艾睿電子 (ARW) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Arrow Electronics first-quarter 2016 earnings conference call.

(Operator Instructions)

As a reminder, this call is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Steve O'Brien.

Please proceed.

Thanks, Santina.

Good day and welcome to Arrow Electronics' first-quarter 2016 conference call. With us on the call today are Mike Long, Chairman, President and Chief Executive Officer; Paul Reilly, Executive Vice President, Finance and Operations and Chief Financial Officer; Andy Kane, President in Global Components; and Sean Kerins, Global Enterprise Computing Solutions.

As a reminder, you can access our earnings release at www.investor.arrow.com along with the CFO commentary, the non-GAAP earnings reconciliation, and a webcast of this call. We will begin with a few minutes of prepared remarks, which will then be followed by a question-and-answer period.

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

Thanks, Steve.

And thanks to all of you for taking the time to join us today.

In the first quarter, both our Global Components and our Global Enterprise Computing Solutions businesses again grew faster than the overall economic and IT spending backdrop. We continue to identify market trends and industry direction ahead of our competitors. We've been investing ahead of the curve, and our first quarter results clearly demonstrate the returns on those investments.

We posted strong results in the first quarter of 2016, with record first-quarter sales and earnings per share. Sales and earnings per share were also above the midpoints of our expectations. Both business segments and all regions delivered year-over-year growth.

Our first quarter 2016 Global Components sales advanced 10% year over year. Our above-market growth was driven by globally adding over 500 customer-facing sales people and engineers over the last two years. Europe again delivered robust sales growth for this quarter, and our Americas business returned to growth as we anticipated.

Asia sales exceeded our own expectations, and we are adding new customers at a rapid rate. We have over 600 net new customers in Asia alone over the last year. While their contribution is small today, we are excited to grow alongside these new customers in the coming quarters and years.

We've also added 70 new component suppliers over the past year and continue to be awarded new product lines and regions from our existing suppliers. This has been the result of consolidation in the semiconductor industry and our compelling value proposition. It will take some time for these opportunities to realize their full potential; however, we are excited about the growth opportunities that they provide.

Design activity grew at double-digit rate again this quarter. In Asia, our design activity grew 60% year over year, continuing the pace from 2015. In the first quarter, we had 8% year-over-year sales growth from our core SMB manufacturing customers in that region. We also captured strong profit leverage on the sale of growth in Asia, despite being in investment mode.

Another area of investment in the Global Components business is our digital platform. Our investments have turned our website into a growing source of leads for our core sales organization. We are engaging with engineers and the design community in order to foster business relationships before the next great invention becomes a company.

In the first quarter, Enterprise Computing Solutions again delivered faster growth in overall IT spending. ECS sales advanced 9% year over year. And ECS achieved record first-quarter sales, operating income and operating margin. We are the leading distributor of software-based solutions. In terms of billings, our software portfolio grew at over 30%. We continue to pivot our business towards newer hardware and technologies, including the NextGen storage and converged infrastructure.

Another part of that pivot is growing our cloud capabilities. In the first quarter, our cloud business grew 90% year over year. Our suppliers and customers value our solutions-driven approach and continue to award us with more business as a result.

We attribute much of our success in recent years to breaking down the practice of selling single lines and point products. Our solution-selling strategy has benefited both of our business segments, separately. But the next big step in our evolution is unlocking the untapped potential that both of our businesses can create by working together. We see this as a compelling opportunity to produce long-term value creation for our shareholders.

IoT is bringing us exciting opportunities for our business. But we are still in the early stages of integrating these opportunities. Our overarching strategic imperative is selling the enterprise. That means selling the design, the engineering, the solutions capability of our Global Components and Global Enterprise Computing Solutions businesses at the same time to the same customer.

This opportunity is afforded by cloud solutions and our leadership in the next-generation data center. Right now, Arrow is working to help design connective products and secure data transmissions, analytic and storage solutions for those products and industries where we've had little presence in the past. As we look forward to the remainder of 2016, we expect to further extend our leadership in the markets we serve. As we once proved, again in the first quarter, we're able to produce strong results independent of the market environment; and we expect this to continue.

Before I turn the call over to Paul, I'd like to take a moment to thank him for his significant contributions to Arrow over the last 25 years. As announced in our press release, he has decided to retire from Arrow on January 31, 2017. Paul joined Arrow in 1991, serving as a trusted partner across our businesses, to our Board of Directors, and to me.

As a global leader, with broad experience, he's been an instrumental part of driving the growth and the success here at Arrow. Paul has well-planned and executed his succession process. And he'll continue to work with Chris Stansbury and Arrow through January 31, 2017, to ensure a seamless transition. On behalf of the Arrow, I personally wish him all the best in his retirement ahead. He has been an exceptionally valued member of our leadership team, and I will certainly miss him.

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

Thanks, Mike, for the very kind words. And thank you for letting me be part of the transformation you have driven for Arrow, which your vision and strategies have made us what it is today.

First-quarter sales of $5.47 billion grew 9% year over year. When adjusted for acquisition and changes in foreign exchange, we grew 4% year over year. Overall sales were above the midpoint of our prior guidance range.

In Global Components, sales of $3.68 billion grew 10% year over year. Global Components sales, adjusted for acquisitions and changes in foreign currencies, grew 4% year over year. In the Americas, sales grew 3% year over year. We experienced good growth from our core SMB customers and our alliance business, which consists of large complex supply-chain based customers. This is partially offset by declines in some of our specialty businesses.

Europe sales grew 15% year over year. When adjusted for acquisitions and changes in foreign currencies, sales increased 9% year over year. We continue to see growth across the region and across key verticals, especially transportation.

Sales in Asia grew 15% year over year. When adjusted for acquisition and changes in foreign currencies, sales grew 2% year over year. We were pleased with the healthy growth driven by our core SMB customers in the region that Mike referenced. However, the region's growth was partially offset by weaker demand from Alliance customers.

Global Components' first quarter book-to-bill was 1.07, which is above the prior two years and in line with the first quarter of 2013. Our lead times and cancellation rates continue to track within normal ranges. And through the first four weeks of the second quarter, our book-to-bill was above parity and above last year's level at this time. We believe this suggests a solid foundation for our business in the short term.

First-quarter Enterprise Computing Solutions sales were $1.8 billion and grew 9% year over year. Overall, ECS sales were in line with dollar expectations. In the Americas, sales grew 11% year over year, and grew 2% adjusted for acquisitions and changes in foreign currencies. In Europe, sales advanced 6% year over year when adjusted for changes in foreign currencies.

We experienced growth across nearly our entire portfolio in the first quarter, and that growth continues to be led by software. The lone exception was storage, which faced some well-documented industry challenges. Our comprehensive solution portfolio is well-positioned to capture growth, even as IT spending priorities change.

Returning to consolidated results for the quarter, our gross profit margin was 13.7%, unchanged year over year. Total Company operating expenses increased 11% year over year, as reported, and 6% year over year adjusted for the impact of acquisitions and changes in foreign currencies. Operating expenses increased 20 basis points, as a percentage of sales, on a year-over-year basis.

In the near-term, we will continue to invest in our business. We will see better operating margin expansion in the second half of 2016, as our productivity enhancements are completed.

Operating income was $215 million, a 5% increase year over year, and a 6% increase adjusting for changes in foreign currencies. Operating margin declined 20 basis points year over year, primarily due to a higher mix of ECS compared to Global Components, as well as a higher mix of Europe within ECS and Asia within Global Components.

Global Components operating margins of 4.9% decreased 20 basis points year over year. Global Enterprise Computing Solution and operating margin was 4.6%, up 20 basis points year over year. Our effective tax rate for the quarter was 26.9%. Net income was $132 million, up 4% year over year, adjusted for changes in currencies.

Earnings per share were $1.43 on a diluted basis and were towards the high end of our prior guidance. Earnings per share grew 10% year over year when adjusted for changes in currencies.

Our seasonal use of cash was well-managed in the first quarter this year. Operating cash flow usage was $37 million. Trailing 12-month cash flow from operations was $860 million.

Our consolidated return of working capital for the first quarter was 24.6%, increasing 120 basis points year over year. Returned invested capital was 9.5%.

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

Now turning to guidance.

We believe that total sales will be between $5.825 billion and $6.225 billion in the second quarter with Global Components sales between $3.75 billion and $3.95 billion. And Global Enterprise Computing Solutions sales between $2.075 billion and $2.275 billion.

We expect earnings per share, on a diluted basis, excluding any charges, to be in the range of $1.59 to $1.71. Our guidance assumes a non-GAAP tax rate in the range of 27% to 29%. Average diluted shares outstanding are expected to be $93 million. And the average USD to euro exchange rate we are using for forecasting purposes is $1.13 to 1 euro.

Thank you, Paul.

Santina, could you please give the instructions and open up the call to questions at this time?

(Operator Instructions)

Shawn Harrison.

I wanted to delve into the ECS trends, given just the volatility and the concern on that business. It doesn't look like you've seen any deceleration, but if you could talk to, particularly any of the categories, whether you saw any abnormal linearity or deceleration, and if you have any expectation of that going forward?

Thanks, Shawn. I'll start, and then Sean can add some color. We saw overall, 36% growth in our software. So we've seen acceleration there, virtualization, infrastructure, software up 48%. Networking is up 8%, services are up 10%. Pretty much across the categories, we're up.

We're also aware of the storage changes. What's interesting, I think, our solid state storage, I'm not sure if that doubled or something like that. The truth is, that we're seeing very minimal backlash from that. We noticed that, more than a year ago.

Overall, I would have to say right now, we're seeing robust billings. We're seeing robust bookings, and our backlogs are up. So we've been pretty satisfied with the approach we've taken.

As you know, we put our software business in place some three years ago. We saw the trend moving from hardware to software, and I think we've successfully mitigated the risks that everybody is sort of talking about today. Sean, anything to add to that?

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

And then, as a follow-up, cloud being up, I believe, the stat was 90% year-over-year. If you could just remind us, how you define cloud, and if there's a revenue run rate you can associate with that, the 90% up year-over-year, Tim?

Yes. So there's about 100 unique offerings that we have around cloud. We have our ArrowSphere platform, which is a digital platform really for cloud enablement. The 90%, if you would compare us to any born-in-the-cloud sort of start up, I would have to say we're probably exceeding most of the sales of those that probably right now, we are on about a little more than $200 million run rate coming out of the first quarter.

Okay. Thanks, Mike, and congrats on the results.

Thanks.

Mark Delaney.

Yes, good afternoon. Thanks very much for taking the questions. And first, Paul, I wanted to congratulate you on a very great career, and I wish you the best going forward.

Thanks, Mark.

A question on ECS and following on Sean's question. I mean, per my model, Enterprise Computing Solutions, your revenue has grown faster organically year-over-year than that segment of your closest competitor in six of the last seven quarters. And I think gross margins there, are now at the highest levels they've been in a couple of years.

Mike, you talked about some of the metrics, and the growth in certain categories that are helping to drive those good results. Maybe you could help us size, what percentage some of those categories are like security, flash-based storage and cloud. And then, maybe, how much exposure you still maybe have to some of areas like disk-based storage, that are seeing some more pressure?

Yes. Sure. It's been interesting, and we've exposed some of this in the past. But on a billings basis, our software is now around 40% of the Company. Services are up to about 15%. So you've seen steady growth in services over the last few years.

Networking is approximately 5%. Storage is approximately 25%, and that includes rotating and solid-state in that number. So that will give you sort of a view of where we are.

And what's even interesting, is that given the fact that we've done solutions, our industry standard servers were up 10%, proprietary was up about 5%. So while others are seeing declines, I think most of the cloud activity and the software activity we've seen has created some pull-through for us, that's been beneficial. And the truth is, whether anybody calls it or not, cloud activity creates hardware, and it creates hardware sales.

And there's roughly several parts of the market, those that our suppliers call on which are at the very high-end, and the market that is left for the channels to participate. So not all clouds are created equal. We still believe that we're in the proprietary cloud.

We believe that we can operate in any cloud environment. And so far, I think, our numbers that we are putting up around that are suggesting that that would be true. And I guess, that pretty much should square away all the mix problems, or mix questions you have today.

That's very helpful. As a follow-up on the components segment, and margins being down about 20 bps year-over-year. I think maybe some of that is mix, with Asia-Pac revenue increasing year-over-year as a percentage of sales. And then Paul, you mentioned some of the investments you're making to add more sales and engineering resources. Is that all of the reason that components margins are down a bit year-over-year? Or are there other things like pricing or supplier consolidation that's maybe having some of an impact?

Mark, you sized it up the right way. The impact of the ATM acquisition, as well as the increase in mix which we think -- it's actually a very positive thing for us, as we go forward, in the fastest growing region in the world, as well as the investments we're making. And we'll catch up in the second half of the year, when we get the full run rate on the expense reductions we talked about last year. We're making good progress on that, and I'm confident we'll be able to be able to close the gap as we go forward.

Thank you very much.

Steven Fox.

Hi, good afternoon. Can you hear me okay?

Yes, you're a little light, but I think we can make it out, Steve. Thanks.

Okay. So I'll speak up. But first of all, congratulations to Paul. And then, in terms of just going forward, looking at two key metrics, margins and cash flows, how close -- if we look at LTM cash flows, for example, how close do you think forward cash flows will be to the last 12 months? And what could be the differences, going forward?

And then secondly, you mentioned margin expansion. In the context of everything that you've been doing with the sales force and adding customers, like can you describe maybe, what the net drag is versus the net gains are there, that could help margins in the second half of the year? Thanks.

Do you want to?

Sure, let me take the cash flow question, first. Steve so when I look at it, remember that we have a target, a stated target to convert GAAP net income into 70% cash flow from operations. We've far exceeded that, because the progress we've made, both from a profitability standpoint, and from a managing working capital better than we ever thought we could.

It's hard to call what's going to happen in the next three to four quarters, but I do know that we're going to make more progress in cash flow, as we further roll out the Unity tool here in the United States, and then, really have a global view into inventory. So I'm looking more long-term, than the short term around cash flow. We'll continue to make improvement there.

I don't know if the next 12 months we'll have $850 million number. But I will know is that, the progress we're making in managing the balance sheet, working capital, the profitability increase we're driving, means we're going to have very strong cash flow as we go forward.

Then on the operating margin, it's hard to really track, Steve, how much this addition made, and how much that addition made. For me, when I look at it individually by each of the regions, when I look the pace that by which we're outgrowing the market, and it's on both sides of the house, whether it's the ECS business, or whether it's the components business. But I feel good about our opportunities to go forward, to drive the operating income margin up in both segments of the business. So it's hard to quantify a drag per se.

We can quantify the impact of acquisition with ATM or the mix change. But to get down to a customer level, it's really tough to track. The bottom line is we're up in the operating income dollars year-over-year and in net income. So I think that's proof-of-the-pudding that we are making the right investments.

Steve, maybe I can help about you think about it though, maybe in terms of maybe a higher level. If you take all the salespeople that we bring in and that we've hired, they come in with a base income, and then an incentive. And as they start to produce for us, they start to move to a variable incentive cost, from what is really a fixed cost basis in the beginning, and we're starting to see the early signs of that now.

So, what ends up happening, is our costs become lower as those salespeople become more productive. And as we've been adding them all along, we've known this, and the same really trends for engineers. Our costs have really been in the last few quarters, which had been an upfront cost. And I think we're just now starting to realize where we're seeing, added customers and sales come in, where that sales force gets productive. So hopefully, that gives you an idea of how that works.

And you're right, it's hard to quantify because we might have brought in 100 this month, and 75 last month. And it's hard to really quantify that cost, until they get out there and start run rating.

Got it. That's very helpful. I appreciate that, and look forward to seeing Paul at a Mets game in the future. Thanks.

Yes.

Param Singh.

Thank you for taking my question. So firstly, on the ECS side, some of the analysts have talked about, in the cloud taking share away from your traditional SMB customers, and conversely also growing some cloud revenues. So how much of an offset is the negative impact to your $200 million [riding on] in your opinion? And can that drive away from traditional hardware sales, and potentially some of the software attach?

And also on the ECS side, your operating margin, you're on track to be ahead of your long-term target there. So I mean, would you think about investing more in salespeople there, or potentially taking up your target for that segment? And then, I have a follow-up.

Yes, I'll, in terms of the investments, I'll address that. The answer is yes, we are investing. We are investing what we think is at an appropriate pace in the computer business today.

Certainly, we have investments that will be ongoing around cloud. I think that's been an important area for us. We're still investing on the storage transition that has -- coming into play, and we've been putting effort into that for some time.

We're investing on the networking side of our business. We continue to invest in the software side. So we have really investments around that total solutions sell that we've talked about.

In terms of some of the specificity that you're looking for, I'm going to let Sean take that one.

Thanks, Param. People sometimes pose this question around cloud as a threat, and actually we really see it as an opportunity. And what I mean by that, is think about where we play, which is substantially in the enterprise data center. And those environments, are pretty complex, the applications and workflows associated with them are pretty sophisticated and highly integrated and the truth is, we don't see that they lend themselves to disruption easily, from the public cloud model. Certainly, not as easily as some might suggest.

What I actually see happening in the enterprise is a migration to what I called the hybrid cloud adoption model or a hybrid cloud selling motion. So let me give you an example of what that means. We sell a whole lot of storage infrastructure on-premise, imagine that now we also get to attach backup and recovery solutions as a service from third-party cloud provider, to that on-premise environment. We also get to sell a whole lot of security and a whole lot of security firewalls.

Imagine now that we get the chance to attach a threat detection solution as a service to those on-premise environments, coincident with a security solution. Now we're leveraging that great big install base that we helped build, now we're actually bringing multiple vendors together to form a single solution, and now we're actually participating in the market for hybrid cloud. So I think that's we're headed, and we'll continue to build our line card to represent the install base we serve.

You saw the Microsoft announcement yesterday. That's just yet another proof point. And I think we are starting to find some traction in the hybrid cloud model, and I don't fear disruption from the public cloud players.

And then, have you seen your software attach or services attach increase for the ECS segment, and how's that trended over the past few years?

Yes, we have Param. And you can think about, a portion of our services as really being a function of our install base. So as our hardware footprint continues to grow, we get to participate in the maintenance contract renewals associated with it. And at the same time, as software becomes a bigger piece of our portfolio, that also brings about either a potential for license renewal, or increasingly of late, a subscription-based SaaS opportunity which also has an annuity effect to it. So I think the growth and breadth of our install base bodes well for our services mix over time.

Got it. And then, for my follow-up, your book-to-bill was 1.07 for the quarter. Your design activity is up 60%, like you said year-over-year; Why are you only guiding seasonal on the components business? Is it just some conservatism built into your projection there or is there something else that I've been missing?

I would have to ask you, what was your guidance? And whether conservatism built into that, or did you think that was a stretch for us? (laughter)

I think the -- in all seriousness, we saw the average increases in our sales, which was good. But in order to really kick that up, we would have probably wanted to be around a 1.1 book-to-bill.

What's interesting is, I think, in the first three weeks of this quarter, we're at a 1.13 book-to-bill. So if you would project out, and if those bookings were to hold, which I would say is very good for this time in the quarter, and very good for this time of year, you would expect a good start in the second half based off of that. So I think there's a good number that we've put out there for the quarter. It's one that we're confident in, and again, if these booking hold at the rate that they are right now, I would expect that to increase going into the second half. That's sort of what you do, you live with the prior quarter bookings, and maybe even four months ahead. So does that help?

Yes, absolutely. Thanks a lot. Paul, good luck on your retirement.

Thank you.

Matt Sheerin.

Yes, thanks. Just a couple for me. Just regarding your commentary on the Asia component business, and the strength that you're seeing in the smaller OEM, at the local OEM customers there, is that a function of share gains? I know, obviously, there some economic concerns for China. But it sounds like you are either taking share, or you're seeing growth in some of those end markets there?

Matt, this is Mike. The biggest gains we are seeing, we believe are share gains in China. Primarily, China is where we're seeing the uptick in the small to medium business accounts. Andy has put more engineers and more salespeople there, and we're starting to see some of the benefits of that.

What's interesting, is the transportation piece and the wireless piece of our business continue to grow. We're seeing some of the old stalwarts of lighting and industrial power waning a hair.

But as we've said, we added 600 new accounts, which is a very large number of net accounts to add over the course of the year. And we that think we're going to see some pretty good benefit to that. Andy, do you want to add some more around the market share piece or?

Nothing. I think you hit it straight on, Mike. I think it's pretty much market share. We've invested primarily in sales and engineering resources to go precisely after that local, indigenous small and medium sized customer base, and we're seeing that payoff in terms of customer count. We're seeing that payoff in terms of design registrations, and we're seeing that payoff in terms of sales and market share. So I think it is exactly what you described, Matt.

Okay. And then, on just the wireless piece of the business, is that focused on local Chinese players? Is that smartphones? Is that other product areas?

Yes. I mean, it's across the portfolio. It's no longer just talking about mobile anymore, Matt. We're talking about wireless products going out into the mass industrial base. Pretty much every device that is getting designed these days has a connected solution around it, and they need wireless connectivity, and we're helping them do that work.

Okay. And just lastly, regarding your ERP implementation, the Unity, how 's that going? What is left there, and when do you expect that to play out?

Yes. Sure, Matt. So from our side, we're still in the process of planning the timing around North America. You know that we've already rolled out in Asia, in Europe and those have been very successful, without any significant disruption to customers and suppliers. So we've taken a very risk-adverse approach to it, and we'll continue to be risk-adverse as we go forward. We'll probably have more information as we move forward through the rest of 2016.

Okay. Thanks a lot.

Brian Alexander.

Okay, thanks. Let me also congratulate Paul on retirement, and Chris on his promotion.

Paul, I wanted to revisit the comments about second half operating leverage. Can you just clarify, whether you are expecting operating margins to expand in the second half, given your comments about improved productivity, but also considering that margins look like they're going to be down in the first half? And if you do expect them to expand, any sense of magnitude, and whether you would expect to see margins up in both segments? Right now, they're up in computing, but down in components. Thanks.

Yes, thank you, Brian. Yes, I apologize for the confusion. I was really referencing the increase in the global components business. I was not expecting any type of gross margin change. In fact, what I was really referencing was our expense program that we talked about last year, we're making good progress.

I expect this, we'll be at full run rate, as we enter the third quarter, and we'll start to see the benefits of that. So that's what I really was referring to around margin expansion. With that also, keep in mind, that the leverage we get in the business should also drive margin expansion, as we've had a couple three quarters in a row, now where our global components business has outgrown the market.

So do you think this will be enough to get the components business to that 5% hurdle that I know you've been striving to achieve for this year?

Well, if we did some pro forma calculations on Q1, we'd be right there. So the answer from me would be that, yes, we'll be closing the gap, and we expect to get there.

And then just lastly -- (multiple speakers).

What's been interesting, as if to maybe to add onto Paul, is that the encouragement I think, around this for us is that we've seen North America grow again. We went through period of time, that the North American market didn't grow, and we've been able to offset that now and if we can get North America and Europe to grow, it sort of offsets some of the pressures that Asia puts on us. And you can imagine a 10% swing by any of those regions over a quarter, does have an impact on your mix. And what's we do watch.

But the fact that we're seeing the backlogs in North America up, that we're seeing our design wins in North America up, that we're seeing our bookings up in North America. I think we have a pretty good confidence that this will play out.

What we won't do, and what you've obviously seen by the performance this quarter, is we're not going to cut future investments around the cloud, or digital, or software, or IoT to achieve that 5%. We fully expect to do that through growth, and the external market. So I just want to make -- just reassure you, that while it would be easy to cut out any or one of those programs, and be above the 5% level, that's not what we're going to do here.

Okay. Thanks, Mike. And just a quick one, a follow-up for Paul on capital allocation. Any particular reason for the small buyback in the quarter, in terms of whether you are prohibited in any way from buying back more stock i.e. blacked out in any way? Or was this just a conscious decision to keep some dry powder?

Thanks for the question, too, Brian. The reality is that we have a very short window, where we can do open market buying, and then we have to put in a 10b5. To go back to the timing of our fourth quarter earnings release, we were debating the target setting for the 10b5 in mid to late February. You may recall, during at that point in time, there was a lot of volatility in the stock market, as many investors who were asking us about the threat of a potential recession in the United States.

So we probably were a bit more cautious, because of the economic backdrop, what people were asking us and the volatility, and we put the10b5 plan in place, as the window closed in late February. I would say sentiment obviously changed from an investor point of view and I think some of it, in the short term, economic data tightened up in the month of March. So it was more around, trying to conform to the requirements of a window, and putting our best foot forward around the volatility, and that's the only reason why. I would fully expect us to be active in the buyback program, as you go throughout the rest of this year.

Okay. Great. Thank you, and congrats, again.

Thanks, Brian.

Jim Suva.

Thank you, and congratulations on your results. And especially to Paul. You're going to be greatly missed. A question for Paul, and then probably the other ones for Mike and Chris.

Paul, I think, in your press announcements you talked about two acquisitions. Can you quantify the impact of those in your June quarter guidance? I assume they'll be closed, if they're --if not already closed by now. Do they have some type of impact on the sales and EPS?

And then, maybe for Chris and Mike, just to clarify when you guys talked about the operating improvement in the second half, are you referring to kind of off the March and June quarter, or are you referring to year-over-year operating margin improvements or like SG&A leverage? I'm trying to get the baseline, of what the reference point is, when you talk about operating margin improvements in the second half of the year? Thank you.

Sure, Jim. So the two acquisitions we did were modest, compared to Arrow Electronics Inc. The run rate for those acquisitions is probably about $50 million for Q2, and a nominal impact, and maybe $0.01 or so on earnings per share.

I think the run rate question really is that we'll continue to close the gap on the target that we've set. And we'll see that uplift in the second half of the year. And yes, for sure we'll see uplift, year over year on our operating margins, Or that's our expectations anyway, as we go forward.

Great. As a clarification, Paul, that $50 million in Q1, the impact, was that quarterly or annually, just so we don't build in too aggressive or too slow?

Sorry, Jim. I wasn't clear enough. That would be the impact on Q2.

Thank you. Again, congratulations to your team. And Chris, you've got some big shoes to fill. And Paul, you will be greatly missed.

Thanks.

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

Thanks, Santina. In closing, I will review Arrow's Safe Harbor statement. Some of the comments made on today's call may include forward-looking statements, including statements addressing future financial results. These statements are subject to a number of risks and uncertainties that could cause actual results or facts to differ materially from such statements for a variety of reasons. Detailed information about these risks is included in Arrow's SEC filings. If you have any questions about the information presented today, feel free to contact me.

Thank you for your interest in Arrow Electronics, and have a nice day.

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