Avnet, Inc. (AVT) Q4 2016 Earnings Report, Transcript and Summary

Please stand by. Your presentation will now begin. I would now like to turn the floor over to Vince Keenan, Avnet's Vice President of Investor Relations. Vincent Keenan - Vice President & Director-Investor Relations: Good morning and welcome to Avnet's Fourth Quarter and Fiscal Year 2016 Business and Financial Update. As we provide the highlights for our fourth quarter fiscal year 2016, please note that in the accompanying remarks, we have excluded certain items, including intangible asset amortization expense, restructuring, integration, and other items and certain discrete income tax adjustments from all periods covered in our non-GAAP results. When we refer to constant currency or the impact of foreign currency, we mean the impact due to the change in foreign currency exchange rates when translating Avnet's non-U.S.-dollar-based financial statements into U.S. dollars. When we refer to organic sales, we have adjusted the prior period to include the impact of acquisitions and other items. In addition, when addressing return on capital employed, return on working capital, and working capital velocity, the definitions are included on our Form 8-K filed today. Before we get started with the presentation from Avnet management, I would like to review Avnet's Safe Harbor statement. This call contains certain forward-looking statements which are statements addressing future financial and operating results of Avnet. There are several factors that could cause actual results to differ materially from those described in the forward-looking statements. More detailed information about these and other factors is set forth in Avnet's filings with the Securities and Exchange Commission. In just a few moments, Bill Amelio, Avnet's Interim CEO, will provide Avnet's fourth quarter fiscal year 2016 highlights. Following Bill, our Chief Financial Officer, Kevin Moriarty, will review some additional financial highlights and provide first quarter fiscal 2017 guidance. At the conclusion of Kevin's remarks, a Q&A will follow. Also here today to take any questions you may have related to Avnet's business operations is Gerry Fay, President of Electronics Marketing, and Patrick Zammit, President of Technology Solutions. With that, let me introduce Mr. Bill Amelio, to discuss Avnet's fourth quarter fiscal 2016 business highlights. Bill Joseph Amelio - Interim Chief Executive Officer & Director: Thank you, Vince and hello, everyone. Thank you for taking the time with us and your interest in Avnet. Having just completed my first month, I like to start by giving you an idea of what I'll be concentrating on in the near term. One of my first priorities will be focusing on execution. We have not performed to your expectations or our full potential. I'm working on installing a business management system that will emphasize accountability, address organizational barriers, and that will allow us to use our collective operating groups (02:56) to work more effectively. And we'll be instilling a greater sense of urgency within the organization. As you know, we participate in a rapidly changing technical marketplace and it is imperative that we make steady progress towards our strategic initiative. And when that progress stalls, we must quickly correct course to show that we have the right people and adequate resources to win in the marketplace. The additional area I intend to focus on is talent development. We will build a stronger bench for the future. There are many skilled and talented employees at Avnet with technical knowledge and a deep understanding of the market that we compete in. My goal is to work with the management team to position these future leaders in challenging roles, where they can develop their leadership capabilities in high growth markets that are critical to Avnet's future. That leads me to my final near-term focus area, a review of our strategic initiatives, and our go-to-market plan. As many of you know, I've been on the Avnet board of directors for two years. So I'm familiar with the key strategies to grow our business, including embedded systems, the Internet of Things, enhancing our digital experience from design chains to supply chain, and finally, investing in third platform technologies and capabilities and solutions. These are the strategies I agree with but we need to accelerate our progress towards long-term financial goals to support margins and returns. Growth is a key component of how we're going to get there. Over the next couple of months, I plan to visit Avnet locations around the globe, meet with the team, and to get a better understanding of the local markets and what it takes to succeed. As part of that process, I and the leadership team will develop detailed plans that include growth strategies, resource allocation, and the metrics we will use to measure our progress. Avnet possesses unique strength in technology supply chain, including sales effectiveness, efficient operations, and most importantly, a deep relationship with both our customers and our suppliers. My goal is to leverage these trends to deliver industry growth, consistent execution and steady progress towards our long-term financial goals. I will have more to share with you as these plans come together. Even with my short time here, there are two areas I'd like to highlight that demonstrate our commitment to invest in the future and to accelerate growth and expand margin. At TS, Patrick and his team recently unveiled a solutions specialist approach worldwide. This is to drive growth in software-driven technologies. While much of our current business will fall in the data center solutions business, TS is creating new business units focused on cloud solutions, security and networking, data analytics and mobility solution. These business units will have more than 450 dedicated solution specialists to help our partners capitalize on new opportunities in the third platform technologies that are driving change on how companies purchase and consume IT resources. We're reallocating resources to align with market growth and deliver the solutions and services that will define our future success. At EM, we recently announced the cash offer to acquire Premier Farnell, a leading catalog distributor with a market-leading digital platform that engineers rely on all around the world. Although there are several steps required before we can complete the transaction, we're very excited about the possibilities. A combination of the two companies will offer and will give us great strength in the marketplace. By combining Premier Farnell's innovative online services with EM's world-class design and supply chain services, we will create a customer service experience unparallel in this industry, while engaging with engineers earlier in the design cycle. As I want to reiterate, Avnet has a lot of strength embodied by talented employees who help our partners grow across the breadth of technology markets that we serve in. My goal is to leverage these strengths and deliver top-line growth, higher return and consistent cash flow, and to create long-term shareholder value for our investors. Now I'd like to turn over the commentary to Kevin to provide more color on our financial performance. Kevin?

Thank you, Bill, and hello, everyone. I would like to start with some commentary on EM. Sequential growth was below seasonal at EM this quarter, driven by a continued decline in high volume supply chain engagements in Asia and roughly a $100 million revenue miss in our Americas region related to our ERP implementation, which we commented on in our early July fiscal Q4 earnings pre-announcement. Primarily, as a result of these two factors, revenue declined 2.5% sequentially as compared with our normal seasonal range of flat to up 4%. These two issues also impacted EM's year-over-year compares, as revenue of $3.9 billion declined 8.7% from the year-ago quarter, driven by double-digit declines in our Americas and Asia regions. Our EMEA region delivered their 13th consecutive quarter of year-over-year growth as revenue increased 3.9% in reported dollars and 2.2% in constant currency. Gross profit margin was essentially flat with the year-ago quarter and declined sequentially driven by a decrease in the Americas region due to inefficiencies in our integration center during the ERP implementation. Operating income declined 24.4% year-over-year due to a $155 million – primarily due to a decline in the Americas region, due to lower gross profit dollars and higher expenses related to the ERP implementation. Operating income margin declined 58 basis points sequentially and 82 basis points year-over-year, primarily due to a decline in our Americas region. In addition to the higher level of expense driven by the ERP implementation, EM Americas also added additional inventory to support the business and ensure we meet customer deliverables as we continue to resolve the remaining issues. The increase in inventory along with the reduction in accounts payable driven by our fiscal close of July 2 ending after the calendar quarter, drove a 9.6% sequential increase in working capital. Working capital increased 17.1% year-over-year with roughly half the increase related to inventory, while the other half was due to a decline in accounts payable. Before I turn to TS, I would like to provide some additional commentary on the EM Americas ERP implementation that had a significant negative impact on our fiscal fourth quarter. As you know, we have deployed multiple ERP systems in the past without this level of disruption. The deployment in the Americas region was certainly one of the more challenging in that it addressed our distribution business, our embedded business and the complex supply chain services we provide to both customers and suppliers. While there was significant issues in April, our pick, pack and ship business is operating at normal levels, and our supply chain business has a few remaining issues that will be resolved shortly. Most of our time and energy is focused on our embedded business, where we are working to resolve the remaining technical and operational issues. We are meeting customer deliverables and do not expect any impact to revenue, but the higher level of expense will continue through the September quarter, and we expect the additional expense to temper off as we work through our December quarter. While we are not pleased with what happened and the resulting impact to our customers, suppliers and employees, I would highlight that our entire EM Americas teams have stepped up to ensure minimal customer impact as we work through this project. Now, turning to TS. TS revenue came in at the higher end of our expectations led by the Americas region, which grew 11.4% from the March quarter. As a result, revenue increased 7.2% sequentially as compared with the typical seasonal range of up 4% to up 7%. Revenue of $2.3 billion declined 7.6% year-over-year organically in constant currency, with Asia, the Americas, and the EMEA region declining 17.8%, 8% and 3% respectively. Year-over-year growth in services, software, and networking, was offset by a decline in servers and legacy storage. Gross profit margin increased year-over-year driven by improvement in the Asia and the Americas regions. Operating income dollars declined 8.8% year-over-year, due to the decline in revenue and operating income margins declined 3 basis points as improvements in Asia and EMEA were offset by a decline in the Americas region. Working capital decreased 13.8% year-over-year, or 10.4% excluding acquisitions and the impact of changes in foreign currency exchange rates. And return on working capital increased 66 basis points from the prior year quarter. Despite the significant decline that TS experienced in certain legacy datacenter technologies in fiscal 2016, we are seeing significant growth in newer technologies, including flash storage and convert systems. For the full fiscal year, TS revenue declined 8.8% and gross profit margins increased 47 basis points as a result of portfolio actions and product mix. When combined with expense reductions in the Western regions, operating margin increased 21 basis points to 3.3%, nearing our long range target of 3.4% to 3.9%. Now, turning to cash flow from operations. In the June quarter, we used approximately $73 million of cash as working capital increased 4.4% sequentially and net income declined due to the ERP implementation. For the full fiscal year, our cash flow from operations was $224 million as compared with $584 million in fiscal 2015. The decline from fiscal 2015 is primarily due to an increase in working capital as the EM Americas region built inventory to support the ERP implementation, and our accounts payable declined as our fiscal quarter ended after the calendar quarter. We do expect EM inventory to decline as we work through the remaining issues in our ERP deployment and contribute to stronger cash flow from operations in the September quarter. During the fiscal year, we returned $466 million to shareholders via our disciplined share repurchase program and dividend. Entering fiscal 2017, we still have approximately $175 million remaining under the current share repurchase authorization. We ended the quarter with over $1 billion in cash and have approximately $1.2 billion of available liquidity under our credit facility and accounts receivable securitization program. With our strong balance sheet and dedicated financing already committed for the Premier Farnell acquisition, we are confident we can complete the transaction and still have adequate funding to support future growth. Now, turning to our outlook. Looking forward to Avnet's first quarter fiscal year 2017, we expect EM sales to be in the range of $3.9 billion to $4.2 billion, and TS sales to be in the range of $1.9 billion to $2.2 billion. Therefore, Avnet's consolidated sales are expected to be in the range of $5.8 billion to $6.4 billion. Based on this revenue forecast, we expect adjusted diluted earnings per share to be in the range of $0.84 to $0.94 per share. This guidance does not include any acquisitions, the amortization of intangibles, any potential restructuring, integration, and other expenses and certain income tax adjustments. The guidance assumes $130 million average diluted shares outstanding and an effective tax rate in the range of 26% to 30%. In addition, the above guidance assumes an average U.S. dollar to euro currency exchange rate of $1.11 to the euro, consistent with the first quarter of fiscal 2016. In alignment with Avnet's goals to build a global embedded solutions business, which we commented on at our last Investor Day, we transferred a portion of our embedded computing solutions business to EM Americas from TS Americas at the beginning of fiscal 2017. As a result of this transfer, approximately $450 million of annual revenue that had previously been reported in TS will be included within EM beginning in fiscal 2017. The above guidance for the first quarter of fiscal 2017 takes into account the transfer from TS to EM of approximately $100 million of revenue. When adjusted for this transfer, and the impact of foreign currency, the midpoint of guidance for EM would represent sequential growth of plus 1% as compared with the normal seasonal range of down 2% to plus 2%. And TS sequential growth would be down 5% as compared with the normal range of down 10% to down 5%. As you are aware, on July 28, we announced an offer for Premier Farnell, a UK-listed company. That transaction is subject to the UK Takeover Code that places a number of restrictions on what we are allowed to say in relation to financial details of the transaction, including synergies, forward projections and timing. With that, let's open up the lines for Q&A. Operator?

Our first question comes from the line of William Stein with SunTrust. Please go ahead with you questions.

Great. Thanks for taking my questions. First, Bill, I'd like to hear your view as it relates to the use of cash flow generally and specifically as it relates to M&A. And maybe more specifically, should we view the Premier Farnell acquisition as sort of symbolic of what you think the direction of the company should go to as far as use of cash? Bill Joseph Amelio - Interim Chief Executive Officer & Director: That was a really packed question. Congratulations.

It wasn't hard. Bill Joseph Amelio - Interim Chief Executive Officer & Director: That was really great. I think the company has a great capital allocation strategy we've had in place for a long time. And I think the way we think about use of cash is that we find a better use of cash in investing in ourselves and have to really demonstrate to us it's got significant value. So that's why we have continued to do – buyback our stock and we plan to continue to do that in the future. However, when there's an opportunity that's transformative as we found with Premier Farnell, that's a great opportunity for us to transform the trajectory of the company. So we see that as a – not just a one plus one equal two, but a one plus one equal four. We think there's all sorts of ability for us to ensure that we take advantage of that acquisition and get more successful with that as we move forward. Additionally, I would say that we'll continue with our dividend strategy. I think we've got a solid process in place, and it's been well thought out, and I think that's important value for our shareholders. And finally, when you think about M&A, our strategy will be the following, is that; when you look at the company and you look and you say that the marketplace is changing very rapidly, we got to think through, as that change happens, what do we need to do as a company to pivot? In some cases, we can do it organically; in other cases, there might be a property out there that allow us to make that pivot a lot faster. Every acquisition doesn't fit perfectly, but a lot of them do fit really, really well. And those are the ones like Premier Farnell who we'd like to take and have it as part of our company. So, with that said, I'll turn it over to the next question. Thank you.

Sure. Can I get a follow-up? I'd love to hear about whether there's anything that you might consider either divesting or walking away from, in particular, the supply chain engagements in Asia, which I believe have been a drag on performance and certainly drag on margins. Any change in the company's outlook as to that business? Bill Joseph Amelio - Interim Chief Executive Officer & Director: Well, I'm not in a position today to make any announcements on any divestitures, as you can imagine, but rest assured I'm looking through all of our strategic initiatives today, all the place where (21:57) profit, and we will make the necessary changes in order for us to shore up the company and become the best-in-class operator there is in this distribution space.

Hey. Will, it's Gerry. I'll comment on the high volume supply chain engagement. As you know, we've always said our high volume supply chain engagement was opportunistic for us, and when it no longer made sense, we would walk away from it. So we started to disengage with the majority of the last quarter and then will be negligible for us this quarter. Some of our most recent wins like Broadcom has gotten us to relook at our portfolio and we made the decision to move resources supporting our high volume supply chain engagements to more accretive opportunities for us.

Thank you very much.

Our next question is coming from the line of Shawn Harrison with Longbow. Please go ahead with your questions.

Hi. If I may follow up on that prior answer to Will's question. Is there a way to if you would be able to characterize how much revenue that business brought in, both last quarter as well as last fiscal year, because if I look at the guidance, 1% is better than seasonal, but it's coming out of a much worse than seasonal quarter. And so is that all the supply chain gets engagement or are there other factors at work? So I guess a two-part question.

Yeah, Shawn. It's Gerry. So our high volumes supply chain engagements were down 5% sequentially and 38% year-over-year. So if you think about it in those terms, if you looked at what percentage of our business it was previously, obviously, it's become a lot smaller piece of the business. So, again, I would think of it in terms of we looked at our portfolio, we decided that given the returns and the limited velocity that, that engagement has today versus when we first took it and looking at some of the other opportunities we have with supplier consolidation, we thought it was time for us to move away from that. We still have a little bit of it, but we've moved away from the majority of it.

Okay. Very fair. And I'm going to try a stab at Premier and see what you guys can answer, two parter question. The financing of it, I know there's a bridge loan in place, but is there a way you could comment on how much cash Avnet would like to use to finance and transaction obviously would impact the accretion? And then second, they do have a more industrial distribution business and just your thinking on how that fits Avnet long-term? Bill Joseph Amelio - Interim Chief Executive Officer & Director: Sure.

Shawn, I'll take the first part. Currently, we plan to finance – with consideration with debt and cash on hand, primarily located in our foreign subsidiaries. For the offshore cash, we will use to fund the transaction, we view it as an efficient cash use for us. Can't really get into specifics in terms of how much we will be using of offshore cash, but as the transaction gets closer, I'll be able to provide more commentary on that. Bill Joseph Amelio - Interim Chief Executive Officer & Director: And similarly on your second question, we're not yet in a position given our current rules that are in place to be able to discuss that. As the transaction unfolds, we'll be able to tell you a lot more about what our plans are.

Okay. Is there a way to tell me how much offshore cash Avnet has currently?

Approximately $600 million.

Okay. Thanks so much.

Do you want me to – Shawn, this is Gerry. I'll answer the second part of your question. So if you look at Premier Farnell's annual report, 86% of their business comes from the element14, which is the key step we're most interested in. That's their high value distribution business. And if you look at what they've done over the last year, they've really refocused on that business. So they sold off Akron Brass for a little over £250 million and so they've really refocused there. So, from an industrial piece, it's a small percentage I think of their overall business today.

Very helpful. Thanks so much.

Thank you. Our next questions come from the line of Lou Miscioscia with CLSA. Please go ahead with your questions.

Yes. If you can maybe just comment a little bit in more detail about the acquisition. It seemed that last year for them was rather turbulent, their gross margins were down, they had management changes. I guess I'm just trying to understand that they might have some attractive pieces, but are you more or less stepping in to a turnaround situation for them here, or just what your thoughts are, and maybe also just a little bit more detail to why you think that this is transformational for you all?

So, first of all, if you look at their – so the thing we're most attracted to is their ability to service design engineers. If you look at their online community, they have over 300,000 registered engineering users. And if you look at what they do for engineers from aviation to prototyping, they've been very successful in that space. Again, as you saw, based on some of the moves that they've made getting out of non-core businesses and focusing back on the core, we think that that's a huge opportunity for us to help an engineer today move from aviation and prototyping where they would then have to try to find a high volume distributor to be able to help them get to market. By coupling our value proposition and finalizing designs with engineers, and being able to help a customer design anywhere and build anywhere in the world, we think putting these two pieces together accelerates both of our strategies and allows us to provide a differentiated opportunity for both design chain and supply chain customers in our space. We think by putting what Premier Farnell brings to the table and what Avnet brings to the table, a differentiation that doesn't exist in our industry today. Bill Joseph Amelio - Interim Chief Executive Officer & Director: And I would add, you hadn't noticed that the catalog growth has been pretty substantial over the years. And it's something that we wanted to capture for a long time. But the problem is the fact that we are a scale company. We know how to do lots of volume and we do it extremely well. One of the things that's great about Premier Farnell is they're going to have the small lot P&A. I mean that brings a real advantage to our company that then can handle, as Gerry pointed out, those engineers needs and wants early in the cycle. And then as they grow, we'll be able to transition and move it to Avnet seamlessly. I think that synergy is just a terrific position between the two companies.

Okay. Great. And then switching over to the TS business. I guess you put a new manager in there, perhaps just a year and a half ago, and it seems results haven't really turned around there may be as sometimes hoped they were expected. Bill, I realized how new you are to all this, but any initial thoughts with what the main problem is, is the product, I know you mentioned on this call that you've added in over 400 specialists, is it the delivery? Just anything that you could help there explain that and just where we are in the transformation of that would be helpful. Bill Joseph Amelio - Interim Chief Executive Officer & Director: Sure. If you go back in history, the TS business is once upon a time sold into the first platform, which was mainframes and then the second platform, which is the data center, and today it is the lion's share of where our revenues come from. There was a clear cut turn in the road that happened several years ago, well before Patrick took over, and that was the fact that the sale went from a hardware led sale to a software led sale, and I think you're very well familiar with that. So what Patrick has put in place with the specialized business unit strategy is to go after that software sale a lot more effectively. So I think that pivot that we're making is going to help the TS business become a lot more effective in the future. Patrick Laurent Zammit - Senior Vice President, Avnet, Inc., President; Avnet Technology Solutions, Global: It's Patrick. So just one more remark. In fact, we are starting to see the benefits of the strategy which we have presented to you in June last year. So we've started one year ago already to refocus our energy on the next generation technologies on the second platform and on the third platform. And one of the reasons for the result this quarter is that clearly, we are seeing the weight of software and services in our mix continuously increasing. And that's also driving by starting to bear fruits and of course with the SBU concept, the intent is to accelerate that trend. Just one more remark. We've tested in fact this concept in the U.S. with cloud, and in Europe with security and networking. And after seeing very positive results, but the reason for we've decided to now globalize the approach around those four new business units without losing the focus by the way on the data center which continues to be really the core of our business. But also in the data center, we are embracing all the new software defined data center technologies, and here again, it's going to be more software-driven than hardware-driven going forward.

So would you say that's all been implemented and now it's really just waiting for those strategic changes to take effect? Patrick Laurent Zammit - Senior Vice President, Avnet, Inc., President; Avnet Technology Solutions, Global: Absolutely.

Okay. Thank you. Good luck.

Our next questions come from the line of Jim Suva with Citi. Please proceed with your questions.

Thank you very much for all the details thus far. You mentioned that you're implementing things such as talent management, as well as feedback and things like that. I guess a question is, what milestones should we as external analysts look at for evaluating your progress? And the second point is, when do you think organic growth will start to be positive? Bill Joseph Amelio - Interim Chief Executive Officer & Director: Well, as you can imagine, with respect to organic growth, we're in a very uncertain time with respect to election year. That causes all sorts of clear doubt and uncertainty in the system. And the market forces play a lot on our potential future growth. But that said, what's in our control is to get ourselves in the most efficient and effective as we possibly can and to win the biggest share of the wallet we possibly can with our customers, because we are executing better than everybody else in the industry. So that's what the game plan is as far as us to get more successful. So what you will be able to watch for is, in fact, as we progress to get the evolved SAP issue behind us and be able to reduce our inventory level, to get our working capital velocity a lot more quicker, and to see some of the key growth areas that we'll be reporting on to demonstrate that we are in fact growing at the rate and pace that we expect.

Okay. You've mentioned the election year and marketing your forces. I mean your competitors out there faced similar things also. Do you feel like you're maintaining share or the numbers look like you're losing share and the election year and market forces really aren't the cause that it's truly within your own execution? Bill Joseph Amelio - Interim Chief Executive Officer & Director: I 100% agree with that. We have over the course of the last several quarters, we lost a bit of ground and we are in place to go regain ground. So one of the metrics you can look at is our ability to close that gap rapidly.

Okay, thank you so much for the detail. Okay.

Our next questions come from the line of Steven Fox with Cross Research. Please proceed with your questions.

Thanks. Good morning. Just to follow up on that question a little bit more. And this is my take-away from your prepared remarks. Bill, it sounds like a lot of what you're focused on is going to be more top line than actually operational. I know you mentioned things like sense of urgency etcetera. So maybe if you could just sort of qualify your biggest priorities out of the box whether it's evaluating, staying in businesses etcetera that would probably be helpful for all of us and then I had a follow up. Bill Joseph Amelio - Interim Chief Executive Officer & Director: Sure. (34:00) lots of strategic initiatives, but clearly one of them is to be able to find out where is the profit generating source within the company and double down on those. What are the areas where we're leaking profit and either fix them or exit those businesses. So that's clearly part of the strategy. I'm sorry I gave the impression that we're not working on the operations. We clearly are working on the operations and there's a lot to build on. We have a solid supply chain recognized by our customers to be – if not best-in-class close to best-in-class. Is that good enough? No, I actually think we can do better in our supply chain. Regarding the design chain that Gerry mentioned, that's a great way for us to capture higher margins. We have some very talented FAEs. And, in fact, the strategy with Premier Farnell actually doubled down on that thought process because now we'll be able to capture more of that kind of design chain wins with the capabilities that will be built into the Web. And our whole Digital Transformation is another area where we're double downing on the fact that we want to have great tools in place in order for us to be able to capture that kind of design chain value earlier instead of later.

That's certainly helpful. And then just a quick follow-up on the embedded business. Can you just sort of describe overall how big that business is and your expectations for it going forward? Thanks. Bill Joseph Amelio - Interim Chief Executive Officer & Director: Sure. I'll start and then Gerry will jump in. It's roughly a $2 billion business. In the past quarter, Gerry has put a focused leader on the embedded business across the world because we think that's an important growth sector for us. And we believe that will drive future returns for us. I'll let Gerry comment some more about some of the specifics in the embedded business. Gerry?

Yeah. So if you look at – Steve, this is Gerry. If you look at what we're doing in the embedded business, part of the transition is, we actually, in EM we're servicing that business on behalf of Patrick's business. So the whole idea of bringing it over was the fact that we do now have a dedicated global leader on that business, and the idea was to make sure it was all under one tent so we could drive the growth. If you look at – we're going to project this year that the growth is going to be somewhere in the mid to high single digit growth in our embedded business, which is one of our highest growth opportunity. So, that's why we're doubling down there because we see growth in that portion of our business that's higher than overall market growth.

Thanks very much. That's very helpful.

Our next question is coming from the line of Brian Alexander with Raymond James. Please proceed with your question. Brian G. Alexander - Raymond James & Associates, Inc.: All right. Thanks. Could you guys just talk about the – or maybe Bill talk about the search for the permanent CEO, and when the board will make that decision? And, Bill, should we assume that you're the frontrunner for that role or how exhaustive is the search? Bill Joseph Amelio - Interim Chief Executive Officer & Director: Well, I would assume I'm the frontrunner. But with that in mind, the fact – look, I've had some of the most exciting times I've had in a long time in the last four weeks of being able to be associated with a really world-class team. And I think we're in a great market, I think this is a great opportunity. So I'm very interested in it. And the board, of course, has their fiduciary responsibility to make sure that we do a credible search and to make sure that we leave no stone unturned. I expect the search to be done relatively rapidly and I'm hopeful for good news sometime in the future. Brian G. Alexander - Raymond James & Associates, Inc.: So just to follow-up on that. Talk about how you would plan to drive more consistent execution and greater accountability which you talked about earlier? What would you do differently? How might you change the incentive structure to accomplish your goals? What's going to change? And then I have one more follow-up. Bill Joseph Amelio - Interim Chief Executive Officer & Director: This company is, as I mentioned, has got fantastic strength than a starred history. One of the things that made us successful was the ability to be able to handle the local meetings by having the management team to decentralize (38:04) to handle those needs rapidly. But as you can imagine, as the company grows bigger and bigger, one of the things that we need to make sure we take advantage of is scale. And there's plenty of opportunities across the company where we're not taking as effective use of our scale as we can. And in fact, if you look at our business management systems, we effectively run the company in the regions and with 25 P&Ls across the organization. As you'll see as time goes on, in fact, very rapidly we will put a business management system at the center so that we will have monthly ops reviews where we will go through in pretty deep detail, what's working, what isn't working, where the profit generators are, where the profit leakers are and we'll make decisions in order to improve in those areas. Brian G. Alexander - Raymond James & Associates, Inc.: Okay. One more for Kevin on the ERP issues. We know what the revenue impact was for the June quarter. Sounds like it won't be an issue for revenue in the September quarter. But could you talk about what the margin impact was for EM in the June quarter and how that will play out in September? How much of a drag this will be in September and beyond? Thanks.

Sure. Give me a second, Brian. I think if you were to look at it from a gross profit level, it clearly was a headwind of close to 30 bps to 40 bps, as we went through, obviously more in the April, the month of April. And then as we look forward, really, we're thinking near term more of just of an operating expense headwind for us. And I would range that between $5 million to $10 million in the September quarter. Brian G. Alexander - Raymond James & Associates, Inc.: So it's a $5 million to $10 million quarterly OpEx drag. Revenue and gross margin should be normalized. And then beyond September, would you still expect there to be a lingering OpEx impact in December?

Yeah. And, Brian, what I commented on in the script would be, we expect it to temper off as we work through the December quarter, and I'll clearly provide an update on our September call. The other thing I would talk to is obviously we saw the growth in inventory as we work through this quarter, and that's another key focus area for our team is to continue to lead that down, that investment down as well. Brian G. Alexander - Raymond James & Associates, Inc.: Okay. All right. Thank you.

Our next question is coming from the line of Ananda Baruah with Brean Capital. Please go ahead with your questions.

Hey. Thanks, guys, for taking the questions. Two, if I could. I guess the first is, understanding that there is a number of things you guys are working on across the organization, on the last earnings call, you spoke to some fairly specific areas from a revenue perspective programs, let's call them an initiative, that you guys were going to focus on. And then, GTDC, you guys talked to it a little bit more as well. I'd love to sort of at this point to get a quick update on where you are with those, and if you've added anymore? So maybe what were the key ones kind of going forward to both the business? You've spoken to one or two on this call, but just want to make sure that we're clear on all of them. And, I guess, where are you in those? And then, I'd just love to get a sense, if you could, of how long we should expect those to take place, and then I have a follow-up. Thanks. Bill Joseph Amelio - Interim Chief Executive Officer & Director: Okay. I'll have each of the business areas give their update on the growth initiatives, starting with Patrick. Patrick? Patrick Laurent Zammit - Senior Vice President, Avnet, Inc., President; Avnet Technology Solutions, Global: So, growth initiatives for TS, (41:30) is to support converged infrastructure/base storage and anything which has to do with software-defined data center. And then on the third platform, we declared that our focus would be on cloud, would be on mobility, would be on big data and analytics, and then security to support both the data center and all those new technologies. So, that's what we declared during the Analyst Day last year, and basically nothing has changed. We are maniacally not executing on growing those technologies. And by the way, I can share with you that with one exception, we are growing at least double digit on all those initiatives. So, it's going very well. Again, the SBU should accelerate that trend, okay. And the fact that it's going to be software-driven means that the specialization is going to facilitate the implementation or the acceleration of the implementation of the strategies and the recruitment of the specialized partners, in some cases, vendors, so that we can improve our value preposition. But basically – I mean, we feel very good about the progress we are making. Still, I mean, our legacy business, the weight of our legacy business is very high, so that's the reason for you don't see yet all the benefits from the top line and margin standpoint, but we are very confident on the progress we are making.

Hi, Ananda, this is Gerry. I'll talk about EM. So, our evergreen strategy is around design chain and supply chain. We continue to make investments there. And as we said earlier, Premier Farnell is going to help us engage more deeply with design engineers, plus the digital design tools that we put into place, starting in the Americas and now rolling out around the world, are helping us increase both our registrations and our design wins. If you look at our funnel for FY 2016, registrations were up 11%, and our design wins were up 5%. So our investments there are paying off. If you look at what we're doing around digitally transforming our business, both our organic efforts, which are helping customers dictate the experience they have with Avnet, both online and offline, coupled with Premier Farnell, we think will be a game-changer for us. I've already talked about our embedded strategy and the growth opportunities we see there. And there's also a focus, as Patrick and I both talked about in our Investor Day, a focus on IoT. So in EM, we continue to look to grow the three building block technologies, and those will grow faster than the market again for us this year. So we think we are executing well against our strategies and, as we get past our ERP issues, will start to show up in our results.

That's helpful, guys. And then just a follow-up for me. I guess maybe as we get through the December quarter, but as you get ERP kind of wrapped up and operational as you would like, should we also think of it as a revenue amplifier, number one? And then, secondarily, regardless of what the timing is, because I know you guys have a lot of things that you're working on, but what will be the reason that you couldn't when you get back to normalized kind of rev run rate that you couldn't actually begin to grow stronger than typical seasonal since you're seeing it sub-seasonal on the way down? So I'd love those two. Thanks.

I think it's a great point, Ananda, because if you look at our quarter, this quarter, even with our ERP issues, we're going to be in our normal seasonal range. So, if you project that path, getting past our ERP issues and then getting the benefits from the ERP system around pricing and inventory management, things like that, that should only accelerate our performance, and we have not backed off on the budget we've committed for the corporation for the fiscal year.

Got it. Thanks. That's helpful. Thanks a lot, guys.

Our next questions come from the line of Matt Sheerin with Stifel. Please go ahead with your questions. Matthew Sheerin - Stifel, Nicolaus & Co., Inc.: Yes. Thanks. Most of the questions have been asked and answered. But just following up on the last question regarding your seasonal guide for the September quarter for EM, which did seem a little bit better considering the headwinds you have both on the ERP side. But also your decision to walk away from supply chain engagements which is obviously seasonally stronger in the September quarter. So, are you just feeling better about the demand environment in general? Is there some products that didn't get shipped because of the ERP implementation issues that will ship this quarter that makes up for that? I'm just trying to figure out what you're seeing in the markets in general.

So let me start with Avnet's specifics and then I'll talk a little bit about what we're seeing in the market, Matt. So if you think about our ERP issues, April was not a very good month for us. Things started to improve in May and then June was fairly typical. So when you look at the guide seasonality wise, we had a very poor April. So that's part of it. But if you look at our book-to-bill, book-to-bill for us is fairly strong at this point. We ended the quarter at 1.09% and it's continued at 1.08% with all regions above parity at this point. So, we are seeing that the market is a little stronger than we have seen typically. So I think those two things combined, coming out our ERP issues with the fact that the market, I would say, sentiment seems a little stronger I think bodes well for us to hit our budget and our seasonality this quarter. Matthew Sheerin - Stifel, Nicolaus & Co., Inc.: And as we look out to the December quarter, should we adjust assumptions on seasonality for Asia due to some of your shifts in the supply chain strategy?

We don't normally talk about out quarters, but what I would tell you is you have to take into account there's ins and there's outs. So we had some wins with some of our biggest suppliers that are coming in. So I think what we're going to just have to look at is how those play out, and we will keep you updated on any changes to our seasonality going forward. Matthew Sheerin - Stifel, Nicolaus & Co., Inc.: Okay. And just lastly on the TS business, it sounds like you're putting the right pieces in place for growth to gain back market share. One thing you haven't talked about is any voids in terms of your vendor line card, particularly on the software and security side. Are there plans to add some vendors to the line card to beef up some of those initiatives? Patrick Laurent Zammit - Senior Vice President, Avnet, Inc., President; Avnet Technology Solutions, Global: Yeah. So the answer is, yes, absolutely. So, again, if you think about those four new specialized BUs, I mean, their role is – they have several roles. The first one is to come up with a differentiated value proposition because, again, it's a software sales, so the skills required are going to be different, the solutions required will be different. And so with the specialization approach, again, that's going to accelerate us being able to define and deliver those solutions to the market. The second priority is going to be to recruit partners, so new partners who are specialized in those areas, but also enable our existing partners while building practices in those areas. And the third is going to complement our existing line card where needed so that we come up with the best value proposition and line card in the market. So these are the three objectives. So the answer is yes. And again, the SBU is the enabler to make it happen. Matthew Sheerin - Stifel, Nicolaus & Co., Inc.: Okay. Thanks. Patrick Laurent Zammit - Senior Vice President, Avnet, Inc., President; Avnet Technology Solutions, Global: And just – okay. The vendors are identified. We don't want to add too many vendors. We strongly believe in limited line card, that having the right vendors on the line card. So it's identified and we've started, by the way, working on it. Matthew Sheerin - Stifel, Nicolaus & Co., Inc.: Okay. Thank you.

Our next questions come from the line of Sherri Scribner with Deutsche Bank. Please proceed with your questions.

Hi. Thank you. I just wanted to ask, looking at the margins in the EM business, they're below 4% this quarter, I assume related to the ERP transition. Should we assume that margins for EM are again below 4% in the September quarter given you still have some transitions that are happening? Just trying to understand how that margin expand? Thanks.

Sure. Hi, Sherri. It's Kevin. I would expect the EM margins to improve sequentially in the neighborhood of 30 basis points to 40 basis points, and again, it's due to the sequential improvement in the Americas to the point you highlighted earlier, coming off a weaker April and then the ERP running more smoothly as we look through the September quarter.

Okay. And then thinking about the TS margins, that suggest they're down pretty significantly year-over-year. Is that primarily because we have the extra week last year or how should we think about margins in TS? Thanks.

Sherri, that's the right way to be thinking about it. The extra week has had more of an impact on the TS business, so the right way to think about it. Patrick Laurent Zammit - Senior Vice President, Avnet, Inc., President; Avnet Technology Solutions, Global: And so I'd just add one thing. If you normalize it, so if you normalize our quarter last year, so remove the extra week and you remove the embedded business which has been transferred to EM, in fact, we are forecasting to have flat operating margins year-on-year.

Thank you.

Thank you. Gentlemen, there are no further questions at this time. Vincent Keenan - Vice President & Director-Investor Relations: Thank you for participating in our earnings call today. Our fourth quarter fiscal 2016 earnings press release and related CFO commentaries can be accessed in downloadable PDF format at our website, www.ir.avnet.com under the Quarterly Results section. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. And thank you for your participation.