Avnet, Inc.

Greetings and welcome to the AFNET third quarter fiscal year 2025 earnings conference call. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Joe Burke, Vice President, Investor Relations.

Joe, please go ahead. Thank you, Operator. I'd like to welcome everyone to Avnet's third quarter fiscal year 2025 earnings conference call. This morning, Avnet released financial results for the third quarter fiscal year 2025, and the release is available on the Investor Relations section of Avnet's website, along with a slide presentation, which you may access at your convenience. As a reminder, some of the information contained in the news release and on this conference call contain forward-looking statements that involve risks, 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. Please note, unless otherwise stated, all results provided will be non-GAAP measures. The full non-GAAP to GAAP reconciliation can be found in the press release issued today, as well as in the appendix slides of today's presentation and posted on the Investor Relations website. 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 2025 earnings call. I am pleased we delivered financial results ahead of our expectations for the third quarter. We achieved sales of $5.3 billion, near to the high end of our guidance, and adjusted DPS of 84 cents above guidance. We also generated $141 million of cash flow from operations in the quarter. Our results were driven by slightly better than expected performance in Asia and Farnell, offset by expected ongoing weaknesses in the West, with York presenting the most challenging market conditions. Semiconductor and IP&E lead times and pricing continue to be stable for most technologies. Our global book-to-bill ratio continues to improve, with the Asian region achieving parity in the quarter and with the Americas and EMEA approaching parity. I would note that the IP&E book-to-bill ratio across the company continues to improve above parity. Our backlog continues to be lower due to a combination of shorter lead times and customers still in the destocking mode. Cancellations have remained at normal levels. Customers continue to work through their elevated inventories. While our inventory is down marginally after accounting for foreign currency, I want to emphasize that inventory on hand, which is comprised of a diverse supplier mix, is a strategic asset and an important part of the value proposition we bring to our customers. And we stand at the ready to provide our customers with the product they need as the destocking process runs its course. At the same time, we expect to continue to optimize our inventory composition and reduce core inventory levels where needed in the coming quarters. Turning to our electronic components results. At the top line, our electronic component sales decline on a sequential basis and on a year-on-year basis due to the economic backdrop and certain geopolitical factors. On the other hand, Asia was the only region with year-on-year sales growth. In EMEA, we continue to experience weak demand across the region. In the quarter, the industrial end market increased slightly while other verticals were down sequentially. The aerospace and defense end market was the only vertical that showed growth on a year-on-year basis. In the Americas, we saw sequential growth in the transportation and compute end markets while other verticals were down sequentially. All verticals, with the exception of compute, were down on a year-on-year basis. We did not see any meaningful increase in shipments in advance of the anticipated tariff increases. Results for our Asia region were better than expected, even after allowing for the seasonal declines attributed to the Lunar New Year. Sales for Asia were down 8.5% sequentially. However, sales increased 13% year-on-year, representing the third consecutive quarter of year-on-year growth. While sales for all verticals were down sequentially as expected, We saw year-on-year growth in the industrial, communication, transportation, and markets. Similar to last quarter, we experienced a slight benefit in Asia from customers ordering due to the uncertainty of potential regulatory changes in the U.S. Demand creation revenues as a percentage of total revenues remain stable. Our demand creation wins increased as our field application engineers continue to find ways to create solutions for our customers, even in these challenging markets. One bright spot to mention is Abacus. Our specialty IP&E business in EMEA recorded solid increases in demand creation revenues and gross profit dollars. Now, turning to Fresnel. We are encouraged by the progress Fresnel is making as sales increased 6% sequentially and operating income increased to 3% for the quarter. We continue to be challenged given the macro environment in Europe where a large portion of their sales are derived. While our team still has a lot of work to do, I expect that we will see steady improvements at Farnell. We will continue to execute against our strategy and focus on those growth opportunities we can control, including leveraging existing Avnet core customer and supplier relationships, thus our branding of the Power of One. Now, regarding recently announced tariffs, we understand that this topic is front and center for all Avnet stakeholders. I want to take a moment to talk about what we are doing to mitigate the impact of tariffs on our customers and our own financials. First, I would start by saying the current environment regarding tariffs is dynamic, and our remarks today are based on what we know at this time. As we've mentioned before, when tariffs on goods originating from China went into effect in 2018, we implemented changes to our systems and processes to minimize the impact of tariffs where we could and pass through tariffs to our customers as seamlessly as possible. In response to recently enacted tariffs earlier this month, our team has been making the necessary adjustments to our systems and processes to capture and mitigate the widening scope of those that are currently applicable. Some of our solutions to minimize the impact include leveraging our global logistics and services footprint, collaborating with suppliers so we can minimize impact on our customers, and offering alternative country-of-origin products and solutions that are not subject to tariffs. To conclude, we are experiencing one of the most challenging and uncertain times that I've witnessed in my 40-plus years in distribution. Supply chains today are very complex, and as I like to say, complexity is our friend. At Adnet, our job, and a big part of our value proposition, is to minimize the complexity so our suppliers and customers can achieve their goals in the most cost-effective way possible. We at Adnet have a long history of adapting to evolving technologies, market cycles, geopolitics, and shifts in regulations. I am confident we will weather these current challenges and emerge stronger. I want to thank our team for their dedication and perseverance in helping us to achieve our goals. It is during times like these that our efforts demonstrate to all of our stakeholders the value that we provide at the center of the technology supply chain. With that, I'll turn it over to Ken to dive deeper into our third quarter results.