ARW - Earnings call transcript Q2 2024 | Arrow Electronics, Inc.

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Operator

Good day, and welcome to the Arrow Electronics Second Quarter 2024 Earnings Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Brad Windbigler, Arrow's Treasurer and Vice President of Investor Relations. Please go ahead.

Brad Windbigler

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

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

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

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

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

earnings our release investor.arrow.com, a replay along access of this can You with call. at

webcast. to accompany We've I you remarks. presentation during reference the also these to our encourage slides posted slide a prepared

our take Following be today, Raj available and your will remarks prepared Sean to questions.

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

Sean Kerins

then quarter. our outlook to thoughts as second as and results, some our for the compete on commentary provide Thanks, Brad, as markets I'll with and to which third thank more financials you all we for quarter like the future. then discuss turn to on we're Raj joining us. some Today, our I'd things in over for how the lining up close well for detail

per a share quarter, enterprise high our well delivered $X.X exceeded numbers we in inventory and evolving very of second chain a we earnings the in total pleased prolonged once environment $X.XX. of to correction end the IT. billion navigate in environment generated the spending of as an later the revenue non-GAAP throughout supply Both mixed executed innings we electronic In continue to I'm market of again announce that guidance.

segment, speaking, improvement look Taking nicely Broadly the segments signs our a delivered of we're expectations. ahead we Global compete, solid several results as seeing our in to of we of the original look leading incremental closer relative financial we across which to future. market stability at Components

since last not customers suppliers and Although normalized, sequentially from and markets quarter. broader soft, tone market the conditions fully the throughout industrial and remain our together bookings our overall time generally improved the have has improved

design, suppliers Our including value-added services, customers. chain focus with deeper to continue structural offerings, supply contribute health. margin creation, to our management, and capabilities on engagement foster to with along engineering demand These and continue integration

X.X% operating of was fact, second regional above although point the our cyclical experienced mix, by quarter margin at In well low previous levels of impacted corrections.

along the sequential we addition, transactional And and sequential region across Americas, aerospace China, growth region. saw overall. slightly, growth sales the the healthy. in defense specifically design perspective, revenue in improving and a modestly and experienced In were mixed From encouraged in product by conditions with a both regional we mild semiconductor our by in In in declined remained pricing growth compute verticals. and grew fairly stable IP&E, trends. in sequentially IP&E led wins improvement industrial both the We lines, while geographic Asia, with

in transportation decline. in the industrial broader markets And remained EMEA, and

across was cycles, region worth is most that territory. the noting, enter typical correction it's as last to Although Europe

indicators of several stages the As last we continued reflect navigate cycle, of this leading to highlighted quarter late progress. we the

activity has has our regions, stabilized core cancellation Our regional book-to-bill to ratios parity. X and in advanced across closer normalized. progressing fully businesses all Backlog

requirements. well as And bookings a as as step inventory conditions forward-looking business production look further accelerated indicates down reflecting at we inventory, own prior levels visibility for we the all in rate market a believe ecosystem reduced our we again position but mentioned, versus growth. future across for quarters working as capital, As to which reduced regions, improved to

these and an remain our growth as and eventual signals fully remaining to managing invested corrects, capital cost we to cycle point believe the diligently our working while return focused We priorities. strategic structure in on

Our out, QX reflects regional our view are level with at generally to outlook play. that beginning conditions albeit differences

but the the through the quarter. than in seasonality progress and in expecting QX. declining do in we in relatively As to we're while operating expect Americas we typical second stable quarter, And Europe more less still Asia, margins be third so

the income while business. cloud future our original growth. our sales to turning our Globally also billings contributed demand year-over-year backlog. expectations Now In while our along ECS and with for results to solutions, better adding both AI-related delivering second exceeded we quarter, server operating to Global and speaking,

On based a growth continued cloud dollar regional we year-over-year and achieved on basis, adoption. in in billings profit gross EMEA, strength hybrid

America, our North data During in strength the line was our our sector partners. offerings offset the And in for quarter, cloud-related channel softness public and also by for enhance storage. we card in relative to solutions expanded partially

model continue our EMEA. in X this our go-to-market to motion to in region selling We reshape approximates that better

we on general, as to IT-as-a-service. continue the capitalize market's In to transition

to growing are relationships and mix margins. attribution multiyear recurring revenue a subscriptions streams. growing of backlog, We This and accretive leading our is stickier

market throughout in sequential our do year. and outlook we a anticipate ECS the continue decline, balance will business the modest indicates typical patterns QX of to Our conditions believe we seasonal as improve

backdrop, our quarter market in the performance, our I'm with and pleased given solid confident I'm second future. closing, In

the of we're a across in from components in several ECS seasonality mild stability and reflecting performance year, the year. half As improvement improving I both mentioned, benefit and do later we segments, market the so in stronger seeing expect second

the well market. of to couple intelligence beyond positioned to quarters, think technology, the for cycle next generation of artificial and look we're broader I the growth as specifically shepherd next I And next equipped the well

cloud of phases to players our supply scale deploy focus, Although areas offering, enable future still AI adoption, notable chain and infrastructure. earlier the our their upon platform broad including some and of in the services for building industry next-generation we're we where capabilities with

our solutions Edge. and at AI-related well design were Given Intelligent and embedded engineering deploy application field integration the suited substantial help offerings to

through And we're for from meantime, markets. use excited sensor excellence, robotics solution in a the obviously these cautiously approaching variety engaged our other image applications longer-term we're actively our cases. GPU investments We're design and of in And and optimistic the by center a to industries, we're turning point of that the in core prospects. like

the things for turn to over resilience And their and like Raj, suppliers to across I with the to thank dedication Before that, globe of customers. them to and our acknowledge the team Arrow over I'd Raj. ongoing

Rajesh Agrawal

better end to $X.X we down and the year. versus year $X the guidance high sales versus product second versus range were had billion, than favorable were due above billion mix. billion, of were Solutions Enterprise our prior Computing Thanks, Sean. Consolidated prior sales or $X.X higher for XX% prior expected. X% sales Components quarter X% down quarter, Global

Moving to other metrics quarter. financial for the

of versus million $XX charge for ECS included Second to gross driven business within prior was quarter declined mix of overall our our related XX by year consolidated previously recovery $XX approximately bad X benefit a down positive million customer. to in debt both a primarily margin expenses and a X business sequentially million recognized of sequentially $XXX segments. operating the XX.X% and basis points, Non-GAAP

efforts Beyond our structure. our our declined to of collections the cost recovery, the core expenses optimize operating quarter-over-quarter, effect continuing resulting from

both In second of Enterprise a in benefits we operating non-GAAP non-GAAP with million, on expenses reduced the $XXX the rest Global to X.X%, this X.X% expect of see quarter, We at Solutions which of at generated components Computing operating and further was margin year. basis. sales, income X.X%,

and The basis working impact as in from XXX levels. Arrow XX the segment basis lower operating points was ECS was on consolidated of capital margin. and collections expense Interest $XX within million we UCS the other second quarter benefited recovery the points

Our was ECS benefited from And which geographic tax and finally, for benefiting was rate substantially higher from recovery guided reductions. revenue non-GAAP $X.XX, our range, second effective from non-GAAP and mentioned EPS expense previously than income was favorable better-than-expected a which $X.XX mix. performance the quarter contribution the diluted XX.X%,

QX, by both in $X.X capital. the reduced the This million the Moving the quarter were capital ending working We quarter accounts second quarter payable at quarter receivable over working nearly to fourth second and $XXX working net billion. lower capital. compared and approximately net of offsetting. decreased to Accounts consecutive in is

Inventory quarter million was $XXX second QX. approximately billion, the of from the decreasing $X.X end at

billion, Over the last we X remain growth inventory $X.X on our yet focused and investing months, for future by we levels have reduced expansion.

Our days. cash conversion XX quarter at cycle the finished

generated cash Our the months, And from of million operating billion second in $X.X over flow over last operations quarter. cash the have flow. we was XX $XXX

stands lower $XXX Net in the We the of of our debt remaining million. second authorization compared $XX second repurchase and quarter to at the at approximately quarter shares million billion. end at $X.X repurchased was QX

priorities million $XXX will nearly debt we to term, In managing with continue the In capital balance repurchased XX last the months, stock. ratios. return near we have our of

Now turning to QX guidance.

quarter [indiscernible] midpoint down between to be billion, at be expect which between approximately and the We $X.X billion $X.XX from the third sales X% to quarter. is billion component for prior $X.X sales

$X.XX the We year-on-year. $X.XX billion, unchanged sales is between to expect midpoint be billion and Solutions Enterprise Computing at which

release. can We're And our share to our range an of QX and be details of earnings finally, assuming our interest currencies a million, effect XX% foreign non-GAAP approximately estimate we expense tax rate diluted $X.XX in to the is approximately The guidance. between $X.XX. in to impact changes per currency immaterial on and be press expected $XX of in have foreign XX%, and found

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

Operator

of James. comes [Operator first Instructions] from question Our Raymond Fairbanks with the Melissa line

Melissa Dailey Fairbanks

front means X starting you back Great second anticipating know things had half. to quarter, some about but from stronger guide half. beyond you wondering just you're always comments quarter, looking if half over obviously, that are a I'm see want revenue stabilize. growth expecting what for to the good That's question you're quick to in I that guys. that hear clarification don't typically a we there. that I

Sean Kerins

we half. thing. second In a better Thanks, Melissa. first are than expecting general, half Sure

Components I that's the importantly, function revenue typical the ECS in a do XH for But up from half. things sure. to XH year, should think across more see to of improve than to even things. that later our but add business in in going benefit see all second a more We seasonality continuing of we're X

Melissa Dailey Fairbanks

wondering areas hear if follow-up be just color? can of Excellent. investments. if give these commentary quick I the IP&E with X just I was growth. any that. targeting Maybe any The those inventory assume of investing of that there one Love But ahead specific additional areas. regarding you're were future you then. might to

Sean Kerins

Yes, I think growth as know, inside Components. you nailed it, strategic is our priorities you one of Melissa. IP&E,

for But otherwise, that And so semi we inventory the are bit capital looking we're little model carefully. differently working a at future. than managing

units you than the to but down came tell that also QX in quarter, so from could QX. I less

being still also we're a preparing but So as so. partly for we do careful future, better

Operator

Our next [indiscernible] Matt comes from of with Stifel. Sheerin the line

Matthew Sheerin

follow-up back Just in on revenue -- regarding a the the half.

Specifically down on And be in America, down North also QX to QX Asia. Europe big in is Components, my seasonality given you're thought and sequentially. uptick there's guiding unless very a that should flat

It relative to down So how should second half the first improving? the think we the bookings be that? looks about with should like half

Sean Kerins

we So time. Matt, is that of at guide why quarter a only part X

too to So a key we the all us showing for are early say indicators QX. guide track would little that progress. But I

would in will And about we days happening have that would It but near growth we that optimistic we I the see we're doesn't XX ago feeling so more we than say in we're based term. on better guarantee see what market. been the QX, now sequential

we reinforce, Asia modest North are America. to just recovery Remember, seeing and in

normal We Europe, to but that's So correction know for is is implied some that still outlook normal. more return seasonality our the out degree to a playing in in both.

universe suppliers as for You have a suppliers we in follow good a sign out think of correction. improvement. And typically that's our seen our guide a sequential ultimately number of we

should time across QX feeling business. talk, improvement the that in second we So we'll we're half guide we but the steady like next see

Rajesh Agrawal

then of I in if you say, quarter second that the Components in declining would X% year, in the first and X% quarter. down also about Matt, happened first at what the the think half we had

second likely see better part half? half So in commentary first the of that's trends the we'll versus also the that

Matthew Sheerin

slightly. you seasonality the about America up me down typically And remind that Is QX? slightly Is to just North could to in or it what right? it. flat Got in flat

Sean Kerins

given slightly, Yes, flat to it's internal outlook, there we're forecast. own typically our with up right our and

Matthew Sheerin

going don't wrong if with EPS regarding helpful. there. down like the so. on Correct know, is that's on up, me That's then Okay. It Europe there? just of anything down looks margin else a Asia I like the I'm or or margins your will looks it, based XX% gross margin implied there mix again. be guide, Components it sequentially, call And Or in function

Sean Kerins

No.

function know, you Components, But just the benefit guide it's actions quarter-on-quarter In typically mentioned. both at showing don't margins. fact, in decline And just of ECS really we're then of EPS seasonality X the a by overall, if part, for function gross as business, decline those volume look a X of bit simply the with and a you actually our of in as you in Matt, typical up little OpEx P&L. part our we offsetting

a is I And mix regional margins do that fairly than the business about in be operating we say So factor third Components to business. quarter. anything remarks, in in we in else. more expect the it's as mix our But would prepared talked stable

Matthew Sheerin

a And dollar basis? sequentially you expect down OpEx to on be

Sean Kerins

we do. Yes,

Operator

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

William Stein

congratulations. want to I start, Before I offer

of like to a pretty about China. much your semi it's I significant I companies in Asia business specifically. how sharp forget amount the Most cover inflection great revenue did have I I'd but first. guys ask You job Components in geo-mix talked quarter. the there, about the is the suspect in of a a

some to that, what's more or as but I remarks, it talk your suppliers about think it, sharp in whether hopefully, about of moderated a signs you bit or degree can causing you little you're recovery, this your delayed? it's if talked showing prepared the same seeing

Sean Kerins

of certainly Yes. in correct. Asia see it's big I growth specifically V We would and Will. say which business Asia But in is you're a sequential piece China, did not shaped, our degree, compared Most that trends. of quarter. to great. a is some for industrial uptick an good prior second in in came to from sign us, That's compute the which and obviously

But still I number more softness outlook, a of But said does as call saw seasonality. we a in other for verticals. before, typical this

So a quarter X we're going time. to take at this

Remember, some of I to a given recovery. pieces the broader too more focus markets. broader the call of think industry, on play the early our in for it's mature we industrial

an that region we're by this at certainly well. to were closer in with goes than seeing. point. L what I steady but she a V, increase in consistent think as the We by So we're overall clearly encouraged encouraged as bookings And

William Stein

below pause and The dose significantly to of when which beating how the the was outlook -- you are bad less Or we a on you're problems guiding quarter. terms other maybe of in as and pause fairly is that? just progress consensus were QX as quarter that the has anything becoming maybe degree surprising in the conservatism? of what -- should me just QX? that Or a something you're as results question you're seeing I the little trail it's about into higher for we terms are you about seeing think to strong bit out talking wonder

Sean Kerins

than I in don't other relative guide guide. think taking taken any a posture we're prior to different this quarter we've

did little of as pleased As by we quarter. last you bit a the be just this a this X to know, were fairly uptick. there's unpredictable. element always that's certain think industry we're calling We accurately going We

uptick we the going still broader industrial there's a on sharper the not I Will. But really transportation piece sharply could going reason our you're that mix. recovery think on together, function in seeing to the like and a count And say significant markets. softness a Remember, things that they're I more is of the I'd of we forward. pretty X think there, see

And we the sooner. resolving probably by year, of that continues is better we very sight is can't itself levels the which that and to of a but macro think them the situation part, of we the do inventory whole end we one one, think control. to related to lot I in And obviously, line other nature, that not for most elevated improve. see have likely

Operator

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

Joseph Quatrochi

kind parts invest demand about year? of as do Curious a as absolute need into go you how as when in you for look maybe we side normalized think to next But as starts forward, your we some we levels to they level. mix it think inventory about think to Components the about at better having improve the inventory like seems more of the

Sean Kerins

question are sure carrying correctly, here. confident inventory I your in or if we're the -- it's want more carry to maybe we what understand that mix the planning of make understand after you're about to So just we

Joseph Quatrochi

industrial demand of going areas to still to Exactly. areas there's not next maybe there inventory looking And we to are step where improve. go reductions and kind as some need is fast as or that you maybe back more see invest year where transportation into

Sean Kerins

as we before, Well, inventory said are Sure. carefully. managing I

the will. in say bouncing We are along X things I'd better bottom. a we're term. that taking are do XX-day anticipate time, view, the here near you at if quarter getting now We

it's given being it. our we macro. Inventory and when predict interest things some to said, because mix that our in [Technical at IP&E of about of talked the continued to significantly I more on hard tick As market up Difficulty] lean exposure the

that we turns we're this we say supports give half that. to Remember We highly as of engineered, majority going a across turn the haven't We'd our kind design-in for overall think forward. of certainly where less and saw efforts we we to feel thing demand with or be you improve where you quarter-to-quarter. globe. absolute manage inventory the an But which changed creation slightly are, within our want

levels we And firming function and some residual have of sequential forward. there. sure that as inventory and as turns market the lean when in. grow. we I that the we and abating, supply end improvement we Again, that that's bashful. agreements be to in a in We're were we the shape as see of long-term see resolve because the fairly we some we'll business, the of to inventory, make help those by of not suppliers our still want and we're think will the in maintain excess turn itself lion's can we But see think from going we engaged stable inventory But going would great mainly share we'll and the year,

Joseph Quatrochi

That's helpful.

follow-up, stacking do relative the a solutions? that about What are driving could the business. a you think, about margin just margin I the then to, you're click you solutions talked bit if double you on of kind a that. Are AI we racking And GPU cloud on seeing are focus on Wondering think higher and As like demand providing? you how business on full that and guys solutions. ECS server dollars from of like these

Sean Kerins

Yes.

break is that level. in in offering granular AI days I helping our their participating margins source our at of infrastructure. is both and don't Components we what out business, build early of stage in But So right In our the can the supply engaged the directly management say we're of AI ramp chain segments. companies

ECS channel really in [Technical that and -- our we a very on function that focus we're we're expect our and Difficulty] is very the And ramp in segment, involved. level example and activity us, taken to cloud for like for nicely CoPilot, things off engaged is helping up continue. as of on has

the well, out. as there's to in engaged pockets but come those more thing now this examples, AI other adoption there's and of So company we're better plays think in which of are the I as X

Operator

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

Ruplu Bhattacharya

the on up follow I'll Sean, AI Maybe question.

picking of AI more the Or this you can buying customers a demand revenue you was is from think And enterprise what think what are are detail. you tell What you do Or quarter? is the equipment, contribution revenue in AI hyperscalers? do little us AI? type contribution up? bit demand like if also you in from seeing asking Just XXXX for

Sean Kerins

So your first I'll question. start with

the remarks. for about of heard prepared they're say our tangible. some would all focal each and in What talk real those I is us points You of about us

the market today in our of of as starts simply intention more technology completely. Our up indicate to this relevance this piece and ramp evolve the industry was part to

we full they'll these is AI it a but can It's applications. can do us fronts. real, future great only for more growth our Internally, we're because important little sales to it help commercially, AI in to to going priorities. workload, with we're to the a But trajectory. and getting technologies they too detail, for emerge about our capacity become time, and you're deal believe X which same around early thinking their see quantify after us really The way help more are create think ecosystems we at on transactional great I our think

to rising going many to develop think lift that's market. we're their front get to to want center to could as a tide boats. and it enabling and You of be ecosystems going offerings and And those

I early long that but in it We, we in say relevant it, pretty our are be broader the adoption. belief we'll we're signal AI But and want to future. phases will nevertheless, again, a relevant would more and in the this be in still of compelling a journey one.

Ruplu Bhattacharya

of for couple questions a have I Raj, you. Okay.

points. sequential how product on growth? of ECS of Like you what help basis much you for growth Just the us margins, regional items mix sequential like or drivers because had good netted XXX were down mix? Can that versus was impacted

you And can of XQ drivers XQ, as about some if margins quarter we to the ECS decline understand what that, on the margins for in think the are third going side? us of help sequential from

Rajesh Agrawal

step revenue. mix why quarter. the Billings a on of seasonality down that selling, that depending quarter, overall Yes. the mix. of third business. the down. really certain products health And the of of we're it it Ruplu, of best business we're of uptick normal will you're the yes, But to that it's is the function of in seeing indicator more second did it then And overall In just seeing levels that's business. net

a on So basis. just just really what have margin there that types it sales particular standpoint, we quarter the is of function impact unusual a from in nothing of sales and a margins

Ruplu Bhattacharya

Okay. investments inventory. maybe cash the free can in quarter. the I know about terms question looks free flow, think versus I the me. I from flow to guide in had don't pretty ago you cash mean, it but X year of last When I flow, strong ask cash you Understood. Maybe for like free

in you that response IP&E. question, you're invest think to going said in I your to

of And second So we think or inventory we is a normal inventory, flow forward? as half or about level think how cash should level of inventory cash free trend we cycle? should second normal how half a conversion the what about go the

Rajesh Agrawal

our which very Yes. to Ruplu, pleased gen, really cash we're it comes down with.

flow second quarter, that the in about about at million months. the I year-to-date. saw puts billion we -- cash million And $XXX $XXX operating us XX generated You mentioned, of last $X.X as over

Our business working billion just in generates cash. or impact naturally by inventories Obviously, $X.X And mentioned, will as investments also, about down so. capital come we that. the last X months

at we one of And wherever think the investing business. So of feel gen inventory. about certainly we're ability it's a keep IP&E cash good needed. -- We'll the is very areas. we this of level but good

Operator

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

Melissa Dailey Fairbanks

just how Maybe and obviously, investing the inventory. in are Raj. can follow-up us much cash question priorities the beyond, business cash use kind on I that cash -- investing and Ruplu's for some building in free for quick your of to a you're generating question about flow had of remind you what

very come the has past significantly -- down nicely debt over came XQ. count the in Share years, pretty and down was couple of

there. wondering thinking Just of going forward from you're what

Rajesh Agrawal

Thanks, Melissa.

our -- me, You continue kind in flow again. business in invest We're of have organically, the will for me pleased but summarize not organic we of growth. changed, and summarized priority, cash it let to which really with it order very for and

at be quarter working the needs first and did M&A a in in acquisition the that. like the look small right We'll to the other price, So at got right CapEx, we Engineering It's as returns, side. Services capital, at well.

you In bought manage year, we're years. a as said, have $XXX some of at just half we X Last debt. stock little last about of over a to then the paid back lighter this first debt And our and million lot bit X was year, or $XXX we've it ratios million. the down

So go we're we changing wouldn't see doing, I that's forward. and priorities those exactly what as

Sean Kerins

I as between our on have all Yes. we're would the capacity. we're still share balance Raj so. capital priorities repurchase outlined. certainly trade-off else being equal, allocation at of managing again, the simply not reinforce debt just Melissa, just say all, But would intent And being all else and equal, I doing changed

Operator

hand Brad are time. it. at over this further There no things to I to questions close will Windbigler

Brad Windbigler

today's for call. at good you a with again joining Have events. investor look all you upcoming We Thank to day. forward meeting

Arrow Electronics (ARW) 1 Aug 242024 Q2 Earnings call transcript