NASDAQ:CDW CDW Q3 2024 Earnings Report $10.54 +0.01 (+0.09%) Closing price 04/17/2025 04:00 PM EasternExtended Trading$10.53 -0.01 (-0.09%) As of 04/17/2025 04:05 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast National Research EPS ResultsActual EPS$2.63Consensus EPS $2.68Beat/MissMissed by -$0.05One Year Ago EPS$2.60National Research Revenue ResultsActual Revenue$5.52 billionExpected Revenue$5.72 billionBeat/MissMissed by -$202.56 millionYoY Revenue Growth-2.00%National Research Announcement DetailsQuarterQ3 2024Date10/30/2024TimeBefore Market OpensConference Call DateWednesday, October 30, 2024Conference Call Time8:30AM ETUpcoming EarningsNational Research's Q1 2025 earnings is scheduled for Monday, May 5, 2025, with a conference call scheduled on Wednesday, May 7, 2025 at 11:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by National Research Q3 2024 Earnings Call TranscriptProvided by QuartrOctober 30, 2024 ShareLink copied to clipboard.There are 11 speakers on the call. Operator00:00:00Good morning, all, and thank you for joining us for the CDW Third Quarter 2024 Earnings Call. My name is Carly, and I'll be coordinating your call today. I'd now like to hand over to your host, Steve O'Brien of Investor Relations to begin. Steve, the floor is yours. Speaker 100:00:26Thank you, Carly. Good morning, everyone. Joining me today to review our Q3 2024 results are Chris Leahy, our Chair and Chief Executive Officer and Al Morales, our Chief Financial Officer. Our earnings release was distributed this morning and is available on our website, investor. Cdw.com along with supplemental slides that you can use to follow along during the call. Speaker 100:00:48I'd like to remind you that certain comments made in this presentation are considered forward looking statements 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 and Form 8 ks we furnished to the SEC today and in the company's other filings with SEC. CDW assumes no obligation to update the information presented during this webcast. 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. Speaker 100:01:32All non GAAP measures have been reconciled to the 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 and Form 8 ks. Please note, all references to growth rates or dollar amount changes in our remarks today are versus the comparable period in 2023 with net sales growth rates described on an average daily sales basis unless otherwise indicated. 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. Speaker 100:02:13With that, let me turn the call over to Chris. Speaker 200:02:16Thank you, Steve. Good morning, everyone. I'll begin today's call with a brief overview of our Q3 performance in view for the balance 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. Speaker 200:02:34Market conditions in the Q3 were challenging. While demand for cloud solutions remained strong and we continue to see a pickup in client device growth, hardware solutions remained under pressure and the firmer footing we anticipated for our corporate channel did not materialize. Within this complex environment, the team delivered gross profit of $1,200,000,000 2% lower than last year and gross margin of 21.8 percent net sales of $5,500,000,000 3.5 percent lower on an average daily sales basis non GAAP operating income of $534,000,000 down 4% year over year non GAAP net income per share of $2.63 down 3% year over year adjusted free cash flow of $261,000,000 While our success meeting customer priorities with cost effective software and cloud solutions as well as services led to a resilient gross margin and strong cash flow, results did not meet our expectations as lower than projected solutions hardware drove a shortfall in volume. This shortfall in volume reflects both external factors and CDW specific dynamics. Let's take a look at each of these and most importantly the actions in place to mitigate future impacts. Speaker 200:03:51First, the macro and IT spending environment remain challenging. Technology complexity combined with persistent economic and geopolitical uncertainty has led to large project delays and further extension of sales cycles. Layered on top was the uncertainty around the outcome of the U. S. Election, which has dampened not only government spending, but also other public sector end markets as well as spend from commercial customers. Speaker 200:04:16And finally, this limited demand environment has heightened competition and increased pricing intensity across all end markets. Beyond the current environment, market conditions continue to reflect the secular shifts we've experienced over the past several years, shifts that impact how customers consume IT and how customers pay for IT. Consumption shifts driven by as a service and pay as you go public and private cloud focus have contributed to market pressure on hardware solutions. And while our conviction toward a hybrid cloud approach for IT is unwavering, market demand continues to reflect unprecedented hardware cyclicality. Cyclicality that resulted from pandemic driven demand for work and learn from anywhere on endpoint collaboration and NetComm solutions, which resulted in an off cycle demand boom, a period of supply chain volatility and subsequent digestion. Speaker 200:05:11All of these external factors clearly impacted our results in the quarter and over the past year. The impact has been further amplified by 3 CDW specific dynamics. The first dynamic relates to our long standing financial discipline. While our North Star is to provide value to our customers, in highly competitive markets, we maintain our discipline when competitors pursue transactions on uneconomic terms. While this contributed to lower third quarter sales and gross profit, our gross and operating margins held firm even while we mixed into lower margin client devices. Speaker 200:05:47We've seen this market behavior before and expect it to dissipate as the demand environment improves. 2nd, our exposure to larger deals. As we have deepened and broadened our strategic capabilities, including through the addition of Sirius, our ability to deliver large full stack full outcome projects has expanded. Projects at the higher dollar tier that can be pushed for any number of reasons. This can drive year over year performance lumpiness and depending on the size and timing of decisions impact results. Speaker 200:06:21Impact that is more acute during periods of low demand. You see this in commercial and federal this quarter where larger deals expected to close were deferred or reduced. And the 3rd specific item pertains to our cloud and SaaS based business. While we have grown this business significantly during the past several years, we have not yet achieved the scale we desire relative to our overall portfolio. As such, when demand for hardware softens, it has a more outsized impact on our financial results. Speaker 200:06:52I hope this perspective helps contextualize how CDW specific dynamics amplify the impact of the low market demand environment and created a near term growth challenge that we have not yet been able to overcome. These are not excuses. We own our results. So let's turn to what's important. What are we doing? Speaker 200:07:13As always, our continuous improvement in seller effectiveness is ongoing. This means delivering repeatable solutions and further streamlining the sales processes to maximize sales professional productivity. I'd like to highlight 3 additional focus areas. First, we are organically and inorganically growing our capabilities in the fastest growth highest relevance cloud and software vectors to increase scale in both our services and as a service offerings. This will deliver greater choice and value to our customers and lead to greater recurring and reoccurring revenue streams. Speaker 200:07:512nd, we are further driving exceptional and differentiated customer experience in our core business. We are aligning our digital capabilities to serve customers in the way they want to plan, buy, consume and manage technology. And finally, we are enhancing our agility and accelerating pipeline growth. We are building on our customer growth engine by opening new lanes with both existing and new customers and we are deepening our technical and industry expertise across all end markets. We know more than anything, customers value our unbiased, highly informed point of view, a point of view that enables our ability to architect and implement full stack, multi branded solutions, which cut through the noise and deliver the outcomes our customers need. Speaker 200:08:37These are not new efforts, but we have ramped up intensity. Work is underway and progress is on track. Some actions will have fairly immediate impact and some will take more time to produce results. In the meantime, we remain laser focused on finding pools of profitable growth and converting sales with rigor and speed. Now let's take a deeper look at quarterly results. Speaker 200:09:003rd quarter corporate net sales decreased 4% as sales cycles further elongated, most notably for large infrastructure investments. NetComm storage and servers all declined by significant double digits. We helped customers with client refresh driving growth of high single digits. ASPs remained strong as customers' preference continued to drive higher end devices. Cloud solutions was a priority and gross profit from cloud increased by double digits. Speaker 200:09:31Small business continued to bounce along the bottom with net sales down 2%. Cloud solutions remained strong given their low upfront commitment and customers continued to sweat data center assets. Unlike other channels, client refresh continues to be pushed out as customers remain in a cash preservation mode. Security was strong as cyber threats increased for lower profile businesses. The team's success delivering services drove strong double digits growth in both professional and managed services. Speaker 200:10:04Public performance was less than seasonal and sales decreased 5% year over year. Healthcare was a bright spot in the quarter delivering top line growth of 3%. The team continued its success helping health systems adopt managed services and cloud solutions to better control expenses and they delivered strong double digit growth in services and cloud spend. Similar to corporate, NetComm storage and servers all declined meaningfully. Client was strong, up double digits for the Q2 in a row. Speaker 200:10:35Government declined 12% with both state and local and federal government performance below seasonal in the quarter. Market conditions were challenging for the federal team. Demand impact was felt most acutely in large hardware solutions deals with federal posting double digit declines in both NetComm and servers. Several agencies moved ahead with refresh and for the Q3 in a row client devices increased by double digits. Cloud solutions posted a double digit increase in cloud gross profit. Speaker 200:11:06State and local sales declined by low double digits. Delays due to increased scrutiny and multiple approvals impacted large infrastructure hardware deals with NetComm storage and servers all posting significant declines. Security remained a top priority posting a strong double digit increase in gross profit. Services performance was strong up high double digits driven by professional services. Education sales declined 5%. Speaker 200:11:33Higher Ed's top line declined high single digits. Client devices were flat and slow project materialization and budget constraints and cutbacks at some public universities contributed to double digit declines in netcoms and servers. The team's success helping institutions implement cloud solutions to drive cost elasticity delivered double digit growth in cloud spend and gross profit. K-twelve net sales declined by low single digits, largely driven by declines in audiovisual and netcomm as school systems digested investments made over the past few years. The team continued to help refresh aging Chromebooks and delivered high teens client device growth. Speaker 200:12:15Cloud delivered double digit gross profit growth. Services adoption was also up double digits driven by our managed client device lifecycle solution, which streamlines the configuration, deployment, management and refresh process so school systems can focus on what really matters, their students. Other, our combined U. K. And Canada business performed above our expectations, up 5%. Speaker 200:12:40Both markets experienced stronger demand, albeit off depressed results in the prior year and prior quarter. Both the U. K. And Canada increased by similar amounts in local currency. As you can see, end market performance was mixed during the quarter. Speaker 200:12:54Let's take a look at how this translated to category performance. Portfolio performance reflected our ability to meet customers where and how they wanted with client device, cloud and software and services growth, growth that was more than offset by hardware solutions decline. A low single digit increase in transactions was more than offset by solution sales decreases of double digits. Hardware decreased 7%. High single digit client device growth was more than offset by declines in NetComm, storage and servers. Speaker 200:13:28Software increased 3.5% with healthy gross profit growth. Cloud was an important driver of this performance, up double digits in gross profit. Services increased by 13% driven by managed services and warranties. As you can see while demand varied, the diversity and completeness of our portfolio enables us to meet our customers where and how they need us. And that brings us to our expectations for the rest of the year. Speaker 200:13:55Given current conditions, we do not anticipate market demand to improve for the balance of the year and we now look for the U. S. IT market to be roughly flat with 2023. We expect our results to continue to reflect the market and CDW specific dynamics I referenced with gross profit growth challenged given our mix of hardware and the pronounced cyclicality the market is experiencing. As we always do, we will provide our view on 2025 market conditions in our next call. Speaker 200:14:24There's no denying that we are operating in a tough environment, but we are confident that growth will return. The demand drivers are there, workload expansion and data explosion, increased security threats, client device obsolescence and adoption of AI powered assistance and applications. And when demand picks up, we will be there to profitably capture these opportunities. In the meantime, we are doubling our efforts to drive profitable growth. While this past year has been challenging for us, it has also been challenging for our customers. Speaker 200:14:53As their trusted advisor, customers need us now more than ever. Our relationships are bolstered by our commitment to deliver value to our customers regardless of the demand environment. Now let me turn it over to Al, who will provide more detail on our financials and outlook. Speaker 300:15:09Thank you, Chris, and good morning, everyone. I will start my prepared remarks with details on our Q3 performance, move to capital allocation priorities and then finish with our updated 2024 outlook. 3rd quarter gross profit of $1,200,000,000 was down 2.2% versus the prior year. This was below our original expectations of low single digit growth as strength in cloud and client devices across most channels was offset by lower demand for solutions hardware. Gross margin of 21.8% was flat year over year and quarter over quarter and broadly in line with both full year 2023 levels and our expectations for 2024. Speaker 300:15:513rd quarter margin was aided by a higher mix into sales for CDW Access Agent, also known as netted down revenues. This category grew by 7.1% on a reported basis, once again outpacing overall net sales growth and representing 35.7 percent of our gross profit compared to 32.6% in the prior year Q3. Year over year expansion came from our teams continuing to successfully serve customers with cloud and SaaS based solutions. This led to our highest quarterly netted down revenues we've seen as a company as we met customers where they needed us most. The netted down category of solutions continues to represent an important and durable trend within our business. Speaker 300:16:383rd quarter gross profit was up 1.5% sequentially compared to the Q2 of 2024 on a reported basis. Net sales were up 1.7% sequentially as well. Higher year over year demand in the Healthcare and International channels alongside a sequential increase in government drove growth over the Q2. However, this growth is below both historic seasonal levels and our own expectations as the firmer footing in the corporate space that we saw at the end of the second quarter did not persist through the later months of Q3. We experienced deals getting pushed out and downsized as customers deliberated on where and when to spend and primarily in the solution space. Speaker 300:17:22While international outpaced the U. S. Business in the Q3, we still expect volatility in this space as customers face economic and political uncertainty. Overall, we're competing in a challenging low growth environment and we are focused on achieving profitable growth. We acknowledge that we have work to do to better calibrate market conditions and deliver on our own expectations. Speaker 300:17:46Turning to expenses for the Q2. Non GAAP SG and A totaled $667,000,000 down 0.7% year over year. Expenses were down year over year and quarter over quarter and the efficiency ratio of non GAAP SG and A to gross profit of 55.5% was relatively in line with our expectations. We continue to look to align our cost structure with demand and have taken actions early in the Q4 to better align expenses to market conditions. Coworker count at the end of the 3rd quarter was approximately 15,400, up slightly over the Q2 and modestly above year end. Speaker 300:18:27Customer facing coworker count was also up slightly at approximately 11,200. Our goal is to balance growth and exceptional customer experience with greater efficiency and cost leverage from our broader operations. Non GAAP operating income totaled $534,000,000 down 4% versus the prior year, driven by our volume shortfall, offset by slightly lower expenses year over year. Non GAAP operating income margin of 9.7% was down from 9.9% in the prior year, but up from 9.4% in the 2nd quarter. Our non GAAP net income of $355,000,000 in the quarter, down 3.9% on a year over year basis. Speaker 300:19:11With 3rd quarter weighted average diluted shares of 134,900,000, non GAAP net income per diluted share was $2.63 Moving ahead to the balance sheet. At period end, net debt was roughly $4,900,000,000 Net debt is down $91,000,000 from the 2nd quarter and has decreased by approximately $184,000,000 since year end 2023. During the quarter, we issued $600,000,000 of 2,030 senior notes and $600,000,000 of 2,034 senior notes. We issued the combined $1,200,000,000 to settle the tender offers of both the 2024 and 2025 senior notes and for general corporate purposes that will maximize strategic flexibility. Since Q3 end, we have fully redeemed the 2024 notes. Speaker 300:20:05Liquidity remains strong with cash plus revolver availability of approximately $2,200,000,000 The 3 month average cash conversion cycle was 17 days, up 2 days from the prior year and 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 marketing 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 $261,000,000 in the quarter, roughly consistent with our expectations. Speaker 300:20:53Year to date, adjusted free cash flow was a healthy $764,000,000 80 percent of our non GAAP net income within our stated rule of thumb of 80% to 90% non GAAP net income. We are on track to meet our 2024 objectives. For the quarter, we utilized cash consistent with our 2024 capital allocation objectives, including returning approximately $100,000,000 in share repurchases and $83,000,000 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. That brings me to our capital allocation priorities. Speaker 300:21:39Our first capital priority is increase the dividend in line with our non GAAP net income growth. We're announcing an approximate 1% increase of our dividend to $2.50 annually, our 11th consecutive year of increasing the dividend. We will continue to prudently manage our dividend with respect to the growth environment and target a roughly 25% payout ratio of non GAAP net income going forward. Our second priority is to have the right capital structure in place. We ended the Q3 at 2.3 times net leverage within our targeted range of 2 to 3 times. Speaker 300:22:16We will continue to proactively manage liquidity while maintaining flexibility as evidenced by our recent debt financings. Finally, our 3rd and 4th capital allocation priorities of M and A and share repurchases remain important drivers of shareholder value. We continually evaluate opportunities that could accelerate our 3 part strategy for growth. Year to date, we've utilized over $350,000,000 of cash on share repurchases and have over $730,000,000 of authorization remaining under our current share repurchase program. And that leads us to our outlook. Speaker 300:22:54The uncertain market conditions we operated under throughout 2023 have persisted well into 2024. Demand has been below what we originally anticipated and customer sentiment remains cautious across the majority of end markets. 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. That was the case and was moderately worse than even than we even expected in the Q3. Customers still have a compelling need to address priorities such as cloud workload growth, increasing security threats, aging client devices, but uncertain macroeconomic conditions and a complex technology landscape continue to weigh on customer demand for solutions hardware. Speaker 300:23:48Given these conditions, our updated 2024 expectation is for a low single digit gross profit decline. This implies seasonality slightly below historical levels for the 4th quarter and second half gross profit and net sales. We maintain our expectation for 2024 gross margin to be similar to the full year 2023 and much like we've seen year to date in 2024. Finally, we expect our full year non GAAP earnings per diluted share to be down mid single digits year over year. Please remember, we hold ourselves accountable for delivering our financial outlook on a full year constant currency basis. Speaker 300:24:33Moving to modeling thoughts for the Q4. We anticipate low to mid single digit gross profit declines compared to the prior year, with gross margins slightly above the 1st 3 quarters of 2024, but below the Q4 2023 level. This leads to a slightly worse than seasonal sequential 4th quarter. Traditionally, the 4th quarter is meaningfully lower than the 3rd quarter, principally due to seasonally lower demand from education and government customers. But this first Q4, we also do not anticipate this being offset by seasonally strong demand from corporate and small business customers. Speaker 300:25:13Moving down the P and L. We expect 4th quarter operating expenses to be similar to the level of Q4 of 2023 on a dollar basis. Finally, we expect 4th quarter non GAAP earnings per diluted share to decline in the high single digit range year over year. That concludes the financial summary. As always, we'll provide updated views on the macro environment and our business on our future earnings calls. Speaker 300:25:40And with that, I will ask the operator to open it for questions. We ask each of you to limit your questions to 1 with a brief follow-up. Thank you. Operator00:25:51Thank you. We'd now like to open the lines for Q and A. Our first question Our first question comes from Adam Tindle of Raymond James. Adam, your line is now open. Speaker 400:26:15Okay. Thanks and good morning. I just wanted to start as we analyze this quarter, understand tough macro to predict volumes, but I really wanted to ask about the negative operating leverage down the P and L. And taking a step back, I think what investors really like about CDW is the variable cost model ability to kind of flex up and down the volumes. Understand some of the rationale in the prepared remarks that this seems to be a pattern for the past few quarters. Speaker 400:26:41So I guess the question would be twofold. One for Chris, if you could maybe just assess what is changing and why the negative drop through is increasingly severe down the P and L? It sounds like you decided to implement some restructuring, so maybe you can tie in some of the rationale for that. And then secondly for Al, on that restructuring, if you could just help us with the size and what it does the model in 2025. I think it's about a 10% to 15% of headcount based on the reports that we've seen. Speaker 400:27:09So just trying to right size how we should think about OpEx moving forward. Thank you. Speaker 300:27:17Yes, Adam, actually, this is Al. I will start just to give you a little bit of commentary on the quarter and operating leverage, and I'll let Chris jump in thereafter. So first on the quarter, first, I would just say, Adam, we continue to hold strongly to our variable cost model and the impact therein. For the quarter, if you actually look at our non GAAP SG and A expenses relative to GP, we came in just about at that 55% range, which we've talked about that being kind of the target that we would have. It's maybe slightly higher than we would have anticipated for the quarter, but that was more of a, I'll call it denominator factor that is the GP, was lower than expected. Speaker 300:28:06So in the quarter, we did get the movement in our variable expenses as we would expect. I think the challenge there otherwise, Adam, is that we have a fixed cost base. And while the demand environment has moved pretty dramatically, we certainly have taken action on our fixed costs to try to align with what we were seeing in current demand and what we were seeing as we go forward. It becomes a matter of just the timing therein on that fixed cost base. That said, as you know, going into the Q4, we did take some actions that would reduce our fixed cost base, and that included a reduction in our workforce. Speaker 300:28:50Just to size that for you, Adam, it was about 2% of our workforce. So it was not at the level that you quoted there, but certainly that would align us more closely with where we think we need to be from a fixed cost base perspective. Speaker 200:29:06Yes. And Adam, I would just add that we're being very prudent as we look at where we right size the business, while we continue to invest behind areas that we see will be pockets of growth. So a lot of focus on the demand environment, preserving profitability and also delivering exceptional customer experience for our teams. Speaker 500:29:36Got it. Thank you. Speaker 400:29:37Just a quick clarification since I know that was a long one. When you were talking about the increased pricing intensity and competition, just to clarify, is that higher competition between VARs or is that higher competition and pricing amongst the OEM vendors? Thanks. Speaker 200:29:52Yes, Adam, it's a little of both. It's a little of both. Operator00:30:03Thank you. Our next question comes from David Vogt of UBS. David, your line is now open. Speaker 600:30:12Great. Thanks guys for taking the question. And maybe one for Chris to start. So Chris, I think I heard in your prepared remarks that you'd expect sort of the U. S. Speaker 600:30:20IT market to be flat in 2024 and yet you're confident that you can continue to outgrow it. But obviously, the macro has been tough and it looks like you're going to undergrow the market this year. Did I hear that correctly? And how should we think about what that means going forward? I know you're not giving 2025 guidance, but I think that's a little bit disappointing relative to where investors might have been thinking given the challenging backdrop. Speaker 600:30:43Is it just really a reflection of where the hardware solutions are ending up? And then along those lines, we're hearing from some of our checks that networking and even to a lesser degree storage and service getting a little bit better. Maybe what are you seeing a little bit differently than maybe what we're picking up and what others are maybe communicating in the marketplace? Thank you. Speaker 200:31:05Yes. Let me just start with the market share. That was the beginning of the question. Look, we continue to hold ourselves accountable for delivering a premium to the IT market rate of growth. And looking at this year and this quarter, given the low hardware demand and taking into account our mix, I'd say we're holding serve and feeling very confident that we've performed extremely well in certain areas, say cloud, software as a service, services as an example. Speaker 200:31:37But other areas have been challenged for us. And our view is that hardware will come back. It's a matter of when will that inflection point take place and we'll be well positioned to help our customers in those circumstances. You asked specifically about networking and storage. Look, what we are seeing is we're seeing traction in clients pick up. Speaker 200:31:58And I wouldn't yet call it the inflection point, but we do think we're outperforming in that area. Data center has really been the area where customers have paused, have moved spend to the cloud and are taking longer times to make decisions. That means we're seeing storage, networking and servers all quite muted. But once we see the client refresh start, one would expect to see data center begin to pick up again. As I said before, the catalysts are all there. Speaker 200:32:32Explosion in data, the need for massive bandwidth for networking, digital transformation isn't going anywhere, security continues to get more and more focused. So the catalyst for growth are all there. I think we just got to get to the other side of the uncertainty that we sit. And certainly after we get through the election, there'll be a little more certainty. Speaker 300:32:56And David, maybe I'll just Speaker 600:32:57add a couple of data points there. Sorry, go ahead, Adam. Speaker 300:33:01It's okay. Just to add a couple of data points there. So obviously, all of those categories Chris mentioned in the solution space have been softer. We also have the tough comps from a net comp perspective. Q3 is the last quarter with those tough comps. Speaker 300:33:19So while we would not say that demand is picking up meaningfully on netcom, at least comps get a bit easier. And then the other data point I would just give you is from our vantage point, just hardware overall, we've now seen 8 quarters of declines on hardware. And so again, Chris noted some of the catalysts we think ultimately will play out. We've seen a pretty prolonged period of hardware cyclicality. Speaker 600:33:49Great. And just as a quick follow-up, so when we think about looking at the recovery or the potential recovery or around the timing of the recovery, I know you're not giving 25 outlook, but what are some of the milestones that you're looking at that gives you increased confidence heading into 25? I know obviously the election is coming up and hopefully that kind of changes maybe customer conversations. Anything else sort of maybe at a high level that you're thinking about in your conversations that give you some degree of maybe a leading edge or a leading indicator in terms of what you're thinking about for 2025? Speaker 200:34:23Yes. I think about the things that are creating the current environment and whether or not those change. So uncertainty around the economic environment and geopolitical will have an impact. Obviously, the election policy outcomes of the election are going to be very different. That will have an impact most likely. Speaker 200:34:44Those are the things that are at the forefront of our mind. How the economy is doing frankly, how it's perceived to be doing going to be doing in the future and the volatility across the world are the two things that we look at most closely. Now the complexity in IT is not going anywhere. So the requirement now to have more business and IT leaders involved in decision making, it's our new norm is kind of longer decision cycles for these larger complex projects. And so we're getting used to that, but we don't see that going away anytime soon. Speaker 200:35:20That's what we focus on. Speaker 600:35:23Great. Thank you guys. Speaker 400:35:26Thank you. Operator00:35:27Thank you very much. Our next question comes from Eric Woodring of Morgan Stanley. Eric, your line is now open. Speaker 700:35:36Great. Thank you so much for taking my questions. I have 2 as well. Chris, if we could just go back to some of your comments on product demand. Obviously, lots of commentary about challenges in infrastructure solutions, double digit declines with many customers across NetComm servers and storage. Speaker 700:35:56I just want to make sure I understand, are those rates of declines that you're referencing reflective of the broader market? Or are you seeing those declines simply because you are walking away from some lower profitability deals and therefore you are underperforming in those specific end markets and maybe at the end market though they aren't declining nearly as much as maybe you're seeing. I just love to get a better understanding of this is kind of CDW's view or if this is the broader market view? And then I just have a follow-up. Thanks. Speaker 200:36:26Yes, sure. I would say it is the broader market view possibly tempered a bit by CDW not racing to the bottom because we are walking away from uneconomic deals. It's important to keep protect profitability, etcetera. So I would say it's a bit of both. I would say it is market and consistent with market, but also we are not racing to the bottom. Speaker 700:36:51Okay. All right. That's helpful. And then maybe just on the second question, I'd love if you could maybe elaborate a bit on the market competition comments because you're highlighting market competition, which I can't necessarily remember you citing explicitly before. And to be fair, you guys have encountered several challenging and competitive market environments in the history of the company and still managed to materially outperform peers over those years. Speaker 700:37:18And so maybe my question is just what has changed with competition that is new? And really why would that competitive intensity ever go away even in a period of stronger demand? Thanks so much. Speaker 200:37:31Yes. It's a great question and we do reflect on that. We are used to at a highly competitive environment. What I would say we're feeling right now and this quarter and the past couple of quarters in particular is irrational pricing. And we know how to compete in the market, but we are seeing deals at below margin, low margin, etcetera. Speaker 200:37:55And that just is not our business model. The last time I saw intensity and pricing like this was years ago. So it is a little bit more unique over the last couple of quarters and we're very good with our discipline around financials. So we're holding firm. That's really the answer here. Speaker 200:38:17It's a little unique over the last couple of quarters. We've seen it really tick up. Speaker 700:38:24And just to clarify that is a rational pricing from VARs, from disties or from both? Speaker 200:38:33I would say it's up and down the value chain. So competitors who are value added resellers, direct competitors, distributors, I wouldn't perceive as in that chain as much. Speaker 700:38:47Thank you so much, Chris. Speaker 200:38:50Yes. The behaviors that are going on every competitor is feeling the elongation in the sales cycle, the chunking up agreements to make them smaller, the deferrals, the reductions, the different ways they want to go at, saving money or deferring spending, short term ROIs, that is a market dynamic right now that everybody is feeling. Speaker 300:39:20Understood. Thank you, Chris. Operator00:39:25Thank you. Our next question comes from Amit Daryani of Evercore. Your line is now open. Speaker 800:39:46Good morning. I have 2 as well. I guess, Chris, just to conclude this discussion you had, you folks are on track to have 2 years of consecutive gross profit declines at the company. And it's something you haven't seen at CWI, I think, historically, even if I go back to 'three, 'four or 'seven, 'eight time frames. I understand all the macros that you're talking about, but it feels like the way CDW is navigating this macro uncertainty volatility is worse than what you've seen before. Speaker 800:40:14And why do you think that's happening? And what's changed perhaps in the company that you've had multiple years of gross profit declines, which frankly you haven't had historically? Speaker 200:40:24Yes. Amit, fair question. I'll tell you, we're a company in transformation and we have been in transformation for several years now. So when you think about the specific factors I mentioned, they have been having a real impact on results, amplified by the muted hardware demand environment. So if we just think about the third one I mentioned, which is our cloud and SaaS business, we've been investing behind that business and have grown it incredibly rapidly over the last 5 years. Speaker 200:40:55All of our acquisitions have had a cloud services hooked to them. Nonetheless, given the full portfolio that we have, we have not yet attained the scale that we want to be at relative to the full portfolio. So when hardware is muted, it now has even more of an outsized impact because of the secular movement towards cloud. And we're growing that, but we still have a very high mix of hardware. The other thing is the strategic investments that we've made over the year have been incredibly fruitful in developing broader and deeper strategic capabilities so that we can deliver full stack full outcomes projects. Speaker 200:41:36These now we're seeing at much larger higher dollar tier levels and those are the kinds of projects that are lumpy. We used to talk about this with our federal contracts all the time. The very big deals become lumpier. And depending on when decisions are made, they can get deferred, they can move around, the size can change and therefore it can impact results. And we saw that it was commercial and federal this quarter. Speaker 200:42:01And the last one is what I just talked about in the prior question, which is our financial discipline. We're going to continue to maintain our gross margin discipline as we move forward and we've hit a couple of quarters where we're seeing behavior that is extreme, pricing behavior that's extreme. So I just Amit, I'd say it is a combination of our strategic investments that are working incredibly well visavis value to the customer and growth in fast growing high relevance areas. In an environment where hardware has been and continues to be muted on a persistent basis, it's a bit of a double whammy for us. But I'm confident in the growth Speaker 300:42:51that hardware turns around Go ahead Amit. Speaker 600:42:57No, I'll let you finish. Speaker 200:43:02No, I was just going to say, Go Amit. Speaker 300:43:11I was going to say, Speaker 800:43:12Chris, would this be fair to say that as growth resumes presumably in 2025 that you should start to see gross profit dollars increase back to the way it normally does? It would be a fair way to think about it. And then maybe my clarification was going to be, we've heard from Cisco and Microsoft, some of your bigger vendors on how they're changing their channel pricing and the channel strategy for 2025. Do you see that being a bit of a driver for you as you think about your growth, especially the agent sales piece of the business into next year and beyond? Speaker 200:43:43Yes. As I think about the changes, I think about investing behind our cloud business and really the cloud flywheel where we are delivering a seamless experience from professional managed services to consumption and transaction based services to managed services around the cloud. And by doing that, delivering higher value to our customers, but that's precisely aligned with what our vendors are the CSPs, the Ciscos of the world exactly aligned with what they're incenting and what they want. So we think we're well positioned and that will be a positive benefit for us as we move into 2025 and beyond because it aligns with our strategy and our value that we can deliver to customers. And frankly, it drives because of the services wrap around, it drives better economics for CDW and a stickier relationship with the customer. Operator00:44:46Thank you very much. Our next question comes from Matt Sheerin of Stifel. Matt, your line is now open. Speaker 900:44:57Yes. Thank you. Good morning, everyone. Just another question regarding the comments on client device growth. I think you said mid single digit growth, but it sounds like that was skewed more toward the public markets and not so much corporate and SMB. Speaker 900:45:14And you talked about macro, is the expectation for AI and PCs, is that another reason why we're seeing that push out? And are you seeing any kind of growth in corporate SMB versus enterprise there? Speaker 200:45:31Yes. Matt, thanks for the question. On the client side, we're actually seeing we're seeing growth across almost all of the end markets. Corporate was we saw growth in corporate. It's small business is where we are seeing our customers kind of in a cash preservation mode and so pushing off the client device. Speaker 200:45:48But we really have seen a nice tick up in client across almost all the Speaker 300:45:52end markets. So that's been positive. Yes. And Matt, I'll just add the what has been driving it has been more refresh of aging fleets and need for customers to get on with this activity. It's been less in the way of Win 11 drivers and less in the way of AI PCs. Speaker 200:46:15So next year, as AI PCs do come on board, that will be another nice accelerant for PC Speaker 700:46:22refresh. Speaker 900:46:24Okay, great. Thank you. And then relative to your guidance on gross margin, Al, for Q4, which is down year over year and you had a big bump last year. Is that because you're expecting sort of a lower percentage of the advanced hardware solutions, which carries higher margins or services? What are the other reasons behind that? Speaker 300:46:48Yes. Great question, Matt. It anticipates that we'll continue to see softness in the solution side of the business, which comes at moderately higher gross margins. It assumes that client will continue to tick along, not in an outsized way, but that client would continue to move along. And then we would expect that we would get your typical pickup in more than netted down revenues in the 4th quarter. Speaker 300:47:15I'll just note delta versus Q4 of 2023, is that maybe a little bit modest pick there on the netted down revenues versus last year because it was quite outsized at the end of the year. Speaker 1000:47:31Got it. Okay. Thank you. Operator00:47:34You're welcome. Thank you. Our next question comes from Keith Housum of Northcoast Research. Keith, your line is now open. Speaker 500:47:44Thank you. Two questions as well, if I could. Chris, just trying to reconcile something here. CW has always taught itself as being a relationship driven company, providing value for its customers. But yet we're hearing about transactional competition and losing deals that way. Speaker 500:48:00Perhaps, could you break it out for us, like, how much of this is more transactional where people are just going with the lowest price versus how much of your business is really driven by that relationship and the value you provide? Speaker 200:48:17I would say that when you look at our portfolio and the spectrum of our relationships with our customers, that over 90% of those relationships and those customers would tell you that they buy from CDW because of the value we deliver, the access to a full portfolio, the expertise that we bring to bear, the ease with which they can do business, the agility with which we deliver. That is what every customer says to me when I meet with them. Regarding the pricing in the transaction issues, there are times when there are large rollouts, for example, that where the economics just gets lower and lower and lower. And those are transaction purchases, don't typically have the value wrapped around, and those are the ones that we are less interested in pursuing. Speaker 800:49:09Okay. Speaker 500:49:09Appreciate it. And then you talked about like the move to the as a service model. I guess as I think about that, it's still relatively in infancy, but it's still going to grow as we go from here. So how much of a, I guess, a challenge or a headwind does that present to hardware sales as we kind of think about just the future? Speaker 200:49:29I didn't hear the whole question. I'm sorry. Speaker 300:49:31I think I got it, Keith. Here's what I would say. Obviously, we've seen pronounced cyclicality in hardware and that would typically be pretty significant upfront spend. Think about that as kind of CapEx from a customer's perspective. What we've seen kind of counteracting that in some respects is an increase in our netted down revenues including SaaS and cloud. Speaker 300:49:59Now Keith, historically a lot of that business would be what we would call reoccurring where we are both seeing that business upfront and recognizing that upfront. But I would say that over the last year or 2, more of that business has been moving to a recurring nature and that is where customers are more making judgments on what they want to spend on CloudHealth, but they're consuming it as they go. And therefore, that shows up over time for us. Now I wouldn't call that a material dollar amount at this point, but it is growing. And therefore, I would say that is part of the calculus of kind of the air pocket when you have pronounced cyclicality of hardware and more business that starts to come on as we go. Speaker 300:50:53Certainly, as we continue to grow that sector in that category, we'll report more on kind of that split in details with respect to reoccurring business versus recurring. Hopefully, that's helpful. Speaker 500:51:08Yes. Thank you. Operator00:51:11Thank you very much. Our next question comes from Samik Chatterjee of JPMorgan. Samik, your line is now open. Speaker 1000:51:21Hi. Thank you for taking my questions. I guess if I can start with 1. Chris, you mentioned in your prepared remarks and in some of the responses as well, the exposure to large projects that you have on account of the capabilities that you've invested in over the years. I mean, as you outlined some actions you're taking on the cost structure side, but as you look at the business and the lumpiness that, that drives in terms of exposure to large projects, are there any changes you're contemplating on that side in balancing out the business between larger projects or transactions versus do you still or do you still believe that's the right sort of balance or margin mix to have in the portfolio and really just wait for the market to come back on that front? Speaker 1000:52:07And I have a follow-up. Thank you. Speaker 200:52:12Yes. The way I'd answer that question is kind of yes and yes. In other words, we do have actions underway. Look, we're looking at this quarter in 2025 as an opportunity to accelerate the most important parts of our strategy that we've been working on for several years. But one of them for example would be our digital work. Speaker 200:52:32We've done a lot of foundational work in digital and we just need to go faster. And that really means aligning our digital capabilities and our people to deliver personalized recommendations that match how customers want to buy, plan, consume and manage their assets. So think about this in terms of large deals and perhaps smaller deals as an intersection of our sales professionals moving up a value chain and being available to learn and enabled by digital tools to sell at the highest point of the value chain while creating a seamless digital experience for our customers, a flywheel like, if you will, so that we can deliver both velocity in that digital flywheel and serve customers how they'd like to be served, self serve, etcetera and value with our account managers and sales professionals working together. So that's one area as an example where we our intention is to drive velocity in deals at all sizes lower tier levels, while we continue to build engagements at high value, high levels. Speaker 1000:53:39Okay. Got it. And thank you for that. Quickly for my clarification question. I know you mentioned the election related uncertainty and some of the slower spend on the public sector federal side as well. Speaker 1000:53:51I mean, we've seen elections in the past as well. Have you had instances? Are you looking at any scenarios in which you do end up getting like a budget flush post the election outcomes? Are there any sort of scenarios or any indications of that happening in the Q4? Thank you. Speaker 200:54:11Yes. Hard to tell. I would say this election cycle, I wouldn't I would say there's nothing really normal about it. So hard to tell. I mean, right now what's happening with the federal government is we've got the knock on effects from the delayed budget previously. Speaker 200:54:26And now we've got while we saw strong spending in Department of Defense, we're seeing less than we'd hoped because they're waiting to see what the administration's priorities are. So we right now, we just see the federal government paused. 1 would hope we'll have some more clarity post election, but then the timing comes down to Congress and the President in getting a budget passed. Speaker 300:54:48Maybe, Samik, I'll just add on the back end there. Obviously, we play all of the different scenarios and how things could play out when we look at the quarterly outlooks. I would say our Q4 outlook has the appropriate level of caution baked into it based on all the factors that we talked about, the external factors, TDW specific, and certainly that would include any political uncertainty. Speaker 1000:55:16Got it. Thank you. Thanks for taking the questions. Speaker 600:55:20Thank you. Operator00:55:21Thank you very much. We currently have no further questions. So I'd like to hand back to Chris Leahy, Chair and CEO, for any closing remarks. Speaker 200:55:41Okay. Thank you, operator. Let me close by recognizing the incredible dedication and hard work of our 15,000 co workers around the globe. It's their ongoing commitment to our customers in this challenging environment that makes us successful over the long term. Thank you to our customers for the privilege and opportunity to help you achieve your goals. Speaker 200:56:01And thank you to those listening for your time and continued interest in CAW. Al and I look forward to talking to you next quarter. Operator00:56:09As we conclude today's call, we would like to thank everyone for joining. You may now disconnect yourRead morePowered by Conference Call Audio Live Call not available Earnings Conference CallNational Research Q3 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) National Research Earnings HeadlinesNational Research Stock Price, Quotes and Forecasts | NASDAQ:NRC | BenzingaApril 20 at 11:05 AM | benzinga.comShould You Be Impressed By National Research Corporation's (NASDAQ:NRC) ROE?April 18 at 3:41 AM | finance.yahoo.comMy prediction is coming trueWe've developed a surprisingly effective way to see which stocks could double during massive shake-ups, by using a secret we tested against every horrible thing that's happened to our financial system since 1991.April 20, 2025 | InvestorPlace (Ad)A New Era of Trust: NRC Health’s 2025 Experience Perspective Report Reveals Insights to Elevate the Healthcare ExperienceApril 10, 2025 | finance.yahoo.comNational Research Corporation Declares Quarterly DividendMarch 24, 2025 | businesswire.comTop Stock Reports for Philip Morris, Booking Holdings & Anheuser-BuschMarch 21, 2025 | finance.yahoo.comSee More National Research Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like National Research? Sign up for Earnings360's daily newsletter to receive timely earnings updates on National Research and other key companies, straight to your email. Email Address About National ResearchNational Research (NASDAQ:NRC) provides analytics and insights that facilitate measurement and enhancement of the patient and employee experience. Its portfolio of subscription-based solutions provides actionable information and analysis to healthcare organizations across a range of mission-critical, constituent-related elements, including patient experience, service recovery, care transitions, employee engagement, reputation management, and brand loyalty. The company also offers marketing solutions that allow the tracking of awareness, perception, and consistency of healthcare brands; assessment of competitive differentiators; and enhanced segmentation tools to evaluate needs, wants, and behaviors of communities through real-time competitive assessments and enhanced segmentation tools. 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There are 11 speakers on the call. Operator00:00:00Good morning, all, and thank you for joining us for the CDW Third Quarter 2024 Earnings Call. My name is Carly, and I'll be coordinating your call today. I'd now like to hand over to your host, Steve O'Brien of Investor Relations to begin. Steve, the floor is yours. Speaker 100:00:26Thank you, Carly. Good morning, everyone. Joining me today to review our Q3 2024 results are Chris Leahy, our Chair and Chief Executive Officer and Al Morales, our Chief Financial Officer. Our earnings release was distributed this morning and is available on our website, investor. Cdw.com along with supplemental slides that you can use to follow along during the call. Speaker 100:00:48I'd like to remind you that certain comments made in this presentation are considered forward looking statements 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 and Form 8 ks we furnished to the SEC today and in the company's other filings with SEC. CDW assumes no obligation to update the information presented during this webcast. 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. Speaker 100:01:32All non GAAP measures have been reconciled to the 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 and Form 8 ks. Please note, all references to growth rates or dollar amount changes in our remarks today are versus the comparable period in 2023 with net sales growth rates described on an average daily sales basis unless otherwise indicated. 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. Speaker 100:02:13With that, let me turn the call over to Chris. Speaker 200:02:16Thank you, Steve. Good morning, everyone. I'll begin today's call with a brief overview of our Q3 performance in view for the balance 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. Speaker 200:02:34Market conditions in the Q3 were challenging. While demand for cloud solutions remained strong and we continue to see a pickup in client device growth, hardware solutions remained under pressure and the firmer footing we anticipated for our corporate channel did not materialize. Within this complex environment, the team delivered gross profit of $1,200,000,000 2% lower than last year and gross margin of 21.8 percent net sales of $5,500,000,000 3.5 percent lower on an average daily sales basis non GAAP operating income of $534,000,000 down 4% year over year non GAAP net income per share of $2.63 down 3% year over year adjusted free cash flow of $261,000,000 While our success meeting customer priorities with cost effective software and cloud solutions as well as services led to a resilient gross margin and strong cash flow, results did not meet our expectations as lower than projected solutions hardware drove a shortfall in volume. This shortfall in volume reflects both external factors and CDW specific dynamics. Let's take a look at each of these and most importantly the actions in place to mitigate future impacts. Speaker 200:03:51First, the macro and IT spending environment remain challenging. Technology complexity combined with persistent economic and geopolitical uncertainty has led to large project delays and further extension of sales cycles. Layered on top was the uncertainty around the outcome of the U. S. Election, which has dampened not only government spending, but also other public sector end markets as well as spend from commercial customers. Speaker 200:04:16And finally, this limited demand environment has heightened competition and increased pricing intensity across all end markets. Beyond the current environment, market conditions continue to reflect the secular shifts we've experienced over the past several years, shifts that impact how customers consume IT and how customers pay for IT. Consumption shifts driven by as a service and pay as you go public and private cloud focus have contributed to market pressure on hardware solutions. And while our conviction toward a hybrid cloud approach for IT is unwavering, market demand continues to reflect unprecedented hardware cyclicality. Cyclicality that resulted from pandemic driven demand for work and learn from anywhere on endpoint collaboration and NetComm solutions, which resulted in an off cycle demand boom, a period of supply chain volatility and subsequent digestion. Speaker 200:05:11All of these external factors clearly impacted our results in the quarter and over the past year. The impact has been further amplified by 3 CDW specific dynamics. The first dynamic relates to our long standing financial discipline. While our North Star is to provide value to our customers, in highly competitive markets, we maintain our discipline when competitors pursue transactions on uneconomic terms. While this contributed to lower third quarter sales and gross profit, our gross and operating margins held firm even while we mixed into lower margin client devices. Speaker 200:05:47We've seen this market behavior before and expect it to dissipate as the demand environment improves. 2nd, our exposure to larger deals. As we have deepened and broadened our strategic capabilities, including through the addition of Sirius, our ability to deliver large full stack full outcome projects has expanded. Projects at the higher dollar tier that can be pushed for any number of reasons. This can drive year over year performance lumpiness and depending on the size and timing of decisions impact results. Speaker 200:06:21Impact that is more acute during periods of low demand. You see this in commercial and federal this quarter where larger deals expected to close were deferred or reduced. And the 3rd specific item pertains to our cloud and SaaS based business. While we have grown this business significantly during the past several years, we have not yet achieved the scale we desire relative to our overall portfolio. As such, when demand for hardware softens, it has a more outsized impact on our financial results. Speaker 200:06:52I hope this perspective helps contextualize how CDW specific dynamics amplify the impact of the low market demand environment and created a near term growth challenge that we have not yet been able to overcome. These are not excuses. We own our results. So let's turn to what's important. What are we doing? Speaker 200:07:13As always, our continuous improvement in seller effectiveness is ongoing. This means delivering repeatable solutions and further streamlining the sales processes to maximize sales professional productivity. I'd like to highlight 3 additional focus areas. First, we are organically and inorganically growing our capabilities in the fastest growth highest relevance cloud and software vectors to increase scale in both our services and as a service offerings. This will deliver greater choice and value to our customers and lead to greater recurring and reoccurring revenue streams. Speaker 200:07:512nd, we are further driving exceptional and differentiated customer experience in our core business. We are aligning our digital capabilities to serve customers in the way they want to plan, buy, consume and manage technology. And finally, we are enhancing our agility and accelerating pipeline growth. We are building on our customer growth engine by opening new lanes with both existing and new customers and we are deepening our technical and industry expertise across all end markets. We know more than anything, customers value our unbiased, highly informed point of view, a point of view that enables our ability to architect and implement full stack, multi branded solutions, which cut through the noise and deliver the outcomes our customers need. Speaker 200:08:37These are not new efforts, but we have ramped up intensity. Work is underway and progress is on track. Some actions will have fairly immediate impact and some will take more time to produce results. In the meantime, we remain laser focused on finding pools of profitable growth and converting sales with rigor and speed. Now let's take a deeper look at quarterly results. Speaker 200:09:003rd quarter corporate net sales decreased 4% as sales cycles further elongated, most notably for large infrastructure investments. NetComm storage and servers all declined by significant double digits. We helped customers with client refresh driving growth of high single digits. ASPs remained strong as customers' preference continued to drive higher end devices. Cloud solutions was a priority and gross profit from cloud increased by double digits. Speaker 200:09:31Small business continued to bounce along the bottom with net sales down 2%. Cloud solutions remained strong given their low upfront commitment and customers continued to sweat data center assets. Unlike other channels, client refresh continues to be pushed out as customers remain in a cash preservation mode. Security was strong as cyber threats increased for lower profile businesses. The team's success delivering services drove strong double digits growth in both professional and managed services. Speaker 200:10:04Public performance was less than seasonal and sales decreased 5% year over year. Healthcare was a bright spot in the quarter delivering top line growth of 3%. The team continued its success helping health systems adopt managed services and cloud solutions to better control expenses and they delivered strong double digit growth in services and cloud spend. Similar to corporate, NetComm storage and servers all declined meaningfully. Client was strong, up double digits for the Q2 in a row. Speaker 200:10:35Government declined 12% with both state and local and federal government performance below seasonal in the quarter. Market conditions were challenging for the federal team. Demand impact was felt most acutely in large hardware solutions deals with federal posting double digit declines in both NetComm and servers. Several agencies moved ahead with refresh and for the Q3 in a row client devices increased by double digits. Cloud solutions posted a double digit increase in cloud gross profit. Speaker 200:11:06State and local sales declined by low double digits. Delays due to increased scrutiny and multiple approvals impacted large infrastructure hardware deals with NetComm storage and servers all posting significant declines. Security remained a top priority posting a strong double digit increase in gross profit. Services performance was strong up high double digits driven by professional services. Education sales declined 5%. Speaker 200:11:33Higher Ed's top line declined high single digits. Client devices were flat and slow project materialization and budget constraints and cutbacks at some public universities contributed to double digit declines in netcoms and servers. The team's success helping institutions implement cloud solutions to drive cost elasticity delivered double digit growth in cloud spend and gross profit. K-twelve net sales declined by low single digits, largely driven by declines in audiovisual and netcomm as school systems digested investments made over the past few years. The team continued to help refresh aging Chromebooks and delivered high teens client device growth. Speaker 200:12:15Cloud delivered double digit gross profit growth. Services adoption was also up double digits driven by our managed client device lifecycle solution, which streamlines the configuration, deployment, management and refresh process so school systems can focus on what really matters, their students. Other, our combined U. K. And Canada business performed above our expectations, up 5%. Speaker 200:12:40Both markets experienced stronger demand, albeit off depressed results in the prior year and prior quarter. Both the U. K. And Canada increased by similar amounts in local currency. As you can see, end market performance was mixed during the quarter. Speaker 200:12:54Let's take a look at how this translated to category performance. Portfolio performance reflected our ability to meet customers where and how they wanted with client device, cloud and software and services growth, growth that was more than offset by hardware solutions decline. A low single digit increase in transactions was more than offset by solution sales decreases of double digits. Hardware decreased 7%. High single digit client device growth was more than offset by declines in NetComm, storage and servers. Speaker 200:13:28Software increased 3.5% with healthy gross profit growth. Cloud was an important driver of this performance, up double digits in gross profit. Services increased by 13% driven by managed services and warranties. As you can see while demand varied, the diversity and completeness of our portfolio enables us to meet our customers where and how they need us. And that brings us to our expectations for the rest of the year. Speaker 200:13:55Given current conditions, we do not anticipate market demand to improve for the balance of the year and we now look for the U. S. IT market to be roughly flat with 2023. We expect our results to continue to reflect the market and CDW specific dynamics I referenced with gross profit growth challenged given our mix of hardware and the pronounced cyclicality the market is experiencing. As we always do, we will provide our view on 2025 market conditions in our next call. Speaker 200:14:24There's no denying that we are operating in a tough environment, but we are confident that growth will return. The demand drivers are there, workload expansion and data explosion, increased security threats, client device obsolescence and adoption of AI powered assistance and applications. And when demand picks up, we will be there to profitably capture these opportunities. In the meantime, we are doubling our efforts to drive profitable growth. While this past year has been challenging for us, it has also been challenging for our customers. Speaker 200:14:53As their trusted advisor, customers need us now more than ever. Our relationships are bolstered by our commitment to deliver value to our customers regardless of the demand environment. Now let me turn it over to Al, who will provide more detail on our financials and outlook. Speaker 300:15:09Thank you, Chris, and good morning, everyone. I will start my prepared remarks with details on our Q3 performance, move to capital allocation priorities and then finish with our updated 2024 outlook. 3rd quarter gross profit of $1,200,000,000 was down 2.2% versus the prior year. This was below our original expectations of low single digit growth as strength in cloud and client devices across most channels was offset by lower demand for solutions hardware. Gross margin of 21.8% was flat year over year and quarter over quarter and broadly in line with both full year 2023 levels and our expectations for 2024. Speaker 300:15:513rd quarter margin was aided by a higher mix into sales for CDW Access Agent, also known as netted down revenues. This category grew by 7.1% on a reported basis, once again outpacing overall net sales growth and representing 35.7 percent of our gross profit compared to 32.6% in the prior year Q3. Year over year expansion came from our teams continuing to successfully serve customers with cloud and SaaS based solutions. This led to our highest quarterly netted down revenues we've seen as a company as we met customers where they needed us most. The netted down category of solutions continues to represent an important and durable trend within our business. Speaker 300:16:383rd quarter gross profit was up 1.5% sequentially compared to the Q2 of 2024 on a reported basis. Net sales were up 1.7% sequentially as well. Higher year over year demand in the Healthcare and International channels alongside a sequential increase in government drove growth over the Q2. However, this growth is below both historic seasonal levels and our own expectations as the firmer footing in the corporate space that we saw at the end of the second quarter did not persist through the later months of Q3. We experienced deals getting pushed out and downsized as customers deliberated on where and when to spend and primarily in the solution space. Speaker 300:17:22While international outpaced the U. S. Business in the Q3, we still expect volatility in this space as customers face economic and political uncertainty. Overall, we're competing in a challenging low growth environment and we are focused on achieving profitable growth. We acknowledge that we have work to do to better calibrate market conditions and deliver on our own expectations. Speaker 300:17:46Turning to expenses for the Q2. Non GAAP SG and A totaled $667,000,000 down 0.7% year over year. Expenses were down year over year and quarter over quarter and the efficiency ratio of non GAAP SG and A to gross profit of 55.5% was relatively in line with our expectations. We continue to look to align our cost structure with demand and have taken actions early in the Q4 to better align expenses to market conditions. Coworker count at the end of the 3rd quarter was approximately 15,400, up slightly over the Q2 and modestly above year end. Speaker 300:18:27Customer facing coworker count was also up slightly at approximately 11,200. Our goal is to balance growth and exceptional customer experience with greater efficiency and cost leverage from our broader operations. Non GAAP operating income totaled $534,000,000 down 4% versus the prior year, driven by our volume shortfall, offset by slightly lower expenses year over year. Non GAAP operating income margin of 9.7% was down from 9.9% in the prior year, but up from 9.4% in the 2nd quarter. Our non GAAP net income of $355,000,000 in the quarter, down 3.9% on a year over year basis. Speaker 300:19:11With 3rd quarter weighted average diluted shares of 134,900,000, non GAAP net income per diluted share was $2.63 Moving ahead to the balance sheet. At period end, net debt was roughly $4,900,000,000 Net debt is down $91,000,000 from the 2nd quarter and has decreased by approximately $184,000,000 since year end 2023. During the quarter, we issued $600,000,000 of 2,030 senior notes and $600,000,000 of 2,034 senior notes. We issued the combined $1,200,000,000 to settle the tender offers of both the 2024 and 2025 senior notes and for general corporate purposes that will maximize strategic flexibility. Since Q3 end, we have fully redeemed the 2024 notes. Speaker 300:20:05Liquidity remains strong with cash plus revolver availability of approximately $2,200,000,000 The 3 month average cash conversion cycle was 17 days, up 2 days from the prior year and 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 marketing 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 $261,000,000 in the quarter, roughly consistent with our expectations. Speaker 300:20:53Year to date, adjusted free cash flow was a healthy $764,000,000 80 percent of our non GAAP net income within our stated rule of thumb of 80% to 90% non GAAP net income. We are on track to meet our 2024 objectives. For the quarter, we utilized cash consistent with our 2024 capital allocation objectives, including returning approximately $100,000,000 in share repurchases and $83,000,000 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. That brings me to our capital allocation priorities. Speaker 300:21:39Our first capital priority is increase the dividend in line with our non GAAP net income growth. We're announcing an approximate 1% increase of our dividend to $2.50 annually, our 11th consecutive year of increasing the dividend. We will continue to prudently manage our dividend with respect to the growth environment and target a roughly 25% payout ratio of non GAAP net income going forward. Our second priority is to have the right capital structure in place. We ended the Q3 at 2.3 times net leverage within our targeted range of 2 to 3 times. Speaker 300:22:16We will continue to proactively manage liquidity while maintaining flexibility as evidenced by our recent debt financings. Finally, our 3rd and 4th capital allocation priorities of M and A and share repurchases remain important drivers of shareholder value. We continually evaluate opportunities that could accelerate our 3 part strategy for growth. Year to date, we've utilized over $350,000,000 of cash on share repurchases and have over $730,000,000 of authorization remaining under our current share repurchase program. And that leads us to our outlook. Speaker 300:22:54The uncertain market conditions we operated under throughout 2023 have persisted well into 2024. Demand has been below what we originally anticipated and customer sentiment remains cautious across the majority of end markets. 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. That was the case and was moderately worse than even than we even expected in the Q3. Customers still have a compelling need to address priorities such as cloud workload growth, increasing security threats, aging client devices, but uncertain macroeconomic conditions and a complex technology landscape continue to weigh on customer demand for solutions hardware. Speaker 300:23:48Given these conditions, our updated 2024 expectation is for a low single digit gross profit decline. This implies seasonality slightly below historical levels for the 4th quarter and second half gross profit and net sales. We maintain our expectation for 2024 gross margin to be similar to the full year 2023 and much like we've seen year to date in 2024. Finally, we expect our full year non GAAP earnings per diluted share to be down mid single digits year over year. Please remember, we hold ourselves accountable for delivering our financial outlook on a full year constant currency basis. Speaker 300:24:33Moving to modeling thoughts for the Q4. We anticipate low to mid single digit gross profit declines compared to the prior year, with gross margins slightly above the 1st 3 quarters of 2024, but below the Q4 2023 level. This leads to a slightly worse than seasonal sequential 4th quarter. Traditionally, the 4th quarter is meaningfully lower than the 3rd quarter, principally due to seasonally lower demand from education and government customers. But this first Q4, we also do not anticipate this being offset by seasonally strong demand from corporate and small business customers. Speaker 300:25:13Moving down the P and L. We expect 4th quarter operating expenses to be similar to the level of Q4 of 2023 on a dollar basis. Finally, we expect 4th quarter non GAAP earnings per diluted share to decline in the high single digit range year over year. That concludes the financial summary. As always, we'll provide updated views on the macro environment and our business on our future earnings calls. Speaker 300:25:40And with that, I will ask the operator to open it for questions. We ask each of you to limit your questions to 1 with a brief follow-up. Thank you. Operator00:25:51Thank you. We'd now like to open the lines for Q and A. Our first question Our first question comes from Adam Tindle of Raymond James. Adam, your line is now open. Speaker 400:26:15Okay. Thanks and good morning. I just wanted to start as we analyze this quarter, understand tough macro to predict volumes, but I really wanted to ask about the negative operating leverage down the P and L. And taking a step back, I think what investors really like about CDW is the variable cost model ability to kind of flex up and down the volumes. Understand some of the rationale in the prepared remarks that this seems to be a pattern for the past few quarters. Speaker 400:26:41So I guess the question would be twofold. One for Chris, if you could maybe just assess what is changing and why the negative drop through is increasingly severe down the P and L? It sounds like you decided to implement some restructuring, so maybe you can tie in some of the rationale for that. And then secondly for Al, on that restructuring, if you could just help us with the size and what it does the model in 2025. I think it's about a 10% to 15% of headcount based on the reports that we've seen. Speaker 400:27:09So just trying to right size how we should think about OpEx moving forward. Thank you. Speaker 300:27:17Yes, Adam, actually, this is Al. I will start just to give you a little bit of commentary on the quarter and operating leverage, and I'll let Chris jump in thereafter. So first on the quarter, first, I would just say, Adam, we continue to hold strongly to our variable cost model and the impact therein. For the quarter, if you actually look at our non GAAP SG and A expenses relative to GP, we came in just about at that 55% range, which we've talked about that being kind of the target that we would have. It's maybe slightly higher than we would have anticipated for the quarter, but that was more of a, I'll call it denominator factor that is the GP, was lower than expected. Speaker 300:28:06So in the quarter, we did get the movement in our variable expenses as we would expect. I think the challenge there otherwise, Adam, is that we have a fixed cost base. And while the demand environment has moved pretty dramatically, we certainly have taken action on our fixed costs to try to align with what we were seeing in current demand and what we were seeing as we go forward. It becomes a matter of just the timing therein on that fixed cost base. That said, as you know, going into the Q4, we did take some actions that would reduce our fixed cost base, and that included a reduction in our workforce. Speaker 300:28:50Just to size that for you, Adam, it was about 2% of our workforce. So it was not at the level that you quoted there, but certainly that would align us more closely with where we think we need to be from a fixed cost base perspective. Speaker 200:29:06Yes. And Adam, I would just add that we're being very prudent as we look at where we right size the business, while we continue to invest behind areas that we see will be pockets of growth. So a lot of focus on the demand environment, preserving profitability and also delivering exceptional customer experience for our teams. Speaker 500:29:36Got it. Thank you. Speaker 400:29:37Just a quick clarification since I know that was a long one. When you were talking about the increased pricing intensity and competition, just to clarify, is that higher competition between VARs or is that higher competition and pricing amongst the OEM vendors? Thanks. Speaker 200:29:52Yes, Adam, it's a little of both. It's a little of both. Operator00:30:03Thank you. Our next question comes from David Vogt of UBS. David, your line is now open. Speaker 600:30:12Great. Thanks guys for taking the question. And maybe one for Chris to start. So Chris, I think I heard in your prepared remarks that you'd expect sort of the U. S. Speaker 600:30:20IT market to be flat in 2024 and yet you're confident that you can continue to outgrow it. But obviously, the macro has been tough and it looks like you're going to undergrow the market this year. Did I hear that correctly? And how should we think about what that means going forward? I know you're not giving 2025 guidance, but I think that's a little bit disappointing relative to where investors might have been thinking given the challenging backdrop. Speaker 600:30:43Is it just really a reflection of where the hardware solutions are ending up? And then along those lines, we're hearing from some of our checks that networking and even to a lesser degree storage and service getting a little bit better. Maybe what are you seeing a little bit differently than maybe what we're picking up and what others are maybe communicating in the marketplace? Thank you. Speaker 200:31:05Yes. Let me just start with the market share. That was the beginning of the question. Look, we continue to hold ourselves accountable for delivering a premium to the IT market rate of growth. And looking at this year and this quarter, given the low hardware demand and taking into account our mix, I'd say we're holding serve and feeling very confident that we've performed extremely well in certain areas, say cloud, software as a service, services as an example. Speaker 200:31:37But other areas have been challenged for us. And our view is that hardware will come back. It's a matter of when will that inflection point take place and we'll be well positioned to help our customers in those circumstances. You asked specifically about networking and storage. Look, what we are seeing is we're seeing traction in clients pick up. Speaker 200:31:58And I wouldn't yet call it the inflection point, but we do think we're outperforming in that area. Data center has really been the area where customers have paused, have moved spend to the cloud and are taking longer times to make decisions. That means we're seeing storage, networking and servers all quite muted. But once we see the client refresh start, one would expect to see data center begin to pick up again. As I said before, the catalysts are all there. Speaker 200:32:32Explosion in data, the need for massive bandwidth for networking, digital transformation isn't going anywhere, security continues to get more and more focused. So the catalyst for growth are all there. I think we just got to get to the other side of the uncertainty that we sit. And certainly after we get through the election, there'll be a little more certainty. Speaker 300:32:56And David, maybe I'll just Speaker 600:32:57add a couple of data points there. Sorry, go ahead, Adam. Speaker 300:33:01It's okay. Just to add a couple of data points there. So obviously, all of those categories Chris mentioned in the solution space have been softer. We also have the tough comps from a net comp perspective. Q3 is the last quarter with those tough comps. Speaker 300:33:19So while we would not say that demand is picking up meaningfully on netcom, at least comps get a bit easier. And then the other data point I would just give you is from our vantage point, just hardware overall, we've now seen 8 quarters of declines on hardware. And so again, Chris noted some of the catalysts we think ultimately will play out. We've seen a pretty prolonged period of hardware cyclicality. Speaker 600:33:49Great. And just as a quick follow-up, so when we think about looking at the recovery or the potential recovery or around the timing of the recovery, I know you're not giving 25 outlook, but what are some of the milestones that you're looking at that gives you increased confidence heading into 25? I know obviously the election is coming up and hopefully that kind of changes maybe customer conversations. Anything else sort of maybe at a high level that you're thinking about in your conversations that give you some degree of maybe a leading edge or a leading indicator in terms of what you're thinking about for 2025? Speaker 200:34:23Yes. I think about the things that are creating the current environment and whether or not those change. So uncertainty around the economic environment and geopolitical will have an impact. Obviously, the election policy outcomes of the election are going to be very different. That will have an impact most likely. Speaker 200:34:44Those are the things that are at the forefront of our mind. How the economy is doing frankly, how it's perceived to be doing going to be doing in the future and the volatility across the world are the two things that we look at most closely. Now the complexity in IT is not going anywhere. So the requirement now to have more business and IT leaders involved in decision making, it's our new norm is kind of longer decision cycles for these larger complex projects. And so we're getting used to that, but we don't see that going away anytime soon. Speaker 200:35:20That's what we focus on. Speaker 600:35:23Great. Thank you guys. Speaker 400:35:26Thank you. Operator00:35:27Thank you very much. Our next question comes from Eric Woodring of Morgan Stanley. Eric, your line is now open. Speaker 700:35:36Great. Thank you so much for taking my questions. I have 2 as well. Chris, if we could just go back to some of your comments on product demand. Obviously, lots of commentary about challenges in infrastructure solutions, double digit declines with many customers across NetComm servers and storage. Speaker 700:35:56I just want to make sure I understand, are those rates of declines that you're referencing reflective of the broader market? Or are you seeing those declines simply because you are walking away from some lower profitability deals and therefore you are underperforming in those specific end markets and maybe at the end market though they aren't declining nearly as much as maybe you're seeing. I just love to get a better understanding of this is kind of CDW's view or if this is the broader market view? And then I just have a follow-up. Thanks. Speaker 200:36:26Yes, sure. I would say it is the broader market view possibly tempered a bit by CDW not racing to the bottom because we are walking away from uneconomic deals. It's important to keep protect profitability, etcetera. So I would say it's a bit of both. I would say it is market and consistent with market, but also we are not racing to the bottom. Speaker 700:36:51Okay. All right. That's helpful. And then maybe just on the second question, I'd love if you could maybe elaborate a bit on the market competition comments because you're highlighting market competition, which I can't necessarily remember you citing explicitly before. And to be fair, you guys have encountered several challenging and competitive market environments in the history of the company and still managed to materially outperform peers over those years. Speaker 700:37:18And so maybe my question is just what has changed with competition that is new? And really why would that competitive intensity ever go away even in a period of stronger demand? Thanks so much. Speaker 200:37:31Yes. It's a great question and we do reflect on that. We are used to at a highly competitive environment. What I would say we're feeling right now and this quarter and the past couple of quarters in particular is irrational pricing. And we know how to compete in the market, but we are seeing deals at below margin, low margin, etcetera. Speaker 200:37:55And that just is not our business model. The last time I saw intensity and pricing like this was years ago. So it is a little bit more unique over the last couple of quarters and we're very good with our discipline around financials. So we're holding firm. That's really the answer here. Speaker 200:38:17It's a little unique over the last couple of quarters. We've seen it really tick up. Speaker 700:38:24And just to clarify that is a rational pricing from VARs, from disties or from both? Speaker 200:38:33I would say it's up and down the value chain. So competitors who are value added resellers, direct competitors, distributors, I wouldn't perceive as in that chain as much. Speaker 700:38:47Thank you so much, Chris. Speaker 200:38:50Yes. The behaviors that are going on every competitor is feeling the elongation in the sales cycle, the chunking up agreements to make them smaller, the deferrals, the reductions, the different ways they want to go at, saving money or deferring spending, short term ROIs, that is a market dynamic right now that everybody is feeling. Speaker 300:39:20Understood. Thank you, Chris. Operator00:39:25Thank you. Our next question comes from Amit Daryani of Evercore. Your line is now open. Speaker 800:39:46Good morning. I have 2 as well. I guess, Chris, just to conclude this discussion you had, you folks are on track to have 2 years of consecutive gross profit declines at the company. And it's something you haven't seen at CWI, I think, historically, even if I go back to 'three, 'four or 'seven, 'eight time frames. I understand all the macros that you're talking about, but it feels like the way CDW is navigating this macro uncertainty volatility is worse than what you've seen before. Speaker 800:40:14And why do you think that's happening? And what's changed perhaps in the company that you've had multiple years of gross profit declines, which frankly you haven't had historically? Speaker 200:40:24Yes. Amit, fair question. I'll tell you, we're a company in transformation and we have been in transformation for several years now. So when you think about the specific factors I mentioned, they have been having a real impact on results, amplified by the muted hardware demand environment. So if we just think about the third one I mentioned, which is our cloud and SaaS business, we've been investing behind that business and have grown it incredibly rapidly over the last 5 years. Speaker 200:40:55All of our acquisitions have had a cloud services hooked to them. Nonetheless, given the full portfolio that we have, we have not yet attained the scale that we want to be at relative to the full portfolio. So when hardware is muted, it now has even more of an outsized impact because of the secular movement towards cloud. And we're growing that, but we still have a very high mix of hardware. The other thing is the strategic investments that we've made over the year have been incredibly fruitful in developing broader and deeper strategic capabilities so that we can deliver full stack full outcomes projects. Speaker 200:41:36These now we're seeing at much larger higher dollar tier levels and those are the kinds of projects that are lumpy. We used to talk about this with our federal contracts all the time. The very big deals become lumpier. And depending on when decisions are made, they can get deferred, they can move around, the size can change and therefore it can impact results. And we saw that it was commercial and federal this quarter. Speaker 200:42:01And the last one is what I just talked about in the prior question, which is our financial discipline. We're going to continue to maintain our gross margin discipline as we move forward and we've hit a couple of quarters where we're seeing behavior that is extreme, pricing behavior that's extreme. So I just Amit, I'd say it is a combination of our strategic investments that are working incredibly well visavis value to the customer and growth in fast growing high relevance areas. In an environment where hardware has been and continues to be muted on a persistent basis, it's a bit of a double whammy for us. But I'm confident in the growth Speaker 300:42:51that hardware turns around Go ahead Amit. Speaker 600:42:57No, I'll let you finish. Speaker 200:43:02No, I was just going to say, Go Amit. Speaker 300:43:11I was going to say, Speaker 800:43:12Chris, would this be fair to say that as growth resumes presumably in 2025 that you should start to see gross profit dollars increase back to the way it normally does? It would be a fair way to think about it. And then maybe my clarification was going to be, we've heard from Cisco and Microsoft, some of your bigger vendors on how they're changing their channel pricing and the channel strategy for 2025. Do you see that being a bit of a driver for you as you think about your growth, especially the agent sales piece of the business into next year and beyond? Speaker 200:43:43Yes. As I think about the changes, I think about investing behind our cloud business and really the cloud flywheel where we are delivering a seamless experience from professional managed services to consumption and transaction based services to managed services around the cloud. And by doing that, delivering higher value to our customers, but that's precisely aligned with what our vendors are the CSPs, the Ciscos of the world exactly aligned with what they're incenting and what they want. So we think we're well positioned and that will be a positive benefit for us as we move into 2025 and beyond because it aligns with our strategy and our value that we can deliver to customers. And frankly, it drives because of the services wrap around, it drives better economics for CDW and a stickier relationship with the customer. Operator00:44:46Thank you very much. Our next question comes from Matt Sheerin of Stifel. Matt, your line is now open. Speaker 900:44:57Yes. Thank you. Good morning, everyone. Just another question regarding the comments on client device growth. I think you said mid single digit growth, but it sounds like that was skewed more toward the public markets and not so much corporate and SMB. Speaker 900:45:14And you talked about macro, is the expectation for AI and PCs, is that another reason why we're seeing that push out? And are you seeing any kind of growth in corporate SMB versus enterprise there? Speaker 200:45:31Yes. Matt, thanks for the question. On the client side, we're actually seeing we're seeing growth across almost all of the end markets. Corporate was we saw growth in corporate. It's small business is where we are seeing our customers kind of in a cash preservation mode and so pushing off the client device. Speaker 200:45:48But we really have seen a nice tick up in client across almost all the Speaker 300:45:52end markets. So that's been positive. Yes. And Matt, I'll just add the what has been driving it has been more refresh of aging fleets and need for customers to get on with this activity. It's been less in the way of Win 11 drivers and less in the way of AI PCs. Speaker 200:46:15So next year, as AI PCs do come on board, that will be another nice accelerant for PC Speaker 700:46:22refresh. Speaker 900:46:24Okay, great. Thank you. And then relative to your guidance on gross margin, Al, for Q4, which is down year over year and you had a big bump last year. Is that because you're expecting sort of a lower percentage of the advanced hardware solutions, which carries higher margins or services? What are the other reasons behind that? Speaker 300:46:48Yes. Great question, Matt. It anticipates that we'll continue to see softness in the solution side of the business, which comes at moderately higher gross margins. It assumes that client will continue to tick along, not in an outsized way, but that client would continue to move along. And then we would expect that we would get your typical pickup in more than netted down revenues in the 4th quarter. Speaker 300:47:15I'll just note delta versus Q4 of 2023, is that maybe a little bit modest pick there on the netted down revenues versus last year because it was quite outsized at the end of the year. Speaker 1000:47:31Got it. Okay. Thank you. Operator00:47:34You're welcome. Thank you. Our next question comes from Keith Housum of Northcoast Research. Keith, your line is now open. Speaker 500:47:44Thank you. Two questions as well, if I could. Chris, just trying to reconcile something here. CW has always taught itself as being a relationship driven company, providing value for its customers. But yet we're hearing about transactional competition and losing deals that way. Speaker 500:48:00Perhaps, could you break it out for us, like, how much of this is more transactional where people are just going with the lowest price versus how much of your business is really driven by that relationship and the value you provide? Speaker 200:48:17I would say that when you look at our portfolio and the spectrum of our relationships with our customers, that over 90% of those relationships and those customers would tell you that they buy from CDW because of the value we deliver, the access to a full portfolio, the expertise that we bring to bear, the ease with which they can do business, the agility with which we deliver. That is what every customer says to me when I meet with them. Regarding the pricing in the transaction issues, there are times when there are large rollouts, for example, that where the economics just gets lower and lower and lower. And those are transaction purchases, don't typically have the value wrapped around, and those are the ones that we are less interested in pursuing. Speaker 800:49:09Okay. Speaker 500:49:09Appreciate it. And then you talked about like the move to the as a service model. I guess as I think about that, it's still relatively in infancy, but it's still going to grow as we go from here. So how much of a, I guess, a challenge or a headwind does that present to hardware sales as we kind of think about just the future? Speaker 200:49:29I didn't hear the whole question. I'm sorry. Speaker 300:49:31I think I got it, Keith. Here's what I would say. Obviously, we've seen pronounced cyclicality in hardware and that would typically be pretty significant upfront spend. Think about that as kind of CapEx from a customer's perspective. What we've seen kind of counteracting that in some respects is an increase in our netted down revenues including SaaS and cloud. Speaker 300:49:59Now Keith, historically a lot of that business would be what we would call reoccurring where we are both seeing that business upfront and recognizing that upfront. But I would say that over the last year or 2, more of that business has been moving to a recurring nature and that is where customers are more making judgments on what they want to spend on CloudHealth, but they're consuming it as they go. And therefore, that shows up over time for us. Now I wouldn't call that a material dollar amount at this point, but it is growing. And therefore, I would say that is part of the calculus of kind of the air pocket when you have pronounced cyclicality of hardware and more business that starts to come on as we go. Speaker 300:50:53Certainly, as we continue to grow that sector in that category, we'll report more on kind of that split in details with respect to reoccurring business versus recurring. Hopefully, that's helpful. Speaker 500:51:08Yes. Thank you. Operator00:51:11Thank you very much. Our next question comes from Samik Chatterjee of JPMorgan. Samik, your line is now open. Speaker 1000:51:21Hi. Thank you for taking my questions. I guess if I can start with 1. Chris, you mentioned in your prepared remarks and in some of the responses as well, the exposure to large projects that you have on account of the capabilities that you've invested in over the years. I mean, as you outlined some actions you're taking on the cost structure side, but as you look at the business and the lumpiness that, that drives in terms of exposure to large projects, are there any changes you're contemplating on that side in balancing out the business between larger projects or transactions versus do you still or do you still believe that's the right sort of balance or margin mix to have in the portfolio and really just wait for the market to come back on that front? Speaker 1000:52:07And I have a follow-up. Thank you. Speaker 200:52:12Yes. The way I'd answer that question is kind of yes and yes. In other words, we do have actions underway. Look, we're looking at this quarter in 2025 as an opportunity to accelerate the most important parts of our strategy that we've been working on for several years. But one of them for example would be our digital work. Speaker 200:52:32We've done a lot of foundational work in digital and we just need to go faster. And that really means aligning our digital capabilities and our people to deliver personalized recommendations that match how customers want to buy, plan, consume and manage their assets. So think about this in terms of large deals and perhaps smaller deals as an intersection of our sales professionals moving up a value chain and being available to learn and enabled by digital tools to sell at the highest point of the value chain while creating a seamless digital experience for our customers, a flywheel like, if you will, so that we can deliver both velocity in that digital flywheel and serve customers how they'd like to be served, self serve, etcetera and value with our account managers and sales professionals working together. So that's one area as an example where we our intention is to drive velocity in deals at all sizes lower tier levels, while we continue to build engagements at high value, high levels. Speaker 1000:53:39Okay. Got it. And thank you for that. Quickly for my clarification question. I know you mentioned the election related uncertainty and some of the slower spend on the public sector federal side as well. Speaker 1000:53:51I mean, we've seen elections in the past as well. Have you had instances? Are you looking at any scenarios in which you do end up getting like a budget flush post the election outcomes? Are there any sort of scenarios or any indications of that happening in the Q4? Thank you. Speaker 200:54:11Yes. Hard to tell. I would say this election cycle, I wouldn't I would say there's nothing really normal about it. So hard to tell. I mean, right now what's happening with the federal government is we've got the knock on effects from the delayed budget previously. Speaker 200:54:26And now we've got while we saw strong spending in Department of Defense, we're seeing less than we'd hoped because they're waiting to see what the administration's priorities are. So we right now, we just see the federal government paused. 1 would hope we'll have some more clarity post election, but then the timing comes down to Congress and the President in getting a budget passed. Speaker 300:54:48Maybe, Samik, I'll just add on the back end there. Obviously, we play all of the different scenarios and how things could play out when we look at the quarterly outlooks. I would say our Q4 outlook has the appropriate level of caution baked into it based on all the factors that we talked about, the external factors, TDW specific, and certainly that would include any political uncertainty. Speaker 1000:55:16Got it. Thank you. Thanks for taking the questions. Speaker 600:55:20Thank you. Operator00:55:21Thank you very much. We currently have no further questions. So I'd like to hand back to Chris Leahy, Chair and CEO, for any closing remarks. Speaker 200:55:41Okay. Thank you, operator. Let me close by recognizing the incredible dedication and hard work of our 15,000 co workers around the globe. It's their ongoing commitment to our customers in this challenging environment that makes us successful over the long term. Thank you to our customers for the privilege and opportunity to help you achieve your goals. Speaker 200:56:01And thank you to those listening for your time and continued interest in CAW. Al and I look forward to talking to you next quarter. Operator00:56:09As we conclude today's call, we would like to thank everyone for joining. You may now disconnect yourRead morePowered by