Arrow Electronics, Inc.

Good day, and welcome to the Arrow Electronics second quarter 2024 earnings call. Today's conference is being recorded. 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, again, press star one. At this time, I would like to turn the conference over to Brad Winbigler, Arrow's Treasurer and Vice President of Investor Relations. Please go ahead.

Thank you, Operator. I'd like to welcome everyone to the Arrow Electronics Second Quarter 2024 Earnings Conference Call. Joining me on the call today is our President and Chief Executive Officer, Sean Cairns, our Chief Financial Officer, Raj Agarwal, our President of Global Components, Rick Morano, and our President of Global Enterprise Computing Solutions, Eric Nowak. During this call, we'll make forward-looking statements, including statements about our business outlook, strategies, and future financial results, which are based on our predictions and expectations out of today. Our actual results could differ materially due to a number of risks and uncertainties, including the risk factors described in our most recent filings with the SEC. We undertake no obligation to update publicly We'll revise any of the forward-looking statements as a result of new information or future events. As a reminder, some of the figures we will discuss on today's call are non-GAAP measures, which are not intended to be a substitute for our GAAP results. We've reconciled these non-GAAP measures to the most directly comparable GAAP financial measures in this quarter's associated earnings release, or Form 10-Q. You can access our earnings release at investor.arrow.com, along with a replay of this call. We've also posted a slide presentation to accompany our prepared remarks and encourage you to reference these slides during the webcast. Following our prepared remarks today, Sean and Raj will be available to take your questions. I'll now hand the call over to our President and CEO, Sean Cairns.

Thanks, Brad, and thank you all for joining us. Today, I'd like to discuss our second quarter results, provide some commentary on the markets in which we compete, and then close with some thoughts as to how we're lining up for the future. I'll then turn things over to Raj for more detail on our financials, as well as our outlook for the third quarter. In the second quarter, we once again executed well in an evolving market environment as we continued to navigate the later innings of a prolonged inventory correction throughout the electronic supply chain in a very mixed spending environment in enterprise IT. I'm pleased to announce that we delivered total revenue of $6.9 billion and generated non-GAAP earnings per share of $2.78. Both numbers exceeded the high end of our guidance. Taking a closer look at our global component segment, we delivered solid financial results, nicely ahead of our original expectations. Broadly speaking, we're seeing signs of incremental improvement across several of the market segments in which we compete, leading to relative stability as we look to the future. Although conditions have not fully normalized and the broader industrial markets remain soft, our bookings improved sequentially, and the overall tone from suppliers and customers throughout the market has generally improved since our time together last quarter. Our focus on value-added offerings, including supply chain management, design engineering, and integration services, along with demand creation, continue to foster deeper engagement with suppliers and customers. These capabilities continue to contribute to our structural margin health. In fact, although impacted by regional mix, our second quarter operating margin of 4.3% was well above levels experienced at the low point of previous cyclical corrections. From a regional perspective, we experienced modestly improving conditions with mixed geographic trends. In Asia, revenue grew sequentially in both our semiconductor and IP&E product lines, led by mild improvement in both the industrial and compute verticals. We were specifically encouraged by sequential growth in China and fairly stable transactional pricing across the region. In the Americas, while the region declined slightly, aerospace and defense remained healthy, and in addition, we saw sequential sales growth in IP&E, along with growth in design events overall. In India, the broader industrial and transportation markets remained in decline. although it's worth noting, as is typical across most cycles, that Europe was the last region to enter correction territory. As we navigate the late stages of this cycle, several of the leading indicators we highlighted last quarter continued to reflect progress. Our book-to-bill ratios advanced across all three regions, progressing closer to parity. Backlog in our core regional businesses has stabilized and cancellation activity has fully normalized. As mentioned, Bookings accelerated across all regions, which we believe indicates a further step down in ecosystem inventory levels as well as improved visibility to forward-looking production requirements. And as for our own working capital, we again reduced inventory reflecting market conditions, but at a reduced rate versus prior quarters as we look to position the business for future growth. We believe these signals point to an eventual return to growth, and as the cycle fully corrects, we remain focused on diligently managing our cost structure and working capital while remaining invested in our strategic priorities. Our Q3 outlook reflects our view that conditions are generally beginning to level out, albeit with regional differences at play. As we progress through the third quarter, we're expecting more typical seasonality in the Americas and Asia, while still declining in Europe, but less so than in the second quarter. And we do expect operating margins to be relatively stable in Q3. Now, turning to our global ECS business. In the second quarter, we exceeded our original expectations for both sales and operating income while delivering year-over-year billings growth. Globally speaking, cloud and AI-related solutions, along with better server demand, contributed to our results while also adding to our future backlog. On a regional basis, In EMEA, we achieved year-over-year billings in gross profit dollar growth based on continued strength in hybrid cloud adoption. During the quarter, we also expanded our line card to enhance our offerings for our channel partners. And in North America, relative strength in the public sector and for cloud-related solutions was partially offset by softness in data storage. We continue to reshape our go-to-market model in this region to one that better approximates our selling motion in EMEA. In general, as we continue to capitalize on the market's transition to IT as a service, we are growing our mix of multi-year subscriptions and recurring revenue streams. This is leading to a growing backlog, stickier relationships, and accretive contribution margins. Our Q3 outlook indicates typical seasonal patterns in our ECS business as we anticipate a modest sequential decline. and we do believe market conditions will continue to improve throughout the balance of the year. In closing, given the market backdrop, I'm pleased with our solid second quarter performance, and I'm confident in our future. As I mentioned, we're seeing mild improvement across several market segments, and so we do expect stronger performance in the second half of the year, reflecting both improving stability in components and a benefit from ECS seasonality later in the year. And as I look beyond the next couple of quarters, I think we're well positioned for the next growth cycle and well equipped to shepherd the next generation of technology, specifically artificial intelligence, to the broader market. Although still in the earlier phases of broad industry adoption, we're building upon our capabilities for the future with some notable areas of focus, including our supply chain services offering, where we enable cloud and platform players to deploy and scale, their next-generation AI infrastructure. Given our substantial field application engineering and embedded integration offerings, we're well-suited to help design and deploy AI-related solutions at the intelligent edge. And through investments like our robotics center of excellence, we're actively engaged in solution design from the GPU to the image sensor for a variety of industries, applications, and use cases. We're obviously excited by these and other longer-term prospects. And in the meantime, we're cautiously optimistic that we're approaching a turning point in our core markets. Before I turn things over to Raj, I'd like to acknowledge the resilience of the Arrow team across the globe and thank them for their ongoing dedication to our suppliers and customers. And with that, over to Raj.