Ladies and gentlemen, thank you for standing by, and welcome to the Arrow Electronics Q1 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'll need to press star one 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 turn the call over to Steven O'Brien, Vice President of Investor Relations. Please go ahead. Thanks, Denise. Good day. Welcome to Arrow Electronics' Q1 2021 Earnings Conference Call. On the call today are Mike Long, Chairman, President, and Chief Executive Officer, Sean Kerins, 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 Form 10-K and Form 10-Q filing 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 today on the call are non-GAAP. We have reconciled those to the most directly comparable GAAP financial metrics 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'll now hand the call to our Chairman, President, and CEO, Mike Long. Thanks, Steve. Thanks to all of you for joining us today. Let me begin by saying strength and stability are and have been the hallmarks of our business. We've had the opportunity to prove this under both strong and weak demand conditions over the last 12 months. During the Q1, our dedicated team did their utmost to help customers manage their supply chains and get the components they need. I'm pleased to report that our flexible business model can respond as well to the current challenge of demand outstripping supply as it did to the pandemic, and before that, the electronic components market correction. This flexibility is what's enabled us to deliver first-quarter results across the P&L statement. Last quarter, I said that we were seeing customers ramping production levels across many industries. I also said we were optimistic that the post-pandemic rebound we had seen in Asia could extend to the Americas and Europe, so that both of those regions could return to growth. Clearly, our global components business capitalized on strong demand in all regions this quarter, with sales up 42% year-over-year. We saw strong demand from key industries such as transportation, communications, consumer, electronics, and industrial. As a result, global components sales reached $6.4 billion, which is an all-time record in the company's history. Turning to Enterprise Computing Solutions, sales were in line with our expectations, and importantly, we delivered the operational leverage that we expect our investors to have. Operating income from global components increased by more than 70% year-over-year. This significant improvement was due to greater operating expense leverage from higher sales volumes and from favorable pricing in all regions. We expect to further grow our operating income as the Americas and Europe regions continue to recover and as our revenue mix across all regions shifts towards a greater proportion of our higher-value component sales. We've been saying for years that the semiconductor industry remains vibrant. The increasing amount of electronic content in everything for us is a tailwind for our business and has also led us to healthy platform diversification. We experienced strong demand from nearly all key tech verticals. Stepping back, when I look at the reasons why past semi cycles have ended badly, I'm optimistic that a smoother landing could happen this time. Our visibility is better than ever. Capacity additions at fabs are currently limited, so there's no supply surge coming. There is no longer just one product that's driving all demand, like phones and PCs in the past, and we don't see shortages causing complementary products to stockpile. Lastly, we, in cooperation with our suppliers, have been proactively managing orders and customers' expectations. Turning to Enterprise Computing Solutions, sales were in line with our expectations, and billings increased at a solid rate year-over-year. We experienced growth in infrastructure software across the portfolio, and the demand for computing drove server sales. Operating income, which is the truest measure of our performance for Enterprise Computing Solutions, we're pleased to once again deliver operating income growth year-over-year in the Q1, and we expect that growth again in the Q2. While we are pleased with our Enterprise Computing Solutions performance, we see strong potential for further improvements in the second half of 2021. Rules and restrictions related to on-site work continue to change and are variable across regions, especially in Europe. The good news is that even in Europe, we're seeing signs that IT spending priorities are shifting towards the more complex transformational projects that tend to be better aligned with our value-added focus. In closing, I'm pleased to report that Arrow Electronics has overcome many challenges, both recently and over the company's decades of being in business. We're currently experiencing tremendous demand, which is a first-class problem. Our team continues to innovate so we can deliver the best possible solutions for our customers, and drive enhanced value for our shareholders. We're optimistic about the future, and look forward to capitalizing on the positive tailwinds to build our strong momentum and improve our performance even further. With that, I'll now hand the call over to Chris to provide more details of our Q1 results and our expectations for the Q2. Thanks, Mike. Q1 sales increased 27% year-over-year on a non-GAAP basis. The average euro/dollar exchange rate for the quarter was $1.20 to €1, compared to the rate of $1.23 we had used for forecasting. The slightly weaker euro meant that foreign exchange made a smaller contribution to growth than we anticipated. The effective tax rate was below our expectation due to timing of certain discrete items as well as our regional profit mix. For the full year 2021, we now expect our effective tax rate to be at the low end of our long-term range of 23%-25%. Beyond 2021, our ability to maintain this lower effective rate will depend on whether there are corporate tax code changes in the U.S. Turning to the balance sheet and cash flow, Q1 operating cash flow is normally our lowest quarter and is often negative. Q1 cash burn was approximately $5 million due to substantially stronger demand than we anticipated. Our cash cycle of approximately 46 days improved 10 days compared to last year. This improvement significantly aided cash flow performance in the face of working capital demand. During the Q1, we paid off the remaining $131 million of maturing five 1/8% notes. Our liquidity position is the best in the history of our company and continues to improve. During the quarter, we expanded our U.S. asset securitization program by $50 million to $1.25 billion and extended it to 2024. Leverage, as measured by debt to EBITDA, is the lowest level in over five years. We returned approximately $150 million to shareholders during the Q1 through our share repurchase plan. The remaining authorization under our existing plan is approximately $313 million. We remain confident that share repurchases are the best use of excess cash as measured by return on invested capital and return on working capital, both of which are significantly improving. Please keep in mind that the information I've shared during this call is a high-level summary of our financial results. For more detail regarding the business segment results, please refer to the CFO commentary published on our website this morning. Now, turning to guidance. Midpoint sales and EPS guidance would be all-time Q2 records. Our forecast implies that Q2 sales and profits will be slightly above the Q1. Our bottoms-up forecast does not show the usual level of positive Q2 seasonality due principally to the Q1 strength, which was above our expectations, supply constraints, and lastly, the longer and later close to the Q1. Our guidance reflects continued strong profit leverage for global components and continued operating income growth from Enterprise Computing Solutions on a year-over-year basis. Finally, as we discussed last quarter, please note the CFO commentary includes information on our fiscal calendar closing dates for 2021. In 2021, the Q4 starts on October 3rd, unlike in 2020 when it started on September 27th. This makes the Q4 shorter than prior year Q4s. We believe year-over-year comparisons for the Q2 and Q3 s are not affected, and our fiscal year ends on December 31st as always. With that, I'll turn the call over to the operator for Q&A. Hey, ladies and gentlemen. To ask a question, please press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from William Stein from Truist Securities. Your line is open. Great. Thanks for taking my question and congrats on the good quarter and outlook. Maybe about inventories. Given the tight supply environment, your inventory, I think, shrank on a days basis. Semi suppliers have been pretty open about prioritizing direct versus channel in terms of where they're delivering. I wonder if you have line of sight into inventory replenishing. You think that happens in Q2, or is it further out in the future? Thanks, Will. I think that we would see it improve as the year goes on. I think you're seeing our Q2 forecast we just came out with is tempered a little because of supply. Our Q2 forecast is not tempered because of demand. I wanted to make sure I made that point, that the books of business are still strong. Across industries, we're still seeing a fair amount of demand. The visibility is better because we're seeing customers live within the lead time, meaning they're giving us orders that coincide with the lead times that are going. Yes, we're very clear on the inventory levels. We're very clear where we think Q2 is going to come in. At this point in time, any upside that would come in would go right out the door. One follow-up, if I can, Mike. You had a very interesting comment about your hopeful view that in this cycle, we could have a soft landing. We know we're in this very tight supply-demand condition. We know that you can try to identify every case and fight every case of double ordering, but this is just human nature, right? We can be pretty sure customers are trying to do it, and these things usually don't end gracefully. I wonder if maybe you could just provide some comparison to prior cycles in terms of both the supply conditions and the demand conditions. There are several cycles that we've experienced over the last 25, 30 years. I don't know if there's one that this feels most like or most unlike. Any characterization along those lines would be really helpful. Thank you. Well, first off, thanks for acknowledging my age. Mine too. Secondly, I think there's several things. In the past, what's happened is these cycles of supply-demand have hit, and then the manufacturers have been able to gear up the production because they were generated off of their own fabs. There is a difference today than what you see right now. More semiconductors had their own fabs than do today. The ability to just come in and start really increasing production isn't as easy as it was, say, 10 years ago, 15, 20 years ago. That's number one. Number two is, yeah, I'm sure the manufacturers are reprioritizing towards automotive, but there's still a lead time to build those products. It wasn't like they had all of this inventory that they decided not to ship in the Q1, and so now it's on the shelf, and they're going to ship it in the Q2. They had to build some of this. The prioritization has already been really going on, if you consider how fabs work and how things are manufactured. We're seeing that a little bit, and you'll see a bounce back there. We're not getting indications at this point that we're going to get less product as a result of that, but we're not getting an indication we're going to get more product, which is why our guide is where it is. If you consider stuffing all of this into the current fabs, the ability for everybody to catch up in a very short period of time and ship that backlog is not likely, at least this year. I would go into that and say I don't see anything improving for this year. I will also tell you now, to combat double ordering and things like that from customers, there's a lot more teeth in those orders. Even if a customer is double ordering, they are going to take the product. That's a major change from what we had seen in the past, because when the ability to manufacture is constrained, you better take what you're ordering, and that's really what's happening with the customers right now, and that is helping the controlled ordering. I'm not going to lie. If there's somebody out there trying to take their inventories up to 12 weeks in their factory, I'm sure there are. That's a little different than seeing these companies that we're dealing with also having record earnings, also producing everything that's being manufactured in their factories right now. I think this is an economic thing, not just a shortened supply chain issue right now. Did that help you? Yeah. Thanks for the color, Mike. Appreciate it. Your next question comes from Joe Quatrochi with Wells Fargo. Your line is open. Yeah. Thanks for taking the question. Maybe to build on that. Mike, you've always had great insight into the industry. I was curious, there's definitely a narrative out there that maybe there's a structural change in inventory practices coming, and maybe it's holding a little bit more inventory going forward. I was curious on your thoughts on whether this is something that's real and you're talking about with your customers and planning for, or this is maybe the industry's going to have still a short memory and something that always kind of gets kicked around in an upcycle like this. Well, I'll tell you. Let's just take the automotive manufacturers in general as a comment here. Last February, they were the ones that called everybody and shut their orders down and said they didn't want anything, right? That they were closing their factories. They didn't shut their factories down because they couldn't get supply. They were shutting their factories down because of COVID. All of a sudden, they want to start back up, but there's no buffer inventory for them to be able to start back up. That's a good function of distribution. That's a good function of the supply chain. That's a good use of corporate dollars. There needs to be sort of risk protection for manufacturing. When you get into that type of just in time, and then all of a sudden the rest of the market takes off, you're now a slave to the time it takes to build a product. Lead times extending, you're now stuck. The automotive guys are being pressed by that lead time right now. What we're actually seeing is more companies coming to us now and attempting to work through that. As far as we go, Arrow goes. This is going to be a longer-term benefit because our services are now starting to matter to some of the biggest companies in the world that want a little more flexibility than they've had in the past. That's really helpful. Then I was just curious on the out quarter guide, just some of the puts and takes on gross margin. Can you talk about maybe pricing, what we should think about there? I assume that most of that's kind of passed through with little benefit to Arrow. No, I wouldn't say that. I think you're going to see North America and Europe pick up a little more. We're already seeing the demand starting to come through that. With our risk, you're going to continue to see improvement in the gross margin. Yes, there is some, I would call it pass-through pricing, but most of the new deals are requiring added services like carrying inventory, being able to make sure you can balance the production for some of these companies. This is not a commodity price market. What I would say is we're in a value price market right now, we fully expect our gross margin to continue to go up over the year here. Super helpful. Thank you. Your next question comes from David Williams with Loop Capital. Your line is open. Thanks for taking the question. Congrats on the quarter. Just wanted to see maybe if you could talk a little bit about the velocity of orders that you saw through the quarter, maybe how that's trended through the first part of the Q2. Well, you saw the result of the trending velocity in the Q1. The ability to grow like that and to make the business go. I will tell you, the Q1, because, not that it was a surprise, but everybody needed their inventory because it was truly the law of economics. Manufacturers were shipping more product. We were working overtime in our facilities to make sure that any product that hit the dock could get out for our customers. We're better prepared for that in the Q2, is that now we're seeing the orders come in at more of a steady state. I will also tell you the orders are still elevated. We saw improvement in March bookings, April, and so far in May, the booking path continued to accelerate, and they continue to accelerate around more industries. One of the large reasons they've accelerated is that we're now seeing more orders in North America and in Europe. I would say that Asia is kind of at a spot right now. The growth in Asia is slowing a little, but the growth in North America and Europe, picking up. We're seeing more broad-based now economic recovery than we did in the Q1. Hopefully, that answers your questions. Yes. That was very helpful and I appreciate it. The last one real quick, just on your inventory levels, what do you think is an appropriate level to be at as we begin to normalize here? Is 15 days kind of a good place where you've been in the past, or how do you think about maybe your inventory levels as we move forward here in terms of ideal? About more. A lot more. Seriously, I think what you'll see is the possibility that inventory turns over time here can improve from what they were historically because of lead times and better visibility. As more visibility comes at the customer, as the lead times are extended, we're going to get orders further out. We'll be able to work with the manufacturers in a more just-in-time way for our customers than basically they could, or if it was on a direct relationship with the suppliers. I would say, you could operate at better terms. I don't think the entire inventory is going to operate where Asia has been over the years is at 10 to 12 turns, because now even Asia is operating in the supply chain era where the prices are going up and the turns are coming down. It all depends what the customers are willing to pay for, but I'm going to guess given this sort of market correction, that customers are going to want and are now going to remember that they need a little less risk in their inventories at the factory, and they need a little more service, and they need that service to be provided. This is actually a structural change for the industry. I think we're going to be dealing with customers that we hadn't dealt with before, and I think customers that sort of forgot what it was like to keep inventory or have their inventory protected are going to re-up and pay for that service. I think it's a good thing for the industry. Thanks so much. Your next question comes from Ruplu Bhattacharya with Bank of America. Hi. Thanks for taking my questions. For the first one, I want to ask you about component shortages and the supply challenges that you're seeing. Most companies we've heard from so far, they've been talking about these component shortages extending into the end of the year, maybe even into 2022. I was looking at a sentence in the press release, which says that you're seeing current supply challenges as transitory and expect more balance with demand in the coming quarters. Are you seeing anything different? Do you think that this is really near-term? Are you seeing better supply than the competitors? Just wanted to ask you on your thoughts versus what we're hearing from others. No, I think that was coming quarters. There was a net on that, which would suggest longer. I don't see anything improving that dramatically before the end of the year. I believe we're into next year as things improving, which means this cycle might extend a little longer than others because of what I said before, the inability for people to build fabs as fast as they would need to increase production. That's why everybody's trying to fit things in and take any sort of capacity restrictions they had on fabs and have the throughput be faster than they can. It is going to slow, going to like three millimeter wafer s or something like that. I don't think you're going to see a lot of fab turnover right now, other than just running them for as much production as they can get out of them. They might squeak some more out. I think we're in the next year too, and I've never really been a fortune teller with you guys, but it really does look like the first half of next year is still going to be a transitory time. I would put that in, we're looking a year out here, easy. Okay. Thanks for the clarification on that, Mike. Maybe Chris, I'd like to ask you about the operating margins. So c omponents saw a strong 60 basis points growth sequentially. I guess you're guiding more or less for flat revenues in this segment. Are you seeing Asia remain strong, and could we see a pullback in margin somewhat in the June quarter? If you can also talk a little bit about the ECS margins, that more or less was in line with the expectations. How do you see that progression over the year, and when can you get back to the 5% operating margin level? Any color on that would be appreciated. Thank you so much. Yeah. If you look at the quarter-over-quarter margins and components, I think we're expecting relatively flattish. Year-over-year, you're going to continue to see great operating leverage. Given the fact that we're sequentially reporting relatively flat sales, you're not going to see sequentially a lot of margin movement in components. As time moves on, to Mike's point earlier, I think we'll continue to see the West strengthen. I would say that's kind of the next leg in margin expansion as we move forward. That's obviously slower to come. On the ECS side, I think we'll see some small margin increases, again, as we continue to be selling more at the complex end of our solutions. That really is going to be dependent on our ability to get back on-prem, and obviously the broader supply environment there. As it relates to 5% and when, I'm not going to predict that. I would tell you that we feel really good about the amount of improvement we were able to show in Q1 year-over-year, and again in Q2, and obviously the returns that's driving. 5%'s the goal. We'll stay focused on it, and I think we continue to do the right things. Okay. Thanks for all the details. Appreciate it. Thank you. Your next question comes from Matt Sheerin with Stifel. Your line is open. Hello. Good afternoon. A question regarding your ECS guidance. It looks like we're seeing just gradual improvements there, and certainly not the snapback that you've seen on the component side. And we're hearing from some of your reseller customers as well as vendors that there's a slow to gradual improvement on an on-prem. Could you just give us more color in terms of what you're seeing in terms of booking trends in the outlook there as we get through the year? Yeah, I'll take a first swing at it, and then I'll give it to Sean. Matt, I think we're seeing the business move as we're seeing our own people come back to work. Coming back to work has been, I think, a little slower than most of us thought. We're seeing more projects come in here now as people are going back to work. I know here we're investing less at home type products right now than we were, say, the Q1 of last year when we sent 20,000 people home and got them up to speed. I do believe that that's going to be gradual as you get into the Q3 and the Q4. I still think we're going to have a great Q4, like we typically do around here in that business. Just to what extent it's going to be pent-up demand, that I don't know. Sean, you want to? Yeah, Matt, I think Mike nailed it. I would just add, if you look at our Q1, we did still benefit from some of the work and learn from home trends, but at a slower rate than we enjoyed last year. At the same time, we did see some evidence that the traditional data center environment is starting to perk up a little bit. Our hardware business grew year-over-year, both Intel server, proprietary server, and certainly storage. That's a good sign. I would say the traditional application environments are still somewhat subdued. I am optimistic that throughout the years, things open up and people get more access to the data center. You're going to see that traditional piece of our business normalize, and that does offer us an opportunity for better growth and operating leverage as well. Okay, great. Just had a question on the c omponents business relative to the market share gains you saw, particularly with your largest supplier, TI. I think this is the first full quarter where you had that transition in. I'm just wondering whether or not you're seeing some positive impact in terms of attracting new customers and then adding to their bill of materials since those analog projects are key, whether or not you're seeing opportunities to continue to gain share because of that relationship. Yeah. It's not just that relationship, because as you know, we don't do design wins for TI, Matt. Yeah. That isn't part of our function and service that we do provide. That's really all I'll say about that relationship. That's been widely known. They manage their companies. Our overall designs in the corporation were up in the March quarter. We saw year-over-year growth in designs of 9%, 10%, which is good. That does bode well for months out in terms of mix of products that we're shipping. We do see those new designs. We're actually seeing the design activity increase at a more dramatic rate than we had saw at the beginnings of COVID. All in all, I think what we're looking at is what's looking like a healthy industry for some time. I don't know the pullback, but you guys can see it. Most companies are exceeding earnings right now, even the manufacturers that are out there. There's something going on. People are definitely buying their products. I do think there's a shift in what type of products consumers are going to buy as they go back to work again. I can't predict what that is, but it looks like a lot here. Yep. Okay, fair enough. Thanks so much, Mike. Yep. Your next question comes from Steven Fox with Fox Advisors. Your line is open. Thanks. Good afternoon. Two questions, if I could. First, Mike, you touched on services a couple of times. Just curious, in this environment, if there's a way to sort of maybe control your own destiny with your services mix and design mix and prioritize those companies where the customers where the engagements are higher. Is there anything that drives that and maybe helps margin more than previous cycles? And then I had a follow-up. Yeah. Well, design wins, design registrations, by nature of them, you do a design and then they start to schedule into production and you order. There's plenty of time with the current lead times on products to get them fit in as they come. Anything that's being designed right now is probably not going to go into production until the Q4, at best. That seems to be fine. We're seeing in our semiconductor database business, we're seeing an uptick there. We're seeing a lot more customers that are using that to work on their own designs and expect that business to continue to grow. The online digital business is doing great. In general, almost every ancillary business that we have or ancillary service that we have is in a high mode growth rate, maybe not as much as the semiconductor growth was this quarter. I don't think we have anything in here that's growing under half that. It's a really good story. Great. That's helpful. Then Chris, just a couple of quarters ago, you talked about continuing to produce free cash flows even in a high growth environment. I'm not sure if this was the high growth environment you had in mind, any further help on how free cash flows might play out for the year in this environment? Thanks. Yes, Steve, you're right. I certainly wouldn't have predicted this kind of growth, 42% in Q1. I would say our performance in Q1 is a strong indicator of that. Typically, we'd be a lot more negative. I think to Mike's comment earlier, the reality is we would like more inventory. At some point, supply will start to narrow the gap to demand, and you will see us t ake inventory up a bit in the near term. Again, as Mike said, any inventory that comes in is going right back out. That gives us the opportunity near term to be generating cash flow. I do think as we navigate through this, at some point inventory will go up. But for the comments earlier, I think there's lots of reasons to believe that that might look different than it has in the past in terms of its magnitude. Right now we feel good. The balance sheet is in great shape, and it gives us the ammo we need to be able to react when that day comes. Great. That's really helpful. Thank you. Your next question comes from Jim Suva with Citigroup Investments. Your line is open. Thank you very much, and great execution to you and your full team. A lot of the commentary was focused on components, which rightfully so. If I could just ask a question on the ECS side of the business. As society gets back to coming to the office at some point in the future, or a variation of that, your early indications, what are the customers mostly ordering and putting in at this point? You mentioned that there's a little bit of a stabilization or growth there and some changes of behavior. Just curious about what are the typical things that you're seeing the most recs for on the ECS side. Thank you. No, thank you, Jim. I can talk a little bit more about what we saw in Q1. One of the other things that continues to remain very healthy for us when we look at our pipelines is our security-related solutions portfolio. You think about what companies are having to do to harden their new working environments that have been set up over the past 12 months. We expect that to continue to be strong for the balance of this year. The other thing that's really encouraging is that our cloud business is accelerating at even faster rates than it did last year and even the year before. That piece of our business is growing nicely, both through our digital platform and beyond. When you step back and look at the recurring revenue subset of that we derive from it, that's growing at an even faster clip yet. We feel good about what that means for our contribution margins in the future. We still have more work to do to build it out, but we're pointing our efforts at business development that will add to our software and cloud line card as well as expand our customer base. I think there's enough positive signals, Jim, in the market. Again, as we said earlier, until the broader and more traditional data center environment fully opens up, that's when you'll start to see more hardware and more on-premise software as well. It may not all come back given the rate and pace of cloud adoption, but like I said, I feel good that we also have a strong play in that piece of the market as well. Jim, this is Mike. Just to add to that, one of the things we did see sort of globally this quarter was a huge increase in proprietary server sales. Typically, you've seen industry-standard servers come in, which would be an indication of things continuing under the same path. That proprietary server increase, I think, shows that things are coming back in-house. We are seeing data center activity go, and that was a huge percentage increase for the quarter, and I expect that to probably continue for the balance of the year. Great. And thank you and congratulations to you and all your team members. Thanks. Our next question comes from Adam Tindle with Raymond James. Your line is open. Thanks. Good afternoon. Mike, you talked about favorable pricing across all regions, and it's a little bit hard to see because total company gross margin is still in decline. I know there's some regional mix reasons for that. Maybe if you could touch on the impact on a like-for-like regional basis. Is gross margin up in all regions, and how much is the favorable pricing contributing to that margin improvement? Yeah. Gross margins are up in every region. I won't go into the exact amount for obvious reasons, but we've seen every region show improvement. Not only every region, but every country within every region. This is really an across-the-board sort of strengthening of what we saw in the past. Let's just go back and sort of reiterate how much Asia grew first in the total for us, and we're just starting to see the growth in North America and Europe, albeit Europe was up something like 20%, North America up 10%. As those continue to grow at those rates, just take the mix. That should give you some idea when you go into your model of what's going to happen to the overall company. Do you think your size and scale this time around allows you to maybe keep more of that for longer versus the favorable pricing being more transitory? How does this play out over time? I think that part of what we're seeing in the increase is customers want more protection, and with that protection comes a cost. Will that continue? That will be it. My suspicions are that this is going to continue going into the next year as more and more customers are coming to us. Our customer count of new activity is going way up. That's, as I said, good for the industry, good for distribution in general. People aren't coming to us for commodity pricing problems right now. They're coming to us for complex supply chain problems, and we're helping them solve those. That's what we're seeing with our supply chain services. I know there was a question earlier about services. I guess I just neglected to say that our supply chain business is probably the fastest-growing business we have in-house right now. Okay. Maybe just a last one from me. Chris covered how leverage is at the lowest level in over five years. You decided that share repurchase is best right now. I just wanted to ask, there's sizable M&A going on in the ECS world at lower multiples, could be significantly accretive. I know it's a high-class problem to have, not suggesting I disagree, but I just wanted to maybe press on, assuming you evaluated those potential options, why you decided against that, because I'm not stretching to get over $3 billion of liquidity without even factoring in target EBITDA and synergies, so you could do something big there. Well, you said it first. It's a very high-class problem in that we can do anything we want to do right now. There's nothing that's stopping our share repurchases right at this moment. We're evaluating all kinds of things, and that's the beauty of having our balance sheet. There's a lot of room to do whatever we want to do, and I'll leave it at that. Fair enough. Thanks. Yep. Your last question comes from Nikolay Todorov with Longbow Research. Your line is open. Yeah. Thanks for squeezing me in. Hi. Mike, can you talk about how widespread is the increase in pricing in components? Because last quarter, I believe you mentioned that it was a little bit overstated. If it's going and it's spreading out, I'm a little bit surprised as why your GC fall-through on the operating line is not improving, as I think the March quarter only partially benefited from higher component prices. I don't know. It was pretty high. How much was it? It was 25% of the total growth in earnings, so it was pretty bad. I mean yes, our operating margin was 4.6%. That's 80 basis points year-over-year. Mike answered a question or two ago, that's with significant Asia mix in that number. You're seeing that, I think, impact the overall. As the West comes back to life, you'll see that continue to improve. I think Chris is being a little modest. You're at 4.6%. The records are 5%, where we had done, but the records were 5% with Asia being less than 30% or 28% of our total, and now Asia is 50% of our total, and you're hovering in the same space. While you're seeing that, I think the price increases that seem to be coming through are steady. They're not everybody doing it at once. As manufacturers are evaluating what products are costing them to produce, they're right now just getting into what I would say the inflation part of their cost going into this. As they start to learn more about what's going to happen, those costs are going to be passed on. The pricing in the industry isn't as such that almost anybody can absorb anything. I expect the price increases to continue all year. Maybe I'm misstating my question. I was more asking regarding the Q2 fall-through on operating margin, which you said you expect flattest margins. I'm asking why it's not that. Yeah. Because the March quarter benefited only from partial price increases. That's what I'm thinking. You're going to see more because of North America and Europe picking up the piece. I think we sort of forecasted the EPS too, which showed an increase. Again, the Q2 that we put out there is not a demand guideline as a business. It is based off of how much product we think we're going to get, which is why that's a flattish view of the market. Don't confuse the Q2 with what we could ship if product was not constrained. That's the answer I want to give you on this. It isn't a demand issue. It's purely a supply issue for Q2. Does that help you? Yeah, it does. Okay. Then a question on America components. If I look at it relative to Europe, growth is recovering, right? This is nice to see, but it's lagging Europe a little bit versus having an easier comparisons to last year in March and June quarters. I guess, is there anything you can give us as an indication what is holding growth relative to Europe? If I think about America and COVID, it's coming up from a little bit better relative in a COVID situation versus Europe right now. The U.S. is last to get in and produce. You look at policies, you tell me. Were tariffs good for manufacturing in the U.S.? I don't know. I don't think so. I was pretty blatant about that I think a year ago or even longer. It's all about manufacturing policy. You want people to manufacture here, make it convenient for them to manufacture here. Don't make it freaking difficult. You listen to these companies every day. How come nobody's moving production here? I could go on a soapbox, but I don't need to. You already know that answer, I'll leave it alone. Okay. Got it. Last question, just any impact on component shortages on the ECS business? I know you talked about that on the component side. I'm going to guess you're already hearing on your other calls from manufacturers that are talking about some shortages. While I do expect that more at the lower end of the product base, I think the fact that there's some design coming in now on on-prem data centers, I don't expect that's going to be a huge problem for us going forward. Nonetheless, it's going to be something to pay attention to. Okay. Got it. Thank you. Okay. I'd now like to turn the call back over to Steven O'Brien for closing remarks. Thanks, Denise. Thanks to all of you for joining us today, and thanks for your interest in Arrow Electronics. Have a nice day. This concludes today's conference call. You may now disconnect.