Thomas E. Richards - CDW Corp. Sari L. Macrie - CDW Corp. Ann Elizabeth Ziegler - CDW Corp..

Matthew Sheerin - Stifel, Nicolaus & Co., Inc. Rich J. Kugele - Needham & Co. LLC Amit Daryanani - RBC Capital Markets LLC Mark Moskowitz - Barclays Capital, Inc. Matthew N. Cabral - Goldman Sachs & Co. Brian G. Alexander - Raymond James & Associates, Inc. Sherri A. Scribner - Deutsche Bank Securities, Inc..

Good day, ladies and gentlemen, and welcome to the CDW Fourth Quarter and Full Year 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, there will be a question-and-answer session and instructions will follow at that time. As a reminder, today's call is being recorded.

I would now like to turn the conference over to Tom Richards, Chairman and CEO. Sir, you may begin..

Thank you, Shannon. Good morning, everyone and thank you for joining us today to discuss CDW's fourth quarter and full year 2015 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 full year and fourth quarter performance and share some thoughts on our strategic progress and expectations for 2016. 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 full year 2015 earnings release was distributed this morning and is available on our website, www.investor.cdw.com, 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 our Form 8-K which 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 will find reconciliation chart in the slides for today's webcast, as well as in our press release and the Form 8-K we furnished to the SEC today. Please note that all references to growth rates or dollar amount increases in our remarks today are versus the comparable period in 2014 unless otherwise indicated.

In addition, all references to growth rates for hardware product, software and services, today represent organic net sales only and do not include the results from Kelway.

The number of selling days for the fourth quarter and full-year are the same in both 2015 and 2014, so there is no difference in growth rates for average daily sales and reported sales for either period. A replay of this webcast will be posted to our website by this time tomorrow.

I would also like 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. And with that, let me turn the call back to Tom..

Thanks, Sari. 2015 was a year of both strong financial performance and strategic progress. For the year, we delivered a net sales increase of 7.6% with excellent profitability. Adjusted EBITDA increased 12.3% and non-GAAP earnings per share increased 23.6%.

On a constant currency organic basis, which excludes results from our August 2015 acquisition of Kelway, net sales increased 5.3%. Our performance in 2015 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 briefly walk through each of these and how they contributed to performance. First, the power of our balanced portfolio of five U.S. channels each with over $1 billion in annual net sales. In 2015, we had balanced performance across our two segments with both Corporate and Public increasing 5%.

MedLar and Small Business each delivered mid single-digit growth. On our Public side, strong results from our Government business both from federal and state and local, offset flat sales in Education and lumpiness in Healthcare. On a constant currency basis, Canada grew mid single-digits.

Second, our diverse product suite, of more than 100,000 products from over 1,000 leading and emerging brands, which ensures we are well positioned to meet our customers' needs, whether transactional or highly complex.

As you will recall in 2014, we had strong client device demand from both XP exploration driven PC refresh and Common Core curriculum digital testing requirements. That led to client device sales of nearly 6 million notebooks and desktops, which drove strong transaction growth.

This year, solutions grew more rapidly than transactions, continuing the acceleration we saw in the second half of 2014. With nearly double-digit increase for the year, solutions represented a more typical 50-50 split, up from the 47% they represented in 2014. This improved mix drove a higher gross margin.

And that leads to the third element of our business model that drove performance this past year, our variable cost structure and focus on cost control.

Between gross profits growing faster than net sales, our ongoing focus on cost control, and our conservative approach to hiring, we delivered an adjusted EBITDA margin for the year above our medium-term annual target.

Interest expense reductions combined with share repurchases helped leverage our 12% increase in adjusted EBITDA to a 24% increase in non-GAAP EPS.

These excellent results would not have been possible without the efforts of our dedicated and talented team of approximately 8,500 coworkers, including the nearly 1,000 new Kelway coworkers, who joined us in August.

CDW coworkers are a true source of 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 me take briefly a second to turn to fourth quarter performance. Net sales were up 12.1% and we delivered excellent profitability.

Adjusted EBITDA increased 15.1% and non-GAAP earnings per share increased 23.3%. On an organic constant currency basis, net sales increased 5.8% as currency shaved about 70 basis points off reported results. Corporate increased 3.9% with Small Business up 5%, and MedLar up 3.7%; Public increased 9.2%, led by Government's 16.5% increase.

This reflected both continued strong federal results and excellent state and local growth. As expected, Healthcare was lumpy, posting a nice rebound in the quarter, up 10.2%. Education was down just over 1%. Higher ed declined mid-single digits, reflecting ongoing state budget issues.

K-12 posted flat results as lower client device sales were offset by eRate-driven net comp spend. Our other category more than doubled in the quarter, reflecting the combined results of Kelway, Canada and Advanced Technology Services.

Kelway delivered results in line with our expectations, contributing roughly 700 basis points to our consolidated fourth quarter growth. Sales were flat in local currency despite a challenging macro environment and last year's 20%-plus organic growth.

Canadian sales were also flat in local currency, as slumping oil prices drove lower sales in western territories, which represent roughly a quarter of our Canadian sales. Strong solutions activity helped drive high single-digit growth in our Advanced Technology Services business.

Continuing the trend we saw earlier in the year in the U.S., solutions picked up further momentum in the quarter increasing low teens and more than offset flat transaction sales. Hardware increased 4%, driven by solution categories including another quarter of nearly 20% growth in netcomm and high single-digit growth in servers.

As expected, desktops declined. Notebooks and mobile devices were down slightly in the quarter as double-digit growth in Corporate was more than offset by declines in our Public segment. Our balanced portfolio helped deliver solid storage results. Storage increased mid single-digits.

Excluding emerging technologies, storage would have declined high single-digits. Flash increased triple-digits. Software delivered an excellent quarter, up 11%, driven by security and network management.

This strong performance more than offset the ongoing impact of a higher portion of revenues from SaaS sales and net service contract revenue, which are recorded at 100% gross margin and are netted down.

Cloud adoption remained strong in the quarter for both software-as-a-service and infrastructure-as-a-service with customer spend increasing significant double-digits. So as you can see, 2015 was a year of excellent 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 in the ever-increasing pace of IT change, they need help deciding what path to take and most importantly, they need help implementing the best solution.

Our three-part strategy is designed to make sure that they turn to us, as their trusted adviser, an extension of their IT resources. In 2015, we made progress against all three of our strategies. Our first strategy is to gain share of wallet and acquire new customers. In 2015, we added international capabilities through our acquisition of Kelway.

Kelway enables us to better serve existing customers with multinational needs and add new customers we may not have been able to serve in the past. Integration is moving along as planned, and we are seeing cross-national business build.

To further, this next quarter, we will have an exchange of sales leaders, with a senior leader from CDWS, moving to London and one of Kelway coming to the United States. In October, to provide greater choice to our customers, we added Dell to our North American portfolio of products and services.

As we shared last quarter, bringing on a partner of Dell's size requires significant work to ensure we deliver the same sales and customer experience we provide for all of our partners. This work is underway and our ramp program to bring them fully onboard is on plan.

And throughout the year, to help customers and prospects understand the full breadth of our offerings, we hosted over 1,700 in-depth customer briefings, including site visits and tech seminars and maintained our ongoing drumbeat to optimize our sellers' books and enable them to sell more effectively.

We made excellent progress against our first strategy in 2015. Though final market numbers are not yet available, given our performance, we estimate we grew faster than the U.S. IT market by 200 basis points to 300 basis points on an organic constant currency basis.

Our second strategy is to continue to enhance our ability to deliver high growth integrated solutions. This is vital to our ability to stay relevant to our customers and requires that we invest the right resources and capabilities at the right time. In fact, it's not prudent for us to invest too far in front of adoption.

Over the years, we've learned how to cost effectively enter new solution areas, build a beachhead and then leverage our success across key verticals. A great example of this is how we are moving forward with the Internet of Things. In 2015, we launched a pilot IoT practice with a partner funded investment in solution architects.

This pilot resulted in an innovative solution for a food manufacturer in the Midwest that wanted to optimize its production processes and add new factory capabilities and strengthen quality control. Our IoT solution connected an array of devices, sensors, and systems throughout the production process.

With real-time analytics, the customer can streamline production, improve inventory management and quality control, and increase security in operations. We are now leveraging our success from this engagement with other manufacturing customers and we intend to move into additional verticals.

Like so many of the innovations in technology, the technology that drives the Internet of Things isn't new, the way it's integrated and the software layered on top is. We estimate that today we offer more than 85% of the components required to implement a full Internet of Things solution.

What's exciting for us is that in the 85% we provide are solutions where we have a long history of helping customers harness the power of IT, like networking and security. In 2015, we continued to enhance our capabilities in security which not surprisingly is one of our fastest growing solution areas.

In addition to launching our new CDW Threat Check version 2.0, we added several fast-growing security partners during the year, partners that are growing at triple-digit rates.

To support our cloud business, we deployed a proprietary cloud provisioning platform that automates the fulfillment of select cloud services as well as provides customers with additional online purchase and service management capabilities. Staying ahead of the curve with new and innovative solutions for our customers remains a key priority for us.

Another key priority for us is our third strategy, to expand our service capabilities. In 2015, we opened another market and now have technical specialists, service delivery and sales coworkers in more than 20 major U.S. metro markets.

These markets are supported by a national traveling team and a nationwide partnership of OEMs and product partners and local service providers across the country. We also opened our new 24x7 Level I and Level II Enterprise Command Center that operates and manages customer IT infrastructure remotely.

To help ensure we have a strong pool of technical resources in 2015, we expanded our associate engineering or our ACE Program to 85 coworkers including hot areas like information security. ACE is a true differentiator in our space as we bring on lower cost engineers and train them in the CDW way.

Expanded service delivery capabilities underpin our first two strategies to capture market share and expand our solutions capabilities by enabling us to deliver end-to-end solutions.

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

Our specialists work with the 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 the solution. All of these workers that I've expressed are customer facing.

So you can see that investing in customer facing coworkers is vital to our ongoing success, but just as we have built our knowledge about when to enter new solution areas, we have built our knowledge about when to calibrate our hiring.

As you recall, we were conservative in our hiring for the first three quarters of the year and instead focused on absorbing the more than 150 new customer facing coworkers we added in 2014. You will also recall that to prepare for expected market share gains and incremental Dell revenues in 2016, we reignited hiring in November.

Given excellent recruiting success, we ended up the year with more than 165 customer facing coworkers in line with our initial plan to add between 150 and 200. We like where this puts us given the uncertainty in the economy. Having these new hires on board gives us the flexibility to either absorb the capacity we have or add as the year moves along.

We currently look to add between 50 and 75 new customer facing coworkers in 2016, but as always, we will closely monitor market conditions and adjust as appropriate. Let me close with a few thoughts about what we see for the demand picture in 2016.

With 2014 client device headwind behind us, we expect continued balanced growth across solutions and transactions. In addition, we expect to benefit from ongoing success in Government from both public safety at the state and local level and federal program alignment.

On the Education side, we expect more normal spending now that we have overcome 2014's headwinds and remaining 2015 eRate funds are spent and new 2016 funds come on line in the back half of the year. We are optimistic that state budget issues will get resolved.

Healthcare is expected to remain lumpy with ongoing pressure on sales and profitability from industry consolidations. With the addition of Kelway and Dell to our portfolio, we look for Corporate to continue to build on its strong 2015 performance. Our current view of U.S. economic growth has us looking for 2% to 3% growth for the U.S.

IT market with a slow ramp through the year. As you know, we hold ourselves accountable to outperform the market and continue to target organic constant currency growth of between 200 basis points and 300 basis points above the U.S. IT market. In addition, we look for our partnership with Dell to add an incremental 150 basis points.

Just like the rest of our business, Dell results will depend on market conditions. For Kelway and Canada, we are targeting performance at least 200 basis points to 300 basis points better than their respective market in local currency. We currently expect IT growth in local currency for both markets to come in below the U.S. in the 1% to 2% range.

As we always do, you should expect us to refine our views both for the market and our growth premium, as we move throughout the year. In 2016, you should also expect us to continue to execute our three-part strategy to ensure we will help our customers, navigate their options and maximize the return on their IT investments.

As we do, we'll further penetrate our core customers and acquire new ones. This in turn will strengthen our relationships and importance to 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?.

First, increased coworker count, consolidated coworkers, including Kelway, were approximately 8,500, up over 1,200 since the fourth quarter of 2014. We ended the year with approximately 7,500 North American coworkers, up roughly 270 coworkers since the end of 2014, with most of these coworkers added in the fourth quarter.

Second, given Kelway's higher mix of services and solutions, sales compensation of a percentage of revenues will be higher. Keep in mind that based on the normal rhythm of our business, first quarter sales are typically sequentially below our fourth quarter.

In addition, new coworkers added in the third quarter and fourth quarter of 2015 will drive incremental expense. These factors, coupled with our normal revenue seasonality, will drive adjusted SG&A as a percentage of sales to run higher in the first half of the year than the second half.

For the first quarter, adjusted EBITDA margin will likely be slightly below the low end of our full-year target range of mid-7%. For the full year, we expect to be at the high end of that target range.

Moving down the P&L, including Kelway, we expect our full-year book interest to be about $155 million and our effective tax rate to be between 37% and 38%. Q1 interest expense is expected to be slightly lower than 2015 due to the refinancing activity we completed at the end of Q1 2015.

Otherwise, interest expense will trend similarly in 2016 as the back half of 2015.

There is no change to our intent to continue to make share repurchases under our existing authorization and we continue to target low-double-digit EPS growth, with this including our expectation that Kelway will deliver roughly $0.04 to $0.05 per quarter in the first half of 2016.

Another item to note for your modeling, going forward in 2016, our Other category will be comprised of our international businesses, Kelway and Canada. Prior to 2016, Other included our CDW Advanced Technology Services business, which will now be included in our two segments, Corporate and Public.

Advanced Technology Services runs under 2% of our North American sales, the majority of which are generated by our Corporate segment. Finally, a few notes for those of you modeling our cash flows. First, we expect our annual cash flow to come in at the high end of our 2.5% to 3% of net sales target.

Second, our capital expenditures will be about 0.5% of net sales on an annual basis. We also expect to continue to maintain our cash conversion cycle within our target range of the low to mid 20 days for 2016.

For the full year, we expect a cash tax rate in the 37% range to be applied to pre-tax book income before acquisition-related intangibles amortization, which is approximately $45 million per quarter. In addition, we continued to pay approximately $20 million in tax annually related to cancellation of debt income we incurred in 2009.

That concludes the financial summary. Before we open for Q&A, let me briefly address the SEC investigation we disclosed last quarter, relating to vendor partner program incentives.

We continue to fully cooperate with the SEC, and although we cannot predict the outcome, based on what we know to date, we do not expect this matter to have a material impact on the company. 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, please provide the instructions for asking a question..

Thank you. Our first question is from Matt Sheerin with Stifel. You may begin..

Yes. Thanks and good morning. Tom, in regard to your commentary regarding cloud adoption and the acceleration of SaaS application sales, we've seen similar commentary from several of your vendors and distributors, and concern about legacy hardware demand.

Do you have similar concerns? Or are you capturing that revenue in different ways such as from emerging products or selling a SaaS application, cloud services, et cetera, and do you see that accelerating further this year?.

Okay. Good morning, Matt. Thanks for your question. Yes, first of all, let's start with kind of the premise that despite our success, we still only have 6% of the addressable market. So I think that's a great starting point. Yes, we do expect our cloud success to continue.

It's of interest to customers, but I think I've said this at least for the last three years or four years, I do believe that customers will settle in on a hybrid model for their IT infrastructure, and as such that will include parts of the platform being on-prem. If you think about our results this quarter, Matt, I think it's an interesting example.

Servers grew very nicely in the quarter, which indicates that you can have both and you will have both as customers kind of look at workloads and make the decision where the workload is best positioned. I think if you look at our storage results this quarter, mid-single digits, a lot of that driven by emerging technology.

If you think about converged infrastructure, which I would argue is kind of an on-prem response in some ways to a pure cloud model, I think you've got lots of opportunities. And then the last one is think about the netcomm. We've had this drumbeat going, if you will, on successful netcomm growth – meaningful successful netcomm growth.

So I think all of those can co-exist and it's especially exciting for us, because we still have a relatively small percent of the overall addressable market..

Okay, great. That's helpful. And on the Education market, you talked about the puts and takes there with the hardware slowing but eRate picking up.

Do you see more of the same this year or will there be an equal offset and you won't get much growth from that market?.

Well, I think, it's best, Matt, to actually break it into the two subcomponents, because each of them have a little different dynamics going on. If you think about K-12, a lot of what was a real challenge from a growth perspective to that group this year was the bizarre success they had in 2014 and most of it driven by Common Core curriculum.

So as many of you pointed out to us when we were on the road last year, how are you going to grow on top of that, that now is kind of behind that group. I think another interesting thing, and you saw it in the results in the quarter, is as the eRate funds begin to flow that you see an increase in solutions business.

And so K-12 had a nice quarter in some of the, what we would call, data center products, be they netcomm, be they servers and storage. And so we would expect that balance to be more representative going forward and as you also know.

And I don't want to become an expert on eRate here, but the eRate of 2015 is still being deployed and we're yet beginning the eRate process for 2016. So you will look at that as a great opportunity for the people in K-12. If you go to higher-ed, it's a function of a lot of those institutions depend on state funds.

And I think some of what you saw in the last half of last year was just directly tied to state funding. I know I serve on the board of a higher education institution. That certainly was a challenge for that institution, and we're anticipating that that's going to get resolved sometime during the year and things will return to normal in higher-ed..

Okay. Thanks very much..

Okay..

Thank you. Our next question is from Rich Kugele with Needham. You may begin..

Good morning, Rich..

Thank you. Good morning. Good to see the leverage in the quarter. I wanted to just ask specifically then about the broader IT spending market in the U.S. You said that you thought that it would be closer to 2% and then I suppose ramping as the year goes on to the 3% range.

Can you just talk about where you might be seeing the weakness to back that up or do you think it's more of a high-end enterprise problem? Any comments on that?.

No, I think, look, if you just think about the mixed economic signals here in the last probably 30 days or 60 days, on the strong side, you've got the labor market, you've got unemployment, you've got gas prices, you've got all of those things that would typically drive the consumer spending.

But at the same time, as you guys know you've got weakness in manufacturing and the oil industry and you've got kind of general macro worldwide economic concern, and I think you just sense.

Now, I don't have a statistic, Rich, but you just sense a little bit of angst and we think while that's angst driven by the financial markets, we do think it causes people to be a little more thoughtful and cautious.

But you also, I think, have confidence that as we move through the year, we kind of get some stability that we'll get back to that 3% range. So it's more of what do we sense. If you're asking like are customers coming to us saying, we're delaying our decisions, I would say it's not that stark.

I think there are people just being more cautious right now as we kind of see how this plays out..

Okay.

And then just as a follow-up to that, is any of that causing you to change your inventory buying or are you trying to play things little closer to give yourself a little bit more flexibility or do you think your own plan is sufficient?.

No, look, we're pretty thoughtful about that on an ongoing basis, Rich, and so we are going to be opportunistic where it makes the sense to do that from an inventory standpoint.

And so much of the business today doesn't necessarily just come into the warehouse, whether it's because it's customized or it's driven by software, that isn't quite kind of the big challenge it probably was five years ago..

Excellent. Well done. Thank you..

Okay. Thanks, Rich..

Thank you. Our next question comes from Amit Daryanani with RBC Capital Markets. You may begin..

Thanks a lot. Good morning, guys. Couple of questions for me. First off, just to start off with the Dell relationship.

I'm wondering, as you go beyond 2016 and the $200 million contribution, do you think it kind of stabilizes at these revenue run rates or is there a bigger ramp up beyond the $200 million you're going to see this year with them?.

Good morning, Amit. Look, I think it obviously continues to grow. I think Michael put the number out there, a $1 billion, which I told him thanks a lot. But we do see the relationship expanding and again not necessarily at the cost of our other partners, because at 5% or 6% market share, there's lots of opportunity for us.

I think we're trying to be thoughtful about it, because of the customers' expectation of what we deliver and wanting to do it right. And so we think that kind of 2016, if you will, will be kind of the first full year of the ramp..

Got it. And I guess, Ann, you talked about fiscal 2016 EBITDA margins to be at the higher end of the target range, I assume kind of high-7%s, close to 8%. This would be the second year in a row you're well above the target range which you guys have talked about.

I'm curious I mean do you think do we start to think about your EBITDA margins as high-7%s to 8% longer term? Or you don't want to go that far quite yet?.

No, we actually think we'll be within our target range in 2016 of the mid-7% range, which we defined as 7.4% to 7.6%. So we do actually expect – because of investments in SG&A, we do expect the adjusted EBITDA margin to be lower in 2016 than it was in 2015 and at the high-end of our medium-term target range..

Fair enough. Thank you..

Thanks, Amit..

Thank you. Our next question is from Mark Moskowitz with Barclays. You may begin..

Hi, Mark..

Yes. Good morning. Thank you. A couple of questions if I could. Just kind of curious if you could talk about how we should think about the contributions to revenue growth in 2016 versus 2015 from your emerging vendors' bucket versus your more traditional vendors' bucket? And I have a follow-up..

Yes. Gee, it's tough to quantify that for you, Mark, truthfully. I think if you think about it by product family, obviously in the storage business, you continue to see this incredible growth, that is offsetting some of the legacy products and it produced in the quarter, what, mid-single-digit.

So, I think that's probably representative of where most of the emerging players are coming from with the exception of security where we, as I think mentioned in the script, continue to add new security partners and the growth rates are triple-digits.

It's not necessarily that way in every one of the product suites where you have an influx, it really is in specific product areas and right now, we're seeing most of the emerging vendors in converged infrastructure, storage, if you keep that as a separate category, and software, I think, are where the biggest new players are..

Okay. Thank you.

And then as a follow-up on the commentary today around services and just the increased SG&A related to the services thrust going forward, how should investors think about kind of the multi-year tail there in terms of – is there really a nice deeper penetration in terms of the current revenue opportunities as you think about the services, engagements kind of taking full strides one to two years out?.

Yeah, look....

And with deeper penetration of the wallet?.

Yeah.

Well, from a penetration of wallet, Mark, you're kind of dead-on to the strategy so to speak is that if you think about our historic legacy, which was predominantly kind of a hardware driven and you think about the evolution of technology, the more dominating position software is playing, even in hardware like network is a great example or netcomm.

And then you expand it to kind of the issue for our customers, this is IT resource issue and the need to have a partner that can take on some of those implementation and service activities, we would expect that to become an increasingly large part of our business and you add on top of that, cloud computing, which you could argue is more of a services play.

I think you should look to and we expect the services business and therefore the good margins, which is implied that go with that business to be an increasing part of our profile going forward..

Thank you..

Okay. Thanks, Mark..

Thank you. Our next question is from Matt Cabral with Goldman Sachs. You may begin..

Thank you.

So I wanted to dig a little bit deeper into where you stand with the integration of Kelway relative to your plan, both in terms of increasing share with your existing customers as well as the opportunity to add in new customers? And then related to that, I just wanted to know what the experience so far has really taught you about the potential to – potentially further expand internationally in the future?.

Okay. Well, Matt, first as I think I alluded to in the script, the integration itself is on plan and going well. And more specifically, you heard me mention that the cross business is building, so to speak, cross-border business.

Just to give you a perspective, since we started this process, I can tell you we've got 10 or 11 pretty significant deals that have come as a result of this integration and it's generated north of $50 million in business. So as we would have expected, you're beginning to see the momentum build.

Having said that, I think we're still at the tip of the iceberg, only because we are being pretty careful about the customers and what they're looking for and how we respond to those customers, just because the subject of international can be – if you just say, are you in the international business that can be a pretty large part of the world, so to speak, and so we're being thoughtful.

If you remember, Kelway is a UK-dominant company at this point with, I think I'd shared last time about 90% of their revenue is coming from the UK.

But they have built a hub-and-spoke strategy, where they have locations in other parts of the world and that will be the way we will continue to expand our capabilities is by following that kind of hub-and-spoke expansion. And typically, it's done by following a customer to a particular area and then using that to expand in the area..

Great. And then as a follow-up.

Can you talk about what you're seeing in the PC market right now and what you're expecting out of that going into 2016? And also just what level of client interest you're seeing right now around Windows 10?.

All right, let me take the second one first. And keep me honest here, if I don't answer the first one second. So, on Windows 10, I think there's a decent amount of interest. I think though, Matt, what they're doing is following their normal refresh cycle. And when the opportunity presents itself then they would implement Windows 10.

I don't believe it's a kind of full course spread, let's go get it done now, it's more of we're on this normal cycle, it appears to be from many different vantage points, it provides power and different efficiencies, but it's not a – if you're thinking about is it a massive tailwind, the way Windows XP expiration was, I would say no, the word I've used is, it's going to be a gentle breeze at our back.

The second thing is, this year was an interesting year for us in the client devices, especially notebooks, and to a equal degree, tablets, because we had that incredible 2014.

If you think about it, even from a notebook and mobile device perspective, on top of – I think in 2014, that category grew something like 36% or some ridiculous number, this year we were in the mid-single digits. So I think pretty impressive considering that we would expect it to continue to be kind of a normal part of the growth trajectory.

In fact, I tell people all the time, even before 2014, if you look at our performance in client devices in 2011 and 2012, even when all people reporting death of the PC, et cetera, et cetera, that continued to be a growth business for us, a steady growth business. We have no reason to believe that's not going to be the case continuing going forward..

Got it. Thank you..

Yep..

Thank you. Our next question comes from Brian Alexander with Raymond James. You may begin..

Okay. Thanks, good morning. Tom, just focusing on the first half of the year and looking at the guidance you gave. It looks like you are expecting revenue to be up around 12%, if I take all the components that you messaged market up to share gain, Dell, Kelway and add it all up.

I just want to make sure we're on the same page that you're looking for low double-digit growth, because consensus is closer to about 14%..

Are you talking about at a consolidated level, that's what you're talking about?.

Yeah. Consolidated sales in the first half year..

And, I think you have to start with, Brian. I think even as you noted in some of your published material is that we originally built the original targets on a 3% and we're saying we think it's going to start at 2%.

That has a corresponding impact all the way through the business, nothing has changed about how we feel about Kelway, nothing has changed about how we feel about Canada.

I think you also though have to then consider the currency impact which is obviously a little different than it was and if you kind of take those two things out of the equation, I think it looks pretty much exactly the way we stated so that hopefully gets you squared with the number..

Yep. That's helpful. And then Ann, just to follow-up on DSOs up six days I think year-over-year.

How much of that was driven by the impact of net revenue accounting as you go more to services, et cetera and the mix that affects DSOs, how much of it was that versus an actual underlying increase in DSOs, I know you talked about extending payment terms to large customers, should we expect that to continue?.

Yeah, a couple of things. It was really on the Public side of the business. Public had significant strength in Q4 and in general our Public customers have longer DSOs than the Corporate side of the business. So that was the impact I was referring to; in particular, we had some large deals where payment extended into 2016.

You get eRate business for example, which just takes longer to collect because of all the administrative burden associated with it.

In your first question, if you're looking at the impact of netted down revenue so to speak, a very high level way to look at that is to look at the corresponding increase in DPO because remember it causes DSO to go up and it also causes DPO to go up in a way that generally offsets it.

So at a very high level if you look at the change there, that will be the part that will be attributed to netting down and then the rest would be the mix into Public..

Great. Thank you very much..

Thanks, Brian..

Thank you. Our next question is from Sherri Scribner with Deutsche Bank. You may begin..

Hi, thank you. I wanted to get a little more detail on the strength you're seeing in the storage segment.

It sounded obviously like the emerging segments are seeing growth and I know you mentioned converged, but are you seeing an increased adoption of flash-based storage at your customers, is that transition accelerating?.

Yes, Sherri, I think in the script I actually remember the numbers, triple-digit growth, in our flash business..

Yeah..

So, your instincts are right on, it is becoming like any other new technology, the more it gets deployed, the more costs come down, the greater customers deploy the technology. And so, it is driving a big part of the emerging growth in our business, which has at this point more than offset the, what I will call the legacy business..

Okay. Thanks. And then, I just wanted to circle back on the services business and the recurring aspect of that. I guess when I think about your services, I think of it more as helping customers adopt new technologies, but not necessarily as a recurring service like a traditional service.

Can you maybe help us think about that and maybe gauge how to think about how it recurs? Thanks..

I can help, I think that's a great question, because it does sometimes get lost in the shuffle so to speak.

If you looked at it today, the lion's share of our services business is kind of project management driven, right, that's implementing a netcomm solution for somebody, but if you think about areas like infrastructure-as-a-service, remote network management and monitoring, some of the SaaS products, those are all more in the what I'll call recurring revenue stream even though that today still isn't pure Sherri, because I think people are still adopting to how do I deliver a recurring revenue capability.

But I would tell you my instincts are that over time, that will increase, now I don't know what the pace is going to be, but I do see if you just think about us building our command center, it was to address an ongoing opportunity in remote network management and monitoring and that is more of a recurring revenue service capability..

Thank you..

All right, thanks Sherri..

Thank you. Ladies and gentlemen, that was the last question. I'm going to turn the call back over to Mr. Richards for closing remarks..

Okay. Thanks again everybody for taking the time this morning. I appreciate your questions and your interest in CDW. And I'm going to close with, it's Valentine's Day and Sari holds her breath when we get to this part of the call. So for all you guys out there, don't blow it, you'll pay for it for a long time.

And if I can appeal to your emotional quotient, I read yesterday that $13 billion are spent on Valentine's Day. So from an economic perspective, please contribute to the economy. Thanks everybody. See you..

Ladies and gentlemen, this concludes today's conference. Thanks for your participation and have a wonderful day..