Good morning, all, and thank you for joining us for the CDW4 Accords 2024 Earnings Call. My name is Carly, and I'll be coordinating your call today. If you'd like to register a question during the call today, you can do so by pressing star followed by one on your telephone keypad, and to remove yourself from the end of questioning, we'll be star followed by two. I'd like to hand over to your host, Stephen O'Brien of Investor Relations. The floor is yours.

Thank you, Carly. Good morning, everyone. Joining me today to review our fourth quarter and full year 2024 results are Chris Leahy, our Chair and Chief Executive Officer, and Al Morales, our Chief Financial Officer. Our earnings release was distributed this morning and is available on our website, investor.cdw.com, along with supplemental slides that you can use to follow along during the call. I'd like to remind you that certain comments made on this presentation are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. Those statements are subject to a number of risks and uncertainties that could cause actual results to differ materially. Additional information concerning these risks and uncertainties is contained in the earnings release and Form 8K we furnished with the SEC today and in the company's other filings with the FCC. 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 FCC rules. You'll find reconciliation charts in the slides for today's webcast and in our earnings release and Form 8K. Please note all references to growth rates or dollar amount changes in our remarks today are versus the comparable period in 2023 with net sales growth rates described on an average daily basis unless otherwise indicated. Replay of this webcast will be posted to our website later today. I want to remind you that this conference calls 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 our call with an overview of our fourth quarter and full year performance and share some thoughts on our strategic progress and expectations for 2025. Then I'll hand it over to Al, who will take you through a more detailed review of the financials as well as our capital allocation strategy and outlook. We will move quickly through our prepared remarks to ensure we have plenty of time for questions. For the fourth quarter, the team continued its exceptional level of customer commitment and delivered net sales of $5.2 billion, 5% above 2023 on an average daily sales basis, gross profit of $1.16 billion, flat as reported and up 2% on an average daily basis, non-GAAP operating income of nearly $500 million dollars four percent below 2023 and non-gap net income per share of two dollars and 48 cents down nine cents year over year or four percent the fourth quarter delivered a solid finish to a challenging year during the quarter as we have seen all year customer priorities remained laser focused on operating efficiency and expense elasticity and continually met with as-a-service and routable solutions like cloud and sas and consultative services in order to optimize spend and minimize capital expenditures. At the same time, customer focus on mission-critical and must-do priorities drove interest in resuming projects with clear short-term returns on investment. This led to an uptick in demand across several hardware categories. Despite this shift in our mix, our durable and stable gross margins held strong and, in fact, reached its highest quarterly level in 2024. Looking back on the full year, the team's ability to deliver as-a-service and service offerings helped partially offset the impact hardware deprioritization had on our top line, which declined by 3%, and we delivered full-year consolidated gross profit roughly 1% below 2023. Sustaining the resources needed to deliver exceptional service to our customers and support future growth drove slight expense deleverage, and both 2024 non-GAAP operating income and non-GAAP net income per share declined by 5% and 4%, respectively. Although 2024 P&L results were not consistent with our record of performance, we once again generated more than $1 billion of adjusted free cash flow. We stayed the course on our capital allocation priorities and commitment to shareholders and returned $832 million to shareholders via dividends and share repurchases, a commitment that was reinforced with today's Board of Directors' action to increase our share repurchase authorization by $750 million. Now let's take a closer look at our fourth quarter performance. As always, there are three main drivers of our results, our balanced portfolio of customer end markets, breadth of our product solutions and services portfolio, and relentless execution of our three-part strategy for growth. First, the balanced portfolio of our diverse customer end markets. As you know, we have five U.S. sales channels, corporate, small business, healthcare, government, and education. Each channel is a meaningful billion-dollar-plus-per-year business on its own. Within each channel, teams are further segmented to focus on customer end markets, including geographies and verticals. We also have our UK and Canadian operations, which together delivered sales of $2.5 billion U.S. dollars. The benefit of our diverse end markets was clear during the fourth quarter. Commercial markets showed signs of stability in the quarter and returned to growth. While customer behavior remained cautious and we did not experience traditional year-end budget flush, we did see greater willingness by some customers to spend their remaining budgets. Corporate and small business increased their top line, both up by 4%. International or other increased by 5%, and public increased 6%, driven by health care's standout performance, up 30%. Within public, unique and market factors continue to influence education and government. Education declined 2%, as high ED's strong performance was more than offset by declines in K-12. As expected, the K-12 market experienced the impact of the first full period without any stimulus-based government funding programs. Government's decline was driven by federal and market uncertainty, where we saw spending pauses as agencies awaited clarity around priorities from the incoming administration. Clearly a quarter of varied end-market performance. the second driver of our performance this quarter was our broad and deep portfolio of solutions and services hardware increased to top line by four percent with client devices netcom and storage all increasing mid single digits or better in the u.s client devices growth was primarily driven by normal refresh of aging units software net sales were up five percent as robust double digit SaaS and IaaS growth continued to be impacted by the market transition away from licenses. Customer spend and gross profit both increased mid-single digits. Cloud remained an important driver of performance across the business and once again was a meaningful contributor to gross profit. Cloud profit increased by mid-teens. Security was a top contributor to cloud and software results and delivered high single-digit top line and profit growth. Customers continued to leverage our growing services capabilities as part of their strategies, and services top line increased 10%. Overall services delivered double-digit profit growth. CW managed services increased more than 20%. As you can see, our deep and broad portfolio of solutions enabled the team to address customers' most pressing priorities, and that leads to our third driver of results, relentless commitment to our growth strategy. During 2024, we maintained our strategic fortitude and patience. We continued to build upon our productivity and efficiency work and further strengthen our relevance to our customers, co-workers, and partners. One way we are strengthening and differentiating our relevance is by deepening our technical and industry expertise. We know more than anything that customers value our unbiased, highly informed point of view, a point of view that enables our ability to architect and implement full-stack, multi-branded solutions which cut through the noise and deliver outcomes that address each customer's unique needs. Sitting side-by-side with a C-suite at the table, CDW industry experts add value to the decision process and move us up the stack. CDW healthcare offerings showcase this expertise. Our deeply experienced healthcare subject matter experts include more than two dozen former industry executives. These former CIOs, CTOs, and practitioners have been crucial in developing and launching solutions only possible by combining their deep industry-specific expertise with our extensive portfolio and capabilities. Solutions like our proprietary patient room Next AI and IoT-based solution and innovative healthcare transformation centers located across the U.S. Healthcare transformation centers are collaborative spaces equipped with the latest technology and staffed by experts where healthcare organizations can explore new concepts, develop strategies, and test customized solutions. Solutions that improve patient care and clinical workflows across the care continuum. One center is capable of running a 2,000-bed hospital complete with a standalone isolated data center and simulation lab. And another center is focused on exploring scalable and evolving technologies for enhancing quality of life for those aged 50 and older. These transformation centers deliver measurable clinical outcomes, outcomes like reduced readmission rates, where real-time access to patient data is combined with advanced analytics so providers can identify at-risk patients and intervene before they are readmitted. And outcomes like enhanced patient satisfaction, where mobile communication tools and solutions deliver greater engagement and streamline care coordination, driving higher patient approval scores. Outcomes all made possible by our strategic focus on enhancing our expertise and our capabilities in the fastest growth, highest relevance cloud and software vectors. During 2024, we maintained a patient and opportunistic stance towards capital investment. When the target and the timing was right, we leveraged our cash position and strong free cash and on November 27th, we closed our acquisition of Mission Cloud Services, a premier AWS partner and leader in driving cloud adoption and migration. Mission complements recent investments we have made to drive greater scale in our services and as a service offering. Investments and capabilities that include cloud migration, full stack and cloud native software development, DevOps engineering, robust consulting, and cloud-based workflow automation expertise and resources. Mission expands our AWS Connect opportunities and delivers a compelling managed service offering that can be purchased through AWS Marketplace, allowing customers to burn down their cloud commits. We know how powerful this can be. Let me share an example of a solution that combined professional and managed services with AWS Connect and AI. It's an example of how we help a customer drive efficiency, find cost savings, and improve the customer's experiences and outcomes in today's challenging environment. A financial solutions company's on-premise contact center needed an upgrade. After careful evaluation, the CDW team designed a flexible custom solution that improved both customer service and streamlined operations. The solution includes cloud-based compute, database, and business intelligence that uses AI-driven analytics and natural language understanding. The project began with a multi-hundred-thousand-dollar initial investment, and CDW delivered technical and implementation services that provided strong ROI to the customer. The solution represents a significant monthly spend commitment to CDW for cloud-based customer service agent access to customer data and managed services for continuous performance monitoring. This integrated hardware, software, and services solution reduces high maintenance costs, improves scalability, agent performance, customer experience, and enabled innovative customer service solutions from a data-driven insight. It's an excellent example of the power of integrating managed and professional services with our full portfolio of cloud and AI offerings, solutions made even more compelling with mission in the family. While we have more to do, our investments in high relevance, high growth areas over the past five years have positioned us well to deliver value to our customers, however they need us. That leads us to our view for 2025. We currently look for the U.S. IT market to grow by low single digits in 2025 on a customer spend basis, and for us to outpace market growth by 200 to 300 basis points. This outlook factors in expected impact from unique market dynamics on the public spending side, particularly in federal and education, as well as expected intensified pressure for our UK and Canadian operations, given their market space increased uncertainty driven by macro factors and political change. As always, we base our view of IT growth on what we are seeing in the market and what our customers are telling us about their plans and priorities for 2025. Right now, our commercial and public customers' decisions remain deliberate, with ongoing project scrutiny, pursuit of short-term ROIs, and continued large project buying hesitancy. While our market view recognizes the potential for meaningful exogenous factors to impact demand, including policy uncertainty, the level of inflation, the impact of tariffs, and other potential disruptors, it does not weigh these wild cards too heavily. For now, we are comfortable with our prudent outlook. As we always do, we will provide an updated perspective on business conditions and refine our view of the market as we move through the year. In the meantime, we will continue to do what we do best, out-execute the competition. Whatever the conditions, we will use all of our competitive advantages to outperform the market. Our customers face proliferating data and ever-expanding cybersecurity needs. They face expanding workloads and hardware obsolescence. At the same time, they face the potential and promise of AI and other exciting innovative technologies. With our broad and deep portfolio of solutions and services and capabilities, we will be there for our customers as their trusted advisor, today and tomorrow, wherever their priorities Now, let me turn it over to Al, who will provide more detail on the financials and outlook.

Thank you, Chris, and good morning, everyone. I will start my prepared remarks with details on our fourth quarter performance, provide a brief 2024 full-year summary, move to capital allocation priorities, and then finish with our 2025 outlook. Fourth quarter gross profit of $1.2 billion was roughly flat year-over-year, but up 2% compared to the prior year, factoring in one less day. This was above our original expectation of low to mid-single-digit declines as our teams captured increased demand for cloud, security services, and certain hardware products. In line with our expectations, gross margin of 22.3% was up 50 basis points on a quarter-over-quarter basis, the highest margin quarter of the year, but below the record level of 23% achieved in the fourth quarter of 2023. Compared to the prior year, the decline in gross margin was due to a higher contribution from notebook and desktop sales and a modest contraction in margin rate across a few product categories. Knitted down revenues represented a strong 35.8% of our gross profit compared to 35.4% in the prior year of fourth quarter. We continue to meet customers where they need us most. The netted down category of solutions represents an important and durable trend within our business. While we expect netted down revenue streams to outgrow the rest of the portfolio over time, driven by consistently strong cloud and fast growth, we may see variance in growth from some of the other netted down categories, including warranties and software assurance, as we did this quarter. moving to a quick review of our channels for the quarter on an average daily sales basis the commercial business achieved top-line growth the first time in two years alongside firm gross margins in the public space education was roughly seasonal and its sequential declines and while government remained challenged the sequential decline was less than historical levels healthcare was a standout performer this quarter as our team outperformed in a challenging end market reflecting the strategic investments we've made in this space international net sales grew for the quarter driven by product volume growth but all behind historical fourth quarter sequential growth rates due to a lack of budget flush activity we still expect volatility in the international end markets as customers in these regions regions face ongoing economic and political uncertainty overall i want to credit our teams for delivering our above our expectations in a tough environment. Turning to expenses in the fourth quarter, non-GAAP SG&A totaled $656 million, up 3.3% year-over-year. Compared to our prior expectation for SG&A to be roughly flat year-over-year, this increase was mostly due to higher gross profit achievement. The efficiency ratio of non-GAAP SG&A to gross profit was 56.8%. percent. Coworker count at the end of the year was approximately 15,100, while customer-facing coworker count was approximately 10,900, both down 300 coworkers from the third quarter and flat to last year. These numbers take into consideration both our acquisition of Mission Cloud Services and the actions taken in the fourth quarter to align our expenses to market conditions. Our goal is to balance growth, expansion of capabilities, and exceptional customer experience with greater efficiency and cost leverage from a broader operation. Non-GAAP operating income was approximately $500 million, down 3.8% versus the prior year, driven by lower gross margins year-over-year combined with higher expenses. Non-GAAP operating income margin of 9.6% was down from the record 10.3% in the prior year. Our non-GAAP net income was $333 million in the quarter, down 4.7% on a year-over-year basis, impacted by slightly higher interest expense following our debt refinancing and lower interest income due to modestly lower rates with fourth quarter weighted average diluted shares of 134.4 million non-GAAP net income per diluted share with two dollars and 48 cents down 3.7 percent versus the prior year shifting gears to briefly review briefly review full year results 2024 was the second consecutive year we experienced a challenging environment demand was below what we initially anticipated, and customer sentiment was cautious throughout the year, with more deliberation in decision-making and elongated sales cycles. Net-net, this led to a 1.8% decline in net sales and a 1.1% decline in gross profits. Despite these declines, gross margins held firm year-over-year at 21.9% versus 21.8%, showing that even when client devices are stronger and solution hardware is weaker, our margins remain resilient. Our strategy investments are working. Investments like the recent acquisition of Mission Cloud Services, which brings capabilities which should position us well for growth in the future. As always, we will continue to pivot to meet customers where they need us, no matter the environment. Down the P&L, we saw higher year-over-year non-GAAP expenses as we pivoted to adjust our fixed cost base to align to an uneven demand environment and made judicious investments in support of our strategy. This led to year-over-year declines of 4.5%, 4.4%, and 3.6% in our non-GAAP operating income, non-GAAP net income, and non-GAAP net income per diluted share respectively. monthly. Moving to the balance sheet, at period end, net debt was roughly $5.1 billion, up roughly $253 million from the third quarter, and approximately $69 million since year-end 2023. This was driven by our use of cash during the quarter, notably to fund our acquisition of Mission Cloud Services. Liquidity remained strong with cash plus revolver availability of approximately 1.7 billion dollars the three-month average cash conversion cycle is 18 days up one day from the prior year and at the low end of our targeted range of high teens to low 20s this cash conversion reflects our effective management of working capital including proactive management of our inventory levels as we've mentioned in the past timing and market dynamics will influence working capital in any given quarter or year. We continue to believe our target cash conversion range remains the best guidepost for modeling working capital longer term. Adjusted cash flow, free cash flow was $315 million in the quarter, consistent with our expectations. For 2024 in total, adjusted free cash flow was a healthy $1.1 billion and 84% of our non-GAAP net income, achieving our stated rule of thumb of 80% to 90% of non-GAAP net income. For the quarter, we utilized cash consistent with our 2024 capital allocation objectives, including returning approximately $146 million in share repurchases and $83 million in the form of dividends. For the year, with $332 million of dividends and $500 million of share repurchases, we exceeded our target of returning 50% to 75% of adjusted free cash flow to shareholders, finishing the year at approximately 77%. That brings me to our capital allocation priorities. Our first capital priority is to increase the dividend in line with our non-GAAP net income growth. We announced on our last earnings call an approximately 1% increase of our dividend to $2.50 annually, our 11th consecutive year in increasing the dividend. We will continue to prudently manage our dividend with respect to the growth environment and target a roughly 25% payout ratio versus non-GAAP net income going forward. Our second priority is to ensure we have the right capital structure in place. We ended the fourth quarter at 2.5 times net leverage within our targeted range of two to three times. We will continue to proactively manage liquidity while maintaining flexibility, as evidenced by our 2024 debt refinancing and redemption actions. Finally, our third and fourth capital allocation priorities of M&A and share repurchases remain important drivers of shareholder value. We continually evaluate M&A opportunities that could accelerate our three-part strategy for growth, as shown by our recent acquisition of Mission Cloud Services. Likewise, we remain committed to our target to return 50% to 75% of our adjusted free cash flow to shareholders via the dividend and share repurchases. As such, we are pleased to announce an additional $750 million share repurchase authorization program approved by our Board of Directors, on top of the approximately $588 million of authorization remaining under our current program for 2025 and beyond. And that leads us to our outlook. Customer sentiment remains cautious across end markets. We expect these conditions to persist in the near term, but are cautiously optimistic about 25 as an inflection point for the demand cycle. Customers still have a compelling need to address priorities, such as workload growth, increasing security threats, and aging client devices. And while uncertain macroeconomic conditions and a complex technology landscape may continue to weigh on customer demand for solutions hardware, we anticipate leveling demand for these products, including in areas like NETCOM that saw depressed growth rates in 2024, driven by product digestion, and after laughing, tough 2023 compares. With these factors in mind, our full year 2025 expectation is for the IT market to grow low single digits. We target market outperformance of 200 to 300 basis points on a customer spend basis. Based on the anticipated mix of products and solutions, we expect low single digit gross profit growth. We also expect gross margins to remain relatively stable and within the range of 2024 levels as we continue to scale up our cloud, SaaS, and services businesses while balancing the prospect of a return to growth in solutions hardware. We expect first half gross profit to be slightly lower than the second half, reasonably in line with our historical seasonal splits of 48% versus 52%. Finally, we expect our full-year non-GAAP earnings per diluted share to grow low single digits year-over-year, as we focus on profitable growth, exceptional customer outcomes, and an effective execution of our capital allocation priorities. Please remember, we hold ourselves accountable for delivering our financial outlook on a full-year, constant currency basis. On that note, we expect currency to be a slight headwind to reported growth throughout the year. Moving to modeling thoughts for the first quarter, we anticipate mid-single-digit gross profit declines sequentially, relatively in line with historical levels, leading to low single-digit year-over-year growth, and we expect gross margin to be similar to overall 2024 levels. Moving down the P&L, we expect first quarter operating expenses to be similar to both the first quarter and fourth quarter of 2024 on a dollar basis. As we've seen in the last few years, this will result in the first quarter being the highest level of non-GAAP SG&A as a percentage of gross profit for the year. Finally, we expect first quarter non-GAAP earnings per diluted share to grow in the lowest single-digit range year-over-year. That concludes the financial summary. As always, we will provide updated views on the macro environment and our business on our future earnings calls. And with that, I will ask the operator to open it for questions, and we would ask each of you to limit your questions to one with a brief follow-up. Thank you.

Thank you very much. We now have to open the lines for Q and A. If you'd like to ask a question, please press star followed by one on your telephone keypad now, and if you'd like to remove yourself along the questioning, we'll be star followed by two. Our first question comes from Aret Daryani of Evercore ISI.

Thanks a lot. Good morning, everyone. I guess just to start with, Chris, when I think about the calendar 25 guide that folks just provided, how do you think about different parts of the public vertical kind of stacking up in that growth profile? And I guess really, given the focus on efficiencies and the impact on Doge, how do you see that kind of playing out for CDW in the near to medium term?

That would be really helpful. yeah on it on the on the public sector side uh we've taken into consideration those areas that we can in our in our typical seasonality and some of the uh the unique factors that we're facing in terms of um education being at the end of its that large funding cycle etc but here's what i would say i'd say look it's it's too early to tell where all these things are coming out um we've got a lot of lack of clarity. Things are moving fast. They're very fluid. And so we're basically taking it and analyzing as we go, and we'll update as we go through the year. I would say that when it comes to Doge, there are going to be puts and takes. Anytime you reduce workforce, that tends to slow things down in the government space, and we have factored that in. But on the other side, anything driving efficiency is positive for technology over the long run. So we've tried to be prudent and cautious in our federal approach, knowing full well that we just don't have all the clarity and we're going to continue to assess and update you as we go through the year. You know, on education, we're getting news every single day around the education side. And so we're just going to, you know, we're just going to be very measured. We're going to stay aware. We're going to stay attuned, but not be overly reactive. And we're going to continue to assess funding sources and policy changes across the board. As I said, there are going to be puts and takes. There's going to be, you'll have reductions, but you'll also have realignments. And it'll be our job to figure out where the opportunities and risks are. And we've got a very strong federal state and local and education business, we have 40 years of finding where the funds are and helping our customers actually work their way through and understand changes. And we're right in the middle of doing that right now. There's a lot of discussion with customers. There's a lot of analysis. They really are turning to us to understand on a daily basis and longer term. Certainly, I think you're going to see some air pockets as people figure things out. But over the long run, we think that technology is going to be a winner across the federal and educational landscape.

Got it. That's really helpful. If I just follow up, you know, when I think about the low single digit gross profit dollar guy for the year, you know, expecting the broader IT spend and CW's top line to be somewhat better than that. So what's kind of driving a bit more muted gross profit dollar growth, if you may? Is it mixed or is there some other factors that we should be aware about? Just hope you think about that low significant profit dollar growth would be helpful.

Yeah, good morning, Amit, Sal. I would say, look, as you think about our outlook and down the P&L, the actual variance between the line items from, you know, customer spend, gross profit, all the way down to EPS, the variance in those growth rates are not significant. So that's number one. So there's nothing there too meaningful to report beyond maybe a little bit of a shifting of mix. And I maybe would just note that with that shifting of mix, we would probably continue to see a little bit of compression in net sales as we continue to lean into netted down, which will bolster gross profit. a little bit of a continued pressure on the expense line that would depress non-GAAP operating income a bit, but then you pick up some leverage as you get further down into EPS. So the variance between those categories, not too meaningful overall.

Perfect. Thank you very much.

Thank you very much. Our next question comes from Samik Chatterjee of J.P. Morgan.

Samik, Thanks for taking my questions. I guess maybe to start off on the 4Q results, you had a strong end to the year, but it also seemed like within the verticals that you called out, healthcare was particularly strong, up, I think, close to 30% on a day-adjusted basis. Can you just go through sort of what drove that? Was it a lot of transactional business or sort of anything else that drove that number to be that strong? And I have a quick follow.

Yeah, sure. Look, healthcare was a standout, and healthcare has been performing for several quarters now. The net sales number reflected the mix, so we saw a really nice number there. But at the end of the day, it's been a very balanced success over the last couple of quarters with healthcare, which is a reflection of our strategy and how we bring value to our customers. The broad and deep portfolio, particularly around cloud, when you couple that with our deep healthcare expertise, those enable the healthcare teams to be real trusted partners and help our healthcare customers on their cloud journeys. We've made a number of investments behind healthcare in the capabilities and technologies and partners, frankly, that we bring to bear. And that is just bearing fruits. Now, I would say that we are overlapping a couple of very difficult years. So the number, it does seem high, but at the end of the day, very, very proud of the healthcare team and the focus and execution that they're bringing to bear for healthcare organizations that are really earlier in their journey on cloud and we're right there to help them along the way.

And maybe Osamak, I'll just add on that Chris's point about the comps. As we think about overcoming the comps on NetCom, healthcare would be a big one in that regard. I'd also add that business as we've invested behind it uh has has built a nice client base uh including um some larger transactions so you know while we are definitely pleased with the execution and the outcomes there uh there is an element there of um uh of transactions that may not be fully recurring and then finally i would just note while that with the business is really strong in health care it tended to somewhat offset some of the declines from government education. So that would be how I'd round out kind of the overall public sector.

All right, and probably this one, the follow-up is for you. I'm just following up on Amit's last question. You mentioned the mix sort of on the netted sales side, and I think what you're referring to, which you refer to in your prepared remarks, is the change in practices from, like, some Microsoft on the subscription or on the cloud subscriptions. I think a lot of investors are curious sort of what that magnitude of exposure looks like and how you're sort of navigating through those changes in policies from some of these sort of cloud companies. Thank you.

Sure, Samak. I think we mentioned that last call on some of the Microsoft changes, or we got the question with respect to that. Look, we see program changes and changes incentive from partners very commonly this one was telegraphed for quite a while and so you know the impact on 25 from that is not materials or overall results we had been seeing that coming we were contemplating that and as usual we are pivoting to both the other opportunities for growth with Microsoft but also with other partners all right thank you thanks for any of my questions thank you very much as a reminder if you would like to raise a question please press star followed by one on your telephone keypad now and to remove yourself

that line of questioning will be star followed by two our next question comes from harry reed of redburn harry your line is now open hi good morning everyone um just following up on a comment made helping clients run down that annual commit on aws i'm just thinking about the moats in the business and if there's any threat of disintermediation is the by nature the value-added service of the reseller essentially protecting that moat and why clients wouldn't procure directly from AWS marketplace for some of their software just any comments that would be would be very helpful thank you yeah

good morning it's great to have you on I would characterize it this way the mode that CDW has is all of the services that we wrap around the marketplace purchases. In fact, we were just named AWS Marketplace Partner of the Year, and our customers really turn to us because marketplace is another complexity, if you will, in the procurement chain, and CDW brings to bear all the input and expertise that have helped customers make good decisions. The other thing to remember is that our clients are really squarely hybrid cloud, meaning multi-cloud and on-prem, and while cloud is obviously growing very quickly, we have many customers who are also repatriating back to on-premise and have particular reasons that they want to stay on-premise, including some of the advances in AI and efficiency around models, et cetera. So, the interconnectivity that our customers have across their entire hybrid infrastructure is critically important to have knowledge around. And the only ones who can do that are folks like us who understand the customer's full estate and how things work together. So, we are investing behind that. Mission Cloud is a great example of a strategic investment to continue to build our differentiation. and we're pleased to have them as part of the family, and they've joined us and taken off well.

That's very clear. Thank you.

Thank you very much. Our next question comes from Blue Blue Passajara of Bank of America. Blue Blue, your line is not open.

Hi, thank you for taking my questions. First one for Chris. In the past, SMB has been a bellwether for a change in end market demand. Looks like revenues in that segment this quarter grew about three percent year on year and that's after essentially two years of weakness so chris was there any one time in this quarter and do you think that that segment can now grow year on year and do should we think this has a positive indication for overall market demand and i have a follow-up for al yeah i i would say look our small business and corporate businesses both showed signs of stabilization this past quarter and we'd said before that we saw small business is kind of bumping along the bottom.

And now in Q4, a little bit of stabilization. We are seeing, when I say stabilization, I want to be clear that what I mean is the rhythm of the business. We're seeing less unevenness, more stability in the rhythm of the business, the activities in the business, et cetera. So we find that really encouraging. At the same time, Ruflu, I'd just say that customers remain cautious. And we are taking that into account as we think about our outlook and being very prudent particularly with everything that's happening in the environment. You know, it's unclear what's going to happen with inflation. Clearly, interest rates is an issue out there. And then just, you know, add all the policy uncertainty and impact, downstream impact uncertainty. I think we're going to see small businesses continue to be cautious. But the good news is they're cautious and they're optimizing for cost and cost efficiency. We've been helping them significantly using cloud and Rattable and subscription offerings. So I wouldn't call it a rebound just yet with small business, but we are cautiously optimistic.

Okay, thanks for that, Chris. Al, if I can ask you a question on margins, specifically if we look at the gross margin of the core business, X the netted down items, looks like fiscal 24 overall came in at 15.4%, So it was down about 40 BIPs year on year. But the fourth quarter, I think, came in the core business margins at 15.5%. So that grew sequentially. My question to you is, you know, fiscal 25 should see an improvement in some end market or end device products like PCs. So how are you thinking about core business margins trending in fiscal 25? Thank you. Sure.

Thanks, Rupu. A couple things I would note. You were right. For the quarter, our non-netted down margin was 15.5%. That sequentially was up about 30 basis points, but it was down year over year, and I think the full year down about 40 basis points. You might have mentioned that. As we think about 2025, I would say net net root blue would expect that margin to hold reasonably firm. And the reason for that would be, while we expect that client will continue to move along the path, we wouldn't expect significant acceleration, but move along the path it's been on. We would also expect modest growth of solutions, which we think will aid those non-netted down margins. And then we are cautiously optimistic as hardware comes back that you will see more services attached, which certainly will aid that margin as well. So all things considered, we would expect that non-mode-down margin to hold pretty firm during 25.

Okay. Thank you for all the details. Appreciate it.

Thank you very much. As a further reminder, if you've got to raise a question, please press star for look by one on your telephone keypad now. Our next question comes from Keith Olson of North Coast Research. Keith, your line is now open.

Thanks. Good morning, guys. Hey, Chris, just a little bit more on the mission cloud services acquisition. Perhaps can you provide a little bit of context about what it provides to you guys in terms of the financial statements? I mean, you did a good job explaining the business, but in terms of is it accretive to your gross margins and to the bottom line? Do you guys require a significant investment to kind of make it more of a CDW-type integrated product that you guys have?

Yeah, sure, Keith. Let me start, and then I'll hand it over to Al. We're really excited about Mission Cloud. It's in a fast-growth mode. It's a profitable business. It brings incredible AWS expertise and reputation in the market, and we're really excited to bring that to bear across our customer base. As you know, they are focused on mid-market and small business, which is a sweet spot for us but extensible into the rest of our segments. In terms of accretive, the price we paid, we won't see much addition to the bottom-line profitability this year because of the foregone interest. And as a result, we're not going to see a big impact. That said, we do expect Mission Cloud to have a significant impact on our strategy and growth rates going forward.

Yeah, thanks, Keith. The only thing I would add is, look, Mission is a company that is in growth mode, but notably is profitable. So we deemed it and deem it as a high quality asset, but we are in the formative stages of integration. So to Chris's point, the materiality at the gross profit and the non-GAAP operating income line would be not substantial in 25, and then really pretty much flat down to EPS when you think about the interest income. And again, and Chris hit this, as we fully integrate in 25 and we open the aperture to our vast customer base, we think the upside in the accretion possibilities for mission are really significant. Great.

I appreciate it. And then early on, you mentioned the gross margin pressure from some price in the end markets. I just want to make sure I understood that correctly. And two, what's the expectation that will continue going forward? Sure, Keith.

Yes, in the kind of walk of the gross margin components and the puts and takes, one of the things that I mentioned was like for like, we saw a bit of a compression, particularly in the product side of the house. Now, just recall, Keith, that we've had now several years of product margins holding up really, really strong. And I think we've called out the, at some point, you could see some compression. I would not note what we saw in the quarter as material, and probably the most notable area where we saw a little bit of compression was client. So, when we factor in all of the elements on the margin front for 2025, certainly we've made some space for a little compression, but we would not call that an outsized contributor.

Great. Thank you. Thank you very much. Our next question comes from Eric Woodring of Morgan Stanley. Eric, your line is now open.

Great. Thank you so much for taking my question. Good morning, guys. Chris, you know, if I look back over the last, call it decade plus, you know, 2024 was the first year that your earnings growth did not outpace your revenue growth. And as I looked at 2025, you are guiding kind of, as I'll reference, EPS growth largely in line with gross profit and revenue growth. And so when I take a step back, I'm just I'm wondering why maybe we aren't seeing as much leverage in the model as you've seen historically, even including past periods where there was macro uncertainty or a dynamic market. Could you maybe just help us understand maybe why we're not seeing that leverage materialize and anything that's unique about this environment that truly is different than we look at the past CBW? And I have a quick follow up.

Yeah, sure. You know, I characterize it this way. Our goal is to balance growth investments in our capabilities with efficiency across the broad base of our operations. And when you look at the investments we've made over the last several years, they've been significant and producing very good results. But we've been doing this in an environment that exacerbates the kind of de-leverage. And that is one where we aren't growing. And we've taken a number of measures, as you know, to ensure we right size the business for the current environment for demand, but also, Eric, ensure that we are positioned for growth going forward. I think we've been investing very judiciously. We've been investing very deliberately. And I think in areas that are high growth, high relevance, and healthcare is a great example of seeing that strategy pay off. Our cloud and fast business growth and our security business growth, those are great examples of that strategy paying off. But the deleveraging has to do with the confluence of factors, I'd say, which is investing while we've got initiatives going on for productivity and efficiency in an environment that is low to low to no growth. Thank you.

I appreciate that. Eric, that said, we do expect, obviously, as we move forward for operating leverage to come back over the next year and beyond. i mean that is our goal as well provided that we are in an environment that supports that okay no thank you kris sorry uh sorry for cutting you off there um and maybe chris just a quick follow-up is you know i i could probably make the case for leaning more into mna in this environment given the change in administration you know your historical comments about where you see workload shifting and how that might impact clients spend with cbw is your appetite for mna higher today than when we look back over the last, you know, call it two to three years. And besides just consolidating a fragmented market, you know, where are the specific product gaps you believe are most critical for CDW to address today? And that's it for me. Thank you so much.

Yeah, Eric, it's a really interesting question. What I would say is we always have a large appetite for M&A. We are in a different position today because we do have scale and foundation in those areas that we've been driving growth. So when we think about our cloud capabilities, we think about security capabilities, we think about data capabilities. We've been growing those now over five years and have a really good base of scale. I think that puts us in a position that could be really opportunistic to add to those capabilities and fortify them while at the same time identifying tuck-ins that might be more specific to an industry or specific to a particular emerging technology. Our focal areas, frankly, have not changed as dramatically or at all from an M&A perspective, but I would say that we are adding a lens around industry capability specifically. You've seen us buy companies as specific to education, specific to federal. This has been a very good strategy for us, and we see that work quite a bit. So I just look for us to do more of that. But all said and done, we are patient, we are opportunistic, and we look for great assets.

And maybe, Eric, I just add, look, I think 2024 is a great example where we did bring the full array of capital allocation priorities. So during a tough period where we would have deemed our stock to be more attractive levels, we did lean in more to share repurchases, but behind the scenes looking actively at what is the next acquisition opportunity that could fuel our operating income and really compounding of earnings. So we will continue with that drumbeat and continue to look at opportunities that fulfill our capability needs, but also drive earnings power.

Makes sense. Thanks so much, guys. Good luck.

Thank you very much.

Our next question comes from george bang of barclays george your line is now open well hey thanks for taking my question uh maybe to to l uh just maybe if you can impact kind of who you know uh fourth quarter kind of in the preparatory market you guys talk about underlying hardware including the outcome and the storage output missing go digit just curious if you can uh you know unpack it just by the channel whether that's all driven by you know corporate uh and smb or whether some from the healthcare front. And also, can you give more color in terms of the four-year outlook on the NETCOM? You know, it seems like you guys have seen some green shoots. Just curious if we should expect some sort of inflection, particularly just on the NETCOM side, you know, consider we are probably, you know, passing some of the digestion.

I'm going to crack at that. That was a lot. So first, just starting with the quarter on the end market side, I think the punchline would be the most significant element that exceed our expectations would be on the commercial side. And we saw, as Chris suggested, signs of stabilization on corporate and small business. That was reasonably balanced, George, across different categories of growth in that area. And then the other end market that I'd point out, and we've talked about it, is healthcare. Again, exceptional performance driven by an array of categories, if you will, and really a good reflection of our investing behind that strategy. George, as we look out in 2025, some of the elements of what we saw from a category perspective in Q4, we would expect to continue. That is, on the client side, mid-single digits growth or better is what we experienced in Q4. We think that's a reasonable glide path for 2025. And then we have a modest expectation on solutions hardware we saw three four percent uh in the quarter um and in that realm i think is uh quite reasonable where will that come from uh probably some contribution from netcom and again we're cautious uh on the demand there but we think there could be some uh continued growth in netcom uh storage was a strong performer for us uh in q4 uh and then you know going the other way servers uh have been challenging and so we are cautious uh that uh that may continue in that space so that would be how i would round out on the uh hardware product category side of things

okay great if i can squeeze a quick follow-up your last quarter you guys uh uh talked briefly uh on some of the uh slight you know increase competition slash pricing pressure i just want make sure uh it's so very transitory uh in nature kind of you know completely went away in the december quarter and going forward so maybe you can address if you guys are still seeing some uh increased competition or that was really sort of a completing the rear view mirror thank you sure george i'll take that first i would say those comments were not uh just specific to q3 it was really a reflection on the broader range of the last two years in the challenge environment we've been in.

We've been in a tough down cycle of hardware, and with that competition quite fierce. That's continued. I wouldn't point anything out differently in Q4, and we continue to fight the good fight in that regard, and I think we came out quite well versus our expectations in that regard. I would not point to, when we talk about margins, George, that the competition is having any meaningful impact on our margins in that regard.

Okay, great. I'll go back to you.

Thank you very much. At this time, I'd like to hand the call back to CEW for closing remarks.

Okay. Thank you, Carly. Appreciate that. Let me close by recognizing the incredible dedication and hard work of our coworkers around the globe. Their ongoing commitment to serving our customers is what makes us successful. Thank you to our customers for the privilege and opportunity to help you achieve your goals. And thank you to those listening for your time and continued interest in CDW. Al and I look forward to talking to you next quarter.

As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.