Sari Macrie - VP Investor Relations Tom Richards - Chairman, CEO Ann Ziegler - SVP, CFO Chris Leahy - SVP, General Counsel, Corporate Secretary.

Ben Reitzes - Barclays Matt Sheerin - Stifel Tien-tsin Huang - JPMorgan Brian Alexander - Raymond James Bill Shope - Goldman Sachs Sherri Scribner - Deutsche Bank Jerry Liu - Morgan Stanley Amit Daryanani - RBC Capital Markets Jayson Noland - Robert Baird Anil Doradla - William Blair.

Good morning. My name is Amanda, and I'll be your conference operator for today's call. At this time, I would like to welcome everyone to the CDW 2014 Full Year and Fourth Quarter Earnings Call. All lines have been placed in a listen-only mode to prevent any background noise. After the speakers' remarks there will be a question-and-answer session.

I'd like to remind you that today's conference is being recorded. If you have any objections, please disconnect now. It is my pleasure to turn the call over to CDW's Chairman and Chief Executive Officer, Tom Richards. Mr. Richards, you may begin your conference..

Thanks, Amanda. Good morning, everyone. And thank you for joining us today to discuss CDW's fourth quarter and full year 2014 results. With me in the room are Ann Ziegler, our Chief Financial Officer; Chris Leahy, our General Counsel; and Sari Macrie, our VP, Investor Relations.

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 2015. Then I will hand it over to Ann, who will take you through a more detailed review of the financials. After that we will open it up for some questions.

But, before we begin, Sari will present the Company's Safe Harbor disclosure statement..

Thank you, Tom. Good morning, everyone. Our fourth quarter and year end 2014 earnings and first quarter dividend release were distributed this morning and are available on our Web site along with supplemental slides that you can use to follow along with us 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 risks and uncertainties that could cause actual results to differ materially.

Additional information concerning these risks and uncertainties is contained in the 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 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 as well as in our press release and the Form 8-K we furnished to the SEC. Please note that all references to growth rates or dollar amount increases in our remarks today are versus the comparable period in 2013.

The number of selling days for the fourth quarter and full year are the same in both 2014 and 2013. So there is no difference in growth rates for average daily sales and reported sales. A replay of this webcast will be posted to our Investor Relations Web site investor.cdw.com by this time tomorrow.

I also want to remind you, this conference call is a property of CDW and may not be recorded or rebroadcast without specific written permission from the Company. So with that, let me turn the call back to Tom..

Thanks, Sari. We had a strong finish to a great year of both financial and strategic performance. For the year, we significantly outpaced our medium term annual target of growing 200 basis points to 300 basis points above the U.S.

IT market delivering a 2014 net sales increase of 12.1% well above estimated market growth rates with excellent profitability. Adjusted EBITDA increased 12.2% and earnings per share increased 29.7%.

Our performance in 2014 demonstrates the strength of our business model and highlights the power of our balanced channel portfolio, diverse product suite and variable cost structure. Let me walk through each of these and how they contributed to performance.

First our balanced portfolio of five channels each with nearly $1 billion or more of annual sales. This balance has served us well on the path when we have been confronted with challenges outside our control like the closing of the federal government in 2013.

In 2014, instead of working together to offset macro economic or exogenous factors, our balanced portfolio worked together to fuel top-line growth. With each channel growing high single digits or better.

Second, our diverse product suite of more than 100,000 products from over 1000 leading and emerging brands, which ensures we are well-positioned to meet our customers' needs whether transactional or highly complex.

In 2014, this enabled us to meet strong client device demand for both PC refresh and meeting common core curriculum digital testing requirements. Client device demand drove significant growth throughout the year.

While initially dominating customer mind share as we move through the year and refresh projects are underway, our solutions business bounced back of growing high-single digits in the second half of the year.

Even with this strong performance transactional products grew faster than solutions throughout the year and represented 53% of our 2014 sales compared to 49% in 2013. Faster growth in client devices fueled our top-line, but also pressured our gross margin.

And that leads us to the third element of our growth performance this past year are variable cost structure. For those of you unfamiliar with our cost structure after our cost of sales, our largest cost element is sales compensation. Sales compensation is highly variable for two reasons; first, it is tied to gross profit not revenue.

Second because solutions sales involve technical resources who are also paid transaction sales are less expensive to serve. In 2014, a higher mix of transaction sales pressured our gross margin, but the variable nature of our sales compensation helped to mitigate this impact.

And finally, we would not have been able to deliver the exceptional results we did had it not been for the efforts of our dedicated and talented team of over 7,200 co-workers.

They are a true source of competitive advantage in a highly competitive market and are a key reason why our business model is successful in delivering industry-leading performance year-after-year. Let’s briefly turn to the fourth quarter performance. Net sales were up 12.4% substantially above market estimates.

Adjusted EBITDA growth was 11.1% and EPS growth was 8.6%. Corporate was up 8.9% with balanced performance across both the small business, which was up 8.7% and medium-large which was up 8.9%.

Public increased 18% led by government's 35% increase reflecting both strong year-over-year growth in federal as we lapped the shutdown of federal government last October and excellent state and local growth. Without the distraction of a government shutdown sequestration or debt ceilings to content with, we saw a more normal federal buying behavior.

Federal customers not only had their fiscal 2014 budget in hand, but felt more confident that they would have a 2015 budget. Education delivered excellent growth up 21% led by a 20% plus increase in K-12 with low double-digit increases from Higher Ed.

K-12 activity continued strong into year-end as schools worked to be ready for spring 2015 common core testing.

Healthcare grew just over 1% as projects and initiatives driven by meaningful use and the Affordable Care Act slowed after the rapid pace in the first half of the year and industry consolidation led to more focus on driving out cost and investment. Together Canada and advance technology services which we report as other posted 11.8% increase.

Canadian sales in local currency were twice the low-double digits they delivered in U.S. dollars. Looking at our broad product categories for the quarter; hardware was up 15%; services were up 12% and software was down just over 1%.

Notebooks and mobile devices growth continued strong in the quarter driven by common core digital testing devices and ongoing overall client refresh with excellent increases in federal. Defying expectations K-12 grew notebooks and mobile devices at the same rate as the third quarter on top of 2013's exceptional fourth quarter results.

Our solutions business sustained the momentum we had in the third quarter delivering strong increases in categories that support integrated solutions. NetComm was up low-double digits and storage and servers were both up high-single digits.

A great example of the success we are having in solutions is the CDW deployed Wi-Fi network at the University of Phoenix Stadium used during the Super Bowl to enhance fan experience. Early data shows that there were 2.5 terabytes of data downloaded and 3.7 terabytes uploaded more than 6 terabytes of Wi-Fi usage over the network.

Nearly 26,000 unique devices connected to the network on Game Day. Peak concurrent usage was over 17,000 users not surprisingly during half time. We are very proud of the great partnership between CDW Cisco and the University of Phoenix Stadium team. Stadium networking has become an area of expertise for us.

We have delivered integrated solutions to the Georgia Dome, Lucas Oil Stadium, Soldier Field and Reliance Stadium among others. On the software side strong performance in security and virtualization was offset by a higher portion of revenues from SaaS sales and software assurance contracts.

While this resulted in a revenue decrease of just over 1%, the higher portion of these revenues which are recorded as 100% gross margin led to software gross profit dollars increasing high-single digits. This helped to mitigate some of the product margin compression we experienced from the higher mix of transactional products.

As you can see 2014 was an excellent year of financial performance. It was also a year of excellent strategic progress. For CDW everything we do starts with our customers; what do they need and how can we meet that need? Our customers' want to take advantage of all of the productivity and growth benefits integrated IT solutions provide.

But, given limited IT resources and the ever increasing pace of IT change, they need help deciding what path to take. Our three part strategy is designed to make sure that they turn to us as an extension of their IT resources and their trusted advisor to help them make the right decision for their business.

In 2014, we made progress against all three of our strategies. Our first strategy is to increase share of wallet and acquire new customers. Two key ways we accomplish this is by enhancing seller capacity and improving seller capabilities. In 2014, we made excellent progress in both areas.

Enhancing seller capacity makes it easier for them to focus on what matters most meeting the needs of their customers. One way we do this is by reducing administrative burden. In 2014, we introduced new tools that enabled sellers to reach customers more efficiently enhancing order processing.

In 2014, we also enhanced seller capabilities with new training tools including new programs to build proficiency in cloud and game-based work shops to enhance selling skills. The game which we called negotiations won nationally recognized awards for excellence in three learning categories.

Best use of games for learning, best use of social collaborative learning, best custom content for excellence in learning. To further our sellers' ability to deepen relationships and solve unique customer needs, we established new verticals in finance and legal and refined our geographic segmentation with the establishment of a new south region.

This is all about getting closer to the customer. And to make the selling process more effective in 2014, we continued our marketing productivity investments. We evolved our mix of media with a heavy focus on digital to more effectively get our message up.

We also improved our blade to identify remarketing opportunities through the use of advance predictive analytics. To enhance our sellers ability to meet U.S. based customers and prospects internationally, we made a 35% investment in U.K. based IT solutions provider Kelway.

We're off to a great start with Kelway, and we'll have more detail on their contribution to our results shortly. Our second strategy is to enhance our ability to deliver high growth integrated solutions. This helps ensure that as technology evolves, we have the resources and the capabilities necessary to meet our customer needs.

Today, we have six solution practice areas; converged infrastructure, which includes security, unified communications and network communications; Software, cloud which includes infrastructure as a service, software as a service and platform as a service; Mobility, data center which includes server storage, power and cooling; and our services practice which includes field services, managed services, configurations, warranties, and third-party services.

In 2014, we enhanced our cloud portfolio with migration offerings that help our customers manage the challenging process, moving to new cloud-based solution. We also gained first mover advantage when we became the first company authorized to provide Google Apps productivity suite to business customers.

And we added two new born-in-the-cloud security providers, to make sure that customers and prospects understand the breadth and depth of our cloud portfolio. We launched an awareness campaign around our cloud capabilities, which included Wall Street Journal advertising and Sunday morning talk show commercials.

We enhanced our mobility portfolio with the launch of our innovative mobile app marketplace for developers, a single online destination that connects organizations with vetted, proven developers of industry leading mobile apps for key business functions, such as sales support, customer relationship management, human resource systems and more across all industries and job functions.

There were nearly 200,000 visitors to our app marketplace in 2014.

We also added to the tool kit of our sellers by – they help evaluate customers design and implement solutions with the creation of our dedicated Cloud Client Executive or CCE teams as well as the addition of new solution architect to support fast growing practice areas like unified communications and collaboration.

Our third priority is to expand our service capabilities. To support our service initiatives, we've added more than 50 service delivery and co-workers and opened two new markets. Today, we have technical specialists, service delivery and sales co-workers in more than 20 major metro markets across the country.

These markets are supported by our national traveling team and a nation-wide network of partnerships with OEMs and local service providers to ensure we cover the entire U.S. market.

Later this year, we will enhance our ability to operate and manage customer IT, infrastructure remotely, when we open a new 24/7 level I and level II managed services command center.

Expanding service delivery capabilities underpin our first two strategies of capturing market share and expanding our solutions suite and enable us to deliver an end-to-end solution.

Our sellers develop and manage the customer relationships, identify the opportunities and bring the right combination of products and services to solve the customer problem.

Our specialist work with our customers and partners to whiteboard the design, create a bill of materials for products and services required and draft the statement of work for the services. And our professional services and service delivery engineers install and maintain this solution. All of these co-workers are customer facing.

In total, we added more than 140 customer facing co-workers in 2014, more than three quarters of which are in solutions and services.

Given the rapid pace of additions in the first nine months of the year, we took a hiring pause in the fourth quarter to digest the more than 250 new co-workers we were on-boarding finishing the year slightly below our target of adding between a 150 and 200 customer facing co-workers. We made excellent progress bringing on our new co-workers.

Year end annualized revenue per co-worker was $1.67 million, an 8% increase over 2013. Our 2015 plan calls for hiring between a 150 and 200 customer facing co-workers. As we always do, we will monitor the market conditions and accelerate hiring, if we see stronger IT spending that we currently anticipate.

Let me close with a few thoughts on what we see for the market in 2015. Given our current view of economic growth, we are looking for 3% to 4% growth for the U.S. IT market and currently look to achieve our medium-term annual target of exceeding market growth by 200 basis points to 300 basis points.

We expect moderation in client device demand both from refresh slowing and the winding down in common core activity as spring of 2015 testing is implemented.

We also expect federal performance to be more normal, at the same time we expect solution categories to continue their second half of 2014 momentum into 2015 and anticipate a more balanced split between transactional and solution sales. You should expect this to rewind our views both for the market and our growth premium as we move through the year.

In 2015, you should also expect us to continue to execute our three part strategy to ensure we can help our customers navigate their options and maximize the return on their IT investment. As we do, we will further penetrate our core customers and acquire new customers.

This in turn will strengthen our relationship and importance to the leading and emerging IT brands. By strengthening our value proposition to both customers and partners and leveraging our business model, we intend to continue to profitably grow faster than the market, while generating superior returns today and in the future.

And with that, let me turn it over to Ann, who will share more detail on our financial performance.

Ann?.

Thanks Tom. Good morning everyone. As Tom indicated, our fourth quarter and full year financial results demonstrated the strength of our business model, as we captured market share and delivered excellent profitability and cash flows, while continuing to invest in our future.

As I review our financial results, I highlight some other ways the results demonstrate one of the key strength of our business model, our variable cost structure. Turning to our P&L, if you have accessed to the slide posted online, it would be helpful to follow along. I am on Slide 8.

Top-line growth was excellent this quarter, with net sales of $3.05 billion, 12.4% higher than last year on both the reported and average daily sales basis as we had the same number of selling days in both the fourth quarter of 2014 and 2013.

Average daily sales were $48.4 million as expected on a sequential average daily sales basis sales were down 5.1% versus Q3 2014, below recent Q4 seasonality due to exceptionally strong Q3 performance. Gross profit for the quarter increased 9.7% to $491.1 million.

Gross margin in the fourth quarter was 16.1%, 40 basis points below last year primarily reflecting the ongoing mix impact from growth in lower margin to more transactional products.

Given our strong sales growth margin was also negatively impacted by vendor funding, which while increasing in absolute dollars represented a lower percentage of net sales. And as expected the higher mix of federal sales also negatively impacted gross margin.

Partially offsetting these decreases were an increase in net service contract revenue, which includes software assurance, warranties and netted down software-as-a-service revenues all booked at a 100% gross margin as well as positive inventory reserve adjustment.

Reported SG&A including advertising expense was $327.6 million, 7% higher than last year attributable to higher co-worker count and attainment-based compensation consistent with our year-to-date adjusted EBITDA performance. Advertising expense increased by 5.4% or $1.8 million in the quarter versus last year.

We ended the year with 7,211 co-workers up 244 co-workers since the end of 2013. As you can see on the next slide, Slide 9, our adjusted SG&A including advertising was $269.3 million up 8.5% over last year, 390 basis points lower than our net sales increase of 12.4%. Here is where you really see the power of the variable nature of our cost structure.

The combination of the lower cost to serve transactional sales and our compensation model that pays on growth profit resulted in lower sales compensation as a percentage of sales compared to last year's fourth quarter, delivering significant SG&A expense leverage.

Adjusted SG&A for the quarter excludes $4.9 million of non-cash equity-based compensation and $2.2 million of historical retention cost in other adjustments. To make it easier to calculate our adjusted EBITDA, which is essentially our growth profit less adjusted SG&A expenses, we also adjust for depreciation and amortization.

Slide 10 shows our adjusted EBITDA for the quarter of $223.6 million up 11.1%. Adjusted SG&A leverage partially offset gross margin pressure and we ended the quarter with an adjusted EBITDA margin of 7.3% down 10 basis points versus last year.

Looking at the rest of the P&L on Slide 11, interest expense was 5.5% lower than last year at $48.6 million as we continued to benefit from redemption in refinancing activities completed this year. Continuing down the P&L, you see our other income net line which is where we will be reporting our Kelway minority interest income.

Kelway delivered $1.2 million of equity investment income in the quarter. Other income net also includes some other very minor item such as foreign currency transaction gains and fixed asset gains and losses. As a reminder, on November 10, 2014, we completed the purchase of 35% stake in Kelway; all in we paid $86.8 million including fees and expenses.

We structured the Kelway transaction to provide CDW the right, but not the obligation to acquire up to 100% ownership in Kelway. The price we paid in November reflected Kelway's capital structure at that time. Our call option includes agreed upon valuation multiples that just within a narrow range with Kelway's performance.

Given this and the fact that Kelway's leverage may change should we move ahead with our call option, the $86.8 million we paid for the 35% stake will not be directly comparable to the price we would pay for the remaining stake, which would likely be higher due to improving performance and debt pay down.

The option to repurchase the remaining share – the remaining stake in Kelway runs from June 2015 through June 2017. We continued to expect Kelway to be slightly accretive to earnings this year. Turning to taxes, our effective tax rate was 35.4% compared to 27.5% in last year Q4, which resulted in tax expense of $28.3 million versus $22.6 million.

On a GAAP basis we earned $51.8 million of net income. Our non-GAAP net income which better reflects our operating performance was $102.2 million in the quarter up 9.3% over last year. As you can see on Slide 12, non-GAAP net income reflects after-tax add-backs that fall into four general buckets.

The ongoing amortization of acquisition related intangibles; any non-recurring cost related to financing including debt extinguishment; ongoing non-cash equity-based compensation; and other one-time non-recurring income or expenses. These adjustments are tax affected at statutory rate of 39%.

Our Q4 weighted average diluted shares outstanding were $173.2 million, we delivered $0.59 of non-GAAP net income per share up 8.6% over the prior year.

As discussed on our Q3 earnings call, our high-single-digit non-GAAP EPS growth rate in Q4 reflects the overlap of a lower tax rate we had in Q4 of 2013 and lower interest savings compared to the first nine months of the year.

Quickly turning to full year results on Slide 13, revenue was $12.1 billion, an increase of 12.1% on both the reported and average daily sales basis. And average daily sales grew to $47.5 million. Gross profit in 2014 was $1.9 billion up 9.1%. Gross profit margin was 15.9% down 40 basis points from 2013.

Here again, you see the power of our variable cost structure. The largest component of our SG&A, sales payroll increased only 3.9% in 2014 compared to a gross profit increase of 9.1% and net sales of increase of 12.1%.

Adjusted SG&A including advertising increased 6.6% enabling us to maintain our adjusted EBITDA margin and deliver adjusted EBITDA for the year of $907 million, 12.2% higher than last year.

Non-GAAP net income for 2014 was $409.9 million versus $314.3 million in 2013 up 30.4% as operating results were amplified by lower interest expense, which was down $52.8 million. Non-GAAP net income per share was up 29.7% at $2.37.

Turning to our balance sheet on Slide 14, on December 31, we had $344.5 million of cash and cash equivalents and net debt of $2.8 billion, $217.6 million less at the beginning of the year. Our cash plus revolver availability was $1.3 million. Net debt to trailing 12-month EBITDA at the end of Q4 was 3.1x, 0.7x less than the end of 2013.

During the quarter, we issued a new $575 million senior note facility at 5.5% and redeemed $541 million of our 8.5% senior note. With this new issue, our weighted average interest rate on outstanding debt is 5%.

We did incur an extra $2.5 million of interest in the quarter on the redeemed – on the amount redeemed as the redemption required 30 days notice. As mentioned on our last call, we started the process of rolling over interest caps which expired in mid-January.

We have now replaced the $1.15 billion of caps that expired on January 14, with $1.4 billion of new caps that went into effect in mid-January. Currently over 96% of our outstanding debt is effectively fixed or hedged and rates would have to move significantly before they had a material impact on our interest costs.

As you can see on Slide 15, we maintained strong rolling three-month working capital metrics during Q4. For the quarter, our cash conversion cycle was 21 days, down two days versus last year's fourth quarter.

Free cash flow for the quarter, which we calculated operating cash flow plus the net change in our flooring agreement less capital expenditures was $96.3 million compared to $10.4 million in Q4 of 2013. Cash taxes paid in the quarter were $51 million and cash interest was $69 million.

Our full-year free cash flow was $455.5 million or 3.8% of net sales. Free cash flow was higher than expected as we benefited in Q4 from approximately $100 million of one-time items and timing which will reverse in Q1.

This approximately $100 million of cash flow was a result of three things; one, early payments from a few major public sector customers; two, a higher mix into vendors which provides longer payment terms to us; and three, inventory shipments earlier than expected due to accelerated customer rollout.

Normalizing for this, free cash flow as a percentage of sales for the full year would be at the high-end of our target range of 2.5% to 3%. Our priorities for uses of this cash flow remain consistent with our capital allocation strategy and will depend on market conditions and opportunities.

Our capital allocation strategy is comprised of the following four components which you can see on Slide 16. First, to increase dividends annually, to guide these increases we have set a target to achieve a dividend payout ratio of 30% of free cash flow over the next five years.

For this quarter we will pay a dividend of $0.0675 per share on March 10 to shareholders of record February 25, up 59% from a year ago. Second, to ensure we have the right capital structure in place and we have set a target to generally maintain net debt to adjusted EBITDA leverage in the range of 2.5x to 3x. We ended the quarter at 3.1x.

Third, to supplement organic growth with tuck-in acquisitions, our Kelway investment is an excellent example of this. And fourth, to return excess cash after dividend and M&A to shareholders via share repurchases for which we currently have a $500 million authorization.

These capital allocation priorities support our medium-term targets which you see on Slide 17. Through 2015, we continue to target top-line growth of 200 basis points to 300 basis points faster than the U.S. IT market.

We also continue to target our other two key medium-term financial measures; adjusted EBITDA margin in the mid-7% range and mid-teens non-GAAP earnings growth per share.

Reflecting the conclusion of our initial refinancings and absence of earnings amplification from lower interest expense, starting in 2016 through 2018, our new medium-term targets call for low double-digit EPS growth. We intend to use share repurchases and accretive acquisitions to amplify earnings results and help achieve this target.

Keep in mind that we hold ourselves accountable for achieving our current and refresh medium-term targets on an annual, not a quarterly basis. Let me provide you with a few additional comments for those of you modeling 2015 financials. I am on Slide 18.

Based on the seasonality and rhythm of our business, first half of the year net sales are typically wider than in the second half and first quarter sales are typically sequentially below our fourth quarter.

As a result, adjusted SG&A as a percentage of sales typically runs higher in the first half of the year than in the second half and our adjusted EBITDA margin will likely be below our full year target range in the first quarter.

As discussed on our last call, we intend to refinance the balance of our 8.5% senior notes through 2019, no later when they first become callable in April 2015. So you should expect to see additional interest expense savings beginning in the second quarter of 2015.

For 2015, our booked interest expense is expected to be in the range of $160 million to $170 million. Between lower interest expense savings and higher SG&A as a percentage of sales, both due to seasonality and a more balanced mix of solutions and transactional sales, we expect first half EPS growth to be below 2015 full year growth.

We expect our 2015 book tax rate to be in the 27% to 28% range and as previously mentioned we are targeting annual mid-teens EPS growth. Finally, a few notes for those of you modeling cash flow. First, our Q1 cash flow will be lighter than normal due to the impact of the approximate $100 million of working capital timing that will reverse in Q1.

Second, our capital expenditures, which tend to run 0.5% of net sales on an annual basis, will be a bit higher in 2015 at approximately 0.7% of net sales as a result of growth capital investments we are making relating to consolidating lease buildings for our offices North of Chicago.

Adjusting for the approximately $100 million of free cash flow timing in 2014, we expect 2015 free cash flow to be at the high-end of our target range of 2.5% to 3% of net sales. We also expect to continue to maintain our cash conversion cycle within our target range of the low to mid 20s.

For the full year, we expect a cash tax rate in the 39% range to be applied to pre-tax book income before acquisition related intangible amortization, which is approximately $40 million per quarter. In addition, we continue to pay approximately $20 million in tax annually related to the cancellation of debt income, we incurred in 2009.

That concludes the financial summary. Let's go ahead and open it up for questions. Can we please ask each of you to limit your questions to one question and one follow-up. Operator, can you please provide the instructions for asking a question..

Thank you. [Operator Instructions] Our first question comes from Benjamin Reitzes with Barclays. Your line is open..

Good morning team..

Hi, Ben..

Hey couple of things, just in terms of how we think about demand and revenue throughout the year, Tom you mentioned client slow and solutions pickup, can you just give us a little more detail there, how much you expect in clients to slow and a little more detail on what's going to pickup the slack and potentially maybe some verticals that pickup the slack as well?.

Yes. I think Ben, my expectation for 2015 is we'll return to what I would describe as a more normal rhythm that we have had in previous years, we had a pretty strong tailwind as you know with the Windows XP and what that caused on the refresh cycle.

I think I'm getting out of the business of predicting when cycles end, because I might go for the month.

Look, it lasted longer than I thought and obviously at end of the fourth quarter, but what we did see, which I think is important is beginning in the third quarter, the solutions business begin to really come back and really hit a nice rhythm during the second half of the year and we would expect that to continue.

Look K-12, I think on this call, you guys have asked me so many times when are they going to run out of the common core digital testing, client device business, I've missed that one a bunch of times, they keep defying logics.

So I would tell you, I think they are going to continue to find ways, we have some new things happening in K-12, some e-rate opportunities, which kind of go hand and glove with putting in the networks that are going to help take advantage of digital testing then you have the one-to-one initiative.

So we think there is a number of things there to – that will keep that momentum. We think federal was back on our normal rhythm again. Hopefully, we don’t have any exogenous factors like the shutdown. So we think that continues to be strong. You saw a nice year and a really nice end to last year by our corporate gang both med-lar and small business.

And we expect that group to continue to grow going forward. So we feel pretty good about heading into 2015, and it's just a little bit of a shift in where the business comes from..

All right. And then just sneaking in a follow-up, healthcare it looks in my model, you really be public, but healthcare looks like it was slow and I was wondering if that's going to pick up and I also wondered what your repurchase plans were for 2015? And that's it from me..

Well, it sounds like three..

Yes, yes..

But, let me sneak in the second one and then I'll flip to Ann. Yes, healthcare this year for us, if you look at the whole year grew about, higher-single digits 9.5. We would expect healthcare to continue to be a mid-to-high single digit growth.

I think it is going to have some lumpiness just because of the Affordable Care Act and what its doing to drive out cost causing consolidations. Now I think that would tend to plan our favor because of the breadth of our footprint.

But anytime you have consolidations going on, it causes people to pause; try to take cost out and I think you saw then and some of the lumpiness there for sure. But I think on the whole on the average we still expect healthcare to be a good growth segment for us. So I'll let Ann answer the third one..

Yes. On the repurchases Ben, what we've committed to is that, we'll buyback enough shares to offset dilution from our equity plans and that would be roughly 2 million shares in the year. I would say that's a minimum commitment, the repurchase is structured to permit us to buy along any secondary that our sponsors may do.

But that will depend on market conditions and timing..

Thanks a lot. Good execution..

Thanks Ben..

Our next question comes from Matt Sheerin with Stifel. Your line is open..

Yes. Thanks and good morning everyone. Just question regarding your commentary on growth this year, perhaps more momentum on the solutions side versus the transactional side.

Would that in theory booster your gross margin through the year and it might be, you finally see a reversal in gross margin throughout the 2015 versus last year?.

Well, if you think about our model, it will impact a couple of different things, I would argue that part of the reason we saw a little bit of improvement in gross margins in the fourth quarter versus the third quarter was the continued improvement of our solutions business, which you are accurate Matt and that is got a higher margin profile.

But there is a double-edged sword to everything in life, the downside of that is – is that we, they tend to be more complex, require technical resources as I said in my formal comments and therefore tend to maybe drive up your sales compensation.

So we're – that - work this year and the reverse so to speak, because transaction business doesn't require that. Then in next year, while we'll benefit from hopefully maybe having some pressure to grow, I can use that analogy gross margin you'll have the offsetting fact of having to pay more people..

Got you. So the EBIT margin is very won't be impacted that much there..

That is exactly why we focus on the EBIT margin because it's really the things that we can control most and you will hear us talk about the EBIT margin most frequently because of that very reason..

Okay. And just my second question, regarding the potential server upgrade cycle that a lot of suppliers and distributors are talking about, are you having conversations with customers there and it seems like it may not be one for one replacement where customers opt for alternatives either a cloud solution or another platform.

And how does CDW play in that scenario?.

Matt that is very accurate. Fortunately we're having more than just conversations. We're actually having success. We started in the middle of last year a pretty aggressive and thoughtful Windows 2003 server initiative. We are finding as you might expect, some different kind of feedback from customers.

There are many customers that we've been able to already help. And I would suggest that was a small part of why you saw some of the positive growth in servers.

But the other thing that, we're hearing is the many customers either through virtualization have created capacity and so there are not necessarily automatically adding new servers, but maybe expanding the capacity of existing servers, in addition to looking at cloud-based solutions, which, as turned out great for us, it's one of the reasons our cloud business as had such exceptional growth.

So I think it will be – look it's, I hesitate to use the word tailwind, because of what a big tailwind XP was, but I think it will be a mild tailwind from – for 2015..

Okay. Thanks very much and best of luck this year..

All right. Thanks Matt..

Our next question comes from Tien-tsin Huang with JPMorgan. Your line is open..

Great. Thanks good morning, good results here.

Just first on the transactional mix versus solutions being higher, is that a function of budget flaws or something else and what's going to drive the mix higher or towards solutions in 2015?.

Thanks Tien-tsin. I would say it was more a function of the Windows XP exploration as the kick starter. But I think once people got into the mode of doing that, they were, they took advantage of it and started to just expand it beyond just Windows XP and did a refresh cycle..

Make sense, it make sense.

And this is for Ann, just a clarification on the 2015 guidance, through 2015 so easing that as a compounded annual growth rate meaning the average through period for 2015 or is that an annual growth expectation for 2015, do you follow on that?.

Yes. That's an annual growth expectation for 2015..

Terrific 2015 over 2014. Thanks again..

Thank you..

Our next question comes from Brian Alexander with Raymond James. Your line is open..

Okay. Thanks. Ann, you mentioned vendor funding in the minus column if you will this quarter as it relates to gross margin, but you also said that you added higher funding dollar.

So I'm just curious if the margin rate decline was that more mix driven or are there more holistic changes that your vendors are making in terms of how they approach vendor funding?.

No. Brian, it was mix. That was what I was alluding to, because the revenues grew so much and vendor funding is a little bit more of a fixed dollar, so while the dollars were higher, just as the mix impact it had a negative margin effect..

Okay. And then just the follow-up is on software. Tom, I understand it was influenced, down 1%, influenced by a higher mix of net sales and SaaS sales and that depresses revenue, but it increases gross margin, I think you said gross profit dollars up high single-digits.

So I'm curious, in the situations where your software vendors are converting from a license model to a SaaS model.

Do you think CDW is at least holding its own in terms of market share? And when you look at the economics to CDW, over the life of a SaaS agreement are you generally making similar, more or less profit dollars than you were under the old model?.

So Brian, I think your description is accurate, although I would probably change it. I'd like, we're actually not holding our own, based on the success of our cloud business, and the SaaS growth rate, it feels, although it's a pretty complicated comparison, truthfully trying to compare the two.

But I would think as far as just pure market share and helping customers, I think holding own would be the minimum. As far as the financial model, it's a little bit premature I think, and here's why. As you make the conversion to, in some cases subscription, that becomes a monthly payment process and extends, can extend over multiple years.

But then you also have lots of opportunities to upgrade even once that's in place and we really haven't seen that play out yet.

I can tell you that the complexity and just the thought of going through which workloads do I want to put in the cloud, how do I want to think about my on-prem solutions versus what I have off-prem, has caused many of our customers to actually come to us and say help us think through this.

And that's why we've added those cloud client executives this year. We're now up to 15. Those people can sit down with customers and actually have that detailed planning discussion. So up to this point it's been, as I said at the IPO, it's been a positive thing for CDW and our cloud growth has been exceptional..

Great. Thanks a lot..

Yes. Thanks, Brian..

Our next question comes from Bill Shope with Goldman Sachs. Your line is open..

Okay. Thanks. I wanted to dig in a bit more on the solutions and enterprise momentum you guys are looking for this year outside of servers. How are you thinking about other categories like storage? Are you seeing any signs of a refresh here as we head into 2015? And then I guess related to that you have commented on storage growth.

If you could break that down as you have done in the past in the terms of incremental color and legacy versus emerging growth within storage?.

Well, let me answer the second one first, Bill. The second one is it was more balanced this quarter. We saw strong growth from what you might think of is the more traditional solutions from a storage perspective.

But we continue to see strong growth from the emerging brands and a lot of the flash technology so I just think it was a quarter where you had balanced growth, probably why we had a pretty good quarter overall relative to the growth rate. When we think of solutions, it's a much broader context than for us just servers and storage.

It's our NetComm business, which has been a really stable and strong growing business. If you look at our performance over the last multiple quarters, NetComm is usually in the top two or three growth categories every quarter, which I think is a manifestation of what's going on in the data center as well as the growth in cloud computing.

The second thing is our services practice, which is another meaningful part of our solutions business and again that's been a really strong growth for us, tied to our deployment of those customer-facing coworkers I talked about that are close to customers that can help do managed solutions and services.

And the other one, converged infrastructure, which is something we don't talk about a lot, it includes network, but it also includes our security practice which is growing very aggressively in our collaboration practice, which is growing aggressively.

So that is kind of more of a holistic picture, I didn't even get into the mobility part that I mentioned in the script so that's really how we think about solutions, not just the server and storage..

Okay. That's helpful. And then quickly if I could, on the buyback.

I wanted to understand why you wouldn't get more aggressive than just countering dilution this year? And I guess related to that, could you remind us of any legacy restrictions you still have on the buy back with some of your prior debt deals?.

So let me address the last question first. Under the remaining 8.5% notes we have outstanding, there's a restricted payment basket, which would be obviously hit if we did a share buyback. That dollar amount is roughly $225 million as of the end of Q4.

Obviously, that restriction would go away once we refinance the 8.5% and then the relevant RP basket becomes the one under the term loan, which at this point is in excess of $700 million so much less of a restriction.

In terms of how aggressive we're going to be on the buy back this year it's not – I guess I don't mean to say we're not going to be more aggressive. What I'm saying is the minimum commitment that we've made is to offset dilution.

Whether we become more aggressive depends on market conditions, opportunities, obviously if we exercise our call option on Kelway that will be a use of cash as well. So at this point in the year, it's just hard to be more specific than that. We'll obviously do the minimum commitment..

Okay. Thank you..

Thanks, Bill..

Our next question comes from Sherri Scribner with Deutsche Bank. Your line is open..

Hi. Thanks. Just thinking about your long-term goals about growing the U.S. IT market by 200 basis points to 300 basis points.

I just wanted to understand in terms of your perspective, is that additional opportunity for share gain? How much more share opportunity is there for you, or is it largely driven by your mix of business and being better positioned in growing segments?.

I would say yes, Sherri. First of all, if you think about CDW being a $12 billion business, our addressable market is over $200 billion so, there – and that's just in the U.S.

Lots of upside for us relative to market share and market share opportunity both with existing customers and with those customers that unfortunately aren't customers of CDW at this point, yet.

The second thing would be your point about the solutions business, obviously gives us opportunities to further penetrate into the data center and become more trusted advisors with our customers. So it really is a combination of both..

Okay, great. Thank you. And then, Ann, just quickly on the interest expense; I know you said that now your interest rate is about 5% on a blended basis and I think you said – just wanted more clarifications, I think you said the interest rate dropped in 2Q.

Just trying to figure out how to model it for the full year based on $160 million to $170 million for the full year? Thanks..

Yes. I was alluding to the interest rate dropping because we've indicated that we'll refinance the 8.5% no later than when they've first become callable, which is in April of 2015. So it's too soon to say the amount of that drop because I don't know what the markets are going to be and what we'll be able to refinance that.

The two most recent refinancings we did at 5.5% and 6%, but it depends on market conditions when we do that refinancing..

Okay. Thank you..

Our next question comes from Katie Huberty with Morgan Stanley. Your line is open..

Hi. Hey. It's Jerry for Katie. Just a question on the solutions versus transactional. Understand that solutions momentum is increasing going into this year and finally it's slowing down.

But with the common core debt line into spring – in the spring of this year could we see transactional stronger in the first half? Or would CIOs not be rushing to do upgrades?.

Jerry, that's a good question. Look, we still – there's a significant number of school districts that have not deployed yet and there is some discussion about whether they would extend the date relative to reimbursement funding.

So I wouldn't be surprised if you saw some of the school districts extend their acquisition, especially when you think about the kind of linkage to the one-to-one initiative from a digital curriculum standpoint.

So I don't think we should depend on the fury that we've kind of seen, to get ready, but I wouldn't be surprised if we saw school districts in the first half of the year trying to get ready for spring 2015..

Got it. And the follow-up is on a strong NetComm growth that you commented on. I assume a lot of that is related to the client refresh. Is any of that related to customers going to a hybrid model or using the cloud, I mean just trying to figure out if that momentum is going to continue as well..

I think the thing about the NetComm growth is it has been really consistent both before the big client refresh and through the client refresh. I think it's a function of kind of the popularity and growth in mobility inside of businesses. It's a function of the increased use of cloud computing.

So there's a number of things that are driving it that are in addition to the client refresh. So that is why we would expect it to continue to be a good growth category for us..

Got it. Thank you..

Yes..

Our next question comes from Amit Daryanani with RBC Capital Markets. Your line is open..

Thanks a lot. Good morning, guys. Two questions for me. One, maybe you could just talk a little bit more in Kelway maybe you've had some more time to spend with them, I'm sure.

Do you think there's some structurally that at Kelway that prevents the operating margin over time getting closer to what CDW has which is currently, I believe, at 2.5%, 3%?.

Well look, we have spent, obviously additional time with Kelway. We've had three or four months of working closer with the team. And as I said I think on the last call, we think there are learning opportunities for both sides both operationally, go-to-market. So our focus has been on the pilot that we've been operating for 18 months.

We're going to continue to operate in that role even though we're a 35% investor in Kelway. But I don't think you should be sitting here going, okay, CDW is going to increase its ownership automatically Kelway's margins are going to dramatically increase. I think that's an unfair assumption.

We do think there are lots of opportunities though for us to improve the efficiencies on both sides of the pond..

Fair enough. Then if I could just look at the 2015 outlook that you guys have provided a mid-teens EPS growth.

I'm curious is that the way to think about, what do you think operating income dollar growth would because I assume there's some sort of deleverage and potentially in buybacks that that's built into the mid-teen EPS growth, so just trying to get a sense how much of that is operating income driven versus leveraged below the operating income line?.

Yes. I mean I think the way you need to think about it is we focus on EBITDA, EBITDA margins and we're looking at maintaining those margins. So we would expect the EBITDA margins to be relatively consistent with the rest of the growth coming from further interest reductions as well as stock buy backs..

Perfect. Thanks a lot, guys..

Our next question comes from Jayson Noland with Robert Baird. Your line is open..

Great. Thank you..

Hey, Jason..

Hello. Ann, a question on seasonality.

You mentioned on your slide on modeling on the revenue side, would that look normal in comparison to past years for cal 2015 about 48, 52 first half, second half?.

At this point we are expecting relatively normal seasonality as we move through the year. Now that can obviously change as exogenous factors happen during near but right now we are looking for roughly normal seasonality..

Okay. And then a follow up question, I think in the script your business in Canada, FX is mentioned as a headwind. I assume that's true with Kelway to a certain extent.

How do you manage a strong dollar with your business outside the U.S.?.

At this point, it's all translation adjustment. I mean Canada buys in dollars and pays in dollars and so it's a translation adjustment. We did take about a 40 basis point hit to top line growth in 2014 because of that translation adjustment.

When you look at Kelway at this point it's a relatively de minimis part of the business, you saw the small amount that we reported in other income net. And again, its translation adjustment so at this point we are not doing any hedges..

Okay. Congrats on the success. Thanks..

Thank you..

[Operator Instructions] Our next question comes from Anil Doradla with William Blair. Your line is open..

Hey, guys. Congrats on the quarter. A couple of questions.

Tom, you talked about K-12, some of the education trends, but when I look at 2015, do you think this is going to be a growth business?.

Oh yes. I do. Yes, absolutely. It'd be pretty hard for them to repeat the incredible growth they had in 2013 and 2014, but we do believe K-12 remains a growth business for CDW..

Great. And one of the kind of secret sauces that you've always talked about is the culture, work culture.

Can you share some attrition numbers? I mean whether it's 2014 or during the quarter, employee attrition numbers and compare that against your competitors?.

We don’t share those kind of attrition and quite honestly I don't know the competitors. I can't tell you this that it continues to be a place where people start and in many cases finish their career, and I think that speaks volumes about the work environment.

And I've often said this, I think the reason CDW takes such good care of its customers is because the co-workers take such good care of each other first..

Great. All right. Thanks about that..

Thank you. I am showing no further questions. I'd like to turn the call back to Tom Richards for closing remarks..

Okay. Thank you again to everybody for taking time out of your morning to talk about CDW. We appreciate your interest. We are very proud of 2014, and equally as excited about 2015 and the things we're going to be able to do to help customers. So if your company isn't taking advantage of CDW you know where to find us. And as always it's Valentine's Day.

Go hug somebody. Thanks everybody, see you..

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