Operator: Good morning. Welcome to Tech Data Corporation's Fiscal Year 2016 Second Quarter Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time.
Now I'll turn the meeting over to Arleen Quinones, Vice President of Investor Relations.

Ma'am, you may begin.

Arleen Quinones: Thank you, Kevin. Good morning, and welcome to Tech Data's earnings conference call and webcast to review our financial results for the second quarter of fiscal 2016. I am joined this morning by Bob Dutkowsky, Chief Executive Officer; and Chuck Dannewitz, Executive Vice President and Chief Financial Officer.
For a detailed look at our second quarter results, please review our financial highlights summary slide presentation posted this morning on the IR portion of our website located at www.techdata.com/investor.

Unless otherwise specified, all growth comparisons we make on the call today relate to the corresponding period of the previous fiscal year.
Before we begin, I would like to remind all listeners that today's earnings press release and certain matters discussed in today's call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on the company's current expectations and are subject to risks and uncertainties. These risks and uncertainties include, but are not limited to, those factors identified in the press release and in our filings with the Securities and Exchange Commission, specifically our most recent Annual Report on Form 10-K, which identifies important risk factors that could cause actual results to differ materially from those contained in the forward-looking statement.
Please be advised that the statements made today -- during today's call should be considered to represent the expectations of management as of the date of this call.

The company undertakes no duty to update any forward-looking statements to actual results or changes in expectations.
Also throughout this conference call, we will reference both GAAP and non-GAAP financial measures from which we exclude from our GAAP financial results certain items. A detailed reconciliation between results reported in accordance with GAAP and non-GAAP financial measures can be found in the press release and on the Investor Relations portion of our company's website.
In addition, this call is the property of Tech Data and may not be recorded or rebroadcast without specific written permission from the company.
I will now turn the call over to Tech Data's Chief Executive Officer, Bob Dutkowsky.

Robert Dutkowsky: Thank you, Arleen. Good morning, everyone, and thank you for joining us today.
I'm pleased to report that Tech Data delivered excellent results for Q2 of fiscal 2016. Throughout the quarter, we focused on optimizing our operations and capturing the opportunities in the ever-changing IT market. This focus as well as great execution by our teams in both regions produced solid year-over-year sales growth in local currencies.

Higher sales drove operating leverage, resulting in record Q2 non-GAAP net income and record non-GAAP earnings per share.
In the first half of fiscal 2016, we grew non-GAAP earnings per share by 21% despite facing significant foreign currency headwinds. We generated more than $300 million in cash flow from operations, earned a return on invested capital well above our weighted average cost of capital and returned significant value to our shareholders through share repurchase programs. This strong and balanced performance highlights our team's ability to respond to market demand, the resiliency of our business model and the effectiveness of our state-of-the-art global IT platform, all of which enabled Tech Data to produce outstanding results for our customers, vendor partners and shareholders.
In Europe, solid demand throughout the region and great execution by our European team delivered record Q2 sales in euros.

Together with disciplined expense management, this produced the highest Q2 non-GAAP operating income in euros and Q2 non-GAAP operating income margin in the region's history.
In the Americas, better-than-expected sales in the U.S. resulted in the region's highest Q2 non-GAAP operating income dollars and margin in 3 years. Our U.S. team executed well throughout the quarter, capitalizing from strength in the VAR and SMB customer segments as well as strength in public sector and health care.

Our Americas data center business also performed well in the quarter, growing by double digits.
We continued to evolve our customer and product portfolios to gain profitable share and improve our operating performance in both regions. In conjunction with this, we continue to reallocate resources to higher growth, more profitable areas of our business. The results of these efforts were clearly evident in driving our strong Q2 results.
I will now turn the call over to Chuck who will review our financial and operational results in the quarter and our outlook for Q3.

Chuck?

Charles Dannewitz: Thank you, Bob, and good morning, everyone. On a worldwide basis, Q2 sales came in above our expectation at $6.6 billion. This represents a decline of 4% on a reported basis but an increase of 8% on a constant currency basis.
Looking at our regions. Sales in the Americas increased 1% to $2.7 billion.

On a constant currency basis and excluding from Q2 of the previous year sales generated in Chile, Peru and Uruguay, sales increased approximately 5% year-over-year.
Within the Americas, the U.S. delivered a solid quarter, rebounding from lower-than-expected results in Q1. From an end market perspective, the U.S. experienced strong growth in SMB and VAR as well as the state and local education and health care sectors.

At a product level, the U.S. experienced strong growth in data center solutions, namely, storage, security and software as well as growth in broadline products, in particular, notebooks.
In Europe, second quarter sales were $3.8 billion, down 7% on a reported basis, but an increase of 11% in constant currency.
Our European team executed exceptionally well during the quarter with a vast majority of our trade regions posting year-over-year sales growth in local currencies. Numerous countries and trade regions grew by double digits, most notably, Germany, Benelux, Italy and Iberia.

At a product level, Europe sales were fueled by strong growth in mobility, software and data center solutions, in particular, storage and security as well as solid growth in broadline products, primarily notebooks.
Worldwide gross profit for Q2 was $325.3 million, down approximately 7% year-over-year, primarily due to foreign currency headwinds, partially offset by higher sales volumes. On a constant currency basis, gross profit increased approximately 5% year-over-year. On a sequential basis, gross profit improved 11%. Worldwide gross margin of 4.94% declined 20 basis points year-over-year, primarily due to product mix, but was generally in line with our previous 3 quarters.

Worldwide non-GAAP SG&A expenses, which exclude $5.7 million of acquisition-related intangibles amortization expense, was down 12% year-over-year, primarily due to the impact of weaker foreign currencies. As a percentage of sales, non-GAAP SG&A expenses declined 34 basis points as a result of improved operating leverage from higher sales and very good expense management.
Worldwide non-GAAP operating income dollars increased 9% to $81.2 million and non-GAAP operating margin improved 14 basis points to 1.23% of sales. We estimate the impact of weaker currencies on our non-GAAP operating income to be approximately $10 million. Therefore, on a constant currency basis, non-GAAP operating income grew approximately 23%.

On a regional basis, the Americas non-GAAP operating income increased 2% year-over-year to $40 million and non-GAAP operating margin improved 2 basis points to 1.46% of sales. On a sequential basis, the Americas non-GAAP operating income was up 64% and as a percentage of sales improved 42 basis points.
Now turning to Europe. Non-GAAP operating income dollars increased 16% year-over-year to $45.2 million despite significant currency headwinds during the quarter. On a constant currency basis, Europe's non-GAAP operating income grew 41%.

As a percentage of sales, Europe's non-GAAP operating income improved 23 basis points to 1.18%. Sequentially, Europe's non-GAAP operating income grew by 53% and as a percentage of sales improved by 35 basis points.
In both regions, the improvement in operating income dollars and margin percentage is due to strong operating leverage from higher sales as well as good expense management.
On a reported basis, Q2 interest expense reflects a $9 million accrual reversal related to a Spanish VAT assessment. Excluding this item, interest expense was $5.7 million.

Our non-GAAP effective tax rate for the quarter was 30.4%.
Non-GAAP net income grew 22% to $52.5 million and non-GAAP earnings per diluted share was up 28% to $1.43, both which are the highest Q2 levels in the company's history. We estimate the year-over-year change in currency to have impacted non-GAAP net income by approximately $7 million and non-GAAP earnings per diluted share by approximately $0.19.
Our cash conversion cycle was 19 days compared to 22 days in the prior year quarter. Cash provided by operations during the quarter was approximately $200 million and we exited the quarter with a cash balance of $709 million.

Funds available for use under our credit facilities were approximately $1 billion at the end of the quarter. For the trailing 12 months, we earned a return on invested capital on a non-GAAP basis of 12%, well above our weighted average cost of capital, which is estimated to be approximately 9.7%.
And finally, during the quarter, we purchased approximately $1.1 million of our common stock for $63.1 million at an average cost of $57.78 per share.
Now turning to our business outlook. As we look ahead, we are encouraged by a relatively stable demand environment for IT products in both regions and by our team's ability to execute on this demand as we move into Q3.

For the third quarter ending October 31, 2015, we expect year-over-year local currency sales growth of mid-single digits in the Americas and mid- to high single digits in Europe.
This outlook excludes approximately $77 million of sales from the previous year's third quarter due to our exit from Chile, Peru and Uruguay.
We estimate our non-GAAP effective tax rate to be between 29% and 31%. I will now turn the call over to Bob for additional comments.

Robert Dutkowsky: Thanks, Chuck.

As we exit the first half of fiscal year '16, I'm pleased with our progress and the momentum of our business. While there is more work to be done to improve profitability in both regions, we continue to expand our strategic focus areas of the cloud, mobility, the data center, consumer electronics and integrated supply chain solutions, proving that we have the right assets, the right relationships and the right strategy in place to achieve profitable growth and drive success for our partners. The investments that we've made in these areas are delivering strong results and clearly differentiating us in the marketplace. One example of these investments is our recent acquisition of STG in the U.S. completed on June 1.

STG's professional services delivered through our partners help solution providers deploy technology physically and virtually. While sales are not yet material to our overall business, STG adds strategic value by bolstering our data center capabilities in the U.S., expanding our higher-margin services portfolio and providing added value for our channel partners. As a result of adding STG to our portfolio of solutions, we're helping our resellers add new, more complex opportunities to their sales pipelines.
Looking forward, we're excited about the opportunities ahead, opportunities to bring on new emerging vendors, expand relationships with our existing vendor partners as well as strategic opportunities that capitalize on our worldwide IT platform and broad coverage model.
In the second half of fiscal year '16, we will continue our focus on profitable growth and optimizing our operations while helping our customers and vendor partners successfully navigate the dynamic IT market and landscape.

We believe our focus on these items are critical to the success of the company and positions us well for the remainder of fiscal '16 and beyond.
I would like to extend a sincere thank you to our vendors and customers for their business and partnership and congratulate my Tech Data colleagues on an outstanding performance.
With that, we'd like to open the call to your questions.

Operator: [Operator Instructions] Our first question today comes from the line of Matt Sheerin from Stifel.

Matthew Sheerin: Just -- a question on the leverage, obviously significant leverage.

It sounds like very little SG&A growth on that big top line growth sequentially. So the question is, as you move forward, are there still some areas where you can prune operations, cut costs and reallocate it to those growth areas that you're talking about? Or will we start to see the actual SG&A number tweak up here as you run out of those cost-cutting opportunities and invest in those businesses? Just trying to figure out how much leverage is left here.

Robert Dutkowsky: Yes, so Matt, it's a constant process of reallocating resource to either higher growth, more profitable or emerging market segments and that could either be product-driven or it could be geographic. So it's not like we ever declare victory on the journey towards optimizing our resources and our cost structures as well as the fact that we're always looking for just pure efficiencies inside of our organization whether that means consolidating functions into a shared services center or getting efficiencies out of our IT infrastructure. So I guess, my point, Matt, is that it's not a moment-in-time process.

It's a continuum and we're farther along that continuum in Europe than we are in the Americas. There's more -- there's been more -- we started earlier in Europe. There's been more progress in Europe. Consequently, you can see the impact that it has on the performance of the geography. And the efforts in the Americas are now just really kind of taking shape and you can see they impacted the performance in the quarter as well.

So think of it not as a moment in time, but think of it as a process that we're always optimizing.

Matthew Sheerin: Okay. And then on the top line growth in North America, it looks like you're now growing faster than some competitors and some of those competitors have talked about walking away from some low-margin, high-volume deals. Your gross margins are sort of flat, but still low relative to where they've been. So the question is, are you participating in those deals? And does it make sense for you? I'm trying to figure out where the growth came and where the upside in your market share came from.

Robert Dutkowsky: Yes, yes. We've been articulating for now for several years that our strategy of optimizing the quality of our revenue has been a real important part of the strategy in the Americas. And so the idea of not competing for business that's not as profitable is not a new thought here at Tech Data. That's been in our fabric for several years. The margins are a function very much of the mix of the product opportunities in the marketplace.

And so just because you see top line growth doesn't mean that you got that because you gave away price. It means that you attack certain pieces of the market more aggressively and you won opportunities that you're able to mix that drive an improved profitability of the business. So no, we haven't lessened our focus on walking away from less profitable business. In fact, in -- I would contend that we enhanced that focus over the course of this quarter, but we did see market opportunities that delivered very nice profitability and we won those.

Matthew Sheerin: Okay.

And is that primarily the transactional kind of notebook PC business or you're also winning on the data center side?

Robert Dutkowsky: Yes, it's across-the-board. We had double-digit data center growth in the Americas, for example, which I think would put us around the top of the list in terms of IT distributors and their data center businesses in the quarter. So we have optimized our coverage model that is presenting us with new opportunities and we're winning. And I tried in my prepared comments to mention that STG is allowing Tech Data through our partners to compete for different kinds of opportunities as an example. So we're competing in the right places and we're winning in the right places.

Operator: Our next question today is coming from Brian Alexander from Raymond James.

Brian Alexander: Shifting over to Europe, Bob. Can you just comment on the European demand environment and whether you think your strong performance is mostly share gains or do you think the weak euro is stimulating demand over there. Your guidance for the October quarter suggests the strain [ph] should continue. So what's driving the strong results over there? How much of it is Tech Data-specific? And is it reasonably broad based?

Robert Dutkowsky: Yes, Brian, I think that, first of all, the demand looks good generally across all of Europe.

We had several countries that grew double digits in Europe in the quarter. Germany, Benelux, Italy, Iberia, were strong. So it's not a Northern Europe, Southern Europe challenge like it typically is. It's Europe, to us, feels much more balanced. But I think that speaks to the scale that we've generated now in Europe.

With the strength of our broadline business, the strength of our value-added data center business, the strength of our mobility business, the strength of our software business, when you put all that together, Tech Data has the ability to compete on a very broad basis in Europe that's different than our competitors. And I think therefore, we see opportunities and we're able to compete and win for opportunities that maybe our competitors don't see and aren't able to realize. So I think the European demand, we see it as being stable, we think it will remain that way and we're positioned very well to compete for that market opportunity.

Brian Alexander: Okay. And then as a follow-up, Chuck, welcome to the call, first of all.

Charles Dannewitz: Thank you.

Brian Alexander: The strong cash flow generation, working capital looked very low at least at the end of the quarter and I know Jeff always reminded us it's only a moment in time. So can you just talk about the working capital performance and the sustainability especially in light of what looks to be a solid sales outlook going forward? And then just philosophically, on the balance sheet, how are you thinking about optimal leverage going forward. Tech Data's been running with a net cash position. You guys finished the quarter, I think, with over $9 a share in net cash.

Is your philosophy that, that should continue? Or do you think perhaps the company should run with some net debt going forward?

Charles Dannewitz: Sure, Brian. Let me address the cash flow first, and clearly, we're off to a very strong start in generating cash flow for fiscal year '16. And Jeff was correct, it is a snapshot in time, but I can give you a little bit more color in that. As we close out Q3, we typically will increase our inventory levels for our seasonally strong Q4 in Europe, so it wouldn't surprise us to see some working capital usage throughout Q3. And then we'll just have to see at what pace this sells through in Q4 to determine how our cash flow ends for the year.

I can tell you that this is one of the most -- it is a very important metric for our team. Our team has been comped on this for a very long time and we're especially proud of the team and what they achieved during this quarter. We would expect this focus to continue into the future. In regards to capital allocation and cash on our balance sheet, as you know, every quarter our Board of Directors and our management team evaluate opportunities to allocate our capital whether that's to fund organic growth, M&A or share repurchases and as always they're not mutually exclusive. We'll continue to closely review our capital structure and maximize both our operating results and then our returns to our shareholders, but let me just give you a little bit more color on that.

Over the past 10 years, we've invested approximately $900 million in 18 acquisitions. And in addition, we've purchased close to $1.3 billion of our a common stock, which approximates about almost 1/2 of our free cash flow. So we'll continue to evaluate it closely as we move forward.

Operator: Our next question today is coming from Jim Suva from Citi.

Jim Suva: Can you help us a little bit about -- with the divestiture of the Peru, Chile and Uruguay operations, can you help us understand a little bit about what that means to the financial model? Like for example, OpEx and SG&A, a lot of times we used what you recently reported kind of as a benchmark for forward-looking OpEx.

How should we adjust that as you exit that business? And then also should we expect any changes to like inventory? Will you get inventory or cash flow boost from exiting that business this upcoming quarter? Or how that's reflected in the charges associated with such?

Charles Dannewitz: Sure, Jim. This is Chuck and I can address that. As we have noted previously, the operations in Latin America that we exited were immaterial to our overall size of our enterprise, about $300 million run rate on revenues. Of course, because of the cost structure in Latin America, you had to have a little bit higher margin profile. So that's a little bit of a decrease to our margin profile in the Americas, but not significant.

And in addition, because of the higher cost structure, that should help on the SG&A. But again, very immaterial to the overall result of the Americas and then to our overall enterprise.

Jim Suva: Great. And then as a follow-up, given your strong financial situation and improving businesses trends, does M&A become a little bit higher on the agenda? Or do you feel that your geographic footprint is pretty robust of where it needs to be? Or are there areas you're looking at growing into? Or is it more like end product-specific whether it be in, say, security or storage or software or competencies around those?

Robert Dutkowsky: Yes, Jim, it's Bob. I think we have a long track record of our capital allocation process focuses on organic growth, focuses on share buybacks and focuses on M&A.

And as Chuck said, we bought 18 companies for almost $1 billion in the last 5 or 6 years. So we really look -- our M&A strategy really focuses on a couple of things. First is if we can add competency in a geography, whether that be skilled people or a book of business or a vendor relationship that we may not have and -- or if we can break out into a new area where we think there's higher margins. And so in the acquisitions that we've done over the course of the last 7 or 8 years, they've fallen into those categories pretty successfully. The STG one, the most recent acquisition, clearly is a value-added services enhancer that we've put on our line card for our resellers to sell to their end users to allow them to implement data center systems and solutions more efficiently as well as to do cloud assessments and cloud deployments.

So STG is a value-add acquisition versus some of the others that may be geographic footprint or vendor-driven acquisitions. And I would say that our pipeline that we're looking at for future acquisitions fits into those categories, value-add, higher-margin or growth and leverage.

Operator: Our next question today is coming from Osten Bernardez from Cross Research.

Osten Bernardez: So I want to follow up on an earlier question, but sort from a different perspective as far as your margin performance is concerned and the mix of business that you're pursuing. Is it fair to say that you're able to address certain business or certain types of programs today that you perhaps were not willing to pursue in the past due to, a, the focus, more cost controls, but also the reallocation of your resources? So put another way, does your cost base allow you to pursue perhaps lower-margin business today that you perhaps wouldn't have done in the past?

Robert Dutkowsky: Yes, I think it's a couple of different things.

First off, it's what's the reality of the marketplace and the reality of the marketplace in the last quarter was that products like mobility products, smartphones, notebooks, netbooks, Chromebooks were what the real big opportunities in the market were and we're very well positioned now to attack those market opportunities and perform well in them. I think -- we talk about the power of our IT system, but our IT system and the network of logistics that it all ties together allows us to very efficiently handle transactions. You can see the level of our SG&A now is as low as anybody in the industry and that's a by-product of the strength of our infrastructure. So yes, we're able to real -- to be able to serve the real demand in the market in this quarter that were lower-margin products. We're able to bolster on top of that higher-margin data center solutions, add more value with things like STG and then handle all of that very efficiently and effectively.

And so you hear us talk about operational excellence and I just gave you an example of that. And you hear us talk about being more connected to the realities of the market and that's adjusting our coverage model and our resource model to what the real opportunity is in the market and being able to perform well in that environment. In this quarter, in both geographies, we were able to run that play very successfully.

Osten Bernardez: And then secondly, I just wanted to get a sense for how we should be thinking about the second half as a whole this year versus, say, last year, on an organic basis or sort of net of currency as well, because typically we know that the December quarter is pretty big, especially in Europe for you. And over the past couple of years, the mix of your business has shifted such that you should be able to garner significant leverage in the second half of the year.

So how should we be thinking about sort of first half versus second half for fiscal '16?

Charles Dannewitz: Osten, this is Chuck. I'll start off by just saying that we don't provide guidance past what we gave -- provided for Q3. And I'll turn it over to Bob for mix and the outlook for other items you asked.

Robert Dutkowsky: Yes, as Chuck said, right now, we're focused on Q3 and making sure that we're performing well in this quarter. We look out over the course of not only Q3, Q4, but the next several years and that's why you continue to hear us talk about this optimization of our infrastructure and our resources.

There are opportunities that we see in the next couple of quarters and the next couple of years that we want to make sure we're positioned for. Primarily, those are in the areas of the cloud, mobility, data center, consumer electronics and supply chain opportunities. And the good news when you think about Tech Data, you've heard us talk about those focus areas now for nearly 3 years and we've positioned ourselves to be able to take advantage of the realities of those markets where our cloud business is growing at 100% a year, albeit off a small base, but we're positioned to take advantage of the cloud. Our mobility business now is one of the leaders of our -- of growth inside the company. Clearly, our data center business is robust and world-class.

And if there's one place that I don't think Tech Data gets enough recognition is the strength of our data center business, the breadth of the products, the deep services that we have to add to our vendor -- or our customers on behalf of our vendor partners, that's an unrecognized jewel inside Tech Data and we've been focused on that now for nearly 8 years building that. So the areas that we think are going to be important over the next quarter, 2 quarters or 2 years are the areas that we've

talked about: the data center, mobility, consumer electronics, integrated supply chain and we never take our eye off broadline, which really is efficiency for us.

Operator: Our next question today is coming from Ananda Baruah from Brean Capital.

Ananda Baruah: A few things for me. I guess, Bob, Chuck -- Chuck probably takes credit for this.

I'm sure Jeff will take the credit for it. And Bob, you're the bridge, right, so you're probably all taking credit for it in your own way, which is probably pretty...

Robert Dutkowsky: No. You know what it is, Ananda, it's the almost 10,000 people that work here that do all the hard work every day. They're the ones that deserve the credit, absolutely.

Ananda Baruah: There you go. Well, that's why the execution has been so good for like the last 5 years.

Robert Dutkowsky: Exactly.

Ananda Baruah: Really just one for me, Bob. You guys -- both of you today have talked -- as you and Jeff have talked over -- for the last handful of years of kind of optimizing the returns model.

And so in that context, particularly given there's been a bit of an inflection here, clearly with the results and the guide, can you just provide for us what the most useful lens, the mosaic is for us to think about how you run that model and what we should think of that looking like -- and it's not just from a modeling perspective. I mean, it's really sort of in the context of us being -- us and investors being able to sort of cultivate a view of what could be generated over the next couple of years and what that could look like in whatever context you think is a responsible context provided it to us.

Charles Dannewitz: Ananda, this us Chuck. Of course, it starts with the market and it starts with our strategy and how we're going to attack that market and the depth and expertise we have with the talent at Tech Data that sets us apart. In terms of the financial metrics that are important, it really is growing our gross profit dollars faster than we're growing our SG&A cost structure, bringing that to the bottom line to our operating income and then focusing on how much capital it takes to achieve that increase in operating income, which produces outstanding results for our shareholders.

So we're really focused on growing our operating income dollars and then how much capital it takes to earn those dollars.

Robert Dutkowsky: And Ananda, it's Bob. I'd add that I think we have very good alignment between what Chuck just described as the metrics that drive the company and then the way we manage the business all the way down through compensation systems. So if you get a big enterprise that has good alignment, you can drive the kind of performance that we're talking about. We had a good quarter, but we're not done.

There's more for us to do on all fronts and we have the team of people that we believe are able to drive us towards those improvements.

Ananda Baruah: That's really helpful. And then, I guess, in that context, is there a framework that you guys tend to utilize with regards to balancing out op income dollar growth and ROIC? And what -- how should we think about those two interplaying together? And then just quite a decoy [ph] -- kind of question B to that is what are the long-term ROIC goals?

Charles Dannewitz: Right. Ananda, I mean, it's really both growing our operating income dollars and leveraging that. Especially in this low interest rate environment, the EPS is accretive to operating income dollars growth.

But we're very respectful and very focused on return on invested capital as that is a key metric that our investors are very interested in as well as we are. Going forward, our goal is -- of course, we don't have a published goal, but of course, we're not satisfied with 12% return on invested capital. We want to increase it. So I'm not going to give you what that exact number is, but we're not satisfied with 12%.

Operator: [Operator Instructions] Our next question today is coming from Rich Kugele from Needham & Company.

Richard Kugele: So I want to dive deeper into two areas. One, your state and local business was quite good and we've heard from some of your, I guess, customers that the E-rate timing, given when schools open, has been a bit of an issue and it could drag out some of the spend that is going to eventually come, but the deployment of it. Just wanted to know if you've been hearing any of that and have been factoring that into your thinking. And then secondly, when you look at the notebook market, your quarter ended at the end of July, which is right around the time of Windows 10. So just any comments on what you're seeing there from an inventory perspective and how demand thus far has been here in August.

Robert Dutkowsky: Yes, Rich, it's Bob. I'll try to take a shot at those. I think the state and local government, you're correct. It was a nice strong vertical for us. It has been for the last several years running.

Since the sequester, I think the state and local and federal government, the whole public sector has done very well. Inside of that big market opportunity, there are always hiccups whether it's the bid process or whether it's the state and local schools' bid process. The secret is you have to have a broad portfolio of opportunities, and so whether it's 50 states or thousands of municipalities with hundreds of partners that sell into that, one little slowdown in one little area, typically you can look past that. And I think, again, it speaks to the breadth of our coverage and our portfolio the we're able to kind of muscle our way through those slowdowns. Windows 10 is now a reality and I think that it's going to create some opportunity as businesses large and small decide whether they want to ramp up to Windows 10 or not.

So we're prepared to support the growth. We've worked very closely with our vendor partners that focus on the desktop and net book, network -- notebook marketplace and obviously a close working relationship with Microsoft as Windows 10 hits the market.

Richard Kugele: It's just interesting that you had such a strong notebook business. Were those the new operating system notebooks or the older version or were people getting the upgrade later online?

Robert Dutkowsky: I think it was just balanced across-the-board. It was Windows 10 and Chromebooks.

And it's the time of year with the back-to-school process and all of that, that opportunity, as we've said before, we respond to the opportunities in the market. We're able to scale up quickly to meet demands. And that notebook demand was there and we were able to address it in a profitable way.

Richard Kugele: Okay. My last question is just on the data center side where you have been executing well.

When you're talking about storage demand, are you talking about primarily the next-gen players? Or is this traditional storage? Is it outright disk drives? Or is it actually systems and servers? Can you elaborate?

Robert Dutkowsky: Yes, it's more on the systems side versus the disk drive side. We're not a big player in the component side of that market space. So it's systems. It's products from companies like EMC and HP where we've been able to really grow very successfully. And that's another example where we've added resources, very specialized talented resources that understand the storage market segment and we've been able to win market opportunities.

So I think storage is one of those areas that we continue to gain share in and we're very pleased with our performance in both geographies.

Operator: This concludes Tech Data Corporation's Fiscal Year 2016 Second Quarter Earnings Conference Call. A replay of the call will be available in about 1 hour at techdata.com. Thank you for attending today's conference call, and have a great day.