艾睿電子 (ARW) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Arrow Electronics Inc fourth-quarter earnings conference call. My name is Shandalei and I will be your facilitator for today's call.

(Operator Instructions)

As a reminder this conferences is being recorded for replay purposes. I would now like to turn the conference over to our host for today, Mr. Steve O'Brien. Please proceed, sir.

Thanks, Shandalei. This is Steve O'Brien, Director of Arrow's Investor Relations program. I'll be serving as moderator on today's call. If you'd like to access today's call via webcast, please visit our Investor Relations website at www.arrow.com/investor and click on the webcast icon.

With us on the call today are Mike Long, Chairman, President and Chief Executive Officer; Paul Reilly, Executive Vice President, Finance and Operations, and Chief Financial Officer; Andy Bryant, Chief Operating Officer, Global Components and Global Enterprise Computing Solutions; Eric Schuck, President, Global Components; and Sean Kerins, President, Global Enterprise Computing Solutions.

By now you should have all received a copy of your earnings release. If not, you can access our release on the Investor Relations section of our website, along with the CFO commentary and the non-GAAP earnings reconciliation for the fourth quarter.

Before we get started I will review Arrow's Safe Harbor statement. Some of the comments made on today's call may include forward-looking statements including statements addressing future financial results. These statements are subject to a number of risks and uncertainties that could cause actual results or facts to differ materially from such statements for a variety of reasons. Detailed information about these risks is included in Arrow's SEC filings.

We will begin with a few minutes of prepared remarks, which will then be followed by a question-and-answer period.

I will now hand the call over to our Chairman, President and CEO, Mike Long.

Thanks, Steve. Thanks to all of you for taking the time to join us today. We delivered record fourth-quarter results and that completed an outstanding year in 2014. We executed well on our organic strategic initiatives. We continued to deliver best-in-class financial performance, and we also returned substantial capital to our shareholders through our buyback program.

For the full year of 2014, we delivered a 7% increase in sales, a 12% increase in operating income, and a 19% increase in earnings per share. We achieved record sales, gross profit, and earnings per share.

Our Global components business continues to bolster its leading value-added services by extending design and engineering capabilities. This allows us to deliver an increasing value to both our customers and our suppliers. In the enterprise computing solutions business, we continue to move forward selling comprehensive solutions with a focus on the higher-value segment, targeted at the data center. Our software and services businesses are extremely well positioned, whether it's on-premise, in the cloud, or a hybrid combination.

Our evolution is happening at an increasingly more rapid pace. We've notched many accomplishments and milestones during 2014 that underscore our rapid evolution. Some of these include launching our proprietary series of IOT and big data symposiums to enable our customers and partners to capture the rapid growth afforded by these technologies. We successfully transformed our enterprise computing solutions business so that security and infrastructure software and services have become the majority of our business.

The ongoing advancement of our technology portfolio continued at an aggressive pace. In global components, many of our new solutions and suppliers are advancing our opportunities from IOT and design services. In enterprise computing solutions, we're positioning our portfolio to garner a greater piece of the rapidly developing opportunities in security and data analytics and in converged solutions. We're also substantially broadened our cloud-based compute, storage and security offerings on our WebSphere online marketplace.

Our asset value recovery business was again positioned in the leader's quadrant of Gartner's Magic Quadrant for IT asset disposition worldwide. We successfully completed five acquisitions, which helped continue our strategic imperative to broaden our solution set and the geographic reach of both our global components and our global enterprise computing solutions businesses.

Returning to our results for the year, looking at global components, the overall market remains stable. Lead times and cancellation rates are normal. Our full-year 2014 sales were $14.3 billion. Sales advanced 6% year over year with growth in all three regions. Europe delivered sales growth of 6% year over year, despite a challenging macro environment. Our Americas region showed steady growth at 2%, and Asia continued its strong growth trend, advancing 11% and achieving another record year for sales.

Operating income grew 13% and margins improved year over year. Global components operating margin has advanced year over year for six straight quarters. The full-year 2014 operating margin advanced 30 basis points over 2013. In short, global components made substantial improvements in its financial performance.

If there is a disappointment, it's that we did not deliver operating margin of 5%. I fully expect the team to do so in 2015.

Enterprise computing solutions delivered an exceptional year, despite substantial changes in the IT spending patterns. CIOs are making security a top priority, while optimizing their compute and storage requirements between on-premise data centers, both hybrid and public cloud. We've aligned our business to capitalize on these changes.

Sales advanced 8% for the year, driven by excellent growth in software and services, in both regions. ECS operating income advanced 12%, and margins expanded over the prior year. ECS achieved record sales, operating income, and operating margin in 2014.

As we look forward to 2015, we see no meaningful improvement in the economic backdrop and no material changes in the markets we serve. But as we proved once again in 2014, we're able to produce strong results independent of the market environment and we look forward to continuing this into 2015.

Paul will now provide more details on the fourth-quarter results and our expectations for the first quarter.

Thanks, Mike. Fourth-quarter sales of $6.4 billion were towards the upper half of our guidance range. Sales advanced 4% year over year, both as reported and then as adjusted for the impact of acquisitions and changes in foreign currencies.

In global components, sales of $3.6 billion increased 4% year over year, at the high end of our guidance. In the Americas, our sales were up 4% year over year. Americas' core sales were up 2% quarter over quarter, in line with traditional seasonality. In Europe, sales in constant currency increased significantly, advancing 10% year over year, with strength across the larger economies of the continent. Sequentially, core sales in Europe were flat in constant currency, which is above normal seasonality.

Sales in Asia were also strong year over year, growing 8%. Core sales in Asia declined 10% quarter over quarter, below traditional seasonality but in line with our expectations, due to both a strong Q3 and a continued economic deceleration in the region. Fourth quarter book to bill was 1.03.

Sales in our enterprise computing solutions business were $2.8 billion in the fourth quarter, in line with our expectations. In the Americas, sales grew 9% year over year and were up 44% sequentially, ahead of traditional seasonality. The ever-expanding need for computing power, our strong execution, and our solutions selling efforts all drove a strong revenue growth.

In Europe, sales in constant currency advanced 3% year over year. As we expected, sequential sales growth on a constant-currency basis fell slightly below traditional seasonality.

Our consolidated gross profit margin was 12.8%, and year over year gross margins were stable, despite a higher mix of Asia components and seasonally lower by 20 basis points sequentially on a higher mix of ECS sales. Total Company operating expenses increased 1% year over year, adjusted for the impact of acquisitions and changes in foreign currencies. Operating expenses were 20 basis points lower as a percentage of sales, driven by our operating leverage and efficiency initiatives.

Operating income was $280 million, a 9% increase year over year adjusting for currency. Operating margins advanced year over year as well, increasing by 10 basis points to 4.4%, the highest level in 12 quarters. Global components' operating margin of 4.4% increased 10 basis points year over year. Global enterprise computing solutions' operating margin was 5.9%, up 30 basis points year over year.

Our effective tax rate for the quarter was 27%. Net income was $184 million, up 13% year over year on a constant-currency basis. Earnings per share were $1.88 on a diluted basis. Diluted earnings per share advanced 11% year over year.

Our non-GAAP earnings per share did exclude a $48 million non-cash after-tax charge. That's equivalent to $0.48 per share, related to a trademark impairment charge that was triggered in connection with our global branding initiative, when we renamed our S3 unified communications business Arrow Systems Integration.

Cash generation from operating activities in the fourth quarter was $457 million, and $673 million for 2014. At 135% of our 2014 GAAP net income, our trailing 12-month cash flow again exceeded our targeted level.

Let me pause for a moment here to give you more detail on cash flow. Due to the December holiday periods, we had more cash in transit at the end of 2014 than we traditionally would. In 2014 we mailed our last check run on December 29. In 2013 we mailed our last check run on December 27. So more checks cleared before the end of the year in 2013. In addition, we received a large prepayment by a customer.

These two items had a positive impact of approximately $150 million on our cash flow in the fourth quarter and for 2014. These two items will reverse in the first quarter and have a negative impact on Q1 cash flow.

Return on working capital for the fourth quarter was 33%. Return on invested capital was 13.4%, significantly outpacing our 8% weighted average cost of capital. We repurchased $115 million of our stock in the fourth quarter, and approximately $290 million in 2014. The Board of Directors authorized an additional $200 million of share repurchases during December, and the authorization remaining under our existing share repurchase programs is $261 million.

This is a high level summary of our financial results. For more detail regarding business unit results, please refer to the CFO commentary published this morning.

Now, turning to Q1 2015 guidance. We believe that total sales will be between $4.9 billion and $5.3 billion, with global components sales between $3.35 billion and $3.55 billion and global enterprise computing solutions sales between $1.55 billion and $1.75 billion.

We expect earnings per share on a diluted basis, excluding any charges, to be in the range of $1.27 to $1.39. Our guidance assumes an average tax rate in the range of 27% to 29%. Average diluted shares outstanding are expected to be 98 million. The average USD to euro exchange rate for the first quarter to be 1.14 to 1.

You are all aware that the euro has depreciated substantially relative to the dollar over the past six months. The US dollar to euro exchange rate we are using for forecasting purposes declined 10% from the $1.25 used in the fourth quarter of 2014, and to 16% from the $1.35 in the first quarter of 2014. We estimate this depreciation of the euro as a result of a negative 3% in sales when comparing Q1 2015 sales to the fourth quarter and a 5% negative impact on the comparison of Q1 sales to the first quarter of 2014. We calculate this depreciation has resulted in a $0.05 negative impact on Q1 EPS when compared to the fourth quarter and an $0.08 negative impact on EPS compared to the first quarter of 2014.

Thank you, Paul. Shandalei, could you please now open up the call to questions at this time.

(Operator Instructions)

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

Morning. Two questions on margins, just the shortfall at global components relative to the 5% goal for the year and more particularly the fourth quarter, just what happened? Then on ECS, you're bumping up against the high end of the long-term target, do you take that target higher and to potentially where?

I'll start. The global components business had numerous accomplishments in 2014. While sales grew, operating income grew 13% and the operating margin increased 30 basis points. It was a disappointment to us that we didn't hit 5% in the fourth quarter. There wasn't any one particular thing that drove that. It was really just a sum of investment and the changes of currency, those types of things.

For the full year of 2014, we did improve the operating margin by 10% over 2013, so if you look at where that puts us, that puts 5% right in our sights. We will be utilizing that as our target for this year, so we don't expect to come off of that target at all. In fact, we expect that by the end of next year that's right where we'll be.

On the computer side, we haven't really taken a complete look yet. Yes, we are bumping on high end of our targets. Part of the issue there is really the trend that we've been seeing of movement towards software and our services. That is obviously at a higher rate for us that we enjoy and that's something that Sean and team will continue to push. That change is going to depend on how fast that ultimately takes place over the next couple of years.

Okay. Helpful. Then as a follow up, I guess the book to bill in January, where is it tracking versus this time last year? Any signs of negativity out there that you're seeing in the order book?

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

Okay. Thanks a lot. Congrats on the results.

Thank you.

Your next question comes from the line of Matt Sheerin of Stifel. Please proceed.

Just to get back to the guidance on components. I know by region you're looking at seasonal trends in Asia and North America, but below seasonal in Europe because of a very strong December quarter. If I look at your general trends for each segment and add it up, it looks like you're guiding below normal across the board. Is that because of FX and/or because the quarter closes a couple days early?

Paul, why don't you go ahead.

(multiple speakers) by the FX impact, because you're do it a dollar comparison. We think, round numbers, that the negative impact on sales is about $175 million. It could be a little bit more, a little bit less. That's definitely impacting the comparison. As we talked about, what we expect from a trend point of view, we talked about in constant currency, so when we talk about Europe, we're talking about in euros.

Okay.

Matt, there's one other thing. If you look at the Q1 guidance on ECS, we're really not looking at a decline in that business. As we've done in the past with that, we've asked you to look at ECS on the longer timeframe due to some of those dramatic shifts we've seen in timing between our quarter ending dates and those of our suppliers. Based on our guidance for the March quarter, sales on a six-month constant-currency basis will increase about 6% year over year. That, hopefully, is going to help you.

Okay. That's helpful, Mike. Then on the component business, it looks like you're taking a bit of a different strategy than Avnet, your competitor, which seems to be taking more supply chain engagements or a lower margin fulfillment business in Asia. Looking at your trends in the quarter, which were down, suggests that you're not doing that. What was your strategy around that? What's your general philosophy about taking that low margin fulfillment business?

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

Okay. That's helpful. Thanks a lot, Mike.

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

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

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

Okay. I was just trying to get a sense, also, on the computing business for a follow-up question. The underlying organic growth rate within some of the product areas, I know ECS for the full year, just from the K, was about flat year over year on an organic basis. For revenue, obviously, software was up, I think by just looking at the K, was up something like 40% year on year, but some of that was from Computerlinks, storage maybe down year on year. Maybe just help us understand what some of the organic growth rates are within computing?

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

That's helpful. Thank you.

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

Great. Thanks for taking my question. I apologize if I didn't hear or misunderstood this. It looks like the systems part of the business came in a bit short of our model and expectation. It came pretty close, thought. Yet, you had a combination of FX. Was the FX impact of $137 million that you cited earlier, strictly in this segment or was it spread across both? Also, to what degree did the earlier end of the quarter or perhaps -- did the earlier end of the quarter affect this? Is there anything else going on that would explain the shortfall in the outlook?

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

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

Really for the Americas business, we do expect to be in line with our seasonality. We saw transportation, alternative energy and lighting as being the big drivers in the quarter. In Europe, we saw aerospace and defense, medical devices and transportation, again, which includes automotive for us, was also strong in that region. We saw industrial power and transportation strong in Asia-Pac. All in all, we had really some good vertical growth, which was good to see, because I expect it to start spreading out to some of the suppliers or smaller suppliers, especially, when you look at automotive, those types of things.

I'm not going to forecast oil. We still have shipping rates. If we get any benefit, it's going to be on the transportation side, moving our products around. I think it's going to take a while for it to move into silicon. If you think it's fast, then I'll take the benefit. How's that?

Your next question comes from the line of Brian Alexander of Raymond James. Please proceed.

Okay. Thanks and good afternoon. Mike, when you talk about the components margin target of 5%, is that for the full-year 2015 or is that exiting 2015? I ask because I know normal seasonality for Q1 margins is typically up, and I think you can get close to that 5% or it would make sense that you can get close to the 5% for the first quarter, then typically you trail off throughout the year, assuming normal seasonality. I just wanted to get some clarity. If that is for the full year, walk us through what gives you the confidence in that given the normal seasonal trends suggest that might be difficult?

We expect it to be 5% for the year, Brian. We do expect to have a good first quarter. While it trails off, it does that U-shape as we have the holidays in the summer, but we believe that Andy and Eric have positioned the business to make it happen. We have the six quarters of the uptick. I would have loved for it to have been a little bit better. If the end markets hold the way that we think they are now in our plan, we really don't see a problem with getting there.

Okay. Then my follow up on the components business in Europe, what do you think drove the better than expected performance in the fourth quarter? Then, if you I look at the Q1 guidance, even though it's at the low end of seasonality, if you look at it year over year and you extract currency, it looks like you should be up double-digits year over year in Europe components in local currency. I'm just trying to understand, given the macro conditions over in Europe, what is driving the strong performance and why do you expect that to continue? Thanks.

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

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

Great. Very helpful. Thanks, guys.

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

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

Eric, you want to take a shot at that?

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

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

Sure, this is probably the fifth year in a row that we've improved working capital velocity. We don't expect that to change going into 2015. When I look at it, what I think is why we've been able to do this improvement, we also really haven't changed dramatically, maybe inventory turns, but we've improved the quality of our inventory. You've heard us talk about this in the past, Steve, where we focus on inventory that only turns one or two times as an example. We want to get more of the right inventory, less of the wrong inventory. That gives us a benefit.

We'll continue to make improvement in working capital per sales dollar across the region, whether it's in part because the unity tool, the ERP tool that Mike referenced, whether it's good old basic type improvement, blocking/tackling or even some of the initiatives that we have in ECS Europe where we built a leading platform through M&A. Now, we have an opportunity to become more efficient and have greater standardization, if you will, of how we approach the working capital, and we're going to get better there also. No home runs per se. No big headline type things. But continuing to build on success we've had the last five years. Much like 2014 had improvement, we'll have improvement in 2015.

Great. That's very helpful. Good luck going forward.

Thanks.

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

Hi, this is Stajish on behalf of Amitabh. Thanks for taking my question. I was hoping you could talk a little about demand trends by product sub category, in GECS, servers, networking, security and software?

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

Sure. I was hoping you could talk a little bit about demand trends by product sub category in GECS, the servers, networking, security and software?

Sean, you want to take a stab at it?

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

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

Good afternoon. Thanks for taking the question. A couple, if I could? Mike, could you talk to, for the March quarter guidance, what the gross margin trends are that we should expect in the context of what you provided? And I have a couple follow ups, thanks.

Paul, you want to?

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

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

If we could just ask a point of clarity. You're talking about components or you're talking about ECS?

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

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

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

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

Sherri, we spoke about that before. We'll take a look. Part of not resetting them right now was, we'll probably go through most of the year to see what kind of transition there is in our product mix, at what speed, rate and pace. As you know, we've already seen a pretty good pace of that. If that continues, then of course we would be increasing those targets.

I don't actually have a number for you right now because I can't tell you exactly how much has been split between the normal mode and the way you're referring to cloud. Maybe Sean can give you some on-premise, off-premise or some hybrid information if he's got it, that might help you.

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

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

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

Okay. Thanks.

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

Continuing on the ECS side, the 9% growth year over year in the Americas, was that organic or was there a portion of that that was acquisition? Maybe we could get the organic number? Then I have a follow up to that.

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

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

Lou, what I would say is, given the space we play in, which involves enterprise work flows, these trends are evolving over time, not over night. I think the number I just shared as compared to our business in total, would tell you the shift to a recurring revenue model would not impact us in any significant way. We'll continue to execute on the strategy, but I don't think that we'll see any risk associated with the conversion of revenues in the way that you describe.

Okay. Thank you. Good luck on the new year.

Thanks.

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

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

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