Avnet, Inc.

Please stand by. Our presentation will now begin. I would like to turn the floor over to Joe Burke, Senior VP, Treasury and Investor Relations.

Thank you, Operator. Earlier this afternoon, Avnet released financial results for the first fiscal quarter of 2020. The release is available on the Investor Relations section of the company's website. A copy of the slide presentation that will accompany today's remarks can be found via the link in the earnings release as well as on the IR section of ABNDET's website. Lastly, some of the information contained in the news release and on this conference call contain forward-looking statements that involve risk, uncertainties, and assumptions that are difficult to predict. Such forward-looking statements are not the guarantee of performance, and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in ABNET's most recent Form 10-Q and 10-K and subsequent filings with the SEC. These forward-looking statements speak only as of the date of this presentation, and the company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this presentation. Today's call will be led by Bill Emilio, Avnet's CEO, and Tom Liguori, Avnet's CFO. Also, Phil Gallagher, Global President of Electronic Components, joins us to participate in the Q&A session. With that, let me turn the call over to Bill Emilio. Bill?

Thank you, Joe, and thanks to everyone for joining us for our first quarter fiscal year 2020 earnings call. This quarter, we delivered sales of $4.6 billion. and adjusted EPS of $0.60, which were in line with our guidance. Both macroeconomic headwinds and continuing uncertainty around tariffs impacted sediments and buying patterns across key geographies and verticals. As a result, we saw market trends decline in the first quarter of fiscal 20, which was a continuation of some of the patterns that began about nine months ago. No one knows exactly when the market will return to more favorable dynamics. What we do know is that macro data, including the United States Purchasing Manager Index, or PMI, hit a 10-year low in September. As you know, a PMI of greater than 50 indicates industrial expansion, and changes in PMI are often indicative of year-over-year organic sales growth trends for distributors, in turn, the sales of semiconductor companies. With PMI data across the United States, Europe, and China all currently below 50, we are continuing to monitor conditions closely. We think that Brexit and tariff concerns play a key role in the low PMI data across Europe and China. Tong will run through the specifics of our performance by geography during his remarks. But in general, the macroeconomic data are consistent with what we saw in the first quarter and what we're seeing in our geographies as we look into our December quarter. The Americas is the latest to see slowing. Conversely, the leveling out of sales in Asia that we saw makes us optimistic that we may have turned the corner in that geography. Meanwhile, EMEA remains under pressure. For the first quarter, by vertical, we saw mid- to long-term opportunities in retail and healthcare with positive trends in defense and aerospace. We still see some softness in industrial and automotive markets. These last two verticals were further impacted by the more recent slowing in EMEA. As for how the macroeconomics will play out, we now believe that the current correction will continue into 2020. The market environment is challenging, but we are well-positioned to take on these challenges. Our teams are well-prepared and ready to capitalize on opportunities and use our competitive advantage across geographies and verticals so we remain bullish on Avnet's long-term growth prospects. Before we get into more specifics on the quarter, I want to address the changes to our relationship with Texas Instruments. In 2016, TI began a strategic shift to sell more directly to customers, phasing out demand creation. Earlier this month, we announced our distribution agreement with them would be ending. We are working collaboratively with TI to arrive at mutually agreeable terms related to this transition. Their decision was not a result of any performance issues. In fact, They have been an Avnet supplier for more than 40 years, and we are proud of the strong results we've delivered for them. This transition with TI is an example of our ever-changing industry and competitive landscape. As a 98-year-old company, Avnet's supplier line card is continually evolving. Our line card today looks much different than it did 10, 20, or 30 years ago. We've been through some major changes like this in the past, and we have always recovered from them. and this is no different. As we transform into a technology solutions company, we are expanding into new areas that are less vulnerable to these types of changes. For example, through our strategic efforts in the Internet of Things, Avnet Integrated and Farnell, we are diversifying our business to maximize higher margin opportunities. Our work to replace the TI revenue is already underway as we emphasize driving increased sales from existing suppliers to our highly differentiated value proposition. We will also seek out new suppliers who will find our comprehensive ecosystem very compelling. Now moving into the five areas of focus on our core strategy. First, we remain focused on amplifying our electronics components distribution business worldwide. Second, we are creating the ability to scale higher margin segments. Third, we are aggressively expanding our digital capabilities. And fourth, we are continually finding new ways to leverage our ecosystem for growth. And finally, fifth, we are driving continuous improvement throughout the business, which is fundamental to our success. Let me give you an update on the specific achievements in each of these five areas during the September quarter. Turning to the electronic component business. Electronic components delivered sales of $4.3 billion. which was down approximately 1% quarter over quarter and operating margins for the business came in at 2.6% compared to 3.4% a year ago. We were encouraged by our performance this quarter in Asia where sales were up sequentially by more than 9% to $1.9 billion. This is now more in line with what we see in terms of seasonality. Also bookings are showing signs of stabilizing in Asia during this December quarter.