Arrow Electronics, Inc.

Good day and welcome to the Arrow Electronics fourth quarter and full year 2025 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Michael Nelson, Arrow's vice president of investor relations. Please go ahead.

Thank you, operator. I'd like to welcome everyone to the Arrow Electronics fourth quarter and full year 2025 earnings conference call. Joining me on the call today is our interim president and chief executive officer, Bill Austin, 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 annual report on form 10 K and other filings with the. 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 on this website to accompany our prepared remarks and encourage you to reference these slides during this webcast. Following our prepared remarks today, Bill, Raj, Rick, and Eric will be available to take your questions. I'll now hand the call over to our interim president and CEO, Bill Austin.

Thank you, Michael, and good afternoon, everyone. We appreciate you joining us for a discussion of our fourth quarter and full year 2025 results. I've been serving as Arrow's interim CEO for the past five months, and I've also had the privilege of serving on our board since 2020. In both roles, I continue to be impressed by the depth of talent, operational discipline, and commitment to our suppliers and customers around the globe. I want to thank all of our dedicated colleagues globally who continue to deliver for Arrow. Starting on slide three. we delivered a very strong fourth quarter and with solid execution across global components and ECS. I'm pleased to share that revenue increased 20% year over year and non-GAAP EPS increased 48% year over year, both ahead of expectations. In global components, demand continues to gradually recover from a prolonged cyclical correction. And in ECS, we delivered record gross profit and operating profit in the fourth quarter. The fundamentals of the business are strengthening. Raj will dive deeper into our financial performance, but I'd like to spend a moment touching on a few metrics we are particularly pleased with. First, our leading indicators continue to improve. Book to bill and backlog are increasing. Lead times are incrementally extending. Visibility continues to be cloudy, but we remain disciplined in how we interpret these data points. Our strategic priority to purposefully shift our mix is translating into higher quality results as value-added offerings and ECS continue to perform well, supporting margins, cash generation, and positioning Arrow for profitable growth as the cycle continues to gradually improve. Turning to slide four, while we are pleased with how we finished the year, We remain focused on how we are positioning to grow profitably as the cycle continues to gradually recover. Our investment thesis is unchanged. We are actively executing on our strategy, and our fourth quarter results demonstrate the momentum we are building. We will continue to focus on executing through a gradual recovery while continuing to improve the quality and durability of the business. There are four key pillars of our investment thesis. the reasons why Arrow is unique, respected, and a compelling investment opportunity. First, Arrow holds a leading position in large and expanding markets. Arrow operates at the intersection of electronic components and enterprise IT, serving six large end markets, including industrial, transportation, aerospace and defense, medical, consumer electronics, and data center, all with long-term secular tailwinds. We are well positioned in each of these end markets. As we saw in the fourth quarter, demand trends and ordering behavior improved sequentially, with leading indicators gradually strengthening across regions. Second, Arrow has differentiated capabilities driving profitable growth. A key part of our strategy is growing our higher margin value-added services, which deepen customer engagement and improve returns. These offerings, such as supply chain services, engineering and design, and integration services, extend our role from fulfillment to embedded partnership as we become an extension of customers' and suppliers' product development, supply chain, and go-to-market efforts. Our distribution capabilities around SEMI, IP&E, and demand creation remain a fundamental part of what we do, and our value-added services are a natural extension for Arrow. As we saw in the fourth quarter, value added offerings continue to gain traction and adoption, which is helping to improve our margin profile, reinforcing that this is not a future ambition, but an active driver of profitable growth. The contribution of value added services as a percentage of total operating income has grown over time. Historically, value added services accounted for less than 20% of total company operating income. In 2025, That mix has grown to roughly 30%, reflecting both strong demand and an intentional shift in our portfolio toward margin-accretive offerings. Looking ahead, we are focused on further increasing this mix to drive profitable growth. The secular growth in cloud, AI, and data center demand is creating tailwinds for both our components and ECS businesses, particularly in areas like AI infrastructure build-out, where our supply chain services are increasingly critical. Another lever for margin expansion is our ability to create a productivity flywheel that focuses on driving costs out, which in turn creates leverage in the P&L, expands margins, and provides reinvestment capacity for growth. Our efforts to date have focused on simplifying operations, consolidating resources, and realigning geographically. We have more work to do, but our productivity and cost out efforts are becoming part of everyday life at Arrow as it creates operating leverage and reinvestment capacity in the business. Third, we have a diversified business model which provides financial flexibility. Arrow's combination of global components and ECS creates balance, resilience, and consistent cash generation through cycles. Our diversified model allows us to participate across the full technology lifecycle, from design and planning to deployment, management, and support. This diversification is especially value in this recovery as it provides resilience on both the income statement and the balance sheet, supporting long-term value creation. Our ECS business is a nice compliment to our electronics business as it is a critical growth engine for Arrow. ECS is comprised of hybrid cloud and infrastructure software, hardware, and services to deliver solutions such as cybersecurity, data protection, virtualization, and data intelligence, much of which is on-ramp to AI. In ECS, we are also moving beyond transactional distribution toward higher value, more strategic engagements. We are driving channel enablement through our Arrasphere digital platform, which supports cloud and AI scale and acceleration. I'm proud to share that Arrow was recognized as Microsoft's 2025 Distributor Partner of the Year for its Arrasphere AI offerings. including Ourosphere Assistant that helps channel partners drive sustainable growth through agentic selling and insight-driven execution. This demonstrates the differentiated innovation we are bringing to the market. In addition, strategic outsourcing, recurring revenue models, and digital enablement are expanding our role in the ecosystem and improving earnings quality. Many of the solutions we are providing are now served on an as-a-service basis. This continues to contribute to the growth of our recurring revenue volumes, now roughly one-third of our total ECS billings. Additionally, three-quarters of ECS billings are software and services. The remaining 25% of billings consists of hardware solutions related to storage, compute, and networking. The fourth quarter confirmed our strategy is progressing with continued momentum in backlog, recurring revenue, and cloud and AI-related demand. Our diversified model provides balance through cycles, which is particularly important in a recovery environment like the one we're in today, ultimately positioning Arrow to deliver sustainable long-term growth, margin improvement, and increasing shareholder returns. And fourth, we have a focused capital allocation strategy designed to maximize shareholder value. We will reinvest in organic growth opportunities that strengthen our differentiated capabilities, expand our value-added offerings, and position the business for profitable growth as markets recover. We will pursue strategic and financially disciplined M&A that enhances our competitive position, deepens supplier and customer relationships, and delivers attractive long-term returns. And we will continue to return excess capital to shareholders. In Q4, we repurchased $50 million in stock, and since 2020, we have returned approximately $3.6 billion to shareholders through share repurchases, reflecting our confidence in the durability of our business model and our commitment to shareholder value creation. As we evaluate all the uses of capital, we remain focused on deploying capital where we see the highest long-term risk-adjusted returns while preserving an investment grade credit profile and the flexibility to continue investing in the business. Turning to slide five, we are very proud of what we accomplished in 2025. We ended the year with strong execution, delivering a solid fourth quarter while continuing to operate in what remains a gradual recovery across our markets. We are improving our execution and we are seeing tangible evidence that our strategy is delivering. The continued growth of higher margin value-added offerings across both global components and ECS is improving the quality and durability of our earnings. Looking ahead, we remain cautiously optimistic as the cycle gradually recovers. We anticipate having the opportunity to drive profitable growth through a measured recovery in 2026 and will continue to manage the business with discipline. We believe Arrow is well positioned for the long term with a diversified business model improving profitability, and a focused capital allocation strategy that allows us to invest through the cycle and create sustainable shareholder value. With that, I'll turn it over to Raj to dive deeper into our financial performance. Thanks, Bill.