Earnings call transcript Q3 2022

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day, and welcome to Arrow Electronics Third Quarter 2022 Earnings Conference Call. Please note, today's conference is being recorded. [Operator Instructions] Thank you.

At this time, I would like to turn the conference over to Rick Seidlitz. Mr. your begin may you conference. Seidlitz,

Richard Seidlitz

Kerins, day, Thank Senior Electronics' the Vice to Executive Sean Arrow President and Officer. welcome Quarter you. call and XXXX Agrawal, are on Good Third us Earnings the With Chief Financial and Conference Raj and President Chief today Officer; Call.

make statements, expectations statements results, on predictions and about are this which business outlook, During based forward-looking call, our of today. as we'll financial including strategies, future our

of differ XX-K or Our no uncertainties, due with materially risks actual statements. number in recent and update revise the a most the could forward-looking the and factors risk publicly results of obligation to undertake including to filings any SEC. our We XX-Q

call are As non-GAAP. we reminder, a of today's the some figures on will discuss

those comparable in directly reconciled have to GAAP non-GAAP are most results. the earnings our a not to GAAP measures be our measures intended These release. for financial substitute We

at earnings of CFO earnings the investor.arrow.com, our with access call. this and can reconciliation release You along non-GAAP a the commentary, replay

our be remarks to take your questions. Following we available today, will prepared

Sean hand now CEO, President and to our will the call I Kerins.

Sean Kerins

Rick, thanks Thanks, you all for and of today. us joining to

CEO my I'd Before some Arrow about share recent as first of the I full results, like Electronics. thoughts quarter discuss most our to

to with opportunities the road to come. quarters. explore forward also much I've know, you had validate growth customers who the priorities, I process the our meeting to You continue to review this spent of success. with map chance more coming I our to in play essential strategic our years time refining begin this over about suppliers team leadership their and role sharing engage for we the accelerated and the for of look

process. confident realize purpose motivated as how lead future this the on company Three excited potential fulfill about more Today, to company. great as its we I ago, the the months a to noble I am full even well expressed am I in the journey of and

helping other very strong acumen world. throughout finance joined and Raj leveraging by our leadership the extend him stakeholder CFO, the instrumental business new also make support financial our and us accounting Raj our be teams and executive be Arrow's the totality Arrow. to the today investments believe part his to growth, I'm capabilities pleased resources team to towards advancing driving be and and focus an will experience I of success our of market our through finance and engagement Agrawal. continued growth contributor of and key lead a ideal for

business I'm third results. this delighted a with report to focused our our constant components well. helped growth quarterly strong of our to share. basis. earnings performance solutions XX% deliver by by per and was strong gross function sales, turning global business is best us our dedication on sales that execution global our This Now as of enterprise currency both and operating The computing profit, a team quarter and year-over-year ever, income

suppliers. to the our and of While ample challenging, conditions they for provide market showcase our also commitment opportunities to success us customers remain

business, following generally since bookings Bookings year. components experienced versus for chain returned engineering supply a levels all-time we On and late and a carry remain have electronic off associated demand highs, services despite to backlog. XX% prior exceptionally have currency XXXX. global our constant components significant normalized In open still grew sales a we coming high rate, basis, healthy. design, the Yet

to some seeing are are material seeing we not degree. we any out, While push orders cancellations

extended majority prior quarter, since stable of sell. relatively products remain while times, for we Lead the

support needed Therefore, built remain teams work support to service While deliveries supply customers. and continue and modestly, is over priorities, delinquent customer is top backlog, to many to has improving the quarters. our insufficient our tirelessly the it support still by which our

produced aerospace. in in regions end business particular, design have as EMEA excess industrial markets and our industries, ongoing regions in due of and most robust demand-creation rates generated in growth both transportation, which demand engineering in The and and very investments Both capabilities, revenue. XX% the to part across both experienced year-over-year Americas remains in healthy, regions growth

In the see sales the Americas Americas, services market primary softness did and global for margin normalize business in our as we the in shortage compression the improve. the driver supply This the as to as begins to components well some overall. sequential bookings was decline

declined region chain as end several Asia along our in in region. demand fewer markets, constraints with weakening to were the due supply Sales parts to allocated

we group from of industries variety in from healthy suppliers. providing backlog region remains benefit However, of products servicing and a the as diverse overall a

challenging are our customer in market. with the environment, for overly we to needs. work the Again, critical one concentrated not this in to continue suppliers of most secure any We parts piece

both In grew regions. sales basis, our our of On prior as year, currency complex midpoint enterprise constant for third fueled in were computing the in healthy guidance a enterprise both XX% solutions by was for business, quarter the above IT content sales growth versus demand more regions.

to supply our benefit remain While a backlog. are historically some we high challenge, see constraints starting from

We continue infrastructure enterprise transition positioned strength the IT to IT-as-a-Service. see are to well for and in and cloud, software

growth In EMEA, in compute, intelligence. experienced data Americas, and growth our strong came of and primarily markets from technologies. all In storage we in our the strength

to into continue the on on business income will operating continue of operating are we balance profit business basis. and XXXX growth for year-over-year and to prospects pleased a improve across We in X% this the We measure report XXXX. an to growth, this believe

handing the win that call, remains at to are Now backlog do levels. point record our design out I before and activities over reiterate want that our strong

confident supply-demand road to our navigate and we are am over are the that I moderate imbalances that help uniquely there capabilities will that and quarters, customers positioned unmatched ahead. suppliers are coming indications our While the

call and details With more results go-forward that, I our now over to expectations. to the Raj hand on will our provide

Rajesh Agrawal

confidence for realize and extremely expertise excitement to business and the employees for am shareholders, with of talent and the Sean, more organization, strong significant company over the share enthusiasm, the join throughout his potential. Arrow. welcome engaging and forward help to to Arrow. for you future Sean deeply opportunity impressed and Thanks, about thank ago, grateful I moments it and I'm I few deep months. business. shared warm its the A with the long-term look opportunities level partners the full growth I the coming the in his

Turning results. our to

sales grew Sequentially, sales was our EUR year-over-year, The $XXX quarter X. more or Third on expectation million constant year declined $X.XX business the XX% impacted to exchange slightly foreign $XXX previous impacts. currencies basis. rate versus due currency euro-dollar Changes by which than by to X% in expectation approximately prior of compared of EUR currency growth the average million. our quarter for X%, by to $X.XX to X a primarily was

basis sequentially normalization up was margins both shortage quarter activities due by margin global Third the XX.X% declined points market in year-over-year XX components and to earlier. global basis gross margin higher Gross of driven of solutions. points enterprise XX discussed computing our

points XX% XX.X%, and and tax $XX floating higher Operating above in expenses expense effective The as prior of line a expectation million, our XX%. to the percent debt $XX totaled XX of million prior of year-over-year. higher borrowings. sales quarter on rate long-term was rates expectation for down range and Interest to were target the rate other with basis X.X%, due

sheet. cash to the balance and flow Turning

third Our was $XXX flow operating million. quarter cash

related Our the to largely due XX pricing. days from increased year-over-year, inventory second quarter cash primarily and cycle of days which approximately XX X are to increases, days

to process. support strong and inventory We demand the customer have continued generated make backlog returns investments to and in

Our return on invested remain working capital highs. capital on return and near all-time

stands total quarter, end $XXX net liquidity at and over totaled At billion, debt of including cash of $X.X the $X.X billion, the million.

positions strongest have one Our had the liquidity remains periods. in in recent we of

Our of quarter. returning strong million. the the to remaining shares authorization maintain during stands of the flexible positioned At at position end commitment shareholders our of million sheet cash the quarter, $XXX financial through us $XXX repurchase and third balance our to repurchase to

shared I've keep of high-level that in is financial call today a mind our summary Please during the the results. information

more detail that the fiscal which morning. on note published our For website refer calendar the commentary segment includes business closing this commentary, Also CFO our on the results, dates. we CFO to please regarding information

imply for EPS Midpoint and the guidance. quarter. sales fourth Now turning guidance to records

Our X% prior growth a an basis. currency sales the discussed. global normal seasonality to which reflects on we year guidance have and constant X% of expected conditions, and of continuation current a reflects rate compared Midpoint market component

will Our but enterprise X% sales grow computing basis. currency forecast solutions year-over-year decline constant X% suggests on a

estimate the strengthening principally to of $XXX dollar U.S. we sales euro to that in impact a the million growth quarter, to be the EPS. compared estimate $X.XX to will Compared of result the sales to that the of EPS $X.XX. will million We and prior growth $XXX reduction and

turn to now operator will the over the Q&A. I for call

Operator

from the line of first Sheerin Your comes Instructions] with [Operator question Stifel. Matt

Matthew Sheerin

backlog the provide can more Sean, bookings just bit question, and business. within the I'm you first color my the Just a on little components hoping

it said X. is You book-to-bill around like sounds

of that there's other in the clarify of what where waiting the more others you're terms you're versus that pushouts an and there? it customers Is reasons? that. seeing If specific are other you parts. there imbalance or Are could And seeing, markets issues from any We're for in hearing are that others?

Sean Kerins

to Happy some of that. you. Thank do Matt. Sure,

So you're right.

have parity. Our We're for book-to-bill at normalized. rates That's sure.

is China As West. than challenging in we a in the little demand said, it more is

in trends holding fourth up quarter. the appear be West think in to broad-based I certainly the more are the demand and

but our its I and job you just still great down in revalidate to all-time teams continue to little a high of highs. on constant backlog with customers look One and our suppliers a They thing most are backlogs, backlogs at from our at think QX, came basis. validate working bit. that a if recent is do

is firm QX. would a validation which call we in levels. historical outlook, do, is backlog certainly our think well that it's chunk versus the of good So all still XX% beyond through we of that delinquent. what forecasted, work us backlog gives confidence or more for our We Maybe some the that

have as You has it to are that been But with precipitously, the Demand consumer production maybe pushouts. said for for related China. more To dropped segments seeing asked requirements them extent customers term. earlier, that about to long in no about patterns push We're not orders, closely activity. out technologies. to except mainly do their I cancellation pushouts. looking the some in are That's almost thinking

Matthew Sheerin

just then looks roughly Okay. as a flat on are gross going follow-up, your to be margins And guidance, margins. It based like the quarter-on-quarter. on

in that year-on-year. XX down services due So that basis shortage business. you're is softness seeing imagine to I part the points of

there that's called issues or any it anything reasons mix that? for else? other Are think Converge. Is I

Sean Kerins

in we compression We said described what services back saw provide. of in also in pricing; Matt, everybody talked it one and normalization operating past It's shortage-related when good the about the see region we're was you to our in of it's was was remind the it which we'll part we some part the starting QX, quarters. primarily see if softness part it at and So just the that we just margin look for structural. QX, function and you're right, to margin probably the over one market technology; go drivers we and one several expansion both mix, the but a

one me the add, gives capabilities value structural shortage-related confidence while reality what well. of for is And the services part as lots of other our future invested about is, are we've

to design continue benefits of We engineering to win our capture investments see margins. the

revenue script, many think come. I improved, in demand-creation I our for runway And years as it that, year-on-year. sequentially still the both think, and I said has in to mix

serve Our now us and supply customers chain value-adding our ways. capabilities different in helping are

in finding viable imagined more the direct than we in the now we're example, For in a have automotive a past. would industry capacity role with ever ourselves

yes, term, compression sustainable to So made other it shortage. see a to we've when think relates lot point longer of to us investments look there's some model, I that which returns. structural I we'll But as margin the

Operator

Fairbanks Raymond Your next comes line of & Associates. Melissa question with James from the

Melissa Dailey Fairbanks

are wondering, was just mentioned was a general, I the is inventory terms profit? the just in largely you How you operating either maybe portfolio, related in pricing. the revenue of from pricing of wondering, I across or of tailwind the suppliers? to what on seeing increase much a increase, to that that had lot was providing

supply we risk that next your at that as of -- go prices. as kind Is able investing are to of there along pass into inventory secondarily, normalizes? some maybe to you're normalize starts of as then a higher inventory in year, you the also And pricing kind

Sean Kerins

Sure.

to speak questions. easily can I think those of both I

the price So tackle have of of pricing context, just you growth. bulk did first, broader kind year-over-year if our drive so revenue some increases we

we to drop the were precipitously, have erosion. kind sets of fairly able longer in disappeared remain on price are the to price and seen of of technology terms still And but and third frequency, is demand times. yet I seen to still prices lead pass what any they've with going increases increases have to think in stable, haven't real number quarter abate kind been Unless especially not We able in that altogether. were we monitor

go up actually we to If quarter-on-quarter. it were it that back maybe we look of pleased X% kind and inventory at overall, only creeped

was I QX number. the was saw forth. in progressively think that less we so That and and than QX

that right. think increase price see The inventory is I you're almost entirely increases. to due So in you

Our year-over-year. still and units were down sequentially

But the concerned And relatively on we do that us of current. quality good continue sell that to I'd about not and say, veracity. hand. of front to the the also see validate pretty the It's in given really backlog we feel the we through it, work given again, size inventory I'm we its still won't of

Melissa Dailey Fairbanks

normal lead categories Maybe Or quick improve kind board? beyond are on helpful. follow-up Are one the of to extended is just across starting supply where Great. or any times. lead ranges? still That's there sets product times the extremely

Sean Kerins

ability There point mixed support Lead to backlog. but in normalizes, lead in out that coming the come think don't significant supply number Melissa. think going necessarily but play I will that market still extended, still multiple overall memory think where of things carry that that's there's so to we for is soon. we've sets, my gives continue lead anytime it. And the which great of It's prices come in are a supply sort excess are certain quarters. to in down over for times I and demand some And and times like still as I technology a remain CPU to our times of which bag, somewhat, seen categories

we're And we going think outlook. out where I this feel but sit with our so to play about I watch QX pretty quarter-to-quarter, today good

Operator

Your America. the with of next of question comes Bhattacharya from Bank line Ruplu

Ruplu Bhattacharya

to one remarks, you you great. have your of for on be Sean, saw first Sean, and year-over-year ask It decline prepared revenue somewhat from that will can be competitors. Asia, X wanted performance looks I like one weaker sneak main components. for which to seems I if in Raj, I the a than

the expect So can that look in share you a see did what And to -- revenues any we to be you the be talk into quarter? impacted December as stronger region? a little stronger And bit quarter, shifts we about Asia your in in Asia? December should

Sean Kerins

some little than the was function delinquent a macro persistent experienced largely Asia of to COVID-related also we We the They supply in third unserved. went level lockdowns a more QX. So East and saw our what did stronger China. portion we and of in market the quarter, little which in bent see a saw we Ruplu, in and that the a headwinds rotation a of West, of that from backlog, were

and intentional higher important point investments, much mobility lesser is returns Asia the compute. and strategy. to think like I the in see level, for think and our higher especially the about China Ruplu, to volume, at to segments focus where of to to a been healthy kind our We've then degree, very on we But move our mass to maybe strategy return continue lower industrial market, really a with

some as it and think that again you market, So I I wish that confident headwinds I improve. I'm will point, the the but economy diminish, at when will look will I economic be, will could exactly happen. tell at

line our substantial like card, market really of Asia on in term. the breadth customer position long size base, our I for mass given focus market, the the of our the given Given the our

Ruplu Bhattacharya

growth talked chain for supply Americas, Okay. the constraints. you segment, ECS to One you. in about muted In due more the

impact was those from parts? on parts can And maybe not sales your So about which you short? the having were what talk

Sean Kerins

Ruplu, weighted has bit been a which in Europe, to business bit, always little more infrastructure our little cloud. software weighted America a business back and is little North a So if more as you compared to go our to in bit

America amount So regional mix, our you disproportionate is therefore, kind our at also of all-time a it. backlog that to And in that North business highs. map of if carries

make improve backlog to improvements near relief, going function the Some quarter don't still to did the the I of backlog that's in in progress high. was a It tends semiconductor levels the in term. we of follow think the backlog quarters, are of top a benefit that's as what line of chain kind from good the supply America we And not North but the that by robust Europe. couple over get will why as time. in saw may but we in be

look think time. over strategy. with forward, our we continue sort North And momentum continuing for As cloud look America us think, to we're I of IT-as-a-Service progress in again, and other will I to the aspects make of better software,

Ruplu Bhattacharya

on Okay. you Raj, board. question have Nice you. to one for

Rajesh Agrawal

Yes. Thank you.

Ruplu Bhattacharya

was I we on should the One cycle about just is on flow expectation, then on talk and capital quarters cash your cash can couple mean, next or thoughts allocation for about prioritize then How cash choices. if you over you capital. choose things. flow how mean, -- you the further trending thoughts conversion wondering your delevering X free working free Can And of you your think I M&A, general, just buybacks also, priorities. the different those or the as between year? I just in

Rajesh Agrawal

Absolutely. Yes.

the priorities. On second take capital first, -- me the let one the

the are -- invest really Our primary our in priorities to business.

that cash. expansion. And of then organic to over -- M&A capital, working and you've to could be a years, and M&A couple in that couple priority a of be in invested lot last we've continues front seen continue the last active not the evaluate growth been As #X our our and years, we the use to too although our on drive we've of opportunities,

to cycles an at attractive. And that's investment, stock, see we lastly, been say stage the being back and we buy stock. time. because our see we cash that so stock this attractive as time it we've why over quite And in I back go And business extent our flow then to buying does being use over this excess our our

free significant to think and as more cash we for When opportunity leverage flow we about capital, continue need we working have it.

So we've inventory. continued in invest to the

seen, the we have inventory as And have. demand have have you've we gone inventory so. a last over the As or strong and the -- balances balances Sean said, we year up that strong for backlog

over we in really can cash And drive business. we the that time inventory out clean so flow good that good feel and

inventory invest have really to more don't I And the forward. with So the back in our really that's business. we more we the and capital as any strategy capacity certainly go to business also of see buy in stock, issues today plenty and

Operator

Your from of next question Jim comes with Citigroup. the line Suva

Jim Suva

order some sense pushouts, or mentioned or like end end product You'd surveillance or know, that don't geographically you on China. Any anything said for market? end in industrial like, market I

Sean Kerins

parts Yes. that the little say, as a consumer-related they But and bleed of We parts teams industrial broad-based, minimis. still been say backlog. a that a quarter. more to even been certain It's sectors. end function less the light bit transportation of have of and they're reschedule And challenge we is see of still been up again, satisfy. did near-term demand in cancellations have far the But really our have again, a it, de significant pushouts not with West. And would significant in into, I

Jim Suva

Should at but sustain just ahead? bit of a investment, inventory little it couple lead inventory a I be just and as times look through since of like modeling are. you on looking it's of then little don't levels it? ASPs, be to change at know I'm or bit? bad a about, I would inventory kind as wondering been anything down seems building a it pricing mean I about But anticipate we lot thinking working how we a And these is view starting to kind things.

Sean Kerins

have and fact we capital said like that we well, carefully. with the satisfaction. as you to We out. Jim, of Remember, less QX fine both I We than to demand to don't kind that, very as plays in of aggregate, the this posted our the working in we walk we take how supplier returns between this it. anticipate I'm cycle and watch because supply light not glad make as obviously pride know that satisfy. still go in We customer the returns significant as well increases the line have

generate as many as of I'm point, sell inventory. I got it, through seen So -- sure out, through our ability And and confidence and you've we earlier, lots Raj cash. points at great cycles, to which as pretty said in start current it's we've to

supply. about we satisfy can So effectively I has we're comes complicated to scarce give to market as been this managing trying think that when how as it customers with

Jim Suva

Okay. company? help you And about kind you yesterday, interest raised what for rates. interest us that. thinking help And can us then I from the include for understand assume rates should the of would we if Fed it just with your be Can yesterday, but actions

Rajesh Agrawal

Raj. is Jim, Yes. this

third the Our raised And this interest interest as our over from in over you've has because rates fixed. and to rate has the more floating expense Fed we of the high largely in going XX-XX XX and to been quarter, even short-term about funds also going terms -- our the Xs been And year Fed rate. expense to quarter. interest -- guided fourth about expense that's nothing then up, the debt the almost seen related has is now -- last balance in actually, up

seeing expense. to so why impact we're that's the And interest negative the

us continue back stocks. quite to things accretive for we've But It's that the to including all been do manageable. still buying it's doing,

through us we're as business pay help of going time, down goes short-term -- various which this point of debt. it. manage at get cycles, influx to in sort cash its we'll And So will the some through we'll some

Operator

over Rick closing I any turn the now to will remarks. call for Seidlitz

Richard Seidlitz

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

Thank for participating. you

this at disconnect may time. You

Arrow Electronics (ARW) 3 Nov 222022 Q3 Earnings call transcript