Good morning. My name is Cree. And I will be your conference operator today. At this time, I'd like to welcome everyone to the CDW Fourth Quarter 2020 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' presentation, there will be a question-and-answer session. Thank you. I would now like to turn the conference over to Brittany Smith, VP of IR and FP&A. You may begin.

Thank you. Good morning, everyone. Joining me remotely today to review our fourth quarter and full year financial results are Chris Leahy, our Chief Executive Officer, and Collin Kebo, our Chief Financial Officer. Our fourth quarter 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. I'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 risks and uncertainties that could cause actual results to differ materially. Additional information concerning these risks and uncertainties is contained in the earnings release and Form 8-K we furnished to the SEC today and in the company's other filings with the SEC. CDW assumes no obligation to update the information presented during this webcast. Our presentation also includes certain non-GAAP financial measures, including non-GAAP operating income and non-GAAP earnings per share. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules. You'll find reconciliation charts on the slides for today's webcast and in our earnings release and Form 8-K we furnished to the SEC today. Please note that all references to growth rates or dollar amount increases in our remarks today are versus the comparable period in 2019 unless otherwise indicated. In addition, all references to growth rates for hardware, software and services today represent US net sales only and do not include the results from CDW UK or Canada. Also, there was one fewer selling day in the fourth quarter of 2020 as compared to 2019. Replay of this webcast will be posted to our website later today. I also want to remind you that this conference call is the property of CDW and may not be recorded or rebroadcast without specific written permission from the company. With that, let me turn the call over to Chris.

Thank you, Brittany. I'll begin this morning with an overview of fourth quarter and full-year results and drivers of performance and share some thoughts on 2021. Collin will take you through a more detailed look at our financials, capital allocation strategy, and outlook. We'll move quickly through our prepared remarks to ensure we have plenty of time for questions. Our fourth quarter and fiscal year results demonstrate the balance and strength of CDW's business model and strategy. For the fourth quarter, net sales were $5 billion, 11% above last year on an average daily sales basis adjusted for the impact of one fewer business day in the fourth quarter of 2020 than 2019 and up 10.7% in constant currency. Gross profit increased 13.3% to $881 million. Non-GAAP operating income was $376 million, an increase of 9.9%. Our non-GAAP net income per share was $1.82, 16.1% above last year on a reported basis and up 15.8% in constant currency. For the year, net sales were $18.5 billion, up nearly $0.5 billion year-over-year or 2.4% on a reported and constant currency basis. Gross profit increased 5.6% to $3.2 billion. Non-GAAP operating income increased to 2.6% to $1.4 billion and non-GAAP net income per share increased 8% on a reported and constant currency basis to $6.59. 2020 was an extraordinary year. I am very proud of how the CDW team quickly and smartly adapted to help our customers and partners during a challenging time. The diversity of our solutions portfolio and customer end markets served us well in 2020, providing balance and driving our exceptional results. During the year, our team helped customers across the full IT solution stack in the full IT life cycle from client devices to cloud from design to managed services. We executed against our strategy and continued to invest in high growth solutions and services capabilities, including three acquisitions, IGNW, a leading provider of cloud-native service expertise and software development capabilities, and Southern Dakota Solutions, which expanded our ServiceNow team. Performance for our customer end markets varied. Demand increased in some and decreased in others, but all experienced change or disruption to their technology needs and to their operations last year due to COVID-19. Our value proposition resonated with customers. We combined our services and broad solutions portfolio with our extensive technical knowledge and logistical and distribution capabilities to deliver the best outcomes for our customers. This led to meaningful outperformance compared to the US IT market. We emerged from 2020 stronger and even more committed to executing our strategy. Turning to the fourth quarter. We continue to help customers with remote enablement and resource optimization, cost reduction, security, hybrid and cloud solutions, and digital transformation. Similar to the third quarter, some customers resumed solutions projects and others started new projects. Performance for our most impacted customer end markets improved, and trends for our more resilient customer end markets remained strong. During the fourth quarter, we continued to leverage our distribution centers, extensive logistics capabilities, deep vendor partner relationships, and strong balance sheet and liquidity position to navigate supply challenges and support our customers, particularly for Chromebooks for K-12 customers, where demand greatly outstripped supply. Now let's take a deeper look at fourth quarter customer end market performance. Corporate declined 11% with similar levels of performance for transactions and solutions. In total, there was improvement versus the last two quarters. Customer spend for corporate customers is not uniform. Some customers were doing well and investing in technology, whereas other customers, those in challenged industries or geographies impacted by spikes and COVID cases were still cautious. Small Business declined mid-single digits, as notebooks returned to growth. Small Business customers tend to be more nimble than corporate customers, which drove the improvement versus the third quarter. The Government team increased net sales 30%. Federal delivered another excellent quarter, with net sales up strong double-digits. During the quarter, our Device as a Service solution for the US Census Bureau was mostly completed. All devices were returned to us for decommissioning, and we started the process to resell the clean units through third-party re-marketers. Our team did an excellent job with this program. It was a multi-year effort to develop and execute this large complex undertaking, moving the nation's once-a-decade population count from paper to digital for the first time. Our services and logistical capabilities and multi-vendor solutions set us apart from the competition. We are unique in what we can deliver to our customers. Outside of the Census project, the federal team continued to help civilian agencies with remote enablement and device refresh. We also delivered on Department of Defense projects that were awarded at the end of the third quarter. The state and local team delivered strong double-digit growth. IT investments continued to be a priority despite budget pressure. Our team helped customers enable remote capabilities and restart solution projects. Education increased an extraordinary 140%, driven by phenomenal growth in K-12. K-12 customers continued to focus on equity and access and remote learning, which drove triple-digit growth for notebooks, related accessories and solutions, as customers turned to us for holistic capabilities. Higher education increased low double digits, as schools continued to help students with remote enablement and resumed projects focused on creating connected communities to enhance the student experience. Healthcare declined mid-teens, a meaningful improvement compared to the third quarter. Customers continued to be cautious with their spend due to ongoing budget pressure, focusing on key areas like remote enablement, telehealth and support infrastructure. Other, which represents our UK and Canadian operations, was flat on a reported basis. UK net sales increased mid-single digits in constant currency, and Canada net sales decreased low double digits in constant currency. Performance for both markets was driven by strong education demand to enable remote learning and health care spending to address the pandemic, with softer corporate performance. In the UK, there was some pull-in of customer demand before the announcement of the agreement with the EU, as customers prepared for a potential hard exit. Over the last several weeks, the UK team has executed against its well-planned Brexit mitigation strategy and has done a great job helping customers navigate through the complexity of the new agreement. Our fourth quarter performance benefited from the diversity of our customer base and our deep and broad product portfolio. We continued to meet the critical demands of our customers across all categories. Hardware was up strong double digits, driven by excellent notebook growth, particularly for our public segment customers, leading to over 30% client device growth. While software was flat, software gross profit increased mid-teens, reflecting continued growth into Software-as-a-Service. Services grew low double digits, driven by device decommission services for the Census project and configuration services. Services are fundamental to our go-to-market approach and a key enabler of our value proposition. Transactions increased strong double digits. Solutions declined low single digits, as some customers continued to restore infrastructure and larger project engagement. The team delivered excellent growth in our cloud practice. Cloud customer spend increased strong double digits across all customer end markets, driven by robust growth in collaboration, infrastructure as a service, security, and productivity. We expect strong customer demand for cloud solutions to continue. Let me also share a little more color on our security practice, given its importance to our customers, as cyber threats are constantly emerging and evolving and increasing. Security customer spend grew strong double digits, as customers improved their security framework to respond to increasing threats. Last year, customers spent $2 billion with us on security. Our fourth quarter and full year operating and financial performance reflected the combined impact of our balanced portfolio of customer end markets, our full suite of solutions and services across the IT landscape, and our ongoing success executing our three-part strategy. They are important drivers of our path and our future performance. The diversity of our customer end markets serves us well when macro or other external challenges impact various industries and customers differently. Our extensive product services and solutions portfolio positions us to meet our customers' total needs across the spectrum of IT and can pivot quickly to trends in customer demand. As I've shared, the balance of our customer end markets and our offerings are especially relevant in the current environment. And the final driver of our performance, our three-part strategy for growth is, first, to acquire new customers and capture share; second, enhance our solutions capabilities; and third, expand our services capabilities. Each pillar is crucial to our ability to profitably advise, design, orchestrate and manage integrated technology solutions our customers want and need today and in the future. Let me share a few examples of our strategy and action and how we helped customers last quarter. Our Small Business team helped a born-in-the-cloud financial technology company add more agility and flexibility to its operations and technology stack by becoming multi-cloud. The customer initially came to our team requesting help to implement a backup solution for its existing public cloud provider. After a review by our Digital Velocity team, our team uncovered the need for the customer to become multi-cloud with additional capabilities and redundancies. Our team helped the customer build a secure second public cloud environment and address additional needs, including application development, functionality, and consumption management. Our team has established CDW as a trusted partner with expansive cloud capabilities to help with research, evaluation, procurement, implementation, and management. Our customers are increasingly adopting cloud but are also finding a growing need to become multi-cloud. CDW's cloud expertise and cloud management platform across the multiple public clouds are a differentiator in the marketplace. Let me share another story in the health care sector. To address COVID, health care customers have turned to CDW to provide care in new settings and new ways. An independent non-profit health care provider in the US Northeast needed our guidance to enable remote COVID testing and vaccine distribution in numerous outdoor locations. The CDW account manager engaged one of our networking specialists to develop a solution that would deliver the required performance and scale quickly. The solution has since been rolled out to all locations, and we next work with the customer on the site's wireless connectivity, further leveraging our technical resources and strengthening their relationship. Our team saved the customer time and energy and provided great service as a forward-thinking partner that the customer can trust. The pandemic has created new issues requiring creative solutions and led customers to rely on us more than ever as an extension of their team. This is the value that CDW brings to our customers. We pair our broad solutions portfolio with our deep technical expertise to deliver the full outcomes that customers need. Finally, the digital divide has created significant learning challenges around the world. Our teams have worked closely with education customers in the US, in the UK, and in Canada to tackle this challenge. In the UK, we are working with the London Grid for Learning, a charitable trust dedicated to the advancement of education, to provide technology for hundreds of schools across the country. Last quarter, our team developed and provisioned unique turnkey solutions comprised of client devices, accessories, software, and services, leveraging our strong logistical and distribution capabilities, and deep vendor relationships. There has been tight collaboration with our clients' vendor partner to provide the best possible device availability for the customer due to the current global Chromebook supply constraint. Our distribution center in the UK has done a tremendous job delivering over 100,000 units to date to hundreds of schools. CDW is uniquely positioned to deliver for our customers and our vendor partners. This is a great example of our critical role. These examples highlight CDW's three-part strategy for growth and demonstrate the success of investments in cloud, our strong relationships with customers and vendors, and the importance of our competitive advantages. I am proud of the way our team continues to deliver. Let me briefly update you now on our COVID response efforts. Since the beginning of the pandemic, we have followed three key principles: First, safeguard the health and well-being of our coworkers; second, serve the mission-driven needs of our customers; and third, support our communities. I'm proud of how the team has managed the impact of COVID-19 on our business. Teams at our distribution and configuration centers have done an outstanding job maintaining the high level of customer service we are known for, while adhering to new protocols that safeguard the health and well-being of our coworkers who come to work every day. We've also taken deliberate actions to foster collaboration and coworker engagement and to maintain connectivity and productivity to preserve and bolster our culture, even while we are distant. These actions include leveraging new tools and learning and development opportunities, expanded health and well-being programs, increased content from our business resource groups, and compensation investments to recognize the team's tremendous efforts and performance. Now let me share some thoughts on 2021. The near-term global health and macroeconomic environment is still uncertain. Our current outlook is for the US IT market to return to growth and grow between 2.5% and 3%. As you know, we hold ourselves accountable for growing faster than the IT market, and we expect our topline in 2021 to grow 200 to 300 basis points faster than the market in constant currency. There are many wildcards, though, including COVID-19 government restrictions and vaccine rollout; policies from the new administration, including stimulus programs and tax changes, and supply constraints, in particular for Chromebooks. We are encouraged about our Q1 performance to date and how our teams are executing, but we are also cautious about the macro environment. Even though uncertainty continues, our confidence in the prospects for the business has never been higher. We believe that technology will be more essential to all sectors of the economy and will play an increasingly important role in the years ahead. Last year, we went through our rigorous strategic planning process, as we do every three years, and we are now accelerating investment and execution against it. We have confidence that we have the right strategy to best serve our customers and partners, to enhance our competitive position, and to deliver sustainable, profitable growth. This confidence has led our Board of Directors to increase our share repurchase authorization by $1.25 billion. Our role as a trusted strategic partner to our customers is more important now than ever. We will continue to do what we do best, leverage our competitive advantages to help our customers address their IT priorities and achieve their strategic objectives; and of course, out-execute the competition.

Thank you, Chris. Good morning, everyone. I'm going to provide more detail on fourth quarter and full-year results, capital allocation priorities, and initial thoughts on 2021. Turning to our fourth quarter P&L on slide nine. Consolidated net sales were $5 billion, up 9.2% on a reported basis and 11% on an average daily sales basis as we had one less selling day. On a constant currency average daily sales basis, consolidated net sales grew 10.7%. On an average daily sales basis, sequential sales increased 7.6% versus the third quarter. This was higher than historical seasonality of a mid-single digit decline, primarily due to how COVID-19 is impacting our channels differently. During this uncertain time, seasonality has been and is expected to continue to be, different than historical experience. Our customer channels generally performed consistent with the demand writings commentary shared on our last earnings call other than K-12, where demand was even stronger than expected. Pockets of supply constraints continued in the quarter, primarily for lower-end client devices such as Chromebooks. Our team did a great job navigating the fluid environment and leveraged our distribution capabilities and strong vendor partner relationships to procure a healthy share of supply for customers. Gross profit for the quarter was $881 million, an increase of 13.3%. Gross margin was 17.8%, up 70 basis points over last year. The gross margin expansion was driven by product margin and mixing into netted down revenues, primarily Software as a Service. Turning to SG&A on slide 10. Non-GAAP SG&A increased 15.9%. The increase was primarily driven by higher payroll costs due to higher gross profit and compensation investments in our coworkers to recognize and reward their tremendous efforts and performance in 2020. The acquisition of IGNW, ongoing investment in Aptris, and COVID-19 expenses to safeguard and compensate frontline coworkers, were partially offset by continued cost savings measures, including decreased travel and entertainment. Coworker count at the end of the fourth quarter was 9,982, up two from the third quarter. Year-over-year, coworker count increased 86, driven by an increase of approximately 150 customer-facing coworkers, including IGNW, partially offset by a decrease in non-customer-facing coworker count. GAAP operating income was $332 million, up 17.1%. Non-GAAP operating income, which better reflects operating performance, was $376 million, up 9.9%. Non-GAAP operating income margin was 7.6%. Moving to slide 11. Interest expense was $37 million, down 2.9%. The decrease was primarily due to a lower LIBOR rate and savings from the August refinancing. Our GAAP effective tax rate shown on slide 12 was 19.2%. This resulted in fourth quarter tax expense of $57 million compared to $50 million last year. To get to our non-GAAP effective tax rate, we adjust taxes consistent with non-GAAP net income add-backs, as shown on slide 13. For the quarter, our non-GAAP effective tax rate was 22.2%, down 150 basis points versus last year's rate, primarily due to tax benefits associated with new regulations for global intangible low tax income and non-deductible expenses, partially offset by lower tax credits. As you can see on slide 14, with fourth quarter weighted average diluted shares outstanding of $145 million, GAAP net income per share was $1.65, up 29.6%. Our non-GAAP net income was $264 million in the quarter, up 15%. Non-GAAP net income per share was $1.82, up 16.1% from last year. Turning to our full year results on slides 15 through 20. Revenue was $18.5 billion, an increase of 2.4%. Gross profit was $3.2 billion, up 5.6%. Gross profit margin was 17.4%, up 50 basis points, driven by product margin and mixing into netted down revenues, primarily Software as a Service. Before moving down the rest of the P&L, I want to take a moment to put 2020 sales and gross profit in context. We have consistently highlighted the power of our diverse portfolio and customer end markets. We pivot to where the growth is, leveraging our competitive advantages to better serve customers and gain share. In 2020, we estimate the US IT market declined low single digits, call it down 2%. CDW net sales grew 440 basis points faster and gross profit grew 760 basis points faster than the 2% market decline. Census contributed 170 basis points of year-over-year net sales growth. Excluding the Census, CDW still delivered meaningful net sales and gross profit growth in excess of the market. Returning to the full year P&L. Operating income was $1.2 billion and non-GAAP operating income was $1.4 billion, up 2.6%. Our non-GAAP effective tax rate was 24%, down 120 basis points versus last year's rate. The decrease in the effective tax rate is primarily due to new regulations for global intangible low tax income and non-deductible expenses that are not expected to contribute as much of a benefit to the tax rate in 2021. Net income was $789 million, and non-GAAP net income was $954 million, up 5.8%. Non-GAAP net income per share was $6.59, up 8%. Turning to the balance sheet on slide 21. At December 31, cash and cash equivalents were $1.4 billion, and net debt was $2.5 billion. Liquidity further strengthened with cash plus revolver availability of approximately $2.5 billion. Full year free cash flow was $1.2 billion, as shown on slide 22, this equates to 6.7% of sales, well above our historical free cash flow rule of thumb of 3.75% to 4.25%. A portion of the outperformance was driven by timing or one-time items, including mixing into vendors with extended payment terms, the Census, deferred payroll, UK tax payments, and the timing of collections from some large customers. We expect the favorable timing to reverse over the next few quarters. Moving to slide 23. The three-month average cash conversion cycle was 17 days, down one day from last year's fourth quarter. DSO and DIO were unchanged from last year, while DPO increased by one day. The increase in DPO was primarily driven by mixing into vendors with extended payment terms. As previously mentioned, we resumed our share buyback program in the fourth quarter, repurchasing $200 million of stock. For full year 2020, we returned $561 million to shareholders, including $220 million of dividends and $341 million of share repurchases at an average price of approximately $129 per share. Turning to capital allocation priorities on slide 24. Given our strong liquidity position, our priorities remain the same. First, increase the dividend in line with non-GAAP net income. To guide these increases, we will target the dividend at approximately 25% of non-GAAP net income and to grow in line with earnings going forward. Second, ensure we have the right capital structure in place with a targeted net leverage ratio of 2.5 times to 3 times. We ended the year at 1.7 times. Our third capital allocation priority is to supplement organic growth with strategic acquisitions. In the fourth quarter, we acquired two small ServiceNow solution practices to build on the success from our 2019 acquisition of Aptris. We remain active evaluating targets. And fourth, return excess cash after dividends and M&A to shareholders through share repurchases. Going forward, we expect to move closer to our target net leverage ratio of 2.5 times to 3 times through a combination of organic investments, M&A and cash returned to shareholders. We expect to return at least $1.2 billion to shareholders in 2021, including approximately $1 billion for share repurchases, with the balance from dividends. At the end of December, we had $338 million remaining on our current share repurchase authorization. As Chris mentioned, our Board of Directors authorized a $1.25 billion increase to the share repurchase program in support of our capital allocation priorities. Of course, as we always do, we'll closely monitor the macroeconomic environment, liquidity, M&A activity, leverage, and adjust as needed. Moving to the outlook for 2021 on slide 25. The current environment continues to be highly uncertain, making it challenging to forecast expectations for IT market growth with a high degree of confidence. Therefore, we are providing a base case for 2021 IT market growth and how we expect CDW's business to perform in that environment. Our base case assumes US IT market growth between 2.5% to 3%. We expect CDW net sales to grow 200 to 300 basis points faster than the market. Currency is expected to be a tailwind of approximately 50 basis points for the full year, assuming exchange rates of $1.36 to the British pound and $0.79 to the Canadian dollar. In terms of performance by segment for the year, there continues to be uncertainty among customers across end markets, but here are some drivers to consider. On the commercial side of the business, Corporate and Small Business customers tend to respond quicker to the macroeconomic environment. We saw that last year; Q1 was the strongest quarter, then Q2 experienced the steepest decline, with quarterly declines moderating thereafter. We expect the timing and slope of the rebound in 2021 to be closely tied to customer confidence, which will be a function of the macroeconomic environment and success in containing the virus. Moving to Public. We expect continued success supporting the Department of Defense and civilian agencies. However, Government is not expected to fully make up the loss of the Census project, which contributed a total of approximately 230 basis points of net sales to CDW in 2020. Education growth is expected to be strong earlier in the year, with sales above historical seasonality, and then decelerate throughout the year due to overlaps in the unusual seasonality experienced in 2020. Chromebook supply continued to be a wildcard. Healthcare overlaps are tougher in the first half as customer demand spiked at the beginning of the pandemic and then comparison feeds in the second half. The timing and slope of a rebound in 2021 is linked to budget clarity, which we expect to be a function of success in containing the virus and potential stimulus support. Finally, our international businesses are more weighted to Corporate customers, so the pace of recovery will be driven by the macro environments in the UK and Canada. Moving down the P&L. Assuming IT market growth of 2.5% to 3%, we expect non-GAAP operating income margin to be in the mid-7% range and non-GAAP earnings per share growth to be in the mid to high single digits, call it 6.5% to 7% on a constant currency basis. This reflects the following below the operating line assumptions: One, a modest decline in interest expense to the mid to high 140s; two, a non-GAAP effective tax rate at the low end of our typical 25.5% to 26.5% range, assuming current tax rates. The low end of the range is approximately 150 basis points higher than 2020's 24% rate, creating a headwind of over 200 basis points on earnings per share growth; three, contribution from share repurchases with non-GAAP earnings per share growing approximately 200 basis points faster than non-GAAP net income; and currency is expected to contribute approximately 40 basis points to reported earnings per share growth. Additional modeling thoughts for annual depreciation and amortization can be found on page 26. Turning to the first quarter. Historically, the Q4 to Q1 sequential decline on an average daily sales basis has averaged down approximately 7%. We expect this year's first quarter sequential decline to be down high single digits, more than historical seasonality, primarily due to the Census and Mississippi Department of Education. On a year-over-year average daily sales basis, this equates to mid-single-digit growth, reflecting continued education and government strength, improving commercial trends, partially offset by the overlap of the March 2020 work-from-home surge. We expect first quarter constant currency non-GAAP earnings per share growth to be a couple of hundred basis points higher than the full-year EPS outlook, as we overlap last year's increase in the credit loss reserve, partially offset by having one fewer selling day, which adversely impacts quarterly profit growth by approximately 200 basis points. This is timing, and we will recoup the day in the fourth quarter. January segment trends are generally in line with my commentary on first quarter expectations. Additional modeling thoughts on the components of cash flow can be found on slide 27. Our long-term free cash flow rule of thumb remains unchanged to 3.75% to 4.25% of net sales, assuming current tax rates. Given the timing impacts that contributed to 2020's significant over-delivery, we expect 2021 free cash flow to be at or slightly below the low end of the range. We expect CapEx to run approximately 75 to 80 basis points as a percent of net sales, slightly higher than the historical 50 basis points rule of thumb. We believe now is the time to accelerate investment in digital transformation in our own business, enabling us to fortify our competitive position and make CDW the trusted partner of choice for customers and vendor partners. As we always do, we will provide updated views on the macro environment and our business on future earnings calls. That concludes the financial summary. With that, I'll ask Cree to open it up for questions. Can we please ask each one of you to limit your questions to one with a brief follow-up? Thank you.

Our first question comes from Katy Huberty with Morgan Stanley.

Thank you. Good morning. How much do you think the supply constraints on Chromebooks impacted the December quarter? In other words, how much better would you have done in December? And then when do you expect those supply constraints to loosen up this year?

Hi, Katy. Good morning. We did carry a higher backlog than normal out of the fourth quarter into the first quarter. In terms of when we expect supply conditions to get better, obviously, it’s very difficult and fluid to call with any precision. But our expectation would be through the course of the first half of the year, we would see supply on the Chromebook side of the business begin to return to normal.

Okay. Great. And then just as a follow-up. As netted-down revenue increases and drives gross margins higher, how should we think about the flow-through to the operating margin line? Does sales commission fully offset that gross margin expansion? Or should we see some scale benefits and potential operating margin expansion over time?

Yeah. I mean, you're right. There is a little bit of a give back on the sales comp line because we pay on gross profit dollars. I think, Katy, from a secular perspective, our expectation is consistent with yours that we would expect netted-down items in software and services to grow faster than the balance of the business. I think we're just a little careful though of trying to understand where we are in the cycle and whether a hardware refresh is coming and if it is coming, how strong it could be. So I think that's something to keep in mind as you think about that netted-down mix and the impact it has on gross margin going forward, at least over the next several quarters. I think the other thing to think through on the margin and then the flow-through to NGOI margin is we did benefit from really an exceptional product margin in 2020. And I think some of that was due to the unique dynamics of the supply environment, as well as the premium that customers were placing on speed. And so I think that's just also another thing to keep in mind as we think about gross margin going forward. And I think those are probably more cyclical than secular, but something to think about.

That's helpful color. Congrats on the quarter.

Thank you.

Hi, thanks for taking my questions. Chris, you're guiding fiscal '21 for another year of 200 to 300 basis points outperformance versus the US IT market. And that's despite the year-on-year 200-odd basis points headwind from the Census project. Given all the uncertainty that you've talked about, I mean, maybe for us, can you just give us your thoughts on what are some of the opportunities you have? What is giving you confidence to guide for the full year, that 200 to 300 basis point outperformance? And in that vein, what can the federal - are there other opportunities to offset that headwind from Census? So just your thoughts on what's driving your confidence on the full year?

Sure. Thanks, Ruplu. Thanks for being on the call. Yeah, we always hold ourselves accountable for outperforming the market. So on a relative basis, we always expect ourselves to do better. And when you think about the combination of our competitive advantages, you saw them in play really in one of the hardest periods in history in 2020. So we are confident that the advantages that we bring to the market will position us and allow us to continue to outperform and pivot to where our customers need us and grow faster than the market. When I think about headwinds and tailwinds going into 2020, certainly think about remote work and remote everything. And that has certainly been driving growth in 2020 and should continue to do so into 2021. That we've got some very significant compares, as you all know, because of the first quarter of last year, because of the timing of the education needs at the end of this past year in Census. But it will still continue to be a trend, we believe. Everyone will not be going back to straight work, and we think it will be a work-from-everywhere kind of situation. We also believe that this digital acceleration is just going to continue. And so our strength across the full stack, and when I say full stack, I mean, cloud services, software, and hardware plays very well with our customers because customers are always full stack, and they're looking for a full solution. So as they think about combined multi-vendor, multi-component solutions, CDW is a great partner for them. And we can take them from the very front end of advising and designing to building, implementing, integrating, orchestrating, and managing. And I'll tell you, it seems that 2020 has really propelled customers to look for that value-added one-stop-shop trusted IT provider that can do the full spectrum across the whole life cycle. So, we're very confident in our ability to continue to deliver for our customers. On the federal side, I think you asked about specifically the Department of Defense and Civilian; we expect to continue to maintain pretty strong. Look, on the commercial side on Small Business and Corporate, I'll tell you as Colin said, the speed and the slope of any recovery are tied to confidence, which is tied to the macro, which is tied to the virus. It's all tied together. So that's very hard to predict. But we've been staying so close to our customers during 2020 that we feel absolutely confident that we will be well-positioned to help them on their way up and to capture growth as they're growing. On the Government side, stimulus is another wildcard out there. And under the new administration, if we see some stronger stimulus, that should also help to support on the education, healthcare, and state and local side.

Okay. Thanks for the details there, Chris. That makes sense. Just for my follow-up. In the UK, given the resurgence of COVID-19, have you seen any impact on your operations? And you talked about M&A on the call. Can you just give us your thoughts on any geographic expansion possibility in 2021? Thanks.

Yeah, sure. In the UK, I'll tell you, I mentioned that we saw a little bit of buy ahead as customers were anticipating possibly a hard Brexit. So we saw some benefit in the fourth quarter. But the good news, Ruplu, remember, we put the mitigation strategy in place with our Netherlands entity, and we've really been helping customers utilize that entity in the EU. So while we've gone back into lockdown, it does feel like customers are used to working that way and are still buying in the areas where they have needs like remote work - optimizing remote work, et cetera. So we haven't seen a significant impact any different than we would have seen in 2020. And we're managing this really quite well at this point. In terms of M&A, yeah, look, we never really pinpoint where we're going to be - what we’re going to be doing, but you know we're focused on geographic expansion, as well as expanding our capabilities, our technology capabilities. So we continue to look. We continue to be very active. I doubt there's a deal out there that doesn't get to CDW store to see, but we also have our screens that we need to adhere to, which are - the cultural and operating match, the financial match and the strategic match. So we'll continue to look. We're excited about this we did this year that continue to grow our cloud-native and ServiceNow capabilities. And frankly, we're seeing the real benefit from those in terms of traction with our sales organization and deeper connections with our customers because we're really at the front end of that IT supply chain, if you will, helping them devise solutions and then fulfilling. So those have been real positive winners for CDW and our customers.

Okay. Congrats on the strong results.

Thank you.

Thanks for taking my questions and congrats on a really good print here. I guess, two for me as well. First off, when I think about this calendar '21 revenue guide, 4.5% to 6%, give or take, I'd love to understand how does that stack up between transactional and solutions? What does that SKU look like? And then - I guess, how do you do PCs in that narrative for /21?

Yeah, good morning. It's really interesting. I would tell you that 2021 is almost a harder year to determine what sits underneath that IT market rate of growth. There's a wide dispersion of forecasts out there across various technologies. And what I would say is, I don't think anybody really knows precisely. What we plan to do is what we do best, which is pivot where our customers need us. And whether that be in the client hardware refresh area, whether it be in building out cloud capabilities, we're able to go in either direction. And we're just staying very close to our customers working with them literally day-by-day, week-by-week, and supporting them in their technology needs. Certainly, technology is more essential than ever. We don't see any of the trends slowing down, frankly. We might see some things prolonged as a result of the pandemic, and the vaccine don't go as we all hope. But at the end of the day, it's a mix, and it's really quite hard to tell. I know that's not a great answer to the question of what it comprises, but it's very hard to know given the unprecedented uncertainty that we still have. I think sometimes, I think people felt in some ways we've come through 2020, and now we're in 2021. And it's sunrise and glory ahead. And I think we really have to be cautious and conscious of where we sit in the vaccine rollout and new strains coming up, and we just have to be very methodical in listening to our customers and taking care of them, which we're very good at doing.

That's really fair. And then I guess on the cloud spend, Chris, you talked a few times about that business being up double-digits, and I think you said you expect this to continue. Is the shift to cloud driving new customers to CDW that haven't engaged with you before and they need help to get to the cloud? Or is it more existing customers that are just migrating from on to off-premise? And in that latter scenario, how does that play out through your P&L? Is that a good thing for CDW's revenue and profitability? Or is it a negative impact?

Yeah. On the first question, Amit, I'd say both. We are - you know, we certainly mean more heavily into penetrating current customers as you saw, but we are bringing in new customers with our cloud capabilities and our Digital Velocity and ServiceNow processes in particular. Again, as I mentioned earlier, they're really at the front end of that discussion advisory. And that's where we're able to bring a great deal of value to the customer and the planning because in a world where things are changing so quickly and plans that had been expected and in place four, five, 12 months ago are moving, and we're very well-positioned to help them with that. So it's both new customers and existing ones. And we do expect to continue to see growth there. I would note that on the - you asked about existing customers and migrating to the cloud. One of the interesting things that I know you're aware of is that it's not just migrating to the cloud, but it's also some customers who are already cloud and becoming multi-cloud. So multi-public cloud, other customers who have some public cloud capabilities that they need to almost mirror that on-prem. So it's the whole - I'll call it the cloud environment, the whole ecosystem that our teams are able to support customers with now. Again, which is a real advantage because it's bringing the customer the best for the customer and not just some narrow product category that we sell. In terms of the impact on the P&L, I think Collin is going to jump in here.

Yeah. Good morning, Amit. I mean, because most of it gets netted down, it obviously has the lift on gross margin and operating margin. I think if you look at it on gross profit divided by what the customer is actually spending, I would say cloud is very much like our entire portfolio. There are some things in it that are higher margin. Security would be a good example of that. A lot of it's delivered via the cloud. And there are other things that are more commodity-like in terms of cloud offerings and would have lower margins. So, in terms of the absolute amount of profit, it's really a function of how margin-rich the particular offering is, which is typically rooted in value from the - perceived value from the customer, as well as then the services that we can wrap around at another value we can bring by consumption.

Perfect. Thank you, very much.

Morning. Chris, you alluded to the strategic planning process and accelerating investments alongside that. As I look at the fiscal '21 early outline, it looks like operating margin is going to be flattish year-over-year. CapEx is going to be above the rule of thumb. So just hoping if we could get a little bit more color on the nature of these implied investments, and how we can think about gauging success or expected return over time?

Sure. Good morning, Adam. Yes, let me step back on the strategic process. You know, we do this every three years. Our overarching strategy hasn't changed, as I mentioned in my prepared remarks. I would say what we do is we really hone where we're focusing our energy and investments to evolve the business, as technology evolves. And where we're focusing now, are those areas in strategic services and solutions that our customers need. You heard me mention full stack is a way that we go to market. And investments in the capabilities across that full stack, such as cloud solutions, cloud services, software solutions and services, in particular, security, and then obviously, our hardware. I think about a couple of recent acquisitions, Scalar, and IGNW, as excellent examples of that strategy in action where we invested in cloud and DevOps capabilities and ServiceNow capabilities, and those are the areas that customers are needing advisers. The other area that you can think about that we're investing in is our talent and digital in particular. So our technology, our own technology, we kind of put the mirror on ourselves and made some decisions about what we need as an organization. And we're investing in our own technical capabilities, but also those digital tools that we've talked about in the past for sellers. I think you've heard us talk about AMANDA. We have a number of other tools in the pipeline that allow our sellers in our digital platform, our e-commerce platform to work for our customer in a really integrated, seamless, intelligent way. And that's what we're going for. And then obviously, we're also reviewing our operating model as we always do, but even what was more custom-wide, I'd say now to really remove those things that we - that are inefficiencies and recoup where we can and then re-imagine critical elements for a digital world and then reinvest back in the business. So investing in technology, talent, and digital is where you see the investment, as well as capabilities behind those high growth areas.

Okay. It makes sense. And maybe this is a follow-up for Colin, more in the near term. You talked about how seasonality is expected to continue to be different than historical for the next few quarters, and modeling has gotten tougher for us. You've historically talked about a first half, second half split of 48 to 52. Is there any way that we could maybe think about 2021 in those terms?

Yeah. Adam, we elected not to provide thoughts on that, just given the highly uncertain environment, both on the demand and the supply side, frankly. I mean, some of my comments in the prepared remarks were slope of recovery tied to the economy and virus, which I think is inherently uncertain and the supply environment is uncertain. So at this point, no perspective on that. Obviously, when we get on the call next quarter, we can provide more thoughts on that.

Yeah. Thank you. I wanted to dig into more of the on-premise hardware side of the business. Just curious if you could give a little bit more color on what you're seeing across categories like servers, storage, NetComm? And just how we should think about that business and the potential for some refresh activity heading into 2021?

Yeah. Good morning, Matt. Yeah, I’ll go back to the comments I made earlier, which is, it's hard to know the timing and slope of when we might see server storage in particular pickup. For example, in the Corporate space, we think about timing around when customers are really getting back to the office, which probably won't be through the second half of the year. We are seeing some pickup in areas like Higher Ed as an example, where they're really focused on a connected community. So they've really extended what that connected campus looks like. But until we start to see, I think a strength in recovery, which, of course, is related to the virus, we're pretty cautious around on-prem solutions. We also haven't obviously been able to get into locations. We still haven't been able to get into too many locations to help our customers there. So I would just say, look, a refresh will be coming. It's hard to know when in 2021 or beyond that will be.

Got it. And then on the commercial side of the business, just looking at the fourth quarter, is it - an improvement in this trajectory in Small Business, a little bit more of a modest uptick in Corporate. Just wondering if you can compare and contrast a little bit what you're seeing across those two customer types? And how we should think about the pace of recovery, particularly for Corporate as we head into 2021?

Yeah. Matt, I think, you know, and we said this before Small Businesses just tend to be more nimble. And so at the beginning of 2021 - 2020, excuse me, they went - they slowed down more quickly, and they've come back up more quickly. So I think that's just the nature of Small Businesses. On the Corporate side, it's really - we referenced it as kind of multiple layers and mosaics, and it's to say that we're really seeing the same thing. It depends by geography. It depends by industry, even individual customers within segments, winners and losers, so to speak. So it's really a mix across geo industry and individual customers. I will say that we did see some budget flush at the end of the year, which felt like a good thing. But again, until we see the macroeconomic uncertainty subside and we see more customer confidence, which, of course, is driven by the success in stemming the virus, I think we're still going to be a little cautious on Corporate. On the other hand, look, when things do normalize, we would expect Corporate and Small Business similar to what we saw in 2009 and '10 to really pick up again, and we'll be well-prepared to help them do that.

Hi. Thanks for taking the questions. I have a question on Corporate and Small Business recovery as well. Chris, on slide six, you show that your sub-sector recovery cadence in the financial crisis, and I think it took only 1.5 to 2 years for Corporate and Small Business to be back to pre-crisis level. For 2021 recovery, do you expect Corporate and Small Business to recover faster or slower than financial crisis, given we might have more stimulus packages, but also there are COVID uncertainties?

Yes. No, these are great questions. I wish I had a better crystal ball to answer them. It's just hard to say; the unique dynamics of this downturn and the pandemic have really, I think, made it harder to predict and I think less comparable to what we saw in 2008, '09 and '10. And as Collin said in his prepared remarks, the speed and the slope of the recovery is really in every way related to the success in containing the virus. So if we can get that under control and we can stem the uncertainty in the macroeconomic environment, and I think we'll see it recover more quickly and maybe with a very healthy slope given the importance of technology. If we don't see that, I think we're going to see more muted growth over a longer period. Certainly, the stimulus is yet another wildcard, which can help in the areas that we've mentioned, education, healthcare, and state and local, et cetera, and can of course help get that positive momentum going with the consumer, which ultimately impacts the businesses. But I just think the dynamics of this environment and the pandemic make it incredibly difficult to predict timing and flow. Again, the beautiful thing is the diversity of our end markets allows us to make sure that we are where the growth is and able to support our customers wherever they need us better than anyone.

Got it. That's very helpful. You mentioned K-12 demand strength and your education sector Q4 performance was much better than normal seasonality. Can you maybe just talk about how sustainable the demand is? And how should we think about the full year growth for the sector?

Yes. Well, I would say a couple of things about K-12. It's really important to understand that what was happening here was a great focus on equity and access for students and student success. And therefore, schools were looking to get full holistic outcomes solutions to their schools with a lot of speed. And not a lot of providers could do that because they needed to get in the hands of the students quite quickly. And so when you look at the tremendous success our team had in K-12, it is because of the capabilities that they're able to bring together and literally get turnkey solutions to the schools in a timely fashion. And it's because of the relationships we have with our vendors to make sure we're getting a healthy proportion of the supply out there, which was really constrained. So I would say a couple of things. Number one, the timing, the seasonality was different because of the great urgency schools have. Number two, our execution was just extraordinary. And I want to say that loud and clear because our teams did an extraordinary job. We have some backlog going into the first quarter of the next year, which will certainly benefit us in the first quarter. And then one would expect that going into the back half of next year, we'll get back to more, I guess, normal seasonality in K-12. But it's a confluence of both the demand and our capabilities and an unbelievable execution by the team.

Yeah. Thanks, Tim. I just want to add a little bit more color on Q4 and build on Chris' comments. I mean we did see extraordinary demand. And I think everybody knows we benefited from Census. But we also had that really large offering with Mississippi Department of Education that Chris talked about on previous earnings calls. Just to dimensionalize the magnitude of those two offerings. If you excluded those from Q4 results, we would have grown our average daily sales in the neighborhood of 6% to 7% range. So even excluding those two big deals, we still had a meaningful contribution from the education part of the market.

Hi, this is Patrick Jackson on for Shannon. I wanted to ask what you're seeing during sort of the year from health care customers, as budgets continue to shift and customers focus on security and software spend, while also considering timelines for investment in virtual care solutions, as there seems to be heightened demand for new offerings, as you referenced in your work with the non-profit health care provider. Then I have a quick follow-up.

Yeah. I agree with everything you said there, so not to repeat it. I'd say what - we're pleased with the improvement in health care this past quarter and continuing to be encouraged by first quarter performance so far. The real wildcard with health care is budget. And more than any of the segments, I think that tied to the virus is successfully containing it. It impacts the healthcare segment. Long-term certainly, there is opportunity in vital and in virtual care and all the components of it. On the 2021, to me, it's going to be a bit of a wildcard year with health care because of the pandemic. They are really just fluctuating back and forth between the urgent care, reductions in elective care, their revenue streams, et cetera. So we'll just have to see how it plays out in 2021, but the areas that you've identified yet are areas that they are focused on.

Okay. Thank you. And then you also referenced customers spent $2 billion with the company on security during 2020. I just wanted to ask where you're seeing security investments primarily being targeted. And do you expect securities spend to grow faster than the total IT market in 2021? Thank you.

Yeah, sure. Security is across the full stack. So from the hybrid infrastructure, all the way out to the digital experience and endpoint devices. So we're seeing it across the full stack hardware and software in particular. We certainly provide some services reps around those, but it's across the full stack. Right now, given the remote enablement going on, there's I would say, increased focus on endpoint devices and all things endpoint security. But that's not to diminish the security focus on the full data center as well.

Yes. thanks. And good morning. Chris, I wanted to ask concerning your comments about work from home and remote working and working from everywhere, as you put it. Obviously, we've seen a very strong first wave of investments. But we're hearing from other solution providers about a potential second wave as customers go back and upgrade the hardware, but also infrastructure, as you said, endpoints and then also security. Are you having those conversations with customers yet? And are you working with customers and see that as an opportunity?

Yes. Matt, yes, we are. And again, I'd say there are different flavors of what customers are doing. We have a healthy dose of customers who are - and someone like CDW, not so much waiting, seeing, but planning in a very flexible, adaptable optionality type of way. So they're not clear on whether they are going back at the end of the year or whether they are going to go back 50% et cetera. So I guess what I'm saying is we've got customers some who already are back in the office, maybe 20% of our customers, and we've obviously helping them setup in the office et cetera. But others are still planning for what their workforce ought to look like. I mean, I'm sure you hear the types of things that companies are saying they need to be in-person for now - collaboration, innovation, acculturation, these are things companies are saying, we need to be in the office for that. So we're helping them to design spaces that are more suitable for that. If in fact customers decide 80% of the workforce can work from anywhere, we are absolutely and necessarily talking with them about what the blueprint for that looks like in terms of 80% work, 20% in the office or alternatively kind of a different kind of office environment where everybody is coming into the office at different times for different types of work. I mean, it's a really interesting time right now because I don't - while there was a lot of talk about where this would settle out, the hard work really begins in the planning and what that looks like and how you create efficiency and productivity for your workforce. And we're right in the throes of that. And I think we're going to see a number of flavors, frankly. So we'll be - we're helping customers with all kinds of flavors.

Okay. Thanks for that. And I wanted to ask another question regarding client devices. I know you talked about the double-digit strength across most of your end markets. Last year, we've seen a strong PC upgrade cycle for going on three years now. How should we be thinking about that number this year, particularly both on the Corporate side and in the Public sector?

Yeah. I think, look, with client devices, look, we have some headwinds and some tailwinds certainly going into 2021. And you named one of them. I mean, refresh is something that might be on our side. We've talked about devices that were from 2017, 2018. Also the need for more devices depending on where organizations end up in terms of long-term remote and bolstering those and refreshing those at some point, extending those. New use cases, we've been talking about this for quite a long time as companies are evolving their business models, think of retailers, for example, contactless purchasing. We think new use cases will be a tailwind for client devices. And again, thinking about what comes in from the stimulus package that will be really interesting to see how our state and local education healthcare organizations can take advantage of it. Look, for CDW, we've got some big overlaps we've talked about that we'll have to overcome, and we'll have to keep an eye on the economy and employment. But look, there are - again, there are winners out there who are hiring and investing heavily in technology. And that's a positive also for client devices.

Okay. Great. And just a quick follow-up. Regarding the comment about the security software, $2 billion in customer spending. Is that a gross number or netted-down number?

That's a gross number. That's customer spend. So that's what customers spend with us.

And that's really what you recognized because of the netted-down, right?

No, no, no. The gross is what customers are spending with us. We're recognizing fewer dollars in that in revenue because a lot of that is getting netted down because it's software assurance and Software as a Service.

Hi. This is Trevor filling in for Keith. How broad were the supply chain constraints across the portfolio? Were Chromebooks the only products affected? Or were there others?

Chromebooks were the primary area of constraints. We did see some tightness in some of the other lower-end notebooks and continue to see, I would say, pockets of dislocation on collaboration hardware, webcams, and things like that. But I would say those things were gradually getting better, but Chromebooks by far were the biggest source of constraints.

Okay. Thanks. And a quick follow-up. Would you say the supply chain issues during the quarter got better or got worse as the quarter progressed?

I would say that's a difficult question to answer because we were chasing a moving target. And what I mean by that is, I think we were pleasantly surprised by our ability to procure supply in Chromebooks. We were also pleasantly surprised by the amount of demand. So on an absolute basis, I think the supply was a little bit better, but it still came in short of what demand was because demand was just so much more than expected. Thank you.

Thank you all. I want to recognize before we head off the tremendous dedication of our coworkers around the globe and their extraordinary commitment to serving our customers, our partners, and all of CDW stakeholders. And thank you to our customers for the privilege and opportunity to serve you. And thank you to our investors and analysts participating in this call. We appreciate you and your continued interest in and support of CDW. Collin and I look forward to talking with you again next quarter. Take care.

This concludes today's conference. You may now disconnect.