Welcome to the Avnet Fourth Quarter Fiscal Year 2024 Earnings Call. I would now like to turn the floor over to Joe Burke, Vice President, Treasurer and Investor Relations for Avnet.

Thank you, operator. I'd like to welcome everyone to the Avnet fourth quarter fiscal year 2024 earnings conference call. This morning, Avnet released financial results for the fourth quarter and fiscal year 2024 and the release is available on the Investor Relations section of Avnet's website, along with a slide presentation which you may access at your convenience. As a reminder, some of the information contained in the news release and on this conference call contain forward-looking statements that involve risks, 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 statements or supply new information regarding the circumstances after the date of this presentation. Please note, unless otherwise stated, all results provided will be non-GAAP measures. The full non-GAAP to GAAP reconciliation can be found in the press release issued today as well as in the appendix slides of today's presentation and posted on the Investor Relations website. 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 fourth quarter and fiscal year 2024 earnings call. For fiscal year 2024, we delivered $23.8 billion in revenues and $5.43 of diluted earnings per share. Looking back on fiscal year 2024, we began the year with great momentum from fiscal year 2023, which was a record year both for revenues and earnings per share. As 2024 progressed, we faced a softening demand environment and I want to thank our team for their execution and perseverance in these challenging market conditions. Their continued efforts will allow us to emerge from the crisis stronger as the market recovers. Turning to the completed fourth quarter. I'm pleased we delivered another quarter of financial results that exceeded our top line and EPS guidance. In the quarter we achieved sales of $5.6 billion and adjusted operating margins of 3.5%, highlighted by a 4.1% operating margin in our Electronic Components business. With the structural improvements we have made over the past few years, our EC business has now delivered 10 consecutive quarters of greater than 4% operating margin. We also had another good quarter of cash flow generation, primarily the result of executing sound working capital management as we navigate through the market correction. Sequentially demand declined across most of the end markets we serve. On a year-on-year basis aerospace and defense was the only end market with increased demand globally. Semiconductor lead-times have continued to decrease and remain relatively low for most technologies. And as I mentioned last quarter the growth in data center build-outs surrounding cloud and artificial intelligence is driving longer lead-times for certain products and we would expect this to continue. On the IP&E side, lead-times are generally stable and have returned to what I would characterize as a normal…

Thank you, Phil and good morning, everyone. We appreciate your interest in Avnet and for joining our fourth quarter earnings call. Our sales for the fourth quarter were approximately $5.6 billion above guidance and down 15% year-over-year or down 14% in constant currency. On a sequential basis, sales were down 1% in constant currency due to sales declines in the Western regions and below seasonal sales growth in Asia. On a year-over-year basis sales declined in constant currency 2% in Asia, 21% in EMEA and 22% in the Americas. From an operating group perspective, Electronic Components sales declined 15% year-over-year and 14% in constant currency. EC sales declined less than 1% quarter-over-quarter in constant currency. Farnell sales declined 16% year-over-year and 15% in constant currency. Farnell sales declined 8% sequentially in constant currency. For the fourth quarter, gross margin of 11.6% was 92 basis points lower year-over-year and 28 basis points lower sequentially. Our fourth quarter gross margin benefited from the impact of some of the strategic inventory opportunities we mentioned last quarter. EC gross margin was down sequentially and year-over-year. The sequential decline was primarily due to a lower mix of sales from the Western regions. Farnell gross margin was down sequentially and year-over-year largely due to continued weak market demand for on-the-board components. Turning to operating expenses. SG&A expenses were $450 million in the quarter, down $56 million or 11% year-over-year and down $17 million or 4% sequentially. As a percentage of gross profit dollars, SG&A expenses were flat sequentially at 70%. In the fourth quarter, we incurred additional restructuring integration and other costs for our previously communicated cost reduction actions at both Farnell and our EC business. These actions included a combination of permanent and temporary cost reductions across all regions. We saw some impact from these…

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from William Stein with Truist Securities. Please proceed with your question.

Great. Can you confirm you can hear me?

Yes, Will, we got you.

Great. Thanks for taking my question. Congrats on the good quarterly results. I wanted to ask about a couple of things. Perhaps first, inventory. I think in recent quarters, I'm not sure if you used this word, but I would call it spiky or not well dispersed by supplier and maybe also by region or end market. Can you provide an update as to whether that condition improved and your inventory became a bit more dispersed by supplier or we're still in that sort of spiky situation?

Yes. Thanks, Will, and I appreciate the comment. This is Phil. I'll start and then Ken can jump in. I think what you're referring to is when we talk about our inventory being up and it's higher than we want it to be still and we've got goals to get it -- continue to bring down. Even with our own team, it's not up across the board. I think as we've said, it's not like it's up in every single commodity or every single product line. It tends to be a little bit more top heavy, let's say, in five or six lines where maybe it's a little bit more imbalanced if you will that we're working down. And of course we had as we've noted two quarters ago kind of a special buy that we had as well that's starting to come in which was good for us and good for the customers. So yes, still a little spiky, I guess, is the right word. I'll leave it at that. Ken you want to jump -- so again not all the inventory will. We're still investing in inventory. That's why we deliberately put that in the script so our suppliers know, hey we know we still -- distribution you got to have inventory right? We're just a little imbalanced in certain commodities or certain lines.

Well, I'd just say each region is making progress but it is -- each region has its own kind of situation even though there are some similarities that cross through it. So again everyone's got some progress to make but certain regions have had better progress than others. And we'll continue to drive it through the end of the calendar year.

Appreciate that answer. Thank you. One other. As I listened to some of your suppliers or large semi companies that may some of them maybe not even suppliers anymore, there were two interesting takeaways from my perspective. One was that demand conditions both for orders and for bookings as well were less dispersed by end market maybe if we take out aerospace/defense maybe that one in particular has been strong. But ex that end market it hasn't been as much of an end market story. It's been much more of a geo story. And the story that the semi companies have told have been that geographically they saw a meaningful recovery a big snapback in China. Have you begun to see a similar trend? It didn't sound quite like that in your prepared remarks so I'm hoping you can clarify. And if you can identify the -- maybe the difference between what you're seeing and what your suppliers are talking about that might help us understand the broader picture. Thanks.

Yes. Thanks, Will. And your overall statement is correct. There's still -- demand on bookings is still slower than we'd like to be. I think most suppliers would have said that we track them as well. They want more visibility right because lead times are down and there's just I would say false assumption that everything is going to be available anytime anybody wants it and we know what happens when the market starts to turn. So generally slower. Defense/Aero as been is fine actually good. The big down market really right now it's affecting us most and most as far as industrial. If you're in data center hyperscalers AI you're probably in pretty good shape. As far as Asia Pac or China specific yes. We've seen a modest I wouldn't say robust but a modest recovery in China. We may or may not be playing in some of those suppliers end markets that you're referring to particularly the lines that we don't have. They might be more consumer-based. I'm not really sure. But we're holding our own in China. We're seeing as we talked about in Asia we saw -- I'm just looking at the vertical markets now. We did see some increase in transportation. We did see some increase in although modest in consumer space as well and sequentially in industrial. So that's our Asia Pac number in total. But Asia as we did talk about in the script in total now including Japan, we're going to see sequential growth either in September or December. Depending how strong September comes then we'll begin to see year-on-year growth in Asia Pac which it was a good sign overall as typically the recovery starts in Asia Pac and works its way West. Hope that helps.

Great. Yes. Thank you.

Our next question comes from Matt Sheerin with Stifel. Please proceed with your question.

Yes. Thanks. Hello, everyone. Just following up on Will's question regarding demand. I know you're -- and I appreciate you're just giving September quarter guidance, but it sounds like you're not ready to call the bottom yet Phil in North America or Europe. And so given that and what we're hearing from other suppliers, should we expect those two markets to be below seasonal meaning down sequentially offset a little bit by Asia so that your overall business may be flat to down sequentially? Is that the right way to think about it at this point?

Yeah, Matt, I think when you think about the guidance you see the sales decline from last quarter so obviously there's an impact there. But it would be a heavy mix shift primarily Asia from EMEA. So we're seeing definitely lower than seasonal in EMEA. Now typically September is the seasonally slow quarter for EMEA. You have the vacation periods here in August, so august is usually a pretty weak month. But this is definitely lower than we had hoped or expecting. But I don't think there's anything we necessarily see that says it's getting worse but I don't think we're ready to call bottom either right? Again EMEA has been our strongest region, so they're having a little bit of softness industrial transportation. But generally speaking that business is still very healthy.

I think if you call out -- thanks Ken…

Yeah. Actually Phil, I was actually just talking about the December quarter, looking past September based on your backlog. And then my question was should you expect that to be below seasonal those two regions?

December quarter? Okay. Well we don't give guidance out that far Matt. Can you hear me okay Matt? You can right?

Yeah, yeah.

Okay. All right. Well, Asia we called bottom. I mean, Asia we see -- we called that last quarter that we think March was the bottom in Asia. And that's we believe going to hold true through the calendar year into March. Americas is actually pretty stable right now sequentially. The view into December is still foggy and I would say the same thing for Europe. So it's really just tough to -- there's so many moving pieces. I would like to believe September is pretty much nearing the bottom. You got to remember in Europe we're coming off of June and September quarters a year ago that were all-time record quarters. So we're going against some tough compares on a year-on-year compare as well. But I think it's safe to say the industrial market in particular in Europe is down and that's pretty consistent and that's a big play for us in many of our suppliers in that industrial space in Europe.

Got it. Okay. Thanks for that. And then regarding your margin or backing into your margin guidance, it looks like component margins would be below that 4% target that you have. And it also looks like gross margin will be down by at least 20 basis points sequentially. Is that really all mix-driven at this point or are you seeing incremental pricing pressure as well?

Yeah, Matt it's mostly mix. I think that dip you're right it does dip below 4%. We're hoping that's the only quarter but it may be a couple of quarters. But again it's a big mix shift primarily to Asia from Europe and that's what's driving a lot of it. We did mention OpEx being up a little bit too from some change in the fiscal year and kind of timing difference kind of headwinds. But we feel overall really good about our expenses, but it will be up from last quarter.

Okay. And just on OpEx Ken, looking past the September quarter. You talked about some incremental restructuring so should we expect OpEx to work down from there or not?

Yes, I think modestly, but not significantly, you're right.

Okay. All right. Thanks a lot.

Our next question comes from Melissa Fairbanks with Raymond James. Please proceed with your question.

Hey guys. Thanks so much for taking my question. I've got one a little related to some of your commentary on the inventories. Just wondering what we can expect moving forward either in terms of investment in end-of-life products. I know you've had some unique kind of strategic opportunities there or maybe some expansion of your supply chain services business.

Melissa, this is Ken. Specifically to end-of-life? I mean I think there's several suppliers that are doing some we call it last time buyer end-of-life programs. I think we don't necessarily love to hold product for those engagements for multiple years right? We can do something for 1 two years. But when you start to talk about beyond that we look for alternative methods. So we do see that as a historical and current opportunity within our supply chain. But a lot of stuff it's cheaper for the customers just to take it right? So we see some of that being more temporary holds versus the longer term. But we are open to serving whatever the customer needs are but again we got to get a fair return for that. And with the cost of capital it becomes more expensive to do those kind of last-time buy holds than it was a couple of years ago. But we're seeing pockets of opportunity. I wouldn't say anything meaningful. A lot of the stuff we're seeing on end-of-life is back-to-back type of things where we'll hold it for a little bit to pipeline it but it gets shipped.

Okay. On the supply chain services business I think this maybe going back to the December quarter or maybe even a conference in the December quarter. You had some opportunities. You onboarded some inventory. I believe it was for an industrial customer. And then you saw potentially some opportunities longer term in the auto space. Can you give us an update on that business?

Yes. I think just overall supply chain as a service is there's puts and takes. What I would say is we still see lots of opportunity in particular in transportation but even more broadly. And I guess the other commentary I'd give is some of the legacy supply chain engagements more for let's say technology type companies that have been buying components for years that's down with the broader market being down right? So we're optimistic that some of that will start to recover. And then that will be on top of some of the new wins. But again these things take a little while to ramp, but progress being made, but not ready necessarily to give more specific financial metrics there outside of the percentage of inventory which was roughly 8% this quarter consistent with last quarter.

Yes okay. Love to see the good progress on the inventories by the way. Maybe if I could squeeze in just one more quick one. We've talked a lot about Asia today, but we've heard about some increasing competitive or pricing pressures in Asia. I'm wondering what you're seeing there if that's impacting anything. Obviously Asia has been one of the better performing regions for you. But if you can comment on the competitive dynamics there.

Yes. Melissa thanks for the questions. I appreciate it. This is Phil. Nothing -- you hear from a couple of suppliers in certain markets maybe even in China, you may have some more indigenous suppliers and whatnot. But overall, I mean Asia is a competitive market all the time. So, we're not seeing anything that's out of the norm affecting our business at this point. But we do hear about the -- some of the pricing pressures in certain commodities from certain suppliers. Again, net effect to us has been minimal.

Okay. Great. Thanks so much, guys.

Our next question comes from Joe Quatrochi with Wells Fargo. Please proceed with your question.

Thanks for taking the question. Just kind of curious on the target of being sub-$5 billion inventory, how long do you think that could take? And then just to clarify, is that including the supply chain service inventory that you're holding as an agent for your customers or suppliers side?

Yeah, Joe, I think that goal, I would say that's a net goal. I think there'll be puts and takes throughout the fiscal year, so I'd say as we get towards the end of our new fiscal year, you should see that be achieved. I think we'll continue to kind of report out what percentage of supply chain. There's nothing near term that we see would be a drastic increase there that would materially change the number, but there will be puts and takes within that number and we'll update accordingly. Again, we're -- Phil mentioned, the kind of pockets that are elevated. That's what we're focused on reducing and we'll continue to give progress updates on where that's at. But clearly, I think there's capacity to invest in inventory but still reduced overall is how we're kind of thinking about it.

Okay. And then on the -- you talked about the opportunity on the data center side. Just kind of curious, how big is that from a revenue perspective for you today? And how should we think about the margin profile relative to the corporate average?

Yeah, Joe, this is Phil. We don't quantify the number. On a relative basis to our total enterprise, it's relatively small, Joe, okay? But we see increased opportunities there. And particularly out of our Asia business tied to some of the hyperscalers, and the margin profile has been about average to our typical margin that we're getting from those suppliers or customers. I think the other opportunity, I believe we talked about in the last call, which makes it a little bit more difficult to measure is we're -- whether we're selling directly to the hyperscalers or a lot of our OEM customers sell into the hyperscalers and AI, right? So we're, in particular in the industrial space, we've got a lot of customers that we're doing business with, that we're supporting their end customers, are the hyperscalers, if you will. So we're also benefiting from that. We're working to quantify that. It gets more difficult as you can probably imagine. But either way, the overall ecosystem that gets built out there, as time moves on, we will certainly benefit.

Helpful. Thank you.

Got you, Joe.

Our next question comes from Ruplu Bhattacharya with Bank of America. Please proceed with your question.

Hi. Thanks for taking my question. First one is on Farnell. So what do you or Rebeca plan to do different to turn the Farnell business around? And Ken, you talked about margin improvement throughout the next fiscal year at Farnell. How should we think about the cadence of that? I mean, where do you think the margins in Farnell can get to by the end of the fiscal year?

Yeah. Thanks, Ruplu. I'll go first. I'll let Ken touch on the margin. We do have a plan there and you can imagine we have a walk. So yeah, just overall, certainly disappointed where we are with Farnell. That said, we're also excited about the opportunity because it becomes a complete tailwind for us as the market recovers. As you know, yes, we announced Rebeca in the role. She's a 25-year veteran of the industry been with Avnet 18 months and has already jumped in, with the team on resetting the strategy and the structure for Farnell. We talked a couple of quarters ago about the OpEx adjustments at Farnell, which are -- I think we talked about that in the transcripts as well that we are starting to see the net effect there. It's just that that effect of the OpEx did not show up, as positive in the OI due to the further softening of the market particularly in Europe, where Farnell's largest region. So we're going to continue to look at the strategy structure continue to leverage the best of Avnet, okay, in total with Farnell. As we talked about in the script, we've a unique opportunity there. We continue to invest in the digital front end, the e-commerce front end. We're not slowing down on that at all, because we think it's critical for the long-term value prop that we see Farnell can bring Avnet and its shareholders. So stay tuned for more, and I'm sure we'll get more in the one-on-ones with you. Ken anything on the...

Ruplu, I'd just say, I think on the operating margin improvement, when you're going to see it I think, it's pushed out a little bit. The sales obviously, were softer than we anticipated going into the quarter and that's kind of the broader impact of the EMEA market. So at the current level of sales, we're not going to see a lot of improvement. The good news is gross margin, we feel pretty good about it being stable and that's for on-the-board components as well as overall. And the OpEx actions are taking effect, right? We saw a pretty good sequential decline there. So, we feel good about those things that we can control the top line is softer than anticipated and we expect that to continue for at least the next quarter or two. But, everything else is in good shape for the recovery. Q – Ruplu Bhattacharya: Okay. Thanks for details there. Maybe for my follow-up, if I can ask you on your capital allocation priorities. I mean from the prepared remarks, Phil, it seems like we're nearing the end of the inventory correction in the channel. So I mean, how many more quarters do you expect of this correction? And in this environment, where would you focus your investments? And how should we think about the trade-off between buybacks or doing any M&A or any other type of investments that you may have? So if you can just kind of weave in like, how many more quarters of correction you expect? And where do you focus your efforts in terms of investments and capital allocation? Thank you.

Ruplu, I'll start off by just saying, I think our -- with some of the market turmoil here we dropped below $50. We've been steadily trading below book value of about $54. So we feel buying back shares is the appropriate use of our capital right now. I think we've talked about it. We're not really pursuing M&A aggressively. We're open to listen to things and a lot of things would be capabilities or tuck-in type of opportunities, but nothing transformational. And again, we have to support the dividend. We still see there's opportunity in inventory so although, it's getting better with our customers, we wouldn't say across the board every inventory levels are where they should be at, right? So it's still going to take a few quarters to get through the inventory side of things. But we anticipate continuing to invest in ourselves. That's some combination of our own team and then also when it comes to the capital projects, but we think that's kind of largely subside itself with the investment into Europe. So again, I think it's going to be mostly buybacks and dividends some piece of debt pay down, depending on where the debt levels are at and continue to drive improvements in the business. Q – Ruplu Bhattacharya: Okay. Thank you for all the details. Appreciate it.

Thank you, Ruplu.

Gentlemen, there are no further questions at this time. I'll now turn it back to Phil Gallagher for closing remarks.

Great. Thank you very much and I want to thank everyone for attending today's earnings call. And I look forward to speaking to you again, at our first quarter fiscal year 2025 earnings report in October. Have a great rest of the day. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and we thank you for your participation.