Arrow Electronics, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Arrow Electronics Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your host today, Steve O'Brien. Thank you. Please go ahead, sir.

Thank you, Sukum. This is Steve O'Brien with Arrow Electronics, and welcome to our second quarter 2020 earnings conference call. With us on the call today are Mike Long, Chairman, President, and Chief Executive Officer, Chris Stansbury, Senior Vice President and Chief Financial Officer, Andy King, President, Global Components, and Sean Caron, President, Global Enterprise Computing Solutions. As a reminder, some of the figures discussed on today's call are non-GAAP. You can access our earnings release at investor.arrow.com along with the CFO commentary, the non-GAAP earnings reconciliation, and a webcast of this call. We will begin with a few minutes of prepared remarks, which will then be followed by a question and answer period. I'll now hand the call to our Chairman, President, and CEO, Mike Long.

Thanks, Keith, and thanks to all of you for joining us today. First off, I'd like to thank our global employees for their commitment, professionalism, and teamwork during these extraordinary times. The critical engineering, design, and supply chain services they provide to our customers, our suppliers, and partners create technology to protect and improve our way of life. The health of our people always comes first. And thanks to their thoughtful and diligent work, our offices, our facilities have been kept safe and our business is moving forward. Over the course of a few months, we've learned a lot about the practices necessary to keep the business going while protecting our people. We remain diligent. We're increasingly optimistic that we have found a sustainable way to do business and actually thrive in the coming quarters. On April 30th, we provided an outlook for the second quarter. We recognize then and now that to guide innovation forward, we must maintain our reputation for transparency. In addition, we have a long-held belief in the power of data from the billions of transactions we do with thousands of customers across dozens of industries. As a result, I'm pleased to report that we exceeded our quarterly earnings guidance for the quarter. In fact, we've met or exceeded our guidance 46 times in the last 50 quarters. As we reflect on what we can do to achieve long-term success, it's important to recognize both the items that are in our control and those that are not. We can't control the demand for cars, data center equipment, or electronic devices. We can continue to position our business for rapid sales acceleration and mix shift to higher margin engineered components and solutions. One way we're doing that is by adding to our engineering and our sales teams today. We've seen great opportunity to drive leverage from design, engineering, and marketing that will benefit our customers and suppliers. Another way for Aerova to position for the eventual improvement in demand is to execute on the business model, and to strengthen the balance sheet. Our results this quarter showed just that. Cash flow from our operations totaled $418 million, $1.7 billion over the last 12 months, and we have also reduced debt by $1.1 billion over the last year. We remain confident in our long-term strategy and execution. Therefore, we increased our commitment to returning excess cash to our shareholders with an additional $600 million of share repurchases. Arrow remains focused on maximizing our near-term opportunities while positioning our business for the long term. Design activity reached an all-time record for any quarter in our history, And our design activity has actually increased year over year for the third quarter in a row. Typically, this is a good leading indicator of an improving market, and this is why we keep investing in our engineering capabilities. Other indicators are consistent with short-run stability. Second quarter backlog increased from the first quarter. The third quarter in a row of sequential improvement. Lead times were consistent with the first quarter and with last year. Global components book to bill was 1.07, exiting the second quarter. Book to bill was highest in the Asia region where the pandemic recovery is happening sooner. Our America's customer sentiment survey showed some improvement. The percentage of customers saying they had too little inventory increased compared to last year, and the percentage of customers saying they had too much inventory decreased compared to last year, but also remained higher than normal. To date, we've not faced significant challenges during the parts our customers need. Turning to enterprise computing, in the second quarter sales were slightly above our midpoint expectations. Like last quarter, we experienced strong demand for the solutions that enable the work from home and the business continuity. Security software sales were strong, and storage sales increased compared to last year. We remain confident in the consistent growth from data, from connected devices and objects, and we believe that that will be a long-term tailwind for our business. Taking a step back, I want to emphasize that as a company, we have a long history on capitalizing on downturns and disruptions. And despite the current environment, we continue to improve our team's leading design and demand creation for global components. Hybrid cloud for enterprise computing solutions, and we can fund these investments with efficiencies that we gained from our superior operational platform. And we expect these investments to drive exceptional profit leverage in the long term. In closing, we're continuing to support our stakeholders and communities. We're committing to providing our customers with the products and solutions they need when they need them. We remain disciplined and focused as we operate our facilities and businesses through these uncertain times. Over the last several months, we've worked diligently to avoid disruption and are confident we'll continue to do so as we operate as a critical provider to the global technology and industrial ecosystems. We will not stop looking for opportunities to expand our business, drive innovation, and improve the performance of our end customers everywhere. I'll now hand the call over to Chris to provide more details on the second quarter results and our expectations for the third quarter.