Christine A. Leahy
Chair, President and Chief Executive Officer at CDW
Thank you, Steve. Good morning everyone. I'll begin today's call with a brief overview of our performance, strategic progress, and view on the second half of the year. Al will provide additional detail on our results, our capital allocation priorities and our outlook. We'll move quickly through our prepared remarks to ensure we have plenty of time for questions.
Second quarter market dynamics played out roughly as we expected. Cautious customer behavior once again, elongated sales cycles and drove prioritization of needs over wants and cost savings over expansion, capital investment in complex solutions, particularly those tied to data center and network modernization, continued to be downsized or put on hold, and there was growing refresh activity and client devices.
What was not expected were two end market specific dynamics, a worsening in the UK environment and further federal funding challenges. Within a limited demand environment, we continue to help our customers build out technology roadmaps and our pipeline remains solid in the solution space. Conversion remains challenging with uncertainty weighing on our customers appetite to spend.
The team's value as a trusted advisor and ability to deliver solutions that met our customers most pressing priorities drove excellent performance across cloud, security and services. Performance that contributed to strong profitability and cash flow, performance made possible by the strategic investments we have made over the past five years to bring full stack, full lifecycle solutions to our customers.
For the quarter, the team delivered gross profit of $1.2 billion flat year over year with a gross margin of 21.8%, up 80 basis points. Net sales of $5.4 billion, which were down 3.6%, non-GAAP operating income of $510 million, down 3.7% with a non-GAAP operating income margin of 9.4%, which was flat and non-GAAP earnings per share of $2.50, which was down 2.6%.
Let's take a look at this quarter's performance drivers. First, our balanced portfolio of end markets. Recall, we have five sales channels, corporate, small business, health care, government and education, each a meaningful business on its own with 2023 annual sales ranging from $1.6 billion to $9 billion.
Channels are further segmented to focus on customer end markets, including geography, verticals and customer size and spend. Teams are similarly segmented in our UK and Canadian operations which together delivered US$2.6 billion in 2023 sales. These unique customer end markets are typically uncorrelated given the different economic and external factors that impact each of them. Our second quarter results provide a good example of this.
Corporate posted a net sales decline of 2%, robust increases in cloud and security supported profitability with a meaningful increase in gross margin. Client devices increased for the second quarter in a row and posted both year-over-year and sequential sales increases of low double digits. Notably, client device ASP sell firm with a mix into higher value, higher functionality units.
Once again, servers and Netcomm declined as customers continue to undergo technology transitions and absorb capacity. Storage was a standout category increasing double digits driven by upgrades of legacy systems. Small business net sales declined 3%. The team's ability to help customers address mission-critical priorities around security and productivity with cost-effective software and cloud solutions contributed to improvements in both gross profit and margin.
Small business did not see significant refresh activity and while increasing mid-single digits sequentially, client devices declined slightly year-over-year in the quarter. Consistent with corporate ongoing postponement of infrastructure investments in net common servers drove low double-digit declines. Public sales declined 2% in the quarter with mixed performance by end market.
Government decreased 6% as growth in state and local was more than offset by a decline in federal. Federal results were further impacted by the delayed fiscal 2024 budget authorization as several key customers did not receive funding releases until late June, weeks later than expected. These released funds face processing delays from the normal years of government as hardware and software orders require solicitation, competitive bids and evaluation.
We know that ongoing projects will eventually move forward, but some agencies may pause new projects as they await the clarity around next administration's priorities. In light of these layers of friction and uncertainty, we do not expect a federal catch-up in the back half of 2024. The state and local team had another solid quarter, up mid-single digits. Security remained a key performance driver. Client devices increased by mid-single digits both year-over-year and sequentially.
While early state and local budget dollars are being allocated to improving citizens' experience at state and municipal agencies, including enhanced AI-powered automated response and messaging platforms. Health care net sales were flat. Security remained a key focus area, and the team delivered robust customer spend and gross profit growth, led by security assessments for cloud migration and identity management. Driven by refresh client devices increased by double digits. The team's ability to deliver cloud migration, including moving applications out of hospital data centers, drove excellent cloud performance and contributed to both increased gross margin and profitability.
Education sales declined roughly 1%. K-12's top line was roughly flat year-over-year while profitability grew. For the second quarter in a row, client device sales increased up mid-single digits, as school systems refreshed aged Chromebooks. Security and Cloud remain top priorities, both delivering strong growth in gross profit. Once again, collaboration hardware, primarily smart whiteboards and interactive flat panels declined meaningfully as schools continue to digest the significant purchases made over the past several years.
With the sunsetting of ECS funds and upcoming deadlines for Essar [Phonetic] funds at September 30, the team is focused on helping their customers pivot to refresh programs funded through traditional mechanisms. Consistent with recent quarters, higher ed institutions remain focused on investments to enhance student experience to drive enrollment, while doing more with less, and the team posted a mid-single-digit top line decline. Cost elasticity continue to drive strong double-digit growth in cloud. Security remained a top priority, up strong double digits and client devices returned to growth in the quarter, up high single digits, driven by a refresh.
Our UK and Canadian international operations, which we report as other declined 13%. While both teams continue to execute well, the demand environment, particularly in the UK, worsened during the quarter as the early general election amplified already challenging conditions. UK sales declined high teens in US dollars and Canada declined 4% in US dollars.
Given current conditions, we expect the UK market to remain volatile and under pressure through the back half of the year. As you can see, the diversity our end markets results is fundamental to the first driver of our performance, our balanced portfolio of customer end markets. Category performance demonstrates the benefit of our second performance driver, our broad and deep portfolio of products and solutions.
Transactions categories increased during the quarter, while solutions categories declined. Both transactions and solutions increased sequentially in the quarter. At the portfolio level, hardware decreased 5%. High single-digit client device growth and mid-single-digit store growth was more than offset by meaningful declines in Netcomm and collaboration.
Software customer spend increased mid-single digits, while net sales were impacted by our strong mix into netted down revenue and decreased by 1%. Services increased by 6%, driven by cloud and security-related services. Once again, cloud was an important performance driver contributing double-digit gross profit growth across software, services and security. Profitable growth that was enabled by the strategic investments, both organic and acquired, we have made in solutions and services capabilities over the past five years.
And this leads to the final driver of our performance in the quarter, our 3-part strategy for growth, which is, first, acquire new customers and capture share; second, enhance our solutions capabilities; and third, expand our services capabilities. Each pillar is crucial to ability to profitably advise, design, orchestrate and manage the solutions our customers want and need in any environment.
Let me share an example of our strategy in action as we delivered on a customer's priority in today's challenging demand environment. An insurance company faced early end of life for its hyperconverged infrastructure equipment, something not contemplated in their already tight budget. Armed with our broad and deep cloud portfolio, our cloud, hybrid infrastructure and services group collaborated to architect a cloud subscription-based solution that delivered cost elasticity the customer's budget could absorb.
The multifaceted solutions seamlessly moved on-premise workloads and data to the public cloud, delivered cloud compute, migrated custom and off-the-shelf applications, created a virtual desktop infrastructure and deliver security measures with virtual firewalls, plus it optimized workloads to ensure the customer effectively managed CPU usage, memory and storage further mitigating costs.
This comprehensive solution generated more than $1 million in product revenue and a multimillion-dollar CDW professional services engagement. After seeing our cloud expertise in action, the customer engaged us for additional cloud solutions, including identity management and unified cloud call center ongoing managed services. Today, we are one of the customers' most valued strategic partners. A great example of how we're delivering value to our customers, both for today and for the future.
And that leads me to our expectations for the balance of the year. You will recall that on last quarter's conference call, we shared our expectations for 2024 US IT market growth in the low single digits, in our target to grow 200 to 300 basis points above market. This factored in a modest improvement demand conditions in the second half of the year. Given real-time feedback from our large and diverse customer base, we now expect current market conditions to persist throughout the year, not get worse, but not get better.
Given the market's slow start to the year, without a second half demand pickup, we now look for US IT market growth up towards the lower end of a low single-digit range. We continue to maintain our target to grow 200 to 300 basis points above market. Growth will return. The demand drivers are there, workload and data growth, increased security threats, client device obsolescence and adoption of AI-powered assistance and applications. But customers need greater clarity and confidence, clarity around economic conditions and clarity around the impact of AI on their tech road map and confidence that investments made today will deliver the right foundations and economic returns in an AI-powered future.
Improved demand conditions are a function of when, not if. Wild cards for the balance of 2024 include the potential of greater macro and geopolitical uncertainty, significant degradation of market conditions in the UK, as well as unusual uncertainty in the US election. As we always do, we will provide an updated perspective on business conditions as we move through the year.
Whatever the market conditions, we will remain focused on delivering exceptional value to our customers, gaining share and executing with the discipline and rigor that is CDW's hallmark. And we will continue to play the long game, holding steadfast in our commitment to executing against our growth strategy to ensure we have the solutions and services capabilities our customers need to achieve their mission-critical outcomes.
With that, let me turn it over to Al, who will share more detail on our financial performance.
