Good morning, everyone. I'm Melissa Fairbanks, the analog semiconductor and IT supply chain analyst here at Raymond James. We are thrilled to welcome the team from Avnet this morning. We've got CEO Phil Gallagher. Thank you. CFO, Ken Jacobson. Hello, everyone. In the audience here, we've got VP of Treasury, Joe Burke. I think we'll just do a quick intro, maybe if you can describe for people, you know, what Avnet does. Sure. Sure. Thanks, Melissa, thank you for being here today, and those that are listening in. I'm Phil Gallagher, I'm the CEO for Avnet. I've been in the role since November 2021, officially interim August 2021. I've been with the company going on 40 years, I started in 1982. Some of you probably weren't even around yet. At Avnet, we're, as I'd say, we're in the center of technology supply chain. Avnet is roughly $25 billion in revenues. We ship into 140 countries around the world and manage supply chains anywhere they may go, okay? We have some of the top-tier suppliers in the world. We're very proud of our line card. As I had to say, we have our suppliers that we manage upstream. We develop our value proposition down to a 1 million+ customers globally. We do everything from demand creation. We have 2,000 engineers on staff. 600 of those are software, as software has become a bigger and bigger part of the equation for design solutions, particularly around IoT. We, you know, we go from demand creation to supply chain anywhere in the world. Excited to be here today. We've been around for 101 years. We started, Avnet is a family name, has nothing to do with Av s dot net or anything like that. You know, we started in 1921, post-World War I, with military surplus right here, up in New York City, on Radio Row, with transistors and whatnot, starting post-World War I, connectors, and then developed obviously the business from there, Avnet, Inc., listed on the Nasdaq. Again, thanks for being here. Thanks very much. Obviously, you guys are right in the middle of the supply chain crisis that we've kind of been experiencing... Have we? over the past few years. Just a little bit. Yeah, when it's on the nightly news, semiconductors, that's pretty unique. Maybe could you review what you're seeing right now in terms of supply chain dynamics? Are there still some hotspots? Any signs of easing? Yeah. Well, there is some signs of easing. We'll work backwards there. There's no question there's some signs of easing, and in some cases it has eased, okay. Again, after being around for a few decades, this has been one of the most interesting cycles. I think the, first of all, I think the average person out there that didn't know what a semiconductor was now knows what a semiconductor is 'cause they couldn't get their TV, their car, their sofa, you name it, right on down the line because it all has technology in it, which is, you know, very exciting. Also, supply chains, which is why I started off with talking about that our core foundation, is we manage supply chains. It's been a, in a way, a silver lining for us, as a lot of customers lost track of their supply chains with all the outsourcing and going from the West to the East and then the Far East and then back to the West. You know, that's been a great opportunity for us. As far as the, like, kind of the underlying demand, and probably have to go mid-range a little bit, Melissa, 'cause there's so many mixed signals right now out there. Sure. Everybody thinks, "Oh, all the lead times are coming in." Well, that's not the case, okay? Some lead times are coming in for some technologies, others they're not. There's still this golden screw effect that's going on with this long pole in a tent, where you still can't get some, whether it be high-end controllers, FPGAs, some power products, battery management, anything around battery is still pretty tight. As we look at this market, it's foggy, okay? There are still today, I'll say pretty strong underlying demand in, I'll call it, transportation. We call it transportation versus just automotive because all the applications of technology from the car, trucks, golf carts, e-bikes, you name it, all is chock-full of semiconductors, and that underlying demand is still pretty good. Even if the units demand come down, the content is going up so high. Then you got the industrial. industrial's I'd argue that's where we started, between the industrial and defense. That is a long tail of customers. Right now, anything around energy, power management, building automation, that business is still got a good pull on it from a demand standpoint. Then of course, the defense aero, good news or bad, unfortunately, that's gonna continue to grow. Yes, as we talked about in our December earnings in January or probably February, yeah, we saw Asia Pac start to wobble a little bit. After some phenomenal performance. We hope that we still gain share, and some of that was the, what was going on with COVID and China, just some consumer PC that's starting to soften a little bit, or we saw that softening. Balance in Asia actually is still looking pretty good. As we talked about in the West, both in Europe and Americas, particularly Europe in the December quarter, you know, had a record-breaking, all-time record-breaking billing number for us in Europe, which is kind of contrary to what you would think with what all that's going on in Europe, that we would see that. Again, that's that industrial and automotive transportation segment so strong. Yes, some softening in some places. The core still sees, you know, pretty good pull on demand, midterm and beyond, I mean, the proliferation of electronics and semiconductors and capacitors and connectors, it's just gonna be up and to the right. Absolutely. Do you think the past few years has permanently changed the way distributors are used or changed the ways that your customers order or plan or hold inventory? Yeah. I do think it's permanent. Now, first of all, being here a long time, I, of course, have a biased view. I know the value, we know the value that we bring to the marketplace in managing supply chains. And, you know, well over 50% of our business is where we're managing supply chains. We're taking in ERPs or MRPs, EDI feeds, APIs, heck, we'll still take a fax if you wanna send it to us. Help customers, you know, manage those supply chains around the world. I think what happened is, as we kicked off with, not only was there a semiconductor shortage, but supply chains broke down, right? Whether it all kind of hit at once, right, with post-COVID, Suez Canal, freezes in Austin, fires in Japan. Everybody looked at it and said, "Hey," I was getting calls from customers that maybe weren't dealing with us before, really large household OEMs that you would all recognize, saying, "Hey, we need help in our supply chain." We've actually have continued to invest in that, bringing in supply chain architects under our Velocity, our Avnet United Velocity team, and then investing more in digital tools. Digital's key there. I do think there's some stickiness, and I do think the markets are gonna continue to see the value that we really bring to the market. 'Cause, again, customers now also moving things around. I mean, They wanna shift and lift from China to Vietnam to South Korea to back to Guadalajara. Hey, no problem. That's what we do. When people say, "Are you concerned if there's a shift?" No, I'm not concerned. We're in all those countries, we can help them set it up. Excellent. In terms of the inventory, though, Melissa, I would say, you know, our big customers have now moved from just-in-time inventory to just in case. You know, the resiliency of the supply chain, a lot of that's assurance of supply. We do see perhaps shift. An opportunity for us is OEMs want to make sure they've got enough components, especially the critical components, that they never get caught in this environment again. The example we use is, you know, a $2 chip was holding up a $70,000 luxury vehicle, right? You can't let that happen again. If you're not an OEM, there's opportunity into the future, about, you know, strategic inventory holes and things of that nature that we see on the horizon as soon as the current environment kind of normalizes and you have available components. Okay. Last comment on that is the stickiness is, what these, just for the audience, when you go in and redesign and rearchitect someone's supply chain, you're not doing that in 30, 60 days. Right. Okay? It's a concerted effort on both ends. There's a lot of challenges to that. Some of them take up, the one I'm thinking about, it's going 18 months and still not done yet, because they've got a lot of change on the customer side as much as we do. They're once they're in, you're integrated. You know? Yeah, it is long-term. Great. That concept of value kind of leads me into my next question about the competitive dynamics. I recently got to take a tour of one of their distribution centers out in Arizona. I was impressed with the level of automation that they've got on going on there. Where are some of the areas that you think Avnet has a competitive advantage? Maybe automation is one of those, geographic footprint, line cards. Well, first of all, thanks for coming in to see us. You've been in before, but not to the logistics center. I'd offer that invite to any investor or potential investor or analyst, 'cause you have this perception of what we do. You know, we buy a lot, we break into smaller volume, we ship it. It's a lot more than that. Probably 70%+ of everything we ship out of any one of our distribution centers, we're doing something to that part, either tape and reeling it, customizing the part number, label, programming it, kitting it, something along those lines. We're very excited and proud of, that's our McKemy facility we call it. We moved to Chandler, Arizona, in 1987, I believe. Some of the other differentiators, we think that is a differentiator in our quality and on-time delivery out of the logistics centers. Sticking with that, you know, one of the big values we bring, and you saw it, was our programming centers. People are like, "Well, programming centers, what do you..." Well, a lot of the chips have software on them, right? The OEM, either the customer has custom software that might go into whatever the ROM might be or the controller. Well, we can qualify that. Let's say it's here in Florida. The customer say, "I need to change my software on this chip." We can qualify it here and have it in production in Singapore. Our goal, our programming centers are all connected on a global basis, and that's a big, big deal for some of the large OEMs that we do business, 'cause they're constantly changing the software. We need to verify it while we get it into production. It can be the same day. That's one work, working from the logistics center. As I said earlier, we're shipping in 140+ different countries, so that in and of itself is scale and size and flexibility and resiliency and adaptability that a lot of others cannot offer. We've been making tremendous investments in digital. I mean, we have to drive more productivity and efficiency, and customers wanna get connected digitally. In the supply chain side of the equation, for example, we've built out what we call control tower. Our suppliers like it as much as our customers, 'cause it gives everybody visibility and transparency where the parts are, which in this past 2.5 years was a big deal, because people didn't know they're shipping the parts in, where are they going? Are they getting to the end customer demand? Digital, in general. We continue to talk about demand creation. I mean, demand creation is 32% of our business. This is where we have our 2,000+ engineers, 600 software, enhance or actually doing design, working with our suppliers to get the products designed in to the end customer. Suppliers are leaning in on that. We give them the scale and the reach that they just don't get on their own. IP&E, it's interconnect, power, switch, mechanical. We have about a $4 billion business globally in interconnect, power, switch, mechanical. We're doubling down on that. The other big differentiator is Farnell. Okay? Farnell is another division inside of Avnet. We operate, I call it the front end different, it's speed and convenience. Their big customer base is engineering, new products introduction. They wanna buy their kit of parts, and they want it tomorrow or in two days guaranteed, and they'll pay extra for that. No different than us stopping on the way home and getting fill up the tank and go in the convenience store and get one Coke instead of going to a grocery store to buy a case of Coke. You only want one, you're gonna pay a little bit more for it. It goes into convenience. That's a big part of their business. Their margins are 2x Rs. They also have in Farnell what we call maintenance repair, MRO, which is a great business, it's a little outside the semi and components, but it's everything around an engineering workstation. Then we have lines like National Instruments that sells through Farnell. Really diversification model there, and we're very excited about it. Good. That kinda leads me into your path. You've set a target for a 5%-8% revenue CAGR. That's certainly above, you know, what we traditionally think of as kind of, you know, a growth CAGR for analog semis. Then operating margin above 5% consistently. Can you discuss the path to that? I think Farnell is clearly a piece of that, the value add, the demand creation is certainly a piece of that. Let me, I'll touch on the revenue, and Ken touch on the operating leverage and margin opportunity that we've been on a good progression here in the last couple years. I think if you just look at the secular trends that we talked about a little bit earlier around growth, we don't have the exact dime here, exactly what the market's gonna grow, but if you just look at the proliferation of electronics. We look at the share that we have today and the share gains we've made, we think there's more to go. On top of the vertical growth, I'm gonna be repetitive here, you know, transportation, automotive, I mean, following the holidays, you see e-bikes everywhere. Every power tool, okay, if it's gas-powered today, it won't be in three years, okay? All that is battery, including jackhammers, by the way. A huge customer segment for us. The electric vehicle, right? Well, it's not just the electric vehicle, it's the whole ecosystem around the electric vehicle. You got charging stations, batteries, again, falls right into the... The more that business grows, the longer tail of customers comes into play for us. I mentioned defense aero earlier, that's gonna continue to grow. Medical, we've been to the doctors, hopefully not, you can't walk in without seeing nothing but electronics, that's a great, again, a great segment for us. Yeah, and I talked a little bit about the consumer, you know, PC, you know, being down a little bit. While we're talking about the market now, that's kinda soft. It's not gone, by the way. Well, that's gonna flip back, right? Yeah, we're bullish on that, call it, what, two, three, four, five year outlook. 5G, again, I'm not an expert on all this, but that's in its infancy. The application of 5G, it's still has barely hit, really, to be honest with you. Yeah, I'm very excited about the market opportunity, our position in the market, our execution, and the opportunity for growth. Yeah, I think- Farnell piece too. You know, Phil talked on the revenue growth, but I think from a, just a pure gross margin perspective, you know, we feel pretty good about a stable gross margin profile. What that means really is, you know, some competitive pressures, there's always gonna be customer and competitive pressures on our, on our margins. We've got a lot of high margin opportunities, you know, Farnell being the highest, but the IP&E business, the demand creation, some of our supply chain services, those are all higher gross margin type of sales that can help offset just normal competitive pressures that we've always dealt with. Really the most important thing from our standpoint is, you know, the last couple years we've demonstrated we've been able to grow our sales while still investing in our business, right? We've controlled the OpEx, but really what it really is, you know, taking pockets of inefficiency in our OpEx and putting into those areas that add more efficiency. Whether that's warehouse capacity, digital tools to help make our team more effective and really just, you know, frontline resources, sales, FAEs, you know, things that are really gonna help enable that growth. That's kinda how we're focused on expense. We're not looking to take expense out, but we are looking to, you know, find pockets of inefficiency and reinvest it in the business and really get that operating leverage by growing the top line without, you know, adding significant costs, because we're getting more efficient in getting that productivity. That's really the path, and we've gotten now to 4.5% this last quarter, you know, and we see that growth potential there, especially in the markets that we serve well, so. You can definitely see that in your margin profile over the past couple years. It's been very impressive. Thank you. On pricing, you know, this is kind of a subject that we talk about up and down the semi supply chain. Saw significant kind of, you know, unprecedented price increases, when supply was the tightest. As supply of some of the components is starting to ease, have you seen any change in pricing behavior? You know, has pricing started to normalize yet? That's a really good question. 'Cause you would think when you start to hear lead times coming down or products more available, well, here comes the average selling price, it becomes a bit more deflationary. We're not really seeing that right now. Now, as a matter of fact, Melissa, in January, even amongst all this rumblings of lead times coming in, we had 22 different suppliers raise prices again. Wow. All right. Now there's a little fatigue out there on this from the customers, as you can imagine. That's still happening while you're talking about lead times coming. It's kinda... To answer your question, certain technologies, they're not coming down. All right. Others, standard products, multi-source products, the market always will adjust based on the competitiveness of the market. My feeling, who knows if I'm exactly right here, but my take is that on high end, where there's been major CapEx investment in some of the higher end technology products, you can determine what that high-end controller is, FPGA and whatnot, I don't think we're gonna see the traditional ASP deflation there. I, you know, and historically, Sammy, you know, Gordon Moore's Law, you know, and all the prices come back down. I don't think in that portion of portfolio, we're gonna see much deflation or ASP erosion. We'll see. The market will determine that. Right now. In our case, we talked about this on previous earnings calls, if we grew 21%, the ASP inflation was maybe 7% or 25% or 30% of this. The rest was more just, you know, unit and organic growth. It wasn't as big a number as a lot of people wanna think it was. There has been some concern that the suppliers have actually been overearning through the pandemic, you know, just kind of taking price where they could when demand was strong. How does that level of inflationary pricing, you know, I think there's probably some concern that, you know, you and some of your competitors have been overearning as well. Maybe if you can just touch on how that pricing impacts your profitability, your returns, how it flows through the P&L would be helpful. Yeah. I'll let you ask the suppliers about that over-earning. I'll stay away from that. We love our suppliers. The interesting part there is every supplier kind of handles it a little bit different. It's not every supplier across the board, all their technology's prices raised. You know, it might have been certain, you know, pieces of their technology or of their portfolio. I can tell you how we handled it. When we got price increases, and this may be different versus 25, 30 years ago, where we maybe would be, and we could be criticized, maybe we weren't, we could have been maybe more opportunistic in the marketplace and taken advantage of price increases. Really, we don't do that. About 20, roughly 20, 25% of our business is what we call time, place, utility. Quote, book, ship, bill, you know? The balance is under contract of some sort. We're doing some value add for the customer. It's much longer-term engagements. We've been very transparent. Where we got a price increase, let's say it was like $0.10 or 10%. Okay? We passed on, tried to as quickly as we could, pass on 10%. We didn't pass on 20%. We didn't take that allocated product to go sell it into the gray market or somewhere to go make 40% margin. It's just not what we do. Where we might have gotten a benefit in resale and which I just talked about. In gross profit dollars, we didn't get a big lift. We got a question from one of the visitors earlier, "Why didn't your margin go up as a..." Well, 'cause we're not really gouging on margin. We got the drop through on the volume and our operating margin leverage. That's how we handle it. On the downside, there is reduction. It shouldn't impact our margin as much either, but we'll see. That's how we handle it. Excellent. We're quickly going through time here. I just wanna open it up. Are there any questions in the audience? Eric? Nope. Yeah. I wanted to ask, Phil, on transport. You hit on it a little bit, there's a big debate, you know, when people talk a lot about auto units and, you know, we're rebuilding- Call transportation. Yeah. you know, we need it in the lots and everything. Kind of the more bearish view is, hey, we'll refill that, and then, and we'll go back to growth rates where we were. You hit on maybe the more bullish view of it that, you know, we have a whole ecosystem to build out. Maybe a little more color on that as you see it. We don't have that visibility. Yeah. Maybe I'm overly bullish. I don't think I am. One, 10, 15 years ago, I'm talking from an Avnet standpoint, we weren't playing much in that space. To us, that's kind of like a new market for us anyway. Other than in Europe, Germany specifically, we had a division called EBV. They're still there. They've been doing a lot with the automotive for a long time. We really, we were doing some fulfillment in that space, you know, only for some of the large tier ones. Now with the, again, with the technology change, not just at EV, but, you know, driver assistance, the mirrors, and we go to the entertainment systems, the radar, all of that tail is just growing. It's become a more of a served market for us that we weren't playing in as much. That alone is why I'm a little bit more bullish on that space, 'cause it's kind of a new market for us. I mean, here in the Americas alone, we got 400 or 500 plus customers in that space that weren't there 5, 7, 10 years, or were just startups 5, 7, 10 years ago. That's why I'm a little bit more bullish. Of course, the content, you know, particularly electric vehicle, way up, but even the content in combustion, you know, the content's still going up. Although the units might come down, you know, I still believe there's tremendous opportunity for Avnet, not just from fulfillment. We're still doing that, and that's growing, by the way, because of the supply chain breakdowns. What Ken talked about with everybody got a little too lean. You know, why are we so lean when there's no in...? At the time, there was zero, effectively zero interest. I think they got too cute, which is bringing them back into our space and an opportunity. That's why I feel good. Keep in mind, I umbrella that with transportation, right? We're in Florida, right? Yeah. Golf carts, I keep mentioning e-bikes, dump trucks, trains. They all are just chuck full of electronics and gonna be even more as we move forward. You got that ecosystem, the charging stations. I just think it's a tremendous opportunity for us. Okay. Just interested in your thoughts on, you know, about three years ago or more, one of the biggest semiconductor companies in the world, you know, just took a very different view of how they wanna use distribution and went kind of more direct. You know, they had big exposure in industrial media market, which you think you really wanna leverage a distributor. They drive, you drive. You know, the benefit of hindsight, but what have we learned from that? Is that very much a single example and will not be repeated by others? Yeah. I don't talk about them too much. Thank you. It's a great question. I'm glad you asked it, 'cause we get this a lot. Not as much as we used to. I would just say the balance of our suppliers, which we have great relationships with, and I'm not gonna start naming them 'cause I'll miss somebody, and I'll get a call, you know. We're number one or two with our every one of them globally, and they're actually leaning more in to the channel. They're leaning more into distribution for customer expansion, demand creation. We don't meet with any of these top suppliers, many of them are here. You know, first thing we talk about is what's your registrations, what's your demand creation, what's your customer expansion? Okay, 'cause we build out that scale. I can't comment on why they did what they want. At one time, they were one of the top distribution lines, but they went a different route. They also didn't do it overnight. It was, it was decades in the build, and they made some huge acquisitions to give them that size and scale. I can just say that today we have our analog number today is larger than it was three years ago, three and a half years ago in total, and the benefactors were these other lines. We got a little piece from this one, a little piece from this one, and we've grown share. It's pretty public right now, not just with our suppliers but inside our customers. I think with suppliers, and this I would say, and I do, supplier, what the industry has failed to consider is the customer impact. You know, customers like to have options, and customers don't like to be told, "Oh, you can't deal with it," 'cause we've been a benefactor of it, right? I mean, sometimes you win, sometimes you lose. They don't like to be told that, right? We didn't change any of our team's comp plans. We said, "Hey, go get the business." Customers will then internally shift business 'cause they don't like to have things out of balance. Can't comment. We'll see how it plays out in the end. We're really confident, never overconfident nor comfortable, but we're confident in our execution and our supplier partnerships right now, and that we have plenty of opportunity for continued growth and don't see anything on the horizon to see another one of those happen. I would just add, we feel pretty good about, you know, no suppliers represents more than 10% of our business. No customer represents more than 5% of our business. We feel pretty well diversified there. Very good point. Not overly concentrated at one particular supplier partner, but we still have a great line card that covers all the technology needs of the board. Good question. Thanks for asking that. We've got just a few minutes left. I wanna be sure to touch on capital allocation. you know, your cash generation... Yep, Ken. your cash generation has been, you know, pretty consistently improving. What are the priorities for cash? Like, how do you decide to balance between buybacks, dividends, other potential opportunities? I mean, in the recent quarters, we've been consuming a lot of cash because we had to invest in the business of the working capital. Our main priority is to make sure the business has what it needs to continue to grow into the future. Not only is that working capital, but also things like, you know, warehouse capacity, digital tools, and IT systems to help make us more efficient. We are continuing to wanna invest in both near-term needs for working capital as well as long-term needs in terms of internal investments. You know, absent that, you know, we have a consistent dividend that we've consistently grown over the years, so we're committed to that. I think buybacks are attractive to us because of the fact we feel our shares are undervalued. We're still trading below book value. Even though the shares have held up over the past year, we still feel there's, you know, credit we're not getting there, buybacks are attractive. I think maybe less priority would be M&A, more tuck-in, you know, adding certain markets or certain kind of product lines, but nothing of any magnitude there. You know, I think right now the buybacks look more attractive than any M&A because of the fact that, you know, M&A is still expensive, or at least the expectations are still expensive. We view our shares as being undervalued. That's kind of the pecking order. Okay. How's the current environment impacted your long-term planning, in terms of capacity or geographic distribution? We hear a lot about onshoring, nearshoring. You already have a pretty extensive, global footprint, but has this changed how you're looking at your longer term planning? We're always looking at the footprint, okay, logistics footprint. We're doing that as we speak, that's also for reasons of risk, right? Mm-hmm. Kinda which regions might have more risk than others and where are we located, we wanna make sure we can hedge that if we need to. It's probably more of an Asia statement, Melissa. We're really comfortable with where we are. I mean, we are. You got customers, you know, coming from Asia back to Guad or Asia back to the U.S. or in Eastern Europe. We just go wherever they need to go. Agility is key. Mm-hmm. Resiliency is key. We have a dedicated team that works with the customers on these different transitions. We think our footprint is great right now. As Ken mentioned, we're continuing to invest in Europe. Mm-hmm. We see tremendous growth there with a new mega center there, in Germany. We feel now very comfortable with where we are right now. Great. We can move anywhere a customer needs us to go. Excellent. Excellent. I think that does it for us today. We do have a breakout session downstairs in case anyone has some follow-ups. Great. Thanks very much for joining us. Thank you. Thanks for being here. It's always a pleasure. Thanks. Thank you. Thanks, all. Thank you.