Thank you, Taylor. Good morning, everyone.

Joining me today to review our fourth quarter and full year 2023 results are Chris Leahy, our Chair and Chief Executive Officer; and Al Miralles, our Chief Financial Officer. Our fourth quarter and full year earnings release was distributed this morning and is available on our website, investor.cdw.com, along with the supplemental slides that you can use to follow along during the call.

I'd like to remind you that certain comments made in this presentation are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. Those statements are subject to a number of risks and uncertainties that could cause actual results to differ materially.

Additional information concerning these risks and uncertainties is contained in the earnings release and Form 8-K we furnished to the SEC today and in the company's other filings with the SEC. CDW assumes no obligation to update the information presented during this webcast.

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

You'll find reconciliation charts in the slides for today's webcast and in our earnings release and Form 8-K. Please note, all references to growth rates or dollar amount changes in our remarks today are versus the comparable period in 2022 unless otherwise indicated.

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

With that, let me turn the call over to Chris.

Thank you, Steve. Good morning, everyone.

I'll begin our call with an overview of our fourth quarter and full year performance and share some thoughts on our strategic progress and expectations for 2024. Then I will 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'll move quickly through our prepared remarks as always to ensure we have plenty of time for questions. Fourth quarter net sales were $5 billion, 7.7% below 2022.

Strong growth and operating income margins mitigated the impact of top-line performance on profits, and we delivered gross profit of $1.15 billion, 2% lower year-over-year, non-GAAP operating income of $519 million, 1% below prior year, and non-GAAP net income per share of $2.50, up 3% year-over-year. Our results reflect consistent, strong execution by the team, our financial rigor, and our ability to deliver solutions and services across the full life cycle, full stack.

Results delivered under uneven commercial and international market conditions, which continue to drive cautious customer behavior. Customer priorities remained laser-focused on operating efficiency and expense elasticity.

Priorities increasingly met by as-a-service and consumption-based solutions like cloud and SaaS, as well as nascent, ratable, on-premise solutions. The team's ability to pivot to address these priorities drove excellent performance across solutions, including categories that commonly net down on a revenue basis.

The impact of this success, combined with ongoing softness in traditional hardware categories, resulted in further pressure on net sales. When this happens, we experience what we saw this quarter, meaningfully dampened net sales growth with very strong gross margins.

This phenomenon was not unique to the fourth quarter. Market dynamics drove hardware deprioritization and preference for solutions that net down throughout 2023, and our net sales of $21 billion were over $2 billion less than 2022.

Notwithstanding our muted top lines, strong execution by the team underpinned by our full stack, full lifecycle, full outcomes, go-to-market approach delivered flat, non-GAAP operating income, a 1% increase in non-GAAP net income per share, and strong adjusted free cash flow of $1.4 billion. Outcomes driven by the strategic investments we have made over the past five years to increase the value we deliver to our customers.

That is the power of our strategy when combined with our resilient business model. 2023 was a year that truly pressure tested our strategy.

The fourth quarter is an exemplary example of this inaction. There were three main drivers of 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 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 U.K.

and Canadian operations, which together deliver sales of US$2.6 billion. Often, our customer end markets perform differently given macroeconomic or industry-specific headwinds or tailwinds.

This quarter, all but one customer end market experienced a decline in net sales. The profit story was very different, with gross margin increasing across all customer end markets.

Let's take a look at the puts and takes of how each end market performed in the quarter. Corporate net sales decreased 8%.

Top-line performance continued to reflect the impact of both netting down and hardware pressure. Momentum remained for projects focused on increasing productivity, as well as projects focused on enhanced customer and co-worker experiences.

The team's ability to meet customer demand for these priorities with as-a-service and ratable solutions drove strong cloud performance. Year-over-year client device declines moderated down mid-single digits compared to the double-digit declines of the first three quarters.

For netcomm, while network modernization stayed a top priority, customers focused on digesting investments made over the past few years, leading to a long-expected backlog of normalization, and sales declined year-over-year. Small business net sales declined 13%.

Market conditions were consistent with the first three quarters of the year, and customer behavior remained cautious. Priorities remained squarely focused on cost management and projects that need to get done.

Once again, projects that were more launched than needs remained paused. Customer demand for projects with shorter-term return on investment drove excellent performance in cloud and in total security -- total software, excuse me.

Security remained a top priority, and the team delivered strong performance across our broad portfolio of hardware, software, and services security offerings. Similar to corporate, small business client device declines moderated in the quarter, down-high single digits compared to the prior three quarters double-digit decline.

Public sales decreased 4% year-over-year as government's mid-single-digit net sales increase was more than offset by declines across our other public-ed markets. The federal team delivered a double-digit net sales increase as they continued their success helping agencies implement more efficient solutions to manage and protect data.

This drove excellent netcomm performance up strong double digits. The team continued its efforts to help agencies optimize their existing cloud environments as well as deliver new cloud solutions.

The state and local team delivered a mid-single-digit increase. The team's success-enabling cloud-based solutions, especially with budget constrained cities, delivered a triple-digit increase in cloud performance.

For the second quarter in a row, the team delivered sales growth in client devices. Healthcare net sales decreased by 5%, augmenting talent needs, modernizing data centers, driving cost savings and efficiency projects, all remained focus areas for our customers.

The team drove a significant increase in cloud performance. Growth driven by their success-helping systems adopt deep cloud portfolio, which includes proprietary healthcare solutions.

Our broad portfolio of solutions also contributed to security growth as the team helped customers address heightened cybersecurity needs. Education net sales decreased by 12%, with K-12 posting a mid-single-digit decline and higher ed down mid-teens.

For K-12, the team continued their success-helping schools and their efforts to sustain technology gains of the past several years. This delivered excellent growth in services and cloud, both posting double-digit gains, gains that were offset by the combined impact of a double-digit decline in netcomm and low-single-digit decline in client device sales.

The high ed team's success-helping universities address business process transformation efforts contributed to double-digit growth in services and cloud. Client devices showed stability.

These encouraging trends were more than offset by declines in netcomm this quarter. Other are combined UK and Canada business, declined by 14%.

While the teams continued to execute well, market conditions were as expected, and sales in both the UK and Canada decreased by double digits in local currency. Once again, our diverse end markets contributed to our performance amid an uncertain and uneven environment.

The second driver of performance was our broad and deep portfolio. Let's take a look at how each category performed.

The market did not experience the stabilization in hardware we expected, and net sales of our hardware portfolio declined by high-single digits. This was primarily driven by double-digit year-over-year declines in netcomm as the normalization of backlog adversely impacted year-over-year growth.

Client device performance improved sequentially with a low-single-digit decline. Software customer spend increased by high-single digits, but given the significant portion of the category that nets down, net sales declined.

Strength was broad-based across software as we continued to help customers manage data, enhance productivity, and secure their IT environments. Growth was particularly strong across security, virtualization, and application suites.

Cloud remained an important driver of performance across the business and was a meaningful contributor to growth's profit. Customer spend increased across all end markets, with roughly half a spend from commercial customers.

Infrastructure as-a-service, productivity, and security were the top three cloud workloads during the period. Security remains top of mind for our customers as cyber threats continue to emerge, evolve and increase, and customer spend increased by low-single digits.

Our teams continue to conduct vulnerability assessments, implement identity and access management solutions, and provide training to our customers to help manage cloud deployments and enhance endpoint and application security. Services was a standout category this period, with double-digit increases in professional and managed services.

Integral to today's complex technology solutions, customers continue to lean into CDW as an extension of their own teams and leverage our services capabilities as part of their strategies. Our portfolio performance leads to the third driver of our results this quarter, relentless execution of our growth strategy.

Core to our growth strategy, our objective is to expand and enhance our solutions and services capabilities. Over the past five years, investments both organic and non-organic, including 10 acquisitions, have bolstered our expertise and resources in these two key areas to support our full stack, full life cycle, full outcomes, go-to-market approach.

Investments that have grown our capabilities in high-growth complex areas like cloud migration and cyber security, that have enhanced capabilities like full stack and cloud-native software development, DevOps engineering, robust consulting, and cloud-based workflow automation, expertise and resources, and investments that have expanded our services footprint across the U.S. and Canada.

As you can see, each investment we made is purposeful and delivers a specific capability that furthers our strategy. A strategy designed to ensure we evolve with the market and constantly fortify our leading position as trusted advisor to our customers and vendor partner of choice.

Evolving with capabilities that underpin our relevance and ensure we are there for our customers today and as new technologies come to market. New technologies like artificial intelligence.

With its extremely short high cycle, our customers are increasingly seeking opportunities to use AI to achieve their objectives. And while most customers are in the discovery phase, some are already adopting AI with our help.

There's a great example. An industry-leading semiconductor and software designer needed training and development for a domain-specific large language model to support a range of internal use cases.

The data-intensive and highly proprietary nature of the company's designs and intellectual property made the use of a hyperscaler's LLM and cloud-based compute and storage resources less optimal. The CDW hybrid infrastructure team worked with the customer to build a custom platform that supports both training and inference workloads for generative AI.

The team designed the underlying architecture, which included a best-in-class 16-node supercomputer, with a high-performance parallel file system storage solution. The successful installation and customer handoff resulted in a multi-million-dollar hardware and software engagement and service with opportunity.

With both usage and use cases growing quickly, the company has engaged CDW to support further expansion of their existing infrastructure and to evaluate new solutions. Clearly, investments in our customer-centric growth strategy have elevated our relevance to customers to the highest level it's ever been.

Our focused and disciplined execution of our strategy continues to make us a vital technology partner, whether enabling customer priorities that require high complex or transactional solutions. And that leads us to our 2024 outlook.

The uneven market conditions we experienced throughout 2023 have persisted into 2024. Customer decisions remain deliberate and restrained with ongoing projects scrutiny, pursuit of short-term ROIs, and continued buying hesitancy, particularly around hardware.

With this backdrop, we currently look for the U.S. IT market to grow by low single digits in 2024 on a customer spend basis, including the expectation of a slow start to the year, a view that incorporates the potential impact of some of our recent wildcards, including upcoming elections and geopolitical issues.

For CDW, these conditions set up a year that thematically looks much like 2023, and our outlook assumes the growth of customer spend outpaces our net sales growth. Our customers face proliferating data and ever-expanding cybersecurity needs.

They face expanding workloads and hardware obsolescence, and they face the potential and promise of exciting new technologies. With our broad and deep portfolio of solutions and services, we are there for our customers today and tomorrow, wherever their priorities lie.

We are there for our customers as their trusted advisor to help them navigate increasingly complex technologies. Whether growth comes from consumption-based or as-a-service solutions, or from hardware sales, we are well-positioned to continue our track record of profitably outpacing U.S.

IT market growth by 200 to 300 basis points. 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'll continue to do what we do best, leverage our competitive advantages, and out-execute the competition. Now, let me turn it over to Al, who will provide more detail on our financials and outlook.

Al?

Thank you, Chris, and good morning, everyone. I'll start my preparatory remarks with detail on fourth quarter performance, briefly touch on full-year 2023 results, move to capital allocation priorities and then finish with our 2024 outlook.

The team's strong execution and our financial discipline delivered very strong quarterly growth and operating margins, and growth in our fourth quarter earnings per share on a diluted basis. We achieved these results on consolidated net sales of $5 billion, which were 7.7% below 2022, on a reported and average daily sales basis.

Fourth quarter net sales performance reflected both our ongoing success providing cloud and SaaS-based solutions that drove meaningful customer spend and profits, and the continued impact of uneven market conditions that we experienced throughout 2023. On a sequential average daily sales basis, fourth quarter net sales decreased 10.8%.

While historically fourth quarter net sales are lower than the third quarter, the sequential climb this quarter was more significant than we expected, reflecting a lack of hardware spending recovery, a continued mix shift into solutions that net down, and generally softer economic conditions impacting our international end markets. Fourth quarter gross profit was $1.2 billion, down 2.3% versus prior year, with our gross margin increasing 130 basis point year-over-year, and partially offsetting the impact of lower net sales volume.

Gross margin of 23% was driven by one factor, a higher mix into netted down revenues, which while dampening net sales growth also enhanced gross profit margin. Cloud and SaaS-based revenue streams once again outpaced overall net sales growth.

For the quarter, this category represented a high 35.4% of our gross profit compared to 30.7% in the prior year fourth quarter, and was also up from the third quarter's 32.6% level. While we expect the mix of netted down revenues to be an important long-term durable trend within our business, it is important to recognize that this mix may fluctuate with customer priorities and product demand.

Turning to expenses for the fourth quarter, non-GAAP SG&A totaled $635 million, down 3.5% year-over-year, prudent and diligent management of discretionary expenses and our overall fixed cost base helped to hold the line on profitability amid the challenging IT spending environment. Co-worker counts at the end of the fourth quarter was approximately 15,100, up slightly from the third quarter and flat relative to year-end 2022.

We continue to expand our solutions and services capabilities while concurrently driving efficiency and cost leverage from our broader operations. Following along on slide nine, our flexible business model and financial discipline helped to deliver non-GAAP operating income of $519 million, down 0.8% versus the prior year, despite our contraction on the top line.

Non-GAAP operating income margin reached 10.3%, up 70 basis points from the prior year, and up 40 basis points from last year's 9.9%. As reflected on slide 10, our non-GAAP net income was $349 million in the quarter, up 1.7% on a year-over-year basis.

With fourth quarter weighted average diluted shares of approximately $136 million, non-GAAP net income per diluted share was up 2.8% year-over-year. Shifting gears briefly and moving to slide 11 to review full-year results, we experienced a persistently challenging environment in 2023.

Uncertainty for our customers caused re-evaluation and optimization of their tech spending, which combined with a marked shift in spending mix led to a full-year decline in our net sales of 10% on both the reported and average daily sales basis. Despite the top-line decline, gross profit was approximately flat, down 0.7% for the year.

This gross profit stability exemplifies the impact of our strategy over the last five years with both organic and inorganic investments underpinning the team's ability to pivot to our customers where customers need us, no matter the environment. Enhanced gross margin combined with effective cost controls resulted in a full-year non-GAAP operating income margin of 9.5%, with non-GAAP operating profit dollars similarly down just 0.6% year-over-year.

Moving down the P&L, our net interest expense was slightly below our full-year expectations driven by higher interest income earned on our cash balances. Our tax rate was within our expected range.

As shown on slide 12, our non-GAAP net income was $1.3 billion, up 0.4%, and non-GAAP net income per diluted share was $9.88, up 0.9% from the prior year. Moving ahead to slide 13, at period end, net debt was $5.1 billion.

Net debt declined by approximately $200 million from the third quarter, reflecting our increased cash position and modest debt repayment during the quarter. Liquidity remained strong with cash plus revolver availability of approximately $1.8 billion.

Moving to slide 14, the three-month average cash conversion cycle was 17 days, down four days from the prior year and within our targeted range of high teens to low 20s. Our cash conversion reflects our effective management of working capital, particularly with respect to our inventory levels.

As we have mentioned in the past, timing and market dynamics can influence working capital on any given quarter or year. We continue to believe our target cash conversion range remains the best guidepost for modeling working capital longer term.

Strong profits and effective working capital management drove a record full-year adjusted free cash flow of $1.4 billion, as shown on slide 15, representing 106% of non-GAAP net income and well above our stated rule of thumb at 6.7% in net sales. For the quarter, we utilized cash consistent with our 2023 capital allocation objectives, including returning approximately $83 million to shareholders through dividends and $50 million in share repurchases.

For the full year, this translated $322 million in dividends and $500 million in share repurchases. A combined $822 million return to shareholders for approximately 58% of adjusted free cash flow.

This was within our initial target range for the year and slightly below our updated range through the stronger than expected cash flow in the fourth quarter. That brings me to our capital allocation priorities on slide 16.

Our first capital priority is to increase the dividend in line with non-GAAP net income. Last November, we announced a 5% increase of our dividend to $2.48 annually, our tenth consecutive year of increasing the dividend.

In 2024 and beyond, we will continue to target a 25% target ratio, growing the dividend in line with earnings. Our second priority is to ensure we have the right capital structure in place with targeted net leverage ratio.

We ended 2023 at 2.4 times, down from 2.6 times at the end of 2022, and within our targeted range of 2 to 3 times. We have rigorous processes in place to proactively manage liquidity while maintaining flexibility.

Finally, our third and fourth capital allocation priorities of M&A and shared purchases remain important drivers of shareholder value. For 2024, we will target returning 50% to 75% of adjusted free cash flow to investors through dividends and share repurchases.

In lockstep with this, we have announced the board's authorization for a $750 million increase to our share repurchase program. Combining our prior authorization with this new additional authorization, we currently have approximately $1.1 million of availability under share repurchase program as we start 2024.

And that leads to our outlook on slide 17. The uncertain market conditions we operated under 2023 have persisted into early 2024, and customer sentiment remains cautious and prudent.

And while indicators suggest a compelling need to address workload and data growth, rising security threats, and eventual client device obsolescence, our current expectations for a slow start to the year for IT spending and full-year growth in the low single-digit range. With this customer spend scenario as our baseline, we additionally expect to profitably gain 200 to 300 basis points of share in 2024.

As you know, when we mix in the netted down solutions, the impact is fully reflected in our gross profit, but it is muted in our net sales growth. Conversely, when hardware volume is strong as we saw on 2021 and 2022, our net sales growth is stronger as these products are counted for on a full gross accounting basis.

Given the impact of shifting customer priorities on our net sales and the inherent accounting differences that result from different business mix, we believe that gross profit has become a more effective barometer for gauging our growth expectations. As such, beginning with 2024 and go forward, we will align our outlook with a view on gross profit in lieu of net sales.

Based on our current view of mix and margin rates across our portfolio, our expectation for 2024 is for low to mid single-digit gross profit growth. This assumes a flat to modestly higher gross margin relative to full-year 2023.

Finally, we expect our full-year non-GAAP earnings per diluted share to be up mid single-digit share of a year. Please remember that we hold ourselves accountable for delivering our financial outlook on a full-year constant currency basis.

Additional modeling thoughts for annual depreciation and amortization, interest expense, and the non-GAAP effects tax rate can be found on slide 18. Moving to modeling thoughts for the first quarter, we anticipate gross margin comparable to 2023's level, albeit lower than 2024, and leading to low single-digit gross profit growth on a year-over-year basis.

Moving down the P&L, we expect operating expenses to be higher to begin 2024 compared to Q4 as we accrue for a reset of compensation expense that was more muted at the end of 2023, along with other seasonal workforce expenses. We expect operating expense leverage as a percentage of gross profit to gradually improve as the year progresses and expenses even out.

Finally, we expect first quarter non-GAAP earnings per diluted share to be in the low-to-mid single-digit range year-over-year. As we start the New Year, we are also adjusting our approach on the outlook for adjusted free cash flow.

Again, given the variability of mix of business and the corresponding impacts on net sales, we believe the relationship between adjusted free cash flow to non-GAAP net income will provide a more consistent metric go forward. For 2024, we expect adjusted free cash flow to be in the range of 80% to 90% of our non-GAAP net income.

It is important to note that while we continue to operate in a cautious and uncertain environment, remain confident our ability to deliver profitability margins, and cash flow to our stakeholders just as we did in 2023. 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.

We'd ask each of you to limit your questions to one for the brief follow-up. Thank you.

Yes. Thank you and good morning.

My first question is just regarding your comments on the weakness in infrastructure products, particularly netcomm products, after a very strong first three quarters with that backlog down, do you get a sense of how long it's going to take in terms of that digestion period from customers and when that might pick up again?

Yes, good morning, Matt. Thanks.

This is Al. I would say, Matt, at first, just I think you hit it right.

We would expect some headwinds on the netcomm front. I'd say underlying demand is solid with some strength in some pockets, but not significantly strong.

The bigger headwind there would really be the compares when you look back in 2023 and particularly the first few quarters, the growth in netcomm was between 20% and 40%. So with those types of growth numbers from 2023, we would expect that we'd see declines at least for the next few quarters.

Okay. Thank you.

And then on the PC demand and client devices, it looked like the year-over-year decline was much better or less worse if you will, in Q4. What are your expectations in terms of client device upgrades?

It doesn't sound like you're super optimistic, at least for the first half. So what's the outlook there?

Sure, I'll take that as well, Matt. I think that's right.

For at least the first half, what we're calling for is similar trends, what you've seen the last few quarters, that is continued strength and netted down revenues, specifically cloud and SaaS, and we would not see strength on the hardware side, including PCs. What our outlook calls for is a modest recovery in the back half, and that includes PCs.

And look, I'll just add the, while we still believe that there is impetus and catalyst for PCs to return, it becomes just basically a matter of when, not if, we think we're a few quarters off from that.

Okay. Thank you very much.

You're welcome.

Okay. Thanks.

Good morning. I just want to start at a high-level question, maybe Chris or Al could answer.

But as we think about CDW from an investor perspective, a lot of us have thought of this as a compounder that generally experiences double-digit earnings growth, with an algorithm of kind of mid-single-digit top line, some leverage, some capital allocation, you kind of get to this double-digit earnings growth. You just finished a year with flattish earnings growth, and then this year, your initial guidance for 2024, I think, is mid-single-digit earnings growth.

So I'm just wondering if you could revisit that, and how should investors think about CDW's earnings algorithm? At this level of size and scale, should we sort of reset our expectations and think of this more as a mid-single-digit compounder at this point?

Why or why not? Thanks.

Sure. Thanks, Adam.

This is Al. Look, I do think that we're in this transitory period, right?

We've gone through periods of extremity with the pandemic and with returns that were significant. Obviously, there's been some digestion and quite a bit of mixed shift as we've eased in the post-pandemic period.

I would continue to call 2024 a transitory period, right? We are just not seeing the strength or the return to demand on the hardware side of things as customers have essentially decided to ration their spend to items that they believe will optimize their costs, create the greatest ROI, et cetera.

That being said, all cycles kind of have their beginning, and we do believe that on the backside of this, there are significant catalysts that will balance things out and include a return to growth on the hardware side. So, I think what you're seeing from our outlook and what you saw in 2023 is something like a transitory period.

When we look beyond that and some of the catalysts that we think are on the other side, we believe the returns will look more significant.

Yes, and Al, thanks. I would just add, if you take a big step back, Adam, what are our customers facing?

They're facing proliferating data. They're facing ever-expanding cyber threats, expanding workloads, hardware obsolescence, the incredible promise of new technologies.

And so the landscape that they're facing and the essential nature of technology to every single walk of life is not going away. So as we look forward to those catalysts that Al mentioned, think about digital transformation.

That's a durable trend, and it's a continuous process, and many customers have really paused on their investment and evolution in 2023. That's going to come back when uncertainty abates.

Network modernization continues to be top of mind, and once that digestion gets through the process, then there's only going to be a need to handle greater network traffic and data, et cetera. Security threats continue to grow, and they're more sophisticated, kind of exclamation point.

Client devices are just aging, and even the pre-pandemic devices are coming on four years old, and then we've got Windows 10 sun-setting. You've got all of those things that are catalysts that we're going to see coming down the pike, and then just add AI.

Still early innings, use cases not quite proven out yet, but we're seeing incredibly exciting opportunities for the services and execution of adoption around those. So I think we couldn't be more excited about the technology industry generally.

Okay. That's helpful.

Maybe just a quick follow-up, Chris. Obviously, net leverage is about at optimal levels.

Cash flow has certainly been a bright spot for the business. Understand the share repurchase authorization today, but wanted to ask more from a strategic M&A standpoint since that's been sort of a core competency of CDW, I would say.

As you think on a forward basis, obviously, there's been some moves around you from some competitors moving into some more cloud-based strategic areas. Wondered how you were evaluating or thinking about the strategic roadmap from an M&A perspective.

On one hand, I think in the past, we've talked about perhaps expanding more internationally after such strong success with the Kelway acquisition years ago. On the other hand, obviously, expanding strategic capabilities would be another direction.

Just -- how you're thinking about a strategic roadmap from here? Thanks.

Yes, no problem, Adam. Thanks for the question.

The vectors you hit would be still consistent with how we're thinking about it, whether geographic expansion, larger acquisitions to bolster capabilities and tuck-ins, which we've been doing. And I would just reiterate, look, M&A is a strategic driver of our value prop and our growth strategy.

And you've seen us do 10 acquisitions over the past five years. And those have been very valuable in terms of driving value to our customers.

So as we think about where we focus our efforts, driving capabilities and solutions that are high growth and high relevance and in services capabilities, there's a plethora of areas that we could focus, including areas like security and cloud and AI. And so, I would just say, look, at the end of the day, we've said it before, we're always looking, and we've got a number of identified targets in our pipeline, but it also has to be opportunistic.

The one thing I would say, Adam, is when you think about the success in evolving our business to be able to deliver the profitability that we did this year with the hardware pressure and the other dynamics happening in the marketplace, that's due to bringing on capabilities that are highly strategic, highly relevant, and then executing against them. So when I think back five years versus now, our cloud business has grown on a compound annual growth basis by 30%, and we did it again in 2023.

I look at security, another area that we were very focused on, a maiden acquisition in addition to internal investments, and that business has doubled in three years. So we really are investing behind the most important capabilities, and we're seeing great results as a result.

Adam, let me just add one element you hit it on the front end. We take pride in our ability to compound, and you noted about free cash flow.

In the environment we've been in, there's a bit of a kind of hunkering down, focus on margin, focus on cash flow. You'll note that we've increased our cash position.

We're excited about what's on the horizon from a capital perspective when we think about the cash optionality we have in front of us, and that would certainly include M&A.

Make sense. Thank you very much.

Great. Thank you for taking my question.

How do you guys think about market share gain in the current environment? And if you could maybe peel back a little bit on the gross profit linearity, looks like that's going to be a key metric, and I agree that's the rightful metric.

Maybe if you can walk us through the confidence and what's driving the confidence in improving gross profit growth rates from the low single digits at the start of the year, and as you ramp through the year? Thank you.

Thanks for the question. I'll start on market share gain.

Look, we hold ourselves accountable consistently to deliver 200 to 300 basis points above IT market rate of growth, and we have a track record of doing just that, and we are confident that in 2023 we did gain share. If you look at our net sales versus what customers spend with CDW, we've talked about that delta widening significantly, and we're over seven basis points now, so we're very confident that we've taken share, even in this very cautious and uneven market environment, and that's due to team's excellent execution and the value of our full stack full life cycle portfolio.

Al, I'll turn it to you for the gross profit question.

Yes, so, Asiya, on the gross profit front, obviously like Chris said, there is a focus in this environment thinking about customer spend, and that spread between customer spend and net sales has been significant. We also feel confident about the continued trend of items such as netted down revenues, which we think will bolster gross margin.

There may be a bit of an evening out on the gross margin front in the back -- the back half, as we see additional mix of hardware start to kick in, but all things considered, I think that the seasonality and the pacing of GP would not be dissimilar what you've seen in historical seasonal trends.

Okay. And so just to recap, you guys are thinking about some perhaps modest recovery in the second half on client devices, and again, that backdrop, you guys are still kind of thinking about gross profit improving sequentially as you progress through the year?

Yes, I think that is broadly correct on the mixed front in terms of the modest recovery in the back half, and with that, our GP would accelerate through the year.

Okay. Thank you.

Good morning, everyone. I have two as well.

I guess, Chris, maybe you should stop, but I'd love to understand, as you engage and talk to customers, what are the top priorities from an IT spend perspective in calendar '24? And I'm sure AI is a very hot topic, but the part I'd love to understand is, are the investments for AI, the dollars for that, are they coming from some other bucket, i.e., they're cannibalistic, or are they going to be net incremental to IT budgets?

Good morning, Amit. And yeah, in terms of priorities, they're consistent with what we said in the prepared remarks.

I mean, customers in the commercial space in particular are focused on cost optimization, customer employee experience, and things that revolve around that. There's still a heavy focus on digital transformation, obviously, and security as well.

AI, which is where you're getting to, AI is a hyper focus. I think last call, we mentioned that you can't have a conversation with a customer without AI coming up, and it's been very exciting because we've had a data AI practice for several years, and that practice, I would say, we deepened it and we scaled it, particularly when we brought IGNW and Sirius into the CDW family.

And currently, I'd say there's burgeoning demand for consultative services in particular, and I'm talking deep technical capabilities as well as industry specific capabilities. And so, we're seeing quite a bit of momentum in our practice there.

What I would tell you is that a number of customers are at the front end of their experiences, and we're helping them through use cases and what the efficiencies are to be had. And then we've got customers who are actually piloting some really interesting capabilities, and we're helping them work through those.

Here's what we're not seeing. We're not seeing a budget shift out of IT.

What we are seeing and hearing is that budgets are coming from elsewhere in the organization, the functional areas that are going to be improved through AI innovation, like HR, like finance, like marketing, literally across the organization. Organizations are using budgets there to allocate to AI improvements because they're thinking about it merely as business transformation.

So we haven't seen a shift, and frankly, we're not expecting that to happen. We're very excited about the opportunities that lie ahead, though.

Perfect. Thank you for that.

And I guess, Al, if I could ask you a question. Gross margins in '23 are up about 210 basis points.

I think if I go from '21 to '22, they're up 0 to 400. I always get a question on like what is the right gross margin range for CDW.

But as you look at this performance, maybe for calendar '23, to the extent you can parse that, how much of this do you think the gross margin expansion is secular versus cyclical? And is there a normalized range once you think about gross margins for the company?

Sure. Thanks, and good morning, Amit.

Look, if I peel back 2023, three core drivers, the most significant would be the pickup and mix shift, the netted down revenues, and particularly SaaS and cloud. And that was the most significant component.

Number two would be that hardware was softer, and therefore that less mix of hardware and particularly PCs benefited us from a mixed perspective. And then three, and we've noted this before, overall product margins were firm in 2023.

And so that was a positive contributor to the gross margin story. So if I scroll that forward, which I think is the logical question on it, we expect that the netted down revenue trend is durable and will continue.

And particularly, we would know we expect strength in the first half, and then you'll get some balancing out with hardware. Number two, on the hardware front, we are expecting a modest recovery in the back half on hardware, including PCs.

So that would have the effective diluting margin somewhat. To be candid, though, we don't believe that that shift in what we're calling modest would significantly move the gross margins.

And then finally, on the product margin front, but we studied this closely, and really our assessment at this point would be that product margins are holding firm. And I think that's a reflection of both a competitive environment, but not any rational environment for pricing and margin perspective.

And then I've mentioned this before, but there's a trend of, I'll call it richer configurations on the product front, right, customers moving up the value chain. And we do feel like that trend is and will persist.

And so really, that's the rationale overall for our outlook on gross margins being substantially similar to 2023, maybe a tick up.

Thank you.

Great. Thank you.

Appreciate it. Good morning.

As we think about AI and understanding it's very nascent still for you guys and the rest of the industry. Is this more of a solution or a hardware or a software or consulting, you know, opportunity for AI and for a CDW?

And how does that evolve over the next several years? How should we think about that?

Yes, it's a great question. I would say currently nascent, the opportunity and the burgeoning demand right now is because of the complexity and the speed and trying to figure out and test use cases.

So we are seeing most of the activity for us in our advisory and consulting services. I think I use the word burgeoning.

The momentum has been significant. But if you think longer term, this is a full stack play.

And that's why CDW is a scaled full stack full life cycle provider with expertise, not just technically, but deep into each industry vertical is positions as well to help our customers. And as you know, when we think about CDW strategy and the growth over the years, we have been moving our capabilities to ensure that we are moving closer to the front end of the value chain.

AI is a great example of that strategy and action given the consulting momentum that we've been seeing. But at the end of the day, we're talking about the need for power and consumption and data center enhancements and up and down the stack.

So in terms of timing across the next several years, it's hard to say exactly when the various components of the stack will hit. But what I would say is just like any kind of revolutionary technology change, it moves fast and this will move faster.

So we're seeing AI as an accelerant in our business and one that we think will play out fairly quickly over the next 24 months.

Great. Thanks.

And maybe a follow-up, maybe to touch on a little bit here, but it did occur to you guys to announce some optimization charges within the EPS. So perhaps Al, you can perhaps touch on the genesis of what those items were?

I'm sorry, Keith, can you say that one more time?

Yes. Just when we look at your non-GAAP EPS, we see that you had some optimization charges or restructuring charges in there.

Perhaps you can just highlight what those items were made up of?

Yes, sure. So largely, Keith, they would fall in the category of workforce optimization, really two components to that.

We did have, as you know, some co-worker events during 2023. And that was really about aligning our fixed cost base and our co-worker count base with the level of the business and activity we were seeing.

So that's one, call that more really one-time nature. The other element within that category would be real estate.

As you would expect, and you're seeing more broadly, we are and continue to take a hard look at our real estate portfolio, where we are in the hybrid phase, if you will, of our workforce and making sure that we constantly re-rationalize our real estate portfolio. And so there are some charges that are coming through that front.

Great. Thank you.

You're welcome.

Hi. Thanks for taking my question.

And maybe for the first one, if I could just follow up on the AI questions and so the question Amit asked. We understand sort of your comments about being more heavy towards consulting in sort of the early days of these AI sort of discussions with their customers.

But when you think of a full stack solution or Envision One in sort of when the customers deploy it, does this even take you further down the road of netted down revenue mix increasing in the overall mix of your business? Or does it really bring back or sort of pull back the netted down revenue mix in terms of balancing out the hardware and the software sales?

Just curious about how you see a full stack solution playing out. And I have a quick follow-up.

Thank you.

Yeah, I'll start and then Al jump in. You know, I think it's hard to say at this point.

What I would say is when we think about AI as a tool to increase productivity and results, just like we say technology is essential to every component of every organization being competitive and winning and delivering on their mission. AI is going to be central to that proposition, because artificial intelligence is going to be embedded in every component and everything that we sell from the edge to the core.

And so, however that plays out in terms of how of our customers consume it, how they purchase it and how they consume it, we will be able to deliver across the full stack to them in terms of what that looks like in netted down revenue specifically. Again, hard to really have a crystal ball as to how it's going to play out in that regard.

Al, any thoughts on that?

Yes, I think that's right. And Samik, look, we will see exactly how this evolves at this point.

Like you said, it is a bit more consultative and maybe services oriented, which is not netted down substantially. Chris hit it earlier.

This is ultimately a full stack opportunity for us. And that would certainly include hardware.

So we think that will be meaningful. As I would contemplate the netted down component that would likely show up and spend associated with cloud and SaaS.

So is it conceivable that we would see that come through? Certainly, it just becomes kind of a matter of when and the pacing and track, if you will, for customers and how they ultimately deploy AI.

Okay. Thank you.

And I have a follow-up. I mean, just curious, given the change we've had here in the inflation backdrop, are you starting to see any changes from the customer side in relation to their discussions around pricing with you or even with the relation to the OEMs themselves?

How they think about pricing or are you preparing for a different sort of pricing regime than we've been in the last sort of couple of years? Thank you.

Sure, Samik. I'll start and Chris may want to add.

As I think as I mentioned, we have not seen an environment that's irrational on the pricing or the margin front. I would say, ASPs have largely held firm.

So, looking forward at this point, we wouldn't see any drastic changes. We're not seeing activities from partners or customers that would suggest that we're going to see any sharp movements up or down.

So our outlook is based on the presumption that we'd be largely firm here.

Thank you.

Thank you. Good morning, guys.

Thank you for taking my questions. Maybe, Chris, to start off, you know, it's been a few quarters now where you've been clear that the spending environment is challenging.

And in some cases, some of that hardware spent hasn't come through in the way that you perhaps thought it was. As you talk to your customers or you look at your pipeline, what is that catalyst that will unlock the recovery in the second half of the year right now?

What gives you confidence? What are you hearing or what are you seeing that that allows you to take that view as we sit here today?

And then I have a follow-up. Thanks.

Yeah, Erik, it's a great, great question. One, we actually face here at CDW.

At one point, you know, we do -- we loosen the first strings. Here's what I'd say, two things.

One, there's definitely pent up demand. Our customers are ready to start putting plans in action.

Two, they're looking to be more confident in the expectations for the rest of the year. So while there have been some more positive indicators currently around the economy, I mean, we still have elevated inflation and elevated interest rates, and they're just merely waiting to feel more confident in where the economy is going.

I hate to make it that simple, but, but frankly, it is. But we're also equally confident of the pent up demand and the desire for our customers to get moving on those projects.

I'm talking about the commercial space in particular, but get moving on those projects that they have delayed and deferred for some period of time.

Okay. That's really helpful.

Thank you, Chris. And then maybe Al, you know, clearly some puts and takes when it comes to free cash flow, obviously a bit of a changing business mix, depending on the environment that we're in.

The new kind of net income to free cash flow conversion of 80% to 90%, that's a bit lower than it's just been over the last two years. Realize again, puts and takes this year, but if we -- if you could just address anything that we should think about that, that you'd call out this year specifically when it comes to either working capital changes, that would be helpful.

But, but really longer term is there a rule of thumb that we should be thinking of for free cash flow conversion is 80% to 90% how we should think, you know, three, five years down the line? And that's it for me.

Thanks so much.

Sure. Thanks, Erik.

At this juncture, 80% to 90% is the rule of thumb that we would give you. As you recall, we start the years with a prudent view of what that would look like.

And we'll see how the years play out. If you look back at the last two years, we were north of 100% on a non-GAAP net income basis.

That reflected, I'd say, strong cash profits, strong and diligent management of our working capital, but also the counter cyclical components, right, as growth softened a bit, if you will. So I would say the other element that I would add for 2024, Erik, is the, we don't know exactly how the year will play out and what the pacing of business would look like.

And so we try to give a little bit of space for use of working capital. Our inventory is at very low levels.

And you can look at that both on a DIO and just inventory balance dollar basis. And so, look, we just want to take a prudent view out of the gates here that we may be more active users of working capital.

And certainly we'll update you as the year progresses. And I would just finally just say that it is and will continue to be high priority for us of continue to drive cash flow, convert profits, and ultimately have the optionality in our capital decisions to deploy it.

Thanks so much.

Well, thank you very much, Taylor. And 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 through your time and continued interest in CDW.