Arrow Electronics, Inc.

Good day and welcome to Arrow Electronics third quarter 2022 earnings conference call. Please note today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star followed by the number one again. Thank you. At this time, I would like to turn the conference over to Rick Seidlitz. Mr. Seidlitz, you may begin your conference.

Thank you. Good day and welcome to the Arrow Electronics Third Quarter 2022 Earnings Conference Call. With us on the call today are Sean Terrence, President and Chief Executive Officer, and Raj Agarwal, Senior Vice President and Chief Financial Officer. During this call, we'll make forward-looking statements, including statements about our business outlook, strategies, 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 10K and 10Q 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 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. Following our prepared remarks today, we will be available to take questions. I will now hand the call to our President and CEO, Sean Garens.

Thanks, Rick, and thanks to all of you for joining us today. Before I discuss our most recent results, I'd like to share some thoughts about my first full quarter as the CEO of Arrow Electronics. You know, I spent much of this time meeting with suppliers and customers who continue to validate the essential role we play in their success. I've also had the chance to engage our leadership team to review our strategic priorities, explore opportunities for accelerated growth, and begin the process of refining our roadmap for the years to come. I look forward to sharing more about this with you over the coming quarters. Three months ago, I expressed how excited and confident I am about the future of the company. Today, I am even more motivated to lead this great company on a journey to realize its full potential, as well as the noble purpose we fulfill in the process. I'm also very pleased today to be joined by our new CFO, Raj Agrawal. Raj will be a key contributor toward helping us focus our resources and investments for growth, leveraging the totality of Arrow's capabilities to extend our market leadership and advancing stakeholder engagement to our finance and other support teams throughout the world. I believe his strong financial acumen and business experience make him the ideal executive to lead our finance and accounting team and be an instrumental part of driving the continued growth and success of Arrow. Now, turning to our results, I'm delighted to report that this was our best third quarter ever, with sales growth of 14% year over year on a constant currency basis. This is a function of strong performance by both our global components business and our global enterprise computing solution business as well. The dedication and focused execution by our team helped us deliver strong quarterly sales, gross profit, operating income, and earnings per share. While market conditions remain challenging, they also provide ample opportunities for us to showcase our commitment to the success of our customers and suppliers. In our global components business, demand for electronic components and associated design, engineering, and supply chain services generally remain healthy. On a constant currency basis, sales grew 15% versus prior year. Bookings have returned to a normalized rate following the exceptionally high levels we have experienced since late 2020. Yet despite bookings coming off all-time highs, we still carry a significant open backlog. While we are seeing some orders push out, we are not seeing cancellations to any material degree. Lead times, while relatively stable since prior quarter, remain extended for the majority of products we sell. While supply is improving modestly, it is still insufficient to support the delinquent backlog which has built over many quarters. Therefore, customer service and support remain our top priorities, and our teams continue to work tirelessly to support the deliveries needed by our customers. Both the Americas and EMEA regions produce year-over-year growth rates in excess of 20%. as both regions experienced robust demand across most end markets and industries, in particular transportation, industrial, and aerospace. The business in both regions remains very healthy due in part to our ongoing investments in design and engineering capabilities, which have generated growth in demand creation revenue. In the Americas, we did see some softness in our shortage market services, as bookings normalize and supply begins to improve. This was the primary driver to the sequential sales decline in the Americas, as well as the margin compression for the global components business overall. Sales in our Asia region declined due to weakening demand in several end markets, along with supply chain constraints as fewer parts were allocated to the region. However, overall backlog in the region remains healthy as we benefit from servicing a variety of industries and providing products from a diverse group of suppliers. We are not overly concentrated in any one piece of the market. Again, in this challenging environment, we continue to work with our suppliers to secure parts for the most critical customer needs. In our enterprise computing solutions business, sales for the third quarter were above the midpoint of our guidance, as demand for more complex enterprise IT content was healthy in both regions. On a constant currency basis, sales grew 10% versus prior year, fueled by growth in both regions. While supply constraints remain a challenge, we are starting to see some benefit from our historically high backlog. We continue to see strength in cloud, software, and enterprise IT infrastructure, and are well positioned for the transition to IT as a service. In EMEA, we experienced strong growth in all of our markets and technologies. In the Americas, our growth came primarily from strength in compute, storage, and data intelligence. We continue to measure this business on operating profit growth, and we are pleased to report 9% growth in operating income on a year-over-year basis. We believe the prospects for this business will continue to improve across the balance of 2022 and into 2023. Now, before handing over the call, I do want to reiterate that our backlog remains strong and point out that our design win activities are at record levels. While there are indications that supply, demand, and balances will moderate over the coming quarters, I am confident that our capabilities are unmatched and that we are uniquely positioned to help our customers and suppliers navigate the road ahead. With that, I will now hand the call over to Raj to provide more details on our results and our go-forward expectations.