Greetings and welcome to Avnet's Fourth Quarter and Fiscal Year 2018 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ina McGuinness. Please go ahead.

Thank you, operator, and welcome to Avnet's fourth quarter fiscal 2018 business and financial update call. As we provide the highlights for our fourth quarter and fiscal year 2018, please note that in the accompanying remarks, we have excluded certain items including accelerated depreciation, intangible asset amortization expense, goodwill impairment, 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 we translate Avnet's non-U.S. dollar-based financial statements into U.S. dollars. When we refer to organic sales, we have adjusted the prior periods to include the impact of acquisitions. For additional information, refer to the non-GAAP financial information section of our earnings press release available on our website at www.ir.avnet.com. Before we begin the presentation, let me remind you that today's remarks and presentations contain 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 are set forth in Avnet's filings with the Securities and Exchange Commission. Today's call will be led by Bill Amelio, Avnet's CEO; and Tom Liguori, Avnet's Chief Financial Officer. Also here today to participate in the Q&A session is Phil Gallagher, President, Electronic Components. With that, let me turn the call over to Bill Amelio. Bill?

Thank you, Ina, and good afternoon, everyone. I'm very pleased to share our fiscal fourth quarter and full year results. It was not only a strong quarter, but a promising ending to an important transformative year for Avnet. Our fourth quarter results showed continued strong demand around the world with our Electronic Components Group delivering the strongest results of the year, growing nearly 6% sequentially and 10% year-over-year. Premier Farnell also had an outstanding quarter, growing 13% from a year ago. Q4 was our strongest adjusted operating income quarter in the last five quarters, which demonstrates that we not only are growing again, but growing profitably. This is a sharp turnaround from where we were one year ago and is evidence of our significant transformation underway at Avnet. Avnet's transformation is the result of us focusing efforts on five key strategic priorities. Let's take a look at how we're doing as a company on these five strategies. The first is accelerating our Electronic Components business. We exited fiscal 2018 having replaced all of our revenue from supplier program changes that affected us a year ago. We made up the entire gap with both revenue and gross profit in just a few quarters. That rebound came about to a very focused attention to expanding our line card and finding innovative ways to support our customers through the transition, demonstrating our agility as an organization. Our customers have noticed, as demonstrated by the fact that our Net Promoter Score has rebounded back to previous high levels. As a result, our Americas component business has significantly improved. This quarter, we saw the Americas region grow 5% sequentially with operating income that grew 19%. We further strengthened our Americas business by adding Tony Roybal, as President of our Americas Electronic Group. Tony is a…

Thank you, Bill. Good afternoon, everyone. Today, we marked another quarter of solid progress. Revenues in Q4 reached $5.1 billion, an increase of 10% year-over-year. Adjusted earnings per share increased 18% year-over-year to $0.99 per share. Net working capital days declined by seven to 86 days, all of which resulted in $236 million of cash flow from operations, the highest level in five years. Each of our segments performed well. Premier Farnell had another outstanding quarter. Revenues grew 13% year-over-year, and the team reached a record operating margin of 11.8%. Premier Farnell enjoys gross margins in the high-30% range and has a path to even higher operating margins by leveraging Avnet's global capabilities as it grows. Within the Electronic Components segment, Avnet Integrated, another one of our higher-margin businesses, grew revenue 7% year-over-year. With the key focus on streamlining cost, the Avnet Integrated team increased operating margins 150 basis points year-over-year. Americas continued to accelerate, growing revenues 5% sequentially and operating income by 19%. Our EMEA team delivered 7% revenue growth year-over-year and continue to be our best performing region in Electronic Components in terms of operating margin. Lastly, our Asia team added franchises and customers and grew at a total 20% pace, year-over-year. Just as important, they held margins steady and were able to improve working capital days while achieving this growth. As a testament to the quality of our business growth and management team, Asia contributed more than $100 million of operating cash flow this quarter while growing revenues 20%. Going down the income statement. Gross profit percent declined 61 basis points sequentially, due to a higher mix of Asia revenue. Asia, while fast growing and generating excellent cash flow, has a lower gross and operating margin percentage, which tends to lower our consolidated metrics. Our management of…

Thank you. Our first question comes from the line of Joe Quatrochi with Wells Fargo. Please proceed with your question.

Okay, great. Thanks and congrats on the quarter, guys. A couple of questions from me. First, I was wondering if you could kind of – I know in the press release it said book-to-bill is comfortably above 1. I was wondering if you could give us a little bit more detail around that and then kind of the puts and takes of the demand environment.

Yeah. Book-to-bill is excellent across all regions. We're above 1.1 in every region and it continues good strength. So nothing more to say about that. We're pretty excited about the prospects ahead.

Okay. Fair enough. And then just kind of on the working capital management side, I know that you're working to reduce that. But how do you balance, I guess, your inventory levels with the existing growth that you're seeing and the goal of bringing that down?

Well, as you can imagine, we've got many SKUs across the world and we have an opportunity to be able to ensure that we optimize. Where we think that there is going to be additional demand, we can bring in product for that. But where there isn't, we want to move as fast as we possibly can. So we're balancing across the globe, and that's one of the changing that we've made over the course of last couple years. And we have an opportunity to be able to manage not only in a region, but across regions where we have to.

Okay. Thank you.

Our next question comes from the line of Shawn Harrison with Longbow Research. Please proceed with your question.

Afternoon, everyone, and my congrats on the progress in 2018 as well. First question is maybe a bit for Tom here. You said you're ahead of schedule on the cash cycle improvement. I know the goal is less than 70 days. Would you expect a linear improvement in fiscal 2019 toward that 70 days? Or since that you're running ahead of plan, could you get that cash cycle reduction more than five or six days as you move through 2019?

When we were at Investor Day, we told you at the end of 2019, will be 83 days. So we're ahead of schedule for that and I think we're feeling good right now that we'll beat our 2019 number. That said, we're down 14 days I think in 6 months, which is really tremendous progress by all of the teams. And you should expect – probably we'd hope to see sequential declines. We have to make it 14 days, maybe a few up, a few down. But overall it's in a great direction and gives us a lot of confidence to get to 70 or below.

Okay. And then, as my follow-up, the incremental $37 million of cost reductions you announced here on the call. How much of that will be reinvested in the business versus a net number kind of leading to a decline in operating expenses?

Yes. That was $37 million company-wide, right? That wasn't related to any specific business; company-wide. And the important thing to remember is our goal is, as we grow to we hold operating expenses flat, so a good part of it will be reinvested in growth which is the variable costs or distribution centers and commissions and things like that. We have a really good project going on in this current quarter. We're opening our new distribution center in Asia, and that's a good example of re-applying some funds. And we're pretty confident by the second half of this year, we'll start to get some productivity improvements that you'll see in the financials from that.

Thank you.

Thanks, Shawn.

Our next question comes from the line of Matt Sheerin with Stifel. Please proceed with your question. Matthew John Sheerin - Stifel, Nicolaus & Co., Inc.: Yes. Thanks and good afternoon, everyone. So a couple of questions. The first, just following up on the question on book-to-bill and demand. Your guidance basically guiding relatively flattish quarter-on-quarter. It looks more seasonal than anything. You've been running – particularly if you take out the market share losses, you've been running well above, as your peers have, seasonal for three or four quarters. So it looks like a return to seasonality. Is there anything to read into that? Talk generally about lead times. Your inventory days were down. So it looks like there may be signs of stabilization in terms of supply. So could you just give us more color on the demand environment?

Well, our lead times, for sure they're still extended, but they are stable. So they haven't gotten worse. So that's for sure. And as far as our seasonality, we're in that range of the seasonality that we typically have, minus 2% to plus 2%. So there's nothing more to read into that. Matthew John Sheerin - Stifel, Nicolaus & Co., Inc.: Phil, do you have anything to add?

Yeah. Hey, Matt. How are you doing? No, look, the book-to-bill is 1-to-1 (sic) [1.1], give or take plus or minus in each region. So we're really positive. The lead times, just to expand on those, not a big change from the last quarter, Matt. I mean, we know there's definitely some constraints out there. We're managing through it. Even going back to the last question, our inventory, we're constantly optimizing our inventory against our supply chain needs from our customers when we get good forecasts. The demand environment's pretty good. I mean, the verticals, transportation/automotive, continue to be strong. Industrial continue to look really positive. So, no, I think we're steady Eddie as we go into the next quarter as best we can see it. Matthew John Sheerin - Stifel, Nicolaus & Co., Inc.: Okay. That's helpful. And then, Tom, you talked about OpEx staying sort of flattish. And if we apply that to the September model and back into your – the gross margin looked like that's going to be down sequentially. Is that also just a function of seasonality in Asia typically up and you're growing faster looks like in Asia than you are in other markets? Is that basically the reason why gross margin should be down?

I don't think gross margins will be down. So I'm not exactly sure, Matt, how you got that number. One thing to keep in mind is, this is seasonally when Asia has the peak revenues, okay? So as we get into January, February, Chinese New Year, seasonality, that's their low point. That's where mix will help us. And we're feeling pretty good about our operating margins getting to 4% or above sometime in the second half of the year. Matthew John Sheerin - Stifel, Nicolaus & Co., Inc.: Okay. So you expect margins, particularly – because you also talked about Premier Farnell and the Avnet Integrated also growing faster and obviously they have better margins. And I don't know if there is seasonality in those businesses as well.

Yeah, actually, Q1 is typically their lower seasonality. So if you look at our current quarter in the mix, what you saw in the results is fairly typical. Asia has a larger mix of the revenue. Matthew John Sheerin - Stifel, Nicolaus & Co., Inc.: Okay. Thank you.

Thank you, Matt.

Our next question comes from the line of William Stein with SunTrust. Please proceed with your question.

Great. Thanks for taking my question, and congrats on the good results and outlook. I'm wondering if you can give us an update on the ERP implementation. How far are we along? Maybe just remind us as to what's outstanding and what's the timing to complete this effort.

Yes. It's going great. Our Americas system has stabilized. And as I said on the last call, the strategy is that we will be implementing the next phase of it in Avnet Integrated business, and that will be happening as we speak. And that will be going live over the course of the next 18 months.

Okay. And then as a follow-up, if I can, any comments by end market in terms of the strength that you saw in the quarter and in particular any spots of weakness? We've heard from some semi and other component suppliers some mixed things about automotive in particular more recently, and wondering what you're seeing in that regard. Thank you.

Yes. Hey, Will. It's Phil. How are you doing? Let me just expand a little bit from Matt's question. So our two largest and fastest growing are – and we call it really transportation versus just automotive because it's further expanded beyond the automobile, right, with what's going on with the EC and the grid and ADAS. I mean, across the board, farming equipment, et cetera, it's all getting more electronics, if you will, attached to it. So we're still seeing good demand there in all regions of the world. We play a little bit with the Tier 1s from a fulfillment – but getting into Tier 2, Tier 3, it's really an expanding market right in our sweet spot. So that's actually going quite well for us. Industrial, if I combined with the applications of IoT expanding – it's actually expanding the industrial customer base really. It's getting a longer tail, I should say, as well as non-traditional customers coming in. So, they're not start-ups, but they're traditionally customers that don't have electronics in them, okay, but obviously wanted to start using some more applications on IoT. So actually the industrial – always strong in Europe, continues to be strong in Europe and doing well here and in Asia. I just got back from Asia last week and things looked very positive. There, of course, defense/aero, a bigger segment for us here in the Americas, is looking to be very strong and that's a sizable business for us here. So, no, I mean, again, don't want to sound overly optimistic, as we never know, but right now things look pretty good in the different segments which is why we think we're not seeing as much of the typical cyclicality either that we've seen in the past.

Great. Thank you.

Our next question comes from the line of Jim Suva with Citi. Please proceed with your question.

Thank you very much, and congratulations on the results. This is kind of more a bigger picture question, but you can answer it however you want. In the past 12 to 24 months, the industry has changed a lot. Avnet lost some pretty big supplier contracts and Avnet won some very important supplier contracts. Can you help us understand right now, is that state of the environment still pretty much in flux and (32:12) just happening in works? Have these calmed down? Are the suppliers looking for you to do more? And also, there was just so many changes in the past couple years. I just want to get a pulse on where we stand today because you've won a lot. I wondering if there's a lot more left for you to win or have things kind of slowed down or just kind of a pulse on the industry from a supplier-distributor relationship.

I'd say it's more stable today than it was a couple years ago. And I think I would foresee it being that way with respect to supplier lines. With the exception of exception of some acquisitions occurring in the supply space, that could then change some of the rules of the game. What we're seeing right now, we are seeing stability with all our top suppliers. We spend a lot of time with them. Phil and I, we've visited over hundreds of our decision makers out in the supply chain and we have regular ops reviews with them and make sure that they understand exactly what our commitments are. And we work diligently to ensure that we achieve those commitments.

Yeah. Jim, I'll jump on that as well. For sure, you're right, in the last couple of years there was a lot of movement, okay? And a lot of it caused by accelerated M&A and consolidation on the supplier side. It was accelerated, but it wasn't new. If you go back 25-30 years, unfortunately some of us have been around that long, these things happen. I mean they just seem to happen. There was a lot in a short period of time, okay? So yins and yangs back and forth. So you are absolutely right. But right now to Bill's point, we don't sit in the supplier board room, so we don't know what they're absolutely thinking when the next shoe may drop. But we feel very good – never comfortable, but we're confident, okay, on where we are sitting with our supplier relationships right now and particularly with bringing the Microsemi back is a big win for us.

Okay. Thanks very much for the details and clarification, and congratulations on the results.

Thank, Jim. Appreciate that.

Our next question comes from the line of Param Singh with Bank of America Merrill Lynch. Please proceed with your question.

Hi. Thank you for taking my questions. So, guys, looks like you're doing phenomenal with Premier Farnell margins there. But we have learned from the channel that a lot of companies like Premier and its competitors are benefiting from some sort of shortage where people instead of buying from traditional distributors, because they are getting allocated, are buying small lots from companies like Premier and overpaying for it in some ways. So do you feel that's part of the reason why you're getting such phenomenal margins in the Premier business? And are you saying that this 12%-ish margin is sustainable ex that?

Okay. Short answer to your question, no. No. With respect to sustainability, our game plan is to get that number higher. That's what we want. We think there's some more room to grow operating margins in the Premier Farnell space, and we're going to do it. We demonstrated now we've almost doubled the profitability in that business unit, and we went from one that was shrinking to one that was growing. So we're very comfortable with the position that we're in. We're really comfortable with our competitiveness. And this whole play with ecosystem plays extremely well at Premier Farnell. And the lead sharing is really phenomenal between Premier Farnell and our core component business. So it's going better than we expected. So I'm very bullish on that acquisition and what it brought to Avnet.

Have you guys quantified any metric on what lead generation from the Premier business is going into your core business and how that's benefiting you? Or is that...

Yeah, I'll give you some color. We just saw something that we weren't expecting to happen, that's happened, that's pretty exciting is the fact that we're registering designs from Premier Farnell early in the life cycle and they get passed on to the core component business and the amount that get approved are higher than any other leads that we have in the business. They're getting approved at a rate of 66%, which is pretty phenomenal. Now, prior to that in Europe we're already at the $12 million that have been approved and that's going to grow pretty substantially over the course of the next several quarters. So that's one example. I gave you an example in my remarks earlier about how the leads get moved around the ecosystem. I use Dragon as one example. But that happens not only in Dragon, it happens with Hackster, it happens with Premier Farnell. All of a sudden, we get a non-traditional company lead that we're able to capitalize on and bring it into the core and start ramping up production. And there's plenty of that that's going to happen. And in future earnings calls, we'll flesh that out a bit more to give you an idea of exactly why that means so much for the company.

Yeah. Param, this is Phil. The other direction of leads if you are aren't just familiar to the Avnet core, but it's also Avnet core back to Premier. Well, recall on engineering where a lot of our traditional customers are doing NPI, new product introduction, where we have leverage and scale, we're extending with Premier Farnell into the core base. It's really going back and forth both ways. And the teams are really working really hand in hand out there in the field.

Okay, great. Thanks for the color guys. And then really quickly I have a follow-up. Based on the guide, it looked like – I understand that Premier looks like that. The core business margin might be flat to slightly down sequentially in your guide. Is that based on mix of region or is there something that I might be missing there?

Yes. That again would be higher mix of Asia business.

Understood. Great. Thanks a lot, guys. Really appreciate it.

Thanks, Param.

Thanks, Param.

Our next question comes from the line of Steven Fox with Cross Research. Please proceed with your question.

Hi, good afternoon. First question, I was just curious on the positive cash flows for the quarter. How much would you say was result of just your own internal improvements on working capital versus just natural improvements in growth, et cetera? And then I had a follow-up.

A good part of it, $140 million-$150 million-ish.

And so, when we look at going forward proportionally on the days improvement you're talking about, is there any reason to think that you shouldn't annualize to something similar as we go through this fiscal year?

So I think what we've said before, Steve, which is true, every day it's worth about $50 million. But what you see is right. We're growing. So we talked about Investor Day and getting to $7 a share. We're assuming that we're going to reduce working capital, but it's roughly I think half will get reinvested for growth. So we had a really good cash flow quarter. Are we going to have four in a row of $230 million? No, I don't think so. I hope so, but it's in the right direction.

Got it. And then just on the gross margins, I was wondering if we can get a little more detail on how much of the gross margin decline was directly due to the Asia mix? And maybe how much of the positive offsets were related to the Americas profit improvement and the Avnet Integrated growth? Thanks.

So the good news on this is just about all of it is due to mix. And if you look at the gross profit percentage by business, they're generally improving. So that's a good sign for us going forward.

Great. Thank you.

Thanks, Steve.

Our next question comes from the line of Mark Delaney with Goldman Sachs. Please proceed with your question. Mark Delaney - Goldman Sachs & Co. LLC: Yes, good afternoon. Thanks for taking the questions. First question is a follow-up on the Asia region and I was (40:01) for a little bit more color about why Avnet thinks that region in particular has been growing at such strong rates and even faster than some of the other regions. And on the topic of Asia, especially for China, how are your customers thinking about potentially managing through some of the tariffs and has that changed the demand patterns at all?

I'll take the tariff question first, and then we'll go to the first question. The good news is it only represents a small portion, 1% of our overall line card is impacted by the tariffs based upon our evaluation to-date. That could obviously change if the rules change. Our Americas business will be most affected, and our expectation is that product price increases that come our way will be passed on to the customer. So that's kind of the overall game plan which we see with tariffs.

Yeah. I'll jump on the Asia in general. Greater China, we should say, is the fastest growing part of the region. As I said to Matt, I was just there last week. It's just strong. I mean, right now the demand is just good. And, of course, this quarter, as Tom pointed out, a ramp-up quarter in Asia-Pac, getting ready for – some of that's consumer based and getting ready for the holidays in December. But as I look at Asia today versus many years ago, many years ago – and still a big part was outsourced, right? A lot of it was outsourced from the U.S., predominantly U.S. and Europe as well into Asia-Pac, starting in Southeast Asia, working itself to China and Vietnam, et cetera. So you still have that element that's there, okay, which is terrific. And we track well over 1,000 OEMs that do design in other regions into Asia, and we have a great tracking system. So that continues to grow. But what you really see is the organic growth now in China, particularly China. I was there last week. The amount of innovation, okay, that's going on in engineering and their own designs and their own products, that's continuing to expand. So just to summarize – and of course, consumer is strong. We don't play as much in that, but we do still play in that. But it's the diversification of the market. So automobile is a perfect example. I mean, ADAS, there's a ton going on in indigenous Chinese manufactured automobiles that we're playing in today that wasn't there many years ago. So I think that kind of sums it up.

So great strength in Taiwan, great strength in China, great strength in Southeast Asia. So we're hitting on all cylinders over in Asia at this juncture in the verticals that Phil mentioned; both industrial and transportation, we're doing extremely well. Mark Delaney - Goldman Sachs & Co. LLC: That's helpful. And a follow-up on Microsemi, which you mentioned a few times now on this call is a positive development. Can you give a sense how long that will take to fully ramp? And then should we think about that coming in at fulfillment margin and just given that – I'd imagine you're maybe starting to (42:50) having potentially lost your prior design registrations? Thank you.

Sure. That's exactly right on that. We expect to see revenues picking up in the back half of the year. So stay tuned. So that's a great pickup for us, as Phil mentioned, and we're pretty excited about having the line back. We have great expertise. As you know, we had that line for a long time and we were in fact the best demand creator in that line for Microsemi, and we will continue to be that way as we move forward. Mark Delaney - Goldman Sachs & Co. LLC: Thank you.

Our next question comes from the line of William Stein with SunTrust. Please proceed with your question.

Thanks for taking my follow-up. First, a clarification. Bill, I think when you were asked about book-to-bill before, the press release said above 1 and I think your comments – I wasn't sure if you said 1.1 or 1-to-1?

1.1.

1.1. So that's what it was globally. And okay, so that...

No, I said it was greater than that in every region.

Greater than 1.1 in every – okay.

Yes.

Okay. That's great. And one more, if I can. I apologize if this was asked already, but we all know that there have been shortages and extended lead times, in particular in capacitors, but also discretes. Is that influencing the bookings? Has that extended it at all? I know the last time we asked it sounded like this is a problem that's being managed reasonably well and customers weren't in line down situations. But if you could provide any update on that, it'd be helpful. Thank you.

Yeah. Will, it's Phil. First of all, on the bookings. We track as best we can the bookings and make sure we're sanitizing and cleansing the bookings as they come in. So we keep it as accurate as possible we can, our backlog and our book-to-bill. So we do watch for what you talked about very closely. And so do our suppliers – as do they. As far as some of the caps that you're talking about, MLCC, some discretes, yes, it's tight out there. And we're all expediting and we're all doing all we can to keep our customers' lines moving forward. There's some challenges for sure, but I wouldn't call it a significant impact or a threat to future revenues at this point in time.

And I usually quote to you the cancellation rates and expedite rates across the world, and they're pretty stable. So there's no shocking news with respect to that. And you would see that jump up one way or the other if we were starting to see issues with our customers.

Great. Thanks, guys.

Our next question comes from the line of Shawn Harrison with Longbow Research. Please proceed with your question.

First, if I may, a clarification. Tom, did you say that you're expecting the EBIT margin to be north of 4% in the back half of fiscal 2019?

Yes.

Okay. That's a nice positive.

The operating income to be exact.

We said operating margin.

Operating margin.

Operating margin in excess of 4% in the back half of 2019.

Okay. That's – go ahead.

I am sorry.

Part of that is mix related, right? Because when we get to second half, we're going to have lower percentages of Asia, greater percentages of the other businesses on top of just the continued transformation efforts we have every quarter.

Okay. And then two clarifications, additional details. What is the expected CapEx number for fiscal 2019? And then also, should we expect kind of the ongoing dynamic has been that Tech Data proceeds have been used to buy back stock. Is that what we should expect for the latest level of proceeds?

The CapEx is about $150 million for 2019. And, in general, we're going to stick to the capital allocation plan, which is about 50% to share repurchase over the long-term.

Okay, thank you.

Thanks, Shawn.

Our next question comes from the line of Adam Tindle with Raymond James. Please proceed with your question.

Good afternoon, guys. This is actually Madison (47:40) on for Adam. I know gross margins were impacted in the quarter by the mix of the Asia region. Could you guys just give us an update on how some of the other aspects are trending from a gross margin standpoint, whether it's Avnet Integrated or demand creation?

Yes. Generally, the decline in gross profit is because of mix which is because of Asia. The good news is, if you look at the gross profit percentage in each individual business, they are generally increasing quarter-over-quarter.

Okay, thanks. And then I know in the press release you mentioned that online sales doubled year-over-year. Can you just give us an update on what that run rate is?

For the digital sales?

Digital sales. Digital sales are up 18% and we had an absolutely great quarter and we look forward to having a great year coming up. So essentially if you look at our core business, we actually doubled digital sales year-over-year. So that's really great. And we have Premier Farnell and all of our electronic transactions that we do, almost 50% of what we do now is handled digitally.

Okay, great. Thanks, guys.

Roughly $1 billion.

Roughly $1 billion, Adam (sic) [Madison].

Okay. Thank you. Roughly $1 billion you said?

Yes.

Okay. Thank you.

Ladies and gentlemen, we have reached the end of our question-and-answer session. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.