CDW (CDW) Q2 2026 earnings call transcript

Thank you, Joel. Good morning, everyone. Joining me today to review our second quarter, 2026 results are Chris Leahy, our Chair and Chief Executive Officer and Al Morales, our Chief Financial Officer. Our 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 a number of risks and uncertainties that could cause actual results to differ materially. Additional information concerning these risks and uncertainties is contained in the earnings release. We furnish 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-GAP financial measures, for instance, non-GAP operating income, non-GAP operating income margin, non-GAP net income, and non-GAP earnings per division share, non-GAP selling, and administrative expenses, non-GAP effective tax rate, net sales on a constant currency basis, free cash flow, and adjusted free cash flow. Non-GAP measures have been reconciled to the most directly comparable GAP measures in accordance with SEC rules. You'll find the reconciliation charts and the slides made available on our website and in our earnings release. Please note all references to growth rates or dollar amount changes in our remarks today are versus the comparable period in 2025. With net sales growth rates described on an average daily basis, unless otherwise indicated, replay of this webcast will be posted to our website later today.

This conference calls properties 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, Steve, and good morning, everyone. Before we begin a review of the quarter, I want to briefly address the announcement we issued this morning regarding Al's plan retirement. We share that Al plans to retire in 2027 after an extensive career following the completion of an orderly transition. He'll remain in his current role until his successor is appointed, and we will then continue to serve in the advisory capacity to ensure continuity. The search for a successor is currently underway. On a personal note, I want to thank Al for his many contributions to CDW's success. He has been a trusted partner to me, an exceptional leader for our coworkers and a driving force behind the growth and evolution of our company.

I'm grateful that we will continue to benefit from his expertise as we execute a seamless transition. With that, let me turn to the second quarter performance, strategic progress, and outlook. Al will then provide additional details on our financial results, capital allocation priorities, and expectations for the balance of the year. The team delivered strong results this quarter through disciplined execution and a clear focus on the priorities driving customer demand.

Together, they delivered net sales of $6.6 billion up 10%, gross profit of $1.3 billion up 6%, non-gap operating income of $556 million up 7%, and non-gap earnings per diluted share of $2.91 up 12%. Net sales, gross profit, and non-gap earnings per share set new all-time quarterly records. These results demonstrate the strength and resilience of CDW's business model in a dynamic technology environment shaped by growing AI complexity, pricing volatility, and ongoing memory challenges. Demand remained healthy with AI increasingly influencing customer activity despite cautious and deliberate customer spending. Customer investment in AI readiness and modernization drove strong infrastructure demands. By bringing together the right technology, expertise, and execution, the team delivered double-digit top line growth with substantial gross profit dollars.

Strong growth profit combined with operating leverage and discipline capital allocation drove 12% non-gap earnings per share growth. Today, AI infrastructure implementation is most advanced among our largest customers, which is typical of a major technology transformation cycle. Infrastructure investment comes first followed by services, software, and lifecycle opportunities. As adoption expands, deployment activities broaden across customers of all sizes.

What shapes demand may change from quarter to quarter, but technology remains essential and increasingly complex. Technology changes, customer priorities change, CDW's role does not. That enduring relevance is the foundation of our value proposition. Let's take a deeper look at how we met customer priorities this quarter. There were three primary drivers of performance. Our balanced portfolio of customer end markets, the breadth of our full stack capabilities, and our growth strategy, which sustains our relevance.

First, our diversified customer portfolio. The diversity of our customer end markets is one of the defining strengths of our business model. Today, we operate across three U. S. segments, commercial, government, and education. Commercial serves customers through dedicated corporate health care and financial services teams. Within each end market, we align resources by customer size, enterprise, mid-market, and small business. Government is aligned around state and local and federal customers while education serves both K-12 and higher education institutions. Our other segment represents our combined UK and Canadian operations. Each market has dedicated sales teams in deep industry and technical expertise. Let's take a look at how they perform this quarter. Commercial delivered another strong quarter with net sales increasing 9%.

Corporate increased 11% driven by the demand for infrastructure modernization, cloud, and AI readiness initiative. Health care remained a standout performer growing 9%. Driven by demand for mission critical outcomes, including AI-enabled claims management, and clinical documentation. Financial services increased 2% with continued healthy customer demand. Government net sales increased approximately 14%, driven by improving federal demand and continued momentum across state and local customers. Clients prioritize infrastructure, software lifecycle management, and productivity initiatives. Education net sales increased by approximately 1%. K-12 demand remained healthy with a strong mix of software services and lifecycle offerings despite fulfillment timing shifts. Higher education continued to operate in a constrained funding environment. International once again delivered exceptional growth.

Net sales increased approximately 23%, led by a record quarter in Canada and continued strong momentum in the UK. Demand remained healthy across hardware, software, and cloud categories with both the UK and Canada delivering mid teens or better local market growth. The second driver of our results this quarter is the breath of our full stack full lifecycle offering, which enables us to capture demand across evolving customer priorities and technology trends. During the quarter, success addressing healthy demand for modernization, AI readiness, and resilience drove a 10% increase in hardware revenue. Server, storage, and netcom all delivered very healthy double-digit growth.

Notebook and desktop increased to combine 10% reflecting strong execution and customer willingness to invest in mission critical technology despite pricing pressures. Higher average selling prices more than offset lower unit volume. Software, cloud, and security all delivered healthy top line and growth profit growth. Software increased by low double-digit driven by security, application suites, and storage and network area management software.

Robust cloud growth reflected continued prioritization of application modernization, AI evaluation, and hybrid environment optimization. Memory price inflation also contributed to cloud adoption as some customers thought help finding alternatives to hardware expenditures.

For security, both top line and growth profit increased double-digit driven by demand for both protecting advanced technology architectures and strengthening governance and compliance capabilities.

Services increased 1%. Just like every part of the business, services demand follows customer priorities. This quarter, customers focus on hardware and cloud investments combined with deployment timing influence the mix of services demand. We expect to pick up in lifecycle and professional services as customers move from procurement to implementation to management.

The third performance driver, our growth strategy, is crucial to sustaining our relevance. Our strategy is built around an enduring reality. Technology will continue to evolve, but the need for a trusted partner remains constant. As AI adds complexity across the technology landscape, that need has never been greater. Customers increasingly recognize that AI is not a point solution. It's an architectural challenge. AI workloads spam on-premises, public cloud, edge, and hybrid environments. And as AI scales, organizations must integrate complex technology environments while managing security, governance, and risk.

Accomplishing this requires a partner that can orchestrate the resources required and deliver the execution needed to turn AI investments into tangible outcomes. CDW is that partner. We bring together the right technology, expertise, and execution as we help customers deploy AI with confidence, scale faster, and realize value sooner. The strategic implication is straightforward.

AI increases our relevance because it increases complexity. And as customers move from AI experimentation to pilots to implementation to scaling, we are capturing opportunities today across infrastructure, security, data integration, and ongoing lifecycle support. Let me share a couple of recent examples that illustrate the role CDW is playing across customers' AI journey. A Western State's technology office has made substantial progress in its AI journey, launching an AI sandbox, advancing statewide AI literacy, and incentivizing agency adoption.

As AI activity accelerates, the state faces a challenge common across many organizations. A growing patchwork of AI initiatives without a consistent way to manage, govern, and scale them. Through our AI 360 framework, we designed a solution that is helping the state move from isolated AI projects to a cohesive operating model that integrates strategy, governance, infrastructure, security, data, and application development. By bringing together the right technologies, partners, expertise, we are creating a scalable framework for evaluating, deploying, and governing AI across agencies, enabling the state to accelerate adoption while maintaining security, oversight, and ensuring measurable outcomes. This multi-year, multi-million dollar engagement demonstrates the scalability of our model, and we will drive recurring services revenue.

We are now productizing the solution to deliver highly relevant and proven AI-driven outcomes at scale to state and local governments across the country. Another engagement, one with a large financial services company, demonstrates the broader services opportunity that is emerging as frontier AI innovation accelerates. Like many enterprise organizations, our customers dealing with a growing gap between the volume and complexity of new AI-driven threats, and the ability of security teams to remediate them quickly and consistently.

They need a more coordinated, scalable approach to managing vulnerabilities across their entire technology estate. Through our Claude Mythos AI security vulnerability program, the team brought in CW expertise across security, observability, cloud DevOps, systems engineering, hybrid infrastructure, and global delivery to design a more automated approach to identifying and remediating vulnerabilities at scale. This multi-million dollar engagement demonstrates the power of CW's integrated capabilities. By bringing together expertise from across the organization, we are solving complex customer challenges and delivering mission critical outcomes.

Two great examples of how we are helping customers deliver AI-driven outcomes today. And the opportunity broadens from here, as inference moves closer to users and devices, AI deployments will require a wider range of technologies and services, creating additional opportunities for CW to deliver customer outcomes, capture, share, and drive profitable growth.

The same objective driving customer AI adoption that are business and mission outcomes is shaping how we are leveraging AI within CDW. Our approach is straightforward, deploy AI to create measurable value, to improve customer experience and outcome, increase co-worker productivity, and generate operating leverage. CDW assists super-agent our AI power sales tool delivers on all three. It supports account planning, opportunity identification, customer engagement, and workflow automation. CDW's super-agent is just one example of how we are putting AI to work. We are embedding AI throughout the business, from sales and finance to operations, AI is simplifying processes, improving consistency, and increasing efficiency.

We are moving with discipline and speed supported by strong governance and security. AI is strengthening how we operate today, while creating a meaningful opportunity to drive productivity and profitable growth over the long term. And that leads me to our full stack, to our full year outlook. Current market conditions remain constructive. Infrastructure demand is strong, cloud consumption trends are favorable, customer engagement is healthy, and AI related activity continues to expand across industries and customer segments.

Written demand, shipping activity, and backlog trends remain robust, with writing succeeding invoicing and backlog significantly elevated. Operating excellence and expense discipline remain priority, and we expect continued improvement in our operating leverage as we move throughout the year. Given this backdrop, we are increasing our full year outlook. We now expect the USIT addressable market to grow in the mid-single digits in 2026 on a customer spend basis. With 200 to 300 basis points of CEW outperformance. In an environment where technology decisions are becoming more consequential, CEW has never been more relevant. Our scale, broad capabilities, deep industry and technical expertise, and full staff, full lifecycle model, ensure that our success is not tied to any single technology category.

We help customers maximize the value of their technology investment and capture opportunity wherever demand emerges. Customers rely on us to simplify complexity and translate technology investments into tangible outcomes. Partners rely on us to accelerate adoption, extend the reach of their innovation, and bring their technology to market at scale. Our position between customers and partners in the part of the technology ecosystem reinforces our confidence and the durability of our business model, the strength of our competitive position, and the opportunity ahead. Technology evolves.

Customer priorities change. Our value proposition endures. With that, let me turn it over to Al for more detailed review of our financial performance. Al.

Thank you, Chris, and good morning, everyone. It has been a privilege to serve as CFO of CDW for the last five years. I'm proud of what our team has accomplished and how we've continued to help our customers achieve meaningful outcomes all while transforming our own business and delivering growth and profitability for our shareholders. I am committed to supporting a smooth transition and will ensure the company is well positioned for continued success.

Turning to our results, I will begin with details on our second quarter performance, move to capital allocation priorities, and then finish with our outlook for the remainder of 2026. Second quarter gross profit of $1.3 billion was up 6.3 percent year over year. This was modestly above our expectation for a mid-single-digit year over year increase. The performance reflected solid demand with customers continuing to prioritize technology investments that support AI, productivity, workplace modernization, infrastructure needs, and security. Second quarter gross margin was 20.1 percent down 70 basis points year over year.

As we've discussed in prior quarters, gross margin is sensitive to changes in both customer and product mix. In the second quarter, margins reflected the contribution from large hardware infrastructure opportunities tied to modernization and AI readiness, and particularly associated with enterprise customers. To a lesser extent, gross margins also reflected a lower relative contribution from services year over year. As Chris mentioned, we view these spending patterns as consistent with the early stages of a technology adoption cycle, where infrastructure investment by large enterprise clients often leads, followed over time by services, software, security, and life cycle opportunities. Importantly, within the quarter, these profitable engagements generated meaningful gross profit dollars and strengthened our position in the AR market. The strategic point is that AI is increasing complexity across the technology stack.

Customers are evaluating infrastructure, cloud, security, data, and endpoint investments as part of broader modernization programs, and that complexity reinforces the value of CDW's full stack full life cycle model. Consistent with recent trends, customers navigated a dynamic technology and macro environment. Demand remains stronger, where technology investments are tied to operational necessity, productivity, infrastructure, and workplace modernization and security.

With this being said, netted down revenue streams were up 16.1%, picking back up again this quarter as we expected. They represented 35.9% of gross profit, up 300 basis points year over year, and 140 basis points quarter over quarter. Professional and managed services were impacted as quarter by deployment timing and customer prioritization of hardware and cloud investments. We continue to build our pipeline as customers move modernization, security, and AI projects from procurement into implementation, which supports our expectation that the current wave of infrastructure investment will lead to future services growth.

Turning to expenses for the second quarter, 9GAP SG&A totaled $764 million for 57.9% of gross profit down 20 basis points year over year, and down 410 basis points quarter over quarter. This was consistent with our expectation that the expense ratio would continue to decrease as we approach the second half of the year.

Looking forward, we expect our geared for growth efforts to pay dividends in the second half of the year and further improve expense efficiency thereafter as initiatives scale across the organization.

Co-worker count ended at approximately 14,700 and customer facing co-worker count with 10,300, both down modestly year over year and quarter over quarter. Our ongoing goal is to balance growth, expansion of capabilities, and exceptional customer experience with greater efficiency and cost leverage from our broader operations. 9GAP operating income was approximately $556 million, up 7% versus the prior year, delivering some incremental leverage as we expected, and that compared to 6.3% gross profit growth. 9GAP operating income margin was 8.5%.

Net interest expense increased approximately $3 million year over year, driven by higher average borrowings during the quarter. And our non-GAP effective tax rate was within our target range at 26%. 9GAP net income was $370 million in the quarter, up 7.8% on a year-over-year basis.

Second quarter non-GAP net income per diluted chair was $2.91, up 11.9% year over year. This doubled-digit EPS growth with above our expectations for high single-digit growth year-over-year. Moving to the balance sheet, at period end, net debt was $5.5 billion. The liquidity standard is $2 billion with cash plus revolver availability. The three-month average cash conversion cycle was 21 days within our target of high teens to low 20s. This cash conversion metric reflects the combination of timing, market dynamics, higher hardware sales, and proactive inventory positioning to support customer urgency to secure product amid a dynamic environment. We continue to believe our target cash conversion range remains the best guideposts for modeling, working capital, longer term.

Adjusted pre-cash flow year to date was $278 million, or 42% of non-GAP net income for the first calf, below our stated rule of thumb of converting 80 to 90% of non-GAP net income to cash. We continue to expect cash flow conversion to normalize over the balance of the year and have lined a site towards achieving our expectations. We've been focused on managing working capital in a way that supports our customers and drives shareholder value even as ongoing hardware-driven growth and the inflationary price environment has warranted investing and working capital.

We've also effectively utilized cash consistent with our 2026 capital allocation objectives during the quarter, including returning $344 million in share repurchases and $80 million in the form of dividends. Through the first half of 2026, we've returned approximately $545 million to shareholders in the form of repurchases compared to $653 million over the entirety of 2025 and $500 million in each of the years 2023 and 2024. This brings me to our capital allocation priorities moving forward.

Our first capital priority is increase the dividend line with non-GAP net income growth. We've increased the dividend for 12 consecutive years through 2025. We continue to prudently manage our dividend with respect to the growth environment and target a roughly 25% payout ratio of non-GAP net income going forward. Our second priority is ensure we have the right capital structure in place. We ended the second quarter at 2.5 times net leverage within our target range of two to three times. We continue to proactively manage liquidity while maintaining flexibility.

Finally, our third and fourth capital allocation priorities of M&A and share repurchases remain important drivers of shareholder value. We continually evaluate M&A opportunities that advance our capabilities and extend our reach and relevance to customers. While we remain active in the M&A market, we have been opportunistic towards share repurchases. With the additional $1 billion authorization announced in the second quarter, we have more than $1.1 billion remaining capacity under share repurchase programs.

Now, turning to our outlook. Our first tech performance is driven by strong underlying demand as customers build out infrastructure for their AI use cases, secure their networks, and innovate at the edge. Importantly, while customers acted with urgency around hardware procurement, a written production and backlog trends support our view that the strength we are seeing reflects healthy and durable underlying demand for modernization, security, resiliency, and AI readiness. At the same time, we remain prudent in how we view the remainder of the year given the complex variables in play. Factoring in these variables, we are raising our full year outlook and expect gross profit to grow mid-single digits for the full year 2026.

This leads to a first half versus second half split that is more aligned to historical, second half weighted seasonality than we originally expected. Based on the anticipated mix of products and end markets, we expect second half gross margins to be below second half 2025 levels. This means full year 2026 gross margin would be modestly below the full year 2025, although well above the levels from three plus years ago.

Finally, we now expect full year non-gap net income per diluted share growth to be at the high end of high single digit range over year over year, reflecting our expected gross profit performance, increasing operating leverage from our gear for growth initiatives, and disciplined execution of our operational and capital allocation priorities. Please remember, we hold ourselves accountable for delivering our financial outlook on a constant currency basis. On that note, our expectation is for currency to be a slight benefit to reported growth rates for the year.

Moving to modeling thoughts for the third quarter, we anticipate gross profit to increase at a mid-single digit year over year growth rate. Moving down the P&L, we expect third quarter non-gap S&A to be lower than the second quarter driven by our gears for growth program benefits. This will result in non-gap operating expense as a percentage of gross profit that is down both year over year and quarter over quarter.

Finally, we expect third quarter non-gap net income per diluted share to also be at the high end of high single digit growth year to year.

With that, I want to thank our teams for delivering another strong quarter of execution. Our performance reflects the strength of our customer relationships, the resiliency of our business model, and the ability of our coworkers to help customers solve complex tech technology problems in a changing environment. This concludes the financial summary. As always, we'll provide updated views on the macro environment and our business on our future earnings calls.

I will now ask the operator to open up for questions who would ask each of you to limit your questions to one with a brief follow-up. Thank you.

Yeah, sure. Good morning, Adam. First, I want to start with the, while we see the technology pick up most strongly first in the enterprise space, as I mentioned, we absolutely are seeing it broaden across all of our industries and customer segments. And we're at the point where we are taking use cases that are proven and working in various industries and scaling them in repeatable offerings for customers. In terms of what's it doing to our business look, we're not sharing dollars per se, but we perceive that AI is part and parcel of most of what we're selling from the hardware itself to the software implementation and certainly in the services that we're bringing to bear. So it's really a full stack approach to the technology movement.

In terms of customers and where they are in their journey, having moved from pilot to obviously implementation, I would say, here's what we're observing, which are customers are working hard now on the return on investment and being more deliberate and thoughtful about the analysis around that, which of course is placed to our strength with the variety of services and analysis and the solutions that we bring to bear. What we are seeing is real focus on those use cases that move the needle in the various industries. So, you know, when you think of healthcare and claims assessment and training tools, if you think of retail with demand forecasting and turn projection, if you think of financial services obviously fraud detection but also trading speed, we really are starting to see use cases come to bear in ways that are going to scale more quickly than they have in the past in our view.

So, you know, I simply say it's a full stack opportunity for us. We think we're incredibly well positioned because CW has never been about one technology or one part of the stack. It's been about bringing those things together so that they work together. And AI is a great opportunity for us to do this. We're delighted to see the traction across all of our customers taking off frankly in a really positive way. And, you know, we see lots of tailwinds to continue the acceleration in services and the hardware components.

Right. Maybe just a quick follow up for Al that I acknowledge that operating income grew faster than gross profit dollars in the quarter. And it looks like we're starting to get at a turning point to get CDW back to the business model that I think investors came to know and love over the years. I guess the question would be, you know, what do you think drove that trend in the quarter, that kind of inflection in better operating leverage and any learnings that you're having from geared for growth or any updates on that hundred to two hundred million dollars of savings that I think you outlined on the last call?

Yeah, sure. Thanks, Adam and appreciate your comments. As we said on the last call, we thought that we would see operating leverage inflect in the second quarter. That was more a result of really kind of good old fashion discipline around expenses and just broader efficiency efforts, less contribution at large from geared for growth. That being said, Adam, our efforts on geared for growth through the first half have been significant. And our plan has had always been that we'd see those benefits start to pay off in the back half of the year. I would say we are at or beyond our expectations in terms of how those efforts are progressing and likewise with respect to the benefits.

So as we approach the back half of the year, those benefits will start to play out and we would expect both our operating leverage and likewise our expense ratio to improve on a sequential basis in the past and certainly end of 2027. Thank you.

Thanks for the question Eric. First I would just say the answer is no in terms of like for like pressure. We operate in a competitive environment but we were deeply focused on ensuring we had this pricing discipline and that we were effectively passing through price increases. So that was not a factor in the core of our business.

The driver was mixed with mixed into infrastructure products. It was mixed at larger dollars here orders and then as you noted with more enterprise customers and as Chris referenced in her prepared remarks very common that we see that in early stages of tech adoption really beginning with some of these larger clients and then making its way down to the middle market. That's part of our encouragement as we are seeing that play out as we speak. That being said kind of in the current period and potentially in the near term you could see more of these larger orders and they just naturally come at slightly lower margins. And Eric I would also just add at the same time our mixed into services was less so.

So I guess maybe further I would just note on the more positive side our netted down revenues really really strong grew 16% 36% of our gross profit. And again we felt really good about the core of our business maintaining healthy margins upholding our cost plus regime in this dynamic environment. Okay though that feedback is incredibly helpful.

Thank you Al. And then maybe just a quick follow up. If I just take some of your modeling thoughts on 3Q some gross margin and pressure year over year but gross profit flat sequentially into 3Q it would imply that revenue is down maybe mid single digits sequentially in 3Q. That's historically worse than seasonality. So just relative to your qualitative comments on backlog or pipeline or breadth of spend that that feels quite prudent. Could you maybe add some kind of granular commentary just making sure we're thinking about that 3Q right and maybe why we would see a below seasonal quarter relative to some of the strength of spender you're alluding to. And that's it for me.

Thank you. Sure. Thanks Eric. Look I would say you have it right. At mid single digits it would be kind of sladdish sequentially. That's really a function of us while certainly more optimistic given the health trends we're seeing we continue to layer in a level of prudence. And so spend is there our pipeline is there through July our written production really really strong and continues to exceed our invoicing leading to a higher backlog. So the underlying metrics are really really strong. We just want to be a bit cautious as we typically are. And so while we raised Q3, Q4 with respect to gross profit we're at mid single digits and so there's a bit of a level of prudence there and likewise like Q2 what I'd say all of the elements are there for us to outperform and that's what we're focused on.

Super thanks to the Colorado best of luck.

Just a second you know dig down a little bit on AI deals that you talked about. I understand initially the adoption is largely with you know larger organizations but just help us understand like as you're thinking about this you know services adoption to follow the infrastructure deals that you're talking about maybe how we should think about you know the services attach rate as we progress through this year and as we think about next year and then in general would we expect this to be margin accretive or these AI specific deals accretive or margin neutral over time. Thank you. Yeah sure Aseah well let's let me start with obviously what's going on right now which is we're seeing a lot of demand and as I mentioned with in the areas of infrastructure cloud security and data foundations so across the full portfolio.

But when you think about the adoption curve which is going to be multi-year and not a single product that requires readiness it requires deployment it requires integration it requires optimization and ongoing operations and services is in every single component of those requirements. So when you say attach rate I would say there's a catch rate opportunity but more importantly our services are embedded at every stage of the need around AI. Adoption is definitely broadening right now as I mentioned beyond large enterprise into as you heard me say health care education commercial and into smaller businesses as well so that's the productization that we're working on in the in the mid market and small and smaller businesses so we can create AI solutions that are scalable and proven in the in the real world.

I'd also say that when you think about inference near users and the data edge is next and there will be incremental demand for edge infrastructure networking security endpoints and in all of those instances again services are critical to the you can expect to see from us continuing growth particularly across the managed services and the recurring nature of those of that business. So we see it as being an increasingly meaningful contributor to our profit growth over the next several years and we're building a durable engine to achieve that. Great thanks and if I can a quick follow up like earlier in the year of course there was a lot of concerns around you know availability of hardware, memory inflation etc. How would you characterize you know what's changed here seems like the backlog still remains pretty elevated for you guys but how would you just characterize availability now of product to help meet this backlog.

Thank you. Thanks Asya. I would call the environment a bit more normalized there is definitely a continued urgency from customers and I think that speaks to their needs particularly on the AI side of things but they've now been at this for three quarters and so I would say things have become more normalized and that's both from a standpoint of expectations vis-a-vis pricing as well as supply chain needs. The backlog does reflect that there are still delays in product delivery but I would say the level of consistency and hitting delivery dates has been better. There is not a level of double orders cancellations and all of those phenomena so when we add that all up we would say the markets become more orderly in our space and more normalized and customers have adapted to the environment so and to that end those variables did not influence our results for the quarter from any meaning in any meaningful way with respect to pull forward or the like it's become more orderly.

Great super helpful thank you so much.