Arrow Electronics (ARW) 4 May 232023 Q1 Earnings call transcript

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Arrow Electronics First Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Instructions] [Operator

like President conference Please and now Agrawal, to go turn Vice Senior Chief to would over the Raj ahead. I Financial Officer.

have I Chief helping the operator to quarters, over leadership as you, and in interim everyone. the thank few of Thank transition. IR Rick provided support. his hello the last navigate know to Officer, Accounting you our we Rick want Seidlitz company Many gotten for

Relations, new With as Anthony Anthony that, for Investor pleased company. President I'm having Head served equipment Relations Bencivenga. our Arrow recently Vice February, introduce Investor in a joined semiconductor of to most of

addition In turn to him well. background as We're Investor and excited started to to get it Relations over us on Finance today. I'll Anthony to have an and background a has engineering Anthony in board

excited Call. welcome to Quarter Thank be you, everyone XXXX Electronics Raj. Earnings Arrow to I'm I'd on First board. like Conference to the

today addition Chief us In President Sean Raj, Officer, and Executive to joining is our Kerins.

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

our XX-Q including materially actual risks recent uncertainties Our a described the most filings and in number risk differ to XX-K with and the factors of results due could SEC.

to future events. We any of or information or result obligation publicly undertake the no a revise update new forward-looking statements of as

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

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

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

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

us for thanks Anthony, you and of all today. Thanks, joining to

the financials detail for First, it turn outlook quarter. over I'll Raj our results QX our second on to for and discuss more our and then

global a results engineered In the solutions guidance. delivers and quarter we well form the components needed happy doing to of in team both enterprise. variety and markets, to with earnings software I'm sales technology solid share per our so, as of report, Our to the solutions hardware, the delivered in first OEM cloud midpoint and above critically as of

well While backdrop environment. execute the we to in industry continue challenging, is this

Industrial markets components, we In high global industrial the guidance. maintaining in automotive helped drove for our year-on-year end strength of markets revenue achieved record In Europe, and the revenue, levels drive end business and of transportation sequential growth. while robust end and above backlog. healthy

defense we by In industrial, we automotive growth strength aerospace encouraged and the Americas, in in saw and and design-related relative were activity.

in decline market. in we the the shortage expected, the mainly function the Americas a of see normalization revenue fully As is

inventories. In both customers strength to serve segment we our and markets as China, and electronics interconnect, passives in continues our challenging end Western environment of on-hand electromechanical in see continue components, efforts through certainly reflecting market. to this to Asia, regions, manage most the their In across be the ongoing

their However, our for on delivered by and well quarter. the customers, executed and beyond original focusing suppliers team the commitments

Profitability quarter. first healthy in business our in components global was the

operating the are to chain to enable engineering support providing infrastructure and in investments supply our Our capabilities services income.

that While lies quarter our operating fourth reiterate between margins call, target X.X% normalize, X%. during may earnings further components our global to said want margin we somewhere for what I and long-term is which

with to and demand forward. needs still horizon our compared softened quality in remains longer remain moving business demand we're the to over support to visibility backlog continues of levels. parity, as time Although a below to book-to-bill inventory pre-pandemic enjoy and has Therefore, markets elevated certain comfortable we our our

of customers variety deserve and Across from fortunate diverse of set with we're a broad regions, markets -- of suppliers. me component across spectrum all serve component a to global a three technologies excuse

business, to further continue while value. at most products secure our customers the need, add focus same where they core helping engineering our on can capabilities, our they We time, extending

gears computing the X% switching Sales and to solutions business. market which was dynamics. with our constant in currency of up were range our Now, overall consistent enterprise within guidance year-on-year

categories Both Demand cybersecurity, most in contributions software was software. currency and solid double in constant Europe. from sales hardware increased across compute, by and digits enterprise year-on-year notable technology with

spending America signs the region supply dampened the chain year-on-year hardware which sales a the market there improving, IT in quarter. are North experiencing is we're While softer in in

to to In transition. both suppliers well-positioned and believe regions Everything-as-a-Service customers we continue we're the navigate IT shifting our and market this help to see

appreciate their the their understanding to needs. Before commitment determination work. suppliers their provide ability our I go-to-market hard to meet and our and our no Make to details my production on I our and I our hand the global and Raj employees' to in success reiterate Arrow confidence customers mistake suppliers and and our customers collective call markets more is what our help over team results, want of drives and to

that, hand With it Raj. to over I'll

quarter the basis more our consolidated expectation X% sales quarter-over-quarter $XXX of by $X.X Thanks midpoint or impacted sales a impacted million impact on X% basis. year-over-year million. positively Sean. our $XXX Changes than million guidance above down On first on sales year-over-year, billion constant a $XXX in and basis, negatively by were currencies at of currencies foreign slightly a currency range

exceeding within billion sales down guidance Enterprise flat and component Global solutions year-on-year. year-on-year. slightly sales computing our guidance range billion range the $X.X X% were end and were our high of $X.X

in volumes by component principally product due computing non-GAAP Consolidated reduced and partially improved region was business. solutions down the XX.X% margin gross offset points mix enterprise of the shortage market, basis XX in year-on-year, to

million, up margin or X.X%. enterprise computing operating to in at with $XXX XX global of year X% components basis percentage as million QX sales of were in and operating expenses points a coming operating of income flat last X.X% Non-GAAP $XXX coming Non-GAAP was solutions at sales. and

average million, expected $XX higher rates was higher expense daily which was and the to other due and borrowings. Interest than higher interest

of tax primarily expected was release Our the due XX.X% certain rate of reserves. than international lower effective to

end EPS million on quarter based Diluted our non-GAAP the share range the count. at XX.X of high guidance $X.XX for a and a basis first on was

turning by roughly quarter. receivable the to first flat was outstanding flow. end of XXX sequentially year billion. to QX Accounts of XX% down sales Days XXX last Net came cash sequentially from from and sheet working to balance $X.X last Now, of quarter at the to declined billion. the capital $XX.X

payables Accounts XXX days payable seasonality XXX by The last payables, XX% down decline in and to our to largely due bringing sequential million $X reduced to billion receivables business. of in is ECS both from quarter. sequentially

with turns to due largely from seasonality inventory declining, this quarter. X% X.X% quarter to last increased billion Inventory $X.X X.X% to

cycle the fourth cash a increase seven-day was and by increase driven seasonality due Our to of from XX primarily year-over-year pricing. the to primarily XX-day related increases, a the business inventory which days largely was which are quarter,

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

was working we of million. first We $XXX up billion. Operating sequentially $XXX at for investments operations liquidity debt in was capital. slightly cash $X.X including at our QX cash believe future quarter million. the to have fund Total our adequate balance from Net $X.X stands flow and billion liquidity

amount our remaining us Our strong the cash quarter. repurchase by balance our of enabled approximately million sheet end shareholders quarter, at on of profitability deliver of At stands in the and of $XXX to repurchasing to first priority the $X returning management the during our billion. stock effective shares authorization

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

commentary the segment regarding the please business more CFO morning. this to results, For published refer our website details on

second turning Now, quarter to non-GAAP guidance.

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

We the expect is $X.XX to $X.XX component which flat billion, between midpoint prior global from billion quarter. sales be and at

of and billion, also sales which flat and at enterprise $X.XX between decline the IT market. prior spending year-on-year, represents billion consistent expect a We to the is $X.XX be the solutions with X% quarter computing to midpoint state

rate XX.X% assuming million. are interest of and tax expense approximately $XX We of a

are earnings drivers non-GAAP shares, $X.XX Our sequential is primary a an diluted EPS. to share in the be higher count interest expense average on rate diluted the expected XX share, tax of $X.XX for between higher million and both per change and

by the increase We to by estimate on quarter, and a foreign EPS to EPS prior in the effect currencies, increase $XX for $XX and QX for growth in Compared foreign $X.XX. sales changes sales QX growth currencies will growth year. compared estimate million negligible prior million we changes have will by

I'll now Q&A. turn operator, for the call over the to

with [Operator Sheerin Instructions] Our of first ahead. question comes from Stifel. Please the line Matt go

unwinding build. that you Thank still significantly question your good be would afternoon. looking component and to year-over-year like up With you inventory think obviously, Looks up first inventories were the coming and lead times inventory. of at expense as your interest and you'd well. some business relates in, that significantly My

think we about year? So, And we plans what's through expense, should get the there? how the interest as

Thanks, Matt.

the bit more look our bit picture smaller I'll quarters, interest dynamics gotten talk it's impacting our if time. of little about means inventory think I that me about progressively a past But for Let look, over what you builds, little a Raj, three at inventory the and expense. talk some let each

something that's a to only it a up of because increase. came significant. don't now, close are unit of function increases as There If you starting volumes largely to look at was flat sequential it price that catch into We year-over-year, business the to year-on-year. think the

a as than including will start probably timing coming past quarter the are lead this to you seen times think. predictable in be Remember, in, and sometimes receipts bit might little and occur less in you gets have when around cycles, moving they later

at point were feel I'm component at to the increase is, hand. our for the it. business and not IP&E. global historical look and And expectations, is think QX the both turns So our at core exit, I through sequential something, of or on targets confident, We in in quality with. important most good we got the you concerned semiconductor above our the about right inventory ability slightly on we've if sell very all we're

within a year-over-year business way that extent framework. in, that where we balances just with set the up. down business the expense. business me we're investment-grade we capital to not about more interest unexpected let manage Matt, But environment up and rate generate the protracted rating interest To just little comfortable starts are continue is slowdown, the be larger terms bit as then add a in sequentially the overall that's is debt. to It's have, given an of working we're and certainly well. and we in credit to the It levels, able And cash the debt pay would

was we just but manageable interest balances, overall. than a higher so quarter, higher expense in given And the very the bit had expected

very largest XX% down was revenue your year-over-year second question your you was much for own Thanks just Okay. XX-K, XXXX, semiconductor supplier And in to supplier. recent its revenue that In X%. reported relates that. my down that while

taking more basis. on is supplier So it that product a looks like that direct

you could talk that and the can, So that how there -- relationship see that about puts longer you the takes you to extent and term?

don't probably any our line you, this focused one of Matt, to broader our We're but us any So what's speak complete but to to cycle we and supplier and surprise feel about, specifically. particular. as really it front ever supplier about I can't market good speak we semiconductor steadily and what's on no with in the navigate in card ability corrects, happening

Okay. much. Fair enough. you Thank very

Thanks, Matt.

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

well? you're competitor Yes. pushing on some Thanks give seeing could comments you I if for then orders. last as question. nearest around that, if your I wondering just rates? customers wondering, about cancellation that us night taking any of color talked kind was And my was

Joe. Sure,

over good past As that. the of talked eroded but pleased One, about fact, And book-to-bill We part fact can couple first feel parity, eroded not things. quarter. not say what even the a below of quarters your in past upfront. that we're not I I question, sure, this They but of XX couple understand have in did we for the -- further. is, they of in days about are

us, customers and are to with activity And suppliers, and customers great production engaged we We both meet a for a and needs. doing help world. is are that stay that our suppliers and way close us in the our our to collaborate that's their reschedule good throughout for to way

not or As activity any importantly, we At more importantly has as consider cancellation either. it and modest. accelerated best

customers' we in with what's way think good right right the which a in on with backlog, of our our we're where the the the inventory and collaborating we to demand sit get needs right time. relative suppliers our handle So have happening course to production we at for

we scrub is also to Our firm feel just constantly delinquent of majority all is significant. it versus backlog if still do we you saying But The forecasted. piece the that work still I it it good that described, the consider significant. is of in

backlog. got inventory a I and think on with what's happening again, our good handle we've So

Thanks follow-up in mitigated? in continues to starting business. a for inning that. to be of headwind that terms services a impact in market on margins we And be the that then as shortage are component starting kind What of the

sure thanks. Yeah,

evidence So strictly be margin to decline see I'm in a because clear glad the was you the want both we saw the asked in impact I you sequentially annually of and components shortage function operating nicely market. three of and in underlying the nicely and all business are holding And up regions that's fact quarter. the margins the in the that in they up pricing held core

fully our And to We across the some impact half. relative we additional from forward, see abate It's continues built guidance. as quarter. into see the going to this expect second market we to So shortage it impact decline. the it all

you. Thank Perfect.

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

for Thanks some that in IT in ECS, you enterprise pointed Sean, question. there's Europe spending. taking Americas strong and Hi. was my softness out

parts question. the two So of

First, have contagion do slow the is, that sales strong you second software quarter. been remains can within typically think is every do or there? then Europe part you And ECS, spending some think strong, your there

recurring So a there if how does payment recurring? is And of sell to when is way much that you revenue size well? a as vendor you software up set ECS the so to

bit and So first your two let a the of me talk about with of market Ruplu, we cities. a bit little do a see tale start little because question just

guidance our soft longer given known recent a the bit think IT we're more for how I QX spending widely expansion to sequentially both environment predict of But in There the saw hard I still much We is here. that year-on-year. showing We're North reports. market in the persists. of confident here reasonably think and and America. a QX, some margin is it's in tougher that

that be to appears links necessarily don't two. yet We the Europe resilient. more any see contagion

our that was in well. outlook Europe with You strong can healthy a note also as business and for QX components

bit regard. the think a little I different So in markets just are that

It downward for As cloud. that ECS We to sales of you're more we on should business the for have an drive on the business, differently. margin mix tends account upward Obviously, software, intentionally line right. that to to a inside impact our line. more impact continue the have

at to And started hardware all good record our the a as a in on ECS, call basis. subscription at backlog the hardware backlog realize would versus and and unbilled look perpetual it's you If as software still chunk deploy you that of that has flush, customers tied I the look remaining revenue levels. to cloud business backlog related is to what to

So you're right.

down it's give call business. that we'll ECS a time It's going what what into We more would I becoming the forward. right like have And backlog of more looks recurring growing in visibility the think I significant. to prepared like the revenue be road you

Okay.

do how it have follow-up components? you And Are you you how inventory can in the so a into a the where correction inventory details. on the in market most that. more that And the where inventory And elevated? channel? I components do long Okay. excess if is Maybe will in or last? seeing you a ask think any Thanks channel that do this inventory? is I there Is if for EMS, appreciate business. size view

general. back minutes our a do what to inventory you down. that few bring have So ago We I'll I about come in said returns know

any piece managing customer broad-based. I'd takes of to book-to-bills -- this others. in to one quarter. eroded existing build say pointed levels. I how We nor say two concern. our long one we to this the us point to past market the work Hard the are I'll wouldn't new the you say ecosystem very again, more through it the is first part don't for look comfortable great that base have versus of while the that in quarters that the to fairly there's the still further inventory levels But to carefully. normal in give starting We're inventory not fact

probably sharply. a difficult than because something this call it is experiencing starts to bit falling sideways I maybe feel like those a funny when we're little landing. prefer markets falling sometimes are to we more moving more is we're in market more sharply. But scenario a that enough suggest And I So think than softer

Thanks Okay. detail. lot for a Appreciate it.

You bet, Ruplu.

you, Thank Ruplu.

Your from the Hari Please comes next go of question with ahead. line Toshiya Goldman Sachs.

outlook on question. follow-up in demand components so for Thank Hi. I the as you your business the taking much well. a had

of a couple typical or you out Your in QX provide guys you June And below how or geography is little suppose seasonality. points the guide your quarter, end to context typical outlook are as for implies you a a percentage of business? components I vis-à-vis seasonality sort about the thinking noted the by stand which Can more anything half color market? bit Does second downside? flattish

Yes. around quarter. too it days on Sure Europe sales do We color trying results. the thing. and want this a wouldn't expecting much for for focus I'd but I region. about differently give to the better second XX to say bit in the we're you what out, environment, happy I'm in again than just speculate we in primarily second some seasonal components half to breaks see each see little down

seasonality. typical normalize is a piece roughly of I for sales would in just forecast And would the Asia sequential in for got say in what see Americas approach line more with the normal And declines We're the starting to market. seasonality. we in we've you when shortage that be growth.

So overly pessimistic but either. not feel bullish, overly we're we don't

-- on quarters on and free and for and thoughts quick and the as next one on so for Thank thoughts it. so Got generation you. flow implications capital over forth. buybacks Maybe Thank just of cash working you. then And couple my follow-up Raj.

Yes. to think yes, Hey, capital working from try we're Toshiya, can. we to manage obviously as standpoint a I as tightly going

capital where that will was that the really be overall a previous You to it quarter. business the And function determine trajectory flat saw going of to goes. working capital of whether working is the

a standpoint cash overall that a priorities also really standpoint. say the flow that's thing. would have to buyback From just same our from capital changed not connected I And stock

in years the invest haven't continue always and the at really We look capital. M&A and last to though business few anything we're looking evaluate. the we even opportunities to in And significant that's in working we continue done

want cash flow excess extent then And towards our to see to capacity we buyback a it as stock we we put value and to continue see. the that lastly, which good

So investment-grade the an manage priority entire that's business. of manage and really of of of credit to we all order investment rating framework with this sort the

So that's it sort of look how Toshiya. at we

to Would be going trajectory to expect positive? flat more down fair or to forward, bit the still of trend going a it kind inventory little be is to

standpoint an be we pricing not that there really strong great again I it there And going the we that we impact But to support think to that's know to depends backlog. a itself. through inventory on able is of just We and will think that that inventory all inventory. from a -- have backlog. have sell

feel as we position our so, good today it Toshiya. And about we have

Thank you very much.

ahead. the Please with question William next comes Truist of Your Instructions] go [Operator Stein line from Securities.

it that is prevailing a -- is trend to shortages side all? on are Great. what and IT business Thank You is If Americas that what influencing and you in degree, spend degree my the extended that or Is I'm the sure To reverted? system mentioned you're weak. lead component of at revenue? procure really of still that's still so ability really the times those, some to affecting experiencing for your taking questions.

wondering out. I'm that's Thank you. how netting So,

Yes. No sure thing, Will.

of world. bigger semiconductor materializes There happens the of certainly systems compute versus the is improved. our would part, an what in connection has and between right. to seen, the what pertains market upstream eventually downstream that storage in situation most you're flush. it backlog indirect for I So, The say the worst as we've parts

large, you through semiconductor, normalization improved ago. three to some aged will. by back occur and better couple still certainly the space, lead it's we're have most There's levels. in was times a the still they're of it More pre-pandemic And systems to you're quarters but than but generally, if backlog not in right of yet

you fairly still serve create highly best the categories challenges such normalized, to there's us. has things that, can demand a sizable delinquent but the there possible. that broad-based been constrained would as for the have that out And behind are of does headwind as had I and is Obviously, we if improvement first our pertains say, making that few wouldn't sure delinquent But a it business, we fully as backlog. still worst assume systems

about as days, quarter. maybe these feels that whether trending and the companies But the Thank Great. I'm talk about hoping I ask that's you and cancels robust. linearity. buyers backlogs that we've can behaving follow-up, whatever even doing? about relevant are and how stable like order as given the historically, of a so more about are you. talk think I It's linearity to talk is tended in And is you you know, semis or it linearity accelerating the well to Can way or push-outs. component

Sure, thing. Yes.

that in right? again, we So to. Well multiple that question, backlog -- relevant normal you're visibility linearity our but beyond quarters giving the more is if been size typically a to demand out, visibility we've right more get of the maybe horizon and times, normal given you in

then a So you become as little past. book-to-bill in might tougher predictably as to the has manage

latter of that backlog, again, including the part even not remember the as are So very they what manage while year. eroding cancellation is do. have last signs modest rescheduling activity, And of levels the reiterate, and rescheduling would we I just are not we said, them in since we I saw there accelerated the work book-to-bills

you. Thank

Will. bet, You

no time. to this back remarks. closing the at we Anthony I'll questions And call turn any further have for

and thank for We meeting you to call. conferences look roadshows. all joining Thank at forward upcoming a day. Have you, you today's Regina, and good