Good morning. My name is Cree. And I will be your conference operator today. At this time, I'd like to welcome everyone to the CDW Fourth Quarter 2020 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the conference over to Brittany Smith, VP of IR and FP&A. You may begin.

Thank you. Good morning, everyone. Joining me remotely today to review our fourth quarter and full year financial results are Chris Leahy, our Chief Executive Officer; and Collin Kebo, our Chief Financial Officer. Our fourth 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 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 earnings release and Form 8-K we furnished to the SEC today and in the company's other filings with the SEC. CDW assumes no obligation to update the information presented during this webcast. Our presentation also includes certain non-GAAP financial measures, including non-GAAP operating income and non-GAAP earnings per share. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules. You'll find reconciliation charts on the slides for today's webcast and in our earnings release and 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 2019 unless otherwise indicated. In addition, all references to growth rates for hardware, software and services today represent US net sales only and do not include the results from CDW UK or Canada. Also there was one fewer selling day in the fourth quarter of 2020 as compared to 2019. Replay of this webcast will be posted to our website later today. 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. With that, let me turn the call over to Chris.

Thank you, Brittany. I'll begin this morning with an overview of fourth quarter and full-year results and drivers of performance and share some thoughts on 2021. Collin will take you through a more detailed look at our financials, capital allocation strategy and outlook. We'll move quickly through our prepared remarks to ensure we have plenty of time for questions. Our fourth quarter and fiscal year results demonstrate the balance and strength of CDW's business model and strategy. For the fourth quarter, net sales were $5 billion, 11% above last year on an average daily sales basis adjusted for the impact of one fewer business day in the fourth quarter of 2020 than 2019 and up 10.7% in constant currency. Gross profit increased 13.3% to $881 million. Non-GAAP operating income was $376 million, an increase of 9.9%. Our non-GAAP net income per share was $1.82, 16.1% above last year on a reported basis and up 15.8% in constant currency. For the year, net sales were $18.5 billion, up nearly $0.5 billion year-over-year or 2.4% on a reported and constant currency basis. Gross profit increased 5.6% to $3.2 billion. Non-GAAP operating income increased to 2.6% to $1.4 billion and non-GAAP net income per share increased 8% on a reported and constant currency basis to $6.59. 2020 was an extraordinary year. I am very proud of how the CDW team quickly and smartly adapted to help our customers and partners during a challenging time. The diversity of our solutions portfolio and customer end markets served us well in 2020, providing balance and driving our exceptional results. During the year, our team helped customers across the full IT solution stack in the full IT life cycle from client devices to cloud from design to managed services. We executed against our strategy and continued to…

Thank you, Chris. Good morning, everyone. I'm going to provide more detail on fourth quarter and full year results, capital allocation priorities and initial thoughts on 2021. Turning to our fourth quarter P&L on slide nine. Consolidated net sales were $5 billion, up 9.2% on a reported basis and 11% on an average daily sales basis as we had one less selling day. On a constant currency average daily sales basis, consolidated net sales grew 10.7%. On an average daily sales basis, sequential sales increased 7.6% versus the third quarter. This was higher than historical seasonality of a mid-single digit decline, primarily due to how COVID-19 is impacting our channels differently. During this uncertain time, seasonality has been and is expected to continue to be, different than historical experience. Our customer channels generally performed consistent with the demand writings commentary shared on our last earnings call other than K-12, where demand was even stronger than expected. Pockets of supply constraints continued in the quarter, primarily for lower end client devices such as Chromebooks. Our team did a great job navigating the fluid environment and leveraged our distribution capabilities and strong vendor partner relationships to procure a healthy share of supply for customers. Gross profit for the quarter was $881 million, an increase of 13.3%. Gross margin was 17.8%, up 70 basis points over last year. The gross margin expansion was driven by product margin and mixing into netted down revenues, primarily Software as a Service. Turning to SG&A on slide 10. Non-GAAP SG&A increased 15.9%. The increase was primarily driven by higher payroll costs due to higher gross profit and compensation investments in our coworkers to recognize and reward their tremendous efforts and performance in 2020. The acquisition of IGNW, an ongoing investment in Aptris, and COVID-19 expenses to safeguard…

Our first question comes from Katy Huberty with Morgan Stanley.

Thank you. Good morning. How much do you think the supply constraints on Chromebooks impacted the December quarter? In other words, how much better would you have done in December? And then, when do you expect those supply constraints to loosen up this year?

Hi, Katy. Good morning. We did carry a higher backlog than normal out of the fourth quarter into the first quarter. In terms of when we expect supply conditions to get better, obviously, very difficult and fluid to call with any precision. But our expectation would be through the course of the first half of the year, we would see supply on the Chromebook side of the business begin to return to normal.

Okay. Great. And then just as a follow-up. As netted-down revenue increases and drives gross margins higher, how should we think about the flow-through to the operating margin line? Does sales commission fully offset that gross margin expansion? Or should we see some scale benefits and potential operating margin expansion over time?

Yeah. I mean, you're right. There is a little bit of a give back on the sales comp line because we pay on gross profit dollars. I think, Katy, from a secular perspective, our expectation is consistent with yours that we would expect netted-down items in software and services to grow faster than the balance of the business. I think we're just a little careful though of trying to understand where we are in the cycle and whether a hardware refresh is coming and if it is coming, how strong it could be. So I think that's something to keep in mind as you think about that netted-down mix and the impact it has on gross margin going forward, at least over the next several quarters. I think the other thing to think through on the margin and then the flow-through to NGOI margin is we did benefit from really an exceptional product margin in 2020. And I think some of that was due to the unique dynamics of the supply environment, as well as the premium that customers were placing on speed. And so I think that's just also another thing to keep in mind as we think about gross margin going forward. And I think those are probably more secular - cyclical than secular, but something to think about.

That's helpful color. Congrats on the quarter.

Thank you.

The next question is from Ruplu Bhattacharya with Bank of America.

Hi, thanks for taking my questions. Chris, you're guiding fiscal '21 for another year of 200 to 300 basis points outperformance versus the US IT market. And that's despite the year-on-year 200-odd basis points headwind from the Census project. Given all the uncertainty that you've talked about, I mean, maybe for us, can you just give us your thoughts on what are some of the opportunities you have? What is giving you confidence to guide for the full year, that 200 to 300 basis point outperformance? And what - and in that vein, what can the federal - are there other opportunities to offset that headwind from Census? So just your thoughts on what's driving your confidence on the full year?

Sure. Thanks, Ruplu. Thanks for being on the call. Yeah, we always hold ourselves accountable for outperforming the market. So on a relative basis, we always expect ourselves to do better. And when you think about the combination of our competitive advantages, you saw them in play really in one of the hardest periods in history in 2020. So we are confident that the advantages that we bring to the market will position us and allow us to continue to outperform a pivot to where our customers need us and grow faster than the market. When I think about headwinds and tailwinds going into 2020, certainly, think about remote work and remote everything. And that has certainly been driving growth in 2020 and should continue to do so into 2021. That we've got some very significant compares, as you all know, because of the first quarter of last year, because of the timing of the education needs the end of this past year in Census. But it will still continue to be a trend, we believe. Everyone will not be going to straight back to work, and we think it will be a work-from-everywhere kind of situation. We also believe that this digital acceleration is just going to continue. And so our strength across the full stack, and when I say full stack, I mean, cloud services, software and hardware plays very well with our customers because customers are always full stack, and they're looking for a full solution. So as they think about combined multi-vendor, multi component solutions, CDW is a great partner for them. And we can take them from the very front end of advising and designing to building, implementing, integrating, orchestrating and managing. And I'll tell you, it seems that 2020 has really propelled customers to look for that value-added one-stop shop trusted IT provider that can do the full spectrum across the whole life cycle. So, we're very confident in our ability to continue to deliver for our customers. On the federal side, I think you asked about specifically the Department of Defense and Civilian, we expect to continue to maintain pretty strong. Look, on the commercial side on Small Business and Corporate, I'll tell you as Colin said, the speed and the slope of any recovery is tied to confidence, which is tied to the macro, which is tied to the virus. It's all tied together. So that's very hard to predict. But we've been staying so close to our customers during 2020 that we feel absolutely confident that we will be well-positioned to help them on their way up and to capture growth as they're growing. On the Government side, stimulus is another wildcard out there. And under the new administration, if we see some stronger stimulus, that should also help to support on the education, healthcare and state and local side.

Okay. Thanks for the details there, Chris. That makes sense. Just for my follow-up. In the UK, given the resurgence of COVID-19, have you seen any impact to your operations? And you talked about M&A on the call. Can you just give us your thoughts on any geographic expansion possibility in 2021? Thanks.

Yeah, sure. In the UK, I'll tell you, I mentioned that we saw a little bit of buy ahead as people - as customers were anticipating possibly a hard Brexit. So we saw some benefit in the fourth quarter. But the good news Ruplu, remember, we put the mitigation strategy in place with our Netherlands entity, and we've really been helping customers utilize that entity in the EU. So while we've gone back into lockdown, it does feel like - it feels like customers are used to working that way and are still buying in the areas where they have needs, like remote work - optimizing remote work, et cetera. So we haven't seen a significant impact any different than we would have seen in 2020. And we're managing this really quite well at this point. In terms of M&A, yeah, look, we never really pinpoint where we're going to be - what we're going to be doing, but you know we're focused on geographic expansion, as well as expanding our capabilities, our technology capabilities. So, we continue to look. We continue to be very active. I doubt there's a deal out there that doesn't get to CDW store to see, but we also have our screens that we need to adhere to, which are - the cultural and operating match, the financial match and the strategic match. So we'll continue to look. We're excited about this [indiscernible] we did this year that continue to grow our cloud native and ServiceNow capabilities. And frankly, we're seeing the real benefit from those in terms of traction with our sales organization and deeper connections with our customers because we're really at the front end of that IT supply chain, if you will, helping them to devise solutions and then fulfilling. So those have been real positive winners for CDW and our customers.

Okay. Congrats on the strong results.

Thank you.

Your next question is from Amit Daryanani with Evercore.

Thanks for taking my questions and congrats on a really good print [ph] here. I guess, two for me as well. First off, when I think about this calendar '21 revenue guide, 4.5% to 6%, give or take, I'd love to understand how does that stack up between transactional and solutions? What does that SKU look like? And then - I guess, how do you do PCs in that narrative for /21?

Yeah, good morning. It's really interesting - rather, I'm sorry, it's really interesting. I would tell you that 2021 is almost a harder year to determine what sits underneath that IT market rate of growth. There's a wide dispersion of forecast out there across various technologies. And what I would say is, I don't think anybody really knows precisely. What we plan to do is what we do best, which is pivot where our customers need us. And whether that be in the client hardware, refresh area, whether it be in building out cloud capabilities, we're able to go in either direction. And we're just staying very close to our customers working with them literally day-by-day, week-by-week and supporting them in their technology needs. Certainly, technology is more essential than ever. We don't see any of the trends slowing down, frankly. We might see some things prolonged as a result of the pandemic, and the vaccine don't go as we all hope. But at the end of the day, it's a mix, and it's really quite hard to tell. I know that's not a great answer to the question of what it comprises, but it's very hard to know given the unprecedented uncertainty that we still have. I think sometimes, I think people felt in some ways we've come through 2020, and now we're in 2021. And it's sunrise and glory ahead. And I think we really have to be cautious and conscious of where we sit in the vaccine rollout and new strains coming up, and we just have to be very methodical in listening to our customers and taking care of them, which we're very good at doing.

That's really fair. And then I guess on the cloud spend, Chris, you talked a few times about that business being up double-digits, and I think you said you expect this to continue. Is the shift to cloud driving new customers to CDW that haven't engaged with you before and they need to help to get to the cloud? Or is it more existing customers that are just migrating from on to off-premise? And in that latter scenario, how does that play out through your P&L? Is that a good thing for CDW's revenue and profitability? Or it's [Indiscernible] impact?

Yeah. On the first question, Amit, I'd say both. We are - you know, we certainly mean more heavily into penetrating current customers as you saw, but we are bringing in new customers with our cloud capabilities and our Digital Velocity and ServiceNow processes in particular. Again, as I mentioned earlier, they're really at the front end of that discussion advisory. And that's where we're able to bring a great deal of value to the customer and the planning, particularly in a world where things are changing so quickly and plans that had been expected and in place four, five, 12 months ago are moving, and we're very well-positioned to help them with that. So it's both customers, new and existing. And we do expect to continue to see growth there. I would note that on the - you asked about existing customers and migrating to the cloud. One of the interesting things that I know you're aware of, that it's not just migrating to the cloud, but it's also some customers who are already cloud and becoming multi-cloud. So multi public cloud, other customers who are - have some public cloud capabilities that they need to almost mirror that on-prem. So it's the whole - I'll call it the cloud environment, the whole ecosystem that our teams are able to support customers with now. Again, which is a real advantage because it's bringing the customer the best for the customer and not just some narrow product category that we sell. In terms of the impact on the P&L, I think Collin is going to jump in here.

Yeah. Good morning, Amit. I mean, because most of it gets netted down, it obviously has the lift on gross margin and operating margin. I think if you look at it on gross profit divided by what the customer is actually spending, I would say cloud is very much like our entire portfolio. There are some things in it that are higher margin. Security would be a good example of that. A lot of it's delivered via the cloud. And there are other things that are more commodity like in terms of cloud offerings and would have lower margins. So, in terms of the absolute amount of profit, it's really a function of how margin-rich the particular offering is, which is typically rooted in value from the - perceived value from the customer, as well as then the services that we can wrap around at another value we can bring by consumption.

Perfect. Thank you, very much.

Next question is from Adam Tindle with Raymond James.

Morning. Chris, you alluded to the strategic planning process and accelerating investments alongside that. As I look at the fiscal '21 early outline, it looks like operating margin is going to be flattish year-over-year. CapEx is going to be above the rule of thumb. So just hoping if we could get a little bit more color on the nature of these implied investments, and how we can think about gauging success or expected return over time?

Sure. Good morning, Adam. Yes, let me step back on the strategic process. You know, we do this every three years. And our overarching strategy hasn't changed, as I mentioned in my prepared remarks. I would say what we do is we really hone where we're focusing our energy and investments to evolve the business, as technology evolves. And where we're focusing now, are those areas in strategic services and solutions that our customers need. You heard me mention full stack is a way that we go to market. And investments in the capabilities across that full stack, such as cloud solutions, cloud services, software solutions and services, in particular, security and then obviously, our hardware. I think about a couple of recent acquisitions, Scalar, and IGNW, as excellent examples of that strategy in action where we invested in cloud and DevOps capabilities and ServiceNow capabilities, and those are the areas that customers are needing advisers. The other area that you can think about that we're investing in is our talent and digital in particular. So our technology, our own technology, we kind of put the mirror on ourselves and made some decisions about what we need as an organization. And we're investing in our own technical capabilities, but also those digital tools that we've talked about in the past for sellers. I think you've heard us talk about AMANDA [ph] We have a number of other tools in the pipeline that allow our sellers in our digital platform, our e-commerce platform to work for our customer in a really integrated, seamless intelligent way. And that's what we're going for. And then obviously, we're also reviewing our operating model as we always do, but even what was more custom-wide, I'd say now to really remove those things that we - that are inefficiencies and recoup where we can and then re-imagine critical elements for a digital world and then reinvest back in the business. So investing in technology, also investing in talent. We talked last quarter about a reduction in our workforce, but a reduction was also to open up capacity for those rules and capabilities that we need, and we have been investing in people there. So technology, people and digital is where you see the investment, as well as capabilities behind those high growth areas.

Okay. It makes sense. And maybe this is a follow-up for Colin, more in near term. You talked about how seasonality is expected to continue to be different than historical for the next few quarters and modeling has gotten tougher for us. You've historically talked about a first half, second half split of 48 to 52. Is there any way that we could maybe think about 2021 in those terms?

Yeah. Adam, we elected not to provide thoughts on that, just given the highly uncertain environment, both on the demand and the supply side, frankly. I mean, some of my comments in the prepared remarks were slope of recovery tied to economy and virus, which I think is inherently uncertain and the supply environment is uncertain. So at this point, no perspective on that. Obviously, when we get on the call next quarter, we can provide more thoughts on that.

Okay. Understood. Thank you.

The next question is from Matt Cabral with Credit Suisse.

Yeah. Thank you. I wanted to dig into more of the on-premise hardware side of the business. Just curious if you could give a little bit more color on what you're seeing across categories like servers, storage, NetComm? And just how we should think about that business and the potential for some refresh activity heading into 2021?

Yeah. Good morning, Matt. Yeah, I'll go back to the comments I made earlier, which is, it's hard to know the timing and slope of when we might see server storage in particular pickup. For example, in the Corporate space, we think about timing around when customers are really getting back to the office, which probably won't be through the second half of the year. We are seeing some pickup in areas like higher Ed as example, where they're really focused on a connected community. So they've really extended what that connected campus looks like. But until we start to see, I think a strength in recovery, which, of course, is related to the virus, we're pretty cautious around on-prem solutions. We also haven't obviously been able to get into locations. We still haven't been able to get into too many locations to help our customers there. So I would just say, look, a refresh will be coming. It's hard to know when in 2021 or beyond that will be.

Got it. And then on the commercial side of the business, just looking at the fourth quarter, is it - an improvement in this trajectory in Small Business, a little bit more of a modest uptick in Corporate. Just wondering if you can compare and contrast a little bit what you're seeing across those two customer types? And how we should think about the pace of recovery, particularly for Corporate as we head into 2021?

Yeah. Matt, I think, you know, and we said this before Small Businesses just tend to be more nimble. And so at the beginning of 2021 - 2020, excuse me, they went - they slowed down more quickly and they've come back up more quickly. So I think that's just the nature of Small Businesses. On the Corporate side, it's really - we referenced it as kind of multiple layers and mosaics, and it's to say that we're really seeing the same thing. It depends by geography. It depends by industry, even individual customers within segments, winners and losers, so to speak. So it's really a mix across geo industry and individual customers. I will say that we did see some budget flush at the end of the year, which felt like a good thing. But again, until we see the macroeconomics uncertainty subside and we see more customer confidence, which, of course, is driven by the success in stemming the virus, I think we're still going to be a little cautious on Corporate. On the other hand, look, when things do normalize, we would expect Corporate and Small Business similar to what we saw in 2009 and '10 to really pick up again, and we'll be well-prepared to help them do that.

Thank you.

The next question is from Tim Yang with Citi.

Hi. Thanks for taking the questions. I have a question on Corporate and Small Business recovery as well. Chris, on slide six, you show that your sub-sector recovery cadence in financial crisis, and I think it took only 1.5 to 2 years for Corporate and Small Business to be back to pre-crisis level. For 2021 recovery, do you expect Corporate and Small Business to recover faster or slower than financial crisis, given we might have more stimulus package, but also there are COVID uncertainties?

Yes. No, these are great questions. I wish I had a better crystal ball to answer them. It's just hard to say, the unique dynamics of this downturn and the pandemic have really, I think, made it harder to predict and I think less comparable to what we saw in 2008, '09 and '10. And as Collin said in his prepared remarks, the speed and the slope of the recovery is really in every way related to the success containing the virus. So if we can get that under control and we can stem the uncertainty in the macroeconomic environment, and I think we'll see it recover more quickly and maybe with a very healthy slope given the importance of technology. If we don't see that, I think we're going to see more muted growth over a longer period of time. Certainly, the stimulus is yet another wildcard, which can help in the areas that we've mentioned, education, state and local, et cetera, and can of course help get that positive momentum going with the consumer, which ultimately impacts the businesses. But I just think the dynamics of this environment and the pandemic make it incredibly difficult to predict timing and flow. Again, the beautiful thing is the diversity of our end markets allows us to make sure that we are where the growth is and able to support our customers wherever they need us better than anyone.

Got it. That's very helpful. You mentioned K-12 demand strength and your education sector Q4 performance was much better than normal seasonality. Can you maybe just talk about how sustainable the demand is? And how should we think about the full year growth for the sector?

Yes. Well, I would say a couple of things about K-12. It's really important to understand that what was happening here was a great focus on equity and access [ph] for students and student success. And therefore, schools were looking to get full holistic outcomes solutions to their schools with a lot of speed. And not a lot of providers could do that because they needed to get in the hands of the students quite quickly. And so when you look at the tremendous success our team had in K-12, it is because of the capabilities that they're able to bring together and literally get turnkey solutions to the schools in a timely fashion. And it's because of the relationships we have with our vendors to make sure we're getting a healthy proportion of the supply out there, which was really constrained. So I would say a couple of things. Number one, the timing, the seasonality was different because of the great urgency schools have. Number two, our execution was just extraordinary. And I want to say that loud and clear because our teams did an extraordinary job. We have some backlog going into the first quarter of the next year, which will certainly benefit us in the first quarter. And then one would expect that going into the back half of next year, we'll get back to more, I guess, normal seasonality in K-12. But it's a confluence of both the demand and our capabilities and an unbelievable execution by the team.

Very helpful.

Yeah. Thanks, Tim. I just want to add a little bit more color on Q4 and build on Chris' comments. I mean we did see extraordinary demand. And I think everybody knows we benefited from Census. But we also had that really large offering with Mississippi Department of Education that Chris talked about on previous earnings calls. Just to dimensionalize the magnitude of those two offerings. If you excluded those from Q4 results, we would have grown our average daily sales in the neighborhood of a 6% to 7% range. So even excluding those two big deals, we still had a meaningful contribution from the education part of the market.

Great. Thank you so much.

Your next question is from Shannon Cross with Cross Research.

Hi. This is Patrick Jackson [ph] on for Shannon. I wanted to ask what you're seeing during sort of the year from health care customers, as budgets continue to shift and customers focus on security and software spend, while also considering time lines for investment in virtual care solutions, as there seems to be heightened demand for new offerings, as you referenced in your work with the non-profit health care provider. Then I have a quick follow-up.

Yeah. I agree with everything you said there, so not to repeat it. I'd say what - we're pleased with the improvement in health care this past quarter and continuing to be encouraged by first quarter performance so far. The real wildcard with health care is budget. And more than any of the segments, I think that tied to the virus is successfully containing it. It impacts the healthcare segment. Long-term certainly, there is opportunity in vital and in virtual care and all the components of it. On the 2021, to me, it's going to be a bit of a wildcard year with health care because of the pandemic. They are really just fluctuating back and forth between the urgent care, reductions in elective care, their revenue streams, et cetera. So we'll just have to see how it plays out in 2021, but the areas that you've identified yet are areas that they are focused on.

Okay. Thank you. And then you also referenced customers spent $2 billion with the company on security during 2020. I just wanted to ask where you're seeing security investments primarily being targeted. And do you expect securities spend to grow faster than the total IT market in 2021? Thank you.

Yeah, sure. Security is across the full stack. So from the hybrid infrastructure, all the way out to the digital experience and endpoint devices. So we're seeing it across the full stack hardware and software in particular. We certainly provide some services reps around those, but it's across the full stack. Right now, given the remote enablement going on, there is I would say, increased focus on endpoint devices and all things endpoint security. But that's not to diminish the security focus on the full data center as well.

Thank you.

Yeah.

Your next question is from Matt Sheerin with Stifel.

Yes, thanks. And good morning. Chris, I wanted to ask concerning your comments about work from home and remote working and working from everywhere, as you put it. Obviously, we've seen a very strong first wave of investments. But we're hearing from other solution providers about a potential second wave as customers go back and upgrade the hardware, but also infrastructure, as you said, endpoints and then also security. Are you having those conversations with customers yet? And are you working with customers and see that as an opportunity?

Yes. Matt, yes, we are. And again, I'd say there are different flavors of what customers are doing. We have a healthy dose of customers who are - and someone like CDW, not so much waiting, seeing, but planning in a very flexible, adaptable optionality type kind of way. So they're not clear on whether they are going back at the end of the year or whether they are going to go back 50% et cetera. So I guess what I'm saying is we've got customers some who already are back in the office, may be 20% of our customers and we've obviously helping them setup in the office et cetera. But others are still planning for what their workforce ought to look like. I mean, I'm sure you hear the types of things that companies are saying they need to be in-person for now - collaboration, innovation, acculturation, these are things companies are saying, we need to be in the office for that. So we're helping them to design spaces that are more suitable for that. If in fact customers decide 80% of the workforce can work from anywhere, we are absolutely and necessarily talking with them about what the blueprint for that looks like in terms of 80% work, 20% in the office or alternatively kind of a different kind of office environment where everybody is coming into the office at different times for different types of work. I mean, it's a really interesting time right now because I don't - well, while there was a lot of talk about where this would settle out, the hard work really begins in the planning and what that looks like and how you create efficiency and productivity for your workforce. And we're right in the throes of that. And I think we're going to see a number of flavors, frankly. So we'll be - we're helping customers with all kinds of flavors.

Okay. Thanks for that. And I wanted to ask another question regarding client devices. I know you talked about the double-digit strength across most of your end markets. Last year, we've seen a strong PC upgrade cycle for going on three-years now. How should we be thinking about that number this year, particularly both on the Corporate side and in the Public sector?

Yeah. I think, look, with client devices, look, we have some headwinds and some tailwinds certainly going into 2021. And you named one of them. I mean, refresh is something that might be on our side. We've talked about devices that were from 2017, 2018. Also the need for more devices depending on where organizations end up in terms of long-term remote and bolstering those and refreshing those at some point, extending those. New use cases, we've been talking about this for quite a long time as companies are evolving their business models, think retailers, for example, contactless purchasing. We think new use cases will be a tailwind for client devices. And again, thinking about what comes in from the stimulus package that will be really interesting to see how our state and local education health care organizations can take advantage of it. Look, for CDW, we've got some big overlaps, we've talked about that we'll have to overcome, and we'll have to keep an eye on the economy and employment. But look, there are - again, there are winners out there who are hiring and investing heavily in technology. And that's a positive also for client devices.

Okay. Great. And just a quick follow-up. Regarding the comment about the security software, $2 billion in customer spending. Is that a gross number or netted-down number?

That's a gross number. That's customer spend. So that's what customers spend with us.

And that's really what you recognized because of the netted-down, right?

No, no, no. The gross is what customers are spending with us. We're recognizing fewer dollars in that in revenue because a lot of that is getting netted-down because it's software assurance and Software as a Service.

Exactly. Okay, great. Thanks a lot.

Okay.

Your next question is from Keith Housum with Northcoast Research.

Hi. This is Trevor filling in for Keith. How broad were the supply chain constraints across the portfolio? Were Chromebooks the only products affected? Or were there others?

Chromebooks were the primary area of constraints. We did see some tightness in some of the other lower end notebooks and continue to see, I would say, pockets of dislocation on collaboration of hardware, webcams and things like that. But I would say those things are - were gradually getting better, but Chromebooks by far were the biggest source of constraints.

Okay. Thanks. And a quick follow-up. Would you say the supply chain issues during the quarter got better or got worse as the quarter progress?

I would say that's a difficult question to answer because we were chasing a moving target. And what I mean by that is, I think we were pleasantly surprised by our ability to procure supply in Chromebooks. We were also pleasantly surprised by the amount of demand. So on an absolute basis, I think the supply was a little bit better, but it still came in short of what demand was because demand was just so much than expected.

Okay, great. Thanks a lot, and congrats on the quarter.

Thank you.

At this time, there are no questions. I would now like to hand the call back over to Chris Leahy, President and CEO.

Thank you. And thank you all. I want to recognize before we head off the tremendous, tremendous dedication of our coworkers around the globe and their extraordinary commitment to serving our customers, our partners and all of CDW stakeholders. And thank you to our customers for the privilege and opportunity to serve you. And thank you to our investors and analysts participating in this call. We appreciate you and your continued interest in and support of CDW. Collin and I look forward to talking with you again next quarter. Take care.

This concludes today's conference. You may now disconnect.