CDW (CDW) 31 Jul 242024 Q2 Earnings call transcript

Good morning, all. Thank you for joining us for the CDW Second Quarter 2024 Earnings Call. My name is Carly and I'll be the call coordinator for today. [Operator Instructions] I'll now hand over to Steve O'Brien of Investor Relations to begin.

Thank you, Carly. everyone. morning, Good

to Chris today and second XXXX quarter Miralles, Joining our review Chair are Officer. Leahy, Chief Officer; and results our me Financial our Chief Al Executive

and earnings is along Our supplemental you during follow that use slides distributed the was this call. with available our website, release on investor.cdw.com, to along can morning

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

filings these Additional the furnished concerning earnings the SEC. release is Form risks information other contained to in in the with and uncertainties and SEC we X-K today and company's the

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

to Our margin, in per presentation operating All have non-GAAP measures, also accordance non-GAAP financial will GAAP GAAP earnings rules. find and with reconciled most non-GAAP most includes operating measures directly share. measures the including income, non-GAAP comparable measures and certain the non-GAAP non-GAAP directly you income SEC comparable net income been

that, that turn remind without and the will call today. conference let With of You'll X-K. to may webcast to growth rebroadcast reconciliation recorded also you are note, and in release is to this our be references charts this Form comparable Chris. the permission specific period our or the webcast versus otherwise posted slides amount the in Replay earnings be our me today's from unless find for to over changes later dollar indicated. rates and of today not website or all in Please the remarks call company. want XXXX, written in property CDW I

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

market sales over quarter to prioritization complex cycles and we growing as modernization Capital roughly once savings those solutions, continue or cost investment Cautious be network downsized again drove elongated once particularly hold, of in data center was Second out customer needs and dynamics expansion. behavior activity refresh put on over played and devices. there in expected. and to client tied

environment were to worsening further What dynamics, end U.K. the federal in expected was challenges. not and a market-specific funding

security continue remains out help Within and laying technology the our with build uncertainty Conversion solutions maps deliver to cloud, The excellent a priorities most performance remains customers' demand trusted that across to spend. meet ability the our customers' and we services. challenging solutions our customers value adviser on environment, road pipeline drove appetite limited solid in space. as team's pressing to our and

contributed investments solutions and full profitability X that the cash made made to stack flow strong performance to by to life past the we Performance have years full cycle customers. over our bring possible strategic

year-over-year with flat gross up sales the net basis gross a XX X.X%. billion, which down billion, points, profit quarter, $X.X of of delivered the margin For were $X.X team XX.X%, of

non-GAAP million, Non-GAAP flat X.X%. operating down share income was margin $XXX was non-GAAP earnings X.X% which X.X%, operating a with $X.XX, which down income of of and of per

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

$X billion health its we ranging have on business and X First, each from small a our channels, government balanced with XXXX portfolio of to care, business, sales education end $X.X corporate, annual markets. billion. Recall, own sales meaningful

impact unique markets in the each delivered sales. uncorrelated external USD factors economic X.X further XXXX different size Channels customer which are These segmented end customer and on given focus verticals are end markets, and spend including that customer to geography, and billion of together them. typically

example good this. a Our of quarter results provide second

second of Corporate into sales low increase meaningful increases with devices units. Notably, a increases and sequential device double in for of digits. decline margin. both higher gross a Robust functionality sales the client firm ASP and year-over-year posted cloud Client in net security value, sell increased profitability and a a with quarter in X%. higher row supported posted mix

upgrades profit undergo and priorities again, business cloud Once solutions as and with team's margin. ability systems. help contributed standout customers cost-effective productivity continue customers declined increasing gross software NetComm and improvements servers capacity. double Small transitions a X%. category declined The sales Storage address around net mission-critical to security and absorb technology was both legacy and in to to [indiscernible] of

refresh significant declined see digits common client corporate quarter in mid-single performance net not infrastructure in ongoing servers investments sales drove with end Consistent sequentially, market. increasing declines. in double-digit did of the business X% activity the declined quarter. and devices Public low while by mixed with Small year-over-year slightly postponement

government the was X% local than in bids not further by late receive customers and June, normal funds decreased Government growth and than state from and These as key face delayed later federal. evaluation. several years funding expected. hardware the as software released as budget of delays XXXX a require did orders were fiscal weeks more processing in authorization until impacted releases offset Federal solicitation, results by decline competitive

solid the but layers await know of as priorities. administration's projects eventually pause around agencies a federal state do mid-single We they digits, these a next The expect projects and remained performance may local key some another ongoing catch-up driver. had forward, friction security that clarity and we will in light the uncertainty, half of In move the new quarter, back XXXX. up team not of

year-over-year Client and devices mid-single by both increased digits sequentially.

Security being local state automated response and enhanced including care AI-powered security are assessments led profit cloud municipal flat. at agencies, by key citizens' a Health and migration and and team spend identity management. state messaging net for and growth, sales remained platforms. were area, customer improving dollars early delivered and While allocated gross robust experience focus budget to the

cloud hospital cloud deliver applications including performance margin and team's contributed of gross roughly Driven to by Education profitability. and X%. increased double moving to both excellent by increased migration, ability out refresh client declined sales drove centers, devices The digits. data

top while flat K-XX's roughly grew. was line year-over-year profitability

digits device interactive aged Chromebooks. row, gross the increased hardware, the significant client years. as Cloud the up top again, refreshed mid-single quarter in flat continue remain priorities, primarily profit. sales in whiteboards smart growth panels declined systems a over and Once For digest strong to Security and as collaboration school past several delivering both second made purchases meaningfully schools

top upcoming student to to team experience pivot for while focused remain programs higher of the and recent focused single funded continue doing up with the funds digits by ECS mid-single-digit refresh. at ed less, XX, through customers With to enrollment team a strong in institutions digits, September Security and decline. devices the double-digit line more posted client and to top sunsetting quarters, returned remained deadlines double up a mechanisms. with growth helping drive is driven a Cost on cloud. their drive Consistent traditional to high in quarter, strong funds priority, [indiscernible] elasticity the growth enhance on investments refresh

international Our we which declined U.K. Canadian report XX%. other as operations, and

declined U.K. worsened teams both the particularly X% election execute general environment, in U.S. and dollars. While Canada the challenging U.K., to dollars already teens continue amplified early well, declined in U.S. during high sales conditions. demand in as quarter the the

the market volatile pressure we under of Given to current and the U.K. through expect remain half the back conditions, year.

of markets. of our and the performance first products performance of see, markets As of broad benefit performance, you our fundamental our and second demonstrates end results customer our to end driver, portfolio is of driver balanced can diversity our portfolio the Category deep solutions. the

client sequentially solutions during solutions hardware declined. offset more increased increased in the growth and device store Both transactions than categories quarter, High collaboration. mid-single-digit declines the the in and single-digit portfolio growth by level, X%. meaningful and while categories NetComm quarter. At Transactions was decreased

again, profit across years. contributing by that driver and strong and made digits, solutions the mix organic decreased increased investments, acquired, services we X into by Software were services was sales security. by enabled cloud was important capabilities software, have X%. an cloud by impacted past gross and customer X%, and spend by in netted revenue our net services. increased security-related strategic and Profitable driven Services both growth performance mid-single while down over Once the growth double-digit

the customers Each to first, in orchestrate And is: solutions profitably our our for second, advise, which our expand enhance this our the quarter, of X-part ability crucial to leads design, new share; need pillar and third, final performance is services capabilities. and solutions in capture our and growth, the and to capabilities; any acquire manage strategy want environment. driver our customers

solution priority for its strategy today's in end An [ an me customer's Let faced challenging we something equipment, in delivered on infrastructure collaborated that portfolio, hyperconverged and example environment. demand budget budget. Armed insurance with action ] our early to could in life a share and infrastructure cost of cloud a company of as our architect subscription-based their cloud, tight the contemplated our elasticity deep group absorb. services hybrid customer's not already delivered cloud broad

workloads delivered usage, and further security the customer and to and to The desktop public custom managed ensure created migrated measures multifaceted infrastructure solutions data moved seamlessly memory virtual optimized cloud, virtual the workloads cloud with off-the-shelf plus mitigating deliver and a applications, it firewalls, effectively compute, CPU on-premise costs. storage

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

to balance me the year. leads for expectations that of our And the

for in year. IT XXX our improvement market grow the last the half XXX factored expectations of second the that to will points a market. above basis You digits. recall conference on single U.S. shared to growth XXXX modest target demand This in in call, we the our in quarter's conditions In low

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

up half of Given low the for the growth second year, lower we U.S. to look the slow without a single-digit IT market end demand start range. market's pickup, a towards now

our made But need there, confidence return. will points to client and foundations and the confidence, obsolescence workload and to conditions around around investments Growth economic device today and an data AI-powered their continue map adoption drivers applications. deliver of greater on We XXX right road tech maintain AI in market. will and future. security demand grow economic target that impact threats, clarity clarity of and clarity are The growth, customers basis XXX to returns AI-powered increased above the assistance and

XXXX are as function and uncertainty potential the demand of in Improved Wild cards for unusual a U.K. the conditions balance the market the include of uncertainty, not U.S. conditions if. significant well election. in degradation of greater geopolitical of macro when, as

year. As we always business on updated do, we will as an the perspective move provide we conditions through

against on focused our will our play customers the discipline continue in achieve to executing the holding with exceptional remain and have game, capabilities services will we we we the commitment conditions, And CDW's delivering long value that market to and the our our to outcomes. ensure strategy executing need Whatever growth rigor solutions gaining is share to customers steadfast mission-critical hallmark. and their to

With will turn more that, on me performance. to it Al, financial share who over our let detail

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

in is flat, billion the growth cloud, NetComm profit quarter year. up for This below Second and the as was gross quarter services our of demand hardware. strength single-digit for original offset expectations collaboration X.X% and security low prior roughly was lower the for $X.X by versus aforementioned modestly

to by net basis quarter sales the a billion second demand prior X.X% and up year both and higher down full were basis with expectations margin flat quarter-over-quarter of XXXX in and line versus increased daily and XX.X% driven education sales seasonally on client especially margin channels $X.X XX.X% and broadly year-over-year. channels pursuant reported our levels government and Consolidated devices. XX sequentially approximately for Gross of XXXX. in Gross was average points year both

grew category sales once primarily representing quarter. also the the where to year of netted sales acts X.X% mix sales. again as our driven XX.X% quarter by higher second margin and Second as in compared growth expansion year-over-year agent, by down CDW net and outpacing gross in the overall profit XX.X% known This was prior

represents business, Year-over-year our important of down continuing from sales successfully teams within down ability impact is customers trend netted deliver solutions with durable product priorities margins. enhanced expansion growth to and netted will to of mix It fluctuate time our SaaS-based important gross to The to business over serve our that solutions. with on its category and customer contributing came an demand. and cloud note our and

the to average compared XX.X% basis. up quarter reported was sales profit first both sequential of gross and quarter Second XXXX on daily

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

factors: pass U.K. and federal business, This in customers the climates. spend volatility to lower impacted in congressional from X related political budget delays by the reflected longer-than-expected is our which our prior and by economic performance in

Turning expenses Non-GAAP SG&A second totaled million, X.X% to up for $XXX the quarter. year-over-year.

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

was slightly Customer-facing coworker approximately at count up also XX,XXX.

to exceptional totaled Non-GAAP the efficiency cost customer flat versus our down and year-over-year. broader and higher profit million, driven of with moderately income is experience roughly operating leverage and goal gross growth driving the expenses X.X% from by balance prior $XXX Our combination year, operations.

and X.X% margin was prior the the quarter. first X.X% income of in operating from to up Non-GAAP flat year

down non-GAAP million, diluted net average per X.X% $XXX net income of quarter weighted million shares Our share was $XXX.X second With a basis. non-GAAP the was year-over-year in quarter $X.XX. diluted on income

At roughly Moving debt to billion. the $X period net sheet. balance end, was

to with position cash our average million X-month modest at availability Liquidity has X prior XXXX of repayment. strong was XXs. but $XX billion. cash declined year-end from teens The low up of increased days, days end revolver approximately still conversion debt year our targeted XX remains lower cash $X.X cycle primarily Net of the the plus by debt range since reflecting approximately alongside high

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

capital and dynamics influence timing we've will past, As mentioned any in market quarter year. the given working in or

the believe modeling best conversion cash target longer remains working range to We our term. continue capital guidepost for

cash to our free $XXX.X almost Year-to-date, trends. net free XX%. a $XXX seasonal quarter. with cash our million was of flow XX% of business XX% Adjusted rule income in and stated non-GAAP million consistent within the and expectations flow was healthy adjusted

meet First puts to our half performance us objectives. XXXX on track

quarter, and returning to to our in form free cash the share return remain For $XX million we XXXX. including our cash in flow the via me $XXX and capital with to XXXX capital allocation priorities. XX% dividends. allocation adjusted XX% in of shareholders utilized to That repurchases to approximately consistent committed the We objectives, of dividend brings million our repurchases target share

Our first priority $X.XX non-GAAP Last dividend annually, consecutive of X% net in increase increase increasing with year announced to November, of we dividend. to our a the tenth capital income. is dividend line the our

payout XX% We will in continue to XXXX. a target ratio

within We is Xx. priority right Xx our X.Xx, second the to structure ended in we targeted second to leverage Our at of quarter range ensure have place. capital net the

maintaining while manage proactively and We to liquidity will flexibility. continue

priorities third continually M&A cash shareholder strategy share Year-to-date, accelerate have M&A remain evaluate X-part remaining and repurchases under current of of of that $XXX and million growth. value. over our Finally, over million utilized We program. our $XXX our share repurchase and on could share fourth important drivers opportunities we've capital purchases for allocation

the the quarter, to slow persist conditions channels. near half. improve spending XXXX to to and cautious that sentiment XXXX. operated have to term, the year The expectations spoke and and XXXX, into but our international markets we particularly The IT modestly customer second shared market for under commercial, end well our Last prudent remains in start uncertain And for throughout the outlook. persisted in we the about leads tough conditions federal us across in

demand spots we hardware. devices. resonate cloud customer growth, compelling time, quarter, At to a customers for second technology a conditions workload aging an address weigh security need landscape, and our priorities to same customers for macroeconomic brighter on increasing the uncertain solutions the and threats, with noted client These continue in while complex were

the view Given our XX% in with the year to profit. view is that anticipated second to these single-digit to historical low we profit is gross This with slower both flat the the line half recovery in contributing and updated of sales net growth, XXXX market our levels, not full our that to leads roughly approximately gross expectation mild start and year seasonality likely a for incorporates materialize. conditions, first half

XXXX. We maintain to our full gross expectation margin for to XXXX year seen much first half be XXXX the of and similar we've the throughout like

be currency delivering per share outlook expect on ourselves accountable to earnings our non-GAAP to basis. up we year-over-year. full constant Finally, slightly diluted financial for full Please year we year our a remember, flat hold

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

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

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

down P&L. Moving the

be higher of basis, third relative expenses expect ratio to a dollar higher gross similar XXXX We quarter moderately the the third a profit performance, operating gross to but quarter on given than profit. at

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

expectation our in summary. cash financial concludes of within free year sit flow be that non-GAAP full We are we currently XX% adjusted the maintaining the for That to For of XXXX, net XX% range range. comfortably our income. to

brief calls. to Who will As up on follow-up. of each with and our always, limit you questions. macro operator views it I ask earnings a our to to for business your provide future ask And one environment open would updated we'll that, on the with questions the

from of Our ISI. first Instructions] [Operator Daryanani Amit Evercore question comes

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

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

to continue product to up. appeared obviously, the we see you supplemented environment growth overall, on see out, margins So they further an be by where the stream as revenue we pointed holding side. to that [indiscernible] continue And are

talk just now that part And revision about I guess, to profit PC and Is it. of low. Got the digits you how may recovery kind you and a digits was the to mix? Chris, the the become what's of this year, single mid-single then downward low happening it -- to it's if it flat start of around about up bigger the dollars I expectation kind of think could and -- gross went really at to be that's is for

couple philosophy forecasting quarters? in there how any revisions you And over the change forecast are last you as your factors? forward weigh the is related go to Or you in of downtick there do how other that? Because

for Thanks the Yes. question.

the walk me through. I'll change of and incorporated that the we uptick outlook a about you you know persist. As reflects start a that that at XXXX current of part high we -- the really modest mean, with conditions first second half will I just outlook, question, our demand and level, market think let in that think

think said worse get I get better. I not but not

coworkers. that's just market frontline our And on intelligence our with based and customers our

corporate want a steadier and business. the starts look, and start in is long after of solid performance, and period you If more to feels fits through with footing the puts rhythm call to really demonstrating takes, a go what uneven on I'll corporate

still say too said, the that bake build in into early along to I points the signs quite the call couple of with data need back more to one. stability, a year. a see of it's confidence bouncing Small the and bottom. not to on That not getting bit as business, that I'd to half volatile worse, still expectation just but

there. an So not uptick seeing

gears And end environment U.K. the and overcomeable point X the are half had the impacts then federal And government, that forward. I which the markets quarter we've unique got in the impact X creating, side. on at impacted mentioned these year. delays to not we going these of the U.K., bottleneck of federal just and second impact frankly, think the The in there, this the expect a second that's then very will degradation that

to. expect And in see pick the so the back as up we second half in federal don't of year to expected a we

So outlook IT the change some substantive market postponed. solutions it say can't incorporates moderate a and net-net be It is primarily commercial across normal I'd that includes, the demand. no in that I other devices say, just guess, reflects client also refresh that seasonality, there and

thinking So way that outlook. the about the that's we're

customers that phenomenal engaged and I think our would asked highly doing And the pivoting on the with forecasting. a say just job needed. team when is on question staying look, a forecasting, you I

solutions. our portfolio our -- It's allow people clear adviser very see security, us be can our moment in you in from As the the services results, that market cloud, results. support to type and software trusted the and we

a that is, big interrelated. because it's forecasting during I yes, The bumpier you've There's shared they're example script. got the lumpy and little all deals, no

are. You see the solutions complex how interrelated and

say also I as is push, our push with they strong. doing but really engaged And those staying job quite I the customers. think pipeline team solutions that a So is would great

really conversion strong. the reflecting appetite market pipeline quite the to is that the but been the is given It's buy,

next Sheerin of Our comes Matt from Stifel. question

there down. into was demand is quarter ask about that I slow of was a know that to regarding probably commentary products. continued This I the wanted NetComm Advanced worked and the were Solutions backlog that lot the malaise. for third servers,

the side, their more seeing you on of where signs acceleration there? an instead own of server markets SMBs particularly then and upgrade. visibility of And doing internal there's hearing any we're middle pickup cloud Are toward

So any visibility those into markets?

Yes. there would that a supply received, The modernization. is significant digesting That is customers priority, networking purchased what should cycle. there's in still from is actually the chain still on side, high digestion but we have say, customers I on. I normalized, say that or interest on certainly network but going are later the they

the will so the I different. priority. think back But say as get performance a overlaps just I the we look back it's year, the half bit to will of a little and little bit different look high would likely

still There's customers excess just a at lot digesting. they're of our that

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

for federal be sound And going the uptick in guiding you're there's next the to of outlook that overall Okay. doesn't in quarters. company then government seasonal business, regarding it for like yet seasonality the the couple

are any that in So offsets to there federal? weakness

still to side the of business. reasonably and from significant I state strength remember, seasonality we would normal note, are see there just things. on the look, And there's local government going

off that in quarter, look, even federal some compression local perspective. a and from setted So the state of

QX. the for in would a it's realm downtick QX normal and seasonality bit regular just government a I with all in federal of say for So

Keith North Research. from Housum comes question Coast of next Our

really. question one Just

a in for In was with terms debacle guys or terms happened you recently, of that negative CrowdStrike positive your of customers? the working

question. the for thanks Keith,

and First customers immediately. I'll boot CDW after quick was of impact us team. tell really They were great. which workarounds that customers all, so -- re-fixes to was didn't proud you, help it But get much, do of I'm and essentially this

So relationships it reinforced, role have adviser I is think, customers fact trusted such strong the so that and important. we just the our with that

fact customer, a relationship one is just aftercare the this not the so transaction the and and but done, Once that ongoing with do you a important. reflected it's

the really obviously, team our but proud it across stepping and up very for a the So with was stepping of world, circumstance customers. unfortunate in

to Yes. for If up that. experience on you I leadership showing that can have? guys gain Is guys by opportunity an follow adviser that exactly customers and you

Oh, absolutely. Yes.

have we [indiscernible] and when So like been the do. the we what to those. in able when help, to customers security across space. this, take then highlight organization, potential a and up goes back absolutely particular help That's help it issue that's them circumstances vulnerabilities we to that other sales popped resolve there's

Our Asiya next Group. question of from Citi comes Merchant

think if those expenses just to the spending these of the profit intensity, or about on where operational should dollar the trajectory is growth -- And it CDW on? I a we back overall If could pop in you how double dollars OpEx expense bit think little U.S.- relates your as revenue gross half.

of the our started things would as ease to SG&A that Sure. the a one, A we we note. And usual. beginning expenses ratio of year, level just couple plays relative have would reflect when Number GP out. I of remember, higher the year than would indicated we would of year expected the at

gen the lower of that certain first is that of it seasonality expenses and some timing a of a per function GP Some we of in function of our just see half, production was obviously, a for the you a perspective, note just uneven compare half? last will. pretty just year, then would from I that in profit And year, gross if first you

pretty saw coming early was down. the that our And outlook indications in year, we

things So to judgments on impact like with timing our respect compensation the and accruals. that has an

in And that because back of add expense half expect perspective. our from should is you So towards the first we more shifted balance half, ease a you together, that, look out. an all that would bit would deleverage what it when

of Obviously, pickup a well. a our as seasonality our gross a profit of attainment from would get be also higher, you timing expenses as but kind

it back look a operating expect would full lot than did the the in we leverage. first for year, half So is to reasonably The half vis-a-vis going different it look normal.

[ strong here I if conversion? understand pipeline post of let's the -- U.K. macro how you ] your about pipeline think ahead. conversion impact thinking may, could And about for federal just and revenue? understand pipeline more Gonder-XX, next to that you Help think the CDW's should in us talked think the about as into, you that Okay. we how But about ahead growth the months about say, trajectory And if how you've customers. I it's you're the XX

we think and optimization in but and and Well, that new suggesting for best are and high cost that, close optimization market not with them. them. revenue, help a to and prioritize Yes. is solutions about staying starting for In our not the cost revenue very customers pipeline engagement customers doing the terms now is might first our accommodate very customers once, to that growth where CDW needs careful which our finding or is be of

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

expect we We the pipeline, pipeline, conversations seeing. customers pipeline. at this really convert it's we're We to the that with just grow our the drive measure appetite the we point not

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

comes from question next America Bank Bhattacharya Merrill of Lynch. of Ruplu Our

the margins. ask XX bps down business grew looks netted gross of to that lower? that continue guess is will the the margin gross for think Maybe And in another Al is Or the grow because margins to margins you Can business I look down like question is, the fiscal the year? of gross the core the for about on at items my to lower. business ex I year by mix XX.X%. it's netted profit is also the you core lower? first XQ, of core Al. do question remainder Is When items question

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

be business. a would And glide path business, that regular including with our of our client of of mix kind balanced expectation

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

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

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

early kind monetization. Ruplu. for we're we're the Thanks question, it other very AI investing really And and and in is like Yes. I'd look, answer well past. people is very any the it and this technology innings doing way. Look, the in of well. said of investing and and before, behind this AI CDW we've premierly Frankly, doing enablement of transformative feels that much,

over I the at a of in feel and looks play everywhere frame long see it the matter, and what's behind of that just an we'll every doing of we science stack. the step. accelerant. it investing are of a It's it. the this still art what We're As stage think confident frankly, as of will time embedded And customers getting our term, Ruplu I done with growth of like be at forward, do layer the of the but

Our George next an Wang of in from question Barclays.

Firstly, in have in a guys especially last AI, terms talked right quarter, about CDW I to customers now, you the of related the are refreshed ask I stage. of AI. uncertainty thoughts potential wonder if you the about kind want still experimentation to just assessment

So you you have sort the airport, of validated. ARRI is will, if further before

you so Just behavior seeing the are into cycle. slightly curious, elongated now sales customers with they as play this on right different issue they a

ago. quarter Just wondering bit thoughts to more on if you that can give little a a compared

compute sort just that reevaluation and I time would dollars. possibilities, we're put are they investment under Yes, map storage that I play we're quarter. expect influx, the some and again, and reiterate still customers return that actual last networking what would -- what's architectural to on that has on but for period we this still through, as road actually AI help out then the I seeing seeing the for of George,

Yes.

Just if a follow-up, quick can. I

the maybe [indiscernible] pickup you full-stack CDW competition sort curious, kind the good rest Are through of the has the CDW the much areas kind in products sluggish seeing given share kind share doing in Just you in versus of of gains are you solutions. talk the Just you pretty evidence, especially of stronger in reputation cycle, field. especially better just seeing with of see of sort sort the additional macro, about can overall but of the and is fragmented a your

very every just continue Sure, would that I this in say we feel low virtually and share demand category. limited we market demand gain that across to confident George.

pick equally You this refresh device data, saw by our own starting both up services is and cloud, security our for results and for is and obviously but validated reviews. client to our partner

that validate share. taking partners are we Our indeed

a about So in where limited growth we're good we're positioned environment. feeling very

next from Our JPMorgan. question comes of Chatterjee Samik

going areas the much you at customers Chris, I that maybe, stable you're every sound about start contrast strength spend strength. because a I category, of from when that of of think to I a does and on And would you're bit seeing longer-term areas as area sort looking sustainability not a areas seeing do and you're strength that with of of base the just highlighted that an say the same of of more sort a environment there's specific in storage into seeing refreshes guess of perspective, just but that not could sort time. of if feel you as sustainability are product the terms really there be that the how it

help us that a have you on can keeping front? Just think follow-up. is about And you what I visibility

sure. Yes,

I'd given now, to I uncertainty technology the as and the off because right network see compute. are number more investment was some That's customers. by complex caution and highlighted solutions, pickup. a those some complex modernization especially say, it We of put did in data time ones areas for of that tied look, capital landscape quite really So center increasingly also the

systems. PCs, [indiscernible] we was quarter particular, a on beginning we against think there, to And anytime saw real so I'd the legacy expect in given a of aged be said, the refresh. catalyst strength started obviously, And need the then I for in refresh, client in cetera, to is side, -- see security don't services, what sustainability cloud upgrade and particular, say a down there as this sustainable. those see all cloud, to you The be AI we the devices to that's I And soon. et where then that going slowing

There cost are a offset to They're great some a generally. of optimization investments. and for great capital optimization those opportunity opportunity

So is thing are our portfolio, them it, the And to our whatever whenever they they're give we buying, them. solution turned our customers have our with customers buying beautiful need. about portfolio the can

well So prepared capital start as and appetite. recovery in to a very we deliver today to the see investment

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

of more And part correlated should really we how software which is it sort be of to. thinking about

is This Al. it. take I'll Samik, Sure.

categories, into have space, components, workloads underlying and of just terms So the right? that seen, you and if what have software the right? big The SaaS that strength substantially the a been assurance, So you have SaaS down, has runs fall obviously, you will. gamut have reminder you netted you in cloud, warranty, cloud categories we've in in those

some software, to virtualization degree. networking data includes That

that in last runs software note, the software they products, such gamut They the been there because warranty Samik, have as software and substantially have that in should space. are year, that hardware leaders over categories to categories. it obviously I license and assurance with lagged So the those attached is.

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

Tindle of Raymond question James. comes from next Our Adam

you I I last wanted quarter on know to Al, start this. on I asked guidance.

below It become miss was this are miss. estimate of line a is seemed QX just like QX And it was explanation couple for of a some guidance seasonal. off we expectations with here a effectively was the that of kind is was here for of And you're that and of the weak below QX. conservative a and modeling this a revenue morning the That's beyond now and mix. pattern quarters sort

as of reflect might the the I to because visibility So you on for period, trend just what wonder bellwether if has in exceeding business, execution a prior CDW business changed to expectations. on into kind this drive this

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

Adam. the you, question. I Thank appreciate Sure.

of time talked couple about would we a of for has a number volatile First, QX. one, look, sure. no pretty expecting it for going note quarters things. period been what of were Number we doubt, now QX, a to I

expect ask was. did about would we it You and would made the be that short seasonality. of it question seasonality I somewhat pre-pandemic remark the historical that

federal the delta The sum essentially was there, and international. Adam, of business

things factored that back, to pretty in. So we close we add When seasonality. that X actually had historical you those get not

is of taken So of of in an the QX QX now leading growth we how off to and pickup there, some sequential business. really, the mid-single-digit have a Adam, expectation meaningful expectation, -- so it's forward, we get we go

And now a following I would it's more normal say glide path.

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

a And not only so half, about history, coming also QX. half, second but the our when first think that's would off you consistent softer between with say split of XX-XX I

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

Security obviously you've well. Chris. just driver Maybe a is you, for follow-up, Okay. and big as growth a done

year. earlier billion I $X think sales in you even with announced CrowdStrike this

that trajectory business you're other into then and business areas might this the of growth cyber that ripple broadly. first end fear just the secondly, the seeing would given global question the the there's that on of spending guess the investor piece I July impact in cost be So business, and to a the effect cyber what pausing have now just outage, at an of beyond

here month are might now in or the largest that closes indicate sitting seeing to July behavior what XX, you're that might not of customer occur? the as July you on We're reseller

conversation high I is around but say conversations other all. customers would we our not Adam, customer delaying feel heightened that, around or Yes. at heightened behavior is alert around and cyber that we're It that. on putting with seeing and more any engagements are cybersecurity, off having and security. does projects

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

customers, CDW extraordinary Well, all stakeholders. thank their partners you the very and to I the around serving and to much. our globe dedication coworkers our our incredible commitment recognize of want

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

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

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

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