CDW Corporation
Q3 2016 Earnings Call Transcript

Published: 2 Nov 2016

[Operator:]

Good day, ladies and gentlemen, and welcome to the CDW Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, today's conference call is being recorded. I would now like to turn the conference over to Tom Richards, Chairman and Chief Executive Officer. Please go ahead.

[Thomas E. Richards:]

Thanks, Candice. Good morning, everyone. It's a pleasure to be with you and to report CDW's third quarter 2016 results. Joining me for the call are Ann Ziegler, our Chief Financial Officer; Chris Leahy, our General Counsel; and Sari Macrie, our VP, Investor Relations. I'll begin with a high level review of our performance and strategic progress. Ann will take you through a more detailed result review of the financials and then we'll go right to your questions. But before we begin, Sari will present the company's Safe Harbor disclosure statement.

[Sari L. Macrie:]

Thank you, Tom. Good morning, everyone. Our third quarter earnings release was distributed this morning and is available on our website, 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 regarding 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 will 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 today. Please note that all references to growth rates or dollar amount increases in our remarks today are versus the comparable period in 2015, unless otherwise indicated. In addition, all references to growth rates for hardware, product, software and services today represent U.S. net sales and do not include the results from CDW UK or Canada. There were the same number of selling days in the third quarter of 2016 compared to the third quarter of 2015. There was one extra selling day in the first nine months of 2016 compared to the first nine months of 2015. All sales growth rates references during the call will use average daily sales, unless otherwise indicated. A replay of this webcast will be posted to our website by this time tomorrow. I also want to remind you that this conference call is the property of CDW and may not be recorded or rebroadcast without specific written permission from the company. And with that, let me turn the call back to Tom.

[Thomas E. Richards:]

Thanks, Sari. I'm pleased to report that, once again, CDW posted solid top line results and excellent profitability, delivering an increase of 5.9% in net sales to $3.7 billion, up 6.5% in constant currency; a 10% increase in adjusted EBITDA to $310 million; and a 16% increase in non-GAAP earnings per share to $0.97. We delivered this strong performance against the backdrop of today's challenging U.S. economy. Business investments did not accelerate, as many forecasted, instead remained tepid. Similar to our second quarter, strong public customer demand more than offset weaker corporate demand. And once again, performance for both channels and products was strongly influenced by different customer buying behavior in each of the unique end markets we serve. Our ability to continue to deliver meaningful profitable growth within this environment was the result of three key drivers

[Ann E. Ziegler:]

Thanks, Tom. Good morning, everyone. As Tom indicated, our third quarter financial results reflect the combined power of our balanced portfolio of channels, best of product offerings and focus on profitable growth. It also reflects the progress we are making against our long-term financial strategy to drive strong cash flow, deliver double-digit earnings growth and return cash to our shareholders. Turning to our P&L, if you have access to the slides posted online, it will be helpful to follow along. I am on slide eight. Consolidated top line growth was solid this quarter with net sales of $3.7 billion, 5.9% higher than last year on a reported basis and on an average daily sales basis. Average daily sales were $57.9 million. On a constant currency basis, consolidated net sales were 6.5% higher than last year. Currency in Q3 was impacted by the British pound to U.S. dollar translation, shaving 60 basis points off of growth. Currency impact was 40 basis points more than last quarter and similar to Q3 2015 as the impact of Canadian to U.S. dollar translation diminished in Q3 and the British pound impact started up with two months UK sales in the base. North American sales, which are a good proxy for organic sales, increased 4.4% year-over-year. North American sequential sales increased 1.6% on an average daily sales basis versus Q2 2016, which is lower than our historical Q2 to Q3 sequential increase, but slightly greater than last year's rate. Gross profit for the quarter increased 8.3% to $614.3 million. Gross margin in the third quarter was 16.6%, 40 basis points above last year. Once again, gross margin expansion reflected our success providing solutions and services that are recorded at 100% gross margin, including SaaS, software assurance and other warranties. As you know, mixing into netted down revenue favorably impacts gross margin and gross profit growth but tempers revenue growth and can distort market share gain as we record this revenue net while our vendor partners record this revenue at gross. Gross margin expansion also reflected higher vendor-partner funding and the inclusion of CDW UK, which has a higher mix of services. Together, these increases more than offset a decline in product margin this quarter. Turning to SG&A on slide nine, consolidated reported SG&A including advertising expense, was 3.9% higher than last year and includes $10 million of non-cash equity compensation, $2.4 million of acquisition and integration expense, $2.1 million on loss of extinguishment of debt and $0.4 million of historical retention costs and other expenses. Non-case equity-based compensation expense increased $2.2 million year-over-year to $10 million, primarily due to 2016 annual equity awards granted late in the first quarter of this year and equity awards granted in connection with our acquisition of CDW UK. Reported SG&A also includes a gain of $3.5 million from a legal settlement. Excluding these expenses and the gain, our adjusted SG&A increased 6.4%. This reflects increased sales compensation consistent with higher gross profit, the impact of 225 incremental coworkers added since the end of Q3 last year, and incremental July CDW UK SG&A. To make it easier to calculate our adjusted EBITDA, which is essentially our gross profit less adjusted SG&A expenses, we also adjust for depreciation and amortization. Our adjusted EBITDA for the quarter was $310.4 million, up 10%, delivering a margin of 8.4%, an increase of 30 basis points over last year. Looking at the rest of the P&L on slide 10, interest expense was $37.6 million, similar to last year's Q3 amount. Turning to taxes, our effective tax rate was 36.5% compared to 38.7% in last year's Q3, and included two discreet items recorded in the quarter

[Operator:]

Absolutely. And our first question comes from Amit Daryanani of RBC Capital Markets. Your line is now open.

[Amit Daryanani:]

Thanks. Good morning, guys. I guess two questions from me. One, maybe to start with the coworker count, I think it was down on a sequential basis, the first decrease we've seen in a while. Can you just talk about what drove that and how to think about the head count as you go forward?

[Thomas E. Richards:]

Okay. Good morning, Amit. This is Tom. So, in your first question, as I said at the end, we've remained pretty conservative as we've kind of got into the latter part of the year as far as adding coworkers. And one of the nice things about the model is we have kind of a built-in purposeful attrition rate as we bring in a lot of young people and they start their careers in selling. So, that gives us the ability to kind of manage that number. And the other part of that is, I think, keep in mind, Amit, remember last year in the fourth quarter, as you heard Ann say, we added over 200 coworkers. So, that kind of distorts the perfect year calendar year number. And so, absorbing those coworkers and getting them productive has been our priority. But, look, as I think it sounds like a broken record, if we see some signs that the economy starts to pick up after the election, we're ready and willing and able to increase the coworker count.

[Amit Daryanani:]

Got it. That's really helpful. And I guess, Ann, great to see the dividend increase that you guys announced today. I guess just broadly, what prevents, inhibits you guys from having a more aggressive cap allocation policy, maybe returning all the free cash you generated to shareholders. Given the fact your leverage is optimized and I think you guys have done three deals in 20 years or something, what's the hesitation not having a more aggressive free cash return to shareholders?

[Ann E. Ziegler:]

Thanks, Amit. Actually, we think our capital allocation strategy is relatively aggressive. As we lay out in that strategy, we want to return cash to shareholders via the dividend. As you mentioned, we're going to hold our leverage in the current range. From time to time, we'll do tuck-in acquisitions and then we'll return remaining cash to shareholders via share repurchases. I think we've done a bit over $350 million of repurchases this year on a year-to-date basis. And on top of the dividends that we've paid and the dividend that we've declared for this quarter, we have returned a significant amount of our free cash flow to shareholders this year.

[Amit Daryanani:]

Thanks, guys.

[Thomas E. Richards:]

All right. Thanks, Amit.

[Operator:]

Thank you and our next question comes from Matt Sheerin of Stifel. Your line is now open.

[Matthew Sheerin:]

Thanks, and good morning. Just a question, Tom, just regarding your commentary on continued weakness and cautious stance from enterprise customers. Is there is any signs that some of these push-outs will get done either this quarter or any pipeline looking into next year? Or is that just going to be continued choppy demand environment?

[Thomas E. Richards:]

No. Good morning, Matt, and thanks for the question. Yeah, look, I'm always careful when I describe kind of the current state when it comes to, like within a quarter, especially because a lot of the solutions business has a longer selling cycle. But as I indicated, we did see some sub-segments, if you will, of our MedLar business pop this quarter, specifically the financial services and non-for-profit segments, had really strong quarters. And we did see some of the pipeline I referred to last quarter hit in the third quarter, but there's still a meaningful part of it left that we think are going to hopefully pop in the fourth quarter and into next year. I think the economic overhang, if I can say it that way, I think there's a lot of evidence that it's impacting decision making, whether it's the dramatic success we've had in selling warranties and assurances to kind of extend life cycles or some of the general economic data map. So, I would say I feel pretty bullish on the work that we're doing and the kind of the tracking of deals and the things we're doing to help customers in the Corporate group. But I think we're just going to have to wait and see kind of how the economy plays out in the next couple of quarters. But again, I feel good about the – I think the word I used was positive growth or positive shoots we've seen so far since last quarter.

[Matthew Sheerin:]

Okay. That's helpful. And on the gross margin guidance were flattish year-over-year following three quarters of pretty strong growth on a year-over-year basis, and I understand that the mix of federal, some of the push-outs into the fourth quarter have something to do with that. But by in large, are you expecting gross margins to trend higher going forward due to the things that you talked about, the warranties, the netted down revenue, et cetera?

[Thomas E. Richards:]

And, Matt, I think that's a great question. I'll answer the first part and let Ann kind of clean it up, so to speak. I think those two questions you asked are actually linked. I think what you see is if you just think about our product performance, you had hardware growing at 4%. You had software growing at 9%. You had services growing at 12%. I think where we see kind of the impact when the economy is a little more choppy in the corporate space is in the hardware space. And if we get some of the expected growth I talked about in your first question, those margins tend to put pressure on our total gross profit or gross margin. And then, couple that with – I talked about we did have a good budget flush in federal. The issue was a lot of it didn't get shipped and that will ship over the next two quarters. So, that's why you kind of see that pressure comment that we talked about because we do expect some of those things to, in a weird way, offset some of the positive margin we're getting from software assurance, services and cloud.

[Ann E. Ziegler:]

Yeah. The only thing I would add is I did say flat to very slightly up. You have to remember that our gross margin does move around significantly as we reported at – we talked about repeatedly in the Q driven by mix, right, which is hard to predict and then things as well as vendor funding. The other thing to keep in mind is we've been getting about a 10 basis points pickup from the mix into the UK business. That is now over with the lap of the acquisition. So, that's been a little part of the pickup you've seen on a year-to-date basis as well.

[Matthew Sheerin:]

Okay. That's helpful. Thanks a lot.

[Thomas E. Richards:]

Thanks, Matt.

[Operator:]

Thank you. And our next question comes from Matt Cabral with Goldman Sachs. Your line is now open.

[Matthew Cabral:]

Thank you. I also have a question about the slowdown in number. I guess, Tom, taking your commentary on a little bit of a more competitive environment out there, can you just help us understand how much of the decline that we saw in the quarter was driven by maybe CDW participating in some of those ASP declines you mentioned versus walking away from deals that didn't hit your overall profitability thresholds?

[Thomas E. Richards:]

Yeah. I'd say it's more of the latter than the former, Matt. That doesn't say that when we think it's the right situation we aren't willing to compete hard for a piece of business from a strategic perspective. But I think it's more driven by – like your – the second part of your comment, just looking at some of those deals. Look, we've seen this movie before, quite honestly. Even in my time here at CDW, when there's a tough economic climate, people tend to get really competitive, trying to grab top line revenue growth and it tends to pressure ASPs. And I think our position and my personal position is you have to be really thoughtful that you can't try to just chase top line growth because it really, I think in the long-term, is not the right thing for the business.

[Matthew Cabral:]

Got it. And then, it sounded like there was a little bit of a pickup in the performance out of servers in the quarter. I'm just curious what drove that acceleration off of what sounded like a little bit of a weaker first half of the year?

[Thomas E. Richards:]

Yeah. Matt, that's a great question. It was – you heard me say that it grew – servers grew in every one of our segments. I'm going to use my favorite economic term, lumpy. I think we've seen that with the solution business where we – I think we went for, like, four or five quarters last year of server growth. Then, we went through two or three quarters of server decline. I think a lot of that has to do with the decisions that people are making in the data center, the options they now have and then – so, you see quarters where it just works out that a lot of projects hit where people want to refresh or add edge-based servers. And others, they don't. So, I wouldn't get – I don't let us get too carried away with one quarter of great performance or one quarter of bad performance. We'll see how it plays out.

[Matthew Cabral:]

Thank you.

[Operator:]

Thank you. And our next question comes from Shannon Cross of Cross Research. Your line is now open.

[Thomas E. Richards:]

Good morning, Shannon.

[Shannon S. Cross:]

Good morning. Nice to talk to you. The first question I have is, looking at the Dell deal, especially now that they've closed EMC, just if you can give any kind of update on what you're hearing from them, any changes, how the relationship is progressing, that would be great. Thank you.

[Thomas E. Richards:]

Yeah. I think if they shared that with me, Shannon, I'd be pretty hesitant to share it with everyone else.

[Shannon S. Cross:]

No, no, not them specifically with you guys, like, how your relationship is.

[Thomas E. Richards:]

But I would say, look, I think they've done a nice job of managing through that. That's always a challenge every time you see a merger. It tends to create a little hesitancy in customers, right, because customers want to understand, like, who the leadership team is going to be and what is the – and so, I think the market clearly saw some of that. But as far as our relationship with them, it has continued to be strong and robust and everything we expected it to be. So, we feel pretty bullish about that combined company and their ability to help us meet customer needs going forward, just like we do with our other strategic partners.

[Shannon S. Cross:]

Great. And then, a question on currency from a UK perspective. Do you think that you can have any kind of pricing power or ability? I mean, I know all the companies are trying to figure out how you offset some of the currency pressure with what's going on with the pound. But I'm curious, especially given the move in September in the pound, are you able to price up at all? Or are you basically just having to absorb everything at this point?

[Ann E. Ziegler:]

So, what we see happen is some of our OEM partners will take pricing increases to offset. And then, from that, we now have this higher level of pricing, which obviously we try and pass through. It remains a competitive marketplace. But think about our pricing as more of a margin than that we're actually making the price in the market, if that makes sense.

[Shannon S. Cross:]

Okay. Thank you.

[Thomas E. Richards:]

Thanks, Shannon.

[Operator:]

Thank you. And our next question comes from Sherri Scribner of Deutsche Bank. Your line is now open.

[Sherri A. Scribner:]

Hi. Thank you. Just looking at the corporate business, with MedLar declining, it seems like the small business segment, though, is holding up and staying within the U.S. IT spending type of range. Is that just because the small businesses are growing a bit more? Or do you think that you're doing better there? Or do you think that your solutions are better there? Just curious about that difference between the two corporate sides.

[Thomas E. Richards:]

I would say it's probably all of the above in little pieces, Sherri, as you think about performance. I think one of the things that has really helped keep the small business performance is the affinity of small businesses for a cloud-based solution. And the small business team has done a great job of executing on our cloud strategy. Now, that is a little more of a complex decision, when you move up market, if you think about it. The previous investment of capital in on-prem or off-prem solutions is a little higher in the corporate – in the enterprise segment, so the decision is a little longer. So, I would say that I wouldn't try to read too much into it relative to the difference between the two. There's just different buying behaviors in each of the two different marketplaces, and they've kind of just maintained their performance. They're not quite as impacted by the concentration, if you will, that we have in our enterprise segment in some of the industries like oil and gas and manufacturing down in the small business marketplace because it's such a big base and there are so many customers.

[Sherri A. Scribner:]

Okay. That's helpful. And then, just looking at the government piece, you guys have had strength in that segment for a number of quarters. How sustainable do you think that strength is? Is there a certain point where we'll start to see some slower growth in that segment?

[Thomas E. Richards:]

Well, that conversation happens a lot inside of CDW, and I have high expectations in my leadership team for sustainability in government performance. But I'd say, all kidding aside, I think that group has done a really good job of capturing new contracts, which is an important part of that sustained growth, and we continue to think there's opportunities for that, especially in state and local. And then, on the federal side, this realignment we did around focusing on programs I think will pay dividends. So, look, it's tough for me to forecast out into the future. But I would expect them to continue to be an important part of our growth profile.

[Sherri A. Scribner:]

Thank you.

[Operator:]

Thank you. And our next question comes from Brian Alexander of Raymond James. Your line is now open.

[Adam Tindle:]

Okay. Thank you. This is Adam in for Brian. I just wanted to build off the earlier question on the co-worker count decline. I understand that the revenue growth targets through 2018 are unchanged. But maybe help us understand what this may imply about the more intermediate term organic revenue growth outlook, and I asked because I think the organic growth has been above 5% in maybe two of the last seven quarters. Yet, we're all expecting it to be above 5% each quarter next year. So, I want to make sure we're thinking about the correct variables.

[Thomas E. Richards:]

Yeah. I think you're thinking about it right, and we're going to continue to add co-workers. If you think, Adam, about my point about since the fourth quarter of last year, we added 200 co-workers because we did a big end of the year push and hired a lot of people. So, as – if I were doing it, I would worry less and focus less on the year-to-date number and more on the last 12 months. We'll continue to focus on adding co-workers based on the market and what we see out there. And I don't think you should, kind of, draw any negative correlations. I feel pretty good about our organic growth and especially considering what's going on in the marketplace. I think there's lots of opportunity for us. We still, despite our size, have a relatively large share. And I expect that the growth of the hardware business will come back, and that will stimulate some of the top line revenue growth that has been absent during the kind of the economic period we've been through especially in the corporate.

[Adam Tindle:]

Okay. And maybe just building off that answer, why do you think the hardware weakness is more cyclical versus secular?

[Thomas E. Richards:]

Well, I think part of it is driven by – some of it is technologies. And what are going on with technologies is people enhance and innovate, so to speak. I also think that, when you look at, hey, I've got some economic pressures. I may not upgrade certain hardware technologies. Remember, despite all of the success we've had in cloud and the industry, there's still a predominance of hardware-based, premise-based solutions out there and I think that you're going to – you will see that. Now, look, I don't have perfect vision on this Adam. But my sense is, when you look at the success of things like converged infrastructure and hyper-converged and some of the innovation that's going on in the client area, I would expect that to re-emerge at some point in time.

[Adam Tindle:]

Okay. Thank you.

[Thomas E. Richards:]

All right. Thanks, Adam.

[Operator:]

Thank you. And our next question comes from Katy Huberty of Morgan Stanley. Your line is now open.

[Thomas E. Richards:]

Good morning, Katy.

[Kathryn Lynn Huberty:]

Good morning. Thanks for the questions. It's clear you don't want anyone to get carried away with the 40 basis points increase in gross margin in the quarter and year-to-date. And there are some cyclical factors that you outlined near term. But if you think about a longer-term view as the business mixes towards more warranties and software assurance and cloud, why isn't there upward pressure just structurally on gross margins?

[Thomas E. Richards:]

Yeah. Well, first of all, I'm glad that that message came through loud and clear. The second is because I think, Katy – and again, none of us have this perfect vision. But I do think you're going to see a couple of things happen. Just because that part of the business is growing today and is margin rich doesn't mean that some time in that future you won't even have commoditization in that part of the business. That has been the history, as you know, of IT for a long period of time. The second thing is kind of alluding to the question that Adam just answered. I think you are going to see some increased hardware growth, and that's going to put pressure on it. But I think, generally, look, I don't deny that, as we continue to be successful in selling the things that customers are most interested in now, be it cloud, software assurance, warranties, that it's going to continue to give us the opportunity for margin expansion going forward.

[Kathryn Lynn Huberty:]

Okay. Got it. And then, just as a follow-up, any updated sign as to the impact of the Brexit vote on UK demand? I appreciate that the pound is a headwind, but what are you seeing from an organic demand perspective in that market?

[Thomas E. Richards:]

Yeah, good questions. Thanks for asking it, Katy. It's been interesting. I think it's the way to start. It was a little strange right after Brexit. There was this kind of doom and gloom. And then, after a couple of weeks, we actually saw the UK customers kind of return to a sense of, okay, normalcy and we'll deal with it when we actually execute the withdrawal so to speak of the EU. And while I would say there is this notion that if the dates that Theresa May has announced, if she sticks to them, that that will certainly change some things. But I would say, kind of, on the ground, up until that time, it feels pretty normal, and people are just going about their business, making decisions on investing in IT. But I think all of us have our eye on next spring.

[Kathryn Lynn Huberty:]

Okay. Great. Thank you.

[Thomas E. Richards:]

Thanks, Katy.

[Operator:]

Thank you. And our next question comes from Jayson Noland of Robert Baird. Your line is now open.

[Jayson A. Noland:]

Okay. Great. Good morning. I wanted to clarify the Dell comment. Tom, you're still on track for 150 basis points of incremental revenue in F 2016, it sounds like. And I guess, do you feel like you've been able to take on this relationship without serious channel conflict?

[Thomas E. Richards:]

We think – look, we're pleased with what they're doing. I mean, I would say, look, the general economy, Jayson, affects every part of CDW, all right? And you can't just say, well, it affects some people and not others. But I think we're on the whole and on the average really pleased with the performance. And I think what we said to our other partners has been true – is we have a history of dealing across multiple vendors. We have a thousand partners, and our reputation for integrity stands. And I think, our other partners, as evidenced by their investment in CDW and some of the things Ann talked about relative to our VIR (55

[Jayson A. Noland:]

Okay. And then, a follow-up on your software results. Really strong. You mentioned security in the cloud, likely, a trend that continues. I understand this revenue is netted down, but wanted to follow up on the cash flow economics and how that impacts your business and comp plans, and I'm asking because we've heard it's been tough on some of your peers.

[Thomas E. Richards:]

Yeah. I'll give you a high level. I – comp plans, I think our guys would say it's been awesome because we paid people on margin and it's a pretty margin-rich business and we feel good about the impact that it's had. I don't know. I'll let Ann, see I haven't heard anything about cash flow from a negative perspective.

[Ann E. Ziegler:]

Yeah. It's doesn't – I mean, you hear the commentary that I make about our cash conversion cycle. When we sell things that are netted down, it increases DSO and it also increases DPO as an offset. One of the benefits is things that are digital, if you will, we don't carry any inventory on and therefore don't have inventory rev (57

[Thomas E. Richards:]

Hey, Jayson, the only I can think of, I was thinking about your comment, is – but this is a little bit of old news, is when we first started to – when we formed our cloud practice, which was, I don't know, 2011 or 2012, we went through a pretty strong education processes and said, look, to the degree that people buy on a subscription-based contract and your compensation will be spread over multiple years, you have to think about that as an annuity stream to your compensation. And you need to start planning and planting seeds and building for that annuity stream because, once that annuity stream starts to roll, it's a pretty nice day. And I think people listened and took that to heart. And I think that's one of the reasons we haven't had a lot of pushback on those kind of services.

[Jayson A. Noland:]

That makes sense. Thanks, guys.

[Operator:]

Thank you. And our next question comes from Anil Doradla from William Blair. Your line is now open.

[Anil Kumar Doradla:]

Hey, guys. Thanks for squeezing me in. So, Tom, big picture. If I look at the macro and the uncertainty persists, do you believe that there's more willingness by many of your corporate customers to switch to the cloud? And another way of looking at it is, are you able to differentiate between demand softness and the cloud transition so to speak?

[Thomas E. Richards:]

So, my answer to the first question is no. I don't think the economy, at its current state, necessarily drives people in the Corporate segment to cloud computing. I mean, in a weird way, cloud computing is an OpEx expense. And so, the driver there is the level of service, the flexibility, the ability to manage the asset on a consumption basis. Those are things that are kind of compelling independent of what I'll call the surrounding economy. So, I don't really make that connection. Now, what I do think corporate customers are doing is, if they're thinking about upgrading a certain part of their infrastructure, they may decide to, I'll use the term, sweat the asset for another year and go buy incremental warranty or insurance protection to give them more time to do it. I think the notion of building a hybrid private public cloud environment is one driven more by the drivers of flexibility cost in the business than it is kind of the general economy.

[Anil Kumar Doradla:]

Great. And the macro demand versus the cloud transition, are you able to clearly differentiate that when you look on a customer basis?

[Thomas E. Richards:]

Well, I can – I don't know that I can do it in the aggregate. It would be really hard to determine in the aggregate. I think that cloud growth is all about people looking at their business, looking at workloads and deciding which workload is most effectively and efficiently handled either on-prem or in the cloud. And that's the driver of the growth that you've seen there.

[Anil Kumar Doradla:]

Great. Thanks a lot.

[Thomas E. Richards:]

All right. Thank you.

[Operator:]

Thank you. And I'm showing no further questions at this time. I'd like to turn the conference back over to Mr. Richards for closing remarks.

[Thomas E. Richards:]

Okay. Look, as always, thank you for your interest in CDW. Thank you for your questions. Your questions help us, so I really do appreciate the thought that's put into them. It helps us make sure we're focused on the right thing. As I always do, if your company needs some help with information technology, I can't think of anybody better to help you. And as we head into the Thanksgiving season, there's two things I want to ask you to be thankful for. One is that the election is almost over and so are the commercials. And the second thing is that the Cubbies are in the World Series. Go, Cubbies. Thanks, everybody.

[Operator:]

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