Q2 2024 CDW Corp Earnings Call

I want to remind you that certain comments made in this presentation are considered forward-looking statements under the Private Securities and Litigation Reform Act of 1995. Those statements are subject to a number of risks and uncertainties that could cause actual results to differ materially.

Operator: under the Private Securities Litigation Reform Act of 1995. Those statements are subject to a number of risks and uncertainties that could cause actual results to differ materially. Additional information concerning these risks and uncertainties is contained in the earnings release in Form 8K, resubmitted to the SEC today, and in the company's other filings with the SEC. CDW assumes no obligation to update the information presented during this webcast.

Unknown Attendee: under the private securities and litigation reform act of 1995. Those statements are subject to a number of risks and uncertainties that could cause actual results to differ materially. Additional information concerning these risks and uncertainties is contained in the earnings release and Form 8-K refers to the FCC today and in the company's other filings with the FCC.

Additional information concerning these risks and uncertainties is contained in the earnings release in Form 8K, refurnished to the SEC today, and in the company's other filings with the SEC.

Unknown Attendee: CDW assumes no obligation to update the information presented during this webcast. Our presentation also includes non-gap financial measures, including non-gap operating income, non-gap operating income margin, non-gap net income, and non-gap earnings per share. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures, and you will find most directly comparable GAAP measures in accordance with FCC rules. You'll find reconciliation charts in the slides for today's webcast and in our earnings release and Form 8-K. We've known all references to growth rates or dollar loans changes in our remarks today are versus the comparable period in 2023, unless otherwise indicated.

CDW assumes no obligation to update the information presented during this webcast.

Operator: Our presentation also includes certain non-GAAP financial measures, including non-GAAP operating income, non-GAAP operating income margin, non-GAAP net income, and non-GAAP earnings per share. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures. And you will find the most directly comparable gap measures in accordance with SEC rules. You'll find reconciliation charts in the slides for today's webcast and in our earnings release in Form 8K. Please note all references to growth rates or dollar amount changes in our remarks today are compared to the comparable period in 2023 unless otherwise indicated.

Our presentation also includes certain non-GAAP financial measures, including non-GAAP operating income, non-GAAP operating income margin, non-GAAP net income, and non-GAAP earnings per share. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures.

And you will find most directly comparable GAAP measures in accordance with SEC rules. You'll find reconciliation charts in the slides for today's webcast and in our earnings release in Form 8K.

Please note all references to growth rates or dollar amount changes in our remarks today are versus the comparable period in 2023 unless otherwise indicated.

Unknown Attendee: Replay of this webcast will be posted to our website later today.

Operator: Replay of this webcast will be posted to our website later today. I also want to remind you that this conference call is the property of CDW and may not be recorded or rebroadcast without specific written permission from the company. With that, let me turn the call over to Chris.

Unknown Attendee: I also want to remind you that this conference calls the property of CDW and may not be recorded or rebroadcast without specific written permission from the company.

Replay of this webcast will be posted to our website later today. I also want to remind you that this conference calls the property of CDW and may not be recorded or rebroadcast without specific written permission from the company. With that, let me turn the call over to Chris.

Unknown Attendee: With that, let me turn the call over to Chris.

Chris: Thank you, Steve. Good morning, everyone.

Unknown Attendee: Thank you, Steve.

Chris: Good morning, everyone. I'll begin today's call with a brief overview of our performance, strategic progress, and view on the second half of the year. Al will provide additional detail on our results, our capital allocation priorities, and our outlook. We'll move quickly through our prepared remarks to ensure we have plenty of time for questions. Second quarter market dynamics played out roughly as we expected. Cautious customer behavior once again elongated sales cycles and during prioritization of needs over wants and cost savings over expansion. Capital investment in complex solutions, particularly those tied to data center network modernization, continued to be downsized or put on hold, and there was growing refresh activity and client devices.

Chris: Thank you, Steve. Good morning, everyone. I'll begin today's call with a brief overview of our performance, strategic progress, and view on the second half of the year. Al will provide additional detail on our results, our capital allocation priorities, and our outlook.

Chris: I'll begin today's call with a brief overview of our performance, strategic progress, and outlook for the second half of the year. Al will provide additional detail on our results, our capital allocation priorities, and our outlook. We'll move quickly through our prepared remarks to ensure we have plenty of time for questions.

al: We'll move quickly through our prepared remarks to ensure we have plenty of time for questions.

Chris: Second quarter market dynamics played out roughly as we expected. Cautious customer behavior once again elongated sales cycles and drove prioritization of needs over wants and cost savings over expansion. Capital investment in complex solutions, particularly those tied to data center and network modernization, continues to be downsized or put on hold, while there is growing refresh activity in client devices. What was not expected were 2N market-specific dynamics, a worsening of the UK environment, and further federal funding challenges.

al: Second quarter market dynamics played out roughly as we expected. Cautious customer behavior once again elongated sales cycles and drove prioritization of needs over wants and cost savings over expansion.

al: Capital investment in complex solutions, particularly those tied to data center and network modernization, continued to be downsized or put on hold, and there was growing refresh activity in client devices.

Chris: What was not expected were the end market specific dynamics of worsening in the UK environment and further federal funding challenges. Within a limited demand environment, we continue to help our customers build out technology roadments, and our pipeline remains solid in the solution space. Conversion remains challenging, with uncertainty weighing on our customers' appetite to spend. The team's value as a trusted advisor and ability to deliver solutions that matter customers' most pressing priorities drove excellent performance across cloud security and services. Performance that contributed to strong profitability and cash flow performance made possible by the strategic investments we have made over the past five years to bring full stack full life cycle solutions to our customers.

al: What was not expected were 2N market-specific dynamics, a worsening in the UK environment, and further federal funding challenges.

Chris: Within a limited demand environment, we continue to help our customers build out technology roadmaps, and our pipeline remains solid at the solution stage. However, conversion remains challenging with uncertainty weighing on our customers' appetite to spend. The team's value as a trusted advisor and ability to deliver solutions that met our customers' most pressing priorities drove excellent performance across cloud, security, and services, performance that contributed to strong profitability and cash flow. This performance is made possible by the strategic investments we have made over the past five years to bring full stack, full lifecycle solutions to our customers.

Speaker Change: The team's value as a trusted advisor and ability to deliver solutions that met our customers' most pressing priorities drove excellent performance across cloud, security, and services.

Speaker Change: Performance that contributed to strong profitability and cash flow. Performance made possible by the strategic investments we have made over the past five years to bring full-stack, full lifecycle solutions to our customers.

Chris: For the quarter, the team delivered gross profit of $1.2 billion, flat year over year, with a gross margin of 21.8% of 80 basis points. Net sales of $5.4 billion were down 3.6%. Non-GAAP operating income of $510 million down 3.7% with a non-GAAP operating income margin of 9.4%, which was flat. And non-GAAP earnings per share of $2.50, which was down 2.6%. Let's take a look at this quarter's performance drivers. First, our balance portfolio and markets. Recall we have five sales channels: corporate, small business, healthcare, government, and education, each a meaningful business on its own, with 2023 annual sales ranging from $1.6 billion to $9 billion.

Chris: For the quarter, the team delivered gross profit of $1.2 billion, flat year over year, with a gross margin of 21.8%, up 80 basis points, net sales of $5.4 billion, which were down 3.6%, non-GAAP operating income of $510 million, down 3.7%, with a non-GAAP operating income margin of 9.4%, which was flat, and non-GAAP earnings per share of $2.50, which was down 2.6%. Let's take a look at this quarter's performance drivers.

Chris: First, our balanced portfolio of end markets. Recall, we have five sales channels, corporate, small business, healthcare, government, and education, each a meaningful business on its own, with 2023 annual sales ranging from $1.6 billion to $9 billion. Channels are further segmented to focus on customer end markets, including geography, verticals, customer size, and spend.

Speaker Change: Let's take a look at this quarter's performance drivers.

Speaker Change: First our balanced portfolio of end markets. Recall we have five sales channels, corporate, small business, healthcare, government, and education, each a meaningful business on its own, with 2023 annual sales ranging from $1.6 billion to $9 billion.

Chris: Channels are further segmented to focus on customer end markets, including geography, vertical customer size, and spend. Teams are similarly segmented in our UK and Canadian operations, which together delivered $2.6 billion in 2023 sales. These unique customer end markets are typically uncorrelated, given the different economic and external factors that impact each of them. Our second quarter results provide a good example of this. Corporate posted net sales decline of 2%. Robust increases in cloud and security supported profitability with a meaningful increase in growth margin. Client devices increased for the second quarter in a row and posted both year-over-year and sequential sales increases of low double digits.

Speaker Change: Channels are further segmented to focus on customer end markets, including geography, verticals, customer size, and spend. Teams are similarly segmented in our UK and Canadian operations, which together delivered 2.6 billion U.S. dollars in 2023 sales.

Chris: Teams are similarly segmented in our UK and Canadian operations, which together delivered US$2.6 billion in 2023 sales. These unique customer end markets are typically uncorrelated given the different economic and external factors that impact each of them. Our second quarter results provide a good example of this. Corporate posted a net sales decline of 2%.

Speaker Change: These unique customer end markets are typically uncorrelated given the different economic and external factors that impact each of them. Our second quarter results provide a good example of this.

Chris: Robust increases in cloud and security supported profitability with a meaningful increase in gross margin. Client devices increased for the second quarter in a row and posted both year-over-year and sequential sales increases of low double digits. Notably, client device ASPs held firm with a mix into higher value, higher functionality units. However, once again, servers and netcom declined as customers continue to undergo technology transitions in stored capacity. Storage was a standout category, increasing double-digit, driven by upgrades of legacy systems. However, small business net sales declined 3%.

Speaker Change: Corporate posted a net sales decline of 2%. Robust increases in cloud and security supported profitability with a meaningful increase in gross margin.

Chris: Notably, client device AFP health firm with a mix into higher value, higher functionality units. Once again, servers and net time decline as customers continue to undergo technology transitions in the store capacity. Storage was a standout category, increasing double digits, driven by upgrades of legacy systems. Small business net sales declined 3%. The team's ability to help customers address mission critical priorities around security and productivity with cost affected software and cloud solutions contributed to improvements in both gross profit and margin. Small business did not see significant refresh activity, and while increasing mid single digits sequentially, client devices declined slightly year over year in the quarter.

Speaker Change: Once again, servers and netcom declined as customers continued to undergo technology transitions and absorb capacity.

Chris: The team's ability to help customers address mission-critical priorities around security and productivity with cost-effective software and cloud solutions contributed to improvements in both gross profit and margin. However, small businesses did not see significant refresh activity, and while increasing mid-single digits sequentially, client devices declined slightly year over year in the quarter. Consistent with corporate ongoing postponement of infrastructure investments in NetCommon servers, low double-digit declines. Public sales declined 2% in the quarter with a mixed performance buy-in market. Government decreased 6% as growth in state and local government was more than offset by a decline in federal government.

Speaker Change: Small business net sales declined 3%. The team's ability to help customers address mission-critical priorities around security and productivity with cost-effective software and cloud solutions contributed to improvements in both gross profit and margin.

Speaker Change: Small business did not see significant refresh activity, and while increasing mid-single digits sequentially, client devices declined slightly year-over-year in the quarter.

Chris: Consistent with corporate ongoing postponement of infrastructure investments and net common servers drove low double-digit clients. Public sales declined 2% in the quarter, with mixed performance by a market. Government decreased 6% as growth in state and local was more than offset by the client of federal. Federal results were further impacted by the delayed fiscal 2024 budget authorization, as several key customers did not receive funding releases until late June, weeks later than expected. These released funds faced processing delays from the normal gears of government as hardware and software orders require solicitation, competitive biz, and evaluation. We know that ongoing projects will eventually move forward, but some agencies may cause new projects as they await the clarity around the next administration's priorities.

Speaker Change: Consistent with corporate, ongoing postponement of infrastructure investments in NetCommon servers drove low double-digit declines.

Chris: Federal results were further impacted by the delayed fiscal 2024 budget authorization as several key customers did not receive funding releases until late June, weeks later than expected. These released funds face processing delays from the normal gears of government as hardware and software orders require solicitation, competitive bids, and evaluation. We know that ongoing projects will eventually move forward, but some agencies may pause new projects as they await the clarity around the next administration's priorities. In light of these layers of friction and uncertainty, we do not expect a federal catch-up in the back half of 2024.

Speaker Change: Federal results were further impacted by the delayed fiscal 2024 budget authorization as several key customers did not receive funding releases until late June , weeks later than expected.

Speaker Change: These released funds face processing delays from the normal gears of government as hardware and software orders require solicitation, competitive bids, and evaluation.

Speaker Change: We know that ongoing projects will eventually move forward, but some agencies may pause new projects as they await the clarity around the next administration's priorities.

Chris: In light of these layers of friction and uncertainty, we do not expect a federal catch up in the back half of 2024. The state and local team had another solid quarter, up mid single digits. Security remained a key performance driver. Client devices increased by mid single digits both year over year and sequentially. While early state and local budget dollars are being allocated to improving citizens' experience at state municipal agencies, including enhanced AI-powered automated response and messaging platforms. Healthcare net sales were flat; security remained a key focus area on the team, delivering robust customer spend and gross profit growth led by security assessments for cloud migration and identity management.

Speaker Change: In light of these layers of friction and uncertainty, we do not expect a federal catch-up in the back half of 2024.

Chris: The state and local team had another solid quarter, up mid-single digits. Security remained a key performance driver. Client devices increased by mid-single digits both year-over-year and sequentially. While early, state and local budget dollars are being allocated to improving citizens' experiences at state and municipal agencies, including enhanced AI-powered automated response and messaging platforms. Healthcare net sales were flat.

Speaker Change: The state and local team had another solid quarter, up mid-single digits. Security remained a key performance driver. Client devices increased by mid- single digits both year over year and sequentially.

Speaker Change: While early, state and local budget dollars are being allocated to improving citizens' experience at state and municipal agencies, including enhanced AI-powered automated response and messaging platforms.

Chris: Security remained a key focus area, and the team delivered robust customer spend and gross profit growth, led by security assessments for cloud migration and identity management, driven by refresh client devices increased by double digits. The team's ability to deliver cloud migration, including moving applications out of hospital data centers, drove excellent cloud performance and contributed to both increased growth margin and profitability. However, education sales declined roughly 1%.

Speaker Change: Healthcare net sales were flat. Security remained a key focus area and the team delivered robust customer spend and gross profit growth, led by security assessments for cloud migration and identity management.

Chris: Driven by Refresh, client devices increased by double digits. The team's ability to deliver cloud migration, including moving applications out of hospital data centers, drove excellent cloud performance and contributed to both increased growth margin and profitability. Education sales declined roughly 1%. K-12's top line was roughly flat year over year, while profitability grew. For the second quarter in a row, client device sales increased up mid single digits, as school systems refreshed aged Chromebooks. Security and cloud remained top priorities, both delivering strong growth and growth profits. Once again, collaboration hardware, primarily smart whiteboards and interactive flat panels, declines meaningfully. Schools continue to digest the significant purchases made over the past several years.

Speaker Change: driven by refresh client devices increased by double digits. The team's ability to deliver cloud migration, including moving applications out of hospital data centers, drove excellent cloud performance and contributed to both increased growth margin and profitability.

Chris: K-12's top line was roughly flat year-over-year, while profitability grew. For the second quarter in a row, client device sales increased by mid-single digits, as school systems refreshed aged Chromebooks. Security and cloud remain top priorities, both delivering strong growth and gross profit. Once again, collaboration hardware, primarily smart whiteboards and interactive flat panels, declined meaningfully as schools continued to digest the significant purchases made over the past several

Speaker Change: Education sales declined roughly 1%.

Speaker Change: K-12's top line was roughly flat year-over-year, while profitability grew. For the second quarter in a row, client device sales increased up mid-single digits, as school systems refreshed aged Chromebooks.

Speaker Change: Security and cloud remain top priorities, both delivering strong growth and gross profit. Once again, collaboration hardware, primarily smart whiteboards and interactive flat panels, declined meaningfully as schools continued to digest the significant purchases made over the past several years.

Chris: With the sun setting on ECF funds and upcoming deadlines for ESSER funds of September 30th, the team is focused on helping their customers pivot to refresh programs funded through traditional mechanisms. Consistent with recent quarters, higher education institutions remained focused on investments to enhance the student experience to drive enrollment, while doing more with less, and the team posted a mid-single-digit top-line decline. Cost elasticity continues to drive strong double-digit growth in cloud. Security remained a top priority, up strong double-digits, and client devices returned to growth in the quarter, up high single-digits driven by refresh.

Chris: With the deadlines for S or funds a September 30th, the team is focused on helping their customers pivot to refresh programs funded through traditional mechanisms. Consistent with recent quarters, higher ed institutions remained focused on investments to enhance student experience to drive enrollment while doing more with less, and the team posted a mid single-digit top line decline. Cost elasticity continues to drive strong double-digit growth and cloud. Security remained a top priority, up strong double digits, and client devices returned to growth in the quarter, up high single digits, driven by refresh. Our UK and Canadian international operations, which we report as other, decline 13%.

Speaker Change: With the sunsetting of ECF funds and upcoming deadlines for ESSER funds of September 30th, the team is focused on helping their customers pivot to refresh programs funded through traditional mechanisms.

Speaker Change: Consistent with recent quarters, higher ed institutions remained focused on investments to enhance student experience to drive enrollment, while doing more with less, and the team posted a mid-single-digit top-line decline.

Speaker Change: Cost elasticity continued to drive strong double-digit growth in cloud. Security remained a top priority, up strong double-digits, and client devices returned to growth in the quarter, up high single-digits driven by refresh.

Chris: Our UK and Canadian international operations, which we report as other, declined 13 percent. While both teams continue to execute well, the demand environment, particularly in the UK, worsened during the quarter as the early general election amplified already challenging conditions. UK sales declined in the high teens in US dollars, and Canada declined 4% in US dollars.

Speaker Change: Our UK and Canadian international operations, which we report as other, declined 13 percent. While both teams continued to execute well, the demand environment, particularly in the UK, worsened during the quarter as the early general election amplified already challenging conditions.

Chris: While both teams continue to execute well, the demand environment, particularly in the UK, worsened during the quarter as the early general election amplified already challenging conditions. UK sales declined high teens in US dollars, and Canada declined 4% in US dollars. Given current conditions, we expect the UK market to remain volatile and under pressure through the back half of the year.

Speaker Change: U.K. sales declined high teens in U.S. dollars and Canada declined 4% in U.S. dollars. Given current conditions, we expect the U.K. market to remain volatile and under pressure through the back half of the year.

Chris: Given current conditions, we expect the UK market to remain volatile and under pressure through the back half of the year. As you can see, the diversity of our end markets results is fundamental to the first driver of our performance, our balanced portfolio of customer end markets. Category performance demonstrated the benefit of our second performance driver, our broad and deep portfolio of products and solutions. Transactions categories increased during the quarter while solutions categories declined. Both transactions and solutions increased sequentially in the quarter. However, at the portfolio level, hardware decreased 5%.

Chris: As you can see, the diversity of our end markets results is fundamental to the first driver of our performance: our balanced portfolio of customer end markets. Category performance demonstrates the benefit of our second performance driver, our broad and deep portfolio of product solutions. Transactions categories increased during the quarter, while solutions categories declined. Both transactions and solutions increased sequentially in the quarter. At the portfolio level, hardware decreased 5%. High single digit client device growth and mid single digit storage growth was more than offset by meaningful declines in netcom and collaboration. Software customers spend increased mid single digits, while net sales were impacted by our strong mix into netted down revenue and decreased by 1%.

Speaker Change: As you can see, the diversity of our end markets results is fundamental to the first driver of our performance, our balanced portfolio of customer end markets.

Speaker Change: Category performance demonstrates the benefit of our second performance driver, our broad and deep portfolio of products and solutions.

Speaker Change: Transactions categories increased during the quarter, while solutions categories declined. Both transactions and solutions increased sequentially in the quarter.

Chris: High single-digit client-to-vice growth and mid-single-digit steward growth were more than offset by meaningful declines in net-com and collaboration. Software customer spend increased mid-single digits, while net sales were impacted by our strong mix into netted-down revenue and decreased by 1%. Services increased by 6%, driven by cloud and security-related services. Once again, cloud computing was an important performance driver, contributing double-digit gross profit growth across software services and security. Profitable growth that was enabled by the strategic investments, both organic and acquired, we have made in solutions and services capabilities over the past 5 years.

Speaker Change: At the portfolio level, hardware decreased 5%.

Speaker Change: High single-digit client-to-vice growth and mid-single-digit steward growth was more than offset by meaningful declines in netcom and collaboration.

Speaker Change: Software customer spend increased mid-single digits while net sales were impacted by our strong mix into netted down revenue and decreased by 1%.

Chris: Services increased by 6% driven by cloud and security-related services. Once again, cloud was an important performance driver contributing double-digit growth profit growth across software services and security. Profitable growth that was enabled by the strategic investments, both organic and acquired, we have made solutions and services capabilities over the past 5 years. And this leads to the final driver of our performance in the quarter: our three-part strategy for growth, which is first acquire new customers and capture share. Second, enhance our solution capabilities. And third, expand our services capability. Each killer is crucial to our ability to profitably advise, design, orchestrate, and manage the solutions our customers want and need in any environment.

Speaker Change: Services increased by 6% driven by cloud and security related services.

Speaker Change: Once again, cloud was an important performance driver, contributing double-digit gross profit growth across software, services, and security. Profitable growth that was enabled by the strategic investments, both organic and acquired, we have made in solutions and services capabilities over the past five years.

Chris: And this leads to the final driver of our performance in the quarter, our three-part strategy for growth, which is, first, acquire new customers and capture share, second, enhance our solutions capabilities, and third, expand our services capabilities. Each pillar is crucial to our ability to profitably advise, design, orchestrate, and manage the solutions our customers want and need in any environment. Let me share an example of our strategy in action as we delivered on a customer's priority in today's challenging demand environment.

Speaker Change: And this leads to the final driver of our performance in the quarter, our three-part strategy for growth, which is, first, acquire new customers and capture share, second, enhance our solutions capabilities, and third, expand our services capabilities.

Speaker Change: Each pillar is crucial to our ability to profitably advise, design, orchestrate, and manage the solutions our customers want and need in any environment.

Chris: Let me share an example of our strategy and action as we delivered on a customer's priority in today's challenging demand environment. An insurance company faced early end of life for its hyper converged infrastructure equipment, something not contemplated in their already tight budget. Armed with our broad and deep cloud portfolio, our cloud hybrid infrastructure and services group collaborated to architect a cloud subscription based solution that delivered cost elasticity, the customer's budget could absorb. The multifaceted solution seamlessly moved on-premise workload and data to the public cloud, delivered cloud compute, migrated custom and off-the-shelf applications, created a virtual desktop infrastructure and delivered security measures with virtual firewalls, plus it optimized workloads to ensure the customer effectively managed CPU usage, memory and storage, further mitigating costs.

Speaker Change: Let me share an example of our strategy in action as we delivered on a customer's priority in today's challenging demand environment.

Chris: An insurance company faced early end of life for its hyperconverged infrastructure equipment, something not contemplated in their already tight budget. Armed with our broad and deep cloud portfolio, our cloud hybrid infrastructure and services group collaborated to architect a cloud subscription-based solution that delivered cost elasticity the customer's budget could absorb. The multi-faceted solution seamlessly moved on-premise workloads and data to the public cloud, delivered cloud compute, migrated custom and off-the-shelf applications, created a virtual desktop infrastructure, and delivered security measures with virtual firewalls.

Speaker Change: An insurance company faced early end-of-life for its hyper-converged infrastructure equipment, something not contemplated in their already tight budget.

Speaker Change: The multifaceted solution seamlessly moved on-premise workloads and data to the public cloud, delivered cloud compute, migrated custom and off-the-shelf applications, created a virtual desktop infrastructure, and delivered security measures with virtual firewalls.

Chris: Plus, it optimized workloads to ensure the customer effectively managed CPU usage, memory, and storage, further mitigating costs. This comprehensive solution generated more than a million dollars in product revenue and a multi-million dollar CDW professional services engagement. After seeing our cloud expertise in action, the customer engaged us for additional cloud solutions, including identity management and unified cloud call center, ongoing managed service. Today, we are one of the customer's most valued strategic partners. This is a great example of how we're delivering value to our customers, both today and for the future. And that leads me to our expectations for the balance of the year.

Speaker Change: Plus, it optimized workloads to ensure the customer effectively managed CPU usage, memory, and storage, further mitigating costs.

Chris: This comprehensive solution generated more than a million dollars in product revenue and a multi-million dollar CDW professional services engagement. After seeing our cloud expertise in action, the customer engaged us for additional cloud solutions, including identity management and unified cloud call center ongoing managed services. Today, we were one of the customers' most valued strategic partners. A great example of how we're delivering value to our customers, both for today and for the future.

Speaker Change: This comprehensive solution generated more than a million dollars in product revenue and a multi-million dollar CDW professional services engagement.

Speaker Change: After seeing our cloud expertise in action, the customer engaged us for additional cloud solutions, including identity management and unified cloud call center ongoing managed services.

Speaker Change: Today, we are one of the customers' most valued strategic partners.

Chris: And that leads me to our expectations for the balance of the year. You will recall that on the last quarter's conference call we shared our expectations for 2024 US IT market growth in the low single digits in our target to grow 2 to 300 basis points above market. This factored in a modest improvement in demand conditions in the second half of the year. Given real-time feedback from our large and diverse customer base, we now expect current market conditions to persist throughout the year, not get worse, but not get better. Given the market's slow start to the year, without a second half demand pickup, we now look for US IT market growth up towards the lower end of a low single-digit range.

Chris: You will recall that on the last quarter's conference call, we shared our expectations for 2024 U.S. IT market growth in the low single digits and our target to grow 200 to 300 basis points above market. This factored in a modest improvement in demand conditions in the second half of the year. Given real-time feedback from our large and diverse customer base, we now expect current market conditions to persist throughout the year, not get worse, but not get better. Given the market's slow start to the year, without a second half demand pickup, we now look for U.S. IT market growth to be towards the lower end of a low single-digit range.

Speaker Change: And that leads me to our expectations for the balance of the year. You will recall that on the last quarter's conference call, we shared our expectations for 2024 US IT market growth in the low single digits.

Speaker Change: and our target to grow two to three hundred basis points above market. This factored in a modest improvement in demand conditions in the second half of the year.

Speaker Change: Given real-time feedback from our large and diverse customer base, we now expect current market conditions to persist throughout the year, not get worse, but not get better.

Speaker Change: Given the market's slow start to the year, without a second half demand pickup, we now look for U.S. IT market growth up towards the lower end of a low single-digit range. We continue to maintain our target to grow 200 to 300 basis points above market.

Chris: We continue to maintain our target to grow 2 to 300 basis points above market. Growth will return, but demand drivers are there: workload and data grows, increased security threats, clients' advice, obsolescence, and adoption of AI-powered assistance and applications. But customers need greater clarity and confidence: clarity around economic conditions and clarity around the impact of AI on their tech roadmap, and confidence that investments made today will deliver the right foundations and economic returns in an AI-powered future. Improved demand conditions are a function of when, not if. Wild cards for the balance of 2024 include the potential of greater macro and geopolitical uncertainty, significant degradation of market conditions in the UK, as well as unusual uncertainty in the US election.

Chris: We continue to maintain our target to grow 200 to 300 basis points above market. Growth will return. The demand drivers are there: workload and data growth, increased security threats, client device obsolescence, and adoption of AI-powered assistance and applications.

Speaker Change: Growth will return. The demand drivers are there. Workload and data growth, increased security threats, client device obsolescence, and adoption of AI-powered assistance and applications.

Chris: But customers need greater clarity and confidence, clarity around economic conditions, and clarity around the impact of AI on their tech roadmaps, and confidence that investments made today will deliver the right foundations and economic returns in an AI-powered future. Improved demand conditions are a function of when, not if. Wildcards for the balance of 2024 include the potential for greater macro and geopolitical uncertainty, significant degradation of market conditions in the UK, as well as unusual uncertainty in the US election.

Speaker Change: But customers need greater clarity and confidence, clarity around economic conditions and clarity around the impact of AI on their tech roadmap, and confidence that investments made today will deliver the right foundations and economic returns in an AI-powered future. Improved demand conditions are a function of when, not if.

Speaker Change: Wildcards for the balance of 2024 include the potential of greater macro and geopolitical uncertainty, significant degradation of market conditions in the UK, as well as unusual uncertainty in the U.S. election.

Chris: As we always do, we will provide an updated perspective on business conditions as we move through the year. Whatever the market conditions, we will remain focused on delivering exceptional value to our customers, gaining share, and executing with the discipline and rigor that is CW's hallmark. And we will continue to play the long game, holding steadfast in our commitment to executing against our growth strategy to ensure we have the solutions and services capabilities our customers need to achieve their machine critical outcomes.

Chris: As we always do, we will provide an updated perspective on business conditions as we move through the year. Whatever the market conditions, we will remain focused on delivering exceptional value to our customers, gaining share, and executing with the discipline and rigor that is CDW's hallmark. And we will continue to play the long game, holding steadfast in our commitment to executing against our growth strategy to ensure we have the solutions and services capabilities our customers need to achieve their mission-critical outcomes.

Speaker Change: As we always do, we will provide an updated perspective on business conditions as we move through the year. Whatever the market conditions, we will remain focused on delivering exceptional value to our customers, gaining share, and executing with the discipline and rigor that is CDW's hallmark.

Speaker Change: And we will continue to play the long game, holding steadfast in our commitment to executing against our growth strategy to ensure we have the solutions and services capabilities our customers need to achieve their mission-critical outcomes. With that, let me turn it over to Al, who will share more detail on our financial performance.

al: With that, let me turn it over to Al, who will share more detail on our financials.

al: With that, let me turn it over to Al, who will share more detail on our financial results. Thank you, Chris, and good morning, everyone. I will start my prepared remarks with details on our second quarter performance, move to capital allocation priorities, and then finish with our updated 2024 outlook. Second quarter gross profit of $1.2 billion is roughly flat, up 0.1% versus the prior year.

al: Thank you, Chris, and good morning, everyone. I will start my prepared remarks with details on our second quarter performance, moves capital allocation priorities, and then finish with their updated 2024 outlook. Second quarter gross profit of $1.2 billion is roughly flat, up 0.1% versus prior year. This is modestly below our original expectations for low single-digit growth, with a quarter as the aforementioned strings and cloud security and services was offset by lower demand for net comm and collaboration hardware. Consolidated second quarter net sales of $5.4 billion were down 3.6% versus the prior year on both reported and average daily sales basis, and up 11.3% sequentially.

al: This is modestly below our original expectations for low single-digit growth for the quarter, as the aforementioned strength in cloud security and services was offset by lower demand for network and collaboration hardware. Consolidated second quarter net sales of $5.4 billion were down 3.6% versus the prior year on both reported and average daily sales basis, and up 11.3% sequentially, driven by seasonally higher demand in education channels and government channels, and especially for client devices. Gross margin increased approximately 80 basis points year-over-year. Gross margin of 21.8% was flat quarter-over-quarter and broadly in line with both full-year 2023 levels and our expectations for 2025.

al: Thank you, Chris, and good morning, everyone. I will start my prepared remarks with details on our second quarter performance, move to capital allocation priorities, and then finish with our updated 2024 outlook.

al: Second quarter gross profit of $1.2 billion was roughly flat, up 0.1% versus prior year.

al: This is modestly below our original expectations for low single-digit growth for the quarter.

al: as the aforementioned strength in cloud security and services was offset by lower demand for netcom and collaboration hardware.

al: Consolidated second quarter net sales of 5.4 billion dollars were down 3.6% versus the prior year on both reported and average daily sales basis and up 11.3% sequentially, driven by seasonally higher demand in education channels,

al: Jordan by seasonally higher demand and education channels and government channels and especially pursuant to client devices. Chris margin increase approximately 80 basis points year over year. Chris margin of 21.8% was flat quarter over quarter and broadly in line with both full year 2023 levels and our expectations for 2024. Second quarter year-over-year margin expansion was primarily driven by the higher mix and the sales. Proceeded WX as agent, also known as netted down sales. This category grew by 8.7% once again outpacing overall net sales growth and representing 33.2% of our gross profit compared to 30.6% in the prior year.

al: and government channels and especially pursuant to client devices.

al: Gross margin increased approximately 80 basis points year-over-year. Gross margin of 21.8% was flat quarter-over-quarter and broadly in line with both full-year 2023 levels and our expectations for 2024.

al: Second quarter year-over-year margin expansion was primarily driven by the higher mix in the sales where CDW acts as an agent, also known as netted down sales. This category grew by 8.7%, once again outpacing overall net sales growth and representing 33.2% of our gross profit compared to 30.6% in the prior year's second quarter. Year-over-year growth came from our teams continuing to successfully serve customers with cloud and SaaS-based solutions. The netted down category of solutions represents an important and durable trend within our business, contributing to our ability to deliver enhanced gross margin.

al: Second quarter year-over-year margin expansion was primarily driven by the higher mixed in sales where CDW acts as agent also known as netted down sales.

al: This category grew by 8.7%, once again outpacing overall net sales growth and representing 33.2% of our gross profit, compared to 30.6% in the prior year's second quarter.

al: Year-over-year expansion came from our teams continuing to successfully serve customers with cloud and SaaS-based solutions. The netted down category of solutions represents an important and durable trend within our business, contributing to our ability to deliver enhanced gross margins. It is important to note that netted down sales growth and its impacts on our mix of business will fluctuate over time with customer priorities and product demand. Second quarter gross profit was up 11.3% compared to the first quarter of 2024 on both reported in sequential average daily sales basis. While second quarter sequential net sales and gross profit growth will be higher than the sequential growth rates in the last few years.

al: Year-over-year expansion came from our teams continuing to successfully serve customers with cloud and SaaS-based solutions.

al: The Netted Down category of solutions represents an important and durable trend within our business, contributing to our ability to deliver enhanced gross margins.

al: It is important to note that netted down sales growth and its impact on our mix of business will fluctuate over time with customer priorities and product demand. Second quarter gross profit was up 11.3% compared to the first quarter of 2024 on both reported and sequential average daily sales.

al: It is important to note that netted down sales growth and its impact on our mix of business will fluctuate over time with customer priorities and product demand.

al: Second quarter gross profit was up 11.3% compared to the first quarter of 2024 on both reported and sequential average daily sales basis.

al: While second-quarter sequential net sales and gross profit growth were higher than the sequential growth rates seen in the last few years, they were very modestly behind our own expectations, as well as the historical seasonal upturn we experienced in pre-pandemic years. This reflected two factors, longer than expected delays in spending from our federal customers related to the prior congressional budget impasse and lower performance by our UK business, which is impacted by volatility in the economic and political climate. Turning to expenses for the second quarter, non-GAAP SG&A totaled $673 million, up 3.2% year over year.

al: While second quarter sequential net sales and gross profit growth were higher than the sequential growth rates seen in the last few years, they were very modestly behind our own expectations, as well as the historical seasonal upturn we experienced in pre-pandemic years.

al: They were very modestly behind our own expectations as well as historical seasonal upterm we experience in pre-pandemic years.

al: Distress reflected to factors longer than expected delays and spend from our federal customers related to the prior congressional budget in pass and lower performance by our UK business which is impacted by volatility and economic and political clients. Turning to expenses for the second quarter, non-GAAP SG&A totaled 673 million dollars, up 3.2% year over year. Expenses are roughly consistent with the expectation we shared on our last earnings call, including expense efficiency ratio more in line with normal levels. The improvement for the first from the first quarter reflected higher gross profit attainment and relatively lower level expenses on a quarter-over-quarter basis.

al: This reflected two factors, longer than expected delays in spend from our federal customers related to the prior Congressional budget impasse and lower performance by our UK business, which is impacted by volatility in the economic and political climate.

al: Turning to expenses for the second quarter, non-GAAP SG&A totaled $673 million, up 3.2% year-over-year.

al: Expenses were roughly consistent with the expectation we shared on our last earnings call, including an expense efficiency ratio more in line with normal levels. The improvement from the first quarter reflected higher gross profit attainment and relatively lower levels of expenses on a quarter-over-quarter basis. Her account at the end of the second quarter was approximately $15,200, up slightly over the first quarter and year-end.

al: Expenses were roughly consistent with the expectation we shared on our last earnings call, including an expense-efficiency ratio more in line with normal levels.

al: The improvement from the first quarter reflected higher gross profit attainment and relatively lower level expenses on a quarter-over-quarter basis.

al: Coal per count at the end of the second quarter was approximately 15,200, up slightly over the first quarter and year end. Customer Facing Co-worker Count was also slightly up at approximately 11,000. Our goals to balance driving growth and exceptional customer experience with efficiency and cost leverage from a broader operations. Non-GAAP operating income totaled $510.9 million, down 3.7% versus the prior year, driven by the combination of roughly flat first profit and moderately higher expenses year over year. Non-GAAP operating income margin of 9.4% was flat to the prior year and up from 8.3% in the first quarter.

Speaker Change: Co-worker count at the end of the second quarter was approximately 15,200, up slightly over the first quarter and year-end.

al: Customer-facing coworker count was also slightly up at approximately 11,000. Our goal is to balance driving growth and exceptional customer experiences with efficiency and cost leverage from a broader operation. Non-GAAP operating income totaled $510 million, down 3.7% versus the prior year, driven by the combination of roughly flat gross profit and moderately higher expenses. The non-GAAP operating income margin of 9.4% was flat to the prior year and up from 8.3% in the first quarter. Our non-GAAP net income was $339 million in the second quarter, down 2.9% on a year-over-year basis, with second-quarter weighted Non-Gap Net Income per diluted share was $2.56.

Speaker Change: Customer facing coworker count was also slightly up at approximately 11,000.

Speaker Change: Our goal is to balance driving growth and exceptional customer experience with efficiency and cost leverage from our broader operations.

Speaker Change: non-GAAP operating income totaled $510 million, down 3.7% versus the prior year, driven by the combination of roughly flat gross profit and moderately higher expenses year-over-year.

Speaker Change: non-GAAP operating income margin of 9.4% was flat to the prior year and up from 8.3% in the first quarter.

al: Our non-GAAP net income was $39.9 million in the quarter, down 2.9% on a year-over-year basis. The second quarter weighted average diluted shares of 135.6 million. Non-GAAP net income per diluted share was $2.50.

al: Our non-GAAP net income was $339 million in the quarter.

al: down 2.9% on a year-over-year basis.

al: The second quarter weighted average diluted shares of $135.6 million, non-GAF net income per diluted share was $2.50.

al: Moving to the balance sheet. At period end, net debt was roughly $5 billion. Net debt is declined by approximately $93 million since year end 2023, primarily reflecting our increased cash position alongside modest debt repayment. The liquidity remains strong, with cash plus revolver availability of approximately $1.9 billion. The three month average cash conversion cycle was 17 days, up 3 days from the prior year, but still at the lower end of our targeted range of high teens to low 20s. This cash conversion reflects our effective management of working capital, including active management of our inventory levels. As we've mentioned in the past, timing and market dynamics will influence working capital on any given quarter or year.

al: Moving to the balance sheet, at period end, net debt was roughly $5 billion. Net debt has declined by approximately $93 million since year-end 2023, primarily reflecting our increased cash position alongside modest debt repayment. Liquidity remains strong, with cash plus revolver availability of approximately $1.9 billion. The three-month average cash conversion cycle was 17 days, up three days from the prior year, but still at the lower end of our targeted range of high teens to low 20s.

al: Moving to the balance sheet. At period end, net debt was roughly $5 billion. Net debt has declined by approximately $93 million since year-end 2023, primarily reflecting our increased cash position alongside modest debt repayment.

al: Liquidity remains strong with cash plus revolver availability of approximately 1.9 billion dollars.

al: The three-month average cash conversion cycle was 17 days, up three days from the prior year but still at the lower end of our targeted range of high teens to low 20s.

al: This cash conversion reflects our effective management of working capital, including active management of our inventory level. As we've mentioned in the past, timing and market dynamics will influence working capital in any given quarter or year. We continue to believe our target cash conversion range remains the best guidepost for modeling working capital longer term. Adjusted free cash flow was $138.4 million in the quarter, consistent with our expectations and seasonal business trends.

al: This cash conversion reflects our effective management of working capital, including active management of our inventory levels.

al: As we've mentioned in the past, timing and market dynamics will influence working capital in any given quarter or year. We continue to believe our target cash conversion range remains the best guidepost for modeling working capital longer term.

al: We continue to believe our target cash conversion range remains the best guidepost for modeling working capital longer term. Adjusted pre-cash flow was $138.4 million in the quarter, consistent with our expectations and seasonal business trends. Year-to-date adjusted pre-cash flow was a healthy $503 million, an 84% of non-GAAP net income within our stated rule of thumb of 80 to 90%. First half performance puts us on track to meet our 2024 objectives. For the quarter, we utilize cash consistent with our 2024 capital allocation objectives, including returning approximately $202 million in share repurchases and $83 million in the form of dividends.

al: Adjusted free cash flow was $138.4 million in the quarter, consistent with our expectations and seasonal business trends.

al: Year-to-date adjusted free cash flow was a healthy $503 million, and 84% of non-GAAP net income was within our stated rule of thumb of 80 to 90%. First Step performance puts us on track to meet our 2024 objectives. For the quarter, we utilized cash consistent with our 2024 capital allocation objectives, including returning approximately $202 million in share repurchases and $83 million in the form of dividends. We remain committed to our target to return 50% to 75% of adjusted free cash flow to shareholders via the dividend and share repurchases in 2024.

al: Year-to-date adjusted free cash flow was a healthy $503 million and 84% of non-GAAP net income within our stated rule of thumb of 80 to 90%.

al: First Test Performance puts us on track to meet our 2024 objectives.

al: For the quarter, we utilize cash consistent with our 2024 capital allocation objectives, including returning approximately $202 million in share repurchases and $83 million in the form of dividends.

al: We remain committed to our target to return 50 to 75% of adjusted pre-cash flow to shareholders via the dividend and share repurchases in 2024.

al: We remain committed to our target to return 50-75% of adjusted free cash flow to shareholders via the dividend and share repurchases in 2024.

al: That brings me to our capital allocation priorities. Our first capital priority is to increase the dividend in line with non-GAAP net income. Last November, we announced a 5% increase of our dividend to $2.48 annually, our 10th consecutive year of increasing the dividend. We will continue to target a 25% pay-out ratio in 2024. Our second priority is to ensure we have the right capital structure in place. We ended the second quarter at 2.4 times within our targeted net leverage range of two to three times. We will continue to proactively manage liquidity while maintaining flexibility. Finally, our third and fourth capital allocation priorities of M&A and Sherry purchases remain important drivers to shareholder value.

al: That brings me to our capital allocation priority. Our first capital priority is to increase the dividend in line with non-GAAP net income. Last November, we announced a 5% increase in our dividend to $2.48 annually, our 10th consecutive year of increasing the dividend.

al: That brings me to our capital allocation priorities.

al: Our first capital priority is to increase the dividend in line with non-GAAP net income. Last November , we announced a 5% increase of our dividend to $2.48 annually, our 10th consecutive year of increasing the dividend.

al: We will continue to target a 25% payout ratio in 2024. Our second priority is to ensure we have the right capital structure in place. We ended the second quarter at 2.4 times within our targeted net leverage range of two to three times. We will continue to proactively manage liquidity while maintaining flexibility. Finally, our third and fourth capital allocation priorities of M&A and share repurchases remain important drivers of shareholder value. We continually evaluate M&A opportunities that could accelerate our three-part strategy for growth. Year-to-date, we've utilized over $250 million of cash on share repurchases and have over $830 million remaining under our current share repurchase program.

al: We will continue to target a 25% payout ratio in 2024.

al: Our second priority is to ensure we have the right capital structure in place. We ended the second quarter at 2.4 times within our targeted net leverage range of two to three times. We will continue to proactively manage liquidity while maintaining flexibility.

al: Finally, our third and fourth capital allocation priorities of M&A and share repurchases remain important drivers of shareholder value. We continually evaluate M&A opportunities that could accelerate our three-part strategy for growth.

al: We continually evaluate M&A opportunities that could accelerate our three parts strategy for growth. Here to date, we've utilized over $250,000,000 of cash on Sherry purchases and have over $830 million remaining under our current Sherry Purchase Program.

al: Year-to-date, we've utilized over $250 million of cash on share repurchases and have over $830 million remaining under our current share repurchase program.

al: And that leads us to our outlook. The uncertain market conditions we operated under throughout 2023 have persisted well into 2024. The customer sentiment remains cautious and prudent across end markets, particularly in the commercial, international, and federal channels. Last quarter, we spoke about the slow start of the year for 2024 IT spending and shared our expectations for tough conditions to persist in the near term, but the modestly improved in the second half. At the same time, we noted a compelling need for our customers to address cloud workload growth, increasing security threats, and aging client devices. These priorities continue to resonate with customers and were brighter spots in the second quarter, while uncertain macroeconomic conditions and a complex technology landscape weigh on customer demand for solutions hardware.

al: And that leads us to our outlook. The uncertain market conditions we operated under throughout 2023 have persisted well into 2024. Customer sentiment remains cautious and prudent across end markets, particularly in the commercial, international, and federal channels.

al: And that leads us to our outlook. The uncertain market conditions we operated under throughout 2023 have persisted well into 2024. Customer sentiment remains cautious and prudent across end markets, particularly in the commercial, international and federal channels.

al: Last quarter, we spoke about the slow start to the year for 2024 IT spending and shared our expectations for tough conditions to persist in the near term but to modestly improve in the second. At the same time, we noted a compelling need for our customers to address cloud workload growth, increasing security threats, and aging client devices. These priorities continue to resonate with customers and were brighter spots in the second quarter, while uncertain macroeconomic conditions and a complex technology landscape weigh on customer demand for solutions hardware.

al: Last quarter, we spoke about the slow start to the year for 2024 IT spending and shared our expectations for tough conditions to persist in the near term, but to modestly improve in the second half.

al: At the same time, we noted a compelling need for our customers to address cloud workload growth, increasing security threats, and aging client devices.

al: These priorities continue to resonate with customers and were brighter spots in the second quarter, while uncertain macroeconomic conditions and a complex technology landscape weigh on customer demand for solutions hardware.

al: Given these market conditions, our updating full year 2024 expectation is for flat to low single-digit growth profit growth. A view that incorporates both our slower starts of the year and our view that the mild recovery we anticipated in the second half is not likely to materialize. This leads to seasonality roughly in line with historical levels, with the first half contributing approximately 48% of net sales and gross profit. We maintain our expectation for 2024 for us margin to be similar to the full year 2023 and much like we've seen throughout the first half of 2024. Finally, we expect our full year non-GAAP earnings per diluted share to be flat, up slightly year over year.

al: Given these market conditions, our updated full-year 2024 expectation is for flat to low single-digit gross profit growth, a view that incorporates both our slower start to the year and our view that the mild recovery we anticipated in the second half is not likely to materialize. This leads to seasonality roughly in line with historical levels, with the first half contributing approximately 48 percent of net sales and gross profit. We maintain our expectation for 2024 for its margin to be similar to the full year 2023 and much like we've seen throughout the first half of 2024. Finally, we expect our full year non-GAAP earnings per diluted share to be flat, up slightly year over year.

al: Given these market conditions, our updated full year 2024 expectation is for flat to low single-digit gross profit growth.

al: A view that incorporates both our slower start to the year and our view that the mild recovery we anticipated in the second half is not likely to materialize.

al: This leads to seasonality roughly in line with historical levels, with the first half contributing approximately 48% of net sales and gross profit.

al: We maintain our expectation for 2024 for its margin to be similar to the full year 2023 and much like we've seen throughout the first half of 2024.

al: Finally, we expect our full-year non-GAAP earnings per diluted share to be flat up slightly year-over-year.

al: Please remember, we hold ourselves accountable for delivering our financial outlook on a full-year constant guarantee basis. Moving to modeling thoughts for the third quarter, we anticipate low single-digit gross profit growth compared to the prior year, with no change to our expectation that gross margin will be comparable to full year 2023 and the first half of 2024. This leads to roughly normal seasonality compared to historical levels and also a moderately lower second quarter base. We continue to expect the fourth quarter to be meaningfully lower compared to the third quarter, principally due to seasonally lower demand from education and government customers.

al: Please remember, we hold ourselves accountable for delivering our financial outlook on a full-year, constant currency basis. Moving to modeling thoughts for the third quarter, we anticipate low single-digit gross profit growth compared to the prior year, with no change to our expectation that gross margin will be comparable to full year 2023 and the first half of 2024. This leads to roughly normal seasonality compared to historical levels and off of a moderately lower second quarter base.

al: Please remember, we hold ourselves accountable for delivering our financial outlook on a full-year, constant currency basis.

al: Moving to modeling thoughts for the third quarter. We anticipate low single-digit gross profit growth compared to the prior year, with no change to our expectation that gross margin will be comparable to full year 2023 and the first half of 2024.

al: This leads to roughly normal seasonality compared to historical levels and off of a moderately lower second quarter base.

al: We continue to expect the fourth quarter to be meaningfully lower compared to the third quarter, principally due to seasonally lower demand from education and government customers. Moving down the P&L, we expect third-quarter operating expenses to be moderately higher than the third quarter of 2023 on a dollar basis, given the higher gross profit performance, but at a similar ratio relative to gross profit. We expect third quarter non-GAAP earnings per diluted share to grow in the mid-single-digit range year over year. For full year 2024, we are maintaining our expectation for adjusted free cash flow to be in the range of 80 to 90 percent of our non-GAAP net income. We currently sit comfortably within that range.

al: We continue to expect the fourth quarter to be meaningfully lower compared to the third quarter, principally due to seasonally lower demand from education and government customers.

al: Moving down the P&L, we expect third quarter operating expenses to be moderately higher than the third quarter of 2023 on a dollar basis, given the higher gross profit performance, but at a similar ratio relative to gross profit. We expect third quarter non-GAAP earnings per diluted share to grow in the mid-single-digit range year over year. For full year 2024, we are maintaining our expectation for adjusted free cash flow to be in the range of 80-90% of our non-GAAP net income. We currently sit comfortably within that range.

al: Moving down the P&L, we expect third quarter operating expenses to be moderately higher than the third quarter of 2023 on a dollar basis given the higher gross profit performance, but at a similar ratio relative to gross profit.

al: We expect third quarter non-GAAP earnings per diluted share to grow in the mid-single-digit range year-over-year.

al: For full year 2024, we are maintaining our expectation for adjusted free cash flow to be in the range of 80-90% of our non-GAAP net income. We currently sit comfortably within that range.

al: That concludes the financial summary. As always, we will provide updated views on the macroenvironment and our business on our future earnings calls.

al: That concludes the financial summary. As always, we'll provide updated views on the macro environment and our business on our future earnings calls. And with that, I will ask the operator to open up for questions. We would ask each of you to limit your questions to one with a brief follow-up. Thank you. Thank you very much. If you'd like to ask a question, please press star followed by one on your telephone keypad, and if you'd like to remove yourself from that question queue, please press star followed by two.

al: That concludes the financial summary. As always, we'll provide updated views on the macro environment and our business on our future earnings calls. And with that, I will ask the operator to open it up for questions.

Unknown Attendee: And with that, I will ask the operator to open it up for questions. Who would ask each of you to limit your questions to one for the brief follow-up? Thank you. Thank you very much. If you want to ask a question, please press star followed by one on your telephone keypad. And if you want to remove yourself from that question, please press star followed by two.

Speaker Change: We would ask each of you to limit your questions to one with a brief follow-up. Thank you.

Speaker Change: Thank you very much. If you'd like to ask a question, please press star followed by 1 on your telephone keypad. And if you'd like to remove yourself from that question queue, please press star followed by 2.

Amit Daryanani: Our first question comes from Amit Daryanani of Evercore ISI.

Operator: Our first question comes from Amit Daryanani of Evercore ISI. Amit, your line is not: Good morning, and thanks for taking my question. You know, I guess maybe just to start with, you know, if I look at your core gross margins, the gross profits, excluding netted down revenues, they were up fairly nicely sequentially and really flat over the year, despite what seems like a much higher mix of PCs in the quarter. Could you just talk about what is enabling the sequential gross margin expansion in June for your core business and if there's a structural change to what PC Yeah, thanks, Amit. Good morning.

Speaker Change: Our first question comes from Amit Daryanani.

Amit Daryanani: Amit Your Line is now open.

Speaker Change: of Evercore ISI. Amit, your line is now open.

al: Good morning, and thanks for your question. Maybe it's a start with, if I look at your core growth margins, the growth profits, excluding net-a-down revenues, it was fairly nicely sequentially and really flat here. Despite what seems like a much higher mix of PCs in the quarter.

Amit Jawaharlaz Daryanani: Good morning and thanks for taking my question. I guess maybe just to start with, if I look at your core gross margins, the gross profits, excluding netted down revenues, it was up fairly nicely sequentially and really flatly over the year, despite what seems like a much higher mix of PCs in the quarter. Could you just talk about what is enabling the sequential gross margin expansion in June for your core business, and if there's a structural change to what PC margins may look like going forward?

al: Could you talk about what is enabling the sequential growth margin expansion in June for your core business? And if there's a structural change to what PC margins may look like going forward?

Chris: Yes, thanks, Amit.

al: I'll take that question. Nothing too significant there to report, Amit. I would just say that across the array of product sectors, we did see strength in storage and a couple other categories that supplemented our client device margins. And then, further, I would note that on the client device side of the house, we continue to see firm margins there, including, and Chris alluded to this, kind of a higher mix into kind of a premium product, if you will.

Chris: Good morning. I'll pick that question.

al: Nothing too significant there to report on. And I would just say that within the array of the product sectors, we did see strength in storage in a couple other categories that supplemented our client device margins. And then further, I would note that on the client device side of the house, we continue to see firm margins there, including, and Chris alluded to this, kind of a higher mix into kind of premium product, if you will. So overall, we continue to see an environment where product margins appear to be holding up, and obviously, as you pointed out, they are further supplemented by the growth that we continue to see on the net-a-down revenues trend side.

Speaker Change: Yeah, thanks Amit. Good morning. I'll take that question. Nothing too significant there to report. Amit, I would just say that within the array of the product sectors, we did see strength in storage and a couple other categories.

Speaker Change: that supplemented our client device margins.

Speaker Change: And then further, I would note that on the client device side of the house...

Speaker Change: We continue to see firm margins there, including, and Chris alluded to this,

al: So overall, we continue to see an environment where product margins appear to be holding up. And obviously, as you pointed out, they are further supplemented by the growth that we continue to see on the netted down revenue stream side. Got it. And then, you know, I guess, Chris, can you talk about, you know, at the start of the year, the expectation was for gross profit dollars to be up mid-single digits, and it kind of went to low single digits, and now it's kind of flat to low. Is this... download the revisions that you made?

Speaker Change: kind of a higher mix into kind of premium product, if you will. So overall, we continue to see an environment where product margins appear to be holding up. And obviously, as you pointed out, they are further supplemented by the growth that we continue to see on the netted down revenue stream side.

Chris: Got it. And then Chris, could you talk about, you know, if I think about it, the start of the year, the expectation was for growth of a dollar to be up, make single digits and it kind of went to low single digits and that's kind of flat below.

Speaker Change: Got it. And then, you know, I guess, Chris, can you talk about, you know, if I think about at the start of the year, the expectation was for

Chris: Group profit dollars to be up mid-single digits, and it kind of went to low single digits, and now it's kind of flat to low.

Chris: Is this downward revisions that you made? Is it really around what's happening to the PC recovery and how that's been a bigger part of the mix, or are there other factors? This is how do you weigh the downtake in revisions or the last couple of quarters?

Chris: Is it really around what's happening to the PC recovery and how that's becoming a bigger part of the mix, or are there other factors? How do you weigh the downtick in revisions over the last couple of quarters? And is there any change in how you forecast your forecasting philosophy as you go forward related to that? Thank you.

Chris: Download revision that you made. Is it really around?

Speaker Change: What's happening to the PC recovery and how that's becoming a bigger part of the mix or are there other factors? How do you weigh the downtick in revisions over the last couple of quarters? And is there any change in how you forecast your forecasting philosophy as you go forward related to that? Thank you.

Chris: And is there any change in how you forecast your forecasting philosophy as you go forward related to that?

Chris: Thank you. Yeah, good morning.

Chris: Thanks for the question. As we think about, let me start with the first part of that question, the outlook, and I'll just walk you through it. I mean, at a high level, you know, that our outlook incorporated a modest uptick in second half demand in 2024. And that change really reflects that we think current market conditions will persist. I think I said, "not get worse," excuse me, but not get better.

Chris: Thanks for the question. As we think about, let me start with the first part of that question, the outlook, and I'll just walk you through. I mean, at a high level, you know that our outlook incorporated a modest uptick in the second half demand of 2024. And that change really reflects that we think current market conditions will persist. I think I said not get worse, excuse me, but not get better. And that's just based on our market intelligence with our customers and our frontline co-workers.

Speaker Change: Yeah, good morning, Amit. Thanks for the question. As we think about, let me start with the first part of that question, the outlook, and I'll just walk you through. I mean, at high level,

Speaker Change: You know that our outlook incorporated a modest uptick in the second half demand of 2024. And that change really reflects that we think current market conditions will persist. I think I said not get worse, excuse me, but not get better. And that's just based on our market intelligence with our customers and our frontline co-workers. If you want to go through the puts and takes, look, let me start with corporate. After a long period of fits and starts and what I'll call uneven performance,

Chris: If you want to go through the puts and takes, look when we start with corporate after a long period of fits and starts and what I'll call uneven performance. Corporate feels on more solid footing and is demonstrating a steadier rhythm to the business. That said, we find the stability is still a bit too early to call and to base that into the expectation in the back half of the year. Just need to see a couple more data points to build confidence on that one.

Chris: And that's just based on our market intelligence with our customers and our frontline coworkers. If you want to go through the puts and takes, look, let me start with corporate. After a long period of fits and starts and what I'll call uneven performance, corporate feels on more solid footing and is demonstrating a steadier rhythm to the business. That said, with signs of stability, it's still a bit too early to call and to bake that into the expectation for the back half of the year.

Speaker Change: Corporate feels on more solid footing and is demonstrating a steadier rhythm to the business.

Chris: That said, with signs of stability, it's still a bit too early to call and to bake that into the expectation in the back half of the year. Just need to see a couple more data points.

Chris: Small business. I'd say not getting worse, not quite as volatile, but still bouncing along the bottom. So not seeing an uptick there.

Chris: Just need to see a couple more data points to build confidence on that one. For small business, I'd say it's not getting worse, not quite as volatile, but still bouncing along the bottom. So we're not seeing an uptick there. And then we've got these two end markets that have very unique impacts. And we think it will impact going forward. The UK, the degradation in the UK that I mentioned in the environment there, which impacted the second quarter and is expected to impact the second half of the year. And then the federal gears of government, you know, these two delays are just creating, frankly, a bottleneck that's not surmountable at this point on the federal side.

Chris: to build confidence on that one. Small business, I'd say not getting worse, not quite as volatile, but still bouncing along the bottom, so not seeing an uptick there.

Chris: And then we've got these two end markets that had very unique impacts, and we think they'll impact going forward: the UK, the degradation in the UK that I mentioned in the environment there, which impacted the second quarter and expected impact the second half of the year. And then the federal gears of government, you know, these two delays are just creating, frankly, a bottleneck that's not overcomable at this point on the federal side. And so we don't expect to see pick up back in the second half of the year in federal as we expected to.

Chris: And then we've got these two end markets that had very unique impacts, and we think will impact going forward. The UK, the degradation in the UK that I mentioned, and the environment there, which impacted the second quarter and expect to impact the second half of the year.

Chris: And then the federal gears of government, you know, these two delays are just creating, frankly, a bottleneck that's not overcomable at this point on the federal side. And so we don't expect to see a pickup back in the second half of the year in federal as we expected to. So I just say that the outlook, net-net, reflects that there's no substantive change in the commercial market demand.

Chris: And so we don't expect to see a pickup back in the second half of the year in federal as we expected. So I just say that the outlook net net reflects that there's no substantive change in commercial market demand. It incorporates normal seasonality, and it also includes, I guess, a moderate IT refresh across primarily client devices and some other solutions that can't be postponed.

Chris: So I just say that the outlook net net reflects that there's no substance in change in the commercial market demand. It incorporates normal seasonality, and it also includes, I guess, a moderate IT refresh across primarily client devices and some other solutions that can't be postponed. So that's the way that we're thinking about the outlook.

Chris: It incorporates normal seasonality and it also includes, I guess, a moderate IT refresh across primarily client devices and some other solutions that can't be postponed. So that's the way that we're thinking about the outlook.

Chris: On, I think you asked a question on forecasting, and I would just say that on the forecasting what the team is doing, phenomenal job staying highly engaged with our customers and pivoting when needed. As you can see from our results, security, cloud, software, services, results, it's very clear that we are portfolio and our people allow us to be the trusted advisor and support in the moment, in the market type solutions. The forecasting is, yeah, it's a little bumpier because you've got lumpy big deals, and they're all interrelated.

Chris: So that's the way that we're thinking about the outlook. I think you asked a question about forecasting, and I would just say that on forecasting, the team is doing a phenomenal job staying highly engaged with our customers and pivoting when needed. As you can see from our results, security, cloud, and software services results, it's very clear that our portfolio and our people allow us to be the trusted advisor and support in the moment, in the market type solutions. The forecasting is, yeah, it's a little bumpier because you've got lumpy, big deals, and they're all interrelated. There's no, the example that I shared during the script, you see how interrelated and complex the solutions are.

Chris: I think you asked a question on forecasting, and I would just say that on the forecasting, the team is doing a phenomenal job staying highly engaged with our customers.

Chris: And pivoting when needed. As you can see from our results, security, cloud, software services results, it's very clear that our portfolio and our people allow us to be the trusted advisor and support in the moment, in the market type

Chris: Solutions.

Chris: The forecasting is, yeah, it's a little bumpier because you've got lumpy, you know, lumpy big deals and they're all interrelated. There's no, the example that I shared during the script, you see how interrelated and complex the solutions are. So as those push, you know, they push, but I think the team's doing a great job staying engaged with customers. And I would also say that our solutions pipeline is really quite strong. It's been the conversion given the market that is reflecting the appetite to buy, but the pipeline is really quite strong.

Chris: There's no example that I share during the script. You see how interrelated and complex the solutions are. So, as those push, they push, but I think the team's doing a great job staying engaged with customers, and I would also say that our solutions pipeline is really quite strong. It's been the conversion given the market that is reflecting the appetite to buy, but the pipeline is really quite strong.

Chris: So, as those push, they push, but I think the team's doing a great job staying engaged with customers. And I would also say that our solutions pipeline is really quite strong. It's just the conversion, given the market that is reflecting the appetite to buy, but the pipeline is really quite strong. Our next question comes from Matt Sheerin of Stifle. Matt, your line is now open.

Matt Sheeran: Our next question comes from Matt Sheeran, a stifle.

Matt Sheeran: Matt, your line is now on. Oh, yes, thanks. Yes, thank you.

Chris: Our next question comes from Matt Sheerin of Stifle.

Operator: Oh, yes, thanks. Yes, thank you. Good morning.

Chris: I wanted to ask about the commentary regarding the continued slow demand for netcom and servers, and advanced solutions products. This is probably the third quarter that we're into this malaise. I know there was a lot of backlog that was worked down. Are you seeing any signs of pick-up there? And then on the server side, we're hearing particularly from SMBs and middle markets, where there's more of an acceleration toward the cloud instead of doing their own internal upgrades. So any visibility into those markets? Yeah, I would say on the networking side, there's certainly interest from customers in network modernization, and that is a high priority, but there is still significant digestion going on.

Chris: Matt, your line is now open. Oh yes, thanks.

Chris: Good morning. I wanted to ask about the commentary regarding the continued slow demand for netcom and servers advance solutions products. This is probably the third quarter that we're into that malaise. I know there was a lot of backlog that was worked down. Are you seeing any visibility of signs of pickup there? And then on the server side, we're hearing particularly SMBs in middle markets where there's more an acceleration toward cloud instead of doing their own internal upgrades. Any visibility into those markets?

Chris: Yeah, I would say on the networking side, there's certainly interest from customers on network modernization. That is a high priority, but there is still significant digestion going on. The supply chain is normalized, but that we still have customers that are digesting what they purchased or actually received that should say later in the cycle. I think as we get back to the back half of the year, the overlaps will look a little bit different. So the performance will likely look a little bit different, but I would just say high priority. There's just still a lot of excess at our customers that they're digesting.

Chris: The supply chain is normalized, but we still have customers that are digesting what they purchased or actually received, I should say, later in the cycle. I think as we get back to the back half of the year, the overlaps will look a little bit different. And so the performance will likely look a little bit different, but I would just say it's high priority.

Speaker Change: The supply chain is normalized, but we still have customers that are digesting what they purchased or actually received, I should say, later in the cycle. I think as we get back to the back half of the year, the overlaps will look a little bit different, and so the performance will likely look a little bit different. But I would just say it's high priority. There's just still a lot of excess.

Chris: On the server side, on the mid market server side, we are seeing some strengths in that area, but again, it's subject to our customers really being cautious about where they're spending and pivoting a little more to cloud and elastic, you know, the versatile solutions at this time.

al: There's just still a lot of excess at our customers that they're digesting. On the server side, on the mid-market server side, we are seeing some strength in that area, but again, it's subject to our customers really being cautious about where they're spending and pivoting a little more to cloud and elastic, you know, versatile solutions at this time. Okay, thank you. And then regarding the outlook for the government business, it doesn't sound like there's going to be that seasonal uptick in federal government, yet you're guiding the overall, you know, company for seasonality in the next couple quarters. So are there any offsets to that weakness in federal funding? Good morning, Matt.

Speaker Change: On the mid-market server side, we are seeing some strength in that area, but again, it's subject to our customers really being cautious about where they're spending and pivoting a little more to cloud and elastic, you know, versatile solutions at this time.

Unknown Attendee: Okay, thank you.

Matt Sheeran: And then regarding the outlook for the government business, it doesn't sound like there's going to be that seasonal uptick in federal; yet you're the overall company for a seasonality in the next couple of quarters. So are there any offsets to that weakness in federal?

Speaker Change: Okay, thank you. And then regarding the outlook for the government business...

Chris: Good morning, Matt. I would just note that, look, we are still going to see reasonably normal seasonality from the government business. And remember, there's significant strength there on the state and local side of things. So look, even in the quarter, state and local all set it some of that compression from a federal perspective. So I would say it's all in the realm of regular normal seasonality for government, with just a down-tick a bit in federal for cutering. Thank you for. Got it.

al: I would just note the look; we are still going to see reasonably normal seasonality from the government business. And remember, there's significant strength on the state and local sides of things. So look, even in the quarter, state and local offsetted some of that compression from a federal perspective. So I would say it's all in the realm of regular normal seasonality for government, with just a downtick a bit in federal for Q3. I got it.

Speaker Change: Good morning, Matt. I would just note, look, we are still going to see reasonably normal seasonality from the government business. And remember, there's

Speaker Change: significant strength there on the state and local side of things. So look, even in the quarter,

Speaker Change: state and local offsetted some of that compression from a federal perspective. So I would say it's all in the realm of regular normal seasonality for government with just a downtick a bit in federal for Q3 and Q4.

Keith Housum: Our next question comes from Keith Housum of North Coast Research. Keith, the line is now open. Great. Good morning. Just one question, really.

Operator: Okay. Thank you. Our next question comes from Keith Housum of North Coast Research. Keith, your line is now open. Good morning.

Speaker Change: Our next question comes from Keith Housum of North Coast Research. Keith, your line is now open.

Operator: Just one question, really. In terms of the CrowdStrike debacle that happened recently, was that positive or negative for you guys in terms of, you know, working with your customers? Okay, thanks for the question. First of all, it was CDW. It didn't impact us that much, which was great. But I'll tell you, I'm really proud of this team.

Chris: In terms of the CrowdStrike debacle that happened recently, was that a positive or negative for you guys in terms of, you know, working with your customers? Oh, Keith, thanks for the question. First of all, it was T-A-W; didn't impact us that much, which was great. But I'll tell you, I'm really proud of this team. They were so quick to help customers, you know, do book refixes and workarounds, and essentially get after customers immediately. So it's just reinforced, I think, the fact that we have strong relationships with our customers and that the trusted advisor role is so important.

Keith Michael Housum: Great, good morning. Just one question really. In terms of the CrowdStrike debacle that happened recently, was that a positive or negative for you guys in terms of, you know, working with your customers?

Chris: They were so quick to help customers, you know, do boot refixes and workarounds and essentially get after customers immediately. So it just reinforced, I think, the fact that we have such strong relationships with our customers and that the trusted advisor role is so important. You know, once you do a transaction with a customer, it's not one and done, but this just reflected the fact that the aftercare and the ongoing relationship are so important.

Speaker Change: Okay, thanks for the question. First of all, it was CDW, it didn't impact us that much, which was great. But I'll tell you, I'm really proud of this team. They were so quick to help customers.

Keith Michael Housum: do boot refixes and workarounds and essentially get after customers immediately. So it just reinforced, I think, the fact that we have such strong relationships with our customers and that the trusted advisor role is so important. You know, once you do a transaction with a customer, it's not one and done, but this just reflected the fact that the aftercare and the relationship ongoing is so important. So it was a very unfortunate, obviously, circumstance across the world, but really proud of the team for stepping up and stepping in with our customers.

Chris: So it was a very unfortunate, obviously, circumstance across the world, but I'm really proud of the team for stepping up and stepping in with our customers. If I can follow up on that, is that an opportunity for you guys to gain customers by showing exactly the experience and advisory leadership you guys have? Oh, absolutely. Yeah.

Chris: You know, once you do a transaction with a customer, it's not one and done, but it's just reflected the fact that the aftercare and the relationship ongoing is so important. So it was a very unfortunate, obviously, circumstance across the world, but really proud of the team for stepping up and stepping in with our customers.

Chris: Yeah, if I can follow up on that, is that an opportunity for you guys to gain customers by showing exactly the experience and advisor you should be guys have? Oh, absolutely. Yeah. So, in circumstances like this, when we have been able to help, when there's a particular issue that's popped up, that absolutely goes back and across the sales organization, we take it to other customers to help highlight potential vulnerabilities and then help them resolve those.

Speaker Change: If I can follow up on that, is that an opportunity for you guys to gain customers by showing exactly the experience and advisor leadership you guys have?

Chris: So in circumstances like this, when we have been able to help when there's a particular issue that's popped up, that absolutely goes back and across the sales organization; we take it to other customers to help highlight potential vulnerabilities and then help them resolve those. Great, thank you. Same in the security space; that's what we do. Our next question comes from Asiya Merchant of Citigroup. Great, thank you for taking my question. If I could, if you could just double-click a little bit on the office intensity, you know, where is CDW spending these operational expense dollars and how does she think about the trajectory of those expenses as it relates to your overall revenue or gross profit dollar growth in the back half? Thank you. Sure. Good morning, Asiya.

Speaker Change: Oh, absolutely. Yes. So in circumstances like this, when we have been able to help when there's a particular issue that's popped up that absolutely goes back and across the sales organization, we take it to other customers to help highlight potential vulnerabilities and then help them resolve those.

Chris: Great, thank you. Same, same, same, same; the security space. That's, that's what we do.

Speaker Change: Great, thank you. Same in the security space, that's what we do.

Asiya Merchant: Our next question comes from Asea Marchion of City Group.

Speaker Change: Our next question comes from Asiya Merchant of Citigroup.

Asiya Merchant: Great, thank you for taking my question. If you could just double click a little bit on the office intensity, you know, where is CDW spending the US spending these operational expense dollars on and how much you think about, you know, the trajectory of those expenses as it relates to your overall revenue or growth profit dollars rose in the back half. Thank you.

Asiya Merchant: Great, thank you for taking my question. If I could, if you could just double click a little bit on the Off-X intensity.

Asiya Merchant: Where is CDW spending these operational expense dollars on and how does she think about the trajectory of those expenses as it relates to your overall revenue or gross profit dollar growth in the back half?

al: Sure, good morning, ASEA. A couple of things that I would just note. Number one, remember when we started the year, we indicated that we would have expected the beginning of the year would reflect a higher level of expenses than usual and a ratio of S-GNA relative to GP would ease as the year played out. ASEA, some of that is a function of just timing and seasonality of certain expenses that we see in the first half. Some of it a function of our lower GP production, whereas profit production in the first half. And then just from a compare perspective, I would just note for you that last year, obviously, was a pretty uneven year, if you will.

al: A couple things I would just note. Number one, when we started the year, we indicated that we would have expected the beginning of the year to reflect a higher level of expenses than usual, and our ratio of SG&A relative to GP would ease as the year played out. Asiya, some of that is a function of just the timing and seasonality of certain expenses that we see in the first half; some of it is a function of our lower GP production, gross profit production, in the first half.

Asiya Merchant: Sure. Good morning, Asiya. A couple things I would just note. Number one, remember when we started the year, we indicated that we would have expected the beginning of the year would reflect

Speaker Change: a higher level of expenses than usual and a ratio of SG&A relative to GP would ease as the year played out.

Asiya Merchant: Asiya, some of that is a function of just timing and seasonality of certain expenses that we see in the first half, some of it a function of our lower GP production, gross profit production in the first half. And then just from a compare perspective, I would just note for you that

al: And then just from a comparison perspective, I would just note for you that last year obviously was a pretty uneven year, if you will. And pretty early in the year, we saw indications that our outlook was coming down, so that had an impact on the timing and judgments with respect to things like compensation accruals.

Asiya Merchant: That last year obviously was a pretty uneven year if you will and pretty early in the year we saw indications that our outlook was coming down so that has

al: And pretty early in the year, we saw indications that our outlook was coming down, so that has an impact on the timing and our judgments with respect to things like compensation of goals. So because of that, when you add it all together, our first half, we look a bit more shifted towards deliverage from an expense perspective. And what you should expect in the back half is that that would ease, that would balance out, obviously as our gross profit attainment would be higher, but also you get a pick up from a seasonality timing of our expenses as well.

Keith Michael Housum: and impact on the

Keith Michael Housum: Timing and our judgments with respect to things like compensation accruals.

al: So because of that, when you add it all together, our first half looks a bit more shifted towards leverage from an expense perspective. And what you should expect in the back half is that that would ease, that would balance out, obviously as our gross profit attainment would be higher, but also you get a kind of a pickup from seasonality timing of our expenses as well. So for the full year, we expect it to look reasonably normal.

Asiya Merchant: So, because of that, when you add it all together, our first half...

Keith Michael Housum: We look a bit more shifted towards the leverage from an expense perspective. And what you should expect in the back half is that that would ease, that would balance out, obviously as our gross profit attainment would be higher, but also you get a bit kind of a pickup from a seasonality timing of our expenses as well. So for the full year, we expect it would look reasonably normal. The back half is going to look a lot different than it did in the first half vis-à-vis operating leverage.

al: So, for the full year, we expect it would look reasonably normal. The back half is going to look a lot different than it in the first half. These are the operating waters.

al: The back half is going to look a lot different than it did in the first half vis-a-vis operating leverage. Okay, and if I may just, you know, you've talked about the strong pipeline here for your customers. Help us understand how you think about that pipeline conversion to revenues. I understand it's, you know, the federal impact and the macro in the UK, but if you could just, as you think about more into, let's say, the next 12 months ahead, post-calendar 24, how you're thinking about that pipeline conversion and how we should think about, you know, CDW's trajectory of growth ahead. Thank you.

al: Okay, and if I may just, you know, you talked about this strong pipeline here for your customers. You know, help them understand how you think about that pipeline conversion to revenues. I understand it's, you know, the federal impacts and the macro and the UK, but if you could just, as you think about more into the next 12 months ahead of post calendar 24, how you're thinking about that? That pipeline conversion and how we should think about, you know, CDW trajectory of growth ahead. Thank you. Yeah, well, you know, we think about the pipeline; excuse me, we think about the pipeline starting first in terms of engagement with our customers and staying very close to our customers and doing and suggesting solutions that are best for them.

Speaker Change: Okay, and if I may just, you know, you've talked about a strong pipeline here for your customers.

Speaker Change: You know, help us understand how you think about that pipeline conversion to revenues. I understand it's, you know, the federal impact and the macro in the UK, but if you could just, as you think about more into, let's say, the next 12 months ahead, post-Gounder 24, how you're thinking about that pipeline conversion and how we should think about

Speaker Change: CDW's trajectory of growth ahead. Thank you.

Chris: Yeah, well, you know, we think about the pipeline, starting first in terms of engagement with our customers and staying very close to our customers and doing and suggesting solutions that are best for them. In a market now where cost optimization is high and needs are prioritized over wants, CDW is very careful to help our customers accommodate that, which might mean that, you know, not new and not growth revenue, but revenue that is finding cost optimization for them.

Speaker Change: Yeah, well, you know, we think about the pipeline, starting first in terms of engagement with our customers and staying very close to our customers and doing and suggesting solutions that are best for them. In a market now where cost optimization is high and needs are prioritized over wants,

Chris: And in a market now where cost optimization is high and needs are prioritized over wants, a CDW is very careful to help our customers accommodate that, which might mean that, you know, not new and not growth revenue, but revenue that is finding cost optimization for them. All that said, what we do in an environment like this is we work hard to include, to increase the pipeline to ensure that when it's time to convert, it's sufficient to drive growth. You know, we do all the things that we do with a lot of regular respect the pipeline. We grow the pipeline, we measure the pipeline, we drive conversations with our customers. It's really just the appetite to convert at this point that we're not seeing.

Chris: All that said, what we do in an environment like this is we work hard to increase the pipeline to ensure that when it's time to convert, it's sufficient to drive growth. You know, we do all the things that we do with a lot of rigor.

Speaker Change: and CDW is very careful to help our customers accommodate that, which might mean net, you know, not new and not growth revenue, but revenue that is finding cost optimization for them. All that said, what we do in an environment like this is we work hard to include, to increase the pipeline.

Chris: We inspect the pipeline. We grow the pipeline. We measure the pipeline.

Speaker Change: to ensure that when it's time to convert, it's sufficient to drive growth.

Speaker Change: You know, we do all the things that we do with a lot of rigor. We inspect the pipeline. We grow the pipeline. We measure the pipeline.

Speaker Change: We drive conversations with our customers. It's really just the appetite to convert at this point that we're not seeing. Now, as I said, what has been very positive is the rhythm of the business field.

Chris: Now, as I said, what is been very positive is the rhythm of the business feels, feels more stable, feels a little more firm or footing, and I think that's a good indicator of moving to more solid footing, which means pipeline converting in the not too distant future, which will convert into growth. Okay, thank you.

Speaker Change: feels more stable, feels a little more firmer footing. And I think that's a good indicator of moving to more solid footing, which means pipeline converting in the not too distant future, which will convert into growth.

Chris: We drive conversations with our customers. It's really just the appetite to convert at this point that we're not seeing. Now, as I said, what is very positive is the rhythm of the business feels more stable, feels a little more on a firmer footing. And I think that's a good indicator of moving to a more solid footing, which means pipeline conversion in the not too distant future, which will convert into growth. Okay, thank you. Our next question comes from Ruplu Bhattacharya of Bank of America in Maryland. Your line is now open.

Ruplu Bhattacharya: Annette's question comes from root to the passage area of Bank of America Merrill Lynch.

Speaker Change: Okay, thank you.

Speaker Change: Our next question comes from Ruplu Bhattacharya of Bank of America Merrill Lynch. Your line is now open.

al: The line is now open. All right, thanks for taking my questions. Maybe the first question I'll ask to Elle, and it's another question on gross margins. When you look at the core business margins, ex-mitted down items, looks like in fiscal 2Q that grew by 40 bits to about 15.7%. Can core business margins continue to grow for the remainder of the year? I guess how my question is that the gross profit for the year is lower; is that because the mix of neted down items is lower, or do you think the gross margin of the core business is also lower?

Operator: Thanks for taking my questions. Maybe the first question I'll ask Al, and it's another question on gross margins. When you look at the core business margins, X netted down items, it looks like in fiscal 2Q that grew by 40 bps to about 15.7%. Can core business margins continue to grow for the remainder of the year? I guess, Al, my question is why the gross profit for the year is lower. Is that because the mix of netted down items is lower?

Ruplu Bhattacharya: Thanks for taking my questions. Maybe the first question I'll ask to Al, and it's another question on gross margins. When we look at the core business margins, X netted down items, looks like in fiscal 2Q, that grew by 40 bps to about 15.7%. Can core business margins continue to grow for the remainder of the year? I guess, Al, my question is...

Speaker Change: The gross profit for the year is lower. Is that because the mix of netted down items is lower? Or do you think the gross margin of the core business is also lower?

al: Sure, thank you, Ruplo. I look for the full year. We are calling for gross margins to look much like the first half did, and frankly, then much like 2023 in total. What you can expect there is continued durability and trending of our neted down revenues, which would be extremely strong. Would expect that would continue. And particularly I'd say in the year we typically see more of that with renewals of cloud and fast contracts, et cetera. And that would be balanced with our regular mix of business, including expectation, kind of a glide pass of our client business.

al: Or do you think the gross margin of the core business is also lower? Sure, thank you, Ruplu. Look, for the full year, we are calling for gross margins to look much like the first half did and, frankly, then much like 2023 in total. What you can expect there is continued durability and trending of our netted down revenues, which have been extremely strong. I would expect that to continue. And particularly, I'd say, in the year, we typically see more of that with renewals of cloud and SaaS contracts, et cetera.

al: Sure, thank you, Ruplu. Look, for the full year, we are calling for gross margins to look much like the first half did, and frankly, then much like 2023 in total. What you can expect there is...

Speaker Change: Continued durability and trending of our netted down revenues, which have been extremely strong, would expect that would continue, and particularly I'd say end of year we typically see more of that with renewables.

al: And that would be balanced with our regular mix of business, including expectations for a kind of glide path for our client business. Now, on the non-netted down margins, I'll just note again that product margins there continue to hold firm, and that's been quite a run where they've been firm, and we would expect that to continue. So that's the sum of the different parts, Ruplu, that get us to that gross margin expectation, very similar in the back half to what we saw in the first half. Okay, thanks for the details there.

Speaker Change: of cloud and SaaS contracts, et cetera. And that would be balanced with our regular mix of business, including expectation, kind of a glide path of our client business.

al: Now, on the non-netted down margins, I'll just note again that product margins there continue to help hold firm, and that's been quite a run where they've been firm, and we would expect that to continue.

Speaker Change: Now, on the non-netted-down margins, I'll just note again that product margins there continue to hold firm, and that's been...

al: So that's the sum of the different parts, Ruplo, that get us to that gross margin expectation, very similar in the back half as what we saw in the first half.

Ruplu Bhattacharya: This is quite a run where they've been firm, and we would expect that to continue, so that's the sum of the different parts, Ruplu, that get us to that gross margin expectation, very similar in the back half as what we saw in the first half.

al: Okay, thanks for the details there.

Chris: Maybe as a follow-up, can I ask Chris, how are you thinking about AI-related spend in 2024? Did you have any AI-related revenues in fiscal 23, and how do you see the impact of that on hardware and also on your services revenues in the year? Thanks.

Chris: Maybe as a follow-up, can I ask Chris, how are you thinking about AI-related spend in 2024?

Ruplu Bhattacharya: Okay, thanks for the details there. Maybe as a follow-up, can I ask, Chris, how are you thinking about AI-related spend in 2024? Did you have any AI-related revenues in fiscal 23, and how do you see the impact of that on hardware and also on your services revenues in the year? Thanks.

Chris: Did you have any AI-related revenues in fiscal 23? And how do you see the impact of that on hardware and also on your services revenues in the year? Thanks. Yeah, thanks for the questions. I didn't answer this way.

Chris: Yeah, yeah, thanks for the question, Ruplu. I'd answer it this way. You know, look, we're really in the very early innings of AI monetization, and CDW is investing in it behind and doing well, frankly. We're investing primarily in people and enablement and doing well in the areas that are kind of early stage, which I would say are primarily consultative at this point. AI certainly opens conversations with customers extensively, but I would say our opportunity, the massive opportunity for CDW, is full stack in the long run, and I would call this a long game.

Chris: You know, look, we're really in these very early innings of AI monetization, and CDW is investing behind and doing well, frankly. We're investing primarily in people and enablements and doing well in the areas that are kind of early stage, which I would say are consultative primarily at this point. AI certainly opens conversations with customers extensively, but I would say our opportunity, the massive opportunity for CDW, is full stack over the long run, and I would call this a long game. Look, it feels very much, and we've said this before, that AI is like any other kind of transformative technology of the past, and it plays to CDW's strengths.

Chris: Yeah, yeah, thanks for the question, Ruplu. I'd answer it this way, you know, look, we're really in these very early innings of AI monetization, and CDW is investing behind and doing well, frankly. We're investing primarily in people and enablement.

Chris: and doing well in the areas that are kind of early stage, which I would say are consultative, primarily at this point.

Chris: AI certainly opens conversations with customers extensively, but I would say our opportunity, the massive opportunity for CDW is full-stack over the long run, and I would call this a long game. Look, it feels very much, and we've said this before, that AI is like any other kind of transformative technology of the past.

Chris: Look, it feels very much, and we've said this before, that AI is like any other kind of transformative technology of the past, and it plays to CDW's strengths. Complexity and choice always make it more difficult for our customers, and that helps us bring our knowledge, expertise, and portfolio to bear. So, as I think forward, we do see it as an accelerant.

Chris: Complexity enjoys always make it more difficult for our customers, and that helps us bring our knowledge, expertise, and portfolio to there. So, as I think forward, you know, we do see it as an accelerant. We're investing behind, and our customers are still at the stage of, you know, what's the art of getting this done and how the science was the science of doing it. It's just a matter, frankly. We've received what the time frame of growth looks like over the long term, but I feel confident that we'll play at every layer of the stack, and it will be embedded in every layer of the stack.

Chris: and it plays to CDW's strengths. Complexity and choice always make it more difficult for our customers and that helps us bring our knowledge, expertise, and portfolio to bear. So, as I think forward, you know, we do see it as an accelerant. We're investing behind it. Our customers are still at the stage of, you know, what's the art of getting this done and what's the science of doing it?

Chris: We're investing behind it, and our customers are still at the stage of, "What's the art of getting this done, and what's the science of doing it?" It's just a matter, frankly, of what the timeframe of growth looks like over the long term, but I feel confident that we'll play at every layer of the stack, and it will be embedded in every layer of the stack. Okay, thanks for all the details.

Chris: It's just a matter, frankly, Ruplu, of what the timeframe of growth looks like over the long term, but I feel confident that we'll play at every layer of the stack, and it will be embedded in every layer of the stack.

Unknown Attendee: Okay. Thanks for all the details. Appreciate it.

Ruplu Bhattacharya: Okay, thanks for all the details. Appreciate it.

George Wang: Our next question comes from George Wang of Barclays.

Operator: I appreciate it. Our next question comes from George Wang of Barclays. George, your line is now open.

George Wang: George, your line is now open. Okay, thank you guys. Thanks for taking my question. Firstly, I just want to ask about AI, kind of for whether if you have a refreshed spot in terms of potential uncertainty, related to the AI, especially after what you got called for. You know, right now the CDW customers are still in the test and the experimentation stage. So you have sort of an airpark, if you will, before the AIRI is further validated. Just curious, you know, are you seeing a slightly different behavior right now with the customers as they, so they, you know, playing into this elongation of sales cycle.

Speaker Change: Our next question comes from George Wang of Barclays. George, your line is now open.

Operator: Hey guys, thanks for taking my question. Firstly, I just want to ask about AI. Kind of wonder if you have a refresher thought in terms of potential uncertainty related to AI, especially last quarter. You guys talked about, you know, right now, the CDW customers are still in the assessment and experimentation stage. So you have sort of an air pocket, if you will, before the AI ROI is further validated.

George Wang: Hey guys, thanks for taking my question. Firstly, I just want to ask about AI. I kind of wonder if you have a refresher thought in terms of...

George Wang: potential uncertainty related to the AI, especially last quarter, you guys talked about, you know, right now the CDW customers are still in the assessment experience.

George Wang: experimentation stage. So you have sort of air pocket, if you will, before so the AI ally is further validated. Just curious.

Chris: Just curious, you know; are you seeing a slightly different behavior right now with the customers as they play into this elongation of the sales cycle? Just wonder if you can give a little bit more thought to that compared to a quarter ago. Yeah, George, I would just reiterate that we're still seeing that AI has put the architectural roadmap for compute storage and networking under re-evaluation and flux, and we're still seeing that play out this quarter.

Speaker Change: You know, are you seeing a slightly different behavior right now with the customers as they sort of, you know, play into this elongation of sales cycle? Just wonder if you can give a little bit more thoughts on that compared to a quarter ago.

Chris: Just wonder if you can give a little more thought on that, compared to a quarter ago. Yeah, George, I would just, I would reiterate that we're still seeing that, you know, AI has put the architectural roadmap for compute, storage, and networking under re-evaluation and blocks, and we're still seeing that play out this quarter. I actually expect that to last for some period of time as we help customers sort through, again, you know, what the art of the possibility is, but then what's the actual return on investment dollars?

George Wang: Yeah, George, I would just, I would reiterate that we're still seeing that, you know, AI has put the architectural roadmap for compute storage and networking under re-evaluation and flux, and we're still seeing that play out this quarter.

Chris: I actually expect that to last for some period of time as we help customers sort through, again, you know, what the art of the possibility is, but then what's the actual return on investment dollars? A quick follow-up, if I can, just in the field of view, has a pretty good reputation for share gains through the cycle, especially in the fragmented box space.

George Wang: I actually expect that to last for some period of time as we help customers sort through, again, you know, what the art of the possibility is, but then what's the actual return on investment dollars?

Chris: Okay, quick follow-up. If I can, just in the CDW, you know, has a pretty good reputation of share gains through the cycle, especially in the fragmented box base. Just curious, are you seeing additional evidence, especially given legislation macro, but there was your probably in the overall, so the 4-stack solution. Are you seeing a stronger pickup in, so they, you know, kind of fragmented shared kind of for, you know, just maybe you can talk about, you know, competition and the kind of for, you know, the areas, the 3W is doing much better versus the rest. of the field.

Chris: Just curious, are you seeing additional evidence, especially given a sluggish macro, but with your price in the overall, so the four stack solutions, are you seeing some stronger pickup in some of the, you know, kind of fragmented shared, kind of, maybe you can talk about, you know, competition and the kind of, you know, the areas where CDW is doing much better versus the rest. Sure, George, I would just say that we feel very confident that we continue to gain share in this low demand and limited demand market, you know, across virtually every category, you saw our results for security and for services and cloud. You know, client device refresh is starting to pick up.

Chris: It's a short word. I would just say that we feel very confident that we continue to gain share in this low demand and limited demand market, you know, across virtually every category. You know, you saw results for security and for services and cloud. You know, client device refresh is starting to pick up, and, you know, this is validated both by obviously our own data, but equally our partner reviews. We are partners validate that we are indeed taking share, so we're feeling very good about where we're positioned in our limited growth environment.

George Wang: Sure, I would just say that we feel very confident that we continue to gain share in this low-demand and limited-demand market.

Chris: And, you know, this is validated both by obviously our own data, but equally, our partner reviews; we, our partners, validate that we are indeed taking share. So we're feeling very good about where we're positioned in our limited growth environment. Okay, great, let's go back. Thank you very much.

Unknown Attendee: Okay, let's go back to the two. Thank you very much.

Speaker Change: Okay, great. Now we go back to the queue.

Operator: Our next question comes from Samik Chatterjee of J.P. Morgan. Samik, your line is now open. Hi.

Adam Tindle: Our next question comes from Samik Chatterjee of JP Morgan.

Operator: Thanks for taking my question. I guess maybe, Chris, if I could just start with the areas of strength that you're seeing from a product perspective, and I think storage. You sort of highlighted that as an area of strength. Yeah, sure.

Chris: Samik, Chris, if I could just start with the areas of strength that you're seeing from a product perspective, I think storage, you sort of highlighted that as an area of strength, and not going into a specific category, but in terms of the areas that you're seeing refreshes on, just how do you feel about the sustainability of that phase because it does sound a bit more contrast to when you say customers are not really looking to spend as much, and there's sort of a stable environment that they would be sort of a longer-term sustainability of the areas of strength that you see at the same time, just can you help us think about what is giving you visibility on that front, and I haven't followed.

Speaker Change: When you say customers are not really looking to spend as much, and there's sort of a stable environment, that there would be sort of a longer-term sustainability of the areas of strength that you're seeing at the same time. Just can you help us think about what is giving you visibility on that front, and I have a follow-up.

Chris: Yeah, sure, so I say, you know, look capital investment and complex solutions, especially those tied to data center and network modernization, are the ones that I highlighted as areas of more caution right now, given the uncertainty, and also the increasingly complex technology landscape. Compute, we did see some pickup; that's really because it was put off for quite some time by a number of customers, and so there was a need to upgrade for against legacy systems. And then on the client side, as I said, we started to see what we think is the beginnings of a refresh. Obviously, given all the catalysts there, that's going to be sustainable.

Chris: So I think, you know, look, capital investment and complex solutions, especially those tied to data center and network modernization, are the ones that I highlighted as areas of more caution right now, given the uncertainty and also the increasingly complex technology landscape. Compute, we did see some pickup. That's really because it was put off for quite some time by a number of customers, and so there was a need to upgrade against legacy systems. And then on the client side, as I said, we started to see what we think is the beginnings of a refresh. Obviously, given all the catalysts there, that's going to be sustainable.

Chris: The age of devices went 11, AI PCs, et cetera; we expect that to be a real refresh. And then I say, you know, sustainability in the clouds, where you saw strength this quarter in particular, cloud security and services, in particular, I don't see those slowing down anytime soon. They're a great opportunity to offset some of those capital investments. They're a great opportunity for cost optimization and optimization generally.

Chris: The age devices, when 11 AIPC, etc., we expect that to be a real refresh, and then I say, you know, sustainability in the clouds where you saw strength as quarter in particular, cloud security and services in particular, you know, I don't see those slowing down anytime soon. There are great opportunities to offset some of those capital investments. There are great opportunities for cost optimization, and optimization generally, so our customers have turned to them. You know, with our portfolio, the beautiful thing about our portfolio is whatever our customers are buying, whenever they're buying it, we can give them the solution they need. So, very well prepared to deliver today, and as we start to see a recovery in the capital investment appetite.

Chris: So our customers have turned to them and, you know, with our portfolio, the beautiful thing about our portfolio is whatever our customers are buying, whenever they're buying it, we can give them the solution they need. So, very well prepared to deliver today. And as we start to see a recovery in the capital investment appetite. Follow-up? Sure, Samik, I'll take it.

Speaker Change: for cost optimization and optimization generally. So our customers have turned to them and, you know, with our portfolio, the beautiful thing about our portfolio is whatever our customers are buying, whenever they're buying it, we can give them the solution they need. So very well prepared.

Speaker Change: to deliver today and as we start to see a recovery in the capital investment appetite.

al: From a follow-up, I know you mentioned the neted down graph, you mix every quarter, but anything further that you can give us in terms of how to best think about that sort of part of the portfolio, how much of that is security versus some other sort of software, just to be able to sort of more closely sort of correlate with what we're seeing from the peers and how should we really be thinking about which part of the portfolio is going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going to be going of software is it more correlated to?

Speaker Change: And for my follow-up, I know you mentioned the netted down revenue mix every quarter, but anything further that you can give us in terms of how to best think about that sort of part of the portfolio, how much of that is security versus some other sort of software, just to be able to sort of more closely sort of correlate with what we're seeing from the peers, and how should we really be thinking about which part of sort of software is it more correlated to?

al: Sure, Samik, I'll take it; this is out. So just reminder what categories fall into net it down. You have software assurance, you have warranty, you have SASS, you have cloud, right? So the big components, if you will. The strength that we've seen obviously has been substantially in the SaaS and cloud space. And that runs the gamut in terms of underlying workloads in those categories, right? That includes data, virtualization, software, networking to some degree. So it runs the gamut in those categories. They've been the leaders in that space. I should note Samik there with that over the last year, categories such as software assurance and warranty obviously have lagged because they are substantially attached to products, hardware and software, license software that is.

al: This is Al. So, just a reminder of what categories fall into Net-It-Down. You have Software Assurance, you have Warranty, you have SAS, you have Cloud, right, so the big components, if you will. The strength that we've seen, obviously, has been substantially in the SAS and Cloud space, and that runs the gamut in terms of underlying workloads in those categories, right? That includes data, virtualization software, and networking to some degree. So, it runs the gamut in those categories.

Speaker Change: Sure, Samik, I'll take it. This is Al. So just a reminder what...

Speaker Change: You have cloud, right, so the big components, if you will.

Speaker Change: The strength that we've seen, obviously, has been substantially in the SaaS and cloud space.

Speaker Change: And that runs the gamut in terms of underlying...

al: They've been the leaders in that space. I should note, Samik, that, over the last year, categories such as Software Assurance and Warranty obviously have lagged because they are substantially attached to products, hardware, and software, licensed software, that is. And so, they've been laggards, which, at some point, as we talk about the catalyst and things beginning to turn from a hardware perspective, you could see some of those categories pick up.

Speaker Change: because they are substantially attached to products, hardware and software, license software that is.

al: And so they've been laggards, which at some point, as we talk about the catalyst and things beginning to turn from a hardware perspective, you could see some of those categories pick up. But in the meantime, as we are now saying, we think that recovery is going to take a little bit more time than those durable trends are in the SASS and cloud space.

Speaker Change: And so they've been laggards, which at some point, as we talk about the catalyst and things beginning to turn from a hardware perspective, you could see some of those categories pick up. But in the meantime, as we are now saying, how do we think that recovery is going to take a little bit more time?

Unknown Attendee: Thank you.

Unknown Attendee: Thanks for the questions.

al: But in the meantime, as we are now saying, kind of, we think that recovery is going to take a little bit more time. The most durable trends are in the SAS and Cloud space. Our next question comes from Adam Tindle of Raymond James. Adam, your line is now open. Okay, thanks. Good morning.

Adam Tindle: Next question comes from Adam Tindel of Raymond James.

Adam Tindle: Adam, your line is not open. Okay, thanks.

Operator: Al, I wanted to start on guidance. I know I asked you last quarter about this, and, you know, some of the explanation for Q2 was that you were modeling this below seasonal. It was off of a weak Q1 and that it seemed like this was sort of a conservative guidance estimate for Q2, and here we are this morning with effectively a miss. That's kind of become a pattern here, a couple quarters now below expectations, and the miss is beyond just the revenue line and mix.

al: Good morning. Al, I wanted to start on guidance. I know I asked you last quarter on this. And you know, some of the explanation was for Q2 was that you were modeling this below seasonal. It was off of a week Q1 and that it seemed like this was sort of a conservative guidance estimate for Q2. And here we are this morning with effectively a miss. That's kind of become a pattern here a couple quarters now, below expectations. And the miss is beyond just the revenue line and mix. You know, so I just wonder if you might reflect on what has changed in the business to drive this trend because, prior to this period, CDW was kind of a bellwether for visibility into the business execution on exceeding expectations.

Speaker Change: That's kind of become a pattern here a couple quarters now below expectations and the miss is beyond just the revenue line and mix.

Operator: You know, so I just wonder if you might reflect on what has changed in the business to drive this trend, because prior to this period, CDW was kind of a bellwether for visibility into the business, and execution on exceeding expectations. So, you know, what has changed? And then, secondly, how to remediate this issue?

al: So, you know what has changed? And then secondly, how to remediate this issue? You know, what kind of changes can you make to your forecasting process or maybe internal analytics to better predict the business?

Speaker Change: And then secondly, how to remediate this issue, you know, what kind of changes can you make to your forecasting process or maybe internal analytics to better predict the business?

al: Sure. Thank you, Adam. Appreciate the question. First look, no doubt it has been a pretty volatile period of time for now on number of quarters for sure. I would note a couple of things. Number one, when we talked about a Q1, what we were expecting to go in a Q2, you did ask the question about seasonality. I made the remark that we would expect it would be somewhat short of historical pre-pandemic seasonality. And that it was the delta there, Adam was essentially the sum of federal business and international. So, two things that we had not factored in: when you actually add those back, we get pretty close to that historical seasonality.

al: You know, what kind of changes can you make to your forecasting process or maybe internal analytics to better predict the business? Sure. Thank you, Adam. Appreciate the question. First, look, no doubt it has been a pretty volatile period of time for now, a number of quarters, for sure. I would note a couple of things.

al: Number one, when we talked about Q1, what we were expecting going into Q2, you asked the question about seasonality. I made the remark that we would expect it to be somewhat short of historical pre-pandemic seasonality, and it was. The delta there, Adam, was essentially the sum of federal business and international business, so two things that we had not factored in. When you actually add those things back, we get pretty close to that historical seasonality.

Speaker Change: I would note a couple of things. Number one, when we talked about a Q1, what we were expecting going into Q2, you did ask the question about seasonality. I made the remark that we would expect it would be somewhat short of

Adam: historical pre-pandemic seasonality and that it was. The Delta there, Adam, was essentially the sum of federal business

al: So now, we scroll forward. We have an expectation, Q2 leading to Q3, of mid-single-digit sequential growth, and really how we get there, Adam, is it's taken some of the expectation of meaningful pickup in the business, and I would say it's following now a more normal glide path. Now, that's backed up by a couple things. One, in line or close to historical seasonality, but also just the split between first half and second half.

al: So now, so we scroll, we scroll forward, we have an expectation Q2 leading to Q3 of mid single digits sequential growth. And really how we get there, Adam, is it's taken off some of the expectations of meaningful pickup in the business. And I would say it's following now a more normal glide path. Now that's backed up by a couple of things. One, in line or close to historical seasonality, but also just the split between first half, second half. And so when you think about our 48 52 split between first half, second half, that's not only consistent with the history, but I also would say coming off of a softer Q1.

Speaker Change: So now, so we scroll forward, we have an expectation, Q2 leading to Q3 of mid-single-digit sequential growth, and really how we get there, Adam, is it's taken off some of the expectation there.

Speaker Change: of Meaningful Pickup in the business. And I would say it's following now a more normal glide path.

al: And so when you think about our 48-52 split between the first half and the second half, that's not only consistent with the history, but I also would say coming off of a softer Q1. And so while we are definitely not anticipating an upturn, if you actually look at the trend lines, I would say it's a pretty natural glide path from where we've come from, and we think it's reasonable when you add it up to the back half of the year.

Adam: Now that's backed up by a couple things. One, in line or close to historical seasonality, but also just the split between

Adam: First half, second half. And so when you think about our 48

Adam: 52 split between first half, second half. That's not only consistent with the history, but I also would say coming off of a

al: And so, while we are definitely not anticipating an upturn, if you actually look at the trend lines, I would say it's a pretty natural glide path from where we've come from. And we think it's reasonable when you add it up to the back half of the year.

Adam: softer Q1. And so while we are definitely not anticipating an upturn, if you actually look at the trend lines, I would say it's a pretty natural glide path from where we've come from. And we think it's reasonable when you add it up to the back half of the year.

Unknown Attendee: Okay. Thank you.

Adam Tindle: Maybe just as a follow-up, Chris, security is obviously a big growth driver for you, and you've done well. I think you've even announced a billion dollars in sales with CrowdStrike some earlier this year. So I guess the first question on that would be what you're seeing now at the end of July and that piece of the business, given the global outage, the impact to the cyber business growth trajectory. And then secondly, beyond just the cyber business, there's an investor fear that this might have a ripple effect into other areas of spending and just causing broadly.

al: Okay, thank you. Maybe just as a follow-up, Chris, security is obviously a big growth driver for you, and you've done well. I think you even announced a billion dollars in sales with CrowdStrike earlier this year. So I guess the first question on that would be what you're seeing now at the end of July in that piece of the business, given the global outage, and the impact on the cyber business growth trajectory. And then secondly, beyond just the cyber business, there's an investor fear that this might have a ripple effect into other areas of spending and just cause a pause broadly. We're sitting here on July 31st.

Speaker Change: Okay, thank you. Maybe just as a follow-up, Chris, security is obviously a big growth driver for you, and you've done well. I think you even announced a billion dollars in sales with CrowdStrike some earlier this year.

Speaker Change: So, I guess the first question on that would be what you're seeing now at the end of July in that piece of the business, given the global outage, the impact to the cyber business growth trajectory? Thank you. Thank you. Thank you.

Speaker Change: And then secondly, beyond just the cyber business, there's an investor fear that this might have a ripple effect into other areas of spending and just cause pausing broadly. We're sitting here on July 31st. You're the largest reseller. What customer behavior are you seeing on the month of July as that closes to indicate that might or might not occur?

Chris: We're sitting here on July 31st. You're the largest reseller. What customer behavior are you seeing now in the month of July that poses to indicate that might or might not occur? Yeah, Adam, I would say customer behavior is on high alert around cybersecurity, and we're having heightened and more conversations with our customers around that. It does not feel that that is putting off or delaying any other engagement and projects at all, but we are seeing heightened conversation around cyber security.

Chris: You're the largest reseller. What customer behavior are you seeing now in the month of July as that closes to indicate that might or might not occur? Yeah, Adam, I would say customer behavior is on high alert around cybersecurity, and we're having heightened and more conversations with our customers around that. However, it does not feel that that is putting off or delaying any other engagements or projects at all. But we are seeing heightened conversation around cyber security.

Speaker Change: Yeah, Adam, I would say customer behavior is on high alert around cybersecurity, and we're having heightened and more conversations with our customers around that. It does not feel that that is putting off or delaying any other

Speaker Change: any other engagements and projects at all, but we are seeing heightened conversation around cyber security.

Chris: Thank you. We have no further questions, so I'll hand it back to Chair and CEO Chris Leahy for closing remarks. Well, thank you very much. I want to recognize the incredible dedication of our co-workers around the world and their extraordinary commitment to serving our customers, our partners, and all CDW stakeholders. You show the power of execution excellence every day in every way. And thank you to our customers for the privilege and opportunity to serve you, and to our investors and analysts participating in this call.

Speaker Change: Thank you.

Chris: We have no further questions, so I'll hand back to Chair and see Chris Leahy for closing remarks. Well, thank you very much. I want to recognize the incredible dedication of our co-workers around the globe and their extraordinary commitment to serving our customers, our partners, and all CW stakeholders. You show the power of execution excellence every day in every way. And thank you to our customers for the privilege and opportunity to serve you; to our investors and analysts participating in this call. We appreciate you and your continued interest in and supported CW.

Christine A. Leahy: We have no further questions, so I'll hand back to Chair and CEO Chris Leahy for closing remarks.

Christine A. Leahy: Well, thank you very much. I want to recognize the incredible dedication of our co-workers around the globe and their extraordinary commitment to serving our customers, our partners, and all CDW stakeholders.

Chris: We appreciate you and your continued interest in and support of CDW. Alan, I look forward to talking with you again next quarter. This concludes today's call. Thank you to everyone for joining. You may now disconnect your lines.

Speaker Change: You show the power of execution excellence every day in every way.

Chris: And thank you to our customers for the privilege and opportunity to serve you. To our investors and analysts participating in this call, we appreciate you and your continued interest in and support of CDW. Al and I look forward to talking with you again next quarter.

Chris: Alan, I look forward to talking with you again next quarter.

Unknown Attendee: This concludes today's call. Thank you to everyone for joining.

Unknown Attendee: You may now disconnect your lines.

Speaker Change: This concludes today's call. Thank you to everyone for joining. You may now disconnect your lines.

Speaker Change: ♪♪