Earnings call transcript Q2 2023

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Operator

Hello. My name is Chris and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the Arrow Electronics Second Quarter 2023 Earnings Conference Call. [Operator Instructions] Thank you. Anthony Bencivenga, Vice President of Investor Relations, you may begin.

Anthony Bencivenga

Chris. you, Thank welcome XXXX to the Electronics Arrow I’d conference everyone call. quarter earnings second like to

Joining the Chief Executive Officer, Agrawal. me and Sean President on Kerins; call today and our Financial Raj our Officer, is Chief

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

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

today’s be non-GAAP intended non-GAAP quarter’s As comparable are release financial not substitute call a measures which directly GAAP a We’ve in some discuss measures are to the reminder, measures reconciled to of GAAP figures for or this results. we most Form these XX-Q. earnings the on associated will

You this you can earnings during replay remarks accompany encourage earnings a prepared with these along reference posted and reconciliation the investor.arrow.com, of CFO our at commentary, this We’ve slide the webcast. presentation non-GAAP also and a to access slides to call. release our

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

will to I our President turn over now the call Kerins. And and CEO, Sean

Sean Kerins

as to overall our more regarding key about market turn Today, on to of over outlook Raj discuss like we the think QX. joining then our a I’d as financials and provide detail I’ll Anthony, the us. Thanks, for performance, some you for then as our all color for thank close things well thoughts QX future. couple and with

information per our delivered spending with quarter, technology sales ranges, mixed environment. semiconductor market and Arrow consistent second and the share a within earnings the softer expected In

always with value-added Our with continues suppliers capabilities. offerings and global emphasis customers, and increase deepen our to an with our team engagements relationships on

suppliers ahead. believe them and help we many lie environment, well customers navigate positioned the we’re current our while positioning to the that for a As result, prospects growth

recognize currently managing through in Having cyclical that, operate industry, we a said we an correction. inventory and we’re

long and see and and to for I I the priorities growth opportunities you before, remain a focused that what say will future. our we this it fully cycles that certain these While them. tell prudent understand working experienced resilient cost we’ve like times discipline. management strategic as for We’ve to capital company always these strengthen end, takes can’t the can and navigate for on To accretive exercising business been how last,

at times few a components In there are the are improvement in play. consistent our global dynamics for times average few coming quarters. business, past lead We’ve currently Component down. lead seen

across While much inventory same rates elevated. the our base they’re in throughout decline quite sources there remain At expected grow, clearly board, customer total not levels pre-pandemic for the to progress. market time, electronics according multiple back XXXX. the to will while substantial Consequently, semiconductors longer-term addressable been has are to of markets

West, we end business. other existing pricing take stable. to in was market appears to the largely QX, steady. that And in times, particularly the health of encouraged that indicators and to speak of underlying may it see While general do environment fairly through the inventories, lead demand in be we time the to work improving are addition In

steady. Our parity, book-to-bill below rates, hold though continued to

our services grew continued adoption of offering. activity chain we’re and supply design-related Our substantially, seeing

strength In decline revenue. as automotive and in we revenue, from aerospace sequential look decline more in saw in our a at each but year-over-year a market we slight In better in resilient achieved robust little defense. well and sequential experienced year-over-year industrial growth operating detail. take than normal to was and that Americas, Europe, Now with a seasonality, the a we regions as of a along

performance adjusted for we in believe stronger shortage largely However, the we the normalized. when to experienced have which further now decline market, was

passive is for focus our environment. market electromechanical and addition, operating devices, the helping to more on In interconnect, challenging offset semiconductor a

softness we region we with market And consumer communications in did parts the across experienced remained in second in industrial in historic networking both the the infrastructure, in our verticals, with the sequentially in modest continued grow relative from levels Profitability both business Chinese sales components along of segments. improvement Asia, above in while and strength and quarter. global

function margin decline with fairly along a regional in the environment, to a operating pricing associated Given a leverage. of and mix was stable operating volume the sequential mainly decline impact

creation, and services remain for are chain our structural including to committed to value-added believe offerings, design to management our our and this business. contributing supply continue long-term outlook demand health We margin profitability

our IT expectations. to the function The solutions delivered to in second year-on-year relative gears down improvement. a migrate year-on-year, quarter on as for services an income we with Sales cloud, were line computing margin enterprise our solutions operating saw in switching Now mix year-over-year of business. contributed software strength mix largely customers favorable Operating as to and was grew as-a-service basis. and modestly

strength remain other portfolio, also for enabled through the the is in Europe, hybrid digital infrastructure solutions which Americas, In cybersecurity public pleased healthy. of by sector. platform. cloud were demand And our the We we saw software in and continued our adoption relative ArrowSphere

backdrop customer are against IT the expanding in seeing of to enterprise the our base and focus steady continue progress We demand. softer even mid-market on

a over future. things hand I the of to to we Raj, as before I’d look like to Now couple thoughts offer just

we to excited the which growth believe the First, about I in clear. very be markets prospects are promising. want key long-term operate and I’m

new need delivered we accelerated and connectivity to flexibility And the are while capital relevance of to ability name challenging serve generate vehicles, bit all to intelligence, confident market we’re our renewable on priorities uncertain, of in just a near space, basis. IT trajectories effectively. consider us a growing energy cash an second, the multi-cloud the the and adoption and electrification as-a-service a in allocation electric the solutions providing little just few; and current our You term, few in the artificial very the key as trends: hybrid of technologies such and everything;

And with that, I’ll to over hand things Raj.

Raj Agrawal

down $X.X year-over-year. the foreign effect had billion, By were also X% the year-on-year billion, sales Consolidated In $X.X down Notably, EMEA strong industrial solutions, had quarter within growth Sean. XX% quarter. in expected sales during in markets. second components negligible our year-over-year. performance XX% Thanks, year-over-year. revenue computing expected our business, significant we automotive a on billion, global enterprise with revenue was Changes for range and in range were the $X.X and down currencies within

shortage by was region improved continue to financial due the solutions. business principally and customers as the mix points enterprise basis product partially for other the Consolidated computing down solutions software metrics to to market, in gross offset shift XX from and hardware of volumes year-on-year, in XX.X% cloud component margin Moving quarter. to solutions reduced

expenses million $XXX operating from Non-GAAP reduction both a last were and quarter year. last

million opportunities to global at further which was margin expense than quarter. this reduction solutions and operating coming enterprise Interest other $XXX at and the sales We continue with for average borrowings Non-GAAP lower to environment. X.X% components X.X%. operating in better computing expected due was in look income million, or of during cost daily was coming in X.X% $XX

$X.XX, a was Our EPS our our tax non-GAAP share count. was expectations in line Diluted based in second line XX.X% non-GAAP quarter a rate with basis with XX.X and on on effective for the of million expectations.

$X to – QX at payable days driving quarter. billion resulting $X.X of offsetting at Net changes sales, to quarter. conversion slightly remaining $X.X to up million slightly to flat Inventory our were at with to last billion. flat $XX on last end the Accounts slightly increasingly inventory was turns from capital. from capital $XX payables cash XXX roughly sales X.X cycle of With from of down sequentially turns. and XXX by working was working increased the receivable outstanding the days from XX XXX billion, moving from quarter about days days. Accounts inventory at Now QX billion, at days payable bringing of first XXX in decreased

confidence $XX In do generated quarter, with Cash have the We a flow was in our for million. at approximately the balance $X.X to cash including cash total slightly liquidity and QX debt used generate quarter billion was from flow. quarter was the operations up the $XXX cash in positive our million. in activities million. $X.X conjunction billion, basis, Net stands $XXX second continue ability cash of to year-to-date first from flow on for operating second at

us and sheet ample flexibility. provides remains with strong balance financial Our

stock Consistent our with that a million shares $XXX our we repurchased at repurchase value, the call the keep during the remaining shared of this during end of enhancing mind priority At of amount second shareholder financial in stands approximately high-level million. results. Please authorization summary our in quarter, approximately is quarter. of I’ve information the second $XXX the

published presentation to segment business the regarding CFO the details results, more our commentary the refer earnings and please website. For on

turning guidance. QX Now to

$X.XX between We and third billion. quarter expect $X.XX to sales the for be billion

at expect is midpoint be from levels currently component billion between the down base to the inventory which Asia. $X customer and and X% across global continued elevated prior reflects We sales our in softness quarter $X.X and billion,

a We be and $X.XX year-on-year. billion, to billion between which solutions $X.XX midpoint, decline the expect enterprise X% computing sales at represents

We in million. of to in XX% the and million expense range $XX rate are range interest approximately the assuming $XX a tax of to XX%

$X.XX Our non-GAAP of to diluted diluted is per and share share on $X.XX be between shares. XX earnings expected million average count

sales $XXX in estimate of changes in the changes compared EPS quarter, to million foreign primary and $X.XX We decline $X.XX. benefit currencies approximately estimate revenue million to will drivers reduced by approximately benefit operating in the to QX benefit by the in $XX by sequential expect leverage currencies year. We be in decline Compared prior foreign the we sequential EPS. EPS by sales and prior will and

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

Operator

question you. is Thank first Our Stifel. Sheerin [Operator Matt from with Instructions]

is line open. Your

Matt Sheerin

just down get Sean, for XX% your Good little year-on-year, It component you. Thank business more everyone. roughly quarter. in looks like I’d like you’re on guidance September Yes. sequentially. the X% guiding color afternoon, bit the to a

which normally America that see we did sense? and Europe – in for is as you – sequentially? that sequential did you Asia that look make down in growth do the would expectations see North kind Does imply And now, numbers growth, mid-teens at September. of You

Sean Kerins

bit think would I be a little Matt, extreme. morning, those Good numbers

We guiding sub-seasonal in for are region. Asia the

are saw I levels continue in yet not That’s function a though and as of the suggest. softness We market see China. sub-seasonal, the But we haven’t sequential the seasonality probably in Europe challenges we the decline volume versus inventory quite rebound do QX. that But as we to the shortfall you is much are kind sales Chinese, in anybody. that Americas, in the function as seen just function specifically news business. market. much mainly of the Whereas Those QX are see significant margin see in in decline new we the guide just of think largely elevated more not as pricing stability our versus assume of else operating in expects. to Asia, you that a a anything just the continued as

Matt Sheerin

giving Got I it. QX, mean down know But think this QX? expect And play sequentially out would we you not as would through that. components would which in guidance for correction QX, the you’re be to that about

Sean Kerins

Matt. right, you’re Well,

providing guidance for only We’re QX.

don’t slow seem A business declining better quarter typical experience that’s to can kind demand has these been the historically. really assessment move could That of our down, firm consistent that. And anything So with play that demand backlog. cyclical beyond I this the tell take can Obviously, see speculate quickly. three about say too corrections third at beyond been this I levels the But inventory could along historically a what the our that and history to things environment in you quarters but of want our nature of that’s we is of two environment point. kind certainly best our experience to would our roughly more things with given out. much our we business,

Matt Sheerin

a costs on to enough. on in so relative it good it think Raj, roughly a OpEx, June taking And looks sequentially quarter? was like about basis down. $XX just And on Fair it lastly, done how or dollars OpEx OpEx. million the you’ve was down of Okay. where we job should

Raj Agrawal

Matt? mean for You quarter, third the

Matt Sheerin

Yes. right. That’s

Raj Agrawal

variable think down. I volume come the the get Look, benefit costs comes as down that we’ll of Yes. will

of we’ve opportunities I continue in facilities. mentioned should looking my part the world, that business further optimizing rebalancing then So underutilized cost-reducing it, to the see. workforce wherever around comments, you and we’re we And always been at and as for our closing can, looking

doesn’t stuff away, it longer but So that term. the certainly does over help up show right

an on that And so looking we’re at ongoing basis.

Matt Sheerin

very you. Thank Okay, good.

Operator

with James. is next The question from Melissa Raymond Fairbanks

line open. Your is

Melissa Fairbanks

and know of you. near-term? expense. that’s Hi, you’re driving the guys. I much. I buyback the I had very you’ve balancing to bringing question the interest against Thanks in ask the of wanted debt that Raj, revolver a down accretion. and I some prioritizing for wondering a been buybacks, But about just how was lot the

Raj Agrawal

capital Yes. Melissa, about we order priorities in the really our of it priorities. of think

the going always organic the expansion. we’re much drive first very So That’s and to growth priority. business invest in to

things kind been We buy within as mentioned that before, That’s largely ticking to back also And right obviously. we’re the use going opportunities interest likely we’re credit then those through our a a to next it’s the that a strategy, or debt cash that of function see I felt well and it’s value. much and fit within of the the we quarters, sort ratios. value, maybe But if gives address excess inorganic all cash have environment and us up. feel rates. do to go we’re more – generation as we looking of that at very that even will The But stock expense we’re would we has capacity bit. a targeted we’ll level as good always great little in our opportunity our the rating few of

standpoint. from so that And concern no

Melissa Fairbanks

I to see And It’s of about dollars inventory coming Okay. to then maybe ask always inventories, Great. down. great have course.

a I inventories normalization of of view you see working With get previously you demand an we call going we’re customer level, could June the when some kind release? think some in that kind excess capital under-shipping near-term. to on and updated do had – have the was start on to quarter probably to of at going said that

Sean Kerins

So Melissa, of inventory on profile. kind give picture our can you big I the

were in right. we see it line third The quarters. the expect or them would as state again further. It’s which in. do But largely look expect needs. think in hence, down any of we in when Turns of We quality given forward. question rotate working is norms is we’re environment. sells reschedule per several You’re pretty quarter many environment three like reach they are I historical are this they’re inventory quarter through, to basis. But would in ASPs managing have all far the And near-term only the to well. customers QX, suppliers global our the what do their that finally it. too each down Melissa. expect inventories you’d the one in we We say, steady up, less regions, come operating of even did a yet our the what would and we’re the cash in further when again. sign held We almost as the increases call look out to down we confidence it within inventory Units time down generation comes quarter. turn big a come from in where to not that a levels things of when of in first inventories in interesting. they production for good That’s on still definitely fact fallen our our suggest does reflect price of Part collaborative even of with

Melissa Fairbanks

Okay, great. helpful. That’s Thanks very much. very

Sean Kerins

Melissa. Thank you,

Operator

with from next Wells is The question Joe Fargo. Quatrochi

Your line is open.

Joe Quatrochi

Thanks for question. kind on dynamic. Yes. to wanted the the of I taking stick inventory

of your talked their Some have historical they still levels maintained have below inventory the suppliers kind well remains that previously. of distributor about

then and maybe that the continue in pricing inventories like given or how now? moving that being just lean maintain somewhat as stable to downward should ability guess we about be also dynamic I that think So to environment

Sean Kerins

Yes.

were enormous serve their of typically in they’re you first market these and it the base. So the from to in progress more corrections our on And we will, to to later, supply come that in times back many the They further and think serve basically amount two customers. improved addressing that if customer cases, which demand lead typically As And up for the anywhere right? have quarters down, mass step about solved ones out, OEM have the was back tend delinquent made tend they queue, market. Joe, gets starts or maybe show decent larger then directly. in behalf. suppliers That just play how with has to their

little that, in therefore, we’ve through right than a it’s we So the the that we’ve pattern work in to than mid-market, out the sooner build front got the a bit this little whole better we bit think each in typically us plays of phenomenon a see tend direction. the do. suppliers to little the experienced inventory in but case. But bit headed same And

pricing If you the you like the I which sub focus. largest the a is been OEM and in the versus said, over better mass where large a market margins might primary accounts. far, the we’ve mass plays is than in see big place good year. what tend of The so so to think stability difference seen hold question, time largest about up pretty our customers we’ve the between end this But far out in in your market, pricing where pricing market, there’s

Joe Quatrochi

as it. EBIT And you you can that I in demand you coming kind quarters last of strong to about of mean And think the typically, put out. In things Do kind do helpful. take been Got the quarters. those starts very three how That’s structural we X%? above components, about has margin play talked slow? obviously into to several maintain EBIT to two then referenced just you’ve structural the of you place. margin there benefits play over context benefits these your component now think

Sean Kerins

certainly now at seen in, industry, Arrow. in demand I’ll you disconnect some preceded and all mean than supply all experienced, probably in I history in the between we’ve the my time if just significant we of recent that the cycle the most we’re this. on And do. perspective you think up about We that environment give

we was So this that I the that such see XXXX inevitable. and can correction with time of our if a operating to safely your know significant pressure which was would levels pre-pandemic. cycle if that leverage. guide, correct, some road that go will sheer we And margin volume more degree. through were of some a have help margins cyclical demand to And to things they say kind back value-add are a of that some things fully alone, strength. creation, back that supply at and contribute better even inventory can growth priorities down we were margin time engineering have to continue not we correction, further lost and to than around to of sort structurally like the But I last probably sight seen And much restore even and as around that like just opportunities our chain, our point, they will structural

So, all still we reasons, really about good term – longer we steady-state for still feel those outlook. our

even headed, not of We basically a current environment tough. are where are losing the is though sight little we bit

Joe Quatrochi

Got that. Thanks for it.

Operator

from question Bank The with next is Bhattacharya Ruplu of America.

open. is line Your

Ruplu Bhattacharya

Thank in there related questions. for the us color and inventory more little flow And a your channel. talked the higher this on inventory be give know specific measure And on something you be in thoughts correction your cash in Could normal? in is there taking think cash higher on if can to inventory for you has you how and do do that have how question, have the Hi. an Are normally of higher-level a you uses bit buyback weaker, use Sean, channel? more inventory? in you environment cash Like just thoughts demand generation is, things would than channel? bit the give free can happening that excess if that. would an types that? you flow done? channel, my semiconductors about higher little than more inventory And you that you is us higher – such that a you environment of flow color like inventory, the free on So, excess can

Sean Kerins

there, different in of A Ruplu. Sure. questions couple

maybe So, can down. we break it

it backlog And XX% although is I it roughly our late, come of pre-pandemic, firm was or you it and think more multiples multiples. we than of that is want First, still still tell delinquent. maybe it’s bigger to has of two-thirds down

just where we about about still customer gives sets So, market The that within But collaboration because It’s navigate suppliers throughout the know our be we our alone because of our have it less and market. probably And us guide tells may we inventory of of undertake from on profile, us that all that electronics overall. specific to fulfillment we execute technology that our we of feedback right the to is be. confidence it needs turns. the customers. certainly all with this our also base that will. we based more and inventory that certain know our know to get and close elevated, kind upon time the build We

in flow, production we And we to to like confident terms I will the or and are their So to forward when demand. are maybe of environment, solve said, as thinking off extent operating see ability to work relative expect slows things to are on turn across by to of matter our It’s when market how realign do kind our I a little of again, will means execute their what for But inventories it a with we we it a each the our we in we about correcting base, customers bit With look doing cash down all our Raj in schedules are feel our near-term. state. that to probably are what large, fulfillment, regard cash so regions free the more would end and let reach a elevated to they of about just customer generate it talk occur. ability what cash. about in steady

Raj Agrawal

again. Yes. you with speak to Ruplu, nice

are just manage it for continue through I capital. key priorities to think going to we our

I as expect cash business, more the you one flush looking have to as we if last And as inorganic more certainly have use we we environment, continue keep And then I will – said, But opportunities. the of that stock. in certainly, will in priorities. some investing that know. buy few at and of a key key that’s so cash flexibility we will our with back And a years, been cash,

So, that will but the against evaluate all off won’t be priorities. to those table, continue we

Ruplu Bhattacharya

Thanks there. for all Okay. the details

ask I if follow-up, my question margins. on As a can ECS

segment bps segment in the grew of correction business? margins about for any that it to XQ? we And So, margins on fiscal Is should happening even think sequentially side for that is and if XX the How revenue. the that in environment? lower weak, quarter there the reasonable even the inventory think is standpoint. segment, quarter maintains fourth margin typically that fourth in Thanks. fiscal strongest macro outperformance is Do on the that both revenue relative from a think this quarter you

Sean Kerins

a Ruplu. Well, talk again, this point are because lot QX Sure to only not guiding probably at about we thing, QX. going

the seasonality. very when business But question, in the there QX to largest are really you quarter is You of that think us. right, your any about first for inventory year predictably aren’t challenges

drop in because friendly even this participate most places fact, hardware, the is ship capital we where more for in us in nature. is model working In

inventory. been But to as or have liked and challenges backlog us, term. that continued to backlog built relates kind for build, helping and things no business barriers of that always growing, is for elevated capital or cloud of which model is I channel tend the it’s out have normalized. the a working our And say are model fulfillment longer we function revenue of there Most it has subscriptions to all to We the of would those piece to multi-period because friendly. good we software navigate, again, and that that is our all business get think in systems related over that business the the chain piece supply the is time. of

Ruplu Bhattacharya

all for thanks it. the and Appreciate details. Okay

Operator

[Operator Securities. Instructions] William The from Stein with Truist next question is

Your line is open.

William Stein

you the progress Great. so addressed impact revenue. commentary, Thanks today that terms having I especially have next little in that I apologize components it’s of in exposure I if in my might late, expect already. on this you could talked you the about for on just quarters? elaborate think business I the part and your you your And market market, questions. how of few the hoping But shortage am to taking a joined to and margins CFO

Sean Kerins

Certainly.

we So, we the just Asia. function it you saw of decline in about from that the three Will, less compares, mix, think, some of the was normalized. sequential of due should piece market some period-over-period that One significantly. in quarter, the on downside really volume think that One Will, lot a was regional second to shortage growth margin part if the was market simpler we leverage. market margins. saw the and erosion activity, of operating activity, the operating further was by stress things. saw fact have had come our in on of that as part now lead that overall, levels it some the better and and most just our of pressure times And here. and typically the QX, which that of and thirdly in We way And it have put shortage upside in declined and But in have pretty aligned, to pressure the and towards has pronounced margin as are of getting a And function get though, been shortfall then largely activity piece some normalization that most substantially which it’s a activity supply relates the Americas. moving demand strictly prominent in

William Stein

the I want of I Among through beat inventory them starved of couple but channel last a go times That’s a helpful. their this little it. this the I been bit of Appreciate they other cycle. different chest already, most just way. One me, has sort how cover, to at discussed pardon - whole about know of companies inventory – semi

is data I ones sort managing And while are little great companies, issue. very spoken able But bit points. to have been increased, public always job of think difficult haven’t that reconcile a to smaller of issue these some do And it’s inventories two a the have this so protected. they even well your we to,

six about months consistency disparity inventory what very the suppliers. some what I And clarify usually gets the you your hand, hoping told of I any through hoping if inventory can to know real the Thank you you. have My guess sort of help of so don’t am your or, experiencing I question But other this. uneven with am is. that that of distribution. it at is is I on spoken have me are to you it’s can us talk and across relative suppliers. to technologies

Sean Kerins

little the this maybe based larger Part as for to on cycle, we bit solve that saw they Will. the these especially as demand, customer pattern before just a it Remember of is out. I earlier. will it’s repeat solve market, tend last the right. during I suppliers play the mass of for of delinquent corrections And when Yes. Sure, how what said

So, market we back the later in build will they were mass the queue. because inventory typically see just than will customers further

our So, for now little a delta then. experience of that bit timing versus accounts therefore, in and the experience their

You are uniformly all equally right and for inventory all in problematic assuming in is mix suppliers all regions. technologies that not the

suppliers different about others. more we are this on have you tent both programs some cases than by we they good we fact question. for is across And handle this inflating would schedules pretty are QX. up work units That’s holding to QX, inventories. base talking aggregate. the see of evident what that There like about demand one our the the are it But beyond in that this most it would favorable of in wildcard pretty We the when our large, are portfolio. to ASPs generally are long poles came customers the where we as suppliers that’s as more are otherwise. evolving down or But given broader they would work meeting through and But feel suppliers that customer look production their the substantially here fact and in look, market if I possible, inventories to some and in and in the the our this the comes in say, so place, our have work to define problem, as ability expect collaborative again to expeditiously the through two looking see

William Stein

Thank Okay. you.

Sean Kerins

Thank you.

Operator

further this no have questions We at time.

closing over for Bencivenga will We turn to remarks. any it Anthony

Anthony Bencivenga

look all a Thanks upcoming call. great investor day. for Have Chris to at you forward thank again, joining today’s meeting Okay. you and events. We

Operator

concludes This conference call. today’s

Thank disconnect. You may now you.

Arrow Electronics (ARW) 3 Aug 232023 Q2 Earnings call transcript