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CDW Corp (New) (NASDAQ:CDW)
Q2 2020 Earnings Call
Aug 5, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Jake, and I will be your conference operator today. At this time, I would now like to welcome everyone to the CDW Second Quarter 2020 Earnings Call. [Operator Instructions]

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

Brittany A. Smith -- Vice President of Investor Relations 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 of this webcast will be posted to our website later today. I also want to remind you that this conference call is a 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.

Christine A. Leahy -- Chief Executive Officer

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' end 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 million, 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 solutions, 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 set. 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 focused 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 client devices, accessories, collaboration tools, security, software and cloud offerings to help customers build these capabilities and achieve their goals. At the end of the first quarter, we had strategic stocking positions in key remote enablement categories to meet expected customer demand. During the second quarter, we continued to leverage our distribution centers, extensive logistics capabilities, deep vendor partner relationships and strong balance sheet and liquidity position to successfully navigate supply challenges. We continued 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 digits. 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 writings impacted subsequent month performance.

During the quarter, Corporate and Small Business customers' spend was prioritized on three areas: first, remote work enablement and new used cases, driving notebook and mobile device spend; second, infrastructure support and optimization, which resulted in strong growth in cloud offerings 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 contracts and licenses. The Government team increased net sales 24%. Federal delivered another excellent quarter, with net sales up almost 50%. During the quarter, our Device as a Service solution for the U.S. Census Bureau contributed meaningfully to our Federal results. Field operations to collect data from nonresponders had 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 digits. 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 continued 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 formats. 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 decline in May and June as COVID-related response efforts took priority and budget pressure intensified. Our team continued to work closely with healthcare customers on expanded virtual care capabilities as healthcare delivery in the U.S. fundamentally changes. Other, which represents our U.K. and Canadian operations, decreased 8% on a reported basis. The U.K. 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 in the oil and gas industry in Alberta. As you can see, our second quarter performance was varied across customer end markets. This also drove various performance across our major products and services categories. U.S. hardware was down mid-single digits, 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. Customer spend increased double digits, 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 coworkers. It brings the right talent and strategic capabilities we want to deliver to our customers. We are pleased to welcome IGNW's approximately 170 coworkers 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 CDW's strategic capabilities. During our 35-plus-year history, CDW had a successful track record of evolving with customer needs in the IT industry, in part, through acquisitions.

Our second quarter operating and financial performance reflected the combined impact of our balanced portfolio of customer end markets, 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 of customer end markets. As you know, we have five U.S. sales channels that each generate 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 U.K. and Canadian operations, which, together, delivered over USD two billion of net sales in 2019. The diversity of our customer end markets serves us well, where 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 for 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, our 3-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 and need today and in the future. Today's environment doesn't impact our commitment to be executing our strategy. In fact, it strengthens our resolve so we will emerge stronger than ever. Let me share a few examples of our strategy and 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 work-from-home capabilities. The customer delegated an emergency blanket purchase order for $3.5 million for our team to have full responsibility to develop the right solutions across client devices, remote access, security and its 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 employee's homes. The customer turned to us due to our robust e-commerce platform and extensive logistics capabilities. Our team created a digital catalog that integrated CDW and the customer's e-procurement system, making the 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 canceled RFP midstream to award us another meaningful engagement. Another example is a 5,000-student 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 a 2-week 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 time frame. These examples highlight CDW's 3-part strategy for growth, including CDW as a trusted advisor, and how IT is crucial to achieving our customers' objective. 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 coworkers, serve the machine-driven needs of our customers and support our communities. Our office coworkers are still working from home. We have excellent IT capabilities and a culture of collaboration so coworker 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 coworkers 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 equipments, 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 workers safe in these settings as well. Our teams have done a great job adapting to virtual channels to ensure we reach our customers and we continue to develop our coworkers. 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 certifications, almost double last year's activity. Our marketing and events and coworker services teams have done an excellent job adapting to the current 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 markets. For Q3-to-date writing, the rate of decline has stabilized for our most impacted customer end markets, and trends for more resilient customer end markets continue. While encouraging, we believe it's premature to call this a trend as weekly writings 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 IT resources and solve some of their toughest challenges. We believe that technology will be more essential to all sectors of 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 technologies. We are committed to investing in our 3-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 impacts 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 Collin will share some more details on our financial performance. Collin?

Collin B. Kebo -- Senior Vice President and Chief Financial Offier

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 nine. 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 recognize 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 coworkers. As we always do, we are closely monitoring our cost structure relative to the demand environment. Coworker 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 coworker count increased 265, with approximately 120 of the increase from the Aptris acquisition last fall, and the remaining from organic coworker investments. Our recently completed acquisition of IGNW adds approximately 170 coworkers, most of whom are customer-facing technical coworkers. 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 on 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 slide s 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 100 I'm sorry, 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 3-month average cash conversion cycle was 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 mixed 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 continued 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 customers' 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 and confidence in the cash flow generation capability of the business. Second, ensure we have the right capital structure in place. We remain 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 is 3.6% so cash interest is manageable; and three, our debt capital structure is covenant-light. 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 active evaluating targets, and we'll 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 and 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 remains 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-light model, historically running around 0.5 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. Freight 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 Device as a 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. [Operator Instructions]

Questions and Answers:

Operator

We have a question from Adam Tindle with Raymond James.

Adam Tindle -- Raymond James -- Analyst

Hi, thanks. Good morning. Chris, I just wanted to start with a strategic question. I think about CDW's competitive advantages of 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.

Christine A. Leahy -- Chief Executive Officer

Sure, Adam. Yes, we are we have 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 mandates to evolve and transform from a 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 have 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. You know, the financial situation that we see and 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, credible and is around for the long term.

Adam Tindle -- Raymond James -- Analyst

Okay. And as a follow-up, maybe Collin can weigh in, I just had a question operationally. Operating profit dollar declines essentially matched the revenue decline, so there was very little decremental margin here. I know the variable cost structure probably helps but portions of the business are 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 B. Kebo -- Senior Vice President and Chief Financial Offier

Yes. Adam, there were if I understand your question, I think it was why wasn't there more deleverage? There were a couple of 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 the receivable 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 -- Analyst

Understood. Thank you very much.

Operator

We have a question from Matt Cabral with Credit Suisse.

Matt Cabral -- Credit Suisse -- Analyst

Thank you. Chris, you talked about the pace of decline in 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 and translating into shipment or revenue trends? And maybe, more broadly, just hitting on the health of IT budgets at this point as we're thinking about the balance of the year?

Christine A. Leahy -- Chief Executive Officer

Hi, Matt. Yes, 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 were to take Corporate, for example, across industry, across geography, and different areas are getting hit differently. So different geographies. You've got oil and gas in the south suffering a little for 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 is really going to be a reflection on the economy in this health crisis, which we continue to believe is just, yes, unpredictable. There's not a lot of visibility there. That said, and back to your writings question, yes, 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 Matt, what I would leave you with is technology is the top of everybody's mind. 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 -- Analyst

Got it. And then I think I heard in the prepared remarks solutions are down double digits. Just wondering if you'd 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 of 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?

Christine A. Leahy -- Chief Executive Officer

Yes, it'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 toward cloud and moving toward 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 -- Analyst

Thank you.

Operator

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

Amit Daryanani -- Evercore -- Analyst

Thanks. Good morning, guys. I guess I've got 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 B. Kebo -- Senior Vice President and Chief Financial Offier

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 product, there's mix. So for example, desktops happen 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 -- Analyst

Got it. That's helpful. And then I was hoping to get your perspective on client devices or 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 most of the industry data centers said 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?

Christine A. Leahy -- Chief Executive Officer

Yes. Amit...

Collin B. Kebo -- Senior Vice President and Chief Financial Offier

Do you want to start, Chris?

Christine A. Leahy -- Chief Executive Officer

Yes. So yes, Amit, the client device, obviously, was very strong. And we did take a 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, at pre-COVID, we thought we were kind of in the late innings around PC refresh and the Win 10 upgrade. And so that will continue. So if we think about going forward, certainly, work from home, we think, will be a trend, mid-six. It will be we think, fundamentally, how people worked 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 our client. And we've got devices that were out there past three, four years ago now, in 2017, where there might be refresh opportunities there. Obviously, the economic environment and employment could 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 B. Kebo -- Senior Vice President and Chief Financial Offier

Yes. The only thing I was going to add is, Amit, 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 a lag in that. Obviously, we saw very strong growth in client devices through in the first quarter and in April as we back 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 have been pretty well depleted.

Amit Daryanani -- Evercore -- Analyst

Perfect. Now that's absolutely a fair point then. Sorry, go ahead.

Christine A. Leahy -- Chief Executive Officer

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 -- Analyst

Perfect. Thank you.

Operator

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

Katy Huberty -- Morgan Stanley -- Analyst

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? Your 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.

Christine A. Leahy -- Chief Executive Officer

Yes. Katy, I'll start. I think what we see is there are 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 top line, that's when we tend to outgrow by the 200 to 300, or 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 -- Analyst

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?

Christine A. Leahy -- Chief Executive Officer

We don't have a collective view that we're sharing. There are so many data points out there that are so disparate. 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 -- Analyst

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 B. Kebo -- Senior Vice President and Chief Financial Offier

Yes.

Christine A. Leahy -- Chief Executive Officer

That means the rate of the sorry.

Collin B. Kebo -- Senior Vice President and Chief Financial Offier

I'm sorry. Just to clarify, I think what I was trying to do in my comments was, particularly on the commercial side of the business in Corporate and Small Business, give an indication of the I'll call it, 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 -- Analyst

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 -- Analyst

Hi. Thank you for taking my question. 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?

Christine A. Leahy -- Chief Executive Officer

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 thought 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 that sit in certain industries, hospitality and things like that, who are suffering a little more, others who are 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 this 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 this really affirms our diversification strategy and provides optimism in the confidence 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 -- Analyst

Okay, Chris, appreciate it. One question for you, Collin. How should we think about SG&A as a percent 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?

Collin B. Kebo -- Senior Vice President and Chief Financial Offier

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 will 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 -- Analyst

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

Collin B. Kebo -- Senior Vice President and Chief Financial Offier

Thank you.

Christine A. Leahy -- Chief Executive Officer

Thank you.

Operator

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

Shannon Cross -- Cross Research -- Analyst

Thank you very much for taking my question. My first is just regarding what you're seeing in terms of extended maintenance, shorter 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 can kind of talk about how this compares. And then I have a follow-up.

Collin B. Kebo -- Senior Vice President and Chief Financial Offier

Yes. I mean 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 2015, 2016 period. We saw our customers sweating assets at that point in time. Maybe a little bit more pronounced today than it was back in 2015, 2016, but I think that's logical, just given the severity of the crisis relative to the slowdown we saw back then.

Christine A. Leahy -- Chief Executive Officer

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 -- Analyst

Great. And then how do we think about Education budgets? And 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. And clearly, there are a lot of kids out there who don't have access to Chromebooks, or who are 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 few months, frankly.

Christine A. Leahy -- Chief Executive Officer

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 have a highly seasoned sales organization that works with the schools. But the breadth of the solutions that they'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 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 pause on the budget side. Obviously, they've got concerns around various revenue streams.

And the solutions side of the business there in terms of on-campus, robust network support, etc, has been stalling a little bit. But we are starting to see a pickup when it comes to remote enablement and devices and would expect that to continue as the schools get sorted out coming into this the September-October time frame. In terms of the timing of funds flowing through, I don't have a particular time frame 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 quite good at 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 bill that we see that makes it through.

Shannon Cross -- Cross Research -- Analyst

Great. Thank you.

Operator

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

Ted Starck-King -- William Blair -- Analyst

Hey, thanks for taking my questions. I wanted 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 the customer retention rates, both historically and what you're seeing today?

Christine A. Leahy -- Chief Executive Officer

Ted, yes, on acquisition and new clients, we haven't really we haven't shared specific information about numbers of acquisition and penetration rate. But I would say that it is 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, OK, 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, the assertiveness and the success with our acquisition programs right now. And the second question, Ted, was oh, on 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 a satisfaction perspective.

Collin B. Kebo -- Senior Vice President and Chief Financial Offier

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 -- Analyst

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 what would that how would that kind of make its way through the P&L?

Collin B. Kebo -- Senior Vice President and Chief Financial Offier

Yes. I mean when you say the no, 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 area that we're very active in is working with our customers and help helping them understand the variety of vendor partner financing programs that are out there. And that's where we start in 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 tick up a bit, and that's where you would see it in our working capital.

Ted Starck-King -- William Blair -- Analyst

Okay, great. Thank you.

Operator

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

Matt Sheerin -- Stifel -- Analyst

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?

Christine A. Leahy -- Chief Executive Officer

Matt, yes, there are concerns, certainly, we talked about that in 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 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'll help the governments figure out where to get that. But they are struggling a bit now but continuing to spend on the IT needs as that's been prioritized and essential for their workforce and for their mission.

Matt Sheerin -- Stifel -- Analyst

Okay. 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 toward digital transformation to still occur at some point?

Christine A. Leahy -- Chief Executive Officer

I do, Matt. Look, healthcare literally caused the global pandemic virus, and protecting all of us and has been protecting all of us. But they've been forced to cease 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 spectrum. 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 -- Analyst

Thank you.

Operator

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

Keith Housum -- Northcoast Research -- Analyst

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

Christine A. Leahy -- Chief Executive Officer

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 a native 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. We're very active in inbounds. We're very active in outbounds. This organization, IGNW, like Aptris, is a partner that CDW had worked with for some time. So we got to know them very well. We got to know the people and the quality and the culture and their capability. So we will continue to look in the market for opportunistic acquisitions.

Keith Housum -- Northcoast Research -- Analyst

Right.

Collin B. Kebo -- Senior Vice President and Chief Financial Offier

Yes. Keith, 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 two 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 -- Analyst

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 the U.S. the market. Based on that, combined with approach to go on hybrid schooling, not a lot is taking. Is there an expectation that Public will actually have a good rest of the second half of the year, including the fourth quarter?

Collin B. Kebo -- Senior Vice President and Chief Financial Offier

We're 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 in writings and comments about where we think the 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 and 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 wildcard that we 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 multivendors. 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 -- Analyst

Okay. Thank you.

Operator

We have a question from Paul Coster with JPMorgan.

Paul Chung -- JPMorgan -- Analyst

This is Paul Chung on for Coster. 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 canceled? 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?

Christine A. Leahy -- Chief Executive Officer

Well, yes.

Collin B. Kebo -- Senior Vice President and Chief Financial Offier

Yes. I mean in terms of writings, I mean, I think that the commentary we provided on writings for Small Business gives you the 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 that collections held up reasonably well in the quarter.

Paul Chung -- JPMorgan -- Analyst

And then just to follow up on free cash. Very nice performance there kind of despite softer top line and higher capex levels. It looks like you had a bit of a 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?

Collin B. Kebo -- Senior Vice President and Chief Financial Offier

Yes. I mean 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 are 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 on the puts and takes of free cash flow and working capital.

Paul Chung -- JPMorgan -- Analyst

Thank you so much.

Collin B. Kebo -- Senior Vice President and Chief Financial Offier

Thank you.

Operator

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

Christine A. Leahy -- Chief Executive Officer

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 coworkers around the globe and their extraordinary commitment to serving our customers, our partners and all CDW stakeholders. They continuously impress 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 this time. 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

[Operator Closing Remarks]

Duration: 71 minutes

Call participants:

Brittany A. Smith -- Vice President of Investor Relations and Financial Planning and Analysis

Christine A. Leahy -- Chief Executive Officer

Collin B. Kebo -- Senior Vice President and Chief Financial Offier

Adam Tindle -- Raymond James -- Analyst

Matt Cabral -- Credit Suisse -- Analyst

Amit Daryanani -- Evercore -- Analyst

Katy Huberty -- Morgan Stanley -- Analyst

Ruplu Bhattacharya -- Bank of America -- Analyst

Shannon Cross -- Cross Research -- Analyst

Ted Starck-King -- William Blair -- Analyst

Matt Sheerin -- Stifel -- Analyst

Keith Housum -- Northcoast Research -- Analyst

Paul Chung -- JPMorgan -- Analyst

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