CDW Corp Q1 FY2024 Earnings Call

Welcome to the CDW First Quarter 2024 Earnings Call. My name is Carla and I will be coordinating your call today. I will now hand you over to your host, Steve O'Brien, of Investor Relations to begin. Steve, please proceed.

Thank you, Carla. Good morning, everyone. Joining me today to review our first quarter 2024 results are Chris Leahy, our Chair and Chief Executive Officer; and Al Miralles, 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 the presentation are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. Those statements are subject to a number of risks and uncertainties that could cause actual results to differ materially. Additional information concerning these risks and uncertainties is contained in the earnings release and Form 8-K, which we furnished to the SEC today in the company's other filings 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, non-GAAP operating income margin, non-GAAP net 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. Please note all references to growth rates or dollar amount changes in our remarks today are versus the comparable period in 2024, unless otherwise indicated. Replay of this webcast will be posted to our website later today. I also want to remind you that this conference call is the property of CDW and may not be recorded or rebroadcast without specific written permission from the company. With that, let me turn the call over to Chris.

Thank you, Steve. Good morning, everyone. I'll begin today's call with a brief overview of our performance, our strategic progress and view for the balance of the year. Al will provide additional details on our results, our capital allocation priorities and our outlook. We'll move quickly through our prepared remarks to ensure we have plenty of time for questions. Market conditions remained challenging, and first quarter results came in below our expectations. For the quarter, gross profit was $1.1 billion, 2% lower than last year. Non-GAAP operating income was $404 million, down 7%, and non-GAAP net income per share was $1.92, down 6%. In the first quarter, customers demonstrated caution and concern given heightened macro uncertainty, weighing on capital investment decisions. At the same time, the complexities of the tech landscape continued to increase, particularly given the additional layer of AI and changes in the IT market landscape. This lengthened decision-making as customers deliberated on both how to navigate technology roadmaps and when to spend on infrastructure in a challenging economic environment. While activity was reflected in a solid pipeline with deals being pushed out, our sales and gross profit lagged. Results were also impacted by the federal budget stalemate, which led to a pause in our federal channel. Bottom line, while many of these factors are beyond our control, we are never satisfied. And as we do not expect decision cycles to improve in the near term, we remain focused on accelerating pipeline growth and using all of our competitive advantages to gain market share in this low-growth environment. During the quarter, our teams maintained a high level of engagement, working with customers to implement mission-critical projects, help prioritize and evaluate options, develop multiyear plans and prove out use cases. You see the impact of this in our gross margin, which was a first quarter record and our excellent cash flow, which together reinforce the durability of our underlying profitability and integrity of our strategies. Regardless of market conditions, we are laser-focused on delivering exceptional value to our customers. To ensure we continue to deliver on this commitment, we remain resolute in our strategy and continue to invest to ensure we have the capabilities to deliver full stack solutions and services. Broadly speaking, customer priorities included cost optimization, data protection and workforce productivity. This focused attention on security, cloud, and as-a-service offerings, as well as increased client demand and interest in AI. Let's take a look at how all of these priorities impacted performance. First, customer end market performance. Recall, we have five sales channels: corporate, small business, health care, government, and education end markets, each a meaningful business on its own with 2023 annual sales ranging from $1.6 billion to $9 billion. Within each channel, the teams are further segmented to focus on customer end markets, including geography and verticals. Our commercial operations are organized around geographies, verticals, customer size, and spend. Teams are similarly segmented in our U.K. and Canadian operations, which together delivered USD 2.6 billion in 2023 sales. These unique customer end markets often act in a countercyclical way given the different macroeconomic and external factors impacting each. Corporate top line declined 3% year-over-year. Decision-making further elongated with heightened focus on ROI and a high level of project scrutiny, given interest rate expectations. Cloud and security prioritization continued to drive excellent increases in customer spending, and the team capitalized on client device demand, with year-over-year client sales up low double digits. Corporate saw declines in hardware categories undergoing transition and absorbing capacity notably servers and networking communication equipment. Storage, however, was a standout category, up double digits, driven by data and workload growth as customers improved efficiency and captured savings from newer solutions. Small business posted a 7% year-over-year top line decline but showed sequential improvement versus the fourth quarter. The team continued to help customers address mission-critical priorities around security and productivity, which drove meaningful increases in cloud and software customer spending. Consistent with corporate, networking and servers declined, while storage increased. Small business continued to be accretive to overall margins. Client device sales posted a sequential increase yet remained down year-over-year. Public sales declined 5% from the prior year. Health care declined 2%, while transactional performance was positive with an increase in client devices, although solutions declined. Health care performance mirrored commercial trends with customer caution due to a significant focus on cost optimization. Security was also a major focus area, delivering double-digit increases in spending and gross profit. State and local government sales increased mid-teens, which was more than offset by a decline in federal top line, leading total government to decline 1.5%. State and local performance was broad-based with strength across transactional and solutions categories. Client device sales increased for the third quarter in a row, up high teens. Public safety remained a key focus area, with security rising substantially. Cloud adoption continued to gain traction. The federal decline was driven by the congressional budget impact, which wasn't resolved until late March. Some activity related to existing contracts continued, including client device refreshes, which drove a mid-teen increase, while larger network and data center projects were paused. Engagement remains strong, and we expect to see an uptick in spending once agencies can allocate their appropriated funds. It continues to be a challenging environment for education, which posted a 10% decline. Consistent with recent quarters, higher education institutions focused on doing more with less, leading to a mid-teens top line decline. Hardware categories declined across the board, while ongoing focus on cost efficiency produced a strong double-digit increase in cloud. The K-12 segment's top line decreased by high single digits, with client device sales up by low single digits, as some school systems refreshed aging Chromebooks, funded via normal operating budgets, not stimulus programs. Audiovisual solutions like smart whiteboards and interactive flat panels saw a substantial decline as schools continued to digest purchases from previous years. Security remained a top priority, with both top line and gross profit increasing by mid-single digits. Our U.K. and Canadian international operations, reported as Other, also experienced challenging market conditions, with each declining by mid-single digits. Both teams executed well, leveraging their capabilities to deliver great outcomes for customers. For the most part, portfolio performance was consistent across customer end markets. Transactional product sales performed somewhat better than solutions and showed modest sequential increases. Both categories posted year-over-year declines, with a greater decline in solutions due to the hesitancy in decision-making. At the portfolio level, hardware top line decreased by 4%. Services also decreased by 4%, as weakness in services tied to hardware overshadowed growth in managed services, which increased by low teens. Even though software net sales declined by 7%, gross profit increased slightly year-over-year. Top line performance was driven by declines in licensed software due to accelerated transitions to SaaS models. Let's address the topic that is receiving much attention, AI, and specifically what we are doing for our customers in this space. Most of our customers are currently in the initial stages of the assessment process, developing and analyzing use cases and adopting data governance best practices to ensure insights and security. Essentially, they are exploring the art of the possibility while working through the science of how to do this effectively. This is exciting work for us and our customers. The complexity of adopting AI plays to our strengths. We know how to bridge the gap between the promise of technology and transformational outcomes. Since deploying AI drives the need for technology investment across the full stack, with entry points across that spectrum, we are uniquely positioned to serve our customers, and we are doing just that today. To support our customers as they navigate successful AI adoption, we offer two broad areas of consulting services: First, connecting AI to outcomes and ROI, which we call AI discovery; and second, a practical approach to implementing AI, including data governance and security, which we call Master Operational AI Transition, or MOAT. While still in the early stages, these services are gaining traction. We have scoped the broad AI opportunity around four key areas of focus: workforce productivity, particularly in end-user assistance and edge devices; high-value use cases; broad-scale vertical solutions; and full stack, where customers rely on us to provide the infrastructure underlying applications and solutions. A prime example of a full stack solution is the corporate training and development, domain-specific large language model solution shared last quarter. Our broad-scale solutions are vertically based. We have expertise across many sectors, including health care and financial services, which equips us to understand the unique needs and challenges faced by organizations in these areas and tailor solutions and services that address their opportunities and pain points. Let's look at a couple of vertical AI examples. Our AI offering for the K-12 market presents an exciting opportunity to empower teachers and improve learning outcomes, but this must be approached carefully. Our education team leveraged its expertise to offer a safe AI platform specifically designed for K-12 classrooms, utilizing a custom large language model that generates responses from embedded educational content instead of the entire Internet. The second example is our proprietary CDW health care solution, Patient Room 'Next'. While AI promises medical breakthroughs, our solution addresses the immense pressure institutions face to manage costs while maintaining high patient outcomes. It combines AI and connected devices to transform patient rooms, improve care delivery, and enhance overall health care experiences. The solution is HIPAA-compliant and operates on a comprehensive intelligent platform powered by GPUs, providing real-time insights from data and automated documentation. One current application serves over 300 beds and generates $4 million in annual licensing. Adding services and equipment for a complete solution, such as cameras, network connections, and servers, underscores the value delivery opportunity for our customers and for CDW. Although AI will take time to become truly embedded across our customer base, we are here for our customers today and will continue to support them as their efforts ramp up. Now let’s discuss our expectations for the remainder of 2024. As you may recall from last quarter’s call, we shared our expectation for 2024 U.S. IT market growth in the low single digits, aiming to grow 200 to 300 basis points above that. Despite a slow start to the year, we still see potential for market growth. Let me clarify that we do not expect a steep increase in demand, but we do see potential for client device refresh and improved solutions performance. Factors such as further dampening of capital investment due to sustained high interest rates, worsening geopolitical issues, and unusual election year uncertainties are wildcards that could affect the landscape. As is our practice, we will update our market outlook as we progress through the year. A hallmark of CDW is serving our customers wherever their priorities lie. Looking ahead, our customers must address cloud workload growth, guard against increasing security threats, manage aging client device bases, and navigate challenges with data as they plan to leverage AI to gain insights and achieve their productivity aspirations. Armed with our full stack, outcomes, life cycle portfolio, and unique vertical expertise, we are best equipped to help our customers successfully navigate this period of unprecedented change. With that, let me turn it over to Al.

Thank you, Chris, and good morning, everyone. I will start my prepared remarks with details on our first quarter performance, move to capital allocation priorities, and then finish with our 2024 outlook. Turning to the first quarter. We began 2024 experiencing the same uneven IT market conditions that we faced throughout last year. Customers' caution amid uncertainty about high interest rates and growing pessimism toward the timing of rate cuts led to heightened scrutiny on deals and dampened capital investment. Customers are evaluating and optimizing their IT spending. While we actively partner with them to build tech roadmaps that support their strategies, the economic uncertainties are causing delays in deliberation and decision-making, thereby elongating sales cycles. During the quarter, we managed to capitalize on demand for client devices, as some customers could no longer postpone refresh activity, although sales of more complex solutions tied to digital transformation and network modernization were weaker. Nevertheless, we see potential for both continued client device refresh activities and improved conversion of our solid solutions pipeline. Regarding specific results, first quarter gross profit was $1.1 billion, down 2.4% versus last year and below our original expectations for low single-digit growth for the quarter. Consolidated first quarter net sales of $4.9 billion were down 4.5% on a reported and average daily sales basis. Gross margin increased roughly 50 basis points year-over-year, partially offsetting the impact of lower net sales. The gross margin of 21.8% was a first quarter record and was broadly in line with both full year 2023 levels and our expectations for 2024. The first quarter margin expansion was primarily driven by a higher mix in netted-down revenues. This category grew by 6%, once again outpacing overall net sales growth and representing 35.1% of our gross profit compared to 32.3% in the prior year first quarter as our teams successfully served customers with cloud and SaaS-based solutions. While we continue to expect the mix of netted-down revenues to be an important and durable trend within our business, it is important to recognize that this mix may fluctuate with customer priorities and product demand. Even with a higher mix of client devices, margins remained firm in the quarter, consistent with our expectations. First quarter gross profit was down 7.8% compared to the fourth quarter on a reported basis. On a sequential average daily sales basis, first quarter net sales decreased by 4.4%, a decline typically seen during the first quarter when compared to the fourth quarter, but we anticipated a more modest sequential decline this year, given early 2024 customer engagement suggesting more balanced spending across categories than we ultimately experienced. Instead, the sequential decline this quarter was more in line with traditional seasonality, reflecting continued uncertain conditions affecting the spending of our corporate customers, in addition to the congressional budget delay impacting federal customers. Turning to expenses for the first quarter. Non-GAAP SG&A totaled $660 million, up 0.7% year-over-year. Expenses were consistent with the expectations shared on our last earnings call, with the first quarter higher than the fourth quarter due to resetting some variable expenses for the year and accruing for other seasonally higher items. This played out as expected, but our expense efficiency ratio saw an increase due to our lower gross profit production for the quarter. As we move forward, we continue to prudently manage discretionary expenses while balancing this against expectations for the year and the need to expand our capabilities to drive future growth. Our discipline is also reflected in our coworker count at the end of the first quarter, which stood at approximately 15,000, down slightly compared to year-end 2023. Customer-facing coworker count remained unchanged at around 10,900. As we expand our solutions and services capabilities, we are simultaneously driving efficiency and cost leverage from our broader operations, which are intended to fund these investments. Following along on Slide 8, we delivered non-GAAP operating income of $404 million, down 7.1% compared to the prior year, driven by the combination of our gross profit shortfall and flat expenses year-over-year. Non-GAAP operating income margin of 8.3% was down 20 basis points from the prior year. As reflected on Slide 9, our non-GAAP net income was $261 million in the quarter, down 6.4% year-over-year. With first-quarter weighted average diluted shares at approximately 136 million, non-GAAP net income per diluted share was $1.92, down 5.5% year-over-year. Moving advanced to Slide 10. At period end, net debt was $4.8 billion, a decline of about $230 million from the fourth quarter, primarily reflecting our increased cash position alongside modest debt repayment during the quarter. Liquidity remains strong, with cash plus revolver availability of approximately $2.1 billion. Turning to Slide 11. The three-month average cash conversion cycle was 16 days, down 2 days from the prior year, and slightly below our target range of high teens to low 20s. Our cash conversion reflects our effective management of working capital, particularly regarding our inventory levels. As previously mentioned, timing and market dynamics will influence working capital in any given quarter or year. We believe our target cash conversion range remains the best guideline for modeling working capital over the long term. Despite profit moderately lower than our expectations, effective working capital management drove strong adjusted free cash flow of $364 million, as shown on Slide 12. Over the last twelve months, adjusted free cash flow was 104% of non-GAAP net income, well above our stated rule of thumb of 80% to 90%. As mentioned earlier, timing will impact adjusted free cash flow throughout the year, but we are pleased with our first quarter performance, and we will continue to update our outlook on this front as the year unfolds. For the quarter, we utilized cash consistent with our 2024 capital allocation objectives, including returning approximately $83 million to shareholders through dividends and $52 million in share repurchases. We remain committed to our target of returning 50% to 75% of adjusted free cash flow to shareholders via dividends and share repurchases in 2024. This leads me to our capital allocation priorities on Slide 13. Our first priority is to increase the dividend in line with non-GAAP net income. Last November, we announced a 5% increase in our dividend to $2.48 annually, marking our tenth consecutive year of raising the dividend. Our second priority is to ensure we have the right capital structure in place, targeting a net leverage ratio. We ended the first quarter at 2.3x, down from 2.4x at the end of 2023, and within our targeted range of 2 to 3x. We will continue to manage liquidity while maintaining flexibility. Finally, our third and fourth capital allocation priorities of M&A and share repurchases remain important drivers of shareholder value. We currently have over $1 billion of availability under our share repurchase program. This leads to our outlook on Slide 14. The uncertain market conditions that were evident throughout 2023 have persisted into 2024, and customer sentiment remains cautious and prudent. Last quarter, we mentioned a slow start to the year for IT spending, which has indeed come to pass and will likely continue in the near term. However, as we look ahead, we see a compelling need to address cloud workload growth, increasing security threats, the aging client devices, and All Things Data as we assist our customers in building their plans to leverage AI, capture insights, and fulfill their productivity goals. Our updated full-year 2024 expectation remains for low single-digit gross profit growth, which reflects the slow start to the year. We maintain our view that customers will allocate their IT budgets in upcoming quarters, but within the context of historical seasonality. With that comes an unchanged expectation for the 2024 gross margin to be similar to full year 2023. Finally, we anticipate our full-year non-GAAP earnings per diluted share to increase in the low single digits year-over-year. Please remember that we are committed to delivering our financial outlook on a full-year constant currency basis. Further modeling thoughts regarding annual depreciation and amortization, interest expense, and non-GAAP effective tax rate can be found on Slide 15. As we look towards the second quarter, we expect low single-digit gross profit growth compared to the prior year, maintaining our expectation that gross margin will be comparable to both the full year 2023 and Q1 2024. Our first half/second half split is slightly more weighted to the second half than historical levels, consistent with our market expectations. However, we still anticipate seasonal quarterly patterns to hold, including a lower fourth quarter compared to the third. Regarding the P&L, we expect second quarter operating expenses to be moderately higher than in the second quarter of 2023 on a dollar basis, but to reflect a more normalized ratio relative to gross profit than we experienced in Q1. Ultimately, we expect second quarter non-GAAP earnings per diluted share to grow in the low single-digit range year-over-year. For 2024, we maintain our expectation for adjusted free cash flow to be in the range of 80% to 90% of our non-GAAP net income, factoring in a higher level of working capital investments to support growth. That concludes the financial summary. We will provide updated views on the macro environment and our business in our future earnings calls. With that, I will ask the operator to open it up for questions. We would ask each of you to limit your questions to one with a brief follow-up. Thank you.

Our first question comes from Adam Tindle from Raymond James.

I just wanted to start one of the big themes during the tech earnings season is spending on AI being very strong, and I appreciate all your comments in the prepared remarks. But it's hard not to connect that with CDW's results here for Q1, which were a little bit weaker than expected, showing a decline in solutions where presumably AI would be reflected. I figured I'd throw it out there to address any investor concerns that perhaps CDW is not participating in AI spending. What would that thesis be missing, and are there portions of that that might be fair? What things can you do to capitalize more on AI spending, whether that’s organic or inorganic?

If I could, let me zoom out first and then zoom back into AI. Let me start with the environment we experienced in Q1. A couple of factors impacted results in complex solutions. We had dynamic conditions in a complex environment that resulted in what I would call fits and starts for both the market and our customers who have lacked certainty and visibility. The economic and financial uncertainty, particularly the interest rate and inflation environment, was the primary driver of the impact on our corporate and small business teams. This created an overhang in the environment, leading to uneven market conditions that were similar to trends we saw in 2023. As a result, our customers remained cautious, prudent, and lashed onto relentless scrutiny regarding deals across the board, particularly in the solutions space, as they focused on cost optimization and short-term ROI, ultimately dampening capital investment during the period. I would also highlight a couple of other pressure points during the quarter, which included changes in the IT landscape with consolidation and acceleration into as-a-service, causing interruptions in customer processes. Federal budgets delayed, and the education market is transitioning back to a more normalized funding mechanism. The result was collectively that we faced spending deficits. Our overall engagement is incredibly strong. I'm really pleased with our engagement, and I see our value continuing to build as we assist our customers in managing the increasingly complex tech environment and during this dynamic period, but what didn't happen is the solid pipeline that translated into invoicing in the solutions portfolio as it would have during a normal operating environment. Now while we've seen a pause on complex solutions, we are helping customers who need to refresh devices to start doing that. These are positive signs in what I would call a lower risk, lower-friction client dynamic. Ultimately, sales in solutions impacted our overall results. If I pivot back to your question on AI: We're in the early stages. While some of our customers are advanced, the majority are still in the assessment and experimentation phase, and that will evolve over time. CDW is uniquely positioned in this space to take advantage of what will become a ubiquitous full-stack opportunity. We have the ability to guide customers on this journey; we know the art and science of new technology adoption. We offer a comprehensive portfolio that allows us to help customers at every entry point. We also understand our customers' pain points and opportunities, giving us the capability to provide packaged solutions that can scale quickly as well as customize solutions for specific needs. Our value extends into areas of opportunity through workforce tools and assistance, high-value use cases, broad-scale vertical applications, and full-stack infrastructure underpinning those applications.

Yes. Complexity typically benefits CDW. That makes sense. Just a quick follow-up, Al, on guidance. The gross profit dollar for Q2, where you talked about low single-digit year-over-year growth. I think if I did the math for sequentially, it’s like low double digits. Historically, it’s been more like 6% to 8% sequentially, so above the last couple of years. Given a little bit weaker-than-expected trends in Q1, wanting not to experience that again in Q2, could you give us insight on how you thought about that gross profit dollar guidance for Q2? Is there anything underpinning that sequential growth, whether it was pushouts from Q1 or something?

Yes, sure, Adam. Happy to address that. First, I think we mentioned in our prepared remarks that we feel encouraged by the pipeline we have and the customer spend perspective. Much of that will focus more on the solutions category, as we discussed. So that's number one. The thinking here is, if you look back over the historical seasonality, it usually trends more in the mid-teens. When we consider the sum of the catalysts Chris mentioned upfront—workload and data growth, security needs, and the obsolescence of client devices—we believe there are both catalysts and tangible pipeline present. When you integrate that with historical seasonality in the mid-teens, our Q2 outlook falls slightly short of that seasonal expectation, but we are confident based on the slower Q1 start and the favorable pipeline that our customers will address these critical spending items.

Our next question comes from Samik Chatterjee from JPMorgan.

I appreciate all your comments about the challenging customer spending environment. I’m curious, comparing with last year, some scrutiny on budgets isn’t new, but last year we saw solutions remain quite robust while the transactional business faced challenges. As solutions business pulls back, and with the transaction business now seemingly opening up a bit, could you provide insights regarding the change in customer thinking and any read on the recovery in the solutions business based on what you are seeing in the transaction market? Just curious about that, and I have a quick follow-up.

Yes. Let me begin that response. I believe what we're witnessing is a result of both macroeconomic conditions and the added complexity of AI as a consideration that has our customers maintaining their cautiousness on spending. We are seeing decision-making continue to take longer, but now with clients needing to refresh aging devices. So, they are being pressured to allocate budget for aspects they cannot push aside any longer. They'd like to move to newer OS versions and ensure resources are available for a future demand spike. There has been a shifting of some budget towards devices. I believe this behavior indicates the ongoing need for technological upgrades. Regarding the trend as we move through the year, I will defer to Al for further remarks.

Yes, sure. A couple of points to mention. As we reflect on the parallels with 2023, the same caution and concern substantially persisted into Q1, and it has grown even more pronounced. We faced a complex landscape influenced by the subtle economic signals; the market shifted from expectation of multiple interest rate cuts to now anticipating only a few potential cuts. As we move forward, many technologies have navigated significant changes in the market leading to delayed decision-making. Therefore, as we progress, we anticipate the resurgent needs for network modernization, to address workload and data growth would surface, and our confidence in solutions will eventually translate into action. Ultimately, our pipeline conveys those intended actions, but the current state reflects a deferral approach toward spending. Our expectation is that more economic clarity will guide our customers toward refining their IT roadmaps in the domain of AI, leading to more balanced spending across solutions and transactions.

Our next question comes from Erik Woodring from Morgan Stanley.

Chris, could you unpack some of your pipeline comments? Setting aside federal projects, can you clarify what you're observing in terms of customer sets or products where you're noticing more pronounced behavior? Are you experiencing cancellations or push-outs more prominently than before? Or is it simply the macro situation that poses the key challenge for spending? Are there any other factors that are influencing your clients’ decision-making?

Yes, sure. The macro overhang is indeed the primary factor behind the prolonged sales cycles. We are not encountering cancellations but rather more deliberation among more stakeholders in the decision-making process, along with the influence of AI considerations. This represents an adjustment period for customers, thinking about long-term impacts. The progress and speed with which AI functionality is advancing are significant considerations. Overall, the current landscape is not severely different from what we encountered in 2023, and during this quarter, we introduced more uncertainty than we observed in various quarters last year.

Addressing your concerns about catalysts, despite these economic challenges, we are seeing ample opportunities within the solutions category. The cautious customer sentiment regarding macro conditions has brought forth a delay in decision-making. While we acknowledge a pickup in client devices across various end markets, we also recognize the need for more immediate spending driven by essential upgrades.

Our next question comes from David Vogt from UBS.

I want to return to a longer-term discussion regarding AI and the performance of your hardware categories. Looking beyond this year into 2025, how are you anticipating the impact of AI traction on configurations and average selling prices? For instance, there's ongoing dialogue surrounding AI PCs with significantly higher price points, which could likewise apply to optimized servers. How do you foresee this affecting your business in years beyond?

Yes, David, I would say it's still too soon to draw absolute conclusions. Currently, we haven't observed much change in average selling prices. Generally, prices, including on the client device aspects, have remained steady. Our growth during the quarter has primarily stemmed from unit sales. Despite the buzz surrounding AI-enabled products and their potential price increases, we aren't prepared to predict exact outcomes. We will continue to collaborate closely with customers to determine how best to help them navigate the evolving landscape.

Thank you. Let me close by reiterating my confidence in this team, our strategy, and the durability of our resilient business model. I'm grateful to our CDW coworkers across the globe for their unwavering commitment to our customers. Thank you to our customers for the opportunity to assist you in achieving your goals. And thank you to our listeners for your interest in CDW. Al and I look forward to speaking with you next quarter.

This concludes today's call. Thank you for joining. You may now disconnect your lines.