Welcome to the Avnet Second Quarter Fiscal Year 2023 Earnings Conference Call. I would now like to turn the floor over to Joe Burke, Vice President, Treasury and Investor Relations for Avnet. Thank you, operator. Earlier this afternoon, Avnet released financial results for the second quarter fiscal year 2023. The release is available on the investor relations section of the company's website. A copy of the slide presentation that will accompany today's remarks can be found via the link in the earnings release as well as on the IR section of Avnet's website. Some of the information contained in the news release and on this conference call contain forward-looking statements that involve risk, uncertainties, and assumptions that are difficult to predict. Such forward-looking statements are not the guarantee of performance, and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in Avnet's most recent Form 10-Q and 10-K and subsequent filings with the SEC. These forward-looking statements speak only as of the date of this presentation, and the company undertakes no obligation to publicly update any forward-looking statement or supply new information regarding the circumstances after the date of this presentation. Today's call will be led by Phil Gallagher, Avnet's CEO, and Ken Jacobson, Avnet's CFO. With that, let me turn the call over to Phil Gallagher. Phil? Thank you, Joe, and thank you everyone for joining us on our second quarter fiscal year 2023 earnings conference call. I am pleased to share that we delivered another quarter of solid financial results, which exceeded the higher end of our sales and earnings guidance. More importantly, we achieved these results despite the macro headwinds affecting certain areas of our business, which I'll touch on in a minute. In the quarter, we grew sales 21% year-over-year in constant currency, making it our eighth consecutive quarter of double-digit year-over-year sales growth. We believe this growth resulted in another quarter of gaining market share, thanks in large part to our customer partnerships and the dedication and execution of our employees. Efficient management of our operations also enabled us to drive solid operating margins of 4.5%, which is the fourth consecutive quarter of a greater than 4% operating margin. The combination of strong sales growth and effective management of operations allowed us to increase operating income nearly 3 times faster than that of revenue on a year-over-year basis. During the quarter, we saw continued strength in the Americas and EMEA regions and began to see signs of slowing in Asia beyond the COVID-19 customer shutdowns, which had some impact on both electronic components and Farnell. Our team has executed very well in helping our customers manage market complexities as they face dynamic supply chain conditions and uncertainties. From a demand perspective, in the quarter, we saw continued strength in certain key vertical segments, most notably transportation and industrial. In the last earnings call, we indicated that lead times were improving, and in the second quarter, lead times continued that trend for many products, although for certain products, lead times still remain extended. Across all regions, we've been coordinating closely with customers and suppliers to effectively manage our backlog. As a result of those actions, our overall book-to-bill ratio softened during the quarter, and we exited the second quarter below parity on a global basis. Across the supply chain, inventory levels remain elevated, including that of many of our customers. In order to support our customers as they continue to be challenged with higher inventory and obtaining all the key parts required to complete their products, our inventory levels also increased this quarter, which Ken will speak to further in his commentary. Overall, we remain comfortable with the quality of inventory and are working to improve our inventory turnover heading into the third quarter. Our role as a distributor is particularly critical in these types of uneven environments. As we have proven over the years, the value of Avnet in a complex operating environment is our ability to serve as a control tower for our customers and suppliers, helping them to proactively manage their supply chains. With the changes we have made to our organization over the past two and a half years, I'm confident that we are a much stronger and more resilient company today and are well positioned to deliver value and quickly adapt as market conditions change in the future. With that, let me turn to the highlights for our business. Our electronic components business grew year-over-year sales growth across all three regions. In constant currency, electronic components sales were up 23% year-over-year, the 7th consecutive quarter of 20% or greater organic sales growth in constant currency. I am particularly proud of our EMEA team, delivering record sales and operating income for the quarter. The Americas team also continued to make steady progress and delivered another strong quarter with sales and achieving the highest operating income in several years. The Americas and EMEA regions both benefited from strength in key verticals, notably industrial and transportation. In Asia, we experienced a softening of demand as we worked with customers to adjust their backlogs due to lead time improvements. Additionally, many of our customers across the region experienced challenges with their operations due to the rise in COVID-19 cases. I'm proud of our Asia team's continued success, not only in ensuring business continuity, but in consistently gaining market share in the region at the same time. Although our Asia business saw signs of slowing, they continued to gain market share during the quarter, and a favorable sales mix led to operating margin expansion during the second quarter, both sequentially and year-over-year. Overall, across all regions, we continue to benefit from our unique engineering and demand creation capabilities. With our field application engineers and digital design tools, once again achieving record revenue and gross profit dollars for demand creation. We believe this ongoing strength is indicative of the increasing value of the capabilities we provide to both our customers and suppliers. Now, let's turn to our Farnell business. Farnell sales declined sequentially and year-over-year, and continue to be impacted by product availability and pricing. As shortages for certain parts begin to moderate, customers will shift some of their orders to volume distributors, thereby affecting demand and pricing at Farnell. As we announced last quarter, we are the exclusive distributor for the Raspberry Pi single-board computer, which continues to see more potential in industrial applications. The backlog for single-board computers remains robust, and when certain key semi-electric components become more available towards the end of our fiscal year, we expect to realize such sales. Operating margins for Farnell were 9% during the quarter. While operating margins are lower this quarter, it's really important to note that Farnell's margins are still 2x that of Avnet's overall operating margin. Our investments in Farnell's e-commerce platform and improved user experience continue to yield results, with 55% of Farnell's total sales and 73% of total orders placed through the e-commerce platform this quarter. We are pleased with these results and expect to see increased traffic and new customer acquisitions in the quarters to come as certain components for new product introductions and single-board computing products become more available. Farnell has a diverse product mix that not only solves customers' on-the-board needs, but also supports test and measurement, as well as industrial maintenance and repair operations as needed. For the long term, we remain very excited about Farnell and continue to see opportunity to leverage Farnell's and electronic components' unique and synergistic collaboration. This allows us to better serve our customers and suppliers from new product introduction to mass production, and is a key differentiator for Avnet. To recap, while we are pleased with the strong finish of the calendar year 2022, and the better-than-expected results for the quarter, we are closely monitoring market conditions and the impact of component lead times on our backlog and inventory levels as products become more available. We expect to experience the high end of seasonal sales declines in the Asia region due to the Lunar New Year, with some uncertainty on how COVID-19 may impact the return of the workforce once the holiday is over. We're also keeping an eye on the impact of rising interest rates, inflation, and the signs of slowing growth in the global economy. We continue to be confident in our team's ability to execute in a dynamic and uncertain environment by delivering value to our supplier and customer partners. We have been in the business for over 100 years. We have weathered many market cycles, and our team is up to the challenge. There's never been a greater need for the capabilities that Avnet has to offer, and we look forward to continuing to play a critical role at the center of the technology supply chain. With that, I'll turn it over to Ken to dive deeper into our second quarter results. Thank you, Phil. Good afternoon, everyone, and thank you for your interest in Avnet. The Avnet team delivered another strong quarter of sales and operating income growth compared to the year-ago quarter. We are very pleased with our second quarter and the calendar year 2022 financial performance. We believe we continue to be well-positioned to deal with the market challenges and uncertainties that Phil previously mentioned. In the second quarter, our sales were $6.7 billion, up nearly 15% year-over-year, exceeding the top end of our guidance range. This represents our tenth consecutive quarter of year-over-year sales growth. In constant currency, sales growth was 21% year-over-year, with each region contributing to the growth. Sales were flat on a sequential basis in constant currency, which was above our typical seasonal trend and included a higher mix of sales from our Western regions. We had year-over-year sales growth across all of our regions, led by EMEA, which delivered a record $2.3 billion of sales. On a year-over-year basis in constant currency, sales grew 38% in EMEA, 21% in the Americas, and 9% in Asia. From an operating group perspective, electronic component sales grew 16% year-over-year, or 23% in constant currency. Electronic component sales were flat quarter-over-quarter in constant currency. Farnell sales declined nearly 8% year-over-year and was flat with the prior year in constant currency. Excluding sales of single-board computers, Farnell sales grew 4% year-over-year in constant currency. For the second quarter, gross margin of 11.7% improved 29 basis points quarter-over-quarter and was down 49 basis points year-over-year. The sequential improvement was primarily due to higher gross margins across all three regions, as well as a shift in sales mix from Asia to the Western regions. We continue to maintain discipline around SG&A expenses as adjusted operating expenses were $484 million for the quarter, down 3% year-over-year and up 2% sequentially. Adjusted operating expenses increased 4% year-over-year in constant currency to support the 21% sales growth. As a percentage of gross profit dollars, adjusted operating expenses were 62% in the second quarter, a full 8 percentage points lower than the 70% a year ago. Adjusted operating income of $301 million increased 39% year-over-year and grew 2.7x greater than sales. This is the eighth consecutive quarter of operating income growth exceeding our sales growth. Our adjusted operating margin was 4.5% in the second quarter, which improved 80 basis points year-over-year and improved 12 basis points quarter-over-quarter. By operating group, Electronic Components operating income was $297 million, up 57% year-over-year. EC operating margin was 4.7%, up 122 basis points year-over-year and up 47 basis points quarter-over-quarter. All three EC regions saw year-over-year and quarter-over-quarter operating margin expansion led by our EC EMEA business, which expanded operating margin by more than 200 basis points year-over-year. Farnell operating income was $37 million, down 39% year-over-year. Farnell operating margin was 9% in the quarter, down 461 basis points year-over-year and down 308 basis points quarter-over-quarter. The decline in Farnell operating margin was primarily driven by a combination of lower sales, in part due to the lack of availability of certain components for single-board computers and from a lower gross profit margin. The expected decline in gross profit margin was primarily related to the unwinding of pricing premiums as certain components became more available. Farnell continues to be the highest margin within Avnet, and their operating income margin continues to be 2 times greater than Avnet's overall operating income margin. We expect Farnell operating margins to remain at similar levels for the second half of fiscal 2023, as seasonal sales growth will be offset by the continued unwinding of pricing premiums on certain components. Turning to expenses and gains below operating income. Second quarter interest expense of $59 million increased by $37 million year-over-year and $14 million quarter-over-quarter, primarily due to a combination of increases in interest rates and higher borrowing amounts to support working capital increases. This increase in interest expense negatively impacted adjusted diluted earnings per share by $0.31 year-over-year. During the second quarter, we entered into legal settlements which resulted in a one-time gain of $62 million. This gain benefited second quarter GAAP earnings per share by $0.51. Our adjusted effective income tax rate was 23.6% in the quarter. Adjusted diluted earnings per share were $2.00 for the quarter, which increased 32% year-over-year and were flat quarter-over-quarter. Turning to the balance sheet and liquidity. During the quarter, working capital increased by $876 million, including a $318 million increase in inventories. As a result of this working capital increase, working capital days was 84 days for the quarter, which increased 11 days quarter-over-quarter. Our inventory days increased by approximately six days, and our receivable days increased by approximately four days quarter-over-quarter. Our return on working capital continues to be higher than our cost of capital and improved over 100 basis points year-over-year. Our inventories grew during the quarter due to a combination of factors, including customers requesting delays of product shipments, changes in foreign currency exchange rates compared to last quarter, and an increase in Farnell inventories as components became more readily available. We have seen an increasing trend of customers rescheduling product shipments as they manage their inventory, production timing, and cash flow challenges. This contributed to the increase in days of inventory as turns slowed during the quarter. The quality and freshness of our inventory continues to improve year-over-year. During the second quarter, we also saw a slowdown in the collection of receivables. Our team continues to work diligently with customers to collect past due receivables and effectively manage bad debt risks. Our team has done a tremendous job since the onset of the pandemic in minimizing bad debts by proactively managing the credit and collection activities with our customers. While we continue to focus on improving inventory turns, our top priority is to ensure we are managing overall customer risks appropriately. The increase in working capital led to an increase in debt of approximately $850 million and a corresponding $321 million use of cash from operations. The increase in debt led to a gross leverage of 2.4x at the end of the quarter. At quarter end, we had approximately $300 million of available borrowing capacity, and our teams continue to work on selling inventory on hand and collecting receivables to provide additional liquidity. In the second quarter, we repurchased approximately $64 million worth of shares, which represented nearly 2% of shares outstanding. We have $319 million left on our current share repurchase authorization entering the third quarter. We continue to prioritize our existing business needs, including working capital and capital expenditures when we evaluate share repurchases. During the second quarter, cash used for investing activities, including capital expenditures, was $107 million or an increase of approximately $90 million quarter-over-quarter, primarily to support a new warehouse being built in EMEA. During the quarter, we also paid our quarterly dividend of $0.29 per share or $26 million. Book value per share improved to approximately $48 per share or an increase of approximately $6 per share due to a combination of strong earnings, lower share count, and changes in foreign currency exchange rates compared to last quarter. Turning to guidance. For the third quarter of fiscal 2023, we are guiding sales in the range of $6.15 billion-$6.45 billion and adjusted diluted earnings per share in the range of $1.75-$1.85. Our third quarter guidance is based on current market conditions and implies a sequential sales decline of 4%-8%. This guidance assumes a seasonal decline in sales from Asia, primarily due to the Lunar New Year and below seasonal sales growth for the Western regions. This guidance assumes similar interest expense compared to the second quarter on effective tax rate of between 22% and 26% and 92.5 million outstanding shares on a diluted basis. In closing, I want to thank our team for delivering another strong quarter of sales and earnings growth. During calendar year 2022, we delivered sales of over $26 billion and adjusted diluted earnings per share of over $8. Avnet's diversification of suppliers, products, and the end markets we serve are key differentiators that will enable us to be resilient despite uncertain and changing market conditions. With that, I will turn it back over to the operator to open it up for Q&A. Operator? Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question is from Melissa Fairbanks with Raymond James. Please proceed with your question. Hi, guys. Thanks very much. Great work navigating kind of uncertain times today. It's really, really great to see these results and the outlook. You did mention that lead times are improving for a lot of the products. Last quarter, you gave us some detail onto which products still had the longest lead times. I was wondering if you could maybe give us a little bit more detail on that. Sure, Melissa. This is Phil, and thanks for your compliment. I appreciate that. Yeah, I know this is a hot one, right? We did say that we're seeing some modest improvement, right? Maybe a little bit better than modest. But at the end of the day, you know, lead times, they've stabilized in the vast majority of the products, but are still at levels 20%-60% higher than pre-pandemic. While some products are coming in, products like MCU, particularly in automotive, analog power, IGBTs, MOSFETs, 45 nm FPGAs, programmable logic, are still in many cases, significantly constrained. That's what makes this market so much more complex than what we've maybe experienced in the past. I, you know, IP&E or in the past is, you know, your ceramics, 12-18 weeks, some cases 26-32. Tantalum are still 26-56 weeks. Resistors like thick film, still 52-72 week lead times. It's kind of a mixed bag. The connector guys overall, again, as a general statement, are probably the lowest of all the categories in interconnector, probably averaging 13-16 weeks, depending again on the type of connector products. I was just summing up by saying, you know, high-end controllers, anything around power, op amps, voltage regs, things along those lines are still pretty tight, as well as I said, automotive. Yeah, no. Probably clear as much for you, right? It's kinda, it's just all over the map. No, that's actually really helpful. Absolutely. Yeah. Yeah, I really appreciate the detail. Maybe one for Ken on the growth in inventory. You know, this is something that obviously everyone's paying really close attention to. You highlighted a few different factors behind the growth this quarter, and I think it's fairly well understood what's driving it. Can you maybe quantify, you know, was the majority of it due to Farnell? You know, what was the kind of breakdown of the contribution there? Yeah. I would say, you know, about 50% was actually driven by, you know, FX, that we did have some challenges there. Farnell was about another, let's say, 25% of that, and then the rest was, you know, call it, you know, just slower turns and those types of things. I will comment that the FX impact kinda offsets what was last quarter. It'd be kind of a wash. You know, over the past two quarters, the FX has kind of normalized. You know, so clearly just some broader growth. In the regional inventories, this quarter mostly in the West versus last quarter was mostly Asia. Okay, great. Thank you very much, guys. That's all for me now. Thanks, Melissa. Thank you. Our next question is from Ruplu Bhattacharya with Bank of America. Please proceed with your question. Hi. Thanks for taking my questions. I was wondering if you can delve a little bit deeper into the margin performance for each of the segments. In components on flat sequential revenue, you had 50 basis points of margin improvement. Is there any way that you can parse out how much of that was because of pricing versus, say, volume versus mix versus FX? How should we think about the sustainable level of margins in the component segment? Same question for Farnell. I mean, 300 basis points sequential decline, any way to parse that out between all of these factors? Yeah. I'll go first and let Ken jump in. You kinda answered it, the first part of that question, Ruplu. A lot of that is mix, okay? Regional mix. Very little on ASP inflation this quarter, although we had a lot of supplier price increases, that would not really affect the margin necessarily, maybe some of the dollars, but not the% in the margin. Most of it's the mix. We noted that we said that, we saw some softening coming out of Asia at the end of the quarter, and we had strengthening in the West. When that happens, we pick up some margin. It's really just good execution by the team. On Farnell, yeah, so again, we've signaled this as well. They get some appreciation in a upmarket or a more constrained market. They get some, what's called a natural upside. Some of that as products are coming into. Back to the question we just got from Melissa, where some lead times are starting to come in, the more the some of those customers, they get I'll call it nontraditionally come back into the volume space. They've seen some margin pressure and of course some of the volume decline, thus the negative drop-through. Ken, you wanna comment? Yeah. On the components business side, I would say it's regional mix, but then we did have a more favorable, let's say, product customer mix. If you recall, what we said last quarter was, 'cause gross margin was down a little bit there. You know, all of our regional businesses had a more favorable mix and then the regional mix between the West versus Asia was the bigger driver there, with controlled expenses obviously, right? When you get to Farnell, I would say, you know, approximately 50/50 between the sales piece and then the deterioration of the gross profit margin due to the unwinding of the premiums. That's probably the right way to think about it. Yeah. I do want to highlight though, you know, Farnell, we're still extremely pleased with Farnell. Their operating margins are two times the core, we're going to continue to be doubling down on the Farnell performance and growth. Okay, thanks for the details there. Phil, you made a comment that Asia is not softening, and for the next quarter you're guiding below seasonal growth in the West. Can you maybe touch a little bit deeper into that? Like which end markets or which verticals are softer now and in Asia versus in the West, and how do you see that progressing as you, as you go through the year? Tough to call throughout the year, so I wanna, you know, be careful on that one 'cause the market fluctuates so much. Right now, hey, look, as we've already talked about, there's a bit of a inventory oversupply, right? In Asia Pac in general, okay? Ken just talked about we had some inventory increase last quarter there. Except in the automotive. Automotive's still strong. Matter of fact, automotive and industrial, we've got great momentum in Asia Pac. It's really the end consumer, you know, the, the applications, your PC mobile, they continue to look pretty weak. Then you gotta remember the just a reminder, we're in a more traditional, if you will, where whatever that word means anymore, with the Lunar New Year, right? That's kind of been on and off the last couple of years with COVID. We've got to see how that affects the market and the volumes of people that come back to work, if they come back to work, all right, when they, when they go into the Lunar New Year. We've got to watch that. Then of course, we got the unpredictability of the COVID, right? What's gonna happen, that had a negative impact on us as well. But overall, I wanna be clear, we're really pleased with our Asia performance, and believe we're gaining share. We have a really diverse market in Asia. A lot of times you think Asia, everything's China. I mean, we're doing really well in Southeast Asia, the Greater Taiwan. We have a nice business in Japan, so we're a little bit more diversified outside of just China. Of course we have a good presence in China as well. A bit of a mixed bag on the West. Ken comment on this a little bit. I mean, the West, and you're right, typically we'll see a sequential increase quarter-on-quarter from December to March. Again, a lot of these are the old, you know, traditional curves if you will, from the quarter-to-quarter seasonality, I should say. They've all been kind of thrown out the last couple of years. Typically you do see the West come back, and we're having a good performance in the West. We just, frankly, as we said, had pretty much record quarters in Europe. They're just going against a tough compare. The number in Europe is solid for the March quarter, we believe, as the Americas. Okay, Phil, thanks for the details there. If I can sneak one more in. OpEx as a% of gross profit, is that at a stable level now? It looks like it's been in the 62% of gross profit for the last couple of quarters. Or do you have more levers to take out costs? How should we think about OpEx going forward? Thanks. This is Ken. I would say I wouldn't think about additional cost takeout. You know, clearly depending on market conditions, we may have to, you know, tighten our purse strings a little bit, but no significant actions planned at this time, at these levels of sales. I would say it's a pretty stable percentage, you know, at this level of sales. Okay. Thanks for all the details. Appreciate it. Thanks, Ruplu. Thank you. Our next question is from Matthew Sheerin with Stifel. Please proceed with your question. Yes. Thank you. Phil, I'm hoping that you can be a little bit more specific on the book-to-bill ratios that you're seeing by region. Then on the push-outs that you're seeing from customers, are you seeing cancellations as well? As you've gotten through the quarter so far, has that gotten worse or stabilized? Yeah. Thanks, Matt. On the book-to-bills, you know, we don't provide it at the regional level. We'll just share that we're definitely, as we said in the script, we're negative book-to-bill or below parity now in all regions. I would say the one that's closest to parity is still the Americas, then Europe, then Asia. Okay? And you know, I said this before, they're moderating, but I don't see that as a negative thing. We've had such a run up of positive book-to-bill that were excessive, as we all know on the call, that this is, I think a natural and healthy moderation of the book-to-bill. It's not really doesn't have any overly concern. Because a lot of this, to your second part, Matt, is, I don't wanna say self-managed, but we're managing the backlog. You know, we're working with our customers on this, and they're certainly, as the market shifts, still reluctant to cancel. I mean, so we're having to do some of that for them, if you will, in the backlog. They might be rescheduling, which is, you know, push out, but our cancellation rates, and I'm looking at the chart now, as I've said in previous calls. Our buffer, our shock absorber and backlog is roughly 25%-30% adjustments in any given day, where we're either pulling in, pushing out, canceling. Right now we're running between roughly around 27%, so it's up a couple points, but nothing that's overly alarming. Again, we watch that on a daily basis. That's how we're seeing it. I mean, again, I don't think it's a negative thing. I think it's an adjustment in the market, that the market is required. You commented, previously on a question regarding seasonality, next quarter. It sounds like you're saying that even though Europe and North America will be below seasonal, they're both gonna be up sequentially. Matt, I would say, you know, flat to down slightly. Asia obviously down, that's where the drop in revenue comes from. I think just to remind everyone, you know, when we move into our third and fourth quarters, we've got a higher mix of Western sales, so we offset some of that sales decline by higher gross margin because of the more favorable mix. You're up too. Okay, great. Just lastly on the inventory, it looks like your inventory was up roughly 40% year-over-year. You're guiding revenue, you know, down modestly year-over-year. You talked about customers pushing out orders. Can you do the same thing? Are you turning around and canceling or pushing out orders to your own suppliers to try to start working this down? Yeah. Well, everyone's a one-off, Matt. Every supplier, depending on the commodity, has different, you know, we've got different NCNRs, non-cancel, non-returnables, and all those things in place. Where we can, we certainly are. We're also working out with our customers, you know? We do believe, as we said, we'll start turning that inventory. The inventory is good inventory. It's fresh inventory. You know, there's no, you know, we have a customer that needs some help or a challenge, and we're in it for the long haul, so we may be carrying a little bit more than we would for some customers 'cause we wanna work with them for the long term and not force them to take something we know they're not gonna be able to pay for or don't want or need. That doesn't bode well for the relationship. Again, we've been in this situation before. It's not our first rodeo. Yeah, it's a constant negotiation. They're all one-offs. I will say the positive is we're not seeing suppliers ship early. We're not. I think that's a really important point. I'm sure I'm gonna get that question. It's just they're catching up based on lead times coming in, okay? Then we gotta work with the customers to see what other parts they need to finish out their builds. Got it. Okay, thanks, Phil. Thanks, Matt. Thank you. Our next question is from Jim Suva with Citigroup. Please proceed with your question. Thank you, Phil and Ken. Phil, when you were away from Avnet for a little bit of time, there were some supplier relationships that kind of went up for bid, had some changes, some of them adversely affected Avnet, some of them did not. Now that we're exiting COVID, are the suppliers coming back and talking about changes or new terms or anything different? Because it seems like the past 2-3 years it's been anything but stable. Thank you. Yeah. Thanks, Jim. Yeah, those were some interesting years. They're behind us with the supplier, I'll say destabilization. No, I think the supplier relationships have been extremely positive. And we even note that when it comes to things like demand creation. They're actually leaning on us more as we saw our demand creation numbers go up again this quarter to some record numbers. I think that the supplier relationships are as strong partnerships as they are relationships, and they're actually asking us to do more for them. Now I am very open about this. We don't sit in their boardrooms. We don't know who's looking to potentially buy who and, you know, that we can only control how well we execute for them. When we look at the top suppliers on the semi side and the top suppliers on the IP and E side, we're pretty much number one or two with every one of them. Conversations right now are very strategic and very, very positive as we sit here today. Yeah. No, I didn't mean that in a negative way, like share losses or disengagement. Yeah. I meant it just as far as discussions, could they potentially be evolving into more demand creation or more-? Yeah. Services or holding or consignments that didn't happen pre-COVID? Thanks, Jim. What some of the suppliers are acknowledging, that, you know, customers are looking for as much around solutions as they are chip solutions. They want total solutions, right? Board solutions, not just chip solutions. That's where we can offer that value of the chip plus the balance of the solution for the customer. As engineering resources become more and more scarce and difficult to get and more on the software side, you know, the suppliers can scale with us, and we got the reach to help them get to that other customer base that they may not be able to get to. In that regard, I mean, there's not a meeting we have with a supplier that we're not talking about demand creation. Matter of fact, it's the first thing they wanna talk about. On the supply chain, as we call supply chain as a service or our Avnet Velocity business, we've had more suppliers coming into us and large OEM customers say, "Hey, you know, we need some help in building out the supply chain capabilities." You know, their suppliers wanna drive R&D, manufacturing, sales, and marketing and, you know, lean on us for some of our supply chain capabilities. I think that's been a real positive through these last two and a half years, and I think it's very sticky. Maybe a follow-up for Ken. Ken, you mentioned Premier Farnell's margins came down a little bit, some of it due to sales, some of it due to the removal of the premiums that happened during the shortages. I'm wondering, have those premiums now been largely or completely resolved, or are those premiums still coming out of the model where we should model a little bit more margin compression in the quarters ahead? Thank you, gentlemen. Yes. Thanks. Jim, thanks for the question. I think, you know, how I'd look at it would be, and I think I said this in the commentary, was really, you know, they'll have a seasonal uplift in sales 'cause they're more of a Western kind of business. That'll be offset by the continued unwinding. I'd say, you know... I don't know if I'd say most, but, you know, over half, but there's still some to go. That's kind of what we're expecting is a flattish or a stable margin, operating margin because you have higher sales offset by some further pricing deterioration to get to a steady state. We do see, you know, positive signals, especially when it comes to, you know, what we just talked about with product availability, you know, those single-board computers and the components needed. We see that, you know, being a positive momentum going into our fiscal year 2024. Well, thank you, Phil and Ken, and congratulations to you and your teams for navigating a very challenging time. Thanks, Jim. Thanks, Jim. Thank you. Our next question is from William Stein with Truist Securities. Please proceed with your question. Great. Thanks for taking my questions. First, the receivables increase, I think, was a little bit unusual. I know you guys historically have not had any sort of unusual collection issues, so I don't think we expected this, you know, during this cycle. I wonder if you could comment as to any concentration in the AR increase, either by geo or end market or any other way you'd categorize it? Yeah. Thanks, Will. I guess I would say, no specific concentration, but again, we don't have any major customer concentrations or supplier concentrations for that matter. We like the fact that we're not, you know, beholden to any one customer or supplier. What I would tell you is it was kind of across the board regionally and, you know, part of it was, you know, challenges with customers with their own cash flow situations that we worked through, like Phil talked about. You know, the other part was just quite frankly, it was December 31st and people wanted to pay us, you know, in January and, you know, that was a piece of it which kind of then recovered early in the next quarter. I would say actually just had a call with the team today 'cause we are definitely focused on credit collections, any high-risk areas that we can get the business involved in. I think they're saying actually the aging's improved a little bit. You know, still have about a normal amount past dues, but it's improved a little bit. Clearly something we continue to focus on. Hey, Will, I'll just jump on that. Actually 2.5 years ago when all this started to happen with COVID, we actually were very concerned about receivables and from the standpoint of bad debt. We were concerned that customers aren't gonna make it, the ones with the weaker balance sheets. Actually we've been pleased, frankly, that we've not had that. Okay, a little extension, yeah, for sure, and we're all over it. Our bad debt exposure of write-offs, if you will, have been minimal, okay? I, it's a compliment to our collections and our receivable teams and our -- the business overall. Just wanna add that on. Yeah, appreciate that. Well, one quick one and then a more in-depth one if that's okay. It sounded like the way you were talking about the changes in order patterns, the backlogs, the order reduction, sounds like that was more of a China-focused event. I would think lead time is more of a global metric. I'm hoping you can just level set me on that. It is. No, the lead times are definitely on a global basis, it's not just Asia. As I said, we saw the West. I just said that the West was still a little bit stronger in book-to-bill than Asia Pac, that's all. Again, I don't think it would surprise anybody with the what's going on in Asia Pac right now. What we're doing is, as I said, we're being a little bit more assertive than even the customers are with us in making sure we're working to clean that backlog up. To Matt's point, more fair negotiations with the suppliers on that side as well. We don't want product coming in that the customers don't want, right? Suppliers don't want us to have the product on the shelf that's no good. They build out their capacity. They wanna know what's real and what's not. That's going back to Matt's question, where the suppliers, some are working with us really, really well in letting customers out of the NCNRs because they don't wanna build stuff that they're ultimately not gonna want. Other suppliers are a little bit more rigid. Everyone's a little bit of a one-off. No, not unique to Asia. Appreciate that. Last one if I can squeeze it in. Can you remind us of the capital allocation, strategy or tactics, however you wanna describe it, the dividend in particular, what the plan might be for future increases there? Thanks so much, guys. I think on the dividend in particular, our historical pattern has been, you know, once a year in the September quarter, we would look at increase. You know, buybacks I think we've been pretty good there. We've bought back 8% of our shares, since, you know, the last 12 months. You know, this quarter I would say if you'd look at our buybacks plus dividend plus CapEx, you know, that was actually higher than any of the past few quarters because we did have a larger CapEx. From a priority standpoint, we're gonna continue to prioritize the business in terms of needs for working capital and CapEx before we get into returning to shareholders. We think, you know, especially, as we start to get back to cash flow generation, versus use of cash on working capital, we'll be able to have enough to, you know, repurchase shares. We do look at it still as trading below book value, and it still looks like an attractive price even though our stock has performed relatively well to others over the past couple quarters. Thank you. Thanks, Will. Thanks, Will. Thank you. Our next question is from Joseph Quatrochi with Wells Fargo. Please proceed with your question. Yeah, thanks for taking the questions. I was curious, how are you guys thinking about the pricing pressure that you're seeing in Farnell as being, maybe correlated to the components business? Is this kind of like a leading indicator or precursor that you are a little bit worried about? I guess I would answer that to say I don't know that we're worried about them. I think it was expected. We knew that we got some uplift there in the market. Normally it would correct itself. You know, I guess how I would characterize it is, you know, I think we talked about it as in a 200 basis points range, you know, maybe a little bit north of there. You know, we still have a very healthy margin, gross margin in Farnell. You know, and they do have a pretty diverse product set, right? There's on the board type components, and that's really what we're talking about pricing agreements when we talk about on the board semiconductors, certain IP&E. They also have, you know, a lot of their business in other kind of areas, test and measurement, maintenance and repair. You know, there's a nice balanced portfolio that can keep that steady margin, we believe. Joe, Phil, I'll just ramp it up. No, it's not a concern. We just spent a week with them in the U.K. last week, as my friend Ken and I, we've got a solid team. We've got a solid plan. Just we called this. We signaled this quarters ago. They're a little inflated, and it's gonna come down. On top of that, the single-board computer backlog is really, really growing, so that's impacting some of the top line. And that will definitely come back, as Ken pointed near the end of our fiscal year into Q1 fiscal 2024. Got it. Maybe just ask it a little bit differently. Do you see, I guess, the pricing pressure that's happening in Farnell is potentially spreading into the core components business, I guess, is what I'm trying to ask? Yeah. Okay. Got you. Yeah. Good question. Again, Farnell buy is different, you know, than the core, right? There's not as much, you know, from the ship and debit and things along those lines. It's different. On our side, on the core side, we'll start seeing some pricing pressure. Right now, not so much. Okay. There's still a matter of fact, there's still, as I called out, 20+ suppliers that raised prices in January. Back to the first question on lead time. Lead times all coming in. Not all of them, because they're still raising prices. There's always pressure in the system, right? Right now, we're not seeing anything that overt that's gonna have that big a negative impact. I would just add to that, there are, you know, competitive pressures will always- Yeah You know, put pressure on our gross margins. We do have, and we talked about supply chain as a service, IP&E initiatives, as well as our demand creation to help us kind of keep the margin stable, right? We're always probably going to have some competitive pressure going down, but we can keep on filling the funnel with the higher margin revenues, including Farnell and getting Farnell growing. You know, helps offset that overall, and that's kind of how we're thinking about the model. Yeah. Sorry to jump back in, Joe, but just 'cause it is a good question. That's why we gotta drive digital, right? That's why we gotta drive e-commerce and online sales. In Farnell, we had a, you know, record-breaking number, and 55% of the revenues were actually done online and 73% of the transactions. That really helps you drive and offset some pressures 'cause you have a much lower-touch, lower cost to serve on that piece of business. Just wanna add that in. Yeah, that's helpful. Just maybe as a follow-up, you know, with March quarter revenue guidance declining year-over-year on the midpoint, how do you think about cash flow generation? Should we start to think about that as maybe inflecting positive? Then just also on that note, how do we think about CapEx? I know there's maybe more of a one-time kind of CapEx this quarter. How do we think about the CapEx in the next couple quarters? Yeah. To answer the CapEx question first, I'd say, you know, it's maybe more consistent flow. You know, $25 million-ish a quarter, you know, give or take something, would kind of be the expectation there on CapEx. I'd say the answer is yes on cash flow, you know, we've got some work to do to get the inventory levels down and collect the receivables. You know, that's clearly the goal when sales go down. You know, our model then needs less working capital, including less receivables and less inventory, and it works through. It may take a little bit more time than we'd like, that's what we're clearly focused on this next quarter and then going into the fourth quarter. Thank you. Thank you. Thanks, Joe. Thank you. There are no further questions at this time. I would like to hand the call back over to Phil Gallagher, CEO, for any closing comments. Thanks a lot. Yeah, I wanna thank everyone for attending today's earnings call, and I look forward to speaking to you again in our fiscal third quarter earnings report in early May. Okay, have a great 2023. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.