 2025 compared to December 31, 2024. This increase was primarily driven by 2024 cash outflows to acquire Mission Cloud Services, Inc. and the purchase of short-term investments, compared to the 2025 cash inflow due to maturity of the short-term investments.

Financing Activities

Net cash used in financing activities increased $498 million for the year ended December 31, 2025 compared to December 31, 2024. This increase was primarily driven by long-term debt issuance in 2024, repayment of long-term debt in 2025, and higher share repurchases in 2025. These increases were partially offset by extinguishment of long-term debt in 2024. For additional information regarding the inventory financing and debt, see Note 7 (Inventory Financing Agreements) and Note 8 (Debt) to the accompanying Consolidated Financial Statements included in Part II, Item 8 of this report.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, results of operations, or liquidity.

Issuers and Guarantors of Debt Securities

Each series of our outstanding unsecured senior notes (collectively, the “Notes”) are issued by CDW LLC and CDW Finance Corporation (the “Issuers”) and are guaranteed by Parent (the “Guarantor”). In 2025, all guarantees by CDW LLC’s direct and indirect, 100% owned domestic subsidiaries were released pursuant to the customary release provisions in the applicable indentures; as a result, Parent is now the sole remaining guarantor of the Notes. All guarantees by Parent are joint and several, and full and unconditional.

The Notes and the related guarantees are the Issuers’ and the Guarantor’s 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 Guarantor’s existing and future unsecured senior debt.

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Given that Parent, the sole Guarantor of the notes, is a holding company that does not conduct business operations of its own and depends on cash dividends, distributions, and other transfers from its subsidiaries to meet its obligations, we concluded that providing summarized financial information of the Issuers and Guarantor on an unconsolidated basis, excluding the non-guarantor subsidiaries, would not provide meaningful information to investors.

Commitments and Contingencies

The information set forth in Note 16 (Commitments and Contingencies) to the accompanying Consolidated Financial Statements included in Part II, Item 8 of this report.

Critical Accounting Policies and Estimates

The preparation of the Consolidated Financial Statements in accordance with GAAP requires management to make use of certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as related disclosure of contingent assets and liabilities in the Consolidated Financial Statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances and in accordance with GAAP. Historically, we have not made significant changes to the methods for determining these estimates as our actual results have not differed materially from our estimates. We do not believe it is reasonably likely that the estimates and related assumptions will change materially in the foreseeable future; however, actual results could differ from those estimates under different assumptions, judgments, or conditions.

Critical accounting policies and estimates are those that are most important to the portrayal of our financial condition and results of operations, and which require us to make our most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and estimates addressed below. For additional information related to significant accounting policies used in the preparation of our Consolidated Financial Statements, see Note 1 (Description of Business and Summary of Significant Accounting Policies) to the accompanying Consolidated Financial Statements included in Part II, Item 8 of this report.

Revenue Recognition

We sell some of our products and services as part of bundled contract arrangements containing multiple performance obligations, which may include a combination of different products and services. Significant judgment may be required when determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together.

For contracts consisting of multiple performance obligations, the total transaction price is allocated to each performance obligation based upon its standalone selling price. Judgment is required to determine the standalone selling price for each distinct performance obligation. For certain types of performance obligations, we use a combination of methods to estimate the standalone selling price based on recent transactions. When evidence from recent transactions is not available to confirm that the prices are representative of the standalone selling price, an expected cost plus margin approach is used.

Additional judgment is required in determining whether we are the principal, and report revenues on a gross basis, or agent, and report revenues on a net basis. For each identified performance obligation in a transaction, we evaluate the facts and circumstances present to determine whether or not we control the specified good or service prior to transfer to the customer. This evaluation includes, but is not limited to, assessing indicators such as whether: (i) we are primarily responsible for fulfilling the promise to provide the specified goods or service, (ii) we have inventory risk before the specified good or service has been transferred to a customer, and (iii) we have discretion in establishing the price for the specified good or service. When the evaluation indicates we control the specified good or service prior to transfer to the customer, we are acting as a principal. When the evaluation indicates we do not control the specified good or service prior transfer to the customer, we are acting as an agent.

The nature of our contracts give rise to variable consideration, primarily in the form of volume rebates and sales returns and allowances. We estimate variable consideration at the most likely amount to which we expect to be entitled. The estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based on an assessment of our anticipated performance and all information that is reasonably available.

We recognize revenue from performance obligations when, or as, the customer obtains control over the specified good or service. That is, when the customer has the ability to direct the use of and obtain substantially all of the benefits from the good or service. For the sale of hardware, this is generally upon delivery to the customer. As a result, we perform an analysis to estimate the amount of Net sales in-transit at the end of the period and adjust revenue and the related costs to reflect only what has been delivered to the customer. This analysis requires judgment whereby we perform an analysis of the estimated number

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of days of sales in-transit to customers at the end of each reporting period based on a weighted-average analysis of commercial delivery terms that include drop-shipment arrangements. Changes in delivery patterns may result in a different number of business days estimated to make this adjustment. For the sale of professional services, we recognize the revenue over time given that our customers simultaneously receive and consume the benefits from these services as they are performed. Depending on the arrangement, revenues from fixed fee contracts on professional services are recognized using an input method, which requires management to make estimates regarding the amount of resources required for each engagement in order to satisfy the performance obligation.

Goodwill

Goodwill is allocated to reporting units expected to benefit from the business combination. Goodwill is subject to periodic testing for impairment at the reporting unit level on an annual basis during the fourth quarter, or more frequently if events or changes in circumstances indicate that the asset may be impaired. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.

We may elect to utilize a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. As part of our qualitative assessment, judgment is required in weighing the effect of various positive and negative factors that may affect the fair value. We consider various factors, including the excess of fair value over carrying value from the last quantitative test, macroeconomic conditions, industry and market considerations, the projected financial performance, and actual financial performance compared to prior year projected financial performance.

If we elect to bypass the qualitative assessment, or if indicators of impairment exist, a quantitative impairment test is performed. As part of the quantitative assessment, application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, and determination of the fair value of each reporting unit. Fair value of a reporting unit is determined by using a weighted combination of an income approach and a market approach, as this combination is considered the most indicative of our fair value in an orderly transaction between market participants. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, determination of our weighted average cost of capital, future market conditions, and profitability of future business strategies. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions, and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit. However, since our last quantitative analysis, our past estimates of fair value would not have indicated an impairment when revised to include subsequent years’ actual results.

We completed our annual impairment analysis during the fourth quarter of 2025. We performed a qualitative analysis for all reporting units and concluded that it was more likely than not that the fair values of all reporting units exceeded their respective carrying values and, therefore, did not result in an impairment. The last quantitative analysis was performed in the fourth quarter of 2023, and it was determined that the fair values of each reporting unit substantially exceeded their carrying values, resulting in no goodwill impairment.

Business combinations

We allocate purchase price consideration to the assets acquired and liabilities assumed based on their fair values as of the acquisition date. Determining the fair value of these assets and liabilities requires the use of significant estimates, particularly in valuing acquired intangible assets and goodwill.

Purchased intangible assets other than goodwill are initially recognized at fair value and amortized over their useful lives. We determine the fair value of purchased intangible assets using an income approach on an individual asset basis. The fair value measurements were primarily based on significant inputs that are not observable, which are categorized as a Level 3 measurement in the fair value hierarchy. The values assigned to consideration transferred, assets acquired, and liabilities assumed may be adjusted during the measurement period as new information arises that existed as of the acquisition date.

We use the multi-period excess earnings method to determine the fair value of customer relationships. This method identifies the portion of revenue expected to be generated through repeat customers existing as of the valuation date and includes an attrition rate to account for the loss of customers over time. Critical estimates utilized in valuing customer relationships include estimated forecasted future revenue and EBITDA margin growth rates, customer attrition rates, and market-participant discount rates. The assumptions we apply in forecasting future revenue and customer attrition rates is based on analysis of historical data, assessment of current and anticipated market conditions, estimated growth rates, and management plans.

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Recent Accounting Pronouncements

See the information set forth in Note 2 (Recent Accounting Pronouncements) to the accompanying Consolidated Financial Statements included in Part II, Item 8 of this report.

Subsequent Events

The information set forth in Note 18 (Subsequent Events) to the accompanying Consolidated Financial Statements included in Part II, Item 8 of this report is incorporated herein by reference.