Hi, good morning. I'm Samik Chatterjee. I cover Hardware companies at J.P. Morgan. For the next session here, we have CDW, and we have the honor of hosting Chris Leahy, who's the Chairman, President, and CEO of the company. Chris, thanks for taking the time. Steve, thanks for being here as well. Chris, what we're generally starting by asking most companies, at least the ones we cover, are sort of three starter questions. The first one really is about the macro, because that's a big sort of backdrop of this conference. As you think through or look at the remainder of the year, what do you see as the biggest macro risk for your business? Yeah. Well, happy to be here. Thank you for having us. Just to dive right in on the macro risks, you know, I think, we're watching all the wild cards out there, and they include things like the debt ceiling and liquidity issues. You know, you could tick through interest rates and inflation, and there's just been a lot that's been happening over the last eight months. We'll keep an eye on all that. What I would say is our view of the back half of the year is really tied to what we're seeing in the market in our conversations with our customers. When you've got 11,000 coworkers who are with customers every day, that's a pretty good signal back into the organization as to how our customers are responding to the macro conditions. You know, I would say if you look at our outlook, that reflects both what we're feeling and seeing from customers, along with the kind of the environment that I started talking about. Q2, we perceive is pretty much looking like Q1, feeling like Q1, with customers, particularly those large customers, still in the pause and defer and maintain cost control mode. Then expecting an uptick in the back of the half of the year, a moderate uptick. At least that's what we're expecting right now. Then for our own performance, we've got some seasonality kicking in, which will help us in the second, third, and fourth quarter, and easier comparatively in the back half of the year. The macro is what everyone's looking at. Until it shakes out, at least a few things shake out in a way that feels more confident for our businesses, I think we've got a couple more months of uncertainty. Okay. One of the other things that I've been asking companies about is we're seeing a lot of headwinds across the board, but some of them seem to be just a inventory sort of related headwind or in certain product areas versus a demand, real demand issue. When you sort of look across your business, are there any sort of deviations there in terms of which one of those are just inventory related that could be more short-lived than others? Yeah, it's a really good question. Something that we've been trying to sort through over the years, because as you all know, starting back in 2020 in the pandemic and even through last year, inventory depletions really created, you know, a pull forward of demand, if you will. There was this get in line because we knew we were gonna need it, and we saw that across the board from client endpoint devices all the way into the data center. That pull forward when it comes to PCs, client devices, that's now kind of equalized. The supply deficit or the backlog overage has now evened out, and I would say we're kind of at a PC normal status, if you will. There are a couple of pockets where we still have some backlog. It's really around NetCom, right? Again, I would say that was some of that was pull forward. Equally, we've been seeing NetCom perform well. I don't have a quantification for you, but just to say that we did see a pull forward of demand, it's feathered out over time mostly. You know, I think we're at a normal juncture here to see real demand increase. Okay. Okay. Got it. The third one, really what we wanted to get everyone's thoughts on is how is AI going to impact their business? What is sort of the disruptions that you see? What are the opportunities that you see at the same time? Yeah. Look, I think generative AI is really exciting. Someone asked me recently whether I thought it was overhyped or underhyped, and I said both, because I think that it's just moving very quickly and there's, you know, there's just a lot of things people believe it can advance. There's fear out there around how to manage it, I would say, and de-risk it and de-bias it. At the same time, we're gonna try use cases and refine them and try again. We're not gonna get it right away. What I would say the opportunity for us and for our customers, if I were just to start with CDW in our own operating model, you know, we have already been working on use cases around sales enablement, marketing and sales enablement, our own contact center, as you can imagine, areas of efficiency and streamlining and intelligence, so recommendation engine. We are moving quickly. The terminology at CDW is speed to sandbox. Build a sandbox. We've got private instances of Azure. Let's get in there and play and figure it out and apply it as quickly as possible. For our customers, I mean, look, it's across the board. First of all, when you think about the value chain, if you start at the bottom, the compute capability that's needed, the infrastructure is enormous, right? To train those large models, et cetera. That plays right into CDW's, one of our sweet spots, which is the ability to provide the hardware, software, infrastructure generally that goes along with that. Move up the value chain and whether it's the training the models, whether it's the applications, whether it's the advisory services with our full stack solution approach and end-to-end capabilities, you know, we feel really good in already advising customers around use cases for them. Consulting with customers, particularly in specific to industry. Our verticalization, as you know, as a large company, we are verticalized by industry, in some cases geo, but a great example would be healthcare is a $2.5 billion business. Finding use cases specific to healthcare, we're advising customers around things like that. The other thing I would just add, and it's important not to forget, is one of CDW's main muscles is bringing on new technologies and bringing in new partners. I mean, that's what we do. We have a large product partner team that has, you know, over the years brought in, you know, converged infrastructure is new. We bring in all those new partners. You can just kind of pick your technical area. I see generative AI and AI generally as one of those areas, and I think we're gonna see a number of partners, new partners emerge, advisory partners, maybe, you know, maybe highly verticalized, that CDW will be able to bring onto our and into our network and move the needle for them, but also fill and round out our capabilities for our customers. It's pretty exciting. Got it. Moving to some of the more company-specific questions, and I think this goes back to what you're seeing from your customers, what you're hearing from them, can you discuss some of the changes that you're seeing in their appetite to spend in the recent months? Particularly, as you said, when you're talking to customers, there's the expectation of a sort of pickup in the back half or towards the end of the year. What's driving that sort of expectation from your conversations with them? Yeah. Well, I would say just starting now with the appetite right now, we're feeling the same thing that I mentioned before, which is just deferring on larger projects, and we feel the knock on effects of that. It's not just hardware, it's full stack, hardware, software, the services used to implement. Reducing discretionary spend wherever possible. I mean, that just continues to feel pretty steady Eddy. All that said, the conversations we are having with our customers are all around the importance of technology. I think we all, you know, it's almost like you don't need to say it anymore, Technology is essential to any organization achieving its strategy, achieving its mission, being competitive. There's just no way around it. The conversations are more planning. How do we come out of this and accelerate out of the curve? We might not be writing the check right now, but the really beneficial thing for our customers and CDW is we're in there having the conversations, bringing our best engineers to bear to help design, possibly redesign in some circumstances, and be ready for when our customers are ready to spend. Frankly, we've never had more robust conversations. We see this as a way to double down on the trust. We've been here before, you know, in tough times, 2008 and 2009, the pandemic. One thing I think is really unique about our sales organization is the effort that is put into sticking with customers and helping them through times when they're not actually spending, and the appreciation that comes on the other side because of that. Okay. Maybe just take another step deeper there in terms of either the size of the customers, large versus SMBs, or even if you were to go at it by vertical financials versus others, like, are there certain sizes that stand out in terms of seeing more of that pull back or verticals that stand out more? I mean, particularly given some of the headwinds on the banking side, is that, we know, a segment of the market that's pulled back more recently? Yeah, that's an interesting point. Let me start with, you know, the first quarter, really, the uncertainty intensified dramatically right around the banking crisis time. It was really a moment that seemed to have a number of our customers pull back. I would say that was a broad-based impact, not just large and small, et cetera, but across the board. All that said, in terms of who's got a playbook, big companies know how to pause, defer, right, and reduce spend. We saw it more dramatically in our large commercial customers, and that makes up over 40% of our business, large commercial customers, so that's a large portion of the business. Small businesses saw similar, however, they don't have the talent to maintain things that are critical to the business. Cybersecurity, as an example, and cloud support was very, very strong. The high, you know, high value solutions and services our small businesses were still using us for extensively, notwithstanding the client devices were not doing great. You asked a question about the financial industries. I would say, look, we have a vertical, a sub-vertical in our commercial space, and we serve financial services. They've performed relatively well in the first quarter. You know, in large part, I think, because it's the same model as our entire organization, which is it's about balance, right? We have a balanced portfolio of products, a balanced portfolio of customer end markets, and when you look at the financial services market, our team, we have a balance of customers there. We've got banks, we've got investment companies, we've got hedge funds, we've got... It's a balance across high, you know, high-frequency trading organizations who are buying. It's a balance of customers, and as a result, we saw good results. Maybe just going into product areas a bit more. Client devices, as you mentioned, has been quite low in terms of customer investment priority at this point. We have seen a dramatic drop-off in the volumes on that side. How are you thinking about that demand recovering? Any more color from your customers about what a typical replacement cycle is? When do they start sort of getting to the point where they have to, again, sort of come back and replace those devices? Yeah. I would say, we're in a cycle now where we've got, again, a very large, larger than it was pre-pandemic, large, client device install base out there that are not just aging. They've aged already. We're talking four and five years old. You know, what we're seeing and hearing, and I think just a fact given the length of time these have been out there is, you know, a likely refresh cycle picking up very soon. Then you add Windows 11 and end of life coming up in October of 2025, you know, there's a, there's a pressure point now to get that done. There are a number of devices that cannot operate with Windows 11. You have a large number of devices that either are gonna operate on an old device, with an old operating system, which won't operate very well, or have to actually buy a new device. We're gonna see that come into play as well. The other thing is on even places like K-12, where they are still ingesting many of their devices, you'll remember they got to almost one-to-one. We went from about 50% to 100%-ish, 95% on a one-to-one basis, one device per student. You know, we are kind of back to seasonality with our K-12 segment. Okay. We're seeing large RFPs for new Chromebooks. Now those things, you know, kids in the hands of kids break easily, but that's even starting at a refresh cycle now. Okay. Maybe just a follow-up. I mean, we've typically seen that being a revenue impact, not as much on profitability. Any color on how you've managed that business from a profitability standpoint over the years? Should we even think about that business being material to sort of how your earnings plays out through this down cycle on the client devices side? On the client devices or just across the full business? Client devices alone. Yeah. Well, as we think about the back half of the year, we do have an expectation that there is a mild recovery, as I mentioned, and some of that would be client devices coming back, some hardware coming back. As you know from a gross margin perspective, when we have more softness in client devices and hardware generally, but client devices in particular, when they're soft with there, that actually helps boost our margins, right? Because of the mix. When we are selling more in the high growth strategic areas like services and software and cloud that we're focused on, much of that nets down, so that has a boosting effect to our gross margin. What we're expecting as we go through this year is, you know, a little bit of both. We still expect netted down revenue to be strong as we go into the back half of the year, the solutions that drive that. Because we are expecting some pickup in client devices, there's gonna be some moderation on gross margin. That said, and importantly, the way we run our business is really bottom line profitability. When you look at the outlook that we put out, our expectation is to be in about the 9% range, because while we're doing all of this, we're also managing the business really prudently and making, you know, changes that are both, they're both discretionary, but some real structural changes to our cost structure. Okay. Okay. One of the things you mentioned on the, I think this was the last earnings call, that your transactional business has moderated more recently. One of the questions that I got from investors on that front is that largely a function of maybe some tailwinds that you had during the supply constraints, where customers, instead of going to the OEMs directly because of the supply constraints, were just sort of directed towards coming towards CDW for that transactional business itself, and this was more a function of sort of demand elevated because of the supply constraints? Any thoughts around that? This is sort of a popular question that I got from investors on that remark around this business moderation. Was there a shift from OEM direct to CDW? Yeah. Yeah. During the supply constraint particularly. Yeah. I wouldn't say there was a shift. I would say that I felt like customers acted very consistently with how I'd seen them act over 20 years, which is using the channel for things like getting product configured, ready to go out of the box on a very timely basis. I didn't see a shift from OEM to the channel. The value proposition that we bring to the table is this ability to know what our customers need and deliver it fully configured, ready to go. Think about the pandemic, you know, a home office in a box. It's ready to go. You take it out, you plug it in, you're ready to go. That's something that we can do and have always been able to do. I wouldn't suggest that our OEMs can't do that, but that's not something where they focus. again, I don't think those things change the nature of the dynamics of OEM direct versus CDW. Okay. Okay. On NetCom, you highlighted demand for NetCom is strong and you have a backlog on that front. Although some of the OEMs that we cover, Cisco and others, are already starting to see pretty weak order trends on that front. How are you thinking about sustainability of that demand if the OEMs themselves are reporting quite weak order trends year-over-year? Yeah. Well, look, we're seeing, we have a lot of customers who were unable to modernize networking, you know, capabilities and get into their offices, for example, go places and physically go upgrade. We are seeing just robust demand for network upgrading. There's an expectation, particularly in some of our segments, K - 12 would be a great example. Higher ed would be a great example, where you basically are supported very distributed uses of end point devices, and it's tied to competitive advantage. We haven't seen a diminution in the excitement. Now, you know, do we expect it to be growing as much as the last couple of quarters? Maybe not. It's still part of the solution discussion we're having in a big way. Okay. Okay. Let me open it up here and see if anyone has question. Any questions? We just have to wait. Yeah. Could you maybe talk about what you're seeing on the data center side in storage and servers? Is that still weak? Are we starting to see green shoots? What are your thoughts? Yeah. I would say it's still fairly weak. I think some of the most interesting conversations we're having with our OEMs are frankly related to AI and data center and some of the products that they've created that are interesting to particular verticals like high frequency trading or others. Those are some really interesting products that I think we're gonna start to see legs on soon. Any questions? You. Okay. I was just going to say, you know, as we went through the obviously the reset, we always think of you as very conservative and really a great person. We always think that you're really great at forecasting and the sort of the downgrade versus the guidance you gave before. What really drove that? Because we always think you're very conservative and great at forecasting, like it's never like this. Just what, you know, what really happened, you know? 'Cause we can't see what's happening there. In going from our, what we said at the end of Q4- Yeah. ... into the... Yeah. Well, you know, when we had our call, Q4 call, right? We called it actually flat, which there was a reaction to that, right? Which was, gosh, that seems lower than anybody else. But that was really based on what we were seeing and feeling in the market. So trying to be very transparent and really accurate based on the customer touch points. I mean, what happened in the first quarter is a tale of two cities. It's the first half and it's the second half. Because we... Yeah, there was some buoyancy starting in the beginning of the quarter, but I'll tell you, once we hit one more thing, bank failures, one more thing that added to the bucket of things that were causing concern, it was like almost the last straw, and that really caused a... It's kind of like a downshift, an upshift, if you will, in caution and care and a real downshift in spend and pausing, which means spending, but it's just pausing to say, "Hold on." I mean, we, you know, in our organization, even in conversations with Al, you know, we would have this conversation, which is we've got to pause. We just don't have the clarity right now. We've got to continue to invest, but frankly, those investment dollars are probably gonna come later in the year. We've made a lot of investments, but let's make sure that we are gonna deliver against those. For right now, we need to preserve optionality, and that's what a lot of our customers are doing. Chris, let's take this question that's come in, and then I did want to spend the last 10 minutes or so on your services business. The question is, can you walk through what you're seeing in security and more specifically firewalls and demand? Yeah. What's the question? I'm sorry. Can you walk through what you're seeing more specifically in terms of demand for security and firewalls within that? Sure, yeah. Security is still top of mind. That's not gonna surprise anybody. It's what component parts of security are hotter now or not. I would say firewalls often are tied to people and places, and as you see more and more organizations who are kind of getting to a balance given layoffs and staffing reductions, et cetera, and real estate rationalization, firewalls become actually a lower demand. That is what we're seeing. On the other hand, we're seeing, you know, identity access management up, intrusion detection up, physical security up, massively up in the school systems. Just very similar to this reasoned, thoughtful, rational approach for where money is gonna be being spent. When you've got limited money, security is at the top of the list, and it's in the areas of cybersecurity and keeping people safe. Okay. Switching gears here and did want to chat about the services business. Mm-hmm. I have more specific questions, but maybe I'll start with sort of give us your vision of where CDW will be in services in five, 10 years' time. How much of the business will be in services, and what are the capabilities that you are looking to add over the next five to 10 years? Yeah. Well, it's a great question. We believe we've become a services-led business. That's how we go to market. That's how we describe ourselves now, notwithstanding the fact that if you look at our financial filings, you'll see 80% of what we sell is hardware. Our services business has grown from 5% of revenue to 8% of revenue. An accelerated clip, and our plan is to continue to do so. Why? Because consulting and advisory services in particular are at the front end of the advisory chain. What we found is Sirius is a great example, bringing in that team, that team's all solutions and services driven. We are seeing this notion of more seats at the table, more voices at the table, exactly what you want when you're in our business. Our plan is to continue to accelerate. Every acquisition that we've made over the last nine years has a very strong services component to it, whether it's cybersecurity, whether it's software management tools, whether it's digital transformation, whether it's automation. Every component has been driving our professional services and then managed services. If you think about CDW three years from now, what you should see is an organization that is a end-to-end life cycle technology integrator from the advisory and consulting services to what we do really well, you know, procure, deploy, integrate, and managing the services. The idea is that a customer enters the, you know, it's the closed garden. You enter CDW's garden, and all you need to do is be in that environment. I think we're making great progress and, good headway and getting terrific feedback from customers, by the way, both the quality and speed with which we are responsive. Okay. One of the questions I had for you, on that front was, as you push more into services. Mm-hmm. You're going to run into specialized integrators who will have much better resources in terms of engineering pool, that they have access to. When you think about competition from the specialized integrators, how do you think about sort of how do you differentiate there? Is it then sort of, again, going back and relying on the core sort of or legacy CDW sort of aspects? How do you think about competing with them, particularly as you're sort of entering this market? Yeah, it's a great question. I mean, first I would say I wouldn't necessarily differentiate the quality of our engineers versus systems integrators. I think our engineers can go toe-to-toe with systems integrators in the areas that we play. We don't do ERP. We're not a CRM integrator. That's not what we do. Our role for our customers is to be their partner, an extension of their, an extension of their team and kind of a one-stop shop. Not to strategize, come up with a plan, hand it off to engineers, and then you finish the project. Ours is to be deep in the process of or deeply part of their, business teams, identify the areas that are in the spaces we play, Digital Velocity, migration to the cloud, optimization in the cloud, optimizing your infrastructure and networking, all the way to your endpoint solutions so that it's a full stack, full approach. In terms of competitive, I think that there's a layer where we both come at the customer with some similar and highly qualified, resources, but our model and our game plan is different. It's full life cycle. How do you think about investments on that front? Maybe to be more specific on that question, is Sirius sort of the platform that you have, and then you build on it organically by investing on a steady basis on it, or is there more of an opportunity to do Sirius-like acquisitions going forward, and that's the more preferred way of investing in this area? I think it's both, and it's always a build versus buy decision. It's kind of a financial decision while you're looking to see if there are potential acquisitions that could fit your operating, you know, your financial model, the operating model, culture, et c. At the same time, when we look at the acquisitions we've made, there are great opportunities to invest behind them, so that would be organic, but invest behind. I'll give you a great example. We were just in Southern California. We actually had a board meeting. We had a board meeting field trip, and we have a lab, an innovation lab, that we have done jointly with Memorial Healthcare in Southern California. We have four of these. This is where we co- literally co-create technology solutions for a particular industry and within the industry, in this case, you know, large healthcare systems. We have a room there called Patient Care Next, which is the room of the future for hospitals, and we work with them collaboratively to figure out the technologies that work there. This is something where we then bring in other large hospital systems to contribute, to learn, and then ultimately benefit from. Those are the types of things that in an acquisition, we think about how do we invest behind those types of things and/or take that model and move it to another vertical and create an innovation labs with other verticals where we can do the same thing, how we stitch together solutions that are particular to a vertical and then become proprietary to CDW. Okay. let me check again if, anyone has a question. Thanks, Chris. Just to follow up on your comment that the first quarter felt like a tale of two halves. It does feel like the dust is settling a bit on the bank crisis. Of course, we have this debt ceiling problem now, but do your customer conversations kind of reflect the dust settling? Is there a calmness that's returned, at least on the commercial side? Yeah, Michael, I would say it feels that way. I haven't seen it in the demand metrics. In the conversations, I'm starting to sense, you know, we're gonna get to the other side of this, and we're gonna start picking up. I can't tell you I've seen it in the metrics yet. As a follow-on to that, regarding those conversations, when you talk about the pause, any sense of, is this a one, two, three, four quarter pause, or at what point do your customers sweat their assets enough that they just can't pause any longer? Any type of conversations along those lines? Yeah, I mean, let me take the end first, which is, you know, can only sweat their assets so long. I don't think we're at a point where companies. I mean, the majority of our customers, and I think about the majority of the areas that they're sweating, I don't think we're at a point where it's, they say, "I can't do it anymore right now." I think we had time before that. You know, our outlook, which is I think the best place to go, reflects what we think is going to happen, right, which is a moderate kind of recovery in the back half of the year. You know, as Michael asked the question, it's conversations that we're hearing. I'm not seeing it in the metrics. Q2, we've said we expect Q2 to be pretty much like Q1, and it seems to be playing out that way. It's less of a, "I can't sweat the assets anymore," conversations we're having than it is technology is "It's the heart of my competitive ability. It's the heart of what how I deliver my mission. I've gotta get myself going back on that train because, if I don't, you know, someone's gonna come out faster, better than me. Let me move back to maybe the last question on the services side that I did want to address with you, is, as you push more into services, how does the traditional way the channel has operated look like in terms of your relationship with the distributors like TD SYNNEX or Ingram Micro? Maybe on that front, I mean, some of them have sort of highlighted their online marketplaces as areas as sort of aggregation points where customers can go purchase. So how do you think about sort of the impact of those online marketplaces that they've created on your business? Yeah. I'd say a couple things. I'd say, first of all, and you named one of our partners, great partners. I mean, these are folks that we have worked long, long time with and very good partners. In terms of how services changes the relationship, I think it only enhances the relationship because we have now a more complete offering to bring to our customers, period, the end. In terms of the marketplaces, I think that creates maybe for the VARs that they, you know, the smaller VARs that they, that they serve, you know, a more aggregated point of purchase. I think what's needed is what's been needed for a long time, is the ability to integrate. Well, first of all, when there's a lot of choice and complexity, it's sorting through all of that. It's the ability to help customers choose and then use right technologies. While a aggregated point of purchase is interesting, it's not as interesting without the overlay of services to, you know, to put it together. A shopping cart and putting technology products in, that just doesn't work. You know? It's just a shopping cart full of products. It's not a technology solution. If you think about our purpose statement, which is we make technology work so people can do great things. That really right there, we make technology work. That is the essence of our, you know, value proposition. Okay. We're up on time. Thank you for coming to the conference. Thank you everyone for coming here. Thank you. My pleasure. Thank you.