Arrow Electronics, Inc.

Hey, and thank you for standing by. Welcome to the Arrow Electronics third quarter 2021 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. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference call over to your speaker today, Mr. Steven O'Brien. Please go ahead, sir.

Thank you, and good day, and welcome to our Electronics Third Quarter Earnings Conference Call. With us on the call today are Mike Long, Chairman, President, and Chief Executive Officer, Sean Cairns, Chief Operating Officer, and Chris Stansbury, Senior Vice President and Chief Financial Officer. 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 with the most directly comparable GAAP financial measures in our earnings release. These non-GAAP measures are not intended to be a substitute for our GAAP results. You can access our earnings release at investor.arrow.com, along with the CFO commentary, the non-GAAP earnings reconciliation, and a replay 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 will now hand the call to our Chairman, President, and CEO, Mike Long.

Thank you, Steve, and thanks to all of you for joining us today. Before I touch on the supply chain topic, specifically the current imbalance between supply and demand in the electronics component market, I'd like to focus on the theme we've been discussing over the last few years, Arrow's ability to create even and challenging market conditions. Our customers and suppliers recognize the value we bring as our team achieved all-time records in gross profit, operating income, and earnings per share during the third quarter. Arrow's investment in design, engineering, and supply chain solutions have delivered the unmatched performance that makes us a leader in our industry. Though those investments, we have established a continuous cycle of growth that enables more customers to manage manufacturing and bring compelling new products to market sooner. It also helps our suppliers embed their design in the next generation of electronically rich products. This continuous cycle ultimately leads to new product innovation, closer ties with customers and suppliers, and better outcomes for all. Our emphasis on inventory and working capital investments, as well as our key competitive differentiators of industry knowledge, media properties, and experience, have made us well-positioned to help customers drive their business advantages. These low-risk, near-term investments are helping our customers secure manufacturing continually in increasingly unpredictable conditions. Moving to the financials. The trajectory of the global components business was positive during the third quarter. Our global components business capitalized on continued strong demand in all regions, with sales up 25% year over year. Sales were above the midpoint of our expectation for the six quarters in a row. Just like last quarter, it was a struggle to secure additional inventory to meet strong demand. Based on the data we collect and our market intelligence, It's increasingly clear that supply will remain short of demand through the better part of 2022. Instances of severe supply chain bottlenecks have increased, leading to widely reported production slowdowns in certain industries. During the quarter, we saw robust demand from such sectors as transportation, industrial, communications, computing, and data networking. Our demand strength across all regions and multiple end markets more than offset any one customer's or set of customers' challenges. And as a result, our global component sales of 6.6 billion set an all-time record for Arrow, and we were slightly ahead of last quarter. In terms of profitability, we achieved significant growth along with exceptional operating leverage during the quarter. Notably, operating income from global components increased by more than three times the rate of sales. We continue to provide customers with value-added supply chain services that utilize our global ERP's capability and unique level of inventory insights. Our digital platform is also helping customers manage component supply and safeguard their manufacturing processes. As a result, the revenue contribution from design and engineering activities increased within our mix during the third quarter. Turning to enterprise computing solutions, sales were within the range of our expectation. However, supply chain issues limited our ability to capitalize on strong demand. We saw a project postponed and pushed out during the third quarter due to an inability to secure IT hardware product. This also led to a missed software sale that would have been associated with those specific hardware refreshes. It's not surprising that the same component shortages that are impacting global components and global ECS right now, it's a supply, not a demand issue. It's important to note that near-term postponements due to product availability may not result in a one-for-one catch-up in future quarters, and customers have immediate needs to run mission-critical applications and workloads in a secure manner and limited abilities to stretch existing infrastructure. any bottlenecks are therefore accelerating the utilization of cloud-based compute and storage that's good news for aero is that we have the leading cloud enable tool aerosphere ready and able to help our var and nsp customers meter monitor and build cloud right away in closing i'd like to acknowledge Our team for consistently delivering our customers and suppliers admits some of the most acute and protracted product shortages and shortfalls we've ever seen. We earn our customers' trust and business during the tough times, and that certainly includes time where demand outstrips supply by a wide margin. By delivering for customers right now, we're securing strong, mutually beneficial, multi-year relationships for the future. With that, I'll now hand the call over to Chris to provide more details on our third quarter results and our expectations for the fourth quarter.