Good morning, ladies and gentlemen, and welcome to the CDW First Quarter 2021 Earnings Conference Call. I would now like to hand the conference over to Brittany Smith, Vice President of Investor Relations and Financial Planning and Analysis. Please go ahead.

Thank you. Good morning, everyone. Joining me remotely today to review our first quarter results are Chris Leahy, our President and Chief Executive Officer; and Collin Kebo, our Chief Financial Officer. Our first 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 in 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 2020, unless otherwise indicated. In addition, all references to growth rates for hardware, software and services today represent U.S. net sales only and do not include the results from CDW U.K. or Canada. Also, there was one fewer selling day in the first quarter of 2021 as compared to 2020. 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 first quarter results and drivers of performance and share our updated thoughts on 2021. Collin will then 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. We had a strong first quarter. Our results demonstrate the balance and strength of CDW's business model and strategy. For the first quarter, net sales were $4.8 billion, 12% above last year on an average daily sales basis adjusted for the impact of 1 fewer business day in the first quarter of 2021 than 2020, and up 10.9% in constant currency. Gross profit increased 5.1% to $795 million. Non-GAAP operating income was $368 million, an increase of 21%. And non-GAAP net income per share was $1.74, up 26.2% on a reported basis and up 25.3% in constant currency. The diversity of our end markets and solutions portfolio continued to serve us well, providing balance and driving our strong results as we overlap last year's end-of-quarter surge in demand for remote solutions. During the first quarter, we saw early signs of recovery as customers became more optimistic about the macroeconomic environment due to lower COVID case counts, higher vaccination rates and new government stimulus. Customer spending and channels most impacted by COVID last year rebounded. We continue to help customers with remote enablement, resource optimization, security, hybrid and cloud solutions and digital transformation. This past quarter, customers allocated more technology spend to infrastructure needs, driving growth for our solutions portfolio. Customers were focused on investments for the future, reconfiguring how they interact with customers, strengthening hybrid environments, industrializing remote enablement and restarting projects that had been delayed due to COVID. We combined our services and broad solutions portfolio with our extensive technical knowledge and unique logistical and distribution capabilities to advise, design and orchestrate the best outcomes for our customers. Customers choose CDW for three simple reasons. First, customers want a partner who knows their business and their industry. Second, customers want to partner with a provider that has broad and deep technical capabilities. And third, they want a partner who is focused on the optimal outcome, one who is agnostic across brand, technology and consumption model and has an informed opinion. These reasons are fundamental to why CDW outperformed in the first quarter and will continue to win in the marketplace. During the first quarter, we remained focused on executing against our strategy and investing in high relevance and high-growth solutions and services capabilities, including our acquisition of Amplified IT. Amplified IT is a Google premier education partner and a leading provider of cloud-based services, solutions and software for education customers and has been a partner of CDW since 2016. We share a similar culture that puts customers first, and together, we will accelerate our work to help customers' schools achieve great educational outcomes through technology. Last quarter, we leveraged our distribution centers' extensive logistics capabilities, deep vendor partner relationships and strong balance sheet and liquidity position to navigate supply challenges. Supply constraints and availability for client devices and some infrastructure products have been more challenging since the first quarter ended. Disruption has been caused by both component availability issues and supply chain logistical issues. The supply situation is fluid. Constraints will likely continue through the second half of the year and potentially into next year. Now let's take a deeper look at first quarter customer end market performance. Corporate declined 4% as customer spend continued to recover. Customer expectations that a hybrid environment will become the future work model drove investments in notebooks and other remote enablement tools, while desktop and video sales declined. Solutions performance was flat, a significant improvement versus the previous quarter as netcomm and data center projects returned. Small Business delivered strong growth, increasing 12% as optimism improved. Our team helped customers with remote enablement, netcomm and data center projects, leading to solid growth in both transactional and solution spend. Net sales for our government channel decreased high single digits. Federal declined mid-single digits. However, excluding our Device as a Service solution for the U.S. Census Bureau, Federal grew high single digits, led by engagements for the Department of Defense across both transactional and solutions categories. The state and local channel decreased high single digits. Customers paused their spending as they took a wait-and-see approach during the quarter for stimulus support under the new administration. Education again grew triple digits, achieving over 100% growth, powered by K-12. K-12 customers continued to focus on equity and access as well as ways to address learning loss, which drove strong transactional and solutions performance. Customers turn to us for holistic capabilities and expertise to help schools enable a variety of learning models, remote, hybrid, blended and in-person. Higher ed increased low single digits. Growth slowed versus prior quarters as customers assess their plans to invest stimulus funding to prepare for returning students. Healthcare declined 2%, a meaningful improvement to prior quarters. Customers were more optimistic due to increased income generated from the return to elective procedures and the accelerated vaccination pace. Solutions returned to growth driven by customers refreshing and updating their data centers. Other, which represents our U.K. and Canadian operations, increased over 20% on a reported basis. In local currency, the U.K. team increased net sales double digits, and the Canada team drove high single-digit growth. Strong results for both markets were driven by fiscal year-end government spending as well as continued investment by health care and education customers. Our first quarter performance benefited from the diversity of our customer base and from our deep and broad product portfolio. We continued to meet the critical demands of our customers. Transactions increased strong double digits and solutions returned to growth, increasing low single digits. Hardware was up strong double digits, driven by excellent notebook growth across all channels, leading to 26% client device growth. Software declined high single digits due to a decline in software licenses, but software gross profit growth remains solid. While services decreased low single digits when adjusted for overlapping the contribution from the Census project last year, services grew strong double digits, driven by strength in our professional and managed services. Services are fundamental to our go-to-market approach and a key enabler of our value proposition. We also delivered excellent growth in our cloud practice. Cloud customer spend increased strong double digits across all customer end markets, driven by robust growth in Infrastructure as a Service, security, productivity and collaboration. We expect strong customer demand for cloud solutions to continue, and we are well positioned to deliver. Our first quarter operating and financial performance reflects 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 for growth. They are important drivers of our past and 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. The balance of our customer end markets and our offerings are especially relevant in the current environment. And the final driver of our performance is our three-part strategy for growth, which is to, first, acquire new customers and capture share; second, enhance our solutions capabilities; and third, expand our services capabilities. Each pillar is crucial to our ability to profitably advise, design, orchestrate and manage integrated technology solutions our customers want and need today and in the future. Let me share two examples of our strategy in action and how we helped customers last quarter. Our Small Business team helped a customer that enables digital platforms to utilize natural language processing and machine learning to upgrade its technology infrastructure after it had been postponed due to COVID last spring. In early 2020, our account manager was working with the customer's technology team on a server upgrade at its primary data center. COVID hit and the customer froze all capital expenditures. Our account manager did a great job nurturing the relationship so that CDW is well positioned to help our customer when the project resumed. Last quarter, the customer was more optimistic about its future prospects and ready to proceed. It got access to capital and wanted to take advantage of its employees still working remotely. The project scope was expanded to upgrade all infrastructure, security, networking, storage, servers and software at its headquarters and its primary data center. The customer relied heavily on our team for its expertise to design and implement the complex solutions. In 2020, customers had to react quickly to the impact of COVID. In 2021, we see that our customers are being strategic and proactively looking to technology to be more effective and efficient in a post-COVID world. As I shared earlier, we acquired Amplified IT at the end of the first quarter. We are excited about the opportunity to go to market together with our combined strengths and to orchestrate complete hardware, software, services and cloud solutions that leverage our full stack capabilities and drive full outcomes for and deep engagement with our education customers. We started to execute against this vision immediately. CDW's relationships and extensive contract vehicles with the State Department of Education enabled the customer frictionless access to Amplified IT's portfolio. The school system needed to enhance its communication and collaboration tools to service communities in different learning formats, so it centralized and standardized its technology with the help of Amplified IT and CDW to provide the right tools and support to its teachers and students across approximately 250 schools. We are excited about the addition of Amplified IT and see significant opportunity ahead. These examples highlight CDW's three-part strategy for growth and demonstrate our relentless focus on customer service, the importance of M&A to add solutions and services capabilities to best serve our customers and how we leverage our competitive advantages to win in the marketplace. I'm so proud of the way that our teams continue to deliver for our customers. Our distribution and configuration centers remain fully operational. We expect our office coworkers to continue to be remote until at least this fall, with plans underway by our ReunITe team to reimagine our future of work to continue to serve our customers and partners better than anyone else can. Let me now share our updated thoughts on 2021. We are increasing our outlook for both the U.S. IT market growth and CDW's net sales premium to market. We now expect the U.S. IT market growth to be about 4% and our top line to grow 300 to 400 basis points faster than the market in constant currency. For the second quarter, we are encouraged about customer demand to date and how our teams are executing. That said, we are cautious about the supply environment, which, as I mentioned, has become more challenged since the end of the first quarter. While there are other wildcards such as new COVID variants, vaccine rollout, return to office and potential policy changes, including infrastructure and taxes, our confidence in the prospects of the business have never been higher. Technology will be more essential to all sectors of the economy and will play an increasingly important role in the years ahead. We have confidence that we have the right strategy to best serve our customers and partners, enhance our competitive position and deliver sustainable profitable growth. CDW's 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 out-execute our competition. Before I turn the call over to Collin for his comments on the quarter, I want to say a few words about the CFO transition plans we announced earlier today. First, I want to thank Collin for his contributions to CDW over the past 13 years and his strong leadership as our CFO since 2018. Collin has played a significant role in our evolution and consistent market-leading growth as a public company, and he has established a truly best-in-class finance team. On a personal note, it's been wonderful to be a close colleague of Collin's over 13 years, and I've greatly appreciated his partnership. We are also appreciative of Collin's commitment to support CDW in the search for his successor and to remain on the Board to ensure a smooth transition. With that, I'll turn it over to Collin.

Thanks, Chris, and good morning, everyone. My 13 years at CDW have been among the most rewarding of my career, and I want to thank you, the leadership team and all coworkers for making CDW so special. I also want to thank the finance team for bringing it every day. I'll miss CDW, but I'm confident the company has never been stronger and its best days are ahead. Following a successful transition, I'm looking forward to retiring so I can spend more time with family and helping others. I'll start my prepared remarks with more detail on the first quarter, move to capital allocation priorities and then finish up with our 2021 outlook. Turning to our first quarter P&L on Slide 8. Consolidated net sales were $4.8 billion, up 10.2% on a reported basis and 12% on an average daily sales basis as we had 1 fewer selling day. On a constant currency average daily sales basis, consolidated net sales grew 10.9%. On an average daily sales basis, sequential sales decreased 3.9% versus the fourth quarter. First quarter sales were stronger than expected, reflecting several factors. On the demand side, the timing and slope of the recovery was better than expected in several channels most impacted by COVID-19 last year. Small Business, CDW Canada and CDW U.K. all delivered strong growth and declines in Corporate and Healthcare improved meaningfully versus the previous quarter. On the supply side, our team did a great job navigating the challenging environment, leveraging our distribution capabilities and strong vendor partner relationships and was able to work down a portion of the backlog in Chromebooks, which was higher than normal coming into the year. This supply, coupled with continued strong demand from education customers, resulted in education net sales doubling compared to the prior year. Gross profit for the quarter was $795 million, an increase of 5.1% on a reported basis and 6.8% on an average daily sales basis. Gross margin was 16.4%, down 80 basis points versus last year, primarily driven by lower product margin, including notebook mix and rate and overlapping higher-margin configuration services for the Census project last year, partially offset by an increase in the mix of netted down revenues, primarily Software as a Service. Turning to SG&A on Slide 9. Non-GAAP SG&A decreased 5.6%. The decrease was primarily driven by lower bad debt expense and lower travel and entertainment expense. If you recall, last year, we increased our credit loss reserve as a result of the expected impact of COVID-19. These decreases were partially offset by higher investments in coworkers. Coworker count at the end of the first quarter was 10,186. Coworker count increased 204 from the fourth quarter, driven by an increase of approximately 120 customer-facing coworkers, including over 40 from Amplified IT. The increase in coworker count reflects investments to support high-growth solution areas and the digital transformation of our own business. Year-over-year coworker count increased to 82, driven by organic and inorganic investments in coworkers to support high-growth solution areas and our digital transformation, partially offset by cost management actions in 2020. GAAP operating income was $323 million, up 31.6%. Non-GAAP operating income, which better reflects operating performance, was $368 million, up 21%. Non-GAAP operating income margin was 7.6%, a record high margin for our first quarter, reflecting the benefit of our variable cost structure. Moving to Slide 10. Interest expense was $36 million, down 6.1%. The decrease was primarily due to a lower LIBOR rate and savings from last year's refinancing, partially offset by notes issued in April of 2020. Our GAAP effective tax rate, shown on Slide 11, was 19.5%. This resulted in first quarter tax expense of $56 million compared to $44 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 12. For the quarter, our non-GAAP effective tax rate was 25.2%, down 70 basis points versus last year's rate, primarily due to lower global intangible low-taxed income and lower nondeductible expenses. As you can see on Slide 13, with first quarter weighted average diluted shares outstanding of 143 million, GAAP net income per share was $1.63, up 40.3%. Our non-GAAP net income was $249 million in the quarter, up 24.7%. Non-GAAP net income per share was $1.74, up 26.2% from last year. Turning to the balance sheet on Slide 14. At March 31, cash and cash equivalents were $879 million and net debt was $3.1 billion. Liquidity remains strong with cash plus revolver availability of approximately $2.1 billion. Free cash flow for the quarter was $101 million, as shown on Slide 15. This was lighter than a typical first quarter, but expected given last year's record $1.2 billion of free cash flow, which benefited from timing and onetime items. In Q1, we saw some of the timing reverse as we mixed out of vendors with extended payment terms and made payments related to the Census. For the quarter, we deployed cash consistent with our capital allocation priorities, purchasing Amplified IT and returning $415 million to shareholders, including $56 million of dividends and $358 million of share repurchases at an average price of approximately $148 per share. Moving to Slide 16. The 3-month average cash conversion cycle was 22 days, up 2 days from last year's first quarter. The increase was primarily driven by a 2-day increase in DIO as we made investments in inventory to support customers through the choppy supply environment. Turning to capital allocation on Slide 17. 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 to 3x. We ended the first quarter at 2x, up 0.3 of a turn from year-end. Third, supplement organic growth with strategic acquisitions. The acquisition of Amplified IT that Chris highlighted is a great example of this. We remain active in evaluating M&A targets. And fourth, return excess cash after dividends and M&A to shareholders through share repurchases. Going forward, we expect to continue to move closer to our target net leverage range of 2.5 to 3x through a combination of organic investments, M&A and cash return to shareholders. We continue to expect to return at least $1.2 billion to shareholders in 2021, including approximately $1 billion for share repurchases with the balance from dividends. 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 18. The current environment continues to be challenging to forecast with a high degree of confidence. On the demand side, we are encouraged by the activity and building momentum, particularly with U.S. commercial customers, where April writings for corporate and small business were up healthy double digits on a year-over-year basis. We're also seeing good activity at CDW Canada and CDW U.K. On the supply side, uncertainty has increased since the first quarter. Our backlog is higher than normal and increasing with lead times extending and visibility challenged at suppliers. Notebooks, certain Chromebooks, displays and pockets of infrastructure hardware are becoming more constrained. Net demand, particularly with commercial customers, feels stronger than 3 months ago, but supply is more challenged. With that context, our updated outlook is for the U.S. IT market to grow approximately 4%. We expect CDW net sales to grow 300 to 400 basis points faster than the market in constant currency, including the contribution from Amplified IT. Currency is expected to be a tailwind of approximately 60 basis points for the full year, assuming exchange rates of $1.36 to the British pound and $0.79 to the Canadian dollar. Moving down the P&L. We continue to expect non-GAAP operating income margin to be in the mid-7% range for 2021. We now expect non-GAAP constant currency earnings per share growth in the low double digits, call it, 11% to 11.5%. Currency is expected to contribute an additional approximately 50 basis points to earnings per share growth. This updated full year outlook for non-GAAP earnings per share is an increase of approximately $0.30 over last quarter. Additional modeling thoughts for annual depreciation and amortization, interest expense and the non-GAAP effective tax rate are unchanged from last quarter and can be found on Page 19. Moving to modeling thoughts for the second quarter. On the February earnings call, we did not provide a first half, second half sales split as we typically would because of the uncertainty. Based on our current assessment, we expect the split to be approximately 48.5% to 49% first half, 51.5% to 51% second half. This assumes a slight sequential increase from Q1 to Q2 on an average daily sales basis and equates to low double-digit year-over-year growth in the second quarter. We expect second quarter non-GAAP earnings per share to grow in line with full year non-GAAP earnings per share growth. If supply turns out to be more resilient, enabling us to work down the backlog or keep pace with even stronger demand, that would be upside to the outlook. We feel good about the health of the business and believe supply uncertainty is a question of timing across the next three quarters and potentially into 2022. Additional modeling thoughts on the components of cash flow can be found on Slide 20. Our long-term free cash flow rule of thumb remains unchanged at 3.75% to 4.25% of net sales, assuming current tax rates. Given the timing impacts that contributed to 2020 significant over delivery, we continue to expect 2021 free cash flow to be at or slightly below the low end of the range. We continue to 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. As we mentioned before, 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 Cristal to open it up for questions.

Your first question comes from the line of Amit Daryanani with Evercore.

Collin, best of luck on your retirement. It's really been a pleasure working with you. I guess maybe first question, this is the one I'm getting asked by clients a lot. Please step back and talk a little bit of what happened to gross margin, at least on a sequential basis, I'll hold on the year-over-year. But what drove the drop on a sequential basis, the lowest we've seen in a while. And then how will gross margins progress as we go through the year?

Thanks, Amit. On both the year-over-year and sequential basis, there's some recurring things. I would say the biggest driver is product margin, particularly driven by notebook mix and rate. Obviously, we've had strong growth in Chromebooks in education. The other thing that happened in the quarter was really strong growth in our U.K. and Canadian businesses. It was a fiscal year-end for many of their public customers. We had a very strong fiscal year end in those markets, and a lot of those deals tended to be in client devices. So you have public and client device end market mix internationally. In the previous quarter, Q4 benefited from strong configuration services as we decommissioned the majority of the devices we had from the Census Device as a Service offering last year. A little of that spilled over into the first quarter, but for the most part, it was done. As you think about gross margin, as you know, we don't provide an outlook. It can bounce around from quarter-to-quarter based on a variety of factors. We do tend to focus on the non-GAAP operating income margin because of our variable cost structure, and that's more variable. But if I can just share some thoughts on some of the puts and takes to gross margin as you think about the next couple of quarters. I think from a tailwind perspective, I would expect the longer-term secular trend to higher-margin items as well as us continuing to grow our higher-margin services businesses. In terms of headwinds, we've talked about this for some time, but there's hardware mix, and particularly within the hardware mix, client devices and Chromebooks. And then from a product margin perspective, I think some things to think about, there's that continuous commoditization that you can see. I think we went through a unique period over the past couple of quarters where we saw customers prioritizing speed and execution over price. We're beginning to move into what I would describe as a more normalized customer behavior environment where customers are willing to wait a little bit longer and prioritize price over speed because the urgency and kind of existential threat of the pandemic in business continuity isn't as great as it was just a few quarters ago. From an OEM perspective, obviously, there's some supply challenges out there and OEMs aren't getting as aggressive on special pricing programs as they might with a channel in a more normalized environment. So I think you have a lot of things going on there. We have been through cycles like this before. I'd point to the 2018 to 2019 time frame, where our top line ticks up into the high single digits or even low double digits as we sell a lot of hardware, we exceed our 200 to 300 basis point premium by a meaningful amount, but gross margin has a smaller handle on it. And I think that's part of the power of the business model is that we pivot to where the profitable growth is, and that's why we do focus on non-GAAP operating income and EPS and free cash flow.

That is really helpful. And if I can just follow up with Chris on a different topic. Chris, you've seen this hardware business grow double digit, software and services is lagging somewhat. I'm curious, is this something normal that you would expect as we are at the onset of a macro cyclical recovery? And perhaps as IT budgets become more normalized, should we expect the software and services business to start growing in line with or faster than CDW averages, maybe by the end of the year or something? But just curious how you stack the hardware versus software and services as you go forward.

Yes, Amit. One thing, Amit. And I'd say, look, as customers continue to work through their budgets and keep a close eye on the macro environment, the vaccine rollout, that's really going to dictate where they're spending and if we continue to see this uptick in hardware refresh. In terms of software, look, that can be fairly lumpy as we've talked about before. Depending on the mix of software, this quarter, we saw shorter-term licenses and licenses not as strong, but I'll tell you, SaaS continues to be quite strong across the portfolio. So we don't expect software to start to diminish as we move forward in the year, notwithstanding a hardware refresh. It's still critically important, obviously, to the full stack. So I think we'll continue to see software strong. It's just going to bounce around depending on what's being bought and whether or not it's netted down.

Perfect, and congrats on a nice quarter.

Your next question comes from the line of Katy Huberty with Morgan Stanley.

Just a clarification first. I think IDC forecast hardware or software both of north of 6% at this point. Why do you think 4% is the appropriate forecast? And if you think about the increase since 3 months ago, is it largely PC and Chromebook driven? Or is it more broad-based than that? And then I have a follow-up.

Okay. Katy, it's Chris. I'll take that. I think I heard you cut out for a minute, but I believe the question was about the IT market rate of growth given some of the forecasts out there. As you know, we triangulate from a variety of sources: customer input, partner input, the CIO and VAR surveys, and IDC and Gartner. A couple of thoughts: the forecasts tend to lag current market conditions for third-party analysts. While demand feels very healthy, I'm not sure how many external forecasts are incorporating the supply chain impact we've discussed. The CIO surveys, if you focus on them, are a little more cautious than some of the others. We feel pretty confident that we've landed on a growth rate that feels right right now. But of course, as we go through the year, we'll update based on what we see in the market.

And is the increase, in your mind, largely PC-driven? Or is it more broad-based than that?

I would say it's overweighted to hardware and clients, but it's really broadly driven. The demand is across both transactional and solutions, and that's driving the market rate of growth in our view.

And Collin, just a follow-up for you. You mentioned strong writings growth in the April quarter. Can you just talk about the gap in the last 3 months or so between writings growth and revenue growth and whether that gap increased as you moved into April given the supply constraints?

Yes, Katy. What I would say is we came into the year with a higher-than-normal backlog. And while there were some ups and downs as we went through the quarter and some ups and downs by end market, by the time we ended the first quarter, the backlog was relatively consistent with where it was at the beginning of the year. So that would tell you that writings and sales generally kept pace with each other. Where we've seen the backlog increase has been more subsequent to the end of the first quarter, and that would tell us that we're writing well ahead of shipments.

Okay. Congratulations on retirement, Collin.

Your next question comes from the line of Shannon Cross with Cross Research.

I was just wondering with regard, I know you touched on it a little bit during the call, but stimulus, how are you thinking about the benefits? I mean there's a significant amount of money that is going to be, I guess, has been, and will be flooding into education. I think government is going to have a fair amount of funding as well. So as you look ahead, given your customer mix, how are you thinking about stimulus and how long do you think it will continue to benefit?

Yes. That's a great question, Shannon. It will be a tailwind in our mind for sure. I think about it a little bit like getting an elephant through the snake. It takes some time to actually get it moving through the system. So when you think about the three different stimulus acts that have been passed last March and then last December and then most recently in March, there are funds that have been available for state and local K-12 and Healthcare, in particular, where we see the most benefit for our customers. And we have a team actually that goes through the stimulus bills and understands where the dollars are going and, frankly, helps our customers quite a bit in understanding how and where and when they can spend their dollars. So we see it as an absolute tailwind and our customers do look to us to help understand how best to utilize those funds. If you look at the most recent of the American Rescue Plan in March, there's about $350 billion going to state and local and $130 billion going to K-12. So we certainly look forward to helping them use those and invest in technology as they come out of the current environment.

Are there any specific areas that are targeted within stimulus? I mean is it continued Chromebook sales? Or will we see maybe a move up the stack from a hardware perspective?

So yes, if we take K-12 for example. We go to market with what we call customer-centric solutions. So we're focused on those areas that are most strategic and important to our customers. K-12, for example. Think of classroom transformation, think of school-facing, think of networking augmentation. So certainly, after the stack, starting with a consultative role and a design role and then bringing to bear our implementation, integration and management capabilities. But K-12 really turns to CDW and state and local health care, who are going to be beneficiaries of the stimulus, for the holistic capabilities that we bring to bear. And at the end of the day, that actually helps them maximize the dollars they can use through stimulus because we know how to work those dollars through the needle.

Your next question comes from the line of Adam Tindle with Raymond James.

Chris, I wanted to start on the growth premium versus the market, which you're raising today. And I think coming out of the last cycle, the growth premium contracted. So I'm wondering, is the raise today more reflective of device demand remaining stronger for longer? Or do you think that you're noticing structural changes versus the last cycle that are enabling you to stay at an elevated growth premium regardless of product cycles?

Well, our premium does tend to be 200 to 300 basis points higher than the market when we start the year. We hold ourselves accountable for that. And when we sell a lot of hardware, as you know, which is recognized at full revenue, we tend to outperform that premium. So we brought it up to 300 to 400 basis points. When you think about the mix of hardware, that seems to make a lot of sense to us. So if I just go through the math. If we take Census out of the baseline, which contributed about 200 to 240 basis points to premium last year, we're looking at a good 500 to 600 basis points this year by bringing our premium up those 100 basis points. So when you ask about whether or not we, as I said, have a durable forecast or outlook for outperformance, I would say it really depends on the mix. In years where we have high hardware, we tend to outperform because we recognize much of what we sell on a full net sales basis. In times when we have slower sales of hardware, and we have more netted down items, that's when we'll see the top line more muted. So we're hesitant to commit to a higher premium generally because of the mix of the business. And the beauty of the model is exactly that mix of the business. We've got the full range of IT products and we go where our customers need them when they need us. So I don't see us bringing that up to a higher level at any point soon, but rather toggling to where our customers need us.

Understood. And maybe as a follow-up, Collin, congrats, and I'm sure there's going to be some aspects of the job that you won't miss like this one where I'm going to beat a dead horse on gross margin. But I do have to ask. I mean I know there's notebook demand, but devices have been strong for some time. Sequentially, SMB and international grew most, which are among the higher gross margin segments. But this gross margin compression is so much more than normal. So I guess the question would be, on a like-for-like product basis, are you seeing pressure on gross margin? And why? Is there inflation or price increases that you're eating more of or sharing in some of the pain that's helping you to gain some share?

Yes, Adam. I mean, first, thank you. You're right. This is one of the parts of the job that I won't miss down the road. But putting all the mix issues aside, we are seeing some product margin compression in certain categories. To go a little deeper on some comments I've made before, I think 2020 was really unique in the way customers prioritized speed and execution, often sacrificing every last basis point in their IT buying behavior. Now, as we move into a different phase of the pandemic where that mission-critical need to get IT purchases done as quickly as possible isn't as strong, we're seeing a return to more normal customer buying behavior. I would characterize the competitive environment as competitive, not irrational; we operate in a highly competitive marketplace. From an OEM perspective, they are wrestling with higher input costs and supply challenges. Because of that, a couple of things happen. First, they are less incentivized to invest aggressively in the channel and in special pricing programs that they might in a more normal supply environment where they are fighting to gain share. And in some cases, they're taking those higher costs and passing them along as price increases. We work on a cost-plus model, as we've discussed over the years. But if you think about the math of a price increase: if, for argument's sake, we make $100 per unit of gross profit on a notebook, and that notebook's price goes up by 5% or 10%, that will produce a lower reported gross margin percentage. Those are some of the dynamics driving the changes we're seeing in product margin currently versus prior quarters.

Your next question comes from the line of Matt Cabral with Credit Suisse.

Collin, I also wanted to extend my congratulations on your retirement, all the best going forward. Chris, I guess, good to hear some momentum coming back into the business on the infrastructure side. I guess I'm wondering if you could expand a little more on what you're seeing underneath there and talk about trends across the data center in categories like server, storage, netcomm? And I guess taking a step back, I'd be curious for your perspective on just how customers are balancing the desire to refresh or invest in their on-prem footprint versus this push to accelerate the move toward the public cloud going forward?

Let me start with a step back. Across our customers you hear a lot about returning to the office. While a few large organizations are going back quickly this summer, most of our Commercial and Small Business customers are not rushing. They are planning and remain cautious because they have employees on both sides of the spectrum — some want to return and others are not yet ready. We need to be patient over the next couple of months as vaccination pace may accelerate and we see how things evolve. Clearly the hybrid world is here to stay, and customers are planning for flexible or HyFlex environments. We are still working with them on planning and assessment. Some customers with very old infrastructure have moved to upgrade over the past couple of months, but many are still in the phase of assessing and optimizing. That includes deciding whether to move more to the cloud or to adopt on-premises, cloud-like solutions that are now readily available and of great interest. As Collin mentioned, last year there was a rush to ensure business continuity. Now customers are taking a more measured, strategic approach focused on durable competitive advantage for the long term. We are seeing increased spending on hardware infrastructure. Cloud is doing quite well, we’ve seen a server uptick, and storage is strengthening. We would expect netcomm to come to life later in the year or midyear as people return to the office, but on-prem hardware is not going away — customers are weighing what is most optimal for them.

That's really helpful. And I guess as my follow-up, I wanted to dig in a little bit more on the commentary for the second quarter. And I think I heard slight sequential growth, and I know we're coming off of a really strong first quarter base. I guess if I look back prior to last year, the business was typically up much more meaningfully from the first quarter to the second quarter. So I'm wondering if you could just help bridge the gap a little bit and just speak to how much is maybe normalization on the education side or some of the supply challenges versus just the trajectory in the wider business?

Yes, I would say abnormal education seasonality is the single biggest driver here. If you look historically at what has driven the increase in sequential growth from Q1 to Q2, education is by far the number one factor across our end markets. We entered the typical education peak season with a much stronger base, and we've talked for several quarters about unusual education seasonality, so that's the primary driver. I mentioned a couple of other factors in my prepared comments: an unusually strong public year-end finish in the U.K. and Canada; while public year-end always occurs in the first quarter, we had a particularly strong finish this year. We also carried a small amount of Census revenue in the first quarter as we completed device decommissioning; that is now fully complete and we have no Census revenue going forward. Another point I raised earlier is that our backlog was relatively unchanged over the first quarter. If supply is more resilient than we think, although I don't believe it is, and we can begin whittling down that backlog, or if demand is even greater and supply can keep up, that could provide upside for sequential growth into the back half of the year. We simply do not have the visibility at this point to build confidence about supply into the full-year outlook or the second quarter.

Your next question comes from the line of Ruplu Bhattacharya with Bank of America.

Collin, it was a pleasure working with you and wishing you the best for your retirement. My first question is for you as well. Can you give us some details on CapEx spend this year? What areas are you investing in? And what utilization are your distribution centers running at? And at what point would you need to invest in another facility?

Thanks, Ruplu. In terms of our own CapEx, again, we talked about this a little bit on the call. A lot of it is going into our digital transformation — better tools for our sellers, more AI, improving how our customers interact with CDW and making those transactions more frictionless — as well as investments in our supply chain for both resiliency and flexibility. So I would think about CapEx across those buckets. Regarding adding another distribution center, I don't think in the next few years we would need to build another 0.5 million square foot distribution center. Instead, we would look at more dynamic and flexible models, working with third-party logistics providers and really thinking through how to optimize our footprint across the U.S. from a supply chain perspective. And on utilization: the distribution centers are busy, no doubt. Part of that is us flexing our muscles where we can, bringing inventory in, configuring and staging it for our customers to help them through this choppy environment. So there is some capacity, but it's tight. I think we will rely more on a flexible model and renting space in the short term as needed until we have a better sense of longer-term supply and demand.

My second question is for Chris. What percent of your coworkers are currently working from home? And given certain regions are going back into lockdowns, how do you think about that? And is the updated revenue guidance for the year that you gave this morning dependent on a certain percent of coworkers being able to go back into customer sites and get acceptance for projects? So does the mix of coworkers working from home versus being able to travel impact the revenue for the full year?

Thanks for the question. Let me start with the second part first. Our guidance isn't dependent on when or how many people we get back into the office or going on to customer sites. So we've really done a great job. The team has done a great job of staying connected and staying productive. So we're not dependent on that. In terms of going back to the office and how we think about that, a couple of things. First of all, we have coworkers on both ends of the spectrum. As I mentioned before, as most companies do, we've got some who are really eager to be back and some who are still cautious until we get through the pandemic more fully. So what we've done is we've created opportunities for coworkers to come together and have social and networking time in a safe way. We've also given guidance to our customer-facing coworkers around getting together with customers who would like to get together again in a safe way, and that started to happen. We also have customers who are very comfortable with our service provision in a remote way, which we've been doing throughout the pandemic. But we also have customers who are now opening up and allowing us back on site. We have bases that are opening, et cetera. So I guess I'd say, look, we're doing very well from a productivity and connectivity perspective. We are starting to get together with customers in person. And you can imagine it depends on what's happening within each state or each country. I think the U.K. just had their garden pubs open, and that was a big event and customers do want to get together. But we're going to do this right. We don't really want to do this with fits and starts. That's really the key for us. We want to be able to have our coworkers come back together in a way that continues our highly engaged and high-performing culture and keeps the customer at the center of how we actually work together so we can continue to serve our customers and partners better than anyone else.

Your next question comes from the line of Jim Suva with Citigroup Investment.

As you start to see some mid- and small-sized businesses coming back to work and in-person meetings and in-person work, are you seeing that they are still very PC and notebook-centric weighted? Or are they going back to kind of pre-COVID mix level? Or any type of preference to what they're installing when they do come back to work?

I would say if you were to take a scale of 1 to 100, how many are actually back in work, we're still very much on the lower end of the spectrum. So we still have a very large number of customers who are continuing to work remotely. For those who are going or have some folks going back into the office, what we're observing is a continued investment in mobile employees, the ability to be in the office on a flexible basis, the ability to move around the office and use the office in a different way. Now the question is, what work are you doing in the office? And do you need to have more even more collaboration spaces and the ability for your employees to have mobile devices that they can move around with and take home? So I would say our view is that the flexible hybrid work environment is what the preponderance of our customers expect to be in over the long term. And that includes notebooks, a higher density end of notebooks, obviously, more enterprise-level collaboration capabilities. We do have some customers who are contemplating whether to have a desktop in the office and a notebook at home for coworkers; it really depends on the industry. Things like lockers and hoteling are really points of discussion now. But that's what we're seeing overall.

Now that we're lapping one year of COVID, for the education and government sectors, are they still very much needing to catch up and do a lot more PC and Chromebook installations? Or are they kind of this summer going to be in the procurement cycle for schools going back to school? Are they going to be a little less notebook and Chromebook dependent? Or are they actually going to be more, because maybe there are some districts who are fully stocked and others who aren't? Or are they not going to do more infrastructure? Just curious about your view on that.

If I think about K-12 education, there are a couple of things. Device demand continues to remain strong because there is such a gap to that one-on-one device ratio that schools are trying to get to for equity and access and also for learning loss remediation. So there's plenty of headroom for devices going forward. With regard to CDW, we face tough compares from last year. So if you think about our growth over last year, very tough compares, but the demand is strong. The other thing I would say is, as we're going into the next school year, schools are figuring and we're working with schools to figure out how to create the most optimal classroom experience, and that would be a blended experience, hybrid experience, or all in-class. Schools really have been looking at the ways of learning that they can use technology within a classroom or outside the classroom but within the walls of the school in much more creative ways. So from an infrastructure perspective, I would expect to see upticks there. And then think of audio and visual. The older interactive flat panels are getting old now, but there are newer solutions that work better. So that's another opportunity to help really modernize the classroom. Net-net, demand will remain strong with regard to devices, but the opportunity for infrastructure, network augmentation and for video will be a good opportunity as well.

Your next question comes from the line of Matt Sheerin with Stifel.

I just wanted to ask another question regarding the client devices and the PC upgrade cycle that's going on three to four years now. There's been talk obviously at some point that leveling off or being down, but we're also seem to be lapping the four-year anniversary when companies started to upgrade to Windows 10. And given the constraints out there, it seems like there's still backlog. So could you talk to the client devices and notebook upgrade cycle and your thoughts there?

Sure, Matt. When we think about tailwinds and headwinds. Tailwinds include the need for more remote devices, device density, and new use cases. We've seen a great uptick in catalyst for how our customers engage with their customers in new ways, so demand from there. You have stimulus dollars available, and Corporate and Small Business segments are recovering nicely with low comparables. On the headwind side, we had big overlaps in 2020 in some segments including K-12. And the economy is still a wildcard, though employment looks like it's picking up, which has been helpful in the Small Business space. The last thing I would emphasize is the headwinds and the challenges we're facing: visibility is limited due to supply constraints. But otherwise, the demand for client devices continues to be strong.

And just a quick one regarding the headcount, you talked about 200 additional coworkers, including 40 from the acquisition. Are you looking to continue to expand your coworker count this year given the relatively strong outlook for demand?

Yes. We absolutely are going to continue to invest in our business, whether it's coworkers, other acquisitions or digital transformation, as Collin mentioned. So we certainly will continue to invest in our coworkers.

Your next question comes from the line of Keith Housum with Northcoast.

Collin, I'll echo congratulations on retirement. In terms of this supply chain environment that we're currently in, does CDW have any pricing power with some of its customers in the fact that it's just harder to get some of the product into their hands?

No, Keith, I wouldn't think pricing power per se. I think the competitive advantage is probably more on the ability to secure supply and get at least our fair share. I think ultimately, your ability to price through it is a function of the competitive environment and the customer's willingness to wait. And I think that's what's different now versus, say, two to three quarters ago, where the customer wasn't willing or couldn't wait. So I don't know that there's a huge opportunity to pass along incremental pricing beyond what the market will bear.

Fair enough. And in terms of the supply chain challenges that you're facing, are the challenges more on the logistical side? Or are they more on the components side that's going into the final products?

I would say it's both. The components are constrained, the processor shortage is well documented, and things like glass and other parts are limited. There are also logistics challenges at ports and canals, plus natural disasters and other disruptions. So it is really a confluence of events that are impacting supply.

We have no further questions. I will now turn the call back to Chris Leahy, President and CEO, for closing remarks.

Thank you. And thank you to everyone on the call today. I would like to really recognize the incredible dedication of our coworkers around the globe and their extraordinarily committed approach to serving our customers, our partners and all of our CDW stakeholders. Our coworkers bring it every single day. And thank you to our customers for the privilege and opportunity to serve you. To our investors and analysts participating in this call, we appreciate you and your continued interest and support of CDW, and we look forward to talking with you again next quarter. Thank you.

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