Arrow Electronics, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Aeroliftonic third quarter 2020 earnings conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1 in your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to turn the call over to Stephen O'Brien, Vice President, Investor Relations. Please go ahead.

Thanks, Denise. Good day and welcome to Arrow Electronics' third 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 Karens, President, Global Enterprise Computing Solutions. During this call, we will make forward-looking statements, including statements about our business outlook, strategies, and future financial results, which are based on our predictions and expectations as of today. Our actual results could differ materially due to a number of risks and uncertainties, including the risk factors in our most recent 10-K and 10-Q filings with the SEC. We undertake no obligation to update publicly or revise any of the forward-looking statements. As a reminder, some of the figures we will discuss on today's call are non-GAAP. We have reconciled those to the most directly comparable GAAP financial measures in our earnings relief. These non-GAAP measures are not intended to be a substitute for our GAAP results. You can access our earnings relief at investor.arrow.com, along with a CFO commentary, the non-GAAP earnings reconciliation, and a replay of today's call. We will begin with a few minutes of prepared remarks, which will then be followed with a question and answer period. I'll now hand the call to our Chairman, President, and CEO, Mike Law.

Thanks, Steve. Thanks to all of you for joining us today. I'm pleased to report that our hardworking and dedicated team delivered strong financial results in the third quarter. Our reputation for reliability and consistency are the hallmarks that have allowed our customers and suppliers to place their trust in Arrow for critical engineering, design, and supply chain services. To maintain that consistency, we continue to put the health of our people first, and I want to thank our employees for keeping our distribution facilities and offices running safely and smoothly and continuing to move our business forward. As I mentioned on our prior quarterly earnings calls this year, Arrowhead faced adverse conditions many times in the past and has always emerged stronger than before. Our business model is resilient and unique, Even during periods of decreased demand, our ability to generate substantial cash flow allows us to invest in areas that represent the best long-term opportunities. Our foundation will be even stronger exiting the pandemic. We're already and already we're seeing concrete proof of that. Global component sales returned to year-over-year growth, driven by record third-quarter sales in Asia. and we've only just started to see the demand stabilize and recover in the Americas and Europe. Additionally, earnings per share increased 12% year over year, and Arrow is delivering differentiated performance thanks to our customers and suppliers who recognize the value-added products and services we provide. Another way we build confidence in the marketplace is to keep our balance sheet strong. Our results this quarter show just that. Cash flow from operations totaled $275 million in the third quarter, and that's $1.7 billion over the last 12 months. And we have reduced our debt by nearly $1.5 billion since the first quarter of 2019 when the semiconductor market correction began. Additionally, we remain committed to returning excess cash to shareholders, and the third quarter was no different. We repurchased another $150 million worth of shares this quarter for a total of $375 million this year. Turning to current business conditions, as I mentioned, strong third quarter sales and global components were driven by tremendous growth in the Asia region. We see further opportunities for strengthening future performance once the Americas and Europe start to recover. We previously mentioned that regional inventories had been destocked prior to the onset of the pandemic. Starting from those lean levels, global component sales increased sequentially in each region for the first time since third quarter of 2017. Demand in Asia has been robust across all the key verticals. And the third quarter is typically the strongest quarter for that region. All regions benefited from a strong turnaround in transportation-related demand compared to the second quarter. Design activity, again, reached an all-time record for any quarter in our history. And design activity increased year over year for the fourth quarter in a row. This is a positive leading indicator. Arrow will continue to increase our engineering and design efforts as we believe this is the best way to position our business for the long term. Other indicators are consistent with improving trends. Third quarter backlog increased year over year for the second quarter in a row. Lead times increased slightly compared to last year. Global Components booked a bill with 1.03 exiting the second quarter. Booked a bill was again the highest in the Asia region where business has normalized quicker than the other two regions. Our America's Customer Sentiment Survey shows that further improvement. The percentage of customers saying they had too little inventory was slightly above the long-term average. The percentage of customers saying they had too much inventory returned to the long-term average. Turning to enterprise computing solutions, we're pleased to deliver sales that were near the high end of our prior expectations and above second quarter's level. We also achieved operating profit leverage on that sequential growth. In terms of IT spending, we continue to see purchases directed towards the tactical areas of endpoints and devices rather than transformational areas. We participate in work-from-home spending through security and cloud-based solutions but some more complex projects remain delayed as companies limit outside workers. However, we continue to believe some of those delayed investments in mission-critical technologies cannot be pushed out indefinitely. Looking at the mix, demand from larger, better capitalized VARs and MSPs who rely on fewer of our capabilities and services remains resilient. demand from the smaller customers who rely on more of our capabilities has been weaker in this environment even with a less favorable margin mix we are still able to generate strong economic returns from this business you can see this in our third quarter return on working capital return on invested capital and cash to cash cycles in the third quarter looking ahead we'll continue to support our stakeholders and communities and are committed to providing our customers with products and solutions they need when they need them. I'll now turn the call over to Chris to provide more details on third quarter results and our expectations for the fourth quarter.