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CDW (CDW)

Participants
Beth Coronelli VP, IR
Christine Leahy CEO
Collin Kebo SVP & CFO
Matt Cabral Credit Suisse
Amit Daryanani Evercore
Katy Huberty Morgan Stanley
Adam Tindle Raymond James
Param Singh Merrill Lynch
Matt Sheerin Stifel
Paul Coster JPMorgan
Keith Housum Northcoast Research
Call transcript
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Operator

Good day, ladies and gentlemen, and welcome to the CDW Second Quarter 2019 Earnings Conference Call. [Operator Instructions]. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions].

I would now like to introduce your host for today's conference, Ms. Officer. Executive Chief Leahy, Chris Ma'am, you begin. may

Christine Leahy

Thank be with Joelle. Good morning, to pleasure a It's you. everyone. you,

strategy Joining the me share take Investor more in Chief the and Colin overview room today are will quarter second on results, and with high outlook look for and financial Coronelli detailed our of begin Then our Financial performance priorities Collin a Beth our thoughts and I'll you VP, and capital through Relations. strategic a at level some Officer; Kebo, our outlook. XXXX.

our We quickly remarks, move have will we plenty time through prepared Q&A. to for ensure of

begin, But we disclosure statement. the Beth before company's Safe Harbor will present

Beth Coronelli

Thank you, everyone. Chris. Good morning

supplemental along this the and was Our second on release with call. quarter can is morning earnings use to that us slides you along during follow our distributed with available website, investor.cdw.com,

certain like and results Litigation Private made materially. comments in you the Act the to are Reform to remind of statements I'd are under cause Securities actual forward-looking that Those could subject to statements that differ considered presentation uncertainties XXXX. risks

other is with information and today, in risks company's these in and contained concerning SEC X-K uncertainties the the we the Form earnings SEC. furnish Additional the to and release filings

the update to obligation presented no assumes during the webcast. information CDW

financial directly comparable also GAAP, rules. includes been income presentation earnings most the SEC All including non-GAAP per with and measures Our share. certain measures, non-GAAP to operating non-GAAP accordance have non-GAAP reconciled measures in

furnished for the in slides and as charts today's reconciliation Form earnings find the SEC the to as will we webcast, release You in today. X-K well

in are increases growth versus dollar indicated. today in remarks all XXXX, that Please otherwise references amount to or unless note the comparable period our rates

sales Canada. references US rates not services today or all results UK and from net software for addition, hardware, and growth the include do represent CDW to only, In

of references same the daily the indicated. the one XXXX compared There months XXXX. second day use first number fewer selling in of call quarter XXXX. in the second months All first sales, the days during was of six will to growth quarter otherwise six the of selling rate compared unless of to were XXXX There sales average

be Replay website today. to not and rebroadcast this is to posted conference property webcast be of permission I this CDW, of without call also that you recorded from may will later written remind specific company. the or want our

With that, let me to it over Chris. turn back

Christine Leahy

you, Thank Beth.

increased above were with growth ,excellent results Gross constant and were strong non-GAAP sales currency. in Non-GAAP operating XX.X% These income to portfolio IT quarter of line offerings per increased million. the success landscape, increased $XXX net growth. three ongoing profit Second reflect XX.X% $X.XX XX.X% markets, balanced for of that priorities to share. million XX.X% profitability. $XXX end top last our across both $X.X combined income billion, our and Consolidated share full year, up XX.X% customer to our and part power executing customer of net strategy the suite per address results

are US enables meaningful end small the further local and of ed, sales and markets; government and you channels of Each business across , five education. healthcare, channels; businesses, customer our have we corporate First, balance know these sales into generating to end This government. align annual government customer $X federal teams higher state including more scale vertical than KXX, markets, billion. us sales as

end each from sales nearly well and billion when $X markets In delivered differently behave other. organizations, addition, operations, together us UK XXXX. we have serve our which unique in Canadian These

disrupted markets external occurs by Sometimes that challenges. because macro or are

it due to different when customers' Sometimes differ occurs priorities. behavior

needs focused infrastructure employment, time, equipment, by address driven to older across customers helping adopt or and At flexible same driven excellent was priorities. security more job new from of these meet devices on an team US outstanding their the as increase customers US full each sales cases IT results double-digit all our channels, growing our better. five digits did and remain growing refresh, high quarter, This single features. The customers well architectures. modernize used new by continue as to client

as refresh The of had a sales. deliver shipping X% strong projects, team continued results. to they than offerings more market year's to lap security addressed successfully they The leveraged overlapping and government the just while XX%. related team Navy to in with initiatives, last meet growth, newer business end Federal year's initiative XX% excellent distribution client floating CANES team sales the increase ongoing impact the continued ongoing last corporate, up devices, In for cyber dedicated nearly like specific as solution customer another The centers demand needs, our cloud team leverage delivered and quarter, under and small growth. deliver to specialists, drove XX% delays.

meet The client portfolio local single-digit Education's double-digit technology to refresh. broad ed and ongoing our delivered single-digit state student continued K-XX help team experiences. upgrade growth, and overcame as enhance they and customers and devices. to helped delivered constraints campuses to reflected on in high in increase low Higher leverage X% and growth refresh ed. higher networking teacher needs, KXX low use growth to chip

increased storage Both XX%, was continued was in year-on-year. overlaps currency services, which basis. team helping represents more excellent local last by top and a and on Canadian to accessibility currency. health faced as up year's but and the software organic of drive Scalar UK and The markets Canadian results, growth security, local increases on and was slowed access growth, well growth excellent reported address expected, driven endpoint than systems XX% team challenging in flat both delivered X% performance. UK UK as Healthcare medical our needs. as and operations, improve as record Other,

portfolio quarter end the our results second of power markets. demonstrate customer Clearly, balanced of

of IT. second of are power also to X,XXX our XXX,XXX vendor for total of partners, quarter solutions of more performance, our Second With and customers' positioned we the demonstrate our results breadth services products, the the driver across well over meet offerings. needs spectrum than

growth increases which hardware, increases client On a drove basis, hardware teens software. in led single high by devices. in US led by Netcomm mid increased excellent services teens mid and in increased software increased transactions sales XX%, solutions US associated net double-digit by increased year's performance Hardware data refresh, support client and constraints, services double fueled transformation to and both was up XX%. Lapping and including center, Netcomm, by investments driven supply modernization digital ongoing X%, increased was initiatives. Netcomm campus last growth digits. devices digits,

digits, On environment. job displays like constrained ability the staging, client by side, the and also in value team configuration high a digital increased an leveraging unique signage. services our and both did exceptional provide supply to double driven Video pre-orders,

double-digit declines. nearly storage one-third expanded hardware, Performance channels adoption, was by the aided hardware Once posted quarter, Flash of mixed was datacenter performance with . across hyperconverged infrastructure growth. both in represented enterprise and total improved lumpy economics. and in digit mid-single meaningful servers Server posted offerings storage customer again

X%. increased sales Software net

is management software. network As growth you and of IT adopt system management, larger becoming solutions. infrastructure helping know, component operating customers in Success new storage technologies software a drove double-digit refresh, and

Cloud also mobility and to and Services' contributed security services, XX% double-digit was increase was increases workloads. configurations. spend, professional results, by by with this productivity, led in quarter's collaboration customer Growth and gross driven profit. warranties

quarter, continue in driver in in growth impact internationally. needs And investments IT of this leads investments physical three the US making whether to to markets, strategy of our are the ensure cloud-based made we for our environment, the we performance this evolving in to or our part a in serve virtual final customers' the or

is capture for customers growth strategy three to share. first, Our acquire and new part

capabilities. our our And enhance Second, services expand solutions third, capabilities.

pillars in Importantly, ability our crucial tandem. these the today Each want our integrated work the three deliver in solutions future. to is and customers to technology need profitably and

gains improvement. fuel This invest, continuous our on productivity first growth. ability is focuses delivering ability The our pillar to achieve to to Continuous our strategy. while productivity profitable vital overall

A work and unless in management. sales programs, like place we key programs execute don't this, through is way management have we the do penetration Prescriptive to them. category goals book disciplined talent

This and best we for a right and productivity, ensure So innovative help today's is place is continue develop programs the have hiring in the market, by ever to we more hire tight and way than in labor drive CDW, retain retaining several to talent. we critical talent. key

program to are service. increased completing a technology on and both months in both to includes Our CDW months resident training residents dedicated focuses a program engagement between leader. with formal of The example. XXXX, sales on in Residency sales skills, focused our permanent their mandatory program XX focus assigned building enablement on Launched performance skills After all through sales and career. the team on early and on across four account placed managers drive academy, sales solution is a sales multiple five initiatives. dimensions, length residency building November great sellers

spend quarter to within been residents XX% of of quarter than to months for have this Results service date, XX excellent was in the second customer higher XXXX. XX

points service, higher time, declined XX%. rate in managers to of managers percentage a with in program At the are basis account account has the sales the Solutions for as months XXX XX XXXX. total attrition length of for zero nearly same than

Of course, to coworkers. coworkers we to retaining this innovative requires we right hiring the targeted approaches the competitive ensure attract In talent. implementing are market, continue right

professionals. tools high applicants more to by there by within intelligence sales finding potential intense currently match, When solutions a high piloting high identify artificial for talent is CDW pool. applicant are top target candidate identify We an the recruiters performing AI demonstrated with candidates, activity. characteristics

to with hire recruiting build candidates conduct collaboration to diverse on applicants interviews, XX% more highly and Our texting year-over-year. pilots drive helped touch combining us making to in investments our productivity, are we software AI platform, has other video stay with qualified

our a number screened. For increase our integrating video entry interviews in resulted level XX% in of process candidates percent sales role, the into

we the talent. value CDW relationships with least nearly years our on seller the coupled At a to customers, have of longer of and with investments, are retain are a sales. XX that train both of These These and sellers tenured to end of Longer had ways has quarter, just at handful XX% retention. the experience. hire, the direct account managers impact of proposition, and contribute strength few investing customer our

this Customers we growth. made XX us represented of in years with just profitable than with our to under quarter's to our half Clearly spend. our contribute enhance capabilities, Investments investments have ensure coworkers These contributing pillars, to partners. we remain and profitable our relevant solutions designed our are services our growth. customers are and our and to pillars to also third second our to more

security, Our cloud, and action. in fast-growing across areas, Canadian of has a infrastructure our transformation, and in Scalar, acquisition capabilities. with third capabilities like strong pillars example provider, deep second brings and digital Canada services of Scalar great locations solutions

is accelerate capabilities, within geographic investment and straightforward expand Scalar; Canada. with our solutions reach our thesis Our

solutions share how Scalar's benefiting an are already of we me Let from example expertise.

safeguard some Canada penetrating success CDW their time, security been to but interacted CDW their with had to As need business. the customer with customer to the desire they The how limited for their had Canada clients. solutions needed was upgrade we environment, key

Scalar's cloud-based problem. zero-trust and services CDW account customer security model, customer the breadth with the brought Knowing Scalar software a on dive which scope a in the portfolio, environments. developed Scalar the security firewall solution centered hardware, that both services. the and utilizes enterprise protect comprehensive of and and team to did a facing virtualization, solution, manager included on The deep

fast. services made was delivered C$XXX,XXX more Scalar services. into incorporating solution, C$XXX,XXX The implementation of early Importantly, sales technical deployment on solution investment meant and benefit in generated the the Great services proof in and Scalar. training product the points and than

have electronic helped from another a Last solutions quarter, an Cloud cloud, entire Investments in from shared consumption portfolio the records its benefit back you of on-prem our services. investments. XXXX, managed customer technical cycle, medical the integration, design, the to span area, that our and we enabled cloud solution. is in an of management, practice example made where migration, we of since migrate and how services see launch life workload a

away. team a global helped held example at a cloud move a let's estate an workload subscription the and take small a A recovery did fail-safe a had test-dev, look for application. to right business solution, of rapidly but how data backup business, no not their have cloud-based growing on-site pay-as-you-go quarter, support cloud. customer downtime, backup This customer small, and ongoing needed any The real our

implementation. design identified Small the account bundles brought manager customers' pre-packaged customers' quick one for services, small Business of business help. situation, The a our small one migration perfect advisor Advisors' fit cloud-based needs, included Solutions assessing Their with well our bundle needs. of that suited Solutions the dedicated business Technical including to was in for recovery, and the After the CDW

to profitable Packaging not one solutions is growth. small more of ways to for the our solution of dedicated have segment business business with of seller easier dedicated our for required in met technical solutions, solutions customer, accessible making the focus our the would coworkers small is and Prior services and for technical threshold sell. small development business packaged resources would this that have time, and meaningful investment investment

scale, for and capabilities. in today's customers These talent problems today profitable spot strong sweet for with growth and the services of future. capabilities, business our in disciplined our and requires environment combined of sustainable right drive helped us competitive scope key the Solving solutions advantage execution, and

the excluding And high be that customer half to or modestly year, first previously Scalar. for We growth leads full added remainder to XXX Through approximately me to of we above the the range for facing the co-workers, our expectations at have XXX the of shared. year. expect now end year XXX of the

always and appropriate. our adjust we will as As do, market plans the we monitor

organic to in full-year the date, market. between we half points above growth basis first growth, view of XXXX US target growth XXX last roughly constant Reflecting market performance, we currency line quarter remains of X%. with and market gains Given our of our current the IT now share XXX expectations shared

for In basis an contribute points. to XXX incremental to addition, we look Scalar continue

can we of you change meaningful in about is the there feel year. the As no see, how balance

We strength overlapped moderating second double-digit last ongoing, expect and year's as growth. half continue solutions, in growth to solid we in but devices, client

through quarter and and as eye, has the We'll our update Brexit execute best, but the as is do address the our tariffs our a like pushed we priorities. still will the continue IT practice, spoke about watchful wildcards they to meantime, leverage view, their do exist. The year. and out, out competitive competition our move we help keep last team to advantages, customers what In

over Colin. it turn to me let Now,

Collin Kebo

everyone. morning, Good you, Chris. Thank

return quarter offerings, that our As shareholders. profitable second product financial business, the They long-term Chris three cash results our also to sustained successful to our of combined strategy investments part build our portfolio channels, and balanced ongoing and reflect power execution flow, broad deliver of in on drive of growth, reflect our indicated, strong cash strategy.

On consolidated second average net our currency basis, $X.X sales X; XX.X%. consolidated average were sales daily grew P&L XX.X% up sales a quarter in on daily to reported Turning basis. and on a Slide billion, basis sales net constant

by increased On first strength percent sales included benefits seasonality, XX.X% and backlog modestly notwithstanding most one in the growth, of business, historical flush versus an below but stronger average Netcomm constraints. federal, the channels of from daily the sales QX double is digits, driven uncertainty device than from with the sequential quarter, the healthy timing This was basis, which client across strong US expected, tariffs given XXXX. CPU very which growing

shift up where had three strong public, K-XX across QX. was really even we and was Education with channels. as up Government digits. to XX%, And growth healthcare, up the into double-digits also which federal were timing double

year-over-year the Gross of to the increase year-over-year gross revenues, basis funding. growth, million, points, software-as-a-service, an $XXX down offset outpacing and including by increased profit warranties quarter expanded partner margin driven XX.X% partially in in sales mix for by net XX growth netted the

gross increased the growth, strategy, against which expenses, line investments Turning consistent attainment with profit including, with and sales our to in business performance higher advertising with non-GAAP was goals by co-worker XX.X%. driven based primarily X; The compensation, SG&A on in SG&A, compensation, consistent go-forward including slide moves count. our Scalar increase incremental

was of $XXX nearly X.X%. roles. Co-worker of coworkers from income year-over-year of count margin million, were increase coworkers remaining the the increase Non-GAAP Roughly, of from Non-GAAP XX.X%. income from XXX up of Scalar organic XXXX, and year-over-year, operating coworker customer-facing XXX almost operating nearly with X,XXX two-thirds investments. in the added was was an June half

of a This by X.XXX%. Moving primarily from $XX interest strike up caps the to expense to driven million, slide interest XX; was rate X.X%. X.X% price increasing was

associated effective of year. million. in $XX compared based on QX including rate is net last our to is slide shown To we to add excess taxes XX.X% adjust tax equity on tax This with which the effective non-GAAP expense shown rate benefits was which backs, consistent compensation, XX, in tax get GAAP flat resulted Our slide XX. quarter, income non-GAAP with tax

low income. to XX fourth creditable quarter, the our XX.X%, IRS basis in down quarter issued on points last the rate, compared was XX% global For guidance taxes primarily by year's intangible due XXXX of taxed effective rate against tax foreign to the non-GAAP

see GAAP was of XX, second per As can shares net income $X.XX, average XX.X%. slide you share quarter diluted outstanding million, XXX weighted on up with

reflects Our up from quarter. XX.X% over last last year. performance, basis XX.X% income, per up by operating the second $XXX $X.XX, dampened growth share income net better million quarter, net the which was was points non-GAAP per headwinds in in year. XX Currency Non-GAAP earnings non-GAAP share approximately

day was half on XX XX, and operating daily the to XX.X%, sales million basis and up profit billion, $XXX Turning first higher $XXX slides first revenue an XX.X%. half of daily on currency, one for XX.X% had as basis profit increase margin XX.X% through was up On a constant XX.X%. prior net Net XX.X% income XXXX. non-GAAP million, Gross average selling per of basis sales results fewer XX.X% billion, $X.XX, than and $XXX million, half a we XX net were in was an up was net up basis, on consolidated $X.X sales income average was $X.X of reported was up year. XXXX, Non-GAAP gross share points. Non-GAAP income the XX.X%. first was income the

slide on and million, sheet $X.X billion. cash balance net were debt XX, the and equivalents to was XX of $XXX cash as June Turning

revolver Our cash $X.X availability plus was billion.

maintain we shown As capital rolling during metrics on the three-month strong XX, slide working quarter.

down conversion teens target end average the cash XX year's one was from high of of day below XXs. range quarter, second our slightly Our low annual days, low last cycle three-month and to

profits cash and vendors year-to-date in compared extended increase $XXX half reflects flow, million year-over-year terms. The XXXX. to million, Free mixing free was payment in $XXX the higher with of cash first primarily flow cash into

million of price average million to included we $XXX an share repurchases, returned at cash $XX dividends and of nearly shareholders, which of the per $XXX quarter, $XXX share. of For million

Turning priorities achieve intent dividends we to XXXX strategic In set our flow a a these reflect capital to investments. to of years. cash and order slide increase over remain to returns through capital of XX, to the November drive dividend same annually, free in target allocation and five increases; our XX% first value, shareholder priority, continue of guide payout of

a quarter, as XX from $X.XXX of ago. the to on August will XX, XX% up of per of a year share pay this shareholders record For dividend we September

of at ratio leverage range. targeted the Second, place, ensure right We capital of below ended slightly times, X.X with the quarter times. we low range end in the structure have to net the in X a X.X this

Third, supplement organic Scalar shareholders of is of fourth, strategic acquisition with this. And growth excess cash great dividends The share through acquisitions. a and M&A return example after repurchases. to

our XXXX priorities Our see which updated support can you capital outlook, slide XX. allocation on

basis. mentioned, expect basis to now growth above sales XXX Chris approximately in net US growth points As of market market of currency, an constant IT US organic we expect to on XXX continue X%. We IT growth

expect points. an of continue We top contribute approximately on to XXX points Scalar the to XXX growth to additional XXX of basis basis

Currency dollar. a $X.XX year-to-go to to the exchange $X.XX point the rates full the is expected Canadian for year, and pound assuming XX represent headwind of British to basis

the year-to-date the headwinds rates, this in exchange than roughly with expected be quarter fourth Given in implies slightly currency greater of basis points third XXXX, quarter. of to XX half second the headwinds

remember annual the for points targets constant rates. points. mid basis points to XX%. the it XX% This are from income an basis to margin currency Currency Please constant currency We basis now our teens, for XX be range previous plus expect above in range XX% range hold approximately operating expect low non-GAAP projected be basis. XX earnings accountable of X% that in XXX delivering on ourselves per or basis We a minus is non-GAAP currency we on save call growth constant share to financial headwinds XXXX. the to

on XX results sales, we in our look first for be and than sales the approximately split additional in Slide thoughts. provides now modeling half. of basis XX% seasonality XXX half the historical the half second expectations the rest of points to Based year, roughly lower for the second

past in points increase average couple average of low to a hundred years. QX sequential X% would basis below a three single-digit expect the which sales daily be QX, We the of from

approximately that continue in in Total to excluding for of $XXX final. expense operating down annual million the and million be estimate is could acquisition-related mid expect slightly, acquisition P&L, purchase non-GAAP expected range the million. million. Moving accounting to intangibles, margin be including be to to in to $XX the the intangible the in assets, of a once now SG&A, preliminary This amortization is change we expected X% amortization range is range. $XXX million amortization expense Scalar, related includes $XX Depreciation amortization the depreciation for income of of and to $XXX

the Equity-based the growth expense $XXX $X million year-over-year compensation is X.X% than is expected million $XXX higher primarily million to of the Interest from to be be in XXXX. to caps $X price to strike approximately driven expected increasing a X.XXX%. of million, to range with by

anticipated XXXX to effective Our non-GAAP near the lower be tax to XX.X% is rate XX.X% the range. end of

per We earnings approximately repurchases earnings expected share income. share per to points, to non-GAAP topline. non-GAAP the is points XXX headwinds to faster XX currency Non-GAAP than expect growth XXX growth, of basis to similar have share basis net drive

thoughts Additional components can of on on cash flow be found slide modeling XX. the

flow half at for a slightly point, excluding rule X.XX% Census unchanged of remain of more Our X.XX% sales. cash Expectations the than of capital remains unchanged to expenditures, thumb at sales. free

of be expect amortization adjusted to rate of acquisition We cash income below slightly pre-tax for tax related intangibles. the XX.X%

expect deliver range the We within target cash cycle low a teens annual to conversion XXs. of to high

ask Thank your up of open to one a to I'll you you. Can That questions ask that, financial each brief concludes follow-up. Joelle summary. questions. we the With limit for please it with to

Operator

[Operator Instructions].

from question Matt with first comes Credit Cabral Suisse. Our

Your open. line is now

Matt Cabral

to Thank demand you. I a on wanted environment. broader off start

but digit double to healthy see vendor particularly of some your continuing partners growth, solutions-oriented starting categories. softness, bit you're little So a more are of see to on

just little disconnect? what you in wondering just driving think your base, what customer be So plans I and hearing about you're from may could if you bit that a talk terms of guess, budget their

Christine Leahy

our in and and to like exposure Yeah. bullish, are base, looking about is When you have, like our not customer have, facing. they more are feeling consumer others customers, that customer example. -- what our Hi, are But hyperscaler other back markets, Look things some things that's certain conversations end take the with still of step challenged, China, is they think that -- think another and don't a spend. still about Matt. our we that base

And so customers, we've got and help a our you are. there portfolio, broad as know we IT priorities wherever can

is, other mentioned. thing this, sentiment just customer even view, as an say The I strong bigger where feels scale I share in like economy pretty we to would like competitive the our distribution drive that advantages and environment remains leverage us gains, strong do as in and our centers, things allow our our

the So of pretty of out for year given to of look, with differently. lot Not rest the at a in the our beginning us points the year. it how view, outlook data there we is that felt has consistent the reason any perceive

there's VAR survey, our data, at results, both the pretty If competitive lining we peer you surveys, as ledger a sides on that's of from demand kind CIO said, the economic see healthy still customers. X% net-net, look results, you rate and market stuff up growth of and -- of

Matt Cabral

and in the stand-out quarter. was it for you government Got vertical a then

going dig sustainability about little we bit and what Just just the deeper a should it of wondering strength if into think drove there, could you the forward? how

Christine Leahy

of Department job Federal doing Yeah. and that under of refresh the Defense. those mandated didn't agencies, a -- is across refreshed more terrific

now didn't their capabilities the But they're past the I working strong. of fruition have transactions we're Federal mandate, about been that agencies have in several the types over really and what that's team, So refresh say on seeing focused that we've that investments is on. seen to and come that go-to-market solution years, in they

strong look cyber And at those you to if just take deals transactions driving pipeline, are a strategic refresh, that not remain strong. of results they for across, looking solutions, modernization but continue develop, etc. long to are the and time infrastructure, for at So quarter, this security,

that So trust to have got customer, the got the go will after the They those to place go-to-market time deals. takes long with they develop. in

proof-of-concepts And finding, take and the to at credibility problems able we're with got is, to to to to really looking that different able and built expand of they that and that types we're are help and them technology the because now We've thing it strong trying that similar we've support those. agencies. other this are doing attack, creating them we transport certain agencies agencies, proof-of-concept they're other for they're be have for

Operator

And question comes Amit Evercore. Thank from Daryanani you. our next with

line Your open. is now

Amit Daryanani

a Two as Thanks points lot. gains guess much I of about been typically about. questions better if Good and think you've I talked have guys. one, in well. share me trend than first of your year, first XXX math in the that's right, neighborhood the morning, basis is my from the half lines historical the

half, and elements might am share the if in touch first could go outsized what I enabling this gain So of that versus forward? as growth rates wondering you just maybe the not, be on you what are sustainable, levers that are

Christine Leahy

flush one-time lead start there of that. we I had the will Netcomm quarter with with about think the events the normalization year. that first the Remember, of some time. was When you the

in first quarter, the wouldn't a year. the we happened that back the half to expect in see a of kind that's repeat one-time that of So

doing pull with at be overlaps. had day, you looking solid. forward of a that about think federal some tough good to We client continuing moderating. end the Certainly, about but deals. really federal we also be a at about to think But we're But we continuing devices, But when is job. think the solutions really strong

number the comping we've year, businesses at look areas and practice a our you if double-digit got so last And of on double-digit.

about of the back year. And the when we so half quite we're that, to think attuned

Amit Daryanani

basis. business are streams then on dollars gross about a gross and margins reoccurring think reoccurring basis think nature, contribution it. how or from way trend from on And the your like? I or guess, year-over-year you're in And a benefit That's revenue growth today what a perhaps Got I of there of line way the is fair. year-over-year about is a to rates guess that much profit think increasing for broadly or then of streams when I look percent to what getting us there --

Christine Leahy

bit is, will at accounting Yeah, are accounting all. the rules. They are will I'll Collin a specific. say I not little the and start talk I But let we is what and rules in where fit high the channel, level, size there complicated a fits a one really more about for

we to that's on-prem-as-a-service fitting is a in and as complicated. transactional where as how is that. our I agnostic other having are would what's are and So conversations consumption that What customers really about say service we're important, models, recognized

conversations we in advising are it's market But having that customers. reflects as them driving etc. of them and important consuming along is conversations through. I of what So talk statements, financial are How that the the let are will terms bringing implementing, in recognize, our and partners to Collin our to are we assessing, they way, that with it designing, managing in we business driving, our change, those models bringing part to we're

Collin Kebo

Yeah the business. percentage revenue relatively Amit, say still our small I recurring subscription would a traditional is pure of or

gross in mentioned participate it our we was this I around in Chris is, you revenue that's look is because upfront amount the at it's of quarter. XX% and of that booked again, would point than if time, the over that the we're at of a of sales. at or that X% down, recognizing, percentage though What you rather say probably look the accounting about If ecosystem, how time profit in netted

are that we're things selling netted warranty, those that assurance, finite software-as-a-service, or of selling term, have lot a we're etc. getting software a things down a So

through you of give the gross So streams. some I think profit, those idea can some what's magnitude our that of transactional of flowing in

Amit Daryanani

Thanks helpful. really lot a quarter the congrats on guys. That's and

Operator

Huberty Stanley. from And you. question comes Morgan Katy our next with Thank

is now line Your open.

Katy Huberty

Good you. Thank morning.

you half historical at year? back the look seasonality, doubled target in free the and range driving flow what of the first slow half full year, talk above highlighted put just second the it you what might cash Can of in if for and free half the half the would flow half about potentially cash seasonality, has As first first you the well versus better is you maybe year.

Collin Kebo

Katy. Yes, sure

sequentially would drove of the cash unusual. into be back grow us, two mix and quarter. year half that expect we payments as a and cash the X.XXX% You're I of say will for move we year, the in flow was full year. us right. to This thumb seasonally the flow make. what the aligned us QX of really typically free expect our favorability stars vendor free the is for within and rule would I'd for have X.XX% sales quarter to from a we low tax because have that's perspective, normalize, sales

Katy Huberty

for Windows will you to business continue continue growing as the the or see you'll where the segment, upgrade that have And you that the comps agree difficult view tend the client then, market you it's small-medium expiration, XXXX upgrades cycle annualize continue to January this support Microsoft Do you expressed XX to exposure. XXXX, especially do in the that think year? from past

Christine Leahy

Katy, Hi, Chris. it's

What a I half think that continue some unreasonable see into of that the the to all front course quarter, and to predict, some that XXXX looks the but example, hard the little of beyond. not certainly of into spilling spill of bit it's to of is for maybe XXXX, over will it like into first think year. we

Katy Huberty

you. Thank

Operator

from Thank James. Raymond comes you. next our And question Tindle Adam with

Your open. line is now

Adam Tindle

strategic think have open obviously good $X Chris. two the you've mentioned and than Scalar to related Okay, I it's On smaller slides a morning. of your past and example large acquisition, In and M&A is an just thanks much this. over being questions I billion.

billion, just I $X a and recently. making to of kind thoughts one So sizable mentioned competitors largest of the light your this update transaction of executing first on particularly related over just question your is M&A in

was transaction, is or leads my it CDW's five financial EBITDA, sounds me kind second to question, times of which synergies like below drive that cost That could a focus more more of sizable capabilities. arguably deal on

to So it to would CDW be just of wanting trades something not understand like part on Insight-PCM, given where accretive significantly the others? based an pursuing relative

Christine Leahy

Yeah. still Thanks Great question. we're Adam. on Yeah, M&A. focused

you our the early if at think I and proof with look Scalar. even record, track points Kelway,

and positive methodical our and approach joint empowering to deliver right for then and focus to integrating the customer and on is our targets bat, leading coworkers to success. right has for our the it getting the around led really right off discipline the customers, Our

is So working. the model

think the expand we Two of plus be capabilities. as things we proactive. you that's looking, geo not -- expansion, are think things, about to straightforward. are in tend constantly, about We Those or the from reactive, yeah We're a way services our We But, we solutions our is extend know. pretty perspective, two how kind market. capabilities our it strategy essentially M&A.

of hard As the, that, of the Look of because a have difficulty integrating we financial long an at kind large, play. organization. far as the to of notion and more look

things matter. know, so we seriously. leadership tick why fit that cultural you very I know, and we important, the through that As is That's take

focusing So to But But really it's take a on geographic make have always we're at. that's to got in the something capabilities reach market. the sense. and just we look

Adam Tindle

quite for in transaction? just I scenario financing Collin Stock clarification for valuation a acquisition. on sense it is as be accretive? larger an Okay. healthy still and where mean, might it a make equity there would is use a Maybe quick to

Collin Kebo

gives leverage leverage below if we as we we where demonstrated we'll times, there. our think our long give Yeah, would a to time We do I out the if go amount think target, X a and range, to X.X our to as path back Adam, throughout latitude the the in past, I agencies step our had within of reasonable flexibility rating sit clear investors to above times or range. that we and headroom. profile, of the that show given us times with us temporarily set we are that get And getting and deleveraging of plenty X that that, target X.X

leverage, situation. will preference to but dependent our So it be on be use would obviously I think

Adam Tindle

congrats And the continued results. Makes sense. strong on

Operator

Lynch. comes our Merrill Thank with Param next you. And question from Singh

now is line open. Your

Param Singh

question. thanks good everybody for taking Hi, morning and my

get up If because co-workers then behind sales of per from productivity, reason there coworkers So need year-over-year which at get had quarters. is just to just wanted another Scalar, integrate year competitors? is, have of a And to addition your productivity think you've look outperforming you're sense while or X% a follow-up. that the I was I coming in last and the you Is is your here. from a at in that, growing and you that do incremental slowdown this quarter, it coworker,

Collin Kebo

services the Glad is high things co-workers join. could Scalar, coworker a you sales because couple Yeah, mix. delivery comparable I to and of One the different call. welcome mix per the would business that to of that. it, service CDW, the given Param the and productivity go Hi are say driving along isn't with

interns. organic, and in at little productivity summer, lot kind summer brought it. of year, in a there's we the coworkers, CDW think so this apples-to-apples you in levels we're historical regular This the looked line in we bring But levels. where more see would Also of with seasonality, I you than a year of impacting bit prior so more that's if

Param Singh

thanks. And typically segment, specifically in on just to you've years. the additional in then, expect the education, you stronger it March weaker I persist? seasonality Understood, then was the quarter was educational there that because would mean, and Is seen in were in it quarter, much or wins prior

Christine Leahy

implement being and constraints things you advices, for and had couple really Yeah. the and devices. We strong think I the those K-XX quarter in important marketplace summer when buy around as very on. a going to months education client of about would describe the the

of Intel more chips. First, performing the and because where were Chromebook constraints higher K-XX, their in around severe priority placed

team of and quite when are, things deliver what to etc. get options customers, extraordinary months, So with working the over really we're did really the summer working with job the to around which an impressive. able our partners is in,

some some we seen the where given under quarter positivity, in it falls of paperwork really falls or see net as think throughout we've program addition, same E-rate about quarter and some seems lag never growth you this that E-Rate did it's well. quarter, working be, the when But some -- to bumpy. It the because and In any issue.

would on I say, the quarter doing all, execute solid in priorities just executing that we So all on. typically --

Param Singh

Okay. Colin. appreciate All so right, much. you Really thank it, Chris,

Operator

And our next Stifel. question Matt comes you. Thank with from Sheerin

Your line open. now is

Matt Sheerin

Yes, thanks good morning. and

and on corporate from but on question regarding give some more we're economic a upgrade some somewhat color across being you're commentary us an a is slower cycle still So the what UK concerns standpoint. your in obviously there growth. seeing? Could EMEA Obviously Europe, you regions

there would be So great. any be help would

Christine Leahy

watch Yeah. and this Sure, closely. Thanks Matt. for obviously the question, we

That say before, at executing well. has First, I high a meaningful, XX%, plus and team would I double-digit we said, double-digit, well. year been would the When are executing double that overlap, digits. couple year last on say you the things. talking look extremely They're of

of a probably in the uncertain softer, and it outside marginally does feels that. little than the market US little watching a we're more First, US, the

Brexit got you but in behaviors customers. seen on leadership away, that rhetoric buying We But QX, hadn't new some given believe to we've and new in days our different mind, from XX place. their and got it's

said, hard very to I'll But that be So our on business believe it's it's you, referral continues mind. tell not their healthy. that to

in of outside Our to the continues continues customers. international around the optimistic World meaning Rest conversations of and their to healthy, be UK, business terms be very team

And table-top So Brexit cautious. run worked we've would extension. Netherlands. in we've a opened transacting the being before customers is, also are news so customers of need, prepared The to good we are wildcard be actually Earlier the in just their map look we October got we've we office with an them. year, this looming, that that and the number to of through help very -- XXst The Netherlands, before with the

confident So with the service we level to are getting ability our to same deliver more more and agreement.

happens to just been So can't we out doing what think, can doing. we'll environments, as everything the prepared, we're the we executing keep, and but I team be control in has

Matt Sheerin

Could a terms contribution give in that's Okay, then relative question of your there Census us follow-up contract. And to expectations? you an update helpful. just regarding

Christine Leahy

out. have we're collaboration, it still of it getting hard the a we've CDW, of again, in work, expect team, hasn't of of devices partners relative Contribution not constrained moving great that of would K-XX doing at And Census. expectations the under just think number Census got same Yeah. of to well. we it's We job changed. revenue a give result XX lot really time, Well well. a our points that is configuration At with about lot inventory as to the a but growth, running as number through center. and in We've got shout basis busy there going season. a out a conditions, of and I

So good. basis far so so points the year, for XX

Operator

Thank with Coster you. Paul question comes And our from next JPMorgan.

open. line Your now is

Paul Coster

wanted my I subjects. couple taking Yeah, a just prior thank questions. touch to on you for of

asset customers First you up see XX you? that yielding and do for beyond to extent on what front, sweating is the dates, opportunity the client upgrade service Windows device a

Christine Leahy

the thanks Yeah, question. for

number You a have customers seen to number know, Win converting customer of large -- very a XX. we now of

as we're customers' opportunity way that sweating I with current be so, know after And with from what there a feel we've seen conversion. is etc. see the like that doesn't the hearing just it the this assets customers, Microsoft, doesn't that I It of would activity going way. an that number don't that is feel going market

Paul Coster

sales given is, Chris, go, there a maintaining the small point to you Got integrity? market. see limitation just growth? to it. scale plan now, is a how think and I'm limitation wondering the important you in the it's you on can the to this whether natural of far Do culture -- massive how its context opportunity of overall still obviously then, but huge Europe up. And But There a a is

Christine Leahy

spot organizations a that very rhythm organizations is it culturally, culture so is they that working. for can clear particularly side, important talking a a because are with meeting are be we a there, sales to could fit. where us, players. is you at looked constant question and that of to a there the not an is have where tell But equally it's I which feel acquisition there on out sales fit. good Yeah, and there people, number on some really we This

But or limitation? at ability think solution natural going a our good is to organizations impair Sure there is is, path we all. not all a a different. because to good that there are expansion find So

Paul Coster

Okay. Thank you.

Operator

Keith Thank you. And question our Research. comes with next from Northcoast Housum

now open. is Your line

Keith Housum

have that Windows difficult more like years it's opportunity. the for to devices full Thanks perception client down, of because kind kind refresh it. part, to strong two a it's grow? It or for been of do Chris, if employment. or concern of -- the client Is seems you morning. so, grow getting Good if how? better for it's into on if the a that, XX now, opportunity devices and see two slowing there or top that years still just And be an will

Christine Leahy

look client be last going at the years when we grow We it's and to to tough device Yeah. look of over compares rates. couple the quarters, definitely, we and kinds at at of the those

-- to we do So -- expect the for and are frankly growth continuing moderate. to have device we because cycles yet client to more would business, difficult continue our we we expect a customers client are wouldn't be who healthy, muted rate, use new at very who comparisons, expect of we in cases, things their devices or etc. facing growth new different to use expand refresh But that certainly

Keith Housum

on regarding you question, your could Is on going to to not -- -- either bit be more that the same of capabilities more that there to others? up there before you. expansion areas you're the ask a And assuming acquire, mean, are just then strategic are sort if than geographically able Got question I targeted I following is internally front geographics acquisitions. or to grow

Christine Leahy

look we when at. areas about, -- same current a when is know, about you the think capability, we'd services, those where about you think our great are would that infrastructure, areas talk digital and I you frequently transformation, capabilities, Yeah Scalar be think it example, security, all managed bolstering areas

primarily been driven where In terms along. strategy and our of our geographic, from have current needs, customers that's that's all what, really

could multinationals in equal that those, Dubai, UK, ensure continent make locations. US, So other UK at that also variety the Asia, Hong in sense. current where areas the of customers the the but use certainly they smaller do are have they're there we're same sense, telling on bolstering of that have makes presence and really our Canadian and can there we Kong, are deliver time, places some help. some needs example, And a where world our And the on to we is that Singapore, focused some growing, pipeline at us, places in and on we look for in

Keith Housum

you. Thank Great.

Operator

to over like remarks. for Leahy not further Chris to back at now questions showing closing time, turn would Thank I'm I call this you. any the

Christine Leahy

needs opportunity and you the continue earn Well, the customers why They X.XXX me and repeatedly true we interest our and to globe the for our coworkers let your CDW. your we thank continued customers. for ongoing and serving are are around and the heart, you privilege and deliver to once for to trust, the advantage again you dedication lead will thank by in customers competitive Thank exceed reason and value serve consistently industry. thanking their close reason our soul expectations. to have and meaningful to our They

been Open a this also CDW a Gary ambassador shout the to I partner couldn't for terrific we to official be send out Woodland, to is US Gary, and since the CDW want you. Gary XXXX. has technology winner Tour, more of Championship, technology thrilled PGA year's

that forward like to thanks look I'd With again to to say and I and you talking Collin next quarter.

Operator

in Ladies does and conclude a disconnect. thank today's may gentlemen, This you and day. all for today's participation you conference. Everyone have wonderful program