Good day, ladies and gentlemen, and welcome to Arrow Electronics, Inc. Fourth Quarter Earnings Conference Call. My name is Chantilly, and I will be your facilitator for today's call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Steve O'Brien. Please proceed, sir.

Thanks, Chantilly. This is Steve O'Brien, Director of Arrow's Investor Relations program. I'll be serving as moderator on today's call. If you'd like to access today's call via webcast, please visit our Investor Relations website at www.arrow.com/investor and click on the webcast icon. With us on the call today are Mike Long, Chairman, President and Chief Executive Officer; Paul Reilly, Executive Vice President, Finance and Operations and Chief Financial Officer; Andy Bryant, Chief Operating Officer, Global Components and Global Enterprise Computing Solutions; Eric Schuck, President, Global Components; and Sean Kerins, President, Global Enterprise Computing Solutions. By now, you should have all received a copy of our earnings release. If not, you can access our release on the Investor Relations section of our website, along with the CFO commentary and the non-GAAP earnings reconciliation for the fourth quarter. Before we get started, I will review Arrow's safe harbor statement. Some of the comments made on today's call may include forward-looking statements, including statements addressing future financial results. These statements are subject to a number of risks and uncertainties that could cause actual results or facts to differ materially from such statements for a variety of reasons. Detailed information about these risks is included in Arrow's SEC filings. We will begin with a few minutes of prepared remarks, which will then be followed by a question-and-answer period. I will now hand the call over to our Chairman, President and CEO, Mike Long.

Thanks, Steve, and thanks to all of you for taking the time to join us today. We delivered a record fourth quarter results, and that completed an outstanding year in 2014. We executed well on our organic strategic initiatives, we continued to deliver best-in-class financial performance and we also returned substantial capital to our shareholders through our buyback program. For the full year of 2014, we delivered a 7% increase in sales, a 12% increase in operating income and a 19% increase in earnings per share. We achieved record sales, gross profit and earnings per share. Our global components business continues to bolster its leading value-added services by expanding design and engineering capabilities. This allows us to deliver an increasing value to both our customers and our suppliers. In the enterprise computing solutions business, we continue to move forward selling comprehensive solutions with a focus on the higher value segment, targeted at the data center. Our software and services businesses are extremely well positioned, whether it's on-premise, in the cloud or a hybrid combination. Our evolution is happening at an increasingly more rapid pace. We've notched many accomplishments and milestones during 2014 that underscore a rapid evolution. Some of these include: launching our proprietary series of IoT and Big Data symposiums to enable our customers and partners to capture the rapid growth afforded by these technologies; we successfully transformed our enterprise computing solutions business so that security and infrastructure software and services have become the majority of our business; the ongoing advancement of our technology portfolio continued at an aggressive pace. In global components, many of our new solutions and suppliers are advancing our opportunities from IoT and design services. In enterprise computing solutions, we're positioning our portfolio to garner a greater piece of the rapidly developing opportunities in security…

Thanks, Mike. Fourth quarter sales of $6.4 billion were towards the upper half of our guidance range. Sales advanced 4% year-over-year, both as reported and then as adjusted for the impact of acquisitions and changes in foreign currencies. In global components, sales of $3.6 billion increased 4% year-over-year at the high end of our guidance. In the Americas, our sales were up 4% year-over-year. In Americas core, sales were up 2% quarter-over-quarter, in line with traditional seasonality. In Europe, sales in constant currency increased significantly, advancing 10% year-over-year with strength across the larger economies of the continent. Sequentially, core sales in Europe were flat in constant currency, which is above normal seasonality. Sales in Asia were also strong year-over-year, growing 8%. Core sales in Asia declined 10% quarter-over-quarter, below traditional seasonality, but in line with our expectations due to both a strong Q3 and a continued economic deceleration in the region. Fourth quarter book-to-bill was 1.03. Sales in our enterprise computing solutions business were $2.8 billion in the fourth quarter, in line with our expectations. In the Americas, sales grew 9% year-over-year and were up 44% sequentially, ahead of traditional seasonality. The ever-expanding need for computing power, our strong execution and our solutions selling efforts all drove the strong revenue growth. In Europe, sales in constant currency advanced 3% year-over-year. As we expected, sequential sales growth on a constant currency basis fell slightly below traditional seasonality. Our consolidated gross profit margin was 12.8% and, year-over-year, gross margins were stable despite a higher mix of Asia components and seasonally lower by 20 basis points sequentially on a higher mix of ECS sales. Total company operating expenses increased 1% year-over-year, adjusted for the impact of acquisitions and changes in foreign currencies. Operating expenses were 20 basis points lower as a percentage of…

Okay. Chantilly -- thank you, Paul. Chantilly, could you please now open up the call to questions at this time.

[Operator Instructions] Your first question comes from the line of Shawn Harrison of Longbow.

Two questions on margins. Just the shortfall at global components relative to the 5% goal for the year and, more particular, the fourth quarter, just kind of what happened. And then on ECS, it looks -- you're bumping up against the high end of the long-term target. Do you take that target higher and potentially where?

Yes, I'll start. The global components business had numerous accomplishments in 2014. And while sales grew, operating income grew 13%, and the operating margin increased 30 basis points. It was a disappoint to us that we didn't hit the 5% in the fourth quarter. There wasn't any one particular thing that drove that. It was really just a sum of investment and sort of the changes of currency. Those types of things. For the full year of 2014, we did improve the operating margin by 10% over 2013. So if you look at where that puts us, that puts 5% right in our sights, and we will be utilizing that as our target for this year. So we don't expect to come off of that target at all. In fact, we expect that by the end of next year, that's right where we'll be. On the computer side, we haven't really taken a complete look yet, yes, we are bumping on the high-end of guidance, part of -- or the high end of our targets. Part of the issue there is really the trend that we've been seeing of movement towards software and our services. And that is obviously at a higher rate for us that we enjoy, and that's something that Sean and team will continue to push. But that change is going to depend on how fast that ultimately takes place over the next couple of years.

Okay, helpful. And then as a follow-up, just, I guess the book-to-bill in January. Where is it tracking versus this time last year? Any signs of kind of negativity out there that you're seeing in the order book?

No. In fact, we're seeing everything right at seasonal. We saw good bookings in the fourth quarter. The first quarter here is on parity, the upper end of parity, right where we would expect it at this time coming off the end of last year. So we don't believe there's any change in the backdrop out there that we have seen for the last couple of quarters.

Your next question comes from the line of Matt Sheerin of Stifel. Matthew Sheerin - Stifel, Nicolaus & Company, Incorporated, Research Division: Just to get back to the guidance on components. I know, by region, you're looking at seasonal trends in Asia and North America, but below seasonal in Europe because of a very strong December quarter. But if I look at your general trends for each quarter or rather for each segment, and add it up, it looks like you're guiding below normal across the board. And is that because of FX and/or because the quarter closes a couple of days early?

Yes, Paul, why don’t you go ahead and give us the info?

To clarify the FX impacts, so -- because we're doing dollar comparisons. So we think, round numbers, that the negative impact on sales is about $175 million. It could be a little bit more, a little bit less. So it's definitely impacting the comparison. As we talk about what we expect from a trend point of view, we talked about in constant currency. So when we talk about Europe, we're talking about in euros.

Yes, and Matt, just one other thing. If you look at the Q1 guidance on ECS, we're really not looking at a decline in that business. And as we've done in the past with that, we've asked you to look at ECS on a longer time frame due to some of those dramatic shifts we've seen in timing between our quarter ending dates and those of our suppliers. And based on our guidance for the March quarter, sales on a 6-month sort of constant currency basis will increase about 6% year-over-year. And that, hopefully, is going to help you. Matthew Sheerin - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay, that's helpful, Mike. And then on the component business, it looks like you're taking a bit of a different strategy than Avnet, your competitor, which seems to be taking more supply chain engagements or a lower-margin fulfillment business in Asia. Looking at your trends in the quarter, which were down, suggests that you're not doing that. What's your strategy around that? And what's your general philosophy about taking that low-margin fulfillment business?

Well, it's really not changed overall, Matt, for us. Our goal is to increase the number of customers we deal with in China. We want to deal more with local manufacturing there. We've done a good job of expanding the base. You saw the 11% increase. We have not had the idea that big supply chain business is going to deliver the types of operating incomes that we're looking at or the types of returns to shareholders that you would like to see. And that really drives how we're doing the business, and we think it's the proper way for us to go-to-market. And I wouldn't be surprised, over time, if you didn't see more divergence.

Your next question comes from the line of Mark Delaney of Goldman Sachs.

For the first question, on operating margins within the computing business, and I know, Mike, you talked a little bit about this already, moving up with -- along with the mix of software and services. Was there anything that you guys were doing on the cost side that we should have in mind that was helping that as well? Or is that almost entirely due to the mix shift?

Right now, we believe that we have a pretty good parity in our costs. And now while I say that, I would say that we have been shifting costs in that business more towards software and services because that's where we've seen the growth. And as you also know, the proprietary servers and industry-standard servers, those types of things, haven't been the most robust. And this has been our answer to improving that business. But as far as coming out and saying we need to take cost out, I would say, no, these guys just had one of the biggest quarters they've ever had. And we don't see it slowing down.

Okay. And just trying to get a sense also on the computing business, for a follow-up question, the underlying organic growth rate within some of the product areas. I know ECS, for the full year, just from the K, was about flat year-over-year on an organic basis for revenue. Obviously, software was up, I think, if I'm -- just looking at K, it was up something like 40% year-on-year. But some of that was from Computerlinks storage maybe down year-on-year. So maybe you can just help us understand what some of the organic growth rates are within computing.

Yes, I think we saw around a 6%. The industry-standard servers for us across both of those businesses was about 15%. Services were 17%, software was 12%. Within that, virtualization was 25%, so pretty big driver. Storage was up 2% and the downticks for us were really on the proprietary server side and the networking side for the year. Networking much smaller and not a big impact. Proprietary servers, a constant story we've been talking about for a couple of years, which is what pushed us to software and services. So hopefully, that gives you the trend that you'd expect to see in the movements that we've done.

Your next question comes from the line of William Stein of SunTrust.

I apologize if I didn't hear, or misunderstood this, but it looks like the systems part of the business came in a bit short of our model and expectations [indiscernible] close to -- you had a combination of FX. Was the FX impact of $137 million that you cited earlier strictly in this segment? Or is this spread across both? And then also, to what degree did the earlier end of the quarter or perhaps, well, did the early end of the quarter affect this? And is there anything else going on that would explain the kind of shortfall in the outlook?

Okay, well, let me try to take a shot at that. It's Paul. The $175 million estimated impact of the lower euro on sales covers both the global components and the global ECS businesses that exist in Europe. So that's a combination of those numbers. I guess when we think about the cutoff, and it's kind of the reason why Mike referred earlier to look at the 6-month block, remember we did that last year, because we run the end of the year through December 31, but we don't cut off at March 31. So we cut off a little bit earlier, but some of our supplies keep shipping through March 31. So that's what we're trying to say. Let's look at a 6-month block of time and try to normalize all the different cutoffs that exist between whose year-end is December 31, whose year-end is March 31 or quarter end is March 31. So I mean we don't think we see anything here that's an indication that we have a shortfall or we're not trending the right way. I mean, fact of the matter is, we feel pretty darn good about the performance, not only in the past several years in ECS but where we are positioned to go forward, including the short term in Q1.

Okay, understood. Maybe switching to the components business. I think you had a stronger-than-expected quarter there. You gave us some geo explanation, but I'm wondering if you could comment from an end market perspective. And then in terms of which areas might have been the strongest? And then also, in the outlook, do you expect the lower price of oil -- or are you seeing the lower price of oil have an effect on your industrial market?

So really for the Americas business, we do expect to be in line with our seasonality. And we saw transportation, alternative energy and lighting as being the big drivers in the quarter. In Europe, we saw aerospace and defense, medical devices and transportation, again, which includes automotive for us, was also strong in that region. And we saw industrial power and transportation strong in Asia Pac. So all in all, we had really some good vertical growth, which was good to see because I expected to start spreading out some of the suppliers, or smaller suppliers, especially when you look at automotive, those types of things. I'm not going to forecast oil. We still have shipping rates. If we can get any benefit, it's going to be on the transportation side of moving our products around. I think it's going to take a while for it to move into silicon, but if you think it's fast, then I'll take the benefit. How's that?

Your next question comes from the line of Brian Alexander of Raymond James. Brian G. Alexander - Raymond James & Associates, Inc., Research Division: Mike, when you talk about the components margin target of 5%, is that for the full year 2015 or is that exiting 2015? I ask because I know normal seasonality for Q1 margins is typically up, and I think you can get close to that 5% or it would make sense that you can get close to the 5% for the first quarter then, typically, you kind of trail off throughout the year, assuming normal seasonality. So I just wanted to get some clarity, if that is for the full year, just maybe walk us through what gives you the confidence in that given the normal seasonal trends suggest that might be difficult.

Well, the -- we expect it to be 5% for the year, Brian. We do expect to have a good first quarter. And while it trails off, it sort of does that U shape, as we have the holidays in the summer. But we believe that Andy and Eric have positioned the business to make it happen. We have sort of the 6 quarters of the uptick. I would have loved for it to have been a little bit better. And if the end markets hold the way that we think they are now on our plan, we really don't see a problem with getting there. Brian G. Alexander - Raymond James & Associates, Inc., Research Division: Okay. And then my follow-up, on the components business in Europe, what do you think drove the better-than-expected performance in the fourth quarter? And then if I look at the Q1 guidance, even though it's at the low end of seasonality, if you look at it year-over-year and you extract currency, it looks like you should be up double digits year-over-year in Europe components in local currency. And I'm just trying to understand, given the macro conditions over in Europe, what is driving the strong performance and why do you expect that to continue?

First off, the team has done a good job of increasing the customer base over there. I think we had mentioned, the last couple of times that we have put some investment in additional sales force in Europe, that's helped us gain some share. The other thing is that we did complete the ERP conversion in Europe. And the Europeans have started to figure out how to use that to their benefit. And remember, when you put that in, you do have a little bit of a hiccup in your performance, and they've come around and actually grown share and increased the customer base. Paul, do you want to add to that?

Brian, just one other thing, because everybody keeps -- wants to look around, we've been so successful in being more efficient, more effective. Here's a great example where we were able to be more efficient, and really we ended up not needing 90 internally focused people anymore. We didn't drop it to the bottom line. We put that into 90 more sales and engineering people in Europe to drive more sales. So while you don’t necessarily see expense reductions, as folks sometimes ask about, we're redirecting our resources to those folks that generate much more in the way of sales and GP dollars, and that gets us incredible leverage. And in the end, we're self-funding part of our growth, which I think is a pretty cool compliment to the management team in Europe.

Your next question comes from the line of Steven Fox of Cross Research.

Just stepping back a little bit on the components business. If I look at the last 6 quarters of organic growth, you've been positive now for those 6 quarters, and most of them have been sort of in that 4% to 6% range. But at the same time, it seems like you're still talking about sort of a "stable" market. So can you just sort of close the gap between your top line organic growth versus sort of stable overall macro trends on a global basis, if I have that right, how much success you're having in some of these high-volume engagements versus some of the new markets, et cetera. That would be helpful.

Yes. Eric, do you want to take a shot at that?

Yes. So Steven, this is Eric. You're right, if we take a look at the overall economic backdrop in all 3 regions, it's been pretty much muted and stable over the last several quarters. That being said, as Paul pointed out earlier, we've made investments in all regions to shift resources from back-office to front-office in the form of both sales reps and engineering resources to continue to be able to grow consistently in this lackluster economic backdrop that we're in. So we'll continue to do that in 2015, and we'll continue to focus in areas that both expand our customer base as well as help diversify the product mix that we have across our portfolio.

Great. That's helpful. And then just, Paul, one question on cash flow going forward. So I understand the unusual cash flow this quarter. So if we x-ed out the calendar issues for the quarter and assume that's sort of a normal cash flow for Q4, normal asset turns, et cetera, do we expect to see any improvement in terms of working capital velocity this year? How would you describe sort of those targets if you have sort of a modest growth environment?

Sure, well, this is probably the fifth year in a row that we've improved working capital velocity, and we don't expect that to change going into 2015. When I look at it, what I think is while we've been able to do this improvement, we also really haven't changed dramatically maybe inventory turns, but we've improved the quality of our inventory. So you've heard us talk about this in the past, Steve, where we focus on inventory that only turns 1x or 2x, as an example. We want to get more of the right inventory and less of the wrong inventory. So that gives us a benefit. So we'll continue to make improvement in working capital per sales dollar across the region, whether it's, in part, because of the UNITY tool, the ERP tool that Mike referenced; whether it's good old basic type improvement, blocking and tackling; or even some of the initiatives that we have in ECS Europe, where we've built up a leading platform through M&A. Now we have an opportunity to become more efficient and have greater standardization, if you will, of how we approach the working capital. And we're going to get better there also. So no home runs, per se, no big headline-type things, but continuing to build on success we've had for the last 5 years. So much like 2014 had improvement, we'll have improvement in 2015.

Your next question comes from the line of Amitabh Passi of UBS.

This is Tejas on behalf of Amitabh. I was hoping you could talk a little bit about demand trends by product subcategory in GECS, servers, networking, security and software.

Could you repeat the question, please? It came a little broken on this side.

Sure. I was hoping you could talk a little bit about demand trends by products subcategory in GECS, so servers, networking, security and software.

Sure. Sean, you want to take a stab at it?

Yes. Sure, I'll be glad to. Well, Mike walked through the growth rates by category for us in Q4, but in general, the demand trends are moving a little bit away from the hardware-only plays in the data center, to those solutions that include infrastructure software, to things like virtualization, automation and orchestration, middleware, and certainly, solutions that include security. So we're well positioned for that mix shift as it continues to occur. We're repositioning our line card and our resources to take advantage of that. And I think that trend will continue, as Paul said.

Your next question comes from the line of Ananda Baruah of Brean Capital.

I guess a couple, if I could. Mike, could you talk to, for the March quarter guidance, what the gross margin trends are that we should expect in the context of what you provided? And I have a couple of follow-ups.

Paul, you want to?

Sure. So we expect to see something very close to the seasonal trend, which would mean that GP percent would go up because of a change in mix, right? So we see, first off, that Asia will celebrate the Chinese New Year. We wish them the best, but that's in the first quarter. That reduces the amount of mix that we have from them. And also, we have a dramatic seasonal decline in the ECS business. So that changes the mix also. So GP would trend up, much like we've seen seasonally over the last several years.

Right, nothing unusual. So that sounds good there. Just wanted to circle back to your comments about Europe being a little bit softer than seasonal during the December quarter. Was that -- do you believe that to be macro related? I think that was a constant currency comment. Do you believe that to be macro-related sort of simplistically or is there anything else that you saw that could have caused that as well?

If we can just ask, as a point of clarity, you're talking about components or you're talking about ECS?

I mean, I was talking about with regards to the comment that was made at the beginning of the call. I thought it was an ECS comment, but I may have -- I thought it to be an ECS comment.

Yes. So for ECS, in Europe specifically, we had a good fourth quarter. The close may not have been quite as strong as what we saw in North America but, in particular, they had a very strong quarter in renewal services, which creates a little bit of a downdraft at the sales line, but I think accounts for the fact that we still had billings growth on a euro basis in the quarter. And I would also say that activity levels seemed to remain healthy as we've rolled into Q1. At this point in our new quarter, we're up year-to-date. So I don't see anything there that would give us great concern.

Your next question comes from the line of Sherri Scribner of Deutsche Bank.

I was hoping to get a little more detail on how much computing -- or I'm sorry, cloud is as a percentage of your sales. At this point, it looks like, I'm assuming it's in the other line so it's still probably small, but I know that it's growing. And then also, with the shift to more software sales and more cloud solutions and services sales, would you expect the operating margins in the ECS segment to improve over time? And should we reset those operating margin expectations?

Yes, Sherri, we spoke about that before. We'll take a look. And part of not resetting them right now was we'll probably go through most of the year to see what kind of transition there is in our product mix. At what speed, rate and pace. As you know, we've already seen a pretty good pace of that. And if that continues then, of course, we would be increasing those targets. I don't actually have a number for you right now because I can't tell you exactly how much has been split between the normal mode and the way you're referring to cloud. Maybe Sean can give you some on-premise, off-premise or some hybrid information if he's got it, that might help you.

Yes, Sherri, what I can say is last quarter, we talked about our strategy, which is to make sure we're providing the right solutions, be they on-premise, off-premise, some combination of the 2. And that strategy really speaks to the cloud solution portfolio we're building. I think after Q3, our third quarter, I told you that we were approaching a run rate of $50 million on a billings basis, and what I can tell you is that, in the fourth quarter, that run rate improved.

Okay. And then, Paul, can you just remind us how much more we have left in the restructuring in terms of charges going forward?

Sherri, we'll come back to you on that. I don't have the information with me. It's impacted, obviously, by the accounting rules. So we can take that off-line, I'd be happy to come back and give you that information.

Your next question comes from the line of Lou Miscioscia of CLSA.

Okay. All right, so continuing on the ECS side. The 9% growth year-over-year in the Americas, was that organic or was there a portion of that, that was acquisition, and maybe we can get the organic number? And then I have a follow-up to that.

Yes, Lou. Sean Kerins here. A portion of that was related to acquisition. Computerlinks had a security business in North America. We benefited, in part, from that. But the majority of that growth was organic.

Okay. And then my follow-up was sort of in line with the last question on cloud, is that are you seeing a big shift over to the SaaS solutions and reselling in the sense that, that's much more -- obviously, it's either a monthly or quarterly, as opposed to taking that revenue all upfront? And obviously, we've seen some very big tech companies that actually end up seeing much slower growth because of that transition. Obviously, 9% wouldn't suggest that you're seeing slower growth, but just curious if it's getting to the point where it's getting big enough that it's going to be material and/or whether that -- you think that, that will happen when it does come in?

Yes, so Lou, what I would say is, given the space we play in which involves enterprise workflows, these trends are evolving over time, not overnight. And I think the number I just shared as compared to our business in total would tell you that the shift from a recurring -- or to a recurring revenue model would not impact us in any significant way. So we'll continue to execute on the strategy, but I don't think that we'll see any risks associated with the conversion of revenues in a way that you described.

At this time, this ends the Q&A session, and I would like to turn the call back over to Steve O'Brien for closing. Please proceed.

Thank you, Chantilly. If you have any questions about the information presented today, please feel free to contact me. Thank you for your interest in Arrow Electronics, and have a nice day.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.