ARW - Earnings call 4 2023 | Arrow Electronics, Inc.

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Operator

Good day, and welcome to Arrow Electronics Fourth Quarter and Full Year 2023 Earnings Call. Today's call 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, sir.

Anthony Bencivenga

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

Officer, Kerins; Joining is me Marano, Solutions; Chief and Sean Enterprise of Components, Kristin our today our Financial our Computing President and our of on Chief Executive Rick the Global Raj Agrawal; call Russell. Global President President Officer;

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

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

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

these measures comparable have We XX-K. most quarter's measures Form in directly financial GAAP non-GAAP earnings or this reconciled associated release to the

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

questions. we'll able today, remarks prepared our Following to take be your

call CEO, to and And I'll now hand the Kerins. Sean over our President

Sean Kerins

Electronics. thank Thanks, your interest Anthony, all you for and in joining appreciate us. Arrow We

quarter. as to our the our to on I'd for review XXXX financial well financials market. our like over turn context, first performance overall first then outlook things more quarter Raj fourth on For and as detail the state before I'll some commenting our full year for the results of

team efforts, market want dedication the their over were As the customers. by our able I suppliers deliver resilience and I backdrop. our persistence, thanking their performance we financial year, given reflect to Through for and on start to solid to our past performance global

spending mixed of $XX.X Arrow business enterprise environment executed our in year margin Despite environment. throughout full to X.X% softer in business, in demand achieved and basis. we a leading inventory a revenue, and non-GAAP on posted computing excess solutions billion chain IT components well for challenging XXXX operating an the supply a our

generated addition, from repurchase operations, million in to the $XXX approximately enabled cash throughout which us we shares In flow healthy year.

$X.XX, Now in results. moving high fourth generated midpoint our close just end better range. we the non-GAAP on quarter the quarter, of $X.X the sales each share to billion segments, out our of of year, above To of we Based of operating earnings comfortably our fourth margins our the guided healthy than guidance. delivered in per

look industry-wide Taking anticipated the likely industrial due markets. a appears the shortages for along precipitated correction components prior than softness when to and components in The at to longer magnitude to cycles. closer This compared our buildup, that with be inventory breadth taking continued of is business. the inventory many

do will eventually see we markets of believe normalizing gradual trends. However, signs improve and

sequentially is better with as Our our our fourth portfolio the were margins, gross reflected quarter. book-to-bill closer Pricing quarter in holding than have stabilized parity. to up overall ratios trending which generally in prior IP&E

customers during conversion pipeline $XXX on focused inventory sequentially. by the we quarter new products. reduced order is over continue activity as persisted, while demand creation Our And growing backlog to and rescheduling develop million

orders. reflected customers place by new to their regional continued reluctance From Americas, to moderate supply, a in their and the Europe perspective, as

in and and and as we verticals in relative expect term we sub-seasonal robust medical and strength aerospace markets, by near in While continued design devices. the such industrial encouraged performance defense were softness activity

and, segments can't West. predict such by were when recovery, normalize growth compute of And compared lesser sequential we we to And to extent, pleased in respect Asia, to we while transportation. macroeconomic center a seasonality a expect results with timing in somewhat the the broader as to data typical

Shifting to global ECS our business.

on portfolio software, time, and year. During higher to things which led the a the well to to of mix sequentially as the business business growing as the this IT-as-a-Service, solutions mix results margins of were fourth a prior execute of revenue related contribution cloud Over recurring all nature overall. And services annual we quarter, infrastructure better for quarter model, volumes drives expected. continued as when compared this up given

dollar in perspective, gross regional amidst year-over-year spending profit a environment. From delivered mixed growth and we billings IT the Europe,

were down, networking strength by compute infrastructure While offset storage than in products. software more they and and were

IT North and storage, in And networking. results with partially in spending cybersecurity, for offset and in America, softness our by quarter muted compute environment a strength software reflect fourth the infrastructure

we the and this of results supplier in region line We've better customer optimizing area we're are made stated in mix the in serve the the in process the our past, optimistic progress card mid-market. As about this to our in year. improving and region

benefit ongoing reflect the Before Despite the technology electrification driven and center everything: correction a I few. energy, renewable artificial of backdrop optimistic large Raj, bit macro the a intelligence, and the at the longer-term will I Arrow. future. little hand by vehicles autonomous just we trends a We're name markets, on industry of to weaker believe demand and over overall environment, growing to things do and cyclical want remain to regarding

shared customers. value we committed provides horizon, differentiation we've initiatives to our where both growth previously to you, our suppliers Given a with remain the longer and

the which in First, of throughout creation XXXX, portfolio. creation, outpace demand resources we rest the revenue demand helped engineering added

have services such as across Second, engineering verticals our renewable attractive medical and gaining traction automotive energy, been devices.

revenue As grew a year full services result, engineering meaningfully.

to customer services, in And looking chain automotive and opportunities verticals. our data offering penetration center and with verticals additional ahead, supply we to extend other see this XXXX expanded in the Third, base further OEMs. we in

meantime, growth while ECS with And an interconnects, channel the market onboarding to maintained our our the components a eye area ArrowSphere, platform, near transition Next, In in passives and to partners prudently we navigate challenging components, of towards portfolio lines, margin-accretive capital we emerging and and manage structure over the within we've as continue year, differentiated cost our our our enhanced stronger digital new a demonstrating conditions distribution business. even as term, our the working will we focus finally, to business, commitment IT-as-a-Service. on improve. course electromechanical supplier market's

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

Rajesh Agrawal

Thanks, be otherwise Sean. I'll on speaking basis, unless financials specified. to and as-reported GAAP our an

by down components Consolidated in revenue billion, the which the primarily shortage versus was activity prior from full the XXXX year, market. and driven XX% were offset in XX% billion, European our year. by $XX.X reduced market for was in $XX.X the sales Americas, softness year was which market prior Asia down growth Global partially

sales was year. X% which solutions billion, $X.X versus computing Enterprise were prior down

North Importantly, due our market from by to spending reflecting growth that softer IT prior full in a year global ECS earnings offset decline region. were in Europe, a in flat America year,

at margin the Moving from year. to from full came XX down a year XX.X% our $XXX The OpEx operating on gross at from for prior $X.X average an million quarter, other count spending. in with Non-GAAP ] $X.X X.X% global to Non-GAAP prior for third billion. sales, settlement in year full X.X%. EPS efforts favorable financial billion [ Consolidated year and expenses in was basis share shares. operating Non-GAAP expenses reduced estimated solutions of for year. X.X% variable coming of control coming the margin million to decline of and components was diluted full metrics $XX.XX, or points the enterprise down based XX the computing were legal income operating continued was

billion, and guidance fourth our sales was $X.X range and down guidance versus Now inventory billion, for and prior versus turning $X.X the the billion, also meeting XX% our lower computing revenue discretionary to IT Enterprise partly XX% XX% a within were of spending probably Global North a of function or the solutions XX% year. function to This prior our correction. were down $X.X with fourth in guidance quarter prior year quarter product in quarter prior midpoint year. due of was America. results. versus sales Consolidated versus ongoing down and semiconductor line mix component

margin components. was XX.X% by basis metrics seasonality business Fourth the favorable as down driven by the our ECS as in to well other basis in margin quarter. the consolidated points Sequentially, year, versus was XX West. higher typical points mix gross primarily of XX mix within overall the to financial components due in global prior gross Moving quarter for business

operating quarter non-GAAP third announced normalized Our declined sequentially expenses for previously fourth certain items. when quarter

We integration X.X% at of facility at expense Our QX, related sales, QX restructuring, computing operating coming operating million other reductions. included non-GAAP margin operating million X.X%. income operating in with generated $XX and GAAP of X.X% solutions other global expenses was enterprise consolidation components' in which and charges in of coming and to $XXX

which was quarter, in Interest daily due than expense was million quarter-over-quarter and $XX lower-than-expected the to better fourth average other and borrowings. flat guided

tax foreign tax effective also was XX was and and rate a guide based at credits. share non-GAAP for above finally, favorable our our diluted EPS the on is domestic $X.XX, And XX.X%, high Our quarter the from fourth which of end guidance to range certain non-GAAP resulting million count.

attention payable with fourth the capital for in chain services capital. at Turning was working along supply both QX in $X.X to our Net increased in and flat offering. working ECS quarter receivable seasonality to the normal accounts due Accounts our billion. activity from QX business,

The from than $X.X inventory Inventory fourth QX the quarter at declining billion, cycle. days XX. in conversion seasonality, in cash $XXX the was reduction combination of drove our a ECS million end inventory, of the with along decline more to with decreasing

full fourth $XXX compared quarter quarter Our cash at million $X.X flow for billion. the QX of debt Net was from end operations in fourth the and at the lower the million to was $XXX year.

in at We working of approximately and our fourth the of us $XXX cash financial flexibility in needs. shares the including for our the sheet, which At the fourth $XXX fourth of gives stands quarter balance quarter, million million. the billion, remaining at to repurchase repurchased $XXX capital the approximately year. in our approximately effectively confident manage end authorization balance quarter at We our liquidity total stands million. Arrow's million full of $XX of stock the the strength amount $X.X remain the end

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

refer and earnings presentation this published details segment business press please release the our results, on more morning. For to the website regarding

Now QX turning guidance. to

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

billion global be $X down is the We prior X% between quarter. midpoint sales expect from components billion, which and $X.X at to

foreign in $X.XX, enterprise non-GAAP immaterial currencies billion, And to $X.XX We're to diluted represents leverage to dynamics. approximately at the interest earnings the our reflects press which The million. which between impact $XX guide. midpoint range $X.X found approximately to tax $X.X of finally, between be billion and of in computing XX% estimate the be market of year-on-year. unfavorable We and can is sales our in due expense QX be current share our rate a decrease a to X% expect solutions per XX% and details changes release. an And on have the currency expected effect we in business foreign assuming

open ready please Sean and to that, your the I With Operator, line. questions. take are now

Operator

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

Matthew Sheerin

question nice is inventory to first particularly up. the on see. But reduction year-over-year, was the regarding which just The basis, quarter, in you're days still a

in So inventory we the thinking next And think your about? quarters, wash long customers' should couple of own inventory, you is, the question going over target at looking to terms is be take b, this a, your to do what how out? of

Sean Kerins

Matt. Sure,

helped conversion on that in So you drive you're the the us quarter, reduction focused right. backlog and We that intently saw. pretty

on higher I the market. mass little spot this we of sell-through end a think for a where market, which velocity focus is sweet the from better than really seeing the we're of are in our comes part us,

the The year-over-year. thing out and point is down our that sequentially about were inventories quarter, in both other to units

versus still inbound the function for has is of volumes. inbound of lead have times The normalized. price us So part a rate of seeing really as excess certainly lot slowed of you're a

norms. The I quarter less region turn to if within other compared the you region, or would thing by it a our we tell exited look as at that you historical is

Most of of things that's a inventory have right and the still is of the abating time. normalization. the of down supply those the over by winding for us think are were that excess a piece agreements long-term happening wound we of some So There that play. way is or down, in of impact function are really

have to it reschedule and cancellation extending. us. been it So hard normalize. like sure, reschedule a behaving work backlog certainly cancellation days. the is to been With more when normal, regard things takes but fully Suppliers much time now for flexible for they would little pre-pandemic are are way your with times much exactly activity they say does in the That's more mean to lead and through

as down. right good things need we But from happening. And book-to-bill's quarter again. in we to our just and things prepared are stabilizing We see Probably coming slightly, still the feel and where fully next, said are. inventories perspective, yet an normalized this improving remarks, inventory about

Matthew Sheerin

And regarding down sense X% going in like like to Okay. the be might quarter. margins the margin range just sequentially? then or look on year-over-year margin a expected looks down? so, in your is us that obviously. can But operating mid March the give gross to question so Is shake out volumes, a you what the It

I OpEx, have on also then And you programs. restructuring know some

get to OpEx down So quarter-on-quarter dollars you are or year-on-year? expecting

Sean Kerins

Matt. Sure,

a an lion's perspective do with than more this the So from our normal in let of got with regional operating to a seasonality global than you're share volume. pricing We've of margin on bit me start What little less really because might a EMEA seeing outlook function mix basis imply. pressure. relative is anything that represents components what

But all holding margins gross up our forecasts pretty at of business, we if kind sequentially. look across see of the well you

as of contributors of got of So up. here We itself. to piece equation comfortable are take levels. is these that at pretty going holding just leverage our is operating what We're a sales to care leverage strength structural improves, that loss the the really, margin the know we've demand

vigilant changing. tell downward We've in to trend cost dollars taking you'll our confidently year. always the this From environment, pretty of when Especially OpEx our not near absolute market perspective, appropriate an the can that over in you're are I actions That's pretty comes course term. structure. we the operating it right. expense been see you

short out, ultimately this is in play little we nature. At see taking term would say, to even bit as correction time, the same longer a though I this

haul. to capacity engineering for So growth the we do intend protect priorities and selling long our and the associated

Rajesh Agrawal

Matt, And maybe just I add. could

They in see in where for also the quarter quarter. seasonality largest first have softest ECS, their also quarter quarter. had fourth typical We their in they quarter first the

ECS a so step-down get And to margins you're in just in business. natural going the

you're So margin that seeing. seeing you're of that's the sort step-down why

Operator

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

Melissa Dailey Fairbanks

had a one. just I a from go different to back on the quick little Maybe inventory perspective.

much has managed their your inventory eased, others. you're same from suppliers this as some quarter, supply As all the a dynamics better we've of as heard than number demand channel have seeing. what Pretty are seeing the

manage suppliers to you Are work through you to starting see inventory a any capital? to still trying to push they balance? Or it more own fair much working their is as pretty

Sean Kerins

asked at remark. no. because I'm all. not short is clarify question my last I really glad We're wanted answer the you The seeing that to

through. fact, to suppliers the flexible In for lead still the times completely, posture regard as most returned to that managing have we're part with have a again normalized more backlog

longer levels and seeing our to our But backlog days. this So little bit remains That to significant occasion. a that beyond the necessary, means in not we're convert pre-pandemic at from on that still we're any environment. pressure cancel reschedule able takes suppliers as backlog,

in we're typically to what think I regard. the of getting we that side other expect

Melissa Dailey Fairbanks

Great. That's hear. follow-up, of on, Sean, Okay. in the a mentioned you as Asia. to dig on just Maybe great kind what transport in

both? just supply Or a it your is of actually now down pockets resilient. of you buffer on has the good of a inventory. balance Are were outside growth that demand a basis. has of see there own we've chain, to up a people bit sequential your fairly actually What starting suppliers have lot matter a or heard from little of improvement demand is some You been maybe few maybe been sell-through? a It's starting to been see of customers enough and the and

Sean Kerins

basis. I'd again, say in comments balance general, my And Melissa, were it's more relative a both. of a on

I little think most has specifically market remains been unclear. for the down, certainly recovery a and a for EV we as to all is other the and know us little healthier verticals. soft, compared period transportation But bit Chinese

of But kind in posture we sell inventory dramatically. space. carry up quarter consistently to think At be of that we've will the some for through same do demand time, able pretty this us hasn't the ticked as well. same And the probably been I that for

Operator

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

Joseph Quatrochi

a understand, understand components comment. us talked the that context, like business, to and been wanted understand, that In about just parity. your approaching rest leading I that other can book-to-bill indicator kind help of a you about to of of relative that your Just maybe recovery? us just we of think of help importance the IP&E cycles has kind you when

Sean Kerins

probably broader space. I necessarily. really in that the Joe, way -- compared to same the would as as I know, really semiconductor never link to saw Remember the wouldn't we that capacity in IP&E, shortage challenges cycle You correction had and IP&E semiconductor,

never as severe. lead times out went So never got that has long, shortage to be

really we're semiconductor more not that yes, is the the market. resilient, And so book-to-bill piece parity. as the it's piece closer in the in to predictable kind the been of hence, of are correction market we And same us, in of reason for more

And for like doing of components and really as and you It's the going that be piece model standing it's nice quite for of accretive, know, attractive long our term, over time leader we global new up is margin for we really job go-to-market business us. market. differentiated a And to our a space. the think,

Joseph Quatrochi

then quarter, to mix I'm I regional the the as to impact And and business. guess, we're the March it. about just, trying Got looking think beyond on margins

Asia like regions? is than through seasonality fair June a a is that, it given faster it of bit the bit a quarter, the about maybe headwind, think little negative into to sounds inventory that's Western we assume that As just working

Sean Kerins

tell QX, you QX and industrial in softness to in seasonality function normal some look can call perspective, the parts macro Joe. seasonality with are pressure guiding evidence overall. we we a some early when a at automotive. That's really too below I of more from Probably of West, of

in and Asia, going near-term New not a good business assuming Chinese Year. and we're work as start think going the to the we normalize, through But to a get and that's overall. signal demand, backlog visibility you'd for uptick that post I necessarily to better to we're market see typical the as inventories be

Operator

comes line Your next from Securities. William the from Stein question of Truist

William Stein

on can bit linger I'm good the you the results hoping on Congratulations little this legal a settlement. quarter.

If it big that's related us segment? you was in what remind to. which can How maybe

Sean Kerins

thank I'll than to was related context, Raj you. for of a and a But we more that well Will, the Many a base anticipate speak Sure, and decade on even out, are dispute scene weren't number. ago. this the let pleased played we our settlement consequences. with the commercial ongoing just when resolved, this subset to supplier but dates of us no very back

can Raj, to maybe numbers. speak you the

Rajesh Agrawal

the third Yes. this all And quarter. in Will, was

you in the components in the legal into margins the that our and worth As points in to components the that million, we XXX was settlement benefit know, took business, benefit $XX was that. OpEx, the of about that settlement basis That we that was quarter. got, that

William Stein

the Great. what have expectation update -- for is And just well, share then in current us you're the your on you maybe know you share -- I know count. quarter. count I can

Rajesh Agrawal

quarter. a vary on you what share from repurchase to count Yes. see, going the we We because amount didn't that's can to quarter-to-quarter, share don't as because did fourth we typically in guide based guide the of give

actual that giving count appropriate felt either. share an be wouldn't we So

gave some important where you of -- to the we most into those of the that you piece, gave other assumptions. can in EPS key P&L of components some we're and We targeting that number the back you sort though, the

there. unusual nothing So

didn't a shares don't really we give guide the either. of we number share repurchased count so Just

Sean Kerins

then capital add Will, course, I to of allocation not investment priorities number being our one would M&A; shareholders. number for Number returning have changed. and also organic is two, cash investment three, growth; organic reconfirm, to just or appropriate

going surgical pretty imagine, be you comes investments. environment, this in can to to we're organic when As it

capacity. target, M&A sense as appropriate buybacks, an we're our debt to very it to of lieu still in relative prone So makes

Operator

Bank Your question from of Instructions] next Bhattacharya line comes of the from America. [Operator Ruplu

Ruplu Bhattacharya

have investing for Raj. for I Sean, Sean one about one were and talking organically. you

in talk talked this in to be prepared So environment, remarks, about IT-as-a-Service. a several weaker investing you in? can areas what times you're about -- lot you about the And going

of portfolio this is relevant over to How about how we recurring about think your in next that? that So revenue, growing And terms years? how we think revenues? should of the of should couple progressing

Sean Kerins

So you there. got okay, a different few threads Ruplu,

a in navigate right at cost the me moves Let is comments my try profitability and to again, there structure this right surgical. environment, taking one our this about keyword We're steps protect and the time. we the making correction. take them Again, and our while strategy: creation; that extent ability remain invest, are selling business. we demand motion; the the just certainly, our and offerings have to we in the IP&E ECS to of then, things transition To on capabilities; the and our value-added to that investment focused core course, IT-as-a-Service our

are we're in so to our fairly priorities market to sure that meantime, happening going with we're what's investment the respect focused. And the in careful make but broader

right to you'll the that regard changing sales of the it's business. dollar infrastructure more lens is solutions as business to about that over see shift dollar of question about services, number really, a reported time GP and than The at sales. and way the that's your And basically our OI look our result. cloud-related GP dollars drive we more through With software, mix a to the model in growth shape more IT-as-a-Service, it is

software perpetual our subscription-based of models, for We look now at piece that total like piece years licensing the the when consequence been a the from recurring as to good recurring X/X. of total of mix been now, a But when and think you cloud, now, is good you has our journey you plus look ECS growth know, the we've that things at transition pivot, business. for approaching on couple in

that it's predictable, And so It's business. that. margins like and, for we accretive piece ultimately, of sticky contribution brings about our

I me, as in it. but to there third forget think make had forgive I question a to staying well. want we you'll there, don't And you have we're the sure So course

Ruplu Bhattacharya

but I didn't, one put going in. I'm to

Just buying? hardware? is buying IT-as-a-Service, software are in terms Or of at this people Are point? just they what it

Sean Kerins

think it's both. the term more been it's about But we about in and software. Ultimately, near recently,

Ruplu Bhattacharya

I follow-up level on this quarter. respect Okay. quick margin Great. to they a above margins, margins. there with need Is to just Raj, revenue to you keep With a X.X% the have you component want were segment X%?

And then side. ECS on question the same the

I think XQ? and this we Sean year? about both optimizing these XQ Americas. talked sequential trends should the these, think see customers segments. ECS improvement that of we in lowest impact your cards until should margins in margin is then line about thoughts how Does margin Or So is it on the for just and the on

Rajesh Agrawal

Yes.

few there, questions Let a me the take me start. -- first there's let one Ruplu, to but in

we higher don't in components margin environment. are a in revenue comfortable On target. have I with mind a components side, set normal the for in the We X.X% the still business to level think the X%

as margins levels. we're now, the and reduced be of some with gross relatively really function commentary, revenue negative of And down to you going the heard through seem stable, a leverage cycle. Right and it's the the steady

get that that So defined, given revenue take we on of that to going all care to environment, leverage we be back today things will we and and and to the margins that's when structurally a did, based have we're more normal that higher returns the themselves. margins know

So we're that we the confident about target have. long-term

a on question. second you question, Sean to little Ruplu? your turn repeat to the going just bit I'm And Can

Ruplu Bhattacharya

about referred in the Sean ECS segment. said just I has what to Yes.

to I and cards. the optimize think region, in Americas line trying you're customers

how impact about the versus mean, think are And impact should your like with in how trend about you that? And so And this does prior that how margins we Like positively does think where we I year margins? that years? should ECS margins?

Sean Kerins

to I'm that, happy Ruplu. take So

mid-market for ECS in that a in business suits So again, We've context, itself got strategy different regional our that Europe kind region, and motion. selling a business. our a lends we've one nicely. to channel-based really X it's nicely of got models It's

up about enterprise America, was and in and hardware as up we the accounts. grew was the cloud historically more software which we as mix, to now North way that larger about grew mix business, that compared in The in

the we're quarter this to on that And margin reasons at the Europe. all X in we're North should for the a So the time not But point. year yet that on you'd America in the model ultimately, same for We're full calling be create just expect. accretive at path that it we out line. same guiding enjoy

that, But course of is have to more the work better still to scale to progress across do one. and relative America, we think expect a that destination we we good North some in We see recognize mid-market 'XX.

Operator

our further time. for now no Bencivenga queue We conference Anthony have questions this in back at closing I will to over the turn remarks.

Anthony Bencivenga

Have We and you Yes. us Thank call. to for investor operator, forward everyone, you, near great day. today's joining thank events. on look a you, meeting in the future upcoming at

Operator

your participation, now conference you and today's you concludes disconnect. for may call. This Thank

Arrow Electronics (ARW) 8 Feb 242023 Q4 Earnings call transcript