Avnet, Inc. (NASDAQ:AVT) Q1 2023 Earnings Conference Call October 26, 2022 4:30 PM ET Company Participants Joe Burke - Vice President, Treasury and Investor Relations Phil Gallagher - Chief Executive Officer Ken Jacobson - Chief Financial Officer Conference Call Participants Melissa Fairbanks - Raymond James Matt Sheerin - Stifel Jim Suva - Citigroup William Stein - Truist Securities Ruplu Bhattacharya - Bank of America Joseph Cardoso - JPMorgan Operator Please standby. Our presentation will now begin. Welc ...

Avnet, Inc. (NASDAQ:AVT) Q4 2022 Earnings Conference Call August 10, 2022 4:30 PM ET Company Participants Joe Burke - VP, Treasury & IR Phil Gallagher - CEO Tom Liguori - CFO Ken Jacobson - CFO Conference Call Participants Nik Todorov - Longbow Research Toshiya Hari - Goldman Sachs Jim Suva - Citigroup Ruplu Bhattacharya - Bank of America Matt Sheerin - Stifel William Stein - Truist Securities Joe Quatrochi - Wells Fargo Joe Cardoso - JPMorgan Operator Welcome to the Avnet Fourth Quarter Fiscal Year 2022 Ea ...

Company Overview and Strategy - Avnet is a leading global technology solutions company focusing on design, product marketing, and supply chain expertise[25] - The company's vision is to be the preferred distributor partner at the center of the world's technology design and supply chains[30] - Avnet aims to deliver superior service by enabling design and supply chain technology solutions that improve life experiences globally[31] - Avnet's strategic priorities include driving results, cultivating people, accelerating core business, expanding Farnell, and growing high service & new market segments[60] Market Dynamics and Growth - The served total available market (TAM) is expected to grow by 8.3% in 2022 to approximately $500 billion, and by 4.7% in 2023 to approximately $520 billion[71] - Avnet is focusing on high-growth markets like Industrial and Automotive, with a combined CAGR of 9% and a $141 billion increase[69] - Avnet Americas experienced a 40% year-over-year revenue growth in Q3 FY22[74] Farnell Business - Farnell has a revenue run rate of $1.8 billion and an operating income margin of 13.2%[156] - Farnell is targeting $3 billion in revenue with a 15%-18% CAGR over the next 3-4 years[164] Financial Performance and Targets - Avnet generated approximately $1.8 billion in cash, increased its dividend by approximately 35%, and reduced its share count by approximately 17% from FY18 to FY22E[184] - The company's medium-term financial targets include a revenue growth CAGR of 5%-8% and an adjusted operating margin exceeding 5%[196] - Avnet plans to reinvest in growth through distribution center efficiency, eCommerce systems, and smaller tuck-in acquisitions[197]

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited consolidated financial statements, management's analysis, market risk disclosures, and an evaluation of internal controls [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The unaudited financial statements reflect significant year-over-year growth in sales and net income, alongside a decrease in operating cash flow [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets grew to $9.78 billion, driven by increases in receivables and inventories Consolidated Balance Sheet Highlights (in thousands) | Account | April 2, 2022 | July 3, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | **$8,217,643** | **$7,163,421** | | Receivables | $4,164,573 | $3,576,130 | | Inventories | $3,680,821 | $3,236,837 | | **Total Assets** | **$9,781,673** | **$8,925,422** | | **Total Current Liabilities** | **$4,065,788** | **$3,055,238** | | Short-term debt | $424,182 | $23,078 | | Accounts payable | $2,968,845 | $2,401,357 | | Long-term debt | $922,041 | $1,191,329 | | **Total Liabilities** | **$5,524,953** | **$4,841,238** | | **Total Shareholders' Equity** | **$4,256,720** | **$4,084,184** | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) Quarterly and nine-month results show substantial increases in sales, gross profit, and net income Q3 Fiscal 2022 vs Q3 Fiscal 2021 (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | % Change | | :--- | :--- | :--- | :--- | | Sales | $6,488,143 | $4,916,714 | 32.0% | | Gross Profit | $813,033 | $568,350 | 43.1% | | Operating Income | $274,408 | $87,684 | 212.9% | | Net Income | $183,417 | $107,484 | 70.6% | | Diluted EPS | $1.84 | $1.07 | 72.0% | Nine Months Ended Fiscal 2022 vs 2021 (in thousands, except per share data) | Metric | Nine Months 2022 | Nine Months 2021 | % Change | | :--- | :--- | :--- | :--- | | Sales | $17,938,055 | $14,307,945 | 25.4% | | Gross Profit | $2,185,760 | $1,595,683 | 37.0% | | Operating Income | $654,323 | $163,407 | 300.4% | | Net Income | $445,556 | $107,759 | 313.5% | | Diluted EPS | $4.44 | $1.08 | 311.1% | - The company incurred **$26.3 million in expenses** related to the Russian-Ukraine conflict during the third quarter of fiscal 2022, with no comparable expense in the prior year[12](index=12&type=chunk) [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Operating activities used cash due to significant investments in working capital to support sales growth Cash Flow Summary for Nine Months Ended (in thousands) | Cash Flow Activity | April 2, 2022 | April 3, 2021 | | :--- | :--- | :--- | | Net cash flows (used) provided by operating activities | $(19,418) | $197,526 | | Net cash flows provided (used) for investing activities | $51,388 | $(51,171) | | Net cash flows used for financing activities | $(3,676) | $(308,394) | | **Cash and cash equivalents - decrease** | **$(234)** | **$(154,289)** | - The significant decrease in operating cash flow was primarily driven by an increase in receivables (**$881.0 million**) and inventories (**$550.0 million**) to support sales growth, which was partially offset by an increase in accounts payable (**$628.8 million**)[22](index=22&type=chunk) [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail the financial impact of the Russia-Ukraine conflict, tax considerations, and segment performance - The company incurred **$26.3 million in expenses** due to the Russian-Ukraine conflict, primarily from **$17.2 million in credit loss provisions** for Russian receivables and **$9.1 million in product write-downs** and wind-down costs[32](index=32&type=chunk) - The company expects to release the full valuation allowance against its U.S. deferred tax assets in the fourth quarter of fiscal 2022 due to improved profitability, which will result in a **discrete tax benefit**[62](index=62&type=chunk) Sales by Reportable Segment (in thousands) | Segment | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Electronic Components | $6,019,094 | $4,520,608 | $16,572,940 | $13,245,143 | | Farnell | $469,049 | $396,106 | $1,365,115 | $1,062,802 | Operating Income by Reportable Segment (in thousands) | Segment | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Electronic Components | $265,017 | $118,565 | $616,383 | $306,927 | | Farnell | $69,817 | $23,861 | $179,598 | $50,412 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses strong sales growth driven by global demand, improved margins, and the impact of working capital investments on cash flow [Overview](index=25&type=section&id=Overview) The company operates globally as a technology distributor through its Electronic Components and Farnell segments - Avnet is a global technology distributor and solutions provider with two primary operating groups: Electronic Components (EC) and Farnell, both with operations in the Americas, EMEA, and Asia[91](index=91&type=chunk)[92](index=92&type=chunk) - The company's sales and gross profit from Russia are historically **less than 1% of consolidated totals** and it does not foresee resuming business there due to sanctions[93](index=93&type=chunk)[94](index=94&type=chunk) Q3 Fiscal 2022 Executive Summary | Metric | Q3 2022 | YoY Change | | :--- | :--- | :--- | | Sales | $6.49 billion | +32.0% | | Sales (Constant Currency) | - | +35.7% | | Gross Profit Margin | 12.5% | +97 bps | [Results of Operations](index=27&type=section&id=Results%20of%20Operations) Strong global demand for electronic components drove significant year-over-year growth in sales and profitability - Q3 2022 sales increased **32.0% (35.7% in constant currency)** to $6.49 billion, driven by strong global demand for electronic components across all regions and in both operating groups[104](index=104&type=chunk) - EC segment sales grew **33.2% to $6.02 billion**, while Farnell sales increased **18.4% to $469.0 million** in Q3 2022[104](index=104&type=chunk)[105](index=105&type=chunk) - Gross profit margin increased by **97 basis points to 12.5%** in Q3 2022, driven by margin improvements in both operating groups and a favorable geographic sales mix[107](index=107&type=chunk) - SG&A expenses as a percentage of sales **decreased to 7.9% from 9.4%** year-over-year, demonstrating operating leverage from higher sales and gross profit[109](index=109&type=chunk) - The company recorded a **$26.3 million charge** in Q3 2022 related to the Russia-Ukraine conflict, primarily for credit loss reserves on Russian trade receivables[111](index=111&type=chunk) Operating Income Reconciliation (in thousands) | Description | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | Operating income | $274,408 | $87,684 | | Russian-Ukraine conflict expenses | $26,261 | - | | Restructuring, integration, etc. | - | $17,574 | | Amortization of intangibles | $3,074 | $5,283 | | **Adjusted operating income** | **$303,743** | **$110,541** | [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity despite using cash for operations to fund working capital investments for sales growth - For the first nine months of fiscal 2022, **cash used for operations was $19.4 million**, a significant shift from $197.5 million of cash generated in the prior-year period due to a **$660.8 million investment in working capital**[121](index=121&type=chunk) - As of April 2, 2022, the company had **$199.5 million in cash and cash equivalents**, with $114.1 million held outside the U.S[126](index=126&type=chunk) - The company has strong liquidity with approximately **$1.62 billion available for borrowing** under its Credit Facility and Securitization Program as of April 2, 2022[126](index=126&type=chunk) - During Q3 2022, the company **repurchased $45.1 million of its common stock** and paid dividends of $25.6 million, with **$378.0 million remaining** under the share repurchase authorization[130](index=130&type=chunk)[132](index=132&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's exposure to foreign currency and interest rate risks remains materially unchanged, managed through hedging and fixed-rate debt - The company's exposure to market risks, primarily foreign currency exchange and interest rates, has **not materially changed** since July 3, 2021[135](index=135&type=chunk) - Avnet uses economic hedges, such as forward foreign exchange contracts, to **reduce volatility from currency fluctuations**[134](index=134&type=chunk) - As of April 2, 2022, **89% of the company's debt is fixed-rate**, and a hypothetical 100 basis point increase in interest rates would decrease income before taxes by only **$0.4 million** for the quarter[136](index=136&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Management confirms the effectiveness of disclosure controls and procedures with no material changes to internal controls during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective** as of April 2, 2022[137](index=137&type=chunk) - **No changes were made** during the third quarter of fiscal 2022 that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[138](index=138&type=chunk) [PART II. OTHER INFORMATION](index=37&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, share repurchase activities, and filed exhibits [Item 1. Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings) Current legal matters are not expected to have a material adverse effect on the company's financial position or liquidity - The company has concluded that **no particular pending legal proceeding requires specific public disclosure** at this time[139](index=139&type=chunk) - Management believes that the resolution of current legal matters **will not have a material adverse effect** on the company's financial position or liquidity[140](index=140&type=chunk) [Item 1A. Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the company's previously disclosed risk factors have occurred since the last annual report - As of April 2, 2022, there have been **no material changes** to the risk factors set forth in the Company's Annual Report on Form 10-K for the fiscal year ended July 3, 2021[141](index=141&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=37&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased $45.1 million of its common stock during the quarter under its authorized share repurchase program Share Repurchases in Q3 Fiscal 2022 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2 – Jan 29 | 233,762 | $40.07 | | Jan 30 – Feb 26 | 315,842 | $40.64 | | Feb 27 – Apr 2 | 550,800 | $41.63 | - As of the end of the quarter, approximately **$378.0 million remained authorized for purchase** under the company's share repurchase program[143](index=143&type=chunk) [Item 6. Exhibits](index=38&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the report, including required CEO and CFO certifications - The report includes several exhibits, such as amendments to credit agreements, details of the 2021 Stock Compensation and Incentive Plan, and **CEO/CFO certifications** pursuant to the Sarbanes-Oxley Act[144](index=144&type=chunk)

Avnet, Inc. (NASDAQ:AVT) Q3 2022 Earnings Conference Call April 27, 2021 4:30 PM ET Company Participants Joe Burke - Investor Relations Phil Gallagher - Chief Executive Officer Tim Liguori - Chief Financial Officer Conference Call Participants Melissa Fairbanks - Raymond James Ruplu Bhattacharya - Bank of America Matt Sheerin - Stifel Jim Suva - Citigroup Nik Todorov - Longbow Research Joe Quatrochi - Wells Fargo William Stein - Truist Securities Operator Please standby. Our presentation will now begin. Wel ...