Arrow Electronics (ARW) 2 Feb 232022 Q4 Earnings call transcript

Good day. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Arrow Electronics Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions]. Thank you.

begin may you Seidlitz, your conference. Rick

Kerins, Good Fourth Quarter Rob. With Agrawal, on are Senior day, and and Executive Earnings and Electronics Arrow us Sean today call Financial the Vice to the and and Raj Call. Chief Officer; welcome Conference Thanks, President Chief Full Officer. President XXXX Year

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

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

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

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

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

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

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

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

and was challenges Before customers both this a Arrow we met present with I results, bit special about in and employees our suppliers head as I reflect lead which talk and on help XX,XXX to company continue to and unique in It our wanted on challenges. year to truly most those this our recent dedicated environment. conditions total, the succeed great past market

strengths market company. any of continue and results to the enter strongest serve, the opportunities know our itself of the aspirations differentiate delivered which commitment, accomplished, evolve extremely proud we markets what have reflecting team. we I'm while history financial that year will I in we of the faced conditions and with challenges entire through global we'll And in we've new turn, continue the XXXX, In the be as Arrow to of

Now with challenging report one our to delighted turning quarters some despite the in and line was of to our fourth our ever, results. conditions. quarter best I'm expectations that

by in grew by global our currency global components year-over-year constant computing basis, sales fueled on both Our a our X% enterprise solutions businesses. growths and

year our In constant last currency sales segment, as to on basis. Global X% compared Components grew a

healthy guidance, demand components While for associated in in West. chain China. design, electronic did softer Asia We especially and remained in services sales engineering our to and supply demand experience generally the relative

that area. customers of to group concentrated are remember we diverse service provide any around products and a world. of the too to not in to from one a diverse a suppliers important of It's We're variety proud industries group

our our and ongoing design part remain continue and in our key regions. contribute a capabilities of strategy to Additionally, investments success three to all engineering

As demand somewhat. been we discussed last conditions moderating have quarter, supply and

However, we near-term outlook on are our our both of and based inventory the quality comfortable backlog. our with

XXXX, continue helping we secure the conditions most they on While products we customers our enter remain moderate may to as need. focused

major produced across and regions European and transportation, both year-over-year demand growth and Americas strong the communications. as end aerospace experienced Both several healthy particularly industrial, regions industries, markets

driver global Americas improve, in in are for components sales we this market normalization as our Americas, overall. the see continues was supply to business and our the the in shortage to decline compression services In continuing margin sequential to the contributed primary

we decline term quarter, in in our our doubt the With customers Asia our demand are we suppliers, region. diverse for portfolio along well likely activity no will longer-term with near believe positioned remain the design and our in the recovers. robust region and eventually the as most demand weakening market prospects in markets. recovers in to region Sales headwinds. from of believe this fourth COVID-related services Despite region the and soft the quite contribute declined was disruptions to We in end when offerings, market will differentiated due sales

In for third XX% for and quarter currency Sales year-over-year quarter. solutions of high growth year-over-year a end guidance. basis on the enterprise we our above fourth the sales delivered consecutive computing the constant grew business, the finished

constraints and well software are categories, Hardware and see supply and are IT most to demand easing continue remains in positioned key for the strong transition our cloud, enterprise to we content technology somewhat, IT-as-a-Service. of for strength

markets in strength technologies. primarily growth came the strong from In software. experienced our we all our growth security, and Americas, infrastructure and Europe, In in of compute

growth, we full to measure X% operating growth to business on and We report of are year pleased this profit continue year-over-year.

call, Before in the our to my meet ahead. customers handing challenges lie that and ability want I help suppliers reiterate our confidence the over to

and and returns. to suppliers continue coming may customers to demand achieved our so, the attractive we will terms few we We'll help that scale, margin generate confident quarters, are what we'll continue years believe and much supply moderate in While retain over past improved to in capabilities that and conditions over an profile. we doing we the of continue of

now results moving over forward. Raj our details to and hand to more the expectations With that, I'll provide call on our

impacted Fourth by previous sales exchange $XXX million one and was $XXX currency the a The constant sales which X%, grew less expectation EUR. impacts minimal. growth of $X.XX one X% to quarter a to to X% quarter by Sean. our currency compared basis. euro-dollar in versus average or Changes Thanks, were foreign year-over-year, million. by the year for rate prior on than currencies expectation $X.XX of grew EUR business Sequentially, approximately was

the driven quarter. third to by XX due activities we product Fourth enterprise quarter see favorable basis XX points began XX.X% basis gross to market year-over-year, in down of the by mix margin Sequentially, shortage improved solutions margins our points the normalization business. of mostly in was computing

within rates were Interest floating has XX Operating higher and of effective was sequentially. was quarter certain other to for on the expectations. and was the XX down debt and points to XX.X%. X.X%, our year-over-year items sequentially in rate slightly expenses due tax due borrowings, as significantly expectation sales expense points year. of This $XX prior than basis but a our higher timing line of higher basis percent and rate year-over-year The prior million with of increased XX.X%

For effective the year XX.X%. rate our fourth tax are and appropriate to forward. Both XX%, as range target within was year, full XX% we of to long-term the rates our range our quarter going see full which continue

flow cash to balance Turning and sheet. the

Our operating fourth $XXX cash was flow million. quarter

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

the strong support allow a our As investments customer continued returns we and process. inventory in to us have demand, to reminder, generate

on strong on return well above of our capital pre-pandemic cash net approximately invested billion, working including of capital $X.X remains and very quarter, end totaled remain At $XXX levels. million. liquidity $X.X at and return debt billion, the Our the

strong of Our repurchase million shares quarter, of position $XXX end repurchase the remaining financial and -- at our the $XXX balance million. quarter. the stood At repurchase flexible positioned us during sheet to fourth authorization

of pleased one this Returning are has commitment. share that to $X our remains billion additional our and reflects an shareholders repurchase our Board to We approved that plan Directors also stock through of authorization. cash priorities, announce our authorization to repurchase

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

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

constant expected Now reflect component particularly conditions, turning of of sales which Midpoint continuation reflects shortage to and a current X% we decline and basis. sales discussed, Midpoint of impacts to guidance. global year EPS normalizing guidance an currency have prior a compared market on activities. the X% market

to we Compared will of million suggests dollar the year-over-year and sales $X.XX of currency a We growth will a year. to compared positive on sales of principally to estimate impact solutions forecast euro and $XXX result the prior computing prior estimate enterprise to U.S. in grow EPS to X% be the basis. will that EPS. Our compared the strengthening million that quarter, and reduction to and a the $XXX $X.XX X% constant growth

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

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

Your line is open.

will over Thanks, ago, how were versus trending the over side, components I then next demand that things that are end how quarter? start when Or parity do look my below they decline? Is think backlog question. that, mean, can to question. market -- weaker? do I would specifically that see grow Or bookings regions. couple for mean continue you you mean, on say the days do quarters? of said today next materially think high-level also Sean, the the -- And same? to think you all wanted with you are I concerning? And you in I taking and XX I you a at Or

Ruplu. Sure,

about feelings sort our just would overall. I mix. with market start of it's And Let's the say

our quarter, guide our at basically markets. above seasonality we're at all first look or you of normal Western If the for in

So maybe like and levels as not medical communications, seeing aerospace we're sectors device holding in ago, in still transportation, broad-based activity things defense and compute, the but down. up it other was like and maybe things as and XX quite slowing West industrial, certainly, sectors days like consumer lighting

our disruption. impacted demand as headwinds But now West Obviously, and and see feel bled but and we outlook the consumer verticals China, quarter. was good by initially have activity the still Asia, into market It well. in been PC, specifically about about other COVID to all by key in large, trends that's enough in first obviously

that high, historical point, still from to our all-time about backlog well look, is your but levels. And down it's its question beyond backlog,

we majority versus of to yields that good reschedules Our continue yielded teams active pretty world pushouts throughout work a do that cancellations. or still the And job than it believe certainly and more the validate forecasted. to And is backlog. has and firm

backlog. we've the of inventory So we And good the to shared. said pretty we quality support our guidance feel the as about earlier,

of the Sean. ask details quick for can I a questions. couple Thanks there, Raj, Maybe

you about come should a Do cash But working capital guiding high Or it inventory, in the the as think and we're X%. while? it -- we down and seasonality now that? and can point it's at know was like what increase? there's On the the I flow this about year free up you and quarter. some you just be you're about can how free remains And do days, for drove sequentially, March talk flow it better? looks that you inventory can actually cash peaked think like think where think

Yes, Ruplu, been of by environment we've majority is it's in. say inventory, whether the I pricing quarter-over-quarter or would year-over-year driven the that increased that

what We we we're the be, do peak but looking And really say so most level hard we for it. strong we through sell West, good, to backlog. what and me it's the of think in Sean can actually, continue And said to good demand at. earlier, to the going driving inventory. -- what's as a is We have have that's

cash And about flow sit. going this think a from feel we generate the just -- we're dynamics. some But cash flow overall, market we'll year to good standpoint, I given we where

I Ruplu, customer which add color as to look, that, is, service environment. just I would of look this especially in function some at a And inventory

help as to environment. bit production change. at fair up future. example, on of in you set in even for So the now change look would can time a we there's as the healthy us imagine, But I our I modest. I we part, it, really But customers And the call returns inventory much this for for a deliver they QX, spend as as investment think their might schedules attractive most increase will in

if I finally, sense. just could Okay. And ask. That makes

recession give that also, concern your mean, have percent you that that, go take in on lower margins think you Like I trend. general views have my to a a you their about margins. still many And pressure? do prices, think see has think and you as you how levers peak can I margins of management. And one -- question we is when you a slowdown, guess ASP if or think any cost lower if I you context, I have OpEx their of mean, sales suppliers levers how investors gross as can But of at you on do our can more as or out. is risk cost meaning into a percent profit

trend detail. thoughts So a your you. maybe deflationary Thanks will margins or environment just for ability in all and costs on environment? manage in the to Thank your how recessionary a your you think

Sure, Ruplu.

OpEx but I we cost, So talk with second well about like managed. like of start I'll our always your the of part and course, to question, growth fairly more feel is

investment make As historical priorities cost protecting on and of basis. you sure levers can a percent percent both got on we're our that of and time. place all work see, to lows sales we landed in structural gross a continuing kinds at of We've over profit to

very where go. substantially. were variable would If think recessionary in this more slow You in environment. And know come cost were dramatically, things surgical environment we be I that more to obviously a to going remember down to

years, I complexion of of it's and couple right think over the to ability retain the the that spend at market part has past question, a the that the feel supply/demand I our how model. our to and three changed normalize, your time the into of we benefits as can to lot one, about built our first some we we confident you tell structural continues looking pretty business of

sit reach steady that and market the say I today So but might will, here a state. will and call we'll when can't it normalize, exactly fully something we

we to land was those target north set that do, of you I'm time. the operating at we X% maybe the for weren't And confident long-term as components margins involved, that for going When in business. are that last well of our business that

I of in think something six the all the to at X.X%, we're now looking maybe range points. way

about of capabilities chain enjoy especially serve and different our and can value-adding help for resources which reason there's customers I still help accretive around time. win doing potential. the can about our about design a And conviction there. So I I made larger think supply engineering in us lot interesting what that we talk of can that design talk runway really we've have to that's capture some structural the ways. to are which We over investments margin talk we returns. because OEM services, us customers is

So there's we really I we about but to commit good thought might for ask normalize, a by next think you the want when, again, the time a won't that behind And got statement. that while business. to feel target and real to frame, range market's

helpful. Thanks the details. it. for appreciate That's all Okay. I

of Sheerin question next from Your line from the Matt comes Stifel.

Your open. line is

everyone. afternoon, Good you. Thank Yes.

bit what are holding markets more in seeing up terms color a Just kind of of better. little Western the you're like

and seeing seeing seeing like -- is demand in night pushouts going seeing regions, weakest commentary all markets? they're as last in your yet? about competitor inventory start Asia although correction out those sound than some an there calling you're their no It the that big your Your you like below play across and book-to-bills you're other or seasonal out to Anything business. negative in Are any there are cancellations. doesn't area, else

CFO sub-seasonal below suggested, I of at our place maybe are guide, is Western seasonality three of parity China our where really go Well, commentary in markets, only the normal as Matt, much or regions. I I'll all again, here. to think outlook. our in we're or the But some QX book-to-bills the we're above back what most in shared about

will confidence like From deliver. never but an inventory perspective, it creep as to see I have I I it up, in what help mentioned, us

Our sequentially Asia Pac kept team flat funny inventory enough quarter-over-quarter.

service. capital under So the we we we and balance can working well the customer between that are as circumstances, juggle and try while managing as especially

that in I forward. think pretty front we're good shape moving on

North market fundamentals in weaker Okay. talked that which is to think components, you bottomed get about there? shortage terms that Do makes And America, that's it of before you Or in sense. in weakness bottoms? in going

I getting Matt, think closer. we're

we'll equal. I some over of see that of then remains I QX, impactful pressure all think assuming but in year, think become that else this less we'll the still balance see

But looks any it to like you've of for in backlog your on year concern businesses? customers? that strong just in spending IT build as demand shortages where Are forward. on Great. are results, you're that the of the terms of ECS some question easier, you and Okay. backlog your about component Or get we And as do you any talking as nice still good a drivers. have and hearing outlook the kind had working seeing

Sure. backlog. Maybe I'll about start with your question

business. that think all-time in flushed talked the chains that our opening comments, fact It supply I close are highs my hasn't are I completely to easing in about somewhat. hardware backlogs and the still

still it think to the we'll relief there's relief the in fourth quarter. some So And was ways go, a but nice year. I see some see to throughout

some time, cycles we more maybe slowing recessionary of seen rebounding same digital enterprise from cloud automation, some at think, pipeline software, at is is somewhat talked from generally. have sales active chains I I think at somewhat mix. evidence to broader We about IT has concerns, adoption was pandemic, the like call least least still supply healthy. the infrastructure cybersecurity, all it its pandemic they're levels, it while market, the given surrounding But moderated related and slowing pretty things

for means, see So no the south. going while by we're we bullish year, not about do outlook growth it super the

Thank you. great. Okay,

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

open. is line Your

supply you, Thank value-added positive, having we with using And just about using if consolidation, giving not been like I'm Or suppliers and if consolidation? there for Or COVID, three for now opportunity? before less before no Thank negative of some distributors. are going there creation, value-added to normalized exit more you discussions you. supplier wondering hopefully demand years the are at Arrow giving on get and were past challenging I'm you supplier to the that Sean. some creation they or because more were changes? more Sean actually more any kind distribution, changes seeing COVID chain, or changes. distribution have wondering everybody. is hopefully, what's there's

They have. certainly Jim. Thanks,

heard consolidation We've pieces. knowledge likely but little So have from benefit industry, Consolidation your a maybe at in some that from some question that. a tough that's from first, the call. get I for in take of play. a mean, specific to will in of times, of anything don't tended to we couple perspective, of us maybe continue any and

program our having call. tough one look, perspective, that conversations is bit suppliers. we're little But to always a a from So with

ways to of can us always general, in with less. on which are work rely I would suppliers looking say, in at our capabilities they Our not more

more total. design do our saw wins creation look closely at see supplier I creation still there's up. and registrations, in we world, the potential demand mix semiconductor We believe design the overall pretty design every market year-over-year. quarter throughout We activity demand in improved going

So supplier a investments their creation give while there's a from engineering the us the that lot profile wind to channels, place might of still a accordingly. be trim comfortable I'm you catch to margin time plenty demand time for that's on that make in chance looking value we of and to rewarded

I still very promising. question particular piece for and think is very that outlook of valid So the the

you details. good Thank such Thank much for you. your so challenging time. in on Congratulations results a

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

line open. is Your

Great. Thank you for taking my question.

First, I'd like ask broadly. trend times in to lead about the

And coming the I but think Or we continue middle process. that in we they're where expect down, the I beginning I in are normalization think of in we you the have Are that still year? it's somewhere follow-up. clear wonder then that Would that process. a are throughout to you innings?

Hi, Will.

times it's very headlines technology lead components is you average. come pre-pandemic supply So I gone certain constraints mean, have our on some assume people twice business But average, in specific across away. components still read funny times certain cases. mix But have we the think I in, it see because electronic as mixed. to whole the and we of see lead the broadly the

from we higher still to that levels Now backlog of satisfy still some the the see. sufficient set at one at, but that's it's not down

a technology basis. mix it So I on call

time soon. it of it fully in Maybe We gradually Hard to investments the past the and don't little we ahead supply the too the all total. front year. a really that to probably in happening want in of will us I normalizes, speculate improve over Remember, change years, bit structural read far maybe that couple Don't more. the of don't materialize formula when know. throughout and anytime all quarter about just a really for capacity takes the industry say that to see

an days. kind over to focus and the course be So it's over little going and can what flow XX-plus to we here ebb the of I think we're going the be mainly next bit year. But it's still going a of of on mixed see to

you. Okay. Thank

through have a customers meaningful provided clear a developed I that for as partners, types of to see I your chain, targeted think, and supply new a hook of this they're As consolidation pretty I years threat to you distribution will, wonder seems a to doing if if process their it wonder, They've significant sort But don't that's that just this delivery. deploying you relatively sort well-known their or of ago you. revenue distribution Arrow portion customers in has you been example, directly a where in of have features follow-up, is think customers the materializing APIs they've at the with that website. your some a supplier you business? now. is went these couple years. same-day services over this Europe, to into it's if for that center something their Or Thank of the to a going future? today your in on that if aggressively impact

never not can particular. look, Well, I'm we Yes. in appreciate, of about talk think makers to I would suppliers But going our claim here. any you

So whole we can lot about with most do of help you as really I that our I one. a help said earlier, more. overwhelmingly, can say all of conversations suppliers that them how our are I with most can't

about pretty good not for but that now means just us, feel So the I what future. into

Thank you.

comes next Fargo. question from Your Joe the Quatrochi of Instructions] from Wells [Operator line

open. line Your is

that Yes, talked thanks the have too customers have provide in on we In any kind the for inventory. there can results taking number of you have enough about on you inventory stand the don't of customer past, kind of of guys the survey? or that question. Is color survey where much a

is guess Sure, the answer Joe. I short mixed.

hard been it's to consistent survey any to continue patterns. really the late, We see perform of

little they have they the then much have You'll again say versus And little. say to other those -- QX. X the a in quarter in around move too numbers for they see move those see too next you'll bit have the it direction that

that's telling because us supply environment a abnormal place what is in So such lot this in of stock I not environment. this an would whole

on of turns, including it's including for and us. line We're little we to, that less backlog have a So vectors cetera. the predictable access et our other lots our inventory

And the how you that short-term do need helpful. increase about program just you think the there an Is flow borrowing in working seen rates interest kind authorization? expiration share Okay. capital through then relative That's that that to repurchase And guys to given then your on line? expense activity balancing that of announced. we've your

Joe, what is this is expiration authorization, Raj. we've share to past. no is that similar to in There the done buyback which

So no change there. And our capital priorities continue to be the same.

And in have for right to have our a so really excess and that then been what doing. then -- will buy back stock, And we our are if that's we've always need priority. at capacity, returns. invest first kind the opportunity the be to the extent M&A business, we we'll we good looking And of

of account. cost. That's And that doing expense pay but we're in rates, into driven in the that incremental up short-term for certainly the than terms interest taken we've more that things quarter, fourth

positioned So we're I well. think

Thank Got you. it.

further the no time. back closing at this to Seidlitz, some comments. you are turn there over And Rick call I'll final questions Mr. for

for right. you, I to want Thank your you. Electronics, interest you and have everyone Arrow just nice Thank All in thank Rob. a day. wish

you This conference concludes for your participation. call. today's Thank

may You now disconnect.