Arrow Electronics, Inc.

Good day and welcome to the Arrow Electronics fourth quarter 2024 earnings call. 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 one again. Today's conference is being recorded. 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 Fourth 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 Agrawal, our President of Global Components, Rick Marano, 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, plans, 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 due to the risk factors and other factors described in this quarter's associated earnings release and our most recent failings with the SEC. We undertake no obligation to update publicly or 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. 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 this 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.

Thank you, Brad, and thank you all for joining us. Today, I'd like to share a few thoughts on 2024 as a whole. Then, I'll comment on our fourth quarter performance, reflect on the markets in which we compete, and share our thinking as to how things are shaping up as we look to 2025. I'll then turn things over to Raj for more detail on our financials, as well as our outlook for the first quarter. Reflecting on 2024, it was a year that brought Arrow unique market conditions and challenges, but also opportunity. Given the ongoing correction in the broader semiconductor industry, I think we effectively navigated a challenging year while taking several steps to strengthen and position our global components business with the anticipated improvement and conditions ahead. These include extending our line card and expanding our customer base, continuing our commitment to the offerings and capabilities that differentiate us with suppliers and customers, namely supply chain management, demand creation, and engineering services, and realigning our business for global consistency and scale. In our enterprise computing solutions business, we fully aligned our go-to-market strategy across both regions and are laser focused on the markets and demand trends for which we're best suited. namely the adoption of hybrid cloud and AI-related solutions, especially in the mid-market. As a result, suppliers and channel partners are taking notice. We exited the year on a healthy trajectory and have growing confidence for the performance of this business in 2025. Now, turning to our results. In the fourth quarter, we executed well relative to our original expectations, generating $7.3 billion in total sales and achieving non-GAAP earnings per share of $2.97, both surpassing the high end of our guided ranges. Taking a closer look at our global components business, we closed out the year with solid results despite challenging market conditions. On a global basis, despite continued softness across a number of verticals, we saw all three regions perform in line with or better than typical seasonal patterns. Our overall sales results were better in IP&E relative to our semiconductor business, reflecting the resilience of that segment throughout the cycle. Most notably, we saw sequential improvement in our industrial markets, driven by gains in both Asia and the Americas, and in addition, our value-added offerings and capabilities contributed to gross margin stability during the quarter. On a regional basis, results were quite mixed. In Asia, stability in transportation and growth in industrial were offset by softness in consumer, compute, and communications segments. In the Americas, our gains in the industrial market were offset by softness throughout the automotive sector. Aerospace and defense, along with the medical device markets, continue to be more resilient. And finally, EMEA's sequential revenue decline aligned with seasonal norms, potentially an encouraging trend given the region's later passage through the cycle. and despite a challenging macro environment, we're executing well in that region. As for the market more broadly, we believe we're in the later innings of the industry's cyclical correction. The precise timing and pace of a broader market recovery are still difficult to predict, but we do continue to see incremental improvement in the key leading indicators for our business. Our book-to-bill ratio is now just shy of parity on a global basis with two of our three operating regions exiting Q4 at or near one-to-one. Rescheduling and cancellation rates have fully normalized, our visibility is steady, and our backlog is stabilizing. Lastly, industry-wide data points suggest ecosystem inventory levels continue to decline, albeit slowly. Our Q1 guidance reflects a broader market still bouncing along the bottom. But as we look beyond the first quarter to the balance of the full year, we're cautiously optimistic about an improving trajectory. We think the declining inventory levels will eventually support improved visibility in a modest recovery. We expect to see incremental volume related to our supplier and customer base expansion efforts. And we believe our actions to further penetrate the market for IP and E along with growth and value added services will also contribute to our momentum. Nevertheless, as we've suggested in prior quarters a broader recovery will be predicated upon improving outlooks across our supplier base now turning to our global ecs business in the fourth quarter we delivered year-over-year growth in billings gross profit and operating income underscoring our alignment to the higher growth demand trends across enterprise i.t along with improving execution in our north american region strength in hybrid cloud solutions infrastructure software, including cybersecurity, and improving data center activity related to AI adoption drove our results. Our first quarter outlook anticipates similar trends. And as such, we expect to see year-over-year gross profit dollar growth in the first quarter from both regions and operating margin expansion for the business overall. And as we look to the full year, we're encouraged by several factors, including the benefit of our supplier and customer base expansion efforts in 2024, increasing adoption of our AeroSphere digital platform, a growing backlog of cloud and infrastructure software, and the continued expansion of our recurring revenue volumes, all of which indicates our ECS business is poised for a solid year and a growing contribution to Aero's overall results. In closing, though the industry downturn in our components business has been more prolonged than anticipated, we're confident in the longer-term outlook for the semiconductor industry and our business as a whole. We remain committed to our strategic priorities and continue to take healthy steps to position the business for the growth opportunities that lie ahead. In the meantime, I'd like to thank all of our employees around the world for their dedication to Arrow throughout 2024. I'm grateful for their commitment to our suppliers, our customers, and especially each other. And with that, I'll hand things over to Raj.