Arrow Electronics, Inc. (NYSE:ARW) Q1 2024 Earnings Conference Call May 2, 2024 1:00 PM ET Company Participants Raj Agrawal – Senior Vice President and Chief Financial Officer Brad Windbigler – Vice President of Investor Relations Sean Kerins – President and Chief Executive Officer Rick Marano – President of Global Components Conference Call Participants William Stein – Truist Securities Joe Quatrochi – Wells Fargo Ruplu Bhattacharya – Bank of America Operator Good day, and welcome to the Arrow Electronics ...

For the quarter ended March 2024, Arrow Electronics (ARW) reported revenue of $6.92 billion, down 20.7% over the same period last year. EPS came in at $2.41, compared to $4.60 in the year-ago quarter.The reported revenue represents a surprise of -1.10% over the Zacks Consensus Estimate of $7 billion. With the consensus EPS estimate being $2.31, the EPS surprise was +4.33%.While investors scrutinize revenue and earnings changes year-over-year and how they compare with Wall Street expectations to determine th ...

ARROW ELECTRONICS, INC. 9151 EAST PANORAMA CIRCLE CENTENNIAL, CO 80112 303-824-4000 NEWS Exhibit 99.1 Arrow Electronics Reports First-Quarter 2024 Results -- Sales of $6.9 billion in line with guidance -- -- First-Quarter Earnings Per Diluted Share of $1.53; Non-GAAP Earnings Per Diluted Share of $2.41 -- CENTENNIAL, Colo.--(BUSINESS WIRE)- May 2, 2024--Arrow Electronics, Inc. (NYSE:ARW) today announced financial results for its first quarter of 2024. "We continued to execute well in a challenging market en ...

Core Viewpoint - Three stocks have been added to the Zacks Rank 5 (Strong Sell) List, indicating a significant downward revision in earnings estimates for these companies [1] Company Summaries - **Altice USA (ATUS)**: A major broadband communications and video services provider in the U.S. The Zacks Consensus Estimate for its current year earnings has been revised downward by 52.2% over the last 60 days [1] - **Cambium Networks (CMBM)**: A wireless solutions provider that connects people with flexible network infrastructure. The Zacks Consensus Estimate for its current year earnings has been revised downward by 45% over the last 60 days [1] - **Arrow Electronics (ARW)**: One of the largest distributors of electronic components and enterprise computing products globally. The Zacks Consensus Estimate for its current year earnings has been revised downward by almost 9.1% over the last 60 days [1]

Core Insights - Arrow Electronics has launched ArrowSphere Assistant, an AI-powered tool designed to enhance cloud business management for channel partners, leveraging Microsoft Azure AI for improved decision-making and service delivery [1][2] - The tool aims to streamline workflows, generate reports, and provide actionable strategies, thereby identifying new revenue opportunities and optimizing security operations [2] - Arrow Electronics is facing tough competition in the cloud AI market, with its shares down 2.8% year-to-date compared to a 10.3% growth in the broader technology sector [3] Company Developments - ArrowSphere Assistant provides enhanced data and visual tools, enabling partners to identify new business opportunities and optimize financial operations through consolidated consumption data and revenue forecasts [2] - The collaboration with Microsoft aims to address challenges faced by channel partners, with early feedback indicating potential improvements in partner performance and profitability [2][7] - Arrow Electronics is expanding its ArrowSphere cloud delivery and management system into a comprehensive digital platform to tackle competitive challenges and support top-line growth [7] Industry Context - The Cloud AI market is projected to grow from $67.56 billion in 2024 to $274.54 billion by 2029, with a compound annual growth rate (CAGR) of 32.37% [4] - Major cloud service providers, including Microsoft Azure, Amazon Web Services, and Google Cloud, are competing aggressively, with Microsoft recently partnering with AI startup Mistral to enhance its Azure AI offerings [5][6] - The Zacks Consensus Estimate for Arrow Electronics' fiscal 2024 revenues is $29.46 billion, reflecting an 11.01% year-over-year decline, while earnings are estimated at $11.53 per share, indicating a 32.65% decline [8]

Arrow Electronics (ARW) has upgraded its ArrowSphere platform into a comprehensive digital solution for its customers in North America. This upgraded platform, driven by customer feedback, gives channel partners and vendors easy access to ARW’s services through one interface.The improved ArrowSphere platform introduces several new features. The ArrowSphere Marketplace is a digital hub where partners can quote, purchase and manage solutions from the company's entire lineup in North America, now with a faster ...

CENTENNIAL, Colo.--(BUSINESS WIRE)--Global technology solutions provider Arrow Electronics, Inc. (NYSE:ARW) today announced it has evolved its award-winning ArrowSphere platform into a full-service digital experience for its customers in North America. Based on customer feedback, the expanded ArrowSphere platform provides channel partners and vendors access to Arrow’s services through a single interface. Containing new applications specifically requested by channel partners to help them better serve custom ...

Core Viewpoint - Three stocks have been added to the Zacks Rank 5 (Strong Sell) List due to significant downward revisions in their earnings estimates for the current year [1] Group 1: Company Summaries - Arrow Electronics, Inc. (ARW) is an industrial and commercial electronic components provider, with a Zacks Consensus Estimate for its current year earnings revised downward by 20.8% over the last 60 days [1] - Cedar Fair, L.P. (FUN) is a resort and entertainment company, experiencing a 6.5% downward revision in its current year earnings estimate over the last 60 days [1] - EssilorLuxottica Société anonyme (ESLOY) is an eyewear company, with its current year earnings estimate revised downward by 6.7% in the past 60 days [1]

CENTENNIAL, Colo. & MUNICH--(BUSINESS WIRE)--Arrow Electronics, Inc. (NYSE:ARW) and its engineering services company, eInfochips, are working with Infineon Technologies AG (FSE: IFX / OTCQX: IFNNY) to help eInfochips’ customers accelerate the development of electric vehicle (EV) chargers. Development of EV chargers, especially DC “fast chargers,” is becoming increasingly challenging to equipment manufacturers due to several factors, such as lack of prior experience, stringent functional safety and reliabil ...

PART I [Item 1. Business](index=3&type=section&id=Item%201.%20Business) Arrow Electronics is a global provider of electronic components and enterprise computing solutions, with **77% of 2023 sales from global components** and **23% from global ECS** - Arrow Electronics, Inc. is a global provider of products, services, and solutions to industrial and commercial users of electronic components and enterprise computing solutions, incorporated in New York in 1946[15](index=15&type=chunk) - The company operates over 180 sales facilities and 39 distribution and value-added centers, serving over 85 countries across the Americas, EMEA, and Asia/Pacific regions[18](index=18&type=chunk) - Financial objectives include growing sales and profits faster than the market, increasing EPS growth, and ensuring return on invested capital exceeds the cost of capital[19](index=19&type=chunk) - No single customer accounted for more than **2% of consolidated sales in 2023**, but one supplier accounted for approximately **10% of consolidated sales**[28](index=28&type=chunk)[30](index=30&type=chunk) - As of December 31, 2023, the company employed approximately **22,100 employees worldwide**[43](index=43&type=chunk) - Over **70% of open manager-level and above positions were filled internally** during 2023 and 2022, demonstrating a commitment to internal talent development[47](index=47&type=chunk) 2023 Sales by Reportable Segment | Segment | % of 2023 Sales | | :----------------------- | :-------------- | | Global Components | 77% | | Global ECS | 23% | Global Components Net Sales by Product Category (2023) | Product Category | % of Net Sales | | :--------------- | :------------- | | Semiconductor | 79% | | IP&E | 14% | | Computing & Memory | 5% | | Other | 2% | Global ECS Net Sales by Product Category (2023) | Product Category | % of Net Sales | | :--------------- | :------------- | | Storage | 28% | | Security | 20% | | Software Applications | 17% | | Compute | 14% | | Data Intelligence | 6% | | Networking | 7% | | Other | 8% | Employee Headcount by Region (December 31, 2023) | Region | Headcount | | :--------- | :-------- | | Americas | 6,500 | | EMEA | 7,600 | | Asia/Pacific | 8,000 | Gender and Racial/Ethnic Diversity (2023 vs. 2022) | Category | 2023 (% female) | 2022 (% female) | Change (% female) | 2023 (% underrepresented race/ethnicity) | 2022 (% underrepresented race/ethnicity) | Change (% underrepresented race/ethnicity) | | :------- | :-------------- | :-------------- | :---------------- | :--------------------------------------- | :--------------------------------------- | :----------------------------------------- | | Executives | 33.3% | 27.3% | 6.0% | 25.0% | 27.3% | (2.3)% | | Vice Presidents | 22.8% | 22.4% | 0.4% | 14.5% | 12.3% | 2.2% | | Directors | 30.9% | 29.9% | 1.0% | 17.1% | 17.9% | (0.8)% | | Managers | 30.4% | 30.4% | —% | 31.4% | 30.0% | 1.4% | | Supervisors | 47.6% | 50.3% | (2.7)% | 37.2% | 40.2% | (3.0)% | | Total Leadership | 33.3% | 34.1% | (0.8)% | 26.5% | 26.5% | —% | | Individual Contributors | 43.3% | 43.7% | (0.4)% | 39.4% | 39.2% | 0.2% | | Total Employee Population | 41.7% | 42.0% | (0.3)% | 37.1% | 36.9% | 0.2% | Executive Officers (as of February 13, 2024) | Name | Age | Position | | :--------------- | :-- | :-------------------------------------------- | | Sean J. Kerins | 61 | President, Chief Executive Officer | | Rajesh K. Agrawal | 58 | Senior Vice President, Chief Financial Officer | | Carine L. Jean-Claude | 56 | Senior Vice President, Chief Legal Officer and Secretary | | Richard J. Marano | 59 | President, Global Components | | Kristin D. Russell | 53 | President, Global Enterprise Computing Solutions | | Gretchen K. Zech | 54 | Senior Vice President, Chief Governance, Sustainability, and Human Resources Officer | [Item 1A. Risk Factors](index=13&type=section&id=Item%201A.%20Risk%20Factors) The company faces diverse risks including supply chain, industry cyclicality, cybersecurity, regulatory compliance, and financial market volatility - A substantial portion of inventory is purchased under non-exclusive distribution agreements, typically cancellable on short notice (30-90 days), with one supplier accounting for **~10% of 2023 consolidated sales**[62](index=62&type=chunk) - Sales of semiconductor products and related services represented approximately **60% of consolidated sales in 2023**, making the company vulnerable to the semiconductor industry's cyclical fluctuations[63](index=63&type=chunk) - Approximately **66% of the company's sales in 2023** came from operations outside the United States, exposing it to international operational risks including currency fluctuations, trade regulations, and geopolitical uncertainties[67](index=67&type=chunk) - The company's effective tax rate can be adversely impacted by changes in the geographic mix of earnings and evolving tax laws, such as the OECD's two-pillar solution for global minimum tax[71](index=71&type=chunk)[73](index=73&type=chunk) - Acquisitions involve risks such as integration difficulties, unanticipated costs, and diversion of management attention, while divestitures can lead to revenue loss and disrupted customer relationships[78](index=78&type=chunk) - Failure to adequately invest in and introduce digital and other technological developments, or if suppliers fail to offer competitive solutions, could materially adversely impact results[80](index=80&type=chunk) - The company's success depends on attracting, retaining, motivating, and developing key executive and employee talent; management transitions (e.g., new global components president in 2023) can create uncertainty[82](index=82&type=chunk)[83](index=83&type=chunk) - Cybersecurity incidents, including cyber-attacks and ransomware, could disrupt operations, lead to data loss, incur significant legal/financial exposure, and damage reputation[85](index=85&type=chunk)[86](index=86&type=chunk) - The company is subject to U.S. and foreign export/import controls, sanctions, anti-corruption, anti-bribery, and anti-money laundering laws, with non-compliance potentially leading to severe penalties[91](index=91&type=chunk)[93](index=93&type=chunk) - The company's liquidity and capital resources are subject to general economic conditions, financial market access, and debt ratings, with existing debt agreements containing restrictive covenants[103](index=103&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk) - Goodwill and identifiable intangible assets could become impaired if fair values fall below carrying values, potentially reducing net income[108](index=108&type=chunk)[109](index=109&type=chunk) - Global, regional, and local economic weakness and uncertainty, including geopolitical instability and armed conflicts, could negatively impact financial performance[112](index=112&type=chunk)[114](index=114&type=chunk) [Item 1B. Unresolved Staff Comments](index=31&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments to report - No unresolved staff comments[117](index=117&type=chunk) [Item 1C. Cybersecurity](index=31&type=section&id=Item%201C.%20Cybersecurity) The company maintains a robust cybersecurity program with continuous monitoring, an incident response plan, and Board oversight, led by an experienced CSO - The company continuously monitors its information systems to assess, identify, and manage cybersecurity risks through active (e.g., penetration tests) and passive (e.g., end-point protection) methods[118](index=118&type=chunk) - An incident response plan is maintained to address significant cybersecurity threats, providing for inter-departmental coordination and potential third-party assistance[118](index=118&type=chunk) - The Board of Directors, primarily through its Audit Committee, oversees the company's cybersecurity program, receiving regular reports from the Chief Information Officer (CIO) and Chief Security Officer (CSO)[122](index=122&type=chunk) - The CSO, with over 25 years of security experience and relevant certifications, is responsible for global cybersecurity and business continuity, including security architecture, operations, incident response, IT risk, and training[124](index=124&type=chunk) - To date, no cybersecurity threats or incidents have materially affected, or are reasonably likely to materially affect, the company's financial condition, results of operations, or business strategies[121](index=121&type=chunk) [Item 2. Properties](index=33&type=section&id=Item%202.%20Properties) The company's principal executive offices are in Centennial, Colorado, and it operates **8 major and 31 smaller distribution centers globally** - Principal executive offices are in Centennial, Colorado, with a lease expiring in 2024[125](index=125&type=chunk) - The company leases eight major warehouses and logistics centers (approx. **2.8 million sq ft**) and 31 smaller distribution centers (approx. **1.0 million sq ft**) globally[125](index=125&type=chunk) [Item 3. Legal Proceedings](index=33&type=section&id=Item%203.%20Legal%20Proceedings) Legal proceedings information is detailed in Note 15, 'Contingencies,' to the consolidated financial statements - Legal proceedings information is found in Note 15, Contingencies, to the consolidated financial statements[126](index=126&type=chunk) [Item 4. Mine Safety Disclosures](index=35&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[127](index=127&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=35&type=section&id=Item%205.%20Market%20for%20Registrants%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Arrow Electronics' common stock is listed on the NYSE, with approximately **1,246 shareholders of record** and **5.0 million shares available** for future issuance under its incentive plan - The company's common stock is listed on the NYSE (trading symbol: ARW)[129](index=129&type=chunk) - As of February 6, 2024, there were approximately **1,246 shareholders of record**[130](index=130&type=chunk) - As of December 31, 2023, **$576.2 million** remained available for repurchase under the company's share-repurchase program, which does not have an expiration date[138](index=138&type=chunk) Equity Compensation Plan Information (as of December 31, 2023) | Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights ($) | Number of Securities Remaining Available for Future Issuance | | :---------------------------------------- | :------------------------------------------------------------------------ | :---------------------------------------------------------- | :----------------------------------------------------------- | | Equity compensation plans approved by security holders | 1,436,332 | $102.53 | 5,041,938 | | Total | 1,436,332 | $102.53 | 5,041,938 | Cumulative Total Return (Indexed to $100) as of December 31 | Year | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | | :------------------------ | :--- | :--- | :--- | :--- | :--- | :--- | | Arrow Electronics | 100 | 123 | 141 | 195 | 152 | 177 | | Peer Group | 100 | 130 | 138 | 203 | 182 | 235 | | S&P 400 MidCap Stock Index | 100 | 124 | 139 | 171 | 146 | 167 | Issuer Purchases of Equity Securities (Q4 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share ($) (a) | Total Number of Shares Purchased as Part of Publicly Announced Program | Approximate Dollar Value of Shares that May Yet be Purchased Under the Programs ($) (b) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------------------------------- | :------------------------------------------------------------------ | | October 1 through October 28, 2023 | — | $— | — | $621,586 | | October 29 through November 25, 2023 | 375,753 | $119.76 | 375,753 | $576,154 | | November 26 through December 31, 2023 | — | — | — | $576,154 | | Total | 375,753 | | 375,753 | | [Item 6. [Reserved]](index=37&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information - This item is reserved[139](index=139&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes Arrow Electronics' 2023 financial condition and results, highlighting a cyclical downturn in global components and softer IT spending impacting ECS sales [Information Relating to Forward-Looking Statements](index=38&type=section&id=Information%20Relating%20to%20Forward-Looking%20Statements) The report includes forward-looking statements, which are subject to numerous assumptions, risks, and uncertainties that could cause actual results to differ materially - The report includes forward-looking statements, which are subject to numerous assumptions, risks, and uncertainties that could cause actual results to differ materially[142](index=142&type=chunk) - Key risks include unfavorable economic conditions, supply chain disruptions, political instability, industry conditions, changes in product supply/demand, competition, and legal/regulatory matters[142](index=142&type=chunk) [Certain Non-GAAP Financial Information](index=38&type=section&id=Certain%20Non-GAAP%20Financial%20Information) Non-GAAP financial measures are used to provide additional insight into operating performance and are employed for internal evaluation, complementing GAAP data - Non-GAAP financial measures are used to provide additional insight into operating performance, including sales and gross profit on a constant currency basis, and operating expenses, operating income, effective tax rate, and net income adjusted for specific items[143](index=143&type=chunk)[145](index=145&type=chunk) - Management uses non-GAAP results for internal budgeting, operating plans, and performance evaluation, but emphasizes that they should complement GAAP data[144](index=144&type=chunk) [Overview](index=40&type=section&id=Overview) Arrow is a global provider of electronic components and enterprise computing solutions, focusing on value-added services and market-leading financial objectives - Arrow is a global provider of electronic components and enterprise computing solutions, with **77% of 2023 sales from global components** and **23% from global ECS**[148](index=148&type=chunk) - Strategic initiatives include offering value-added services (demand creation, design, engineering), providing global supply chain services, and enabling cloud solutions through ArrowSphere[150](index=150&type=chunk) - Financial objectives focus on growing sales and profits faster than the market, increasing EPS, and achieving a return on invested capital that exceeds the cost of capital[149](index=149&type=chunk) [Executive Summary](index=41&type=section&id=Executive%20Summary) The executive summary highlights consolidated financial performance for 2023, noting declines in sales and net income due to market downturns - Key impacts on net income included **$62.2 million** in legal settlements (decrease to operating expenses) and a **$37.4 million** increase in allowance for credit losses in 2023[152](index=152&type=chunk) - The global components business entered a cyclical downturn in 2023 due to elevated customer inventory and softer demand in Asia/Pacific, leading to decreased sales and increased working capital investment[152](index=152&type=chunk) - Global ECS sales were impacted by a shift towards 'as a service' and cloud-based solutions, which results in more revenue being recorded on a net basis[152](index=152&type=chunk) Consolidated Financial Highlights (2023 vs. 2022) | Metric (millions) | 2023 | 2022 | Change | | :------------------------------------------ | :---------- | :---------- | :-------- | | Consolidated sales (millions) | $33,107 | $37,124 | (10.8)% | | Global components sales (millions) | $25,420 | $28,788 | (11.7)% | | Global ECS sales (millions) | $7,687 | $8,336 | (7.8)% | | Gross profit margin | 12.5% | 13.0% | (50)bps | | Operating income (millions) | $1,471 | $2,068 | (28.9)% | | Operating income margin | 4.4% | 5.6% | (120)bps | | Non-GAAP operating income (millions) | $1,586 | $2,117 | (25.1)% | | Non-GAAP operating income margin | 4.8% | 5.7% | (90)bps | | Net income attributable to shareholders (millions) | $904 | $1,427 | (36.7)% | | Diluted EPS attributable to shareholders | $15.84 | $21.80 | (27.3)% | | Non-GAAP net income attributable to shareholders (millions) | $977 | $1,465 | (33.3)% | | Non-GAAP diluted EPS attributable to shareholders | $17.12 | $22.38 | (23.5)% | [Results of Operations](index=42&type=section&id=Results%20of%20Operations) Consolidated sales decreased by **10.8%** in 2023, driven by declines in global components and ECS segments across various regions - Global components sales decreased due to declines in Americas (shortage market activity) and Asia/Pacific (softer demand), partially offset by EMEA growth in the first three quarters of 2023[154](index=154&type=chunk) - Global ECS sales decreased primarily due to a softer IT spending market in the Americas, particularly for storage, security, and compute, while EMEA sales increased due to strong demand, though impacted by a shift to net-basis revenue recognition for 'as a service' and cloud solutions[154](index=154&type=chunk) Sales by Reportable Segment (2023 vs. 2022) | (millions) | 2023 | 2022 | Change | | :------------------------------ | :------ | :------ | :-------- | | Consolidated sales, as reported | $33,107 | $37,124 | (10.8)% | | Global components sales | $25,420 | $28,788 | (11.7)% | | Global ECS sales | $7,687 | $8,336 | (7.8)% | Reportable Segment Sales by Geographic Region (2023 vs. 2022) | (millions) | 2023 Sales | % of Sales (2023) | 2022 Sales | % of Sales (2022) | % Change | | :-------------------------- | :--------- | :---------------- | :--------- | :---------------- | :------- | | Americas components sales | $7,955 | 24.0% | $9,593 | 25.8% | (17.1)% | | EMEA components sales | $8,075 | 24.4% | $7,628 | 20.5% | 5.9% | | Asia/Pacific components sales | $9,390 | 28.4% | $11,567 | 31.2% | (18.8)% | | Global components sales | $25,420 | 76.8% | $28,788 | 77.5% | (11.7)% | | Americas ECS sales | $4,160 | 12.6% | $4,847 | 13.1% | (14.2)% | | EMEA ECS sales | $3,527 | 10.6% | $3,489 | 9.4% | 1.1% | | Global ECS sales | $7,687 | 23.2% | $8,336 | 22.5% | (7.8)% | | Consolidated sales | $33,107 | 100.0% | $37,124 | 100.0% | (10.8)% | [Gross Profit](index=44&type=section&id=Gross%20Profit) Consolidated gross profit decreased by **14.2%** in 2023, with margins declining due to global components sales and product mix shifts - The decrease in gross profit was due to declines in global components sales and gross profit margins, partially offset by increases in global ECS gross profit margins[157](index=157&type=chunk) - Global components gross profit margins declined due to decreased shortage market activity in the Americas and a shift to lower-margin products in Asia/Pacific, while global ECS gross profit margins increased due to a higher proportion of net-basis revenue recognition[159](index=159&type=chunk) Consolidated Gross Profit (2023 vs. 2022) | (millions) | 2023 | 2022 | Change | | :------------------------------------------ | :------ | :------ | :-------- | | Consolidated gross profit, as reported | $4,149 | $4,837 | (14.2)% | | Consolidated gross profit as a percentage of sales, as reported | 12.5% | 13.0% | (50)bps | [Operating Expenses](index=44&type=section&id=Operating%20Expenses) Operating expenses declined by **3.3%** in 2023, primarily due to lower variable costs and legal settlements, partially offset by increased credit loss allowances - Operating expenses declined primarily due to lower variable costs in line with decreased sales and **$62.2 million** in legal settlement funds received, partially offset by a **$37.4 million** increase in allowance for credit losses and a **$70.2 million** increase in restructuring, integration, and other charges[159](index=159&type=chunk) Consolidated Operating Expenses (2023 vs. 2022) | (millions) | 2023 | 2022 | Change | | :------------------------------------------ | :------ | :------ | :-------- | | Operating expenses, as reported | $2,678 | $2,768 | (3.3)% | | Non-GAAP operating expenses | $2,563 | $2,726 | (6.0)% | | Operating expenses as a percentage of sales | 8.1% | 7.5% | 60 bps | [Restructuring, Integration, and Other Charges](index=45&type=section&id=Restructuring%2C%20Integration%2C%20and%20Other%20Charges) Total restructuring, integration, and other charges significantly increased to **$84 million** in 2023, driven by early lease terminations and environmental liabilities - Other charges in 2023 included **$29.4 million** for early lease terminations, **$23.3 million** for increased environmental liabilities, and **$19.1 million** for personnel charges related to operating expense reduction initiatives[160](index=160&type=chunk) Components of Restructuring, Integration, and Other Charges (2023 vs. 2022) | (millions) | 2023 | 2022 | | :------------------------------ | :--- | :--- | | Restructuring and integration charges | $9 | $7 | | Other charges | $75 | $7 | | Total | $84 | $14 | [Operating Income](index=45&type=section&id=Operating%20Income) Consolidated operating income decreased by **28.9%** in 2023, reflecting lower sales and gross profit margins across both segments - Consolidated operating income as a percentage of sales decreased due to lower sales and gross profit margins, partially offset by decreased operating expenses[162](index=162&type=chunk) - Global components operating income decreased due to lower sales and gross margins, partially offset by reduced variable costs and legal settlements. Global ECS operating income decreased due to lower sales and increased allowance for credit losses, partially offset by higher gross profit margins[162](index=162&type=chunk) Consolidated and Segment Operating Income (2023 vs. 2022) | (millions) | 2023 | 2022 | Change | | :------------------------------------------ | :------ | :------ | :-------- | | Consolidated operating income, as reported | $1,471 | $2,068 | (28.9)% | | Non-GAAP consolidated operating income | $1,586 | $2,117 | (25.1)% | | Global components operating income, as reported | $1,459 | $1,961 | (25.6)% | | Global ECS operating income, as reported | $367 | $409 | (10.2)% | [Gain (Loss) on Investments, Net](index=47&type=section&id=Gain%20(Loss)%20on%20Investments%2C%20Net) The company reported a net gain on investments of **$19 million** in 2023, primarily from fair value changes in the SERP and Marubun Corporation investment - Gains and losses on investments are primarily related to changes in fair value of assets in the Arrow supplemental executive retirement plan (SERP) and the investment in Marubun Corporation[164](index=164&type=chunk) Gain (Loss) on Investments, Net (2023 vs. 2022) | (millions) | 2023 | 2022 | | :------------------------ | :--- | :--- | | Gain (loss) on investments, net | $19 | $(3) | [Interest and Other Financing Expense, Net](index=47&type=section&id=Interest%20and%20Other%20Financing%20Expense%2C%20Net) Interest and other financing expense increased to **$(329) million** in 2023, primarily due to higher interest rates on outstanding borrowings - The increase in interest and other financing expense in 2023 was primarily due to higher interest rates on outstanding borrowings and floating rate credit facilities[165](index=165&type=chunk) Interest and Other Financing Expense, Net (2023 vs. 2022) | (millions) | 2023 | 2022 | | :---------------------------------- | :----- | :----- | | Interest and other financing expense, net | $(329) | $(186) | [Income Tax](index=47&type=section&id=Income%20Tax) The effective income tax rate decreased to **21.9%** in 2023, influenced by changes in tax credit utilization and foreign exchange losses - The change in the effective tax rate for 2023 was primarily due to changes in the utilization of tax credits, foreign exchange losses, valuation allowances, and liabilities for uncertain tax positions[167](index=167&type=chunk) Effective Income Tax Rate (2023 vs. 2022) | | 2023 | 2022 | | :-------------------------------- | :---- | :---- | | Effective income tax rate, as reported | 21.9% | 23.8% | [Net Income Attributable to Shareholders](index=47&type=section&id=Net%20Income%20Attributable%20to%20Shareholders) Net income attributable to shareholders decreased to **$904 million** in 2023, primarily due to changes in sales, gross margins, and interest expense - The decrease in net income attributable to shareholders in 2023 was primarily due to changes in sales, gross margins, operating expenses, and interest expense[169](index=169&type=chunk) Net Income Attributable to Shareholders (2023 vs. 2022) | (millions) | 2023 | 2022 | | :------------------------------------------ | :--- | :--- | | Net income attributable to shareholders, as reported | $904 | $1,427 | [Liquidity and Capital Resources](index=49&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with **$2.2 billion in undrawn capacity**, and operating cash flow significantly improved in 2023 - The company believes its current cash availability, borrowing capacity (**$2.2 billion undrawn liquidity**), and expected operating cash flows are sufficient for future needs[170](index=170&type=chunk) - Working capital as a percentage of sales increased to **23.4%** at December 31, 2023, from **19.3%** at December 31, 2022, primarily due to lower sales and a smaller decline in inventory[174](index=174&type=chunk) - Cash and cash equivalents increased to **$218.1 million** at December 31, 2023, from **$176.9 million** at December 31, 2022, with most held outside the U.S.[175](index=175&type=chunk) - The EMEA asset securitization program had an average daily balance outstanding of **$626.4 million** in 2023, up from **$472.7 million** in 2022[179](index=179&type=chunk) - Operating cash flow improved significantly in 2023 (**$705.4 million provided** vs. **$33.1 million used** in 2022) due to counter-cyclical cash flow generation from lower working capital investment during decreased demand growth[183](index=183&type=chunk) - Financing activities shifted from providing **$109.8 million** in 2022 to using **$666.2 million** in 2023, primarily due to consistent debt levels in 2023 compared to a **$1.1 billion** debt increase in 2022, partially offset by lower share repurchases[185](index=185&type=chunk) - The company repurchased **6.1 million shares** for **$745.9 million** in 2023, compared to **9.3 million shares** for **$1.0 billion** in 2022[187](index=187&type=chunk) - As of December 31, 2023, **$576.2 million** remained available for repurchase under the share-repurchase program[187](index=187&type=chunk) - Total debt outstanding was **$3.8 billion** at December 31, 2023, with **$1.7 billion** maturing in the next twelve months[189](index=189&type=chunk) - Purchase obligations were **$7.4 billion** at December 31, 2023, with **$5.9 billion** expected to be paid within the next 12 months[189](index=189&type=chunk) Selected Financial Information Related to Liquidity (December 31) | (millions) | 2023 | 2022 | Change | | :------------------ | :------ | :------ | :------ | | Working capital | $7,355 | $7,182 | $173 | | Cash and cash equivalents | $218 | $177 | $41 | | Short-term debt | $1,654 | $590 | $1,064 | | Long-term debt | $2,154 | $3,183 | $(1,029) | Credit Facilities Summary (December 31, 2023) | (millions) | Borrowing capacity | Outstanding borrowings (2023) | Outstanding borrowings (2022) | | :-------------------------------- | :----------------- | :---------------------------- | :---------------------------- | | North American asset securitization program | $1,500 | $198 | $1,235 | | Revolving credit facility | $2,000 | $— | $— | | Commercial paper program | $1,200 | $1,122 | $173 | | Uncommitted lines of credit | $500 | $— | $78 | Average Daily Balance Outstanding and Effective Interest Rate (2023 vs. 2022) | (millions) | Average Daily Balance Outstanding (2023) | Average Daily Balance Outstanding (2022) | Effective Interest Rate (%) (2023) | Effective Interest Rate (%) (2022) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------------------------- | :----------------------------- | | North American asset securitization program | $1,092 | $1,004 | 5.85% | 4.86% | | Revolving credit facility | $131 | $182 | 6.42% | 4.79% | | Commercial paper program | $774 | $498 | 5.90% | 5.15% | | Uncommitted lines of credit | $178 | $7 | 5.83% | 5.22% | Cash Flows Summary (2023 vs. 2022) | (millions) | 2023 | 2022 | Change | | :---------------------------------------- | :----- | :----- | :------- | | Net cash provided by (used for) operating activities | $705 | $(33) | $738 | | Net cash used for investing activities | $(72) | $(58) | $(14) | | Net cash (used for) provided by financing activities | $(666) | $110 | $(776) | [Critical Accounting Estimates](index=53&type=section&id=Critical%20Accounting%20Estimates) Critical accounting estimates involve significant judgments in revenue recognition, credit losses, inventory valuation, income taxes, and goodwill impairment - Critical accounting policies involve significant judgments and estimates, including revenue recognition, trade accounts and notes receivable (allowance for credit losses), inventories (lower of cost or net realizable value), income taxes (deferred tax assets and uncertain tax positions), contingencies and litigation, and goodwill impairment[191](index=191&type=chunk)[192](index=192&type=chunk)[196](index=196&type=chunk)[199](index=199&type=chunk)[200](index=200&type=chunk)[205](index=205&type=chunk)[206](index=206&type=chunk) - Revenue is recognized when control of products is transferred, generally at shipment, net of discounts, rebates, and returns. Sales are reported on a gross basis when the company is the principal and on a net basis when acting as an agent[192](index=192&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk) - Goodwill is tested for impairment annually (first day of Q4) or when impairment indicators exist, using an income approach to estimate fair value based on forecasted cash flows and discount rates[206](index=206&type=chunk)[207](index=207&type=chunk)[208](index=208&type=chunk) - As of the 2023 annual impairment test, the fair value of all reporting units exceeded their carrying values by more than **19%**[209](index=209&type=chunk) - As of December 31, 2023, goodwill totaled **$2.1 billion**, allocated across Americas, EMEA, Asia/Pacific components, eInfochips, and ECS Americas/EMEA reporting units[211](index=211&type=chunk) [Impact of Recently Issued Accounting Standards](index=58&type=section&id=Impact%20of%20Recently%20Issued%20Accounting%20Standards) Recent accounting standards updates (ASUs) will enhance disclosures for income taxes, segment reporting, and supplier finance programs - ASU No. 2023-09 (Income Taxes) aims to enhance income tax disclosures, effective for fiscal years beginning after December 15, 2024[212](index=212&type=chunk) - ASU No. 2023-07 (Segment Reporting) requires disclosure of significant segment expenses and chief operating decision maker information, effective for fiscal years beginning after December 15, 2023[213](index=213&type=chunk) - ASU No. 2022-04 (Supplier Finance Programs) requires disclosure of supplier finance program obligations, adopted prospectively by the company on January 1, 2023[214](index=214&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=60&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages market risks from foreign currency exchange rates and interest rates, with **64% of debt at fixed rates** as of December 31, 2023 - The company is exposed to market risk from changes in foreign currency exchange rates and interest rates[215](index=215&type=chunk) - Foreign currency exchange rate changes had a positive impact of **$51.8 million** on sales and **$1.4 million** on operating income in 2023, compared to 2022[217](index=217&type=chunk) - A hypothetical **10% strengthening** of the U.S. dollar against the Euro would decrease sales by approximately **$863.8 million** and operating income by **$51.0 million**[217](index=217&type=chunk) - At December 31, 2023, **64% of the company's debt** was subject to fixed rates and **36% to floating rates**[219](index=219&type=chunk) - A **one percentage point change** in average interest rates would have caused net interest and other financing expense to increase by **$21.7 million** during 2023[219](index=219&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=62&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements, including statements of operations, balance sheets, cash flows, and comprehensive notes [Report of Independent Registered Public Accounting Firm](index=63&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting as of December 31, 2023 - Ernst & Young LLP audited the consolidated financial statements and internal control over financial reporting, expressing an unqualified opinion on both as of December 31, 2023[225](index=225&type=chunk)[226](index=226&type=chunk) - Critical audit matters included the evaluation of net realizable value adjustments to inventories for excess or obsolescence and the impairment testing of goodwill for Americas Components and eInfochips reporting units, due to estimation uncertainty in demand, market conditions, and future cash flows[230](index=230&type=chunk)[231](index=231&type=chunk)[235](index=235&type=chunk)[236](index=236&type=chunk) - Audit procedures for inventories included testing data completeness, retrospective review of assumptions, evaluating management's methods, and assessing reasonableness against historical data and macroeconomic trends[233](index=233&type=chunk)[234](index=234&type=chunk) - Audit procedures for goodwill impairment involved a specialist to assess fair value methodologies and discount rates, comparing assumptions to historical performance, industry trends, and external forecasts, and performing sensitivity analyses[237](index=237&type=chunk)[238](index=238&type=chunk)[240](index=240&type=chunk) [Consolidated Statements of Operations](index=68&type=section&id=Consolidated%20Statements%20of%20Operations) This statement details the company's sales, cost of sales, gross profit, operating expenses, and net income for the years ended December 31, 2023, 2022, and 2021 Consolidated Statements of Operations (Years Ended December 31, in thousands) | | 2023 | 2022 | 2021 | | :---------------------------------------- | :------------ | :------------ | :------------ | | Sales | $33,107,120 | $37,124,422 | $34,477,018 | | Cost of sales | 28,958,102 | 32,287,797 | 30,274,653 | | Gross profit | 4,149,018 | 4,836,625 | 4,202,365 | | Operating expenses | 2,677,854 | 2,768,131 | 2,645,543 | | Operating income | 1,471,164 | 2,068,494 | 1,556,822 | | Income before income taxes | 1,164,354 | 1,884,150 | 1,436,374 | | Provision for income taxes | 254,991 | 448,992 | 325,906 |\ | Consolidated net income | 909,363 | 1,435,158 | 1,110,468 |\ | Net income attributable to shareholders | $903,505 | $1,426,884 | $1,108,197 |\ | Diluted EPS | $15.84 | $21.80 | $15.10 | [Consolidated Statements of Comprehensive Income (Loss)](index=69&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) This statement presents consolidated net income and other comprehensive income (loss) for the years ended December 31, 2023, 2022, and 2021 Consolidated Statements of Comprehensive Income (Loss) (Years Ended December 31, in thousands) | | 2023 | 2022 | 2021 | | :---------------------------------------- | :-------- | :---------- | :---------- | | Consolidated net income | $909,363 | $1,435,158 | $1,110,468 | | Other comprehensive income (loss) | 68,354 | (175,297) | (89,966) | | Comprehensive income | 977,717 | 1,259,861 | 1,020,502 | | Comprehensive income attributable to shareholders | $970,728 | $1,253,279 | $1,021,425 | [Consolidated Balance Sheets](index=70&type=section&id=Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's assets, liabilities, and equity as of December 31, 2023, and 2022 Consolidated Balance Sheets (as of December 31, in thousands) | ASSETS | 2023 | 2022 | | :---------------------------------------- | :------------ | :------------ | | Cash and cash equivalents | $218,053 | $176,915 | | Accounts receivable, net | 12,238,073 | 12,322,717 | | Inventories | 5,187,225 | 5,319,369 | | Total current assets | 18,327,477 | 18,340,340 | | Property, plant, and equipment, net | 530,740 | 596,456 | | Goodwill | 2,050,426 | 2,027,626 | | Total assets | $21,726,168 | $21,763,182 | | LIABILITIES AND EQUITY | | | | Accounts payable | $10,070,015 | $10,460,419 | | Short-term borrowings, including current portion of long-term debt | 1,653,954 | 589,883 | | Total current liabilities | 13,187,884 | 12,389,604 | | Long-term debt | 2,153,553 | 3,182,964 | | Total shareholders' equity | 5,805,464 | 5,546,357 | | Total liabilities and equity | $21,726,168 | $21,763,182 | [Consolidated Statements of Cash Flows](index=71&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This statement summarizes the cash flows from operating, investing, and financing activities for the years ended December 31, 2023, 2022, and 2021 Consolidated Statements of Cash Flows (Years Ended December 31, in thousands) | | 2023 | 2022 | 2021 | | :---------------------------------------- | :-------- | :-------- | :-------- | | Net cash provided by (used for) operating activities | $705,449 | $(33,077) | $418,983 | | Net cash used for investing activities | $(72,323) | $(57,711) | $(60,118) |\ | Net cash (used for) provided by financing activities | $(666,222) | $109,782 | $(463,304) |\ | Net increase (decrease) in cash and cash equivalents | $41,138 | $(45,279) | $(151,421) |\ | Cash and cash equivalents at end of year | $218,053 | $176,915 | $222,194 | [Consolidated Statements of Equity](index=72&type=section&id=Consolidated%20Statements%20of%20Equity) This statement details changes in shareholders' equity for the years ended December 31, 2023, 2022, and 2021 Consolidated Statements of Equity (Years Ended December 31, in thousands) | | 2023 | 2022 | 2021 | | :---------------------------------------- | :---------- | :---------- | :---------- | | Balance at December 31, 2020 | $5,148,952 | | | | Total shareholders' equity at December 31, 2021 | $5,340,846 | | | | Total shareholders' equity at December 31, 2022 | $5,611,353 | | | | Total shareholders' equity at December 31, 2023 | $5,877,307 | | | [Note 1. Summary of Significant Accounting Policies](index=74&type=section&id=Note%201.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the company's key accounting policies, including revenue recognition, receivables, inventories, goodwill, and recent accounting standard adoptions - The consolidated financial statements include the accounts of Arrow Electronics, Inc. and its majority-owned subsidiaries, with all significant intercompany transactions eliminated[253](index=253&type=chunk) - Revenue is recognized when control of products is transferred to customers, generally at shipment, net of discounts, rebates, and returns[289](index=289&type=chunk) - Trade accounts and notes receivable are reported net of the allowance for credit losses, estimated using an age-based reserve model and considering historical losses, customer credit ratings, and economic conditions[256](index=256&type=chunk)[257](index=257&type=chunk) - Inventories are stated at the lower of cost or net realizable value, with write-downs based on forecasted sales, supplier protection, and age[259](index=259&type=chunk) - Goodwill is tested for impairment annually as of the first day of the fourth quarter, or more frequently if indicators exist, at the reporting unit level[267](index=267&type=chunk)[269](index=269&type=chunk) - The company adopted ASU No. 2022-04 (Supplier Finance Programs) prospectively on January 1, 2023, requiring disclosure of supplier finance program obligations[301](index=301&type=chunk) [Note 2. Goodwill and Intangible Assets](index=86&type=section&id=Note%202.%20Goodwill%20and%20Intangible%20Assets) This note provides details on goodwill by segment and amortizable intangible assets, with no impairment recorded for 2023, 2022, or 2021 - Goodwill impairment testing did not result in any additional impairment for 2023, 2022, or 2021[303](index=303&type=chunk) - Amortization expense for identifiable intangible assets was **$31.2 million** in 2023, **$34.7 million** in 2022, and **$36.9 million** in 2021[306](index=306&type=chunk) Goodwill by Reportable Segment (as of December 31, in thousands) | (thousands) | Global Components | Global ECS | Total | | :------------------------------ | :---------------- | :---------- | :---------- | | Balance as of December 31, 2021 | $882,948 | $1,197,423 | $2,080,371 | | Balance as of December 31, 2022 | $873,003 | $1,154,623 | $2,027,626 | | Balance as of December 31, 2023 | $875,194 | $1,175,232 | $2,050,426 | Intangible Assets, Net (as of December 31, 2023, in thousands) | (thousands) | Gross Carrying Amount | Accumulated Amortization | Net | | :------------------ | :-------------------- | :----------------------- | :-------- | | Customer relationships | $258,337 | $(156,141) | $102,196 | | Amortizable trade name | $73,811 | $(48,567) | $25,244 | | Total | $332,148 | $(204,708) | $127,440 | [Note 3. Investments in Affiliated Companies](index=87&type=section&id=Note%203.%20Investments%20in%20Affiliated%20Companies) The company holds **50% interests** in joint ventures, accounted for using the equity method, with Marubun Corporation and one other entity - The company holds a **50% interest** in two joint ventures with Marubun Corporation and one other joint venture, accounted for using the equity method[307](index=307&type=chunk) Equity in Earnings of Affiliated Companies (Years Ended December 31, in thousands) | (thousands) | 2023 | 2022 | 2021 | | :------------ | :---- | :---- | :---- | | Marubun/Arrow | $4,452 | $6,289 | $2,684 | | Other | $1,955 | $1,375 | $824 | | Total | $6,407 | $7,664 | $3,508 | [Note 4. Accounts Receivable](index=87&type=section&id=Note%204.%20Accounts%20Receivable) This note details accounts receivable, allowance for credit losses, and the use of asset securitization and factoring programs to manage receivables - Increases to the allowance for credit losses charged to income were **$37.4 million higher** in 2023 than in 2022, primarily due to the aging of receivables of certain customers[310](index=310&type=chunk) - The EMEA asset securitization program allows the company to sell trade receivables, with sales of **$3.16 billion** in 2023, up from **$2.52 billion** in 2022[311](index=311&type=chunk)[312](index=312&type=chunk) - The company also uses factoring agreements to sell trade receivables without recourse, with sales of **$1.62 billion** in 2023, consistent with 2022[317](index=317&type=chunk)[318](index=318&type=chunk) Accounts Receivable and Allowance for Credit Losses (as of December 31, in thousands) | (thousands) | 2023 | 2022 | | :------------------------ | :---------- | :---------- | | Accounts receivable | $12,384,553 | $12,416,114 | | Allowance for credit losses | $(146,480) | $(93,397) | | Accounts receivable, net | $12,238,073 | $12,322,717 | [Note 5. Supplier Finance Programs](index=91&type=section&id=Note%205.%20Supplier%20Finance%20Programs) The company participates in supplier finance programs, allowing suppliers to sell receivables to third-party finance providers - The company participates in supplier finance programs, allowing suppliers to sell receivables to third-party finance providers, in exchange for improved standard payment terms[319](index=319&type=chunk) Rollforward of Outstanding Obligations Under Supplier Finance Programs (2023, in thousands) | (thousands) | 2023 | | :-------------------------------- | :---------- | | Obligations outstanding at the beginning of the year | $1,568,787 | | Invoices added during the year | 4,388,317 | | Invoices paid during the year | (4,843,625) |\ | Obligations outstanding at the end of the year | $1,113,479 | [Note 6. Debt](index=91&type=section&id=Note%206.%20Debt) This note details the company's short-term and long-term debt, including commercial paper, notes, and credit facilities, with significant maturities in 2024 - The company increased its uncommitted lines of credit capacity from **$200.0 million** to **$500.0 million** in May 2023[323](index=323&type=chunk) - Outstanding commercial paper borrowings increased significantly to **$1.1 billion** at December 31, 2023, from **$173.4 million** at December 31, 2022[324](index=324&type=chunk) - The company issued **$500.0 million** of 6.125% notes due March 2026 in Q1 2023, using proceeds to repay **$300.0 million** of 4.50% notes due March 2023[333](index=333&type=chunk) - Annual payments of borrowings are **$1.7 billion** in