CDW Corp

NASDAQ:CDW

Earnings Call Transcript 2020-Q2

[Operator]

Good morning. My name is Jake, and I'll be your conference operator today. At this time, I would now like to welcome everyone to the CDW Second Quarter 2020 Earnings Call. All lines will be on mute throughout the duration of today's call. After the speakers’ remarks, there will be a question-and-answer period [Operator Instructions].

I would now like to turn the call over to your host, Brittany Smith, Vice President of IR and Financial Planning and Analysis. Ma'am, the floor is yours.

[Brittany Smith, VP, IR and Financial Planning and Analysis]

Thank you. Good morning, everyone. Joining me remotely today to review our second quarter financial results are Chris Leahy, our Chief Executive Officer; and Collin Kebo, our Chief Financial Officer.

Our second 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 in the slides for today's webcast 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 U.S. net sales only, and do not include the results from CDW UK or Canada.

A replay 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.

[Chris Leahy, CEO]

Thank you, Brittany. I'll begin this morning with an overview of second quarter results and drivers of performance. I'll provide our perspectives on the current macro environment, its impact on our customers and market and how we are responding. Collin, will then take you through a more detailed look at our second quarter financials, as well as our liquidity position and capital allocation strategy. We'll move quickly through our prepared remarks to ensure we have plenty of time for questions.

For the second quarter net sales were $4.4 billion, 5.7% below last year and down 5.3% in constant currency. Non-GAAP operating income was $338 million, a decrease of 5.6%. Non-GAAP net income per share was $1.56, 2.6% below last year on a reported basis and down 2.3% in constant currency.

For the quarter net sales performance varied by month and by customer end market. As we shared on our last earnings call, we entered April with a healthy backlog of remote workforce enablement solution, which contributed to strong performance in April.

As the quarter progressed, for some of our customer end markets projects were postponed and demand declined, as the economic toll of the crisis impacted customer spend. In other customer end markets, IT investment was prioritized and remained healthy.

During the quarter, we helped customers across a spectrum of IT priorities, remote enablement, business and operations continuity and security remain top customer focus areas to manage remote environments at scale, and to prepare to work and learn from home in some capacity for longer.

Customers also focus on initiatives to reduce cost, optimize resources, and leverage technology for better customer and employee experiences through digital transformation. CDW teams orchestrated turnkey solutions from our broad portfolio of clients' devices, accessories, collaboration tools, security, software and cloud offering to help customers build these capabilities and achieve their goals.

At the end of the first quarter, we had strategic stocking positions in the key remote enablement categories to meet expected customer demand. During the second quarter, we continue to leverage our distribution centers extensive logistics capabilities, deep vendor partner relationship and strong balance sheet and liquidity position, to successfully navigate supply challenges. We continue to procure supply in key remote enablement categories, and managed through longer lead times for others.

Now let's take a deeper look at customer end market performance. Corporate and small business both declined double digit. As you know these channels include our small and medium business customers. The unique nature of the COVID-19 crisis has posed greater challenges for some small and medium businesses. Intra quarter net sales results decelerated each month as softer writing impacted subsequent month performance.

During the quarter, corporate and small business customers spend was prioritized on three areas. First, remote work enablement and new use cases, driving notebook and mobile device spend. Second, infrastructure support and optimization which resulted in strong growth in cloud offering, and several software categories including security, network management and virtualization. And third, maximizing of past IT purchases and reduction in expenses through extended maintenance contracts and shorter commitments for new contracting licenses.

The government team increased net sales 24%. Federal delivered another excellent quarter with net sales up almost 50%. During the quarter our devices of service solution for the U.S. Census Bureau contributed meaningfully to our federal results. Field operations to collect data from non-responders has started. This solution will continue to be a meaningful contributor to federal net sales for the remainder of 2020.

Excluding Census' results, federal was up healthy double digit. Growth was driven by civilian projects and demonstrated the team's great work delivering CDW's value proposition to multiple agencies. The team delivered strong transactional growth with almost 100% growth in notebooks, and double digit growth in enterprise storage, video, collaboration, hardware and security software.

The state and local team delivered low single digit growth driven by double digit transactional growth that enabled remote work capabilities, including notebooks and collaboration hardware, software to enhance security and optimize technology assets and investments to accelerate e-government initiatives.

Education increased 13% with strong double digit growth in K-12, and a mid-single digit decline in higher ed. In K-12, customers continue to focus on equity and access for students. K-12 growth was primarily driven by strong Chromebook results, as our team helped school districts prepare to start classes later this month or early next month in a variety of teaching format.

Higher ed performance reflected the uncertainty that universities and colleges are facing. IT spending on remote enablement, such as notebooks and collaboration tools was strong. It was offset by delayed infrastructure projects due to budget concerns.

Healthcare declined low double digits, with strong April results, followed by net sales declines in May and June, as COVID-related response efforts took priority and budget pressure intensified. Our team continue to work closely with healthcare customers on expanded virtual care capabilities, as healthcare delivery in the U.S. fundamentally changes.

Other, which represents our UK and Canadian operations decreased 8% on a reported. The UK team delivered high single digit growth in constant currency with strong public sector demand, driven by healthcare customers and more muted corporate customer demand.

Canada net sales decreased double digits in constant currency due to a higher mix of small business customers, who have been more impacted by COVID-19, and pressure on the oil and gas industry in Alberta.

As you can see, our second quarter performance was varied across customer end market. This also drew a various performance across our major product and services categories. U.S. hardware was down mid-single digit. However, client devices grew almost 6%. Software declined low double digits and services grew mid-single digits. Transactions declined low single digits on top of last year's mid-teens growth. Solutions declined low double digits as some customers deprioritized infrastructure and larger project engagement.

We delivered strong growth in our cloud offerings. Customers spend increased double digit, driven by strong growth in analytics, collaboration, data storage and recovery, compute and security. We expect strong customer demand for cloud offerings to continue.

On July 1, we acquired IGNW, a leading provider of cloud native services expertise and software development capabilities. IGNW is a leader in digital velocity solutions, including advisory, consulting and development services, and has been a partner of CDW since 2018.

IGNW presents an exciting growth opportunity for our business, our customers, our partners and our co-workers. It brings the right talent and strategic capabilities we want to deliver to our customers. We are pleased to welcome IGNW's approximately 170 co-workers to the CDW family. This is a great example of our continued investment in our cloud capabilities.

M&A is an important part of our capital allocation strategy to expand CDWs strategic capabilities. During our 35 plus year history, CDW had a successful track record of evolving customer needs in the IT industry, in part through acquisition.

Our second quarter operating and financial performance reflected the combined impact of our balanced portfolio of customer end market, our full suite of solutions and services across the IT landscape, and our ongoing success executing our three part strategy for growth. They are important drivers of our past and future performance.

Let me take a moment to review each. First, our balanced portfolio customer end market. As you know, we have five U.S. sales channels that each generated annual net sales of more than $1.5 billion in 2019. Corporate, small business, government, education and healthcare. This scale enables us to further align sales teams into vertical customer end markets, including federal government, state and local government, K-12 and higher education, providing us insights into our customers' objectives and goals and positioning us as a trusted partner.

In addition, we have our UK and Canadian operations, which together delivered over $2 billion of net sales in 2019.

The diversity of our customer end market serves us well, when macro or other external challenges impact various industries and customers differently. This balance is especially relevant in the current environment.

Next, our offerings are broad and deep, with over 100,000 products, services and solutions, from more than 1,000 vendor partners. We are well positioned to meet our customers' total needs across the spectrum of IT, and can pivot quickly to trends in customer demand.

For example, in response to the current environment, customers have turned to us for return to work technology solutions beyond our traditional offerings, including enhanced video surveillance, temperature scanners and device sanitizing solutions. We now offer a full suite of IT enabled solutions to meet these demands. Our teams have productized different solutions for our various customer end markets. This is a great example of our thought leadership and ability to pivot to growth opportunities.

And the final driver of our performance or three part strategy for growth, which is to first acquire new customers and capture share. Second, enhance our solutions capabilities. And third, expand our services capabilities. Each pillar is crucial to our ability to profitably assess, design, deliver and manage the integrated technology solutions our customers want in need today and in the future.

Today's environment doesn't impact our commitment to executing our strategy. In fact, it strengthens our resolve so we will emerge stronger than ever. So let me share a few examples of our strategy in action and how we helped customers this quarter.

A financial services company turned to our team to mobilize its employees to work from home. Only 30% of its workforce had worked from home capability. The customer delegated an emergency blanket purchase order for $3.5 million for our team to have full responsibility to develop the right solution across client devices, remote access, security and it's data centers. We leveraged our long standing relationships with the customer to get it right, and with our vendor partners to get supply.

A large corporation was challenged with improving productivity for its remote employees. The customer needed to provide employees with additional IT equipment consistent with corporate standards, but did not have the systems in place to identify which employees required equipment, to place thousands of orders or to deliver the equipment to the employees homes. The customer returned to us due to our robust e-commerce platform and extensive logistics capabilities.

Our team created a digital catalogue that integrated CDW and the customers' e-procurement system, making a complicated process simple. Through this project, we expanded the partners and products we sold to the customer. Our team did such a great job that the customer cancelled RFP midstream to award us another meaningful engagement.

Another example of a 5,000 students school district in Ohio, turned to us to create a complete remote learning environment for its students. Our teams helped the district with client devices, and developed a collaboration platform for its teachers and students in the cloud. This is one of many examples from the quarter, where our teams helped customers with cloud collaboration tools.

These examples also show how quickly solutions need to be implemented in this environment. Customers turn to us for expertise, thought leadership and a high level of customer service. We won a ServiceNow engagement for a leading medical school after two weeks sales cycle, less than half the typical cycle time, because of our past experience with this customer and our ability to deliver in a compressed timeframe.

These examples highlight CDW's three part strategy for growth including CDW as a trusted advisor, and how IT is crucial to achieving our customers' objectives.

I now want to update you on our efforts to manage COVID-19's impact on our business. As I shared previously, we have a cross functional response team in place. The team has three key principles, safeguard the health and well-being of our co-workers, serve the mission driven needs of our customers and support our communities.

Our office co-workers are still working from home. We have excellent capabilities in the culture of collaboration, so co-worker engagement and productivity have been strong. We continue to evaluate when and how to return to the office and where and how our customers will work -- our co-workers will work in the future.

All distribution and configuration centers are operational, and we maintain precautionary measures advised by public health authorities, including social distancing, segmented shifts, personal protective equipment, enhanced facility cleaning, and temperature scanners. These teams have done an exceptional job maintaining the high level of customer service we are known for, while taking the necessary precautions.

During the quarter, more of our sellers and technical specialists began to reengage in-person with customers. We have taken proactive measures to keep the worker safe in these settings as well. Our teams have done a great job of adapting to virtual channels to ensure we reach our customers, and we continue to develop our co-workers.

For example, our marketing and events transitioned from in-person to virtual, so customers could continue to learn from our technical experts. Also during the quarter, our sales and technical teams completed over 20,000 hours of training and earned over 400 certification, almost doubled last year's activity. Our marketing and events and co-worker services teams have done an excellent job adapting to the environment. They demonstrate the strength and resiliency of our culture, a culture we believe is important competitively to us.

Let's turn now to the balance of the year. The economic outlook for the foreseeable future remains uncertain, as the duration and severity of COVID-19 are unknown and also uneven. Therefore, we are not providing 2020 targets. We continue to watch closely the near-term impact of COVID-19 on our customer end market.

For Q3 to-date writing, the rate of decline has stabilized for our most impacted customer end market, and trends for more resilient customer end market continue. While encouraging, we believe it's premature to call this a trend as weekly writing do fluctuate.

Customers are in various phases of responding to the macro environment. Some customers remain focused on remote enablement and operational continuity, others are moving forward with organizational efficiency and optimization, and other customers are investing behind digital transformation, including cloud migration and automation strategies.

Our teams can help with all phases and will continue to be trusted partners to our customers, to help them smartly deploy their IQ resources and solve some of their toughest challenges. We believe that technology will be more essential to all sectors in the economy, and will play an increasingly important role in the years ahead. We have confidence that we have the right strategy in place. We will help our customers navigate the complex IT landscape and adopt new technology.

We are committed to investing in our three part growth strategy, including the capabilities that will position us to best serve our customers, optimize our productivity, and enhance our competitive position. We will also keep a watchful eye on the impact of COVID-19, the macro environment and other unpredictable variables, such as potential supply disruptions, trade policies, and upcoming U.S. elections. CDW will continue to do what we do best, leverage our competitive advantages to help our customers, address their IT priorities and achieve their strategic objectives and out execute our competition.

Now, Colin will share some more details on our financial performance. Collin?

[Collin Kebo, SVP and CFO]

Thank you, Chris. Good morning, everyone. I'm going to provide more detail on our second quarter results, liquidity position and capital allocation priorities.

Turning to our second quarter P&L on Slide 9, consolidated net sales were $4.4 billion down 5.7% on a reported and average daily sales basis. In constant currency, consolidated net sales declined by 5.3%. On an average daily sales basis, sequential sales decreased 0.5% versus the first quarter. As expected, this was lower than historical seasonality due to the first quarter stronger than normal seasonality, and the ongoing impact of COVID-19. As Chris mentioned, our customer channels generally perform consistent with the demand and writings commentary shared on our last earnings call.

April sales benefited from the carryover of strong demand in March, whereas May and June sales were impacted by lower demand in certain customer end markets. Pockets of supply dislocation continued in the quarter. And we leveraged our distribution capabilities and strong vendor partner relationships to procure the IT products and solutions our customers needed, for remote enablement, operations continuity and resource optimization.

Gross profit for the quarter was $747 million, a decline of 3.4%. Gross margin was 17.1%, up 40 basis points over last year, driven by product margin and by the mix of netted down revenues primarily software as a service.

Turning to SG&A on Slide 10, our non-GAAP SG&A decreased 1.5%. The decrease was primarily driven by lower sales payroll consistent with lower gross profit, reduced performance based compensation and cost savings measures including decreased travel and entertainment and ongoing productivity and efficiency efforts.

The June 30, credit loss reserve balance decreased modestly versus the March 31, balance reflecting our customer collection experience in the quarter, a lower receivable balance at June quarter end and expectations for future collections. While we are generally pleased with second quarter's bad debt experience, we recognized that much economic uncertainty exists and remain cautious on year to go credit loss expectations. These expense reductions were partially offset by approximately $7 million of COVID-19 expenses, primarily to safeguard and compensate frontline co-workers. As we always do, we are closely monitoring our cost structure relative to the demand environment.

Co-worker count at the end of the second quarter was 10,048, down 56 from the first quarter, reflecting restrictions on hiring and backfilling attrition that we put in place in April. Year-over-year co-worker count increased 265, with approximately 120 of the increase from the Atheros acquisition last fall, and the remaining from organic co-worker investments. Our recently completed acquisition of IGNW adds approximately 170 co-workers, most of whom are customer facing technical co-workers.

GAAP operating income was $283 million down 5.6%. Our non-GAAP operating income, which better reflects operating performance was $338 million down 5.6%. Non-GAAP operating income margin was 7.7%.

Moving to Slide 11, interest expense was $40 million, down 1.8%. The incremental interest from the $600 million notes issued in April was offset by savings from a lower LIBOR rate on the term loan.

Our GAAP effective tax rate shown on Slide 12 was 22.9% in the quarter, compared to 24.7% last year. This resulted in second quarter tax expense of $56 million compared to $65 million last year. The rate decrease is primarily related to higher excess tax benefits and equity based compensation in 2020.

To get to our non-GAAP effective tax rate, we adjust taxes consistent with non-GAAP net income add backs, including excess tax benefits associated with equity based compensation, which is shown on Slide 13. For the quarter our non-GAAP effective tax rate was 24.9%, down 70 basis points versus last year's rate.

As you can see on Slide 14, with second quarter weighted average diluted shares outstanding of $144 million, GAAP net income per share was $1.31 down 1.1%. Our non-GAAP net income was $225 million in the quarter, down 5.2% compared to last year. Non-GAAP net income per share was $1.56 down 2.6% from last year.

Turning to first-half results on Slides 15 through 20. Revenue was $8.8 billion, an increase of 1.9% on a reported basis and 1.1% on an average daily sales basis, as we had one extra selling day in the first-half of 2020. The extra selling day will reverse in Q4 when we have one fewer selling day compared to prior year. On a constant currency average daily sales basis, first-half consolidated net sales were 1.5% higher than the prior year.

Gross profit was $1.5 billion up 4% and gross profit margin was 17.2% up 40 basis points. Non-GAAP operating income was $642 million for the first-half of 2020, down 0.5%. Net income was $357 million and non-GAAP net income was $425 million, up 0.5%. Non-GAAP net income per share was $2.94 up 3.4%.

Turning to the balance sheet on Slide 21. Liquidity continues to be a top priority in the current environment. As of June 30, cash and cash equivalents were $958 million and net debt was $2.9 billion. Our cash plus revolver availability was roughly $2 billion.

Year-to-date, free cash flow was $468 million, as shown on Slide 22. This is higher than normal seasonality and above last year's $407 million, primarily due to tax payment timing. Last year, we made cash tax payments on April 15 and June 15. And this year, the comparable payments were made on July 15, after the end of the second quarter.

Moving to Slide 23, the three month average cash conversion cycle is 25 days, up nine days from last year's second quarter. While cash collections were solid in the quarter, DSO increased seven days as we mix it into some larger public customers who can take longer to pay, and we have seen certain commercial customers extending payments. DIO increased four days, as we continue to invest in inventory to help our customers manage their IT projects with greater certainty of product availability.

One of our greatest assets is our long-term customer relationships, and we know it's important to be there for customers during challenging times, like we were during the great recession. We will continue to balance managing customer’s working capital needs, while appropriately managing risk. In the quarter, we returned $54 million of cash to shareholders through dividends and did not repurchase any stock.

Turning to capital allocation on Slide 24, as I mentioned earlier, we remain focused on liquidity and our capital priorities remain the same as last quarter. Our priorities are, first, continue to pay the dividend. Today, we announced a quarterly cash dividend of $0.38 per common share, reflecting CDW’s strong liquidity position in competence and the cash flow generation capability of the business. Second, ensure we have the right capital structure in place. We remained comfortable with the current target net leverage ratio of 2.5 to 3 times for several reasons.

One, we have no debt maturities in 2020 and just $57 million due in 2021. Two, the weighted average interest rate on the debt portfolio was 3.6%, so cash interest is manageable. And three, our debt capital structure is covenant like. We ended the quarter with net leverage at 2 times below the low end of our target range.

Our third capital allocation priority is to supplement organic growth with strategic acquisitions. The acquisition of IGNW which closed after quarter end is a good example of this. IGNW is not expected to have a material impact on CDW's 2020 net sales and non-GAAP earnings per share.

We remain actively evaluating targets and will seek to be opportunistic in this environment. Any decision to deploy capital for acquisitions will be a function of our usual screens, strategic rationale, operating in cultural fit and financial return, all within the context of liquidity at that point in time.

Fourth, as I previously noted our share repurchase program remain suspended to enhance liquidity. The decision on when to resume stock buybacks continues to depend on several considerations, including the macroeconomic environment, liquidity and working capital, leverage and other potential uses of cash, such as M&A.

Lastly on the topic of capital, we intend to continue capital expenditure investments in the business. We have a CapEx like model, historically running around half a point of sales or slightly more. We believe it's important to continue prudently investing in the capabilities that allow us to better serve customers, drive productivity, and ultimately emerge from this crisis in a stronger competitive position.

We previously withdrew our 2020 targets and will not be providing an updated financial outlook, but consistent with last quarter, I want to provide insights into what we're seeing roughly one month into the third quarter from a demand, supply and operating perspective.

On the demand side, activity continues to be mixed across customer end markets. In corporate and small business, looking back to the second quarter for a moment, the year-over-year decline in writings peaked at over 20% in May or June depending on the channel. Consequently, preliminary July sales are down double-digits in both channels.

July writings are down year-over-year with the declines less negative than the peak levels of May or June. While encouraging, as Chris mentioned, we believe it's premature to call this a trend as weekly writings have been volatile, and we expect commercial customers will be sensitive to the recent increase in COVID-19 cases and the potential economic implications.

In public, preliminary July sales and July writings are up year-over-year, driven by continued strength in K-12 and parts of government, partially offset by healthcare where both preliminary sales and writings continue to be down. Our international businesses are generally seeing similar customer trends to last quarter. We expect to continue to mix into public channels, which could add some headwind to gross margin in the back-half of the year.

On the supply side, we continue to navigate through a fluid environment with pockets of dislocation extending lead times in certain categories. Notebook supply, particularly lower end devices such as Chromebooks is tight. We are also experiencing extended lead times in certain networking and server products. We are in constant contact with our vendor partners, whose manufacturing operations are generally back up and running.

Free challenges have moderated, but we are still seeing some pricing surcharges and price increases on certain products, which we are generally passing along to customers. On the operating front, all distribution centers continue to be operational.

Finally, I want to provide an update on the devices of service solution to the U.S. Census Bureau. The contribution to second quarter net sales was in line with expectations. We have now deployed all of the devices into the field. The period for which the devices will be used remains fluid, and we could see some net sales shift among the next three quarters.

The team has done an outstanding job managing through a challenging environment to help the Census Bureau deliver its mission. From a financial perspective, this year, we now expect the Census to contribute up to approximately 160 basis points of incremental net sales growth over 2019. On an absolute basis, we currently expect the Census to contribute over 200 basis points of net sales in 2020. We will continue to provide updates on the Census as we progress through the second-half of 2020. That concludes the financial summary.

With that, I'll ask Jake to open it up for questions. Can we please ask each of you to limit your questions to one with a brief follow-up? Thank you.

[Operator]

Thank you. We have a question from Adam Tindle with Raymond James.

[Adam Tindle, Raymond James]

Hi, thanks. Good morning. Chris, I just wanted to start with a strategic question. I think about CDW's competitive advantage is at scale, we obviously saw strong cash flow in the quarter. And those things seem to be a major potential weapon in this environment, where the long tail of competitors in your fragmented industry are struggling.

So, the question is how are you thinking about options to potentially play a little offense, while others are on defense? And maybe if you could specifically tie this into your goal to acquire new customers and update that on the quarter that would be helpful.

[Chris Leahy, CEO]

Sure. Good morning, Adam. Yes, we've accelerated. I think I mentioned this on the last call, we see this as an opportunity and we've accelerated our acquisition programs. If you look across the breadth of our competitive advantages, customers right now are looking for those who have the expertise to help, and I'll just say it very simply, figure it out.

The world is moving very quickly. The mandate to evolve and transform from the digital perspective are moving quickly. The access to cash is not what it used to be. And so having a provider that has the scale can get the supply, has the relationship with the vendor partners, and equally has the spectrum of solutions and experts, who can help design and plan and move quickly to get from solution design and development to implementation has been very important, particularly for those customers that I mentioned, who are going on the offense, and who are accelerating their own strategies and digital needs.

So, we are being aggressive in helping the customers that are in our base now. But we're equally being aggressive about finding customers, who are in need. The financial situation that we sit in the financial strength, the strength of our balance sheet has also been very important to customers, who want to ensure that they're working with an organization that is large and credible and is around for the long-term?

[Adam Tindle, Raymond James]

Okay. Thanks. And a as a follow-up maybe Collin. And I just had a question operationally. Operating profit dollar decline essentially match the revenue decline. So there was very little decremental detrimental margin here. I know the variable cost structure probably helps, but portions of the business were down significantly. So, maybe you could just touch on the performance in the quarter and how we can think about decremental margin moving forward?

[Collin Kebo, SVP and CFO]

Yes. Adam, there were -- if I understand your question, I think it was, why wasn't there more deleverage? There were a couple things that helped us in the quarter that I touched on in my prepared remarks. One was on the credit loss reserve. We ended up not booking any bad debt expense in the quarter. We just drew down against the reserve that we had previously established, and in fact, released a little bit of it just because of receivables balance had wound down.

The second thing that happened in the quarter is we did true-up our performance based compensation accruals, based on full year estimates, and we took a half a year's benefit in the second quarter. So, I wouldn't expect those two things to continue as we move through the balance of the year.

[Adam Tindle, Raymond James]

Understood. Thank you very much.

[Operator]

Thank you. We have a question from Matt Cabral with Credit Suisse.

[Matt Cabral, Credit Suisse]

Thank you. Chris, you talked about the pace of decline and writing stabilizing so far in the third quarter. Just wondering, if you could spend a little bit more on that comment? And just how we should think about the timing lag between writing translating into shipment or revenue trends? And maybe more broadly, just hitting on the health of IT budget at this point as we're thinking about the balance of the year.

[Chris Leahy, CEO]

Hi, Matt. Sure. I'm pausing for a bit because, it's such a tapestry out there of customers. We have obviously diversified customer end markets. And even within the end markets very diversified customer base. So, if you take corporate for example, across industry across geography, and different areas are getting hit differently, so different geographies. You guys know oil and gas in the south suffering a little some of those customers. You've got tech in the West, not suffering as much. You've got the virus resurgence in some areas, and the concerns about retreating back to stay-at-home orders. So, there's a number of layers that various customers are dealing with.

And what I would say is it's hard to paint a picture, a single picture of where IT budgets are going. That said, we are having robust conversations with all of our customers, those that are spending today and those who are planning tomorrow. So, how budgets work? It's really going to be a reflection on the economy in this health crisis, which we continue to believe is just unpredictable. There's not a lot of visibility there.

That said and back to your writings question, we watch writings daily and weekly. And we've had a couple of weeks of stability, as I said. But it can also be a little bit volatile. So, we watch it very carefully, that will typically turn into revenue in the next 30 to 60 days is how we think about the impact of the timing.

But what I would leave you with is, technology is the top of everybody's minds. And for those customers that are focused on just surviving, they've got rent to pay, they've got payroll to pay. They're not going to be paying for IT right now. But we are talking with those customers about what's to come in the next quarter and beyond.

[Matt Cabral, Credit Suisse]

Got it. And then, I think I heard in the prepared remarks solutions are down double digits. Just wondering if you dig a little bit more into the categories underneath there, and talk about where you're seeing the biggest headwinds. I guess I'm curious, your perspective on how much is just near-term projects being deferred versus maybe customers starting to reevaluate their broader on-premise footprint as cloud adoption is starting to pick-up a little bit?

[Chris Leahy, CEO]

Yes, that's a fair question. I think, at a high level, Matt, what we've seen is a real refocus on the urgency of remote work, optimizing employees working remotely, really bolstering those capabilities over the last couple of quarters. At the same time, we absolutely are seeing acceleration in discussions towards cloud and moving towards the cloud.

In terms of on-prem, we've said and we'll say it again, that we believe that there's going to be a hybrid world out there. It continues to be a hybrid world. And we're having those kinds of conversations with our customers. So, assessing options for cloud, what to migrate, how to migrate, what cloud vendors to choose. The good news is we've got the ability to help our customers through cloud deployments, and then manage once they're up and running.

But we still think there's going to be a lot of on-prem opportunity going forward. It's going to be more of a multi cloud hybrid cloud situation.

[Matt Cabral, Credit Suisse]

Thank you.

[Operator]

Thank you, sir. Our next question comes from Amit Daryanani with Evercore.

[Amit Daryanani, Evercore]

Thanks a lot. Good morning guys. I have just two questions as well. First off maybe on the gross margin performance, it was fairly impressive given the discussion we just had on solutions and the frontline devices did well. So could you maybe walk through kind of what drove the gross margin upside year-over-year, if it's sustainable as we go forward?

[Collin Kebo, SVP and CFO]

Sure. Amit, I can start on that one. Product margin held up pretty well, and we did get some benefit from mixing into software as a service. On the product margin within there, I would say in a supply constrained environment in particular categories, the margins can be a little bit firmer. And then within products, there's mix.

So, for example, desktops happened to be weak in the quarter, they tend to be lower margin. So, within that product, we did see some lower margin.

I think in terms of the outlook, as always difficult to predict because there are a lot of moving factors. I did say in my prepared comments that I do think that we will mix more into public as we move into the back-half of the year. Q3 is typically a seasonally strong quarter for both government and education. And given what's happening in education today, I would expect it to be quite strong.

And then, where we do see a little bit more firmness on the commercial side of the business tends to be in the larger, better capitalized customers, which tend to have a little thinner margin. So, we were pleased with margin performance in the quarter, just cautious as we think about it over the back-half of the year.

[Amit Daryanani, Evercore]

Got it. That's helpful. And then, I was hoping to get your perspective on client devices of PCs, I guess, as you go into the back-half of the year, I think, you guys mentioned it was up 6% in June, if I'm not mistaken. And of the industry data centers suggest that this may remain somewhat stronger for a couple of more quarters. So, I'd just love to understand how you guys think about the segment in the back-half? And if you were indeed able to meet all the demand within client devices for the June quarter.

[Chris Leahy, CEO]

Yes. So Amit, the client device obviously was very strong and we did take strategic inventory position, so that we were able to meet demand as we moved through the first and the second quarter. Look, as we said before, pre-COVID we thought we were kind of in the late innings around PC refresh and the Win10 upgrade. And so that will continue.

So, if we think about going forward, certainly work from home, we think will be a trend [Indiscernible]. It will be -- we think, fundamentally how people work in the office and at home will be a lasting and durable change. How people learn from home will be a durable change, and those will be opportunities for client.

And we've got devices that were out there past three, four years ago now, 2017, where there might be refresh opportunities there. Obviously, the economic environment and employment would have an impact on that. But we've always said, we've expected moderated growth. And I think that we're looking at the same way going forward. I'm sorry, Collin, did you want to add something?

[Collin Kebo, SVP and CFO]

Yes, the only thing I was going to add is, and I think you know this. When you look at industry data points, you just need to make sure you're comparing apples to apples at what point in the supply chain you're measuring. So, I think some of those industry sources are OEM shipments into the channel and distributors and retailers and others like that.

So, there's a little bit of the lag in that. Obviously, we saw very strong growth in client devices in the first quarter and in April as we shift against our backlog. So some of these shipments you're seeing are effectively replenishing lower levels of inventory further downstream in the supply chain that had been pretty well depleted.

[Amit Daryanani, Evercore]

Perfect. That’s really a fair point. Sorry, go ahead.

[Chris Leahy, CEO]

Yes. Amit, I was just going to say, in the supply chain, we are seeing some delays, particularly in the lower end Chromebook space. So that will make its way through the supply chain over the next few months. But that's happening as well.

[Amit Daryanani, Evercore]

Perfect. Thank you.

[Operator]

Thank you. We have a question from Katy Huberty with Morgan Stanley.

[Katy Huberty, Morgan Stanley]

Thank you. Good morning. I appreciate you're not providing guidance for the year. But do you expect the same business model mechanics to play out in terms of growing 200 to 300 basis points faster than the market?

Our survey work points to maybe 4% to 5% declines for the year. Is that also the ballpark of what you see in the data? And then I have a follow-up?

[Chris Leahy, CEO]

Yes. Katy, I’ll start. I think what we see is there a variety of data points around GDP and IT growth. What I would say is we do expect ourselves -- we do hold ourselves accountable to outgrow the market by a meaningful amount. As you know, typically when we have a more robust environment and we are selling more hardware, which we recognize at the topline, that's when we tend to outgrow by the 200 to 300, sometimes higher basis points.

When it's in an environment that's more like the one we're in recessionary and customers are doing things like extending the useful life of their assets, with warranties that net down and other things that are netted down, we will continue to outpace the market, but typically it's by a slightly lower margin, 100 to 200, 250 basis points.

[Katy Huberty, Morgan Stanley]

Do you have a view as -- do you survey your customers and have a view as to what you think the IT spending decline will look like this year?

[Chris Leahy, CEO]

We don't have a collective view that we're sharing. There are so many data points out there that are so desperate. I mean there's such a wide variation that we're listening to our customers and just taking every opportunity to help serve them and grow our business where we can, and support our customers so that they can grow coming out of this recession.

[Katy Huberty, Morgan Stanley]

Okay. That makes sense. And then just one other clarification. When you referenced some early stability in writings in July, when you say stable, is that -- do you mean flat year-on-year? Or you mean the rate of decline is stable from what you saw in the June quarter or the month of June?

[Collin Kebo, SVP and CFO]

Just to clarify, I think what I was trying to do in my comments was particularly the commercial side of the business in corporate and small business give an indication of the peak decline we saw in the second quarter. So in May or June, those writings declined over 20% in both corporate and small business.

What we're seeing in the month of July is that they are not as negative as those peak declines we saw earlier. So, it's a relative to what we had been seeing in the business statement.

[Katy Huberty, Morgan Stanley]

Okay. That's very helpful. Thank you.

[Operator]

Thank you. We have a question from Ruplu Bhattacharya with Bank of America.

[Ruplu Bhattacharya, Bank of America]

Hi. Thank you for taking my questions. Chris, I just wanted to clarify, are the trends that you're seeing in corporate and small business customers -- is that playing out as you had expected 90 days ago? Or are the trends better or worse than you expected? And any change to your outlook for the next couple of quarters?

[Chris Leahy, CEO]

Good morning, Ruplu. Thanks for the question. And I would say the trends are playing out, as we expected and as we shared with you. You remember last recession 2009, we talked through what we saw there. And it was a faster reaction by our small and medium sized businesses. In particular, they reacted more quickly to the economic downturn. And that is what we saw here.

Now we have, as I mentioned, a diversified customer base even within small and corporate. And so, even within that, we saw some of the customers in certain industries, hospitality and things like that, who were suffering a little more, others who were actually being very aggressive in their strategies.

The other thing is when you think about, as I mentioned, the uniqueness of what we're going through with the virus, and the fits and starts if you will, in different geographies, that's also tending to have an impact on our customers. But all of that said, I'd say that the trends played out as we expected.

Look, small business channels are going to be impacted by economics, and they're going to focus on what they need to do to survive first and then invest for the future. So, what I'd say is it's really affirms our business diversification strategy, and provide optimism and the competence of our business model.

If you think about what we were able to deliver, our free cash flow through the year is at $470 million. We've paid our dividend. We're continuing to invest in the evolution of CDW going forward. We've got other customer segments that are going very strong, given the demand in the market. And I'm really proud of how the team is managing through this.

[Ruplu Bhattacharya, Bank of America]

Okay. Thanks for all the details on that, Chris. I appreciate it. One question for you Collin, how should we think about SG&A as a percentage of sales going forward? Right now, you mentioned you've got reduced performance based comp and travel is less and you've enacted cost savings measures. But as lockdowns get relaxed, how should we think about SG&A? Can you hold the line? Or should we expect OpEx to trend upwards? Thank you.

[Collin Kebo, SVP and CFO]

Yes. I mean, we're not going to provide a specific guide on SG&A. As you know, we do have a variable cost structure. So there are elements of it, variable sales compensation that will move with our gross profit. And then we have put hiring restrictions in place and continue to let attrition run, so that'll add a little bit of variability. And then we've taken other cost savings measures.

And the other point I would make Ruplu is, we are not managing to a short-term SG&A target here, as I think we've been communicating pretty consistently. We do think that this is an opportunity to invest and get stronger in this. And so, we're going to take a balanced approach and that we are going to continue to invest both in CapEx and OpEx.

But having said all that, we are mindful of the demand environment, and we’ll take a balanced approach and ensure we have an appropriate cost structure.

[Ruplu Bhattacharya, Bank of America]

Okay. Thanks for all the details and congrats on the quarter.

[Collin Kebo, SVP and CFO]

Thank you.

[Chris Leahy, CEO]

Thank you.

[Operator]

Thank you. We have a question from Shannon Cross with Cross Research.

[Shannon Cross, Cross Research]

Thank you very much for taking my question. My first is just regarding what you’re seeing in terms of extended maintenance sort of contract terms? Can you give us some perspective on how the magnitude of this. And maybe if you can go back to other times when the economy has been under pressure, if you kind of talk about how this compares. And then I have a follow-up. Thank you.

[Collin Kebo, SVP and CFO]

Yes. We are seeing customers, particularly those who are looking to save cash move into shorter duration maintenance contracts, as opposed to going to multi-years, those that are paying on for software a number of seats and things like that, looking at true-ups and things like that.

It’s difficult to compare to previous times, Shannon. I think back in 2009, we saw a similar behavior and then when we experienced a bit of a slowdown in the ’15 ’16 period, we saw customer sweating assets at that point in time. Maybe a little bit more pronounced today than it was back in ’15 ’16, but I think that’s logical just given the severity of the crisis relative to the slowdown we saw back then.

[Chris Leahy, CEO]

Shannon, I would just add that our managed services capabilities are more robust now. And so, these conversations with customers in terms of service contracts and potentially shortening them have also led to some robust conversations about managed services and some wins for us in managed services as a result of those conversations.

[Shannon Cross, Cross Research]

Great. Thank you. And then, how do we think about education budgets? I'm just trying to understand, obviously all of these school districts are now -- well, not all, but a lot of school districts are going to hybrid model, clearly there are a lot of kids out there who don’t have access to Chromebooks or who’re just getting access now.

So, I'm wondering what you’re hearing from the school districts in terms of the state of their budgets? And then also how are you thinking about -- and I know there’s a lot of talk regarding the magnitude of the stimulus bill when and if it ever gets decided. But how quickly does sort of federal funding tend to run through? I'm just trying to get an idea of what we might see in the next year months frankly. Thank you.

[Chris Leahy, CEO]

Yes. Shannon, on the education side K-12 in particular, they are accessing funding and we’re helping them with that. So funds are flowing. And they are really all hands on deck, trying to get devices into the hands of students. And so, there’s a lot of activity there regarding client devices, remote enablement as well as what we call kind of broadcasting from the school.

It’s very complicated and we had a highly seasoned sales organization that works with the schools. But the breadth of the solutions that we’re looking for are fulsome as I mentioned in my remarks, all the way from thermal scanning and sanitation stations to dividers and carts and things that CDW can just help them provide, so that they have kind of turnkey solutions. But there is strong demand to get the kids in the classroom environment, whether virtual or hybrid as quickly as possible. So, there’s a lot of pressure there and they are accessing funds.

In higher ed, we’re seeing some falls on the budget side. Obviously, they've got concerns around various revenue streams. And the solutions provided in the business there in terms of on campus robust network support, et cetera has been falling a little bit. But we are starting to see a pick up when it comes to remote enablement and devices and would expect that to continue as the school gets sorted out, coming into this September-October timeframe.

In terms of the timing of funds flowing through, I don’t have a particular timeframe that I would know how to share, But I would say, they’re moving a little faster than I would have expected in some areas. And again, our teams are really excited, figuring out where they’re going to flow, how they’re going to flow and how to make sure you write up the order so that the funds can apply. But they are flowing, and I would expect the same would happen with any new build that we see that makes it true.

[Operator]

Thank you. We have a question from Ted Starck-King with William Blair.

[Ted Starck-King, William Blair]

Hey, thanks for taking my questions. I want to follow-up on one of the earlier questions on new clients. Can you talk about sales productivity and the ability to win new clients in this environment? And then maybe also around kind of a customer retention rates, both historically and what you're seeing today?

[Chris Leahy, CEO]

Hi. Ted. Yes. On acquisition and new clients, we haven't really shared specific information about numbers of acquisition and penetration rate. But I would say that it has not been relatively harder, because we are remote. Because we've moved all of our marketing, for example, to digital channels. So, we're reaching more customers and we're reaching more people within customers, and taking the opportunity to follow-up.

So, we've, retooled how we put together acquisition programs to be as effective as possible. Our sellers are really quite amazing in their ability to connect with people and develop relationships, virtually.

And as I did mention, we do have sellers who are now more out in the field with customers as well. But I've been really pleased with how they've been able to transition and the aggressiveness or the assertiveness and the success with our acquisition programs right now.

And the second question, Ted, was around retention. Yes, we don't -- that's not a number that we share. But I would say that the customer satisfaction in this current environment has been really quite high, what we measure from the satisfaction perspective.

[Collin Kebo, SVP and CFO]

Yes. Ted, I would just add, I mean, it's difficult in this environment, particularly for the most challenged customers who are looking to preserve liquidity, they're pulling back. So, they may not be spending period versus not spending with CDW. I think in an environment like this, consistent with our remarks, we are staying in front of our customers, even those that may not be spending. And I think if there's wallet to be had, we're getting our fair share of that.

[Ted Starck-King, William Blair]

Okay, great. And then just a quick follow-up question. So, on that note, are you guys flexing some of your financing offerings for customers? And how would that kind of make its way through the P&L? Thanks.

[Collin Kebo, SVP and CFO]

Yes. When you say the note, you mean the notes we issued in April, those were for general corporate purposes to enhance our liquidity as well as to make sure we have sufficient working capital to support our customers. I would say one act area that we're very active in is working with our customers and helping them understand the variety of vendor partner financing programs that are out there. And that's where we start and many of our OEMs have been quite aggressive in terms of providing attractive financing, and we are seeing a pretty material uptake on that from our customers.

So, the nice thing about that is, it doesn't flow through our financials. As I mentioned, there are some instances though, where we are investing in inventory for customers, or have seen terms pick up a bit and that's where you would see it in our working capital.

[Ted Starck-King, William Blair]

Okay, great. Thank you.

[Operator]

Thank you. We have a question from Matt Sheerin with Stifel.

[Matt Sheerin, Stifel]

Yes. Thanks. Good morning. I just wanted to ask just about, again about the public sector, specifically the state and local government, which has been I know, a strong, fast growing market for you. What are the trends you're seeing there? And are there concerns about budget cuts just due to lower revenue and lower state taxes?

[Chris Leahy, CEO]

Hi, Matt. Yes, there are concerns. Certainly, we talked about that in the last call budget concerns. But again, we are finding that in the state and local area. Budgets are being prioritized against IT initiatives, both work from home and also that various projects, government e-projects that are in flight.

The hope and expectation is we will see in a stimulus package some sort of relief for state and local governments. And again, we hope that governments figure out where to get that. But they are struggling a bit now, but continuing to spend on the IT needs that's been prioritized and essential for their workforce and for their mission.

[Matt Sheerin, Stifel]

Okay, thanks. And relative to the healthcare space, which had been a market that turned around for you. I know last year you saw some positive trends, and obviously budget shifts there has impacted demand near-term. But in terms of conversations you're having with customers in that sector, do you still expect those investments towards digital transformation to still occur at some point?

[Chris Leahy, CEO]

I do, Matt. Look, healthcare literally caused the global pandemic virus, and protected all of us and has been protecting all of us. But, they've been forced to see revenue generating businesses or at least diminish them. And I'm confident, given the demographic trends and changes that have already taken place regarding loosening regulations and accelerating digital transformation, that it will result in a strong recovery and long-term growth in the healthcare end market.

And we are having extensive conversations with our healthcare systems around virtual care, across all spectrums. You've got telehealth and telemedicine, virtual rounding, you've got remote patient monitoring and then you've got enhanced patient monitoring in places like the ICU. And all of those require slightly different sorts of solutions. And we are building those out for some customers already. But I do see that as a long-term positive trend.

[Matt Sheerin, Stifel]

Thank you.

[Operator]

Thank you. We have a question from Keith Housum with Northcoast Research.

[Keith Housum, Northcoast Research]

Good morning, guys. Thanks for taking the question. In terms of the overall capital strategy right now in terms of M&A. How does M&A fall in terms of your priority of this thing? Are you seeing an opportunity for some add-ons that can perhaps benefit the future?

[Chris Leahy, CEO]

Well, we just -- I'll start and Collin, you can jump in if you like. Yes, we just did an acquisition of IGNW, and that's made of cloud services provider. That's a great example of investing our capital behind our strategy of developing the solutions and services that our customers need now and in the future. So, we absolutely will continue to look at potential targets. And we're very active in inbounds, we're very active in outbound.

And this organization IGNW like Aptris is a partner that CDW had worked with some time. So, we got to know them very well. We got to know the people and the quality and the culture and their capabilities. So, we will continue to look in the market for opportunistic acquisitions.

[Collin Kebo, SVP and CFO]

Yes. In terms of prioritization, liquidity is our top priority, but we have $2 billion of it. So, we feel really good about where we are. The dividend is a priority. We just declared that. And again, given the cash flow generation capability of the business, feel good about that. We're below our target leverage, sitting at 2 times. So our next priority is M&A. And so, if we find the right opportunity at the right price, we'll take the opportunity to enhance our competitive position in this environment.

[Keith Housum, Northcoast Research]

Great. I appreciate that. And then just turning over to the public sector, obviously, that's an area that usually declines in the fourth quarter. But my understanding, especially in the Chromebook area, there's a significant delay in [indiscernible] the market. Based on that combined with approach to going hybrid schooling that a lot of businesses are taking. Is there an expectation that public will actually have a good rest second-half of the year, including the fourth quarter?

[Collin Kebo, SVP and CFO]

I mean, we're not going to -- in normal times, we wouldn't guide by channel, and certainly in the current environment, we're not going to. I think you can tell from our comments on the second quarter and writings and comments about where we think the mid-business is going to mix into the second-half of the year, that the demand is more resilient on the public side, particularly federal government education.

You did call out Chromebooks. We are keeping an eye on that. Supply is tight there, given the extraordinary demand. And that's a little bit of a wild card that we've see in the third or fourth quarter. But given the breadth of our vendor partners and our scale, we think we'll be able to manage that as well as anyone. Not that there may not be disruption, but in terms of customers looking for supply, we think CDW can help them given our multi vendors.

We're also having conversations with customers around alternative processors and things like that. So we're doing what we can to get creative, to get supply for our customers to help them through the Chromebook shortage.

[Keith Housum, Northcoast Research]

Great. Thank you.

[Operator]

We have a question from Paul Coster with JPMorgan.

[Paul Chung, JPMorgan]

Hi, this is Paul Chung on for Coster. Thanks for squeezing me in. So just to drill in on your SMB segment. Can you kind of give us a sense for the overall health of these customers? Are you seeing more sales kind of postponed or cancelled? And are most customers kind of paying on time as well? And, any verticals or regions you want to call out that you're seeing a little bit more signs of life?

[Chris Leahy, CEO]

Well, yes.

[Collin Kebo, SVP and CFO]

Yes, I mean, in terms of writings, I think the commentary we provided on writings for small business gives you a good overview of the demand environment. Obviously, within that you have industries that are relatively stronger, and those are a little bit more challenged. And even within industries, you have some winners and losers.

On the cash collections front, I would say we were generally pleased with the pace of cash collections from our commercial customers, including our small business customers. We do have a long tail of small customers that we're keeping an eye on that portion of the credit portfolio. But, overall, I would say the collections held up reasonably well in the quarter.

[Paul Chung, JPMorgan]

Thanks. And then just to follow-up on free cash. Very nice performance there kind of despite softer topline and higher CapEx levels. It looks like you had a bit of working cap benefit in the quarter. Can you just talk about the puts and takes on operating cash? And how we should think about trends heading into the second-half, even despite the tough macro? Also on CapEx levels, I assume that level comes down in the second-half? Thank you.

[Collin Kebo, SVP and CFO]

Yes. In terms of working capital, I think one of the dynamics you would expect to see is when the business shrinks that we would liquidate some working capital, and you did see that dynamic play out in the quarter. That was partially offset though, by seeing the cash conversion cycle tick up a bit.

I think the other thing to keep in mind as you think about free cash flow, we did get some timing favorability in terms of cash taxes. We didn't make a payment in the second quarter and historically, it's one of our biggest quarterly payments, and that reversed a little bit. In terms of CapEx, you're right, it is a little bit heavier, front end loaded this year.

You might recall that some of the Census devices that we procure for our device as a service offering or running through CapEx. With all of those devices out in the field, now we are virtually done with additional capital expenditures for the Census. So, those are some things to think about and the puts and takes of free cash flow and working capital.

[Paul Chung, JPMorgan]

Thank you so much.

[Collin Kebo, SVP and CFO]

Thank you.

[Operator]

Thank you. I'll now turn the call back over to Chris Leahy.

[Chris Leahy, CEO]

Okay. Thank you. I'd like to take a moment to acknowledge the many continued challenges due to COVID-19, and to recognize the extraordinary sacrifices and contributions being made by so many who are devoting themselves to serving others. I also want to recognize the remarkable dedication of our co-workers around the globe, and their extraordinary commitment to serving our customers, our partners and all CDW stakeholders. They continuously impressed me, and reaffirm my conviction that we will emerge stronger from this. Thank you.

And thank you to our customers for the privilege and the opportunity to serve you during these times. 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.

[Operator]

Thank you everyone for joining. That now concludes the presentation. You may now disconnect.