Good day, ladies and gentlemen, and welcome to the Arrow Electronics First Quarter 2016 Earnings Conference Call. My name is Santita, and I'll be your operator for today. As a reminder, this call 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.

Thanks, Santita and good day and welcome to Arrow Electronics first quarter 2016 conference call. 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 King, President, Global Components; and Sean Kerins, President, Global Enterprise Computing Solutions. As a reminder, you can access our earnings release at investor.arrow.com, along with the CFO commentary, the non-GAAP earnings reconciliation, and a webcast of this call. 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 to our Chairman, President and CEO, Mike Long. Michael J. Long - Chairman, President & Chief Executive Officer: Thanks, Steve and thanks to all of you for taking the time to join us today. In the first quarter, both our global components and our global enterprise computing solutions businesses, again grew faster than the overall economic and IT spending backdrop. We continue to identify market trends, and the industry direction ahead of our competitors. We've been investing ahead of the curve and our first quarter results clearly demonstrate the returns on those investments. We posted strong results in the first quarter of 2016, with record first quarter sales and earnings per share. Sales and earnings per share were also above the midpoints of our expectations. Both business segments and all regions delivered year-over-year growth. Our first quarter 2016 global components sales advanced 10% year-over-year or above market growth, it was driven by globally adding over 500 customer facing sales people and engineers over the last two years. Europe again delivered a robust sales growth for this quarter and our Americas business returned to growth as we anticipated. Asia sales exceeded our own expectations, and…

Thank you, Paul. Santita, could you please give the instructions and open up the call to questions at this time?

Your first question comes from the line of Shawn Harrison. Please proceed.

Hi, everyone. I wanted to delve into the ECS trends, given just the volatility and the concern on that business. It doesn't look like you've seen any deceleration, but if you could talk to particularly any of the categories, whether you saw any abnormal linearity or deceleration, and do you have any expectation of that going forward? Michael J. Long - Chairman, President & Chief Executive Officer: Thanks, Shawn. I'll start and then Sean can – or Sean can add some color. We saw overall 36% growth in our software, so we've seen acceleration there. Virtualization, infrastructure, software up 48%, networking is up 8%, services were up 10%. Pretty much across the categories we're up. We're also aware of the storage changes, what's interesting, I think our solid-state storage, I'm not sure what that doubled or something like that. The truth is that we're seeing very minimal backlash from that. We noticed that more than a year ago. Overall, I would have to say right now we're seeing robust billings, we're seeing robust bookings, and our backlogs are up. So, we've been pretty satisfied with the approach we've taken. As you know, we put our software business in place some three years ago. We saw the trend moving from hardware to software and I think we've successfully mitigated the risks that everybody is sort of talking about today. Sean, anything to add to that?

No, well said Mike. I think the key word for us is really balance across the portfolio. It's been some years now that we have pivoted to a market that I think is going to be increasingly dominated by software-based solutions. And so we have a really complete data center portfolio, and to Mike's point, it helps mitigate some of the puts and takes around legacy technologies as they continue to evolve.

And then as a follow-up. Cloud being up, I believe the stat was 90% year-over-year. If you can just remind us how you define cloud and if there is a revenue run rate you can associate with that, that 90% up year-over-year too? Michael J. Long - Chairman, President & Chief Executive Officer: Yeah. So, there is about a 100 unique offerings that we have around cloud. We have our ArrowSphere platform, which is a digital platform really for cloud enablement. The 90%, if you could compare to us to any born in the cloud sort of startup, I would have to say we are probably exceeding most of the sales of those, that probably right now we are on about a little more than $200 million run rate coming out of the first quarter.

Okay. Thanks, Mike, and congrats on the results. Michael J. Long - Chairman, President & Chief Executive Officer: Thanks.

Your next question comes from the line of Mark Delaney. Please proceed. Mark Delaney - Goldman Sachs & Co.: Yes, good afternoon. Thanks very much for taking the questions. And first, Paul, I wanted to congratulate you on a very great career and wish you the best going forward. Paul Joseph Reilly - Executive Vice President, Finance and Operations & Chief Financial Officer: Thanks, Mark. Mark Delaney - Goldman Sachs & Co.: Question on ECS, and following on Shawn's question. I mean, per my model, enterprise computing solution to me, revenue has grown faster organically year-over-year than that segment of your closest competitor in six quarters of the last seven quarters. And I think gross margins there are now at the highest level they've been in a couple of years. Mike, you talked about some of the metrics and the growth in certain categories that are helping to drive those good results. Maybe you can help us size what percentage some of those categories are like security, flash-based storage and cloud and then maybe how much exposure you still maybe have to some of the areas like disk-based storage that are seeing some more pressure? Michael J. Long - Chairman, President & Chief Executive Officer: Yeah, yeah, sure. It's been interesting, and we've exposed some of this in the past. But on a billings basis, our software is now around 40% of the company. Our services are up to about 15%. So, you've seen steady growth in services over the last few years. Networking is approximately 5%, storage is approximately 25%, and that includes rotating and solid state in that number. So that will give you sort of a view of where we are. And what's even interesting is that given the fact that we've done solutions, our industry standard…

Your next question comes from the line of Steven Fox. Please proceed.

Hi. Good afternoon. Can you hear me, okay? Michael J. Long - Chairman, President & Chief Executive Officer: Yeah. You're a little light, but I think we can make it out, Steve. Thanks.

Okay. So, I'll speak up, but first of all congratulations to Paul. And then, in terms of just going forward, looking at two key metrics, margins and cash flows, if we look at LTM cash flows for example, how close do you think forward cash flows will be the last 12 months and what could be the differences going forward? And then secondly, you mentioned margin expansion. In the context of everything that you've been doing with the sales force and adding customers, like can you describe maybe what the net drag is versus net gains are there that can help margins in the second half of the year? Thanks. Paul Joseph Reilly - Executive Vice President, Finance and Operations & Chief Financial Officer: Sure. Let me take the cash flow question first, Steve. So, when I look at it, remember that we have a target, a stated target to convert GAAP net income into 70% cash flow from operations. We've far exceeded that because the progress we've made both from a profitability standpoint and from managing working capital better than we ever thought we could. It's hard to call what's going to happen in the next three or four quarters, but I do know that we're going to make more progress in cash flow as we further roll out the Unity tool here in the United States, and then really have a global view into inventory. So, I'm looking more long-term than the short-term around cash flow. We'll continue to make improvement there. I don't know if the next 12 months we'll have an $860 million number. What I will know is that, the progress we're making managing the balance sheet, working capital, the profitability increase we're driving, means we're going to have very strong cash flow as we…

No. That's very helpful. I appreciate that and I look forward to seeing Paul at a Mets game in the future. Thanks. Michael J. Long - Chairman, President & Chief Executive Officer: Yeah.

Your next question comes from the line of Param Singh. Please proceed. Paramveer Singh - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Hi. Thank you Mike, Paul for taking my questions. So, firstly on the ECS side. Some of the analysts have talked about cloud taking share away from your traditional SMB customers and conversely also growing some cloud revenue. So how much of an offset is that negative impact to your $200 million right now in your opinion, and can that drive away from traditional hardware sales and potentially in terms of software attach? And also, on the ECS side your operating margin, you're on track to be ahead of your long-term target there. So I mean would you think about investing more in sales people there or potentially taking up your target for that segment? And then I had a follow-up. Michael J. Long - Chairman, President & Chief Executive Officer: Yeah. In terms of the investments I'll address that. The answer is, yes. We are investing. We are investing what we think is at an appropriate pace in the computer business today. Certainly, we have investments that will be ongoing around cloud. I think that's been an important area for us. We're still investing on the storage transition that has coming into play and we've been putting effort into that for some time. We're investing in the networking side of our business. We continue to invest in the software side. So we have really investments around that total solution cell that we've talked about. In terms of some of the specificity that you're looking for, I'm going to let Sean take that one.

Thanks, Param. People sometimes pose this question around cloud as a threat and actually we really see it as an opportunity. And what I mean by that is, think about where we play, which is substantially in the enterprise data center. And those environments are pretty complex, the applications and workloads associated with them are pretty sophisticated and highly integrated. And the truth is, we don't see that they lend themselves to disruption easily from the public cloud model, certainly not as easily as some might suggest. What I actually see happening in the enterprise is a migration to what I'd call the hybrid cloud adoption model or a hybrid cloud selling motion. So let me give you an example of what that means. We sell a whole lot of storage infrastructure on-premise, imagine that now we also get to attach backup and recovery solutions as a service from third-party cloud providers to that on-premise environment. We also get to sell a whole lot of security and a whole lot of security firewalls. Imagine, now that we get the chance to attach a threat detection solution as a service to those on-premise environments coincident with the security solution, now we're leveraging that great big installed base that we helped build. Now, we're actually bringing multiple vendors together to form a single solution, and now we're actually participating in the market for hybrid cloud. So, I think that's where we're headed and we'll continue to build our line card to represent the installed base we serve. You saw the Microsoft announcement yesterday. That's just yet another proof point. And I think we're starting to find some traction in the hybrid cloud model and I don't fear disruption from the public cloud players. Paramveer Singh - Merrill Lynch, Pierce, Fenner & Smith, Inc.: And in that vein, have you seen your software attach or services attach increase for your ECS segment and how's that trended over the past few years?

Yes. We have Param, and you could think about a portion of our services as really being a function of our installed base. So, as our hardware footprint continues to grow, we get to participate in the maintenance contract renewals associated with it. And at the same time, as software becomes a much bigger piece of our portfolio, that also brings about either a perpetual license renewal or increasingly, of late, a subscription-based SaaS opportunity which also has an annuity effect to it. So, I think the growth and the breadth of our installed base bodes well for our services mix over time. Paramveer Singh - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Got it. And then for my follow-up. Your book-to-bill was 1.07 for the quarter, your design activity is up 60% like you said year-over-year. Why are you only guiding seasonal on the components business, is it just some conservatism built into your projection there or is there something else that I'd be missing? Michael J. Long - Chairman, President & Chief Executive Officer: I would have to ask you what was your guidance and was there conservatism built into that or did you think that was a stretch for us? Because I think in all seriousness, we saw the average increases in our sales which was good. But in order to really kick that up, we would have probably wanted to be around the 1.1 book-to-bill. What's interesting is, I think in the first three weeks of this quarter we're at a 1.13 book-to-bill. So, if you'd project out and if those bookings were to hold, which I'd say is very good for this time in the quarter and very good for this time of year, you would expect a good start in the second half based off of that. So, I think there is a good number that we put out there for the quarter. It's one that, yeah, we're confident in. And again if the bookings hold at the rate they are right now, I would expect that to increase going into the second half. And that's sort of what you do as you live with the prior quarter bookings and maybe even four months ahead. So does that help? Paramveer Singh - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Yeah, absolutely. Thanks a lot. Michael J. Long - Chairman, President & Chief Executive Officer: Yeah. Paramveer Singh - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Paul, good luck on your retirement. Paul Joseph Reilly - Executive Vice President, Finance and Operations & Chief Financial Officer: Thank you.

Your next question comes from the line of Matt Sheerin. Please proceed. Matthew Sheerin - Stifel, Nicolaus & Co., Inc.: Yes, thanks. Just a couple for me. Just regarding your commentary on the Asia component business and the strength that you're seeing in the smaller OEM, the local OEM customers there, is that a function of share gains? Because I know obviously there's some economic concerns for China, but it sounds like you're either taking share or you're seeing growth in some of those end markets there? Michael J. Long - Chairman, President & Chief Executive Officer: Matt, this is Mike. The biggest gains we are seeing we believe are share gains in China. Primarily, China is where we're seeing the uptick in the small to medium business accounts. Andy has put more engineers and more sales people there and we're starting to see some of the benefits of that. What's interesting is, the transportation piece and the wireless piece of our business continue to grow. We're seeing some of the old stalwarts of lighting and industrial power waning a hair. But as we said, we added 600 new accounts, which is a very large number of net accounts to add over the course of the year. And we think that we're going to see some pretty good benefit to that. Andy, you want to add some more around the market share piece or? Andy King - Vice President & President-Global Components: Nothing. I think you hit it straight on Mike, I think it's a pretty much market share. We've invested primarily in sales and engineering resources to go precisely after that local indigenous small and medium-sized customer base. And we're seeing that payoff in terms of customer account, we are seeing that payoff in terms of design registrations, and…

Your next question comes from the line of Brian Alexander. Please proceed. Brian G. Alexander - Raymond James & Associates, Inc.: Okay. Thanks. Let me also congratulate Paul on retirement, and Chris on his promotion. Paul, I wanted to revisit the comments about second half operating leverage. Can you just clarify whether you're expecting operating margins to expand in the second half given your comments about improved productivity, but also considering that margins look like they're going to be down in the first half? And if you do expect them to expand, any sense of magnitude and whether you would expect to see margins up in both segments? Right now, they're up in computing, but down in components. Thanks. Paul Joseph Reilly - Executive Vice President, Finance and Operations & Chief Financial Officer: Yeah. Thank you, Brian. Yeah, I apologize for the confusion. I was really referencing the increase in the global components business. I was not expecting any type of gross margin change. In fact what I was really referencing was our expense program that we had talked about last year. We're making good progress. I expect this will be at full run rate as we enter the third quarter and we'll start to see the benefits of that. So that's really what I was referring to around margin expansion. With that, so also to keep in mind that the leverage we get in the business should also drive margin expansion. As we've had a couple, three quarters now in a row where our global components business is out-bidding the market. Brian G. Alexander - Raymond James & Associates, Inc.: So do you think this will be enough to get the components business to that 5% hurdle that I know you've been striving to achieve for this year? Paul…

Your next question comes from the line of Jim Suva. Please proceed.

Thank you and congratulations on your results and especially to Paul you're going to be greatly missed. A question for Paul and then probably the other one is for Mike and Chris. Paul, I think in your press announcements you talked about two acquisitions, can you quantify the impact of those in your June quarter guidance? I assume they will be closed if not already closed by now, do they have some type of impact on the sales and EPS? And then maybe for Chris and Mike, just to clarify, when you guys talked about the operating improvements in the second half, are you referring to kind of off the March and June quarter or are you referring to year-over-year operating margin improvements or like SG&A leverage, I'm trying to get the baseline of what the reference point is when you talk about operating margins improvements in the second half of the year? Thank you. Paul Joseph Reilly - Executive Vice President, Finance and Operations & Chief Financial Officer: Sure, Jim. So, the two acquisitions we did were modest compared to Arrow Electronics, Inc. The run rate for those two acquisitions is probably about $50 million for Q2, and a nominal impact of maybe $0.01 or so on earnings per share. I think the run rate question really is that we'll continue to close the GAAP on the target that we've set. And we'll see that uplift in the second half of the year, and yes, for sure, we'll see uplift year-over-year on our operating margins, that's our expectations anyway as we go forward.

Great. And as a clarification, Paul that $50 million in Q1, the impact, was that quarterly or annually, just so we don't build in too aggressive or too slow? Paul Joseph Reilly - Executive Vice President, Finance and Operations & Chief Financial Officer: Yeah, sorry, Jim I wasn't clear enough. That would be the impact on Q2.

Great. Thank you. And again, congratulations to your team and Chris, you've got some big shoes to fill, and Paul you will be greatly missed. Paul Joseph Reilly - Executive Vice President, Finance and Operations & Chief Financial Officer: Thanks.

There are no further questions in the queue. I will now return the call back over to Mr. Steve O'Brien.

Thanks, Santita. In closing, 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. If you have any questions about the information presented today, 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 great day.