ARW - Earnings call 3 2023 | Arrow Electronics, Inc.

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Operator

Good day, and welcome to the Arrow Electronics Third Quarter 2023 Earnings Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Anthony Bencivenga, Vice President of Investor Relations. Please go ahead.

Anthony Bencivenga

Thank you, operator. everyone Call. Arrow welcome XXXX Third to Conference Earnings like to Electronics the Quarter I'd

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

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

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

are substitute non-GAAP be which intended reminder, to our not for measures, of As we a will call some are a results. figures the GAAP discuss today's on

CFO We've prepared commentary, GAAP comparable a accompany the during reconciliation release access to webcast. of replay you most along at reconciled presentation slide also financial a associated to our Form call. investor.arrow.com, this measures our XX-Q, and We've and reference this these non-GAAP these earnings posted encourage the quarter's can to you release slides or this directly the remarks non-GAAP earnings measures earnings in with

we'll questions. available call Kerins. your and Following the our prepared remarks today, now I'll President Sean be CEO, hand to take over our to

Sean Kerins

look quarter, I'd future. discuss for close thoughts all then to the you to we in and Today, then overall regarding for Electronics. us some I'll pleased as softness, and couple above thank line with joining and Anthony, Thanks, the more our of turn QX like with market expectations performance well color detail as interest over Arrow fourth a our provide your for earnings announce sales the we as and our things well delivered I'm that quarter. Despite third share for outlook continued results Raj on per our them. in the for financials market to to

more worth items at for and items, end are to of when high results guidance. Raj of our charge P&L. in noting: but were X our our per one in benefit normalizing one Included share the Now detail, these even of earnings describe non-GAAP our these will

our technology. and like regarding a very electronics navigate As I cyclical confident and mixed this solutions in are IT the last a we're components and in resilience our computing to business quarter, spending longer-term successfully experiencing before, correction we've business. in mentioned, I and ability remain as global corrections seen environment discussed information both optimistic in our enterprise also them outlooks, But

meantime, the conditions are suppliers elevated emerge and right to close very even throughout to global remain through our continue verticals the demand evident as challenging components, across our market stay In several softer In conditions levels we the to and taking market and ecosystem. stronger improve. inventory steps customers all

-- stable. a said that, service future normalized improved business. again the signs below remains Lead point steady the times our and we to largely ratios, underlying demand that parity of now the though visibility book-to-bill will environment Having contribute see health backlog and signals, to to have pricing delinquent relatively and of the

addition, control, health. can on focus benefit to our in In given initiatives that the structural what we remain we steadfast continue our margin

adoption market our in of accretive technologies, made We continued value supply the electromechanical progress and and saw investments. interconnect, continued was creation offering. a services Demand steady proving resilient more the little cycle, activity strong demonstrating for and of and engineering our chain segment QX, the our commitment role we passive through to in

the what basis cyclical experienced As margins during we points better XXXX. a our guidance in proof operating results Components point, Global downturn and XXX indicate than for roughly

soft a were board. the sales from across Now regional perspective,

appears design-related in focus we next-generation and we were quarter Europe, and pockets too for components encouraged customers did a our call recovery, we Asia, Americas, to continue to it's Over in soon relative components some interconnect, communications, products. electromechanical help be paying relative by to strength. of their and, computing. networking in off the broader However, increased with traction In activity IP&E in during saw as on the for a passive while in activity some design degree, as and see transportation, the our pleased we we improvement were lesser momentum to in booking

of portfolio, the relationships, and term strength to and of territory. near the our we in ability our look continue components, stability to our to we technology confident global we're correction cash navigate As as the customer supplier generate

to pleased software, infrastructure turning adoption, relative strength our all strategy. ECS were we our business. We with cybersecurity, and cloud in the with Now global saw consistent

billings on overall growth year-over-year contributed to a basis. gross This

IT portfolio On cloud given strength as remain large our compute we consistent cautiously execution offerings. lumpy software environment, enterprise for hand, to our customers In of of the other uncertain the more macro broad the and our our creating mid-market, storage exposure and European from a EMEA, spending and proceed team. the headwinds benefited high-end

North both margins still And and see transition yet be line sector operating a public our in in America, in them volume seasonality, to the typical this the card better model mix in solid. to and customer saw modest in in an given and demand shortfall, that to are QX. given we transition again only support XXXX. improving performance EMEA strength healthy we environment, were investment And better expect to quite we expect resembles Despite

over just to Raj, turn I Before thoughts. a of couple things

in a have that better to ability well environment market will them. reinforce growth for positioned our conditions every to align believe remain be prospects improve. long-term demand confidence regarding like and as optimistic and that opportunity and we this execute I'd are strategy taking around First, further our we I to

moment its they and then serve also and And challenges world, I'd customers to the I'll that, chaotic our globe. over hand of an suppliers Arrow I paramount thank and to to and them perseverance their the Despite and uncertain employees to all will our With success, always things a Their take like for sometimes commitment and continue to continued wellbeing our recognize dedication. stakeholders. of with Raj. be around Arrow

Rajesh Agrawal

$X for or constant third the above activity in in last down guidance billion, range The the market XX% Global quarter or constant of versus was and last year revenue Americas. and Consolidated softness XX% the versus the billion, down primary Asia currency. year were currency. $X.X Sean. market midpoint the Thanks, XX% XX% drivers were components . our in sales reduced of shortage down decline in down

Enterprise down is currency. XX% Now of This down partly was function billion, a constant it effect year immaterial sales solutions shortage had the versus mix that a last in the of partly or product $X.X in North on America. market of results an company. computing were function normalized, softness sequential and XX%

metrics quarter. XX XX.X% Consolidated financial other year. basis Moving and XX sequentially last the gross of to was versus margin points basis for down points

Components to mix in the settlement $XX our increase and partially year-on-year to solutions. to reserve down to and The benefit $XXX and Non-GAAP in decline the component quarter the Global charge demand shortage business offsetting mix Asia. in unfavorable in was software $XX accounts softness in solutions was legal sequential related the and a decline computing offset receivable in European principally by due last from improved our cloud strong a see Americas, included X we continue market business of to million where were partially ECS million in of primary driver The reduced $XX volumes business the business customer. million million expenses operating for our enterprise

basis coming reserve both in Non-GAAP at function the points basis X.X% OpEx and control expense Interest when points solutions of computing guided lower-than-expected a settlement was daily enterprise quarter-over-quarter operating XXX components loss items, $XX, spending. reserve $XXX operating due borrowings the the of decline our quarter. than legal with and incurred income to was at expenses computing and operating operating our Components legal of settlement adjusting X.X%. Global in as million declined from solutions continued AR the Even average which X.X% for in sales other better a the and margin to or in from item. and was variable coming AR Global benefited enterprise margin XXX margin efforts

GAAP our high end based non-GAAP effective Diluted legal the above foreign guided utilizing domestic EPS Both Our of from the an which AR range benefit range from negative non-GAAP and item basis included $X.XX for below rate and as $X.XX certain a tax count. a impact reserve credits. million a was the $X.XX guided and was well XX% on was quarter XX.X as our of described. on EPS the tax third result and share a of settlement

these at range. As account into such, guidance of non-GAAP items end the our high taking EPS, was

last Inventory increased payables quarter increased opportunity working sales receivable at to days from ] with outstanding decreased capital. in quarter. offering. on billion, neutral working capital and Moving XXX supply down Accounts Net services XXX [ with billion. days to capitalized as increasing an that billion quarter. the of due on part capital attractive $X.X XXX to working [ to $X.X payable our QX of we $XX.X Accounts chain from from to increasing of XXX last ] QX to was from

in we've the quarter-over-quarter, we As similar into decline declined saw inventory not entered to position QX. inventory this our would opportunity, have

We inventory model remain it business confident in market. as our the and a to inventory quality down in our relates reduction of

backlog. to convert inventory continue reduce our in the quarter to expect coming We as we

a the reduction $XXX $X.X quarter balance $XXX based from of working at capital. flat in flow for at robust third $X.X billion, our Net cash and billion. Total stands including on our the Our operations liquidity quarter was results QX to in debt million. approximately was operating cash a million

quarter, handle with we the Our In million. stands and approximately other third to $XXX at repurchased remaining end us financial million. the the balance our our remains stock of strong in sheet shares provides approximately At $XXX of and authorization working the amount flexibility quarter, repurchase needs. capital

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

this For business to in the more in earnings morning. the please details commentary regarding published presentation web refer CFO segment our results the

Now turning to QX guidance.

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

to XX% $X.X midpoint sales which at $X.X Components the from quarter. prior down million between and be billion, Global expect We is

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

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

impact prior EPS quarter, EPS in approximately and $X.XX. by the on $X.XX negatively share $XX to QX in changes Compared of approximately foreign and by XX between will an $X.XX per expected million prior be the We million sales average by earnings changes will in diluted to and QX sales million benefit non-GAAP $X.XX estimate compared estimate benefit shares. currencies count Our currencies $XX share foreign year. approximately diluted by we to in is

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

Operator

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

Matthew Sheerin

in your which in Europe, for to particularly be sequentially, of regarding you with that X be to suppliers engagements. of Would your chain regions out the of And and some better quarters. range? which super seems guidance question expect weakening seasonality down the But play component in supply the well A some some to expecting this into strong in as next that you about regional would be Or you than quarters, correction year? because XX% look X some expectations peers. to line to could Asia is next talk down all

Sean Kerins

Yes. Sure, Matt.

maybe me with first. question start second Let your

I experience X quarters on typically out. what X to based play our kind about to is of last take I talked that quarter corrections think these

perspective, it and at inventory it's we to this that look think things would you to I to begin strictly see from before talking start quarter an safe normalize. say next we're if about

Obviously, of think a piece inventory. we that's our trickier we That's slow either it down. to ability little But manage line could to relates sight speed them or up environment the around as this macro the have things call. to

in Regarding you an softer already guiding environment. mean, quarter, point have for down incrementally people a the correct. out, outlook, number we you're think come I out macro the space of signals as that our

Chinese next, been are Demand inventory of than I bit fairly market COVID to from I would sequential outlook, the don't has while in rebound as what restrictions. Asia. compared to in I West. that the to a But both softer in steadier depths in say to the relative been QX puts we our think X and the as news. can levels. the the with elevated associated the simply trends reflected takes West, the as well that's decline Asia in little headwinds see say the new QX has we slow Obviously, see from region

recovery So I far seeing early to it's but for materially worse. think we market, too things call get in a are that

Matthew Sheerin

like regions, looks where the margin the operating within to last all sustain there the in is? to and other benefits, margin -- which your is the outlook year-over-year. down. couple You initiatives. onetime the Are you where the looking than But the Western those you about cycle. sequentially relative that some much QX, components, as better be then to you bottomed Can And the over regions without of margin things margin keep said, down will was Okay. it question talked is particularly out X.X%, around and cost-cutting And place in next quarters? it X% what's

Sean Kerins

Yes.

I'll right, operating talk overall i.e., the more Matt, a leverage. mix, decline volume it as sequential was less about more in beyond said settlement, headwind margins of expected, certainly to changes bit a legal and was for won't you mix, operating which you're at in So shortfall normalize West relative function this really little probably QX, a that I then regional was once a Asia, in operating point. given call what But the margins there regional just about

the market, not in that to mentioned was decline. story, the declines saw in the factor think and I a Raj shortage with in we but that to news sequential it the I it, respect is that reinforce good want

fully is proof to where do us. good what our now we think So corrections a relative with we're is to initiatives. for now trying that we're And behind dynamic margin structural point landing prior

that's softness of say, or guidance. just tell the in terms that inventory. given a in could I excess not being decline expecting cost you more From an for a discipline. think what It's market perspective, I QX down. when we on we us, we're of is again, far prudent incremental modest I and that in that's we're really just less see should market function ongoing the something But our far focus the

growth that otherwise in and in always we exactly time. posture it that's favor to to price, we're it. we're win now. repurpose over structural been our up on to costs what Our has concentrate can of But

anything And so on intend we dramatic. too don't

Operator

The comes the next Wells of line from Fargo. question Quatrochi Joe with

Joseph Quatrochi

as like regional just you sounds bit a the anything terms little the I guess within is the Maybe quarter changed anticipated? the had I and Yes. think in think way change about more maybe maybe Or regions, of Asia is follow-up of quarter that from I rate fourth that for the mix, the geographic the in that. seeing you're about that on weakness components has margin about it a you're ago like West, maybe a than stronger. thinking

Just do kind about of think how I that?

Sean Kerins

they're and equal the playing Well, in see of little if you to you more severity think is shortage about these North corrections eventually a historically, severity over all challenge first the and Again, or we of see then Asia then and bit in America Europe, that the tend and that. different, what somewhat the in probably the less out. to now indicates correction that's time

seeing will it of think navigate is unknown. we're as this the consistent cycle. an fairly take out of long I to bit But how patterns little we a timing So play regional

Joseph Quatrochi

Raj. one Got it. for then And maybe

receivable took is we trying an in all? that quarter, you forward there cards here. as Just that that at for opportunity to the account go reverse think to the On about

Rajesh Agrawal

it Yes. I over all the We always all, it just unique go an mean, that's customer, of obviously collecting with amount situation first a of we was business. for after X I -- Joe, we'll think isolated ECS and really time.

we've all that taken tell that that not So But to that's I to you a can't money mean owed going might we're just when reverse. of doesn't because reserve us. collect

Sean Kerins

with say we to add would business. fairly just portfolio of that I AR comfortable rest in the that the feel Joe, and

isolated . experience. this was an So

Operator

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

Ruplu Bhattacharya

going you Global longer respect to this it's XX higher-level mean want to is a correction to Components, take you With semiconductor for correction inventory you long when do question. for in the I going shorter? how the over think last patient changed take about expected ask days. market, or to think your that Sean, has I

question, can think we market? about versus can of elevated? the how more more you do part Does are be that another of there some how there the add you -- Or firmness verticals it when have it talk see it can has if inventory, much think is end excess differ I normalized? And that then are that delinquent. do you backlog, And And that about by still of the inventory?

Sean Kerins

of along we Ruplu. Sure, kind answers things to little the what think or than playing so. about take this with more don't differently in now XX Maybe I'll did a bit I have different said I the questions first that, and say take your or back anything out we of to go look, less of set as play to ago would historically. would a just questions But first I is typically would these I we days order. think seen out

that or obviously a little kind came too call again, inventories but the an the something want could But QX, that, our environment value chain us to that add but of And our on I our accretive inventory, macro slow It's was strategy with which opportunity supply up to leaning a -- of value-add result tricky was it, for Raj for we services much speed in of into and that. the things very touched respect reinforce with to things up piece fee provided. the consistent yes, a enjoy very is down. the services decision

just They anything would I'm we will we QX. and in QX fulfillment generate in in decline they not sorry, QX. will inventories decline do will cash. in that of expect pursuit again and we It's revenue again declined have

of capital be working very think our while and and manage given get production question sure necessary arms we're they that of our the getting what the needs when customer mindful specifically I it, they making what's the need to piece they get evolving inventory all pipelines. their So to the through trying around

the remind part Yes, think I Yes. of of Ruplu. me sorry, question, sure. third your

come from at still certainly were still the multiples pre-pandemic. is it's it all-time backlog down -- So sits of where highs but we

couple working team say production line think than to got their and our sight still our requirements customers doing serve activity in reschedule pretty we next Our good of a Again, go more is is backlog of cancellation, it reschedule we they and quarters. with would suppliers it's about to good the to job the we've change. to as have I

Ruplu Bhattacharya

Maybe Sean. margins. quarter typically ECS I'll X there, for the Okay. is ask quarter The question. fourth strongest Raj,

macro of cash that your has that in, what Given environment are quarter, And we're capital for the expectations has in expectation days the since have free your allocation? flow changed? And relative thoughts strength your ago? for expectations given your fourth margin has XX -- that, for changed on

Rajesh Agrawal

Yes.

top your part question, our for expect not billings for the both On and the still as have quarter ECS business, a changed well the first business. fourth the We line typical of ECS margins. as for the expectations

of but generate the So a And cash expect all no flow again to we quarter. from free fourth the through there. standpoint, then various real changes in cash walked pieces, we sort

again Our down the inventory quarter. in be fourth will levels

$XXX now of We year-to-date cash, million generated Ruplu.

So I think we'll continue on that.

expect given quarter, point with generation the in we line it's that So at. our cash cycle the expectations fourth very the much good and amount of a we're in in

Ruplu Bhattacharya

changes any thoughts allocation, capital And it. to Got there? your

Rajesh Agrawal

and our to drive the investing with stay mean business growth capital in we the priorities same. keep expansion. I If just reiterate organic I those, will No.

we whole material we to anything working although And excess in all have a capital managing CapEx, to and We're with the shareholders it's then perspective we've M&A also return form rating, changed. in wrap around done years, evaluate an credit to through we've few used that whether our not Ruplu. always buyback. hasn't So cash of that back or investment-grade opportunities,

we return. factors we take account So into of capital those we're sure to make all look going at as

Operator

comes The with next Hari of from the Goldman Toshiya question Sachs. line

Toshiya Hari

pricing first question My environment. is on the

in from And more noted seeing that geos, it guys different is importantly, well. different some be suppliers newer given you're stable, types. differences all which that what be be remains You if any But relatively could into seems pricing are your TI, you different we're the hearing across whether partners, deteriorate. the consistent with at whether all China, going of curious pricing it to concerned 'XX end device capacity market, as your ground, that potentially over suppliers the

Sean Kerins

thing. Sure

were We say So so environment Asia yes, probably of which little the that's did we're to you're quarter, see but in in precipitously. right. move helped a I the expectations concession We QX, see more pricing activity in a the fairly that. pretty stable. are demand our would as true pricing us product, bit little do diligent bit about drop in West. less

again margins stable as Transactional remain well. fairly will

things about elevated quarters prior as that talked we in materials all packaging. costs well raw about if the think new and you I like the capital for as think investment

for period likely upward a from think some I supplier time. perspective, some on help to that's of keep pressure pricing

as is even foreseeing I input to the we're So beyond elevated are for us changes to it's if costs call too inflation this look but early QX. at still big overall point, not we that little slowing, year, think a to new well

Toshiya Hari

on the That's super as follow-up, IP&E X services. helpful. it. you talked about then creation, Supply demand Chain Got initiatives, my margin-accretive and And

level And a of this you years can describe sort and does X see that group percentage you are with how meaningful today businesses importantly, how as business more XXXX? do of growing compare of collectively a how your ago? of couple those As set a into

Sean Kerins

mass still pieces mass those demand we continue thousands potential as parts, the X . We're in of for or X at them more time, terms look to us of pieces couple years little shortage over all out were it as are to the So customers mix do you a We quite in of be of say, without good market much the more investment but parts if possible. than and we collectively, back point overall to more go market I a material and ready after. breaking out say see in they certainly years. back, material what of were spaces, if mix, look the There's and creation ago midst X is not that pandemic market. when they you can our in and break to the tens

I as think maybe of in perspective, from GC. we an about our talked XX% I think that sales total IP&E in XX-K, our

that have know penetrate market potential So we we to further. still that

And then supply chain our as services point meaningful. are becoming value-added and design out, more engineering you and

mark gives reasonable continuing set And that's to mix. So amount a think what this margin confidence long-term a longer-term of us the guidance of when is increase business. percent total for over as time about the operating we our we

Operator

There to call are no time. hand further you. I over this at Bencivenga, back Anthony questions . will the

Anthony Bencivenga

and you you Okay. all look forward future. in Thank meeting you, thank for . joining the today's call. investor a to day. upcoming Have events great We at

Operator

today's This concludes conference call.

now may disconnect. You

Arrow Electronics (ARW) 2 Nov 232023 Q3 Earnings call transcript