Avnet, Inc.

Our presentation will now begin. Welcome to the Avnet third quarter fiscal year 2023 earnings conference call. And I would now like to turn the floor over to Joe Burke, Vice President of Treasury and Investor Relations for Avnet. Thank you, sir. You may begin.

Thank you, operator. Earlier this afternoon, Avnet released financial results for the third quarter fiscal year 2023. 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 AFNET's website. 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 Phil Gallagher, Avnet's CEO, and Ken Jacobson, Avnet's CFO. With that, let me turn the call over to Phil Gallagher. Phil?

Thank you, Joe, and thank you, everyone, for joining us on our third quarter fiscal year 2023 earnings conference call. I am pleased to share that we delivered another quarter of solid financial results, which exceeded the top end of our sales and earnings guidance. More importantly, we achieved these results despite the market uncertainty and macro headwinds affecting certain areas of our business. In the quarter, we grew sales 3% year-over-year in constant currency, and we delivered adjusted earnings per share of $2, which is our fifth consecutive quarter of adjusted earnings per share of $2 or greater. We continue to manage our operations with a sharp focus on efficiency. That, coupled with a stronger-than-expected performance in Europe and the Americas, enabled us to achieve a 5% operating margin in our electronic components business and a 4.8% operating margin for Avnet overall. During the quarter, we saw sales growth in the Americas and EMEA regions offset by a sales decline in Asia. The decline in Asia was due to the expected seasonal impact from the Lunar New Year holiday and from an overall slowdown in demand in certain Asian markets. From an overall demand perspective, in the quarter, we saw continued strength in key vertical segments, most notably industrial, transportation, and defense aerospace, while demand in other segments, like consumer and communications, remained weak. Demand signals continue to realign globally, resulting in lead times trending down on several component categories. However, we continue to see constraints and shortages on other products, such as high-end MCUs, power, and MOSFETs. Lead times for these constrained categories have improved, but more modestly than other categories. Overall, semi-lead times are above pre-pandemic levels, and IP&E lead times are modestly above pre-pandemic levels. The pricing environment remained stable during the quarter. At the beginning of the quarter, we still saw a handful of suppliers raise prices primarily due to the higher input cost for the components. As a result of the current demand of lead time conditions, our book-to-bill ratio remains below parity in all regions, at levels similar to last quarter, and our backlog remained relatively consistent with the end of last quarter. Inventory levels remain elevated across the supply chain, and our inventory increased in the third quarter as well. Our customers' inventory levels are elevated due to a combination of softer demand in certain areas and overall market conditions as it relates to component availability. They continue to seek certain key constraint parts that are needed to complete their end products. As a result, we are managing through adjustments to our backlog. While cancellation rates are up, they're still within our normal range. We remain confident in the quality of our inventory and are working to improve turnover and to ensure the inventory on hand is aligned to the near-term sales outlook. So with that, let me turn to the highlights for our business. Our electronic components business sales grew 4% year-over-year in constant currency, which led to EC delivering a 5% operating income margin. Our targeted margin is above 5%, so we're pleased that EC achieved this milestone this quarter as it demonstrates our ability to continue to drive operating leverage as we focus on top-line sales growth. I am particularly pleased with the Americas team delivering another solid quarter of sales and operating income. Our America's business delivered the highest level of operating income margin in the past several years. The EMEA region delivered its second consecutive record sales quarter, and our Asia business was able to maintain their operating margin despite the seasonally lower sales. Asia has been impacted by reduced demand in verticals like consumer and communications. We saw overall softness in key markets like China, leading to quarter-over-quarter sales declines, which we expect to continue for at least the next two quarters. We achieved another quarter of record revenue in gross profit dollars for demand creation, further proof of the value we provide to our customers and supplier partners despite the mixed market conditions. Demand creation and customer expansion remain critical to us, as well as our supplier partners. Just a few weeks ago, I was able to meet with leaders of three of our top 10 suppliers, and one of the first things they wanted to discuss was demand creation and how AdNet can continue to help them grow their sales and increase their customer accounts. The success of our engineering teams and the digital design tools have been key to improving our margins, particularly in the Americas and EMEA regions. Roughly one-third of our revenues come from demand creation, and this strategic priority is one of the elements that should enable us to achieve our higher margin goals in the medium term. Now, let's turn to our Parnell business. Parnell's sales increased 9% sequentially and 1% year-over-year in constant currency. Farnell's operating margins held steady sequentially at 9% during the quarter and were down year-over-year primarily due to the expected unwinding of pricing premiums as certain components become more available. Overall, Farnell continues to be our highest margin business and we expect the operating margin to expand as supply constraints on single-board computing devices ease in the first half of our fiscal 2024. To be clear, there continues to be a healthy backlog for single-board computers, and when the semi-electric components become more available to complete their production, we expect to begin to realize improved sales as we move into the September quarter. We have made substantial investments in Farnell's inventory offerings over the past three years and plan to make additional investments where we see the potential for accelerated growth and a solid return. Our Farnell inventories have increased nearly 50% in the past year, as Fresnel has expanded its line card, replenished inventory levels, and continued to focus on both on-the-board and off-the-board growth opportunities. Fresnel's e-commerce business mix continues to improve, with 56% of Fresnel's total sales and 74% of total orders placed through their e-commerce platform. We remain excited about Fresnel and continue to see opportunity to leverage Fresnel's electronic components unique and synergistic collaboration, which is a key differentiator for Avnet. Our near-term milestone is driving Fresnel to over $2 billion of annual sales at double-digit operating margins. While we are pleased with the sales and earnings results for our third quarter, we are closely monitoring market conditions and the impact of component lead times on our backlog and inventory levels as products become more available. We also continue to manage through the impact of inflation and higher interest rates on our overall business, which we have successfully done over the past few quarters. In the same way that demand outstrips supply over the past two years, supplier product has begun to exceed overall demand. Our current view, supported by our supply chain industry tracking metrics, is that we're experiencing an inventory correction that will take a few quarters to play out. As we manage through this correction phase, we will continue to work with both our supplier partners and customers to regulate incoming orders and prioritize getting to the right inventory levels to support sales and improve our turns. Although the market correction is underway, we are not overly concentrated to any supplier and market. We continue to believe that due to our balanced line card, combined with the diverse end markets we serve, we are well positioned to outperform the overall components market to gain market share and expand operating margins when market conditions normalize. With that, I'll turn it over to Ken to dive deeper into our third quarter results.