Good day, ladies and gentlemen, and welcome to Arrow Electronics Second Quarter 2017 Earnings Conference Call. My name is Jamie, and I will be your operator for today. At this time, all participants are in listen-only mode. This event is being recorded for replay purposes. Now, I'll turn the conference over to your host for today, Steve O'Brien. Please proceed.

Thanks, Jamie, and thank you all today for joining us for Arrow Electronics second quarter 2017 earnings conference call. With us on the call today are Mike Long, Chairman, President and Chief Executive Officer; Chris Stansbury, Senior Vice President 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 CFO commentary, the non-GAAP earnings reconciliation, and a webcast for 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.

Thank you, Steve. Thanks to all of you for taking the time to join us today. We're well on our way to delivering the most successful year in Arrow's history. I'm pleased to report record second quarter sales of $6.5 billion, gross profit of $824 million, operating income of $267 million and earnings per share of $1.78. Over the past few years, you've heard us talk about investing in growth. We've been getting ahead of the changes we've seen coming in our industry in the broader technology environment. We've invested in our digital platform, we've invested in our cloud capabilities, we've invested in sustainable technology solutions, we've invested in engineers and technical salespeople, and we've invested in our IoT capabilities and our ability to sell solutions across the entire enterprise. We will continue to invest to ensure the long-term growth of our business. These investments are bearing fruit. We are providing solutions that encompass the full life cycle of our customers' products from sensor-to-sunset. The investments we've made are rapidly expanding our customer base and deepening our relationships with existing customers. At the same time, we've largely self funded our investments through back office efficiencies, automation and pruning areas that have diminishing returns. I'm pleased to report that both our digital and cloud are on track to being billion dollar run rate businesses by the end of the year. Digital and cloud margins are already strong and we'll continue to invest heavily in these businesses. We're confident that our digital platform cannot be reasonably replicated. Our ecosystem of online resources for innovators includes trade publications, reference libraries, live technical support and crowdfunding. These resources in turn funnel back to our transaction and fulfillment engines that were purpose-built in-house and therefore seamlessly integrated with our core distribution businesses. No other company…

Thanks, Mike. Second quarter sales of $6.47 billion were above the high end of our prior guidance range. Sales increased 9% adjusted for changes in foreign currencies and 8% year-over-year as reported. The stronger dollar relative to the euro and British pound reduced our sales growth by approximately $57 million, or 1% compared, to the second quarter of 2016. Assuming rates remain stable, we have annualized any meaningful currency headwinds. Second quarter global components sales of $4.46 billion grew 17% year-over-year adjusted for changes in foreign currencies and 16% year-over-year as reported. Global components sales were above the high end of our expectation for the third quarter in a row. We had record second quarter sales in all three regions. Asia, again, produced exceptional growth. Asia sales increased 21% year-over-year, marking the fourth straight quarter of double-digit growth. In the Americas, sales grew 15% year-over-year driven by robust customer growth from our digital platform and from growth in sustainable technology solutions. We also had strong growth in our core business this quarter. In Europe, sales grew 16% year-over-year adjusted for changes in foreign currencies. Europe sales have grown year-over-year for 17 straight quarters adjusted for acquisitions and changes in foreign currencies. Global components second quarter book-to-bill was 1.14, which is well above 1.03 in the second quarter of 2016. Second quarter global components operating income grew 10% year-over-year adjusted for changes in foreign currencies. Operating margin declined 30 basis points year-over-year due to mix of business in all regions. Second quarter enterprise computing solutions sales were $2 billion, mostly in line with our prior expectation. Billings grew year-over-year driven by infrastructure software and cloud. Billings recognized as agency sales comprised a greater portion of our mix than we forecast. This allowed ECS second quarter operating margin to reach 5.6%; a…

Thank you, Chris. Jamie, could you please provide the instructions for the Q&A portion at this time?

And your first question comes from the line of Shawn Harrison. Please go ahead.

Hello. Can you hear me?

Yes.

Yes.

Oh, sorry about that. Anyway, congrats on the results. Two questions, if I may. The first just being on the components business. The share gains that you have ramping into the back half of the year, if you could break up maybe what falls into the September quarter guidance versus the December quarter. And the second question would just be on the legacy IT kind of storage in several markets. Would you expect that to bottom either in the third quarter on a year-over-year basis or is that a fourth quarter event, if at all?

Yeah. First off, regarding this shift, we don't expect a lot in the third quarter and we're still calculating what the fourth quarter will look like, but that's where you would see sort of the full run rate basis of what's coming over. And part of the reason is we don't exactly know what will be shipped by the legacy partners of those changes. So we're prepared to take on whatever we can, but at this point, we're not expecting that to be material for us in the third quarter. Sean, would you like to give the sort of range on the storage piece?

Yeah sure. Shawn as you may have heard or seen, we saw the rate of server decline improved nicely in the second quarter. The rate of storage decline did not really improve but it didn't get much worse. And when you dig into storage, I think we're still in the midst of a multi-ported transition from old tech to new tech. And just to give you a little color on that, if you think about converged, hyper-converged and solid state storage technology, all of that is still growing for us well into the double-digits now comprising as much as 60% of our total storage category. I think roughly a year or so ago that number looked more like 40%, 42%. So we're making progress towards the crossover. I do think in some segments some of the year-over-year comparison will get a little bit easier. We'll have to see, but I think the crossover is still in front of us but I'm pleased with the progress we're making towards it, especially with the newer technologies.

That's great, Sean. Thanks so much.

Your next question comes from the line of William Stein. Please go ahead.

Great. Congratulations on the good results and outlook. I'm hoping you might have some comment as to where you think we are in the semi-cycle now. Demand appears to be very robust, and in particular, we're also seeing the shortages in passes that you mentioned Mike. And I'm wondering how you think that is affecting sort of the altitude and duration of this cycle and what it means for the next few quarters?

Yeah. It's interesting, but our customer surveys still show that customers would like to have a little more product than they're getting. Well that's one good thing. The second good thing is the book-to-bill continues to push on, which would indicate that we're going out with this demand sometime into next year as it looks right now and the backlogs that are starting to firm up for us with days of shipment. So, all-in-all I would say that this isn't a one region phenomena. As you saw, we had virtually records in all three regions with shipments for the quarter. And the other thing driving it is we have sort of an unprecedented rate of new customers coming into the business right now. And most of that's driven by new IoT type solutions. And the second piece that goes with that is obviously, some of the cloud solutions and that type of things. So right now we're still bullish that we're not looking at anything in the next quarter or so, at least for this. We keep an eye on it. Our cancellation rates are normal. So we're not seeing an increase. And if that's the first place that you tend to see a change when the cycle is coming to an end, and right now, we're not seeing that.

Mike, on the passes, if I could just ask one more. Is that causing, perhaps shortages and inability to ship complete kits or are customers able to sort of get what they want by paying up a little bit more on the passes side, but not having an issue getting full kits?

I would say right now, customers are largely getting what they want. When I talk about, they would like to have a little more inventory, I think that's – anybody would be comfortable, if you have three months' inventories sitting on the shelf. But when you're down to two, you kind of would like to have that extra month. And I think that's where we are in the cycle. We are by no means in what I would say an across-the-board allocation. We're not in – our customers not being able to find what they want and we're not in lying down situations. So all-in-all, right now there is pretty good balance in the market, but the market continues to be strong.

Helpful color. Thanks, Mike. And congrats again.

Thank you.

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

Thanks. Good afternoon. First off, maybe you could talk a little bit more about the cloud services business. The $1 billion threshold will be pretty important, it sounds like, versus a – I think you're at $400 million last year. Can you talk about what is driving the growth more? And other things, I think you mentioned good profitability, but is it sort of self funding itself at this point and what kind of growth is reasonable to expect off of a $1 billion run rate? And then I have a follow-up.

Yeah. The first thing about self-funding, self-funding is an interesting thing (20:36) the operating income that we'd totally fund that business. And what I would tell you is that – I would hope not because that would suggest that it's in a mature level and that's how we can get from it. So the truth is no, we're going to continue to drive this and as you could see where we were last year and where we are this year, that's a plus for us. Now what I can say is Arrow Inc. is funding this, so it is being funded out of our own earnings and that is a positive when it comes to the company, because this is ultimately a higher margin, higher profit business than the traditional business. As far as how the complexion in that business looks, I'm going to let Sean explain to you because it's really been his baby with his team and I think it's – hats-off to that group for being able to build this internal.

So Steven, let me give you a little more color on your question about what's driving it. I think – and you're right, we did see significant growth again in the second quarter. The run rate improved substantially. We feel pretty good about the $1 billion target we've set for ourselves as we exit 2017. And I would tell you that I think it's coming from three things. One, we continue to add cloud offerings to our Line Card, right, suppliers and cloud offerings, and we continue to do the investment necessary to complete the ACI integration work to make those offerings available to our selling partners and solution providers. Secondly, we continue to bring on non-traditional channel partners at a pretty good rate, and I'm thinking about managed services providers and others that are really good with recurring revenue business models. And in both cases, that's really just improving our ability to participate in more opportunities. And then, thirdly, I would say we are starting to see the hybrid cloud model become more accepted. We are working with partners to create opportunities to attach cloud offerings to things that they're also selling on-premise at the same time, and we think as that hybrid cloud model continues to play out, we're really in a great sweet spot to take advantage of it.

Great. I appreciate all that color. And then, just as a follow-up, you kind of addressed this in another question, but in terms of looking at a book-to-bill that's at 1.14, which is pretty high versus your historical standards, can you provide any more color around sort of the traditional ageing of the backlog? How far out we're going? Why that would be not an uncomfortable level suggesting some excesses? Thanks, again.

Andy, would you like to take them?

Yeah, Steven. I mean, the book-to-bill ratio does, as you indicate and imply, that our backlog is growing; and, the interesting thing is our backlog is growing right across the coming quarters, as Mike said, as those orders firm up. That's not just coming from one geography. It's coming from all geographies. It's not just coming from one end market. It's coming from multiple end markets and verticals. So there's no significant change where this is becoming frontend loaded or backend loaded. People are just increasing their commitments as they see those products pull through to the market, I think.

Great. Thank you very much.

Your next question comes from the line of Matt Sheerin. Please go ahead. Matthew John Sheerin - Stifel, Nicolaus & Co., Inc.: Yes, thanks. I just wanted to ask some questions around the gross margin, specifically in the components business. In the CFO commentary, you talked about some margin pressure due to mix in the Americas and in Europe; so, wanted to get some more color on that. And as you begin to ramp some of the new supplier wins, which will start with the fulfillment business versus demand creation, would you expect that to be another headwind on margins as we go through the next – well, beginning in the December quarter, I guess?

Thanks, Matt. There's a lot of stuff going on in here. So I'll try to bring it to you. First thing is a lot of the business, and you see our growth, has geared towards the fulfillment business. And so, the bigger portion of the business coming in for the quarter was fulfillment and Asia. So those were two mix change and region change. Our design win activity is also up year-over-year, just not at the same pace as the overall sales growth. And a lot of that has to do with some of the new customers that have come in around IoT and those things, yet, which are design wins, but just haven't shipped, yet. And so, what you'll see over time is that GP decline slowing. And in fact, we are seeing that slow, now. And if you take the implied third quarter guide, it really shows you that the sales growth and the operating income growth in the end are close to or at the same number, which suggests we're already seeing some benefits of things that have been worked on for the last six months. So that's number one. Number two, we are still investing in cloud and digital. And while those income levels will exceed the corporate average, we are investing to grow those businesses right now, as demonstrated that both of them were on a $1 billion run rate by year-end. We fully expect them to continue to contribute more each year, but as I said, not mature businesses. So they are certainly places that you would appreciate, and any other investor would appreciate, us investing in. So all-in-all, there is a lot of, what I would say, between fulfillment business and region mix, driving the GP the wrong way. The normal activities that we've done in the past are driving it back up the right way, just not at the same pace, yet. And we would expect another six or seven months for that to start to materialize as we get into some of the new customers, which will come over in December and start working on their designs. So hopefully, that's as clear as I can get on that. Matthew John Sheerin - Stifel, Nicolaus & Co., Inc.: Yeah. Fair enough. That was helpful. And then, just on your growth, obviously, 16-plus percent year-over-year growth in components is well above market and in sales. And I'm trying to figure out, how much is that share gains and where are you taking share from? Is it the smaller regional distributors? Is it your big competitor because of any issues they may be having? And then, just as a follow-on, on the pricing environment given extended lead times as you said in things like passives and discrete. Every few years you get a better cycle and you get some advantageous pricing. Are you seeing that or do you expect that at all to happen?

What we're seeing right now is the largest growth for us are deeper commitments with current customers. And that comes through our solutions sale. The next area that we're seeing a big growth is obviously in the digital platform, which didn't exist at these rates. So if you look at that growth rate, that also is another implied projection of market share growth for us and that's happening all over the world. The next one is, we did an investment in engineers and sales people and they're out there generating new accounts for the court. And as those accounts come in, what you're really seeing is they start to come in with the fulfillment business first and then you will start working on the projects with them. So that is the big reason for the share shift. Now, how much of that business existed with the competition for us? I can't really tell you, but I can tell you is, it wasn't all new business because if it was, maybe the increased market share wouldn't be there. And obviously in the fourth quarter, you will see big market share shifts and that will be due to customer changes and supplier changes, but for right now, it's really driven by the solutions we're offering. Matthew John Sheerin - Stifel, Nicolaus & Co., Inc.: Okay. Great. And just on the pricing environment?

The pricing environment, I would say, is remaining relatively stable, comparatively speaking. If you look at some of the very large deals that maybe we did not take in the past that were supply chain deals, those are a little less than what we would have normally had if you looked at what I would call an average account in here, but they also take a lot less of our skills to move that product from A to B. And I would say, we see that more than we see really competition between people trying to book deals. Matthew John Sheerin - Stifel, Nicolaus & Co., Inc.: Got it. Okay. Thanks a lot, Mike.

You bet.

Your next question comes from the line of Adrienne Colby. Please go ahead.

Hi. Thanks for taking the question. I wanted to ask about the ECS operating margins. You saw some improvement again this quarter, although the rate of improvement has slowed and I'm just wondering how we should be thinking about the opportunities for our margin expansion going forward as it'll sort of be at a similar cadence so there's a bigger step-up happening now that the cloud business is at a $1 billion run rate?

Yeah. So, in the near-term, what's happening with our margins is obviously that the shifts from hardware to software and the impact on the bottom line. That shift, while continuing, is slowing. So I think that does give us some tailwinds, but the rate of growth does slow over time as it relates to that shift. On cloud, to the point Mike made earlier, we have decent margins on that business today, but we are investing heavily because it's a growth area for us. So longer-term, the goal would be that that could be a growth platform as well, but our focus right now is really on driving growth there and making sure that we have a complete solution in place.

Great. And then just as a follow-up. I'm wondering, if in light of the strong demand you're seeing and the working capital needs you've described, if your cash flow expectations for the full year have shifted? I think you'd been talking about operating cash in the range of $450 million to $550 million this year?

Yeah. I think we said that at the beginning of the year, just as a rough guideline. We're obviously not guiding to full year. I will just echo what Mike said in his comments and I did as well, which is, our priority for capital allocation has always been organic growth first. And this is really the core of organic growth. I think the growth rates that we're seeing, while we're thrilled with, we didn't obviously project at the beginning of the year. So as long as we see this kind of unprecedented growth and share shift, we will stay focused on those investments to support our suppliers and customers. So I would expect that versus what we said earlier in the year, yes, it would be lower. I don't want to put a number out there right now because we're still looking for internal efficiencies where we can to help offset some of those investments we need to make in inventory and receivables. I do think the one takeaway here is, you got to think about a six-month cycle from the build-up of inventory at the frontend to support the sales growth all the way through the growth ramping and then the collections on the other end, before we get to a normal run rate. So until we get through this rapid growth, I think that's the kind of stuff you guys should be modeling.

Yeah. I'd like to maybe add to this a little bit. We are in a unprecedented and very good position, one that we've never been in as a company before. When you consider the growth areas of digital, the growth areas of cloud, the growth areas of sustainable technology of IoT and the investments we are making, those are four viable, very large markets that can produce years and years of operating income for Arrow. And having that most companies don't even get one thing to invest in that could be that big for them and we're looking at four right now. So there is not going to be anything that we do to back off of our investments to make sure that we capture each one of those markets in a way that we should and the way that you would expect us to.

Your next question comes from the line of Mark Delaney. Please go ahead. Mark Delaney - Goldman Sachs & Co. LLC: Yes. Congratulations on the nice results and thanks very much for taking the questions. First question is a follow-up on component margin outlook. Typically second half of the year just given regional mix shift, the margins in the component segment declined. I'm just curious with the strong backlog and some of the other efforts you already discussed on the call, is there a potential for that dynamic to be different this year?

Yeah Mark. So I know we've talked about this in different investor forums and conferences and whatnot. We believe that even with the significant share shift and fulfillment, it starts as fulfillment and the impact of that in the fourth quarter that because of the strong operating leverage that we can drive that you will see year-over-year improvement in global components in the fourth quarter. And our belief in that remains. So I think if you look at the implied leverage that we're putting forth in our guidance, you can kind of model off of that. I think that puts us relatively flattish on overall Arrow operating income margins in Q3, but in Q4, we would expect to see an improvement because of just the sheer volume of the shift with very little OpEx investment. Mark Delaney - Goldman Sachs & Co. LLC: Yeah. That's helpful, Chris. Then a follow-up question on the ECS business, the September quarter guidance implies revenue is up slightly sequentially and typical seasonality is down mid-single digits or so. Maybe just elaborate a bit on what you are seeing in the third quarter that's helping to lead to that better growth rate for ECS sales? Thank you.

Yeah. You bet, Mark. So, I think if you look at the midpoint of our Q3 guidance, we are kind of right in line with last year sales results. And remember to that, in the last three quarters to four quarters, our mix has shifted quite sharply to software and services because at the same time, we are expecting further billings growth in Q3 and I think we'll start to see our own competitive wins begin to roll into the business at an increasing pace across the course of the second half. Mark Delaney - Goldman Sachs & Co. LLC: Thank you.

Your next question comes from the line of Param Singh. Please go ahead.

Yeah. Hi. Thank you. So, I wanted to ask questions, actually following up what prior analyst had asked. One is on the book-to-bill 1.14, right, the delta between what you are guiding and the book-to-bill has actually increased over the last couple of quarters. And if I just look at last quarter's guide as well, you guided to 1.14 and you actually came up 10% Q-on-Q, which was well above your guidance range for the components business. So, is the guide here for 3Q very conservative or what's the missing piece here that's leading to the big delta between guidance and...

Yeah, it's actually the one we haven't talked about, and I usually hate it when you guys ask me the question, but one is increasing our inventory. We have to go out, and use our cash to increase inventory and make purchases to make inventory available and with the lead times right now being a quarter, 12 weeks, maybe a hair more, that would suggest you'll start seeing more of those shipments in the fourth quarter as we get that inventory in. So, that's really the missing link you're seeing is that we actually have to build inventory to support all these nice wins in the sales that we have and that's also one of our uses of cash.

Right. So, I mean, you had similar commentary last quarter where more wins were supposed to come into 3Q, and your results actually were up 10% sequentially. So, what was different in this quarter versus how you're guiding?

Yeah. It's Andy, Param and I guess the question you're asking is how much of the transfer business is coming in, in Q3 versus Q4 and the answer is that we're guiding what we can see right now. It's not an exact science. That's the challenge we have here. We don't exactly know when our customers' inventory positions kind of liquidate down. We don't exactly know when other suppliers into that market liquidate their inventory positions and what impact that has on the supply chain. So, we make our best estimate as to what we think that's going to look like, but that can change and we just continue to monitor it closely.

Okay. Thanks, Andy. And then, for my follow-up, the inventory increase year-over-year, how much of that is due to the new supplier win that's going to kick into 4Q versus the share gains – the organic share gains you talked about?

We haven't broken out our inventory to distinguish the difference; customers order, a dollar is a dollar. So, for us, we don't have our salespeople saying, is this a brand-new piece of business. All we can do is look at it sort of by product line, and maybe we can put that together for the call in later, at another time talk about it. But we really – we haven't thought of it that way, so thanks for that.

Okay. Just one last question, actually, which is kind of a follow-up to Mark's question. If I look at the ECS business on a billings basis, right, so taking out the software impact, which is larger in your second quarter, how would the numbers look Q-on-Q for ECS? Would it still be down a little bit sequentially or is it better than seasonal, similar to as reported?

Param, is your question surrounding the impact of the share shift?

Yeah. So what I want to gauge is, your sequential guide like – you talked to Mark about it, it was better than seasonal. Now, how much of that is simply because of revenue recognition of software versus the other pieces? That's what I'm trying to differentiate here.

Your decline of hardware is slowing (41:02). Why don't you take that, Sean?

Yeah, sure. Param, so, as we've talked about it, right, software and services are becoming a bigger piece of our mix. So you've correctly interpreted that. Obviously, that has an impact on the reported sales number, but our billings growth will improve, again, in the third quarter. I think, sequentially, it's pretty much in line with what we would call normal seasonality; although, I would remind you that we've kind of gotten away from that because our business mix has changed over time as we've made acquisitions and we've diversified where we play.

Okay. All right. Thanks a lot, guys. I really appreciate you taking my questions.

Your next question comes from the line of Adam Tindle. Please go ahead. Adam Tindle - Raymond James & Associates, Inc.: Okay. Thanks, and good afternoon. Mike, I just wanted to see if you could maybe start by just reflecting on the overall industry dynamics. It's arguably been long enough to where it seems as if we're potentially experiencing a linear change in terms of your share gain, whereas, this has historically been more of a mean reverting dynamic, where gains were offset somewhat by losses, particularly in the components business. So maybe if you could speak to what has changed to drive this and should this continue on a linear path, in your view?

Yeah. I would say that my expectations are that it would – there is really no mean regression given that the majority of the new opportunities coming in here are IoT. And when you consider what we are selling, now, is everything from sort of the sensor to the sunset, the business analytics, the storage, the cloud services are all going along with these new deals. And as a result of that, we're seeing more and more and more opportunities. It's interesting that our computer product suppliers are one of our largest sources of IoT opportunities for the components group, so we can work with them to build the appliances that will work with what those suppliers are trying to offer as far as cloud services go or analytics or things like that. That's really number one. Number two, we've got engineering capability out there that is – that no one else has and hasn't been close to. And if you remember, we invested in this several years ago and continue to invest. So now, we are operating with engineering centers all around the globe, 24 hours a day, seven days a week to answer questions that anybody – any engineer may have, and we can help them true their design. The other area that has been a growth area for us that I think is really one that would be hard for anybody to catch up with, and that's the crowdfunding opportunities that have come in here from new start-ups. That has largely propelled the digital business in a way that is different from most digital businesses, which are out there just gutting it out, fighting for current market share every day. And those – we have already had about 2,000 significant wins that have come to us in the core business from the digital business. And that comes from having a fully integrated system that works together that keeps everything from being manual. So we have dramatically changed our go to market with our customers. We've changed our go to market for the suppliers, and we're continuing to invest in areas that bring new customers in. So I would probably suggest that you're going to continue to see this go for quite some time; and, it's certainly through 2018. Adam Tindle - Raymond James & Associates, Inc.: Okay. That's helpful. Maybe just touching on returns. So working capital has increased and returns on working capital are down meaningfully in the components business, but arguably suppressed depending on what you believe this will bring. So, wanted to understand, number one, do you think the willingness to build working capital has enabled due to gain share, so help us understand why? And number two, how quickly can returns on working capital get back to historical levels, so we can understand the payoffs and visibility into that? Thanks.

Yeah. I'll let Chris answer, but the short answer here is, when the company starts to grow at rates that it's growing now, you're building inventory, you're setting up new accounts, you have receivable and everything is in a growth mode. So, your inventory growth and your inventory purchases are outpacing the sales because you haven't matured. And that's the reason for the use of cash. You can get that back obviously as you collect, but you get it back some 90 days later, if you were to say from the date you place that purchase order. So you will use cash anytime you grow this business more than 10%. In fact, it used to be 3% or 4% for those of you that remember, 5%. We found a way to get 10% growth and still throw out cash. But as I said before, as long as I have places organically to put cash, so this company can put up the growth rate that you're seeing now – and by the way, I might add, I don't – while they are down, this is not indicative of a mature business anymore. This is indicative of a growth business, so we are seeing more operating income. We are seeing investments and we are seeing returns on those investments, just like we said. I can tell you right now, if this was a mature business, we'd be running it entirely different and you'd be seeing an entirely different return profile. But that decision is only 90 days away at anytime. Adam Tindle - Raymond James & Associates, Inc.: Okay.

So, that's the important thing. Chris?

Yeah. No, I think Mike really answered it, but the reality is, as we obviously don't have the operating income base loaded in here yet and I think that as you model that out, the returns come back in line. I'd also remind you because this is organic growth as opposed to say an acquisition, where you're pay an acquisition premium and you're buying a stream of revenue and receivables, the investment we are making here is not an acquisition premium, it's in really building the working capital side of the business as we grow organically. So, I think this is more timing than a trend. Adam Tindle - Raymond James & Associates, Inc.: Okay. That's what I was just trying to get out. I know the business is changing pretty meaningfully. Digital has grown pretty significantly. So, I mean, there has not been a structural change to your working capital requirements?

No. No. And again, I would continue to focus for the analysts really on the cash conversion cycle, which has been impacted in the short run. But because of the way the balance sheet metrics, the date calculations are impacted by the agency accounting rules in the ECS business, it tends to distort the date calculations on some of those metrics. So, really focused on cash conversion. You still get to the same place in the short run, but I think that also helps cleanup some of the questions between things like inventory payables and receivables.

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

Thanks very much. A lot of time has already been spent on the components business, which you gave a lot of clarity. So, I won't ask on that. So, I'll focus on the enterprise computing business. Am I correct as we look at your guidance that you are basically calling for a floor in your organic growth rate where I think you had organic growth rates decline for about five quarters and am I right on your outlook, did that call for a floor or bottom?

No, I wouldn't say that, Jim. Yeah, we wouldn't call that floor. As I said, we see continued growth in the second half, partly as a function of our organic efforts but also partly as a function of some of the new business that's coming our way as a result of some of the competitive realignment we've seen in the marketplace with a handful of competitors and we think that, again, it wasn't meaningful in the second quarter but it will be more meaningful across the course of the second half. So I would call it two parts.

I would just add to that, Jim, that you're going to be really careful looking at net sales because of the shift from hardware to software. And so, we've been pretty open about what that impact has been. The other thing obviously in the results to-date has been the shift within storage from traditional forms to new forms. That's been a bit of an anchor on growth and we're now at the point where those start to cross over. So, I think to come to the conclusion on a net sales basis that we've kind of hit a ceiling on where we are (50:29) careful with that.

Okay. That's very fair. Then my follow-up is regarding the profitability, the dollar amounts of the computing dollars coming in, looks like we're down year-over year. But your security, your software's, your cloud billing run rate and stuff appears very encouraging, but the dollars are down year-over-year from a profit perspective. But that is mostly because of the decline of servers and storage. How should we think about why the profitability actually isn't up year-over-year given your traction that you've done so far with your ArrowSphere, your Arrow go-to-market, your cloud efforts? Thank you.

Yeah. No problem, Jim. I understand the question. So, again, in Q2, we saw a sharper makeshift in software and services than we anticipated and again our billings were up modestly in the quarter. But, just from a sheer volume perspective, there were a handful of deals that rolled into the September quarter, part of that was due to the industry constraints around solid state disk drives that's fairly well known and the other was in our federal business, where it's not uncommon this time of the year to see big deals roll from one month to the next. Other than that, I would say the quarter kind of played out more or less the way we expected.

Thank you so much for the details and clarifications. It's greatly appreciated.

You bet, Jim.

At this time, there are no questions. I'll hand it back over to Steve O'Brien.

Thank you, Jamie. 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. And the company undertakes no obligation to update publicly or revise any of the forward-looking statements. Detailed information about these risks is included in Arrow's SEC filings. 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.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect.