Q3 2019 Earnings Call
Today's call French will begin in approximately one month.
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This time all participants are in listen only mode. After the speakers presentations are will be a quick question and answer sorry.
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I would now like turn the conference over to your Speaker today, Steve O'brien with Investor Relations. Thank you. Please go ahead Sir.
Thanks, Chris.
Good day, everyone on the call today are my calling chairman President and Chief Executive Officer, Chris Stansbury, Senior Vice President and Chief Financial Officer, and became President Global components, and Sean Kerins, President Global Enterprise Computing solutions.
As a reminder, some of the figures discussed on todays call or non-GAAP , you can access our earnings release out Investor Dot Arrow Dot com, along with the CFO commentary.
non-GAAP earnings reconciliation and webcast of this call.
We will begin with a few moments in prepared remarks, which will then be followed by a question and answer appeared.
I'll now hand, the call to our chairman President and CEO Michael.
Thank you Stephen Thanks to all of you for taking the time to join us today.
During the third quarter, thanks to our team's focus execution, we delivered bottom line results that exceeded our original expectation.
We took advantage of opportunities to increase the scale of our Asia components business.
Our focus on realigning the enterprise computing solutions business to target newer technologies and non traditional customers.
Levered strong operating income growth.
Additionally, our cost optimization program combined with the wind down of our PC and mobility asset disposition business has sharpened our focus on the long term strategy to be the leading enabler. The next generation technology solution.
Last quarter I said that the markets were we serve we're bouncing along the bottom.
If you look at our third quarter results.
Clear that assessment was broadly correct.
Whatever by remaining nimble and flexible during the quarter controlling what we could control, we're able to see sales inline with our expectation.
Because we were able to adapt to the current condition, we delivered improved profits and strong cash flow that are hallmarks of our differentiated business model.
Additionally, economic returns reverted to the higher level.
We aligned our working capital investments to industry conditions.
To provide some additional context on the near term market conditions were facing.
Demand environment for component further deteriorated during the third quarter as we continue to see the affects of the ongoing geopolitical tension.
Demand from smaller customers have you utilize more of our engineering and design services was weaker than anticipated.
Tariff and trade wars are seeing consequences that are opposite of their intended goal.
Manufacturing engineering and design work are moving east at the same time consumption of our European exports is declining.
Customer and supplier expectations for the demand recovery in these regions are pushing further out into 2020.
Further to this point design activity slowed consistent with sales in the third quarter, but as I mentioned, a moment ago. We're capitalizing on the strong design activity growth in Asia, with but arrow in a greater position to whether through these near term challenges.
Other indicators remain consistent with current market correction backlog declined sequentially and year over year lead times are shorter than last year, but remained consistent with the second quarter and longer term averages over.
Overall book to Bill was a little below parity at 0.91 exiting the third quarter and with below parity in all regions.
Our Americas customers sediments survey results were consistent with the last two quarters with a large portion of the customers responding they had too much inventory and a small portion reporting that they did not have enough the ratios remain similar to those we've seen.
During past market downturns.
As I mentioned last quarter, the declining global components margins had been driven mostly by customer mix and secondly by regional mix.
Sales to our larger better capitalized customers rely less on our designs in engineering services are holding up better than sales to smaller customers rely more on our services.
Our third quarter profit performance is encouraging on this front it demonstrates our ability to quickly adapt to change in the short term business mix, while preserving and enhancing capabilities for the long term.
Despite this challenging backdrop I want to emphasize that arrows resilient business model and global reach have allowed us to remain flexible taking advantage of near term opportunities where they present themselves Aero takes a thorough bottoms up approach to forecasting based on detailed demand analysis from our more than two.
100000 customers around the globe, we verify that data with key economic indicators and what our suppliers are saying with this understanding we saw no incremental contribution to our third quarter sales result from any supplier program changes and our fourth quarter guidance assumes no incremental contribution.
For many reasons changes.
We continue to do business the way, our customers and suppliers want us to do business.
Importantly, our goals remain clear.
Regardless of the external factors at play we continue to advance engineering and supply chain services to make our customers successful.
By connecting our customers.
With the best technologies available, we equip them with the tools to improve their products and bring them to market faster.
Arrows unique ability to deliver complete and then solutions and our commitments to design and innovation have Dan and we'll continue to be our key strengths. These strengths are what will drive our differentiated financial performance.
Now turning to our enterprise computing solutions business the demand environment has been consistent with our expectations in aggregate billings grew at low single digit rates year over year again in the third quarter.
Our portfolio approach is designed to deliver consistent results.
No were software and hardware hardware and hybrid cloud architectures are offsetting declines in legacy systems.
Success of our approach drove a return to operating income growth in the third quarter as we expected and as we outlined last year at this time.
We expect enterprise computing solutions operating income to increase again in the fourth quarter.
In closing we continue to proactively address what we can control, while remaining nimble and adaptable to face external challenges head on.
Our engineering capabilities remain our key strategic advantage, we're confident that our engineering know how we'll continue to set us apart over the long term leading to a tremendous opportunities to expand our business.
I have innovation and improve People's lives.
I look forward to updating you on our performance in our progress in Macau coming quarter I am I now hand, the call over to Chris to provide some more details on our third quarter results and our expectation for the fourth quarter.
Thanks, Mike.
Third quarter sales for $7.02 billion, excluding the PC and mobility asset disposition business.
Sales decreased 3% year over year adjusted for the wind down and changes in foreign currency.
The actual exchange rates for the quarter was $1.11 cents to one year out which is slightly less favorable than the dollar in 12 sent rate. We previously used for our forecast.
Global components sales were $4.99 billion, excluding the PC and mobility asset disposition business.
This is slightly below the midpoint of prior guidance and represents a 4% year over year decrease adjusted for the wind down and changes in foreign currencies.
Asia sales increased 5% year over year adjusted for changes in foreign currencies and reached an all time record quarterly level.
The second quarter in a row sales contribution percentage from Asia was also an all time record for any quarter.
As we've mentioned before while higher Asia contribution as a headwind to margins, we do not anticipate that regional mix will be a headwind to returns.
In Europe sales decreased 2% year over year as adjusted its worth noting that our strong execution in the European market had enabled us to deliver a remarkable 25 straight quarters or more than six years of on interrupted adjusted year over year growth.
As Mike referenced a moment ago the year over year decline in the third quarter was due to lower demand for the products made by our exporting customers in the region.
In the Americas sales decreased 15% year over year as adjusted.
Outside of strength in aerospace and defense, we are experiencing lower demand in all of our key verticals.
Mike mentioned geopolitical tensions earlier and we believe these are a key factor here is manufacturing continues to move offshore due to tariffs and trade restrictions.
Global components operating income decreased 21% adjusted for dispositions and changes in foreign currencies operating margin was 4.4%.
We continue to believe we can make progress towards returning to the 5% operating margin level. We achieved in 2018. This progress will come first to our cost optimization program and then from a return to a more optimal product mix and region mix when demand conditions improve.
Enterprise computing solutions sales of $2.03 billion decreased 2% year over year as adjusted sales decreased 4% year over year as reported and were above the midpoint of our prior expected range.
Billing billings increased at a low single digit rate year over year adjusted for changes in foreign currencies, an increase in both regions growth was driven by infrastructure software and next generation hardware, including storage in both regions.
Europe Enterprise computing solutions sales were flat year over year as adjusted Europe sales decreased 6% year over year as reported America sales decreased 2% year over year adjusted for changes in foreign currencies.
Enterprise computing solutions operating income increased 12% year over year increased 14% year over year adjusted for changes in foreign currencies operating margin increased 70 basis points year over year.
Returning to consolidated results for the quarter total company operating expenses decreased 9% year over year consolidated operating income decreased 17% year over year adjusted for the wind down a disposition and changes in foreign currencies.
Interest and other expense was $50 million below our prior expectation due to lower borrowings during the quarter and slightly lower interest rates and floating rate debt the effective tax rate for the second quarter was 22.3%.
Below our prior target range of 23, and half to 25.5% and below our prior third quarter expectation of 25.5%.
Our lower effective tax rate was due to several factors, including greater clarity surrounding prior tax reforms more precise measurement of tax advantaged export sales enabled by our global ERP system and a larger relative profit contribution from lower tax jurisdiction.
We expect the fourth quarter effective tax rate to be at the low end of our target range based on these same factors beyond 2019, we now expect our tax rate brings to be between 23% to 25% 50 basis points lower than our previous target range.
Net income was $155 million down 17% year over year as adjusted earnings per share were $1.96 cents on a diluted basis down 12% year over year on an adjusted basis.
We estimate the stronger dollar negatively impacted EPS by approximately four cents and negatively impacted earnings per share growth by approximately two percentage points compared to the third quarter 2018.
Turning to cash flow, we reported strong operating cash flow of $287 million driven by a greater ability to convert EBITDA cash flow in the current weak demand environment and by a reduction in working capital, including inventory, we expect cash flow to remain strong in the fourth quarter.
We remain committed to returning excess cash to shareholders, we repurchased approximately 1.4 million shares of our stock or $100 million during the quarter, we repurchased approximately $440 million over the last 12 months and have reduced shares outstanding by approximately 6% over that time.
During the third quarter, we also reduced borrowings by approximately $137 million.
Our near term priorities continue to focus on share repurchases and debt reduction.
Please keep in mind that the information I've shared during this call is a high level summary of our financial results for more detail regarding the business segment results. Please refer please refer to the CFO commentary that we published this morning.
Now turning to our outlook our guidance again excludes the PC and mobility asset disposition business. However, the contribution from this business will be included in our reported net income statement for the fourth quarter.
As we disclosed in our press release, we will provide all the reconciling items to exclude this business from our ongoing results.
With that said, we anticipate that total fourth quarter sales will be between $7.1 billion to $5 billion and $7.5 billion to $5 billion with global components sales between $4.6 billion to $5 billion and $4.8 billion to $5 billion and global Enterprise computing solutions sales between two and a half billion and too.
Point $7 billion.
We expect interest and other expense to be approximately $52 million average diluted shares outstanding of 83 million.
As a result, we are forecasting earnings per share on a diluted basis, excluding any charges to be in the range of $2.10 to $2.26. The average U.S. dollar to Euro exchange rate, we're using for our forecast is the dollar and 10 cents to one euro.
The average for the month of October we estimate that changes in foreign currencies will have negative impacts on growth of approximately $100 million or 1% on sale in five cents per 2% on earnings per share compared to the fourth quarter 2018.
With that I'll turn the call over to the operator for questions and answers.
Thank you Sir.
At this time I would like to remind everyone in order to ask questions. Chris stars on the number one on your telephone keypad.
Your first question comes from Matt Sheerin of Stifel. Your line is open.
Yes, thanks, very much and good afternoon.
A couple of questions from me.
Okay.
Around the gross margin, which was down about 100 basis points year over year in each of the last two or three quarters and.
Like I understand the mix of the business working against you lower demand creation higher fulfillment business.
As you look over the next two quarters and looks like you're not really expecting any change in the demand environment. So should we expect the gross margin to remain at these depressed levels for awhile.
I think that.
Certainly.
For the fourth quarter map, we see that I.
I think some will depend on the strength.
First quarter in the second quarter, but what I'm hearing out there obviously the same thing you're hearing the market improving toward the second half of next year.
So I wouldn't expect anything.
Major to happen, we might tick it up a little bit.
Which I would fully expect you noticed start seeing some improvement, but as far as a wholesale change in the business until the market starts coming back I wouldn't I wouldn't commit to that.
Okay fair enough in and you obviously are making some of that up with with fairly significant opex cuts down year over year.
Could you just share with us what's left in terms of incremental costs coming out of the business.
Over the next two or three quarters or year.
Sure sure we don't mind doing that at all Chris can give you some of the implied Matt what I would say is he can probably give you stop over the next quarter too.
But path that you know it will get fuzzy depending on demand.
But yes that the.
We've gotten a lot of the cost out there is still more to come in Q4, a little bit in Q1, Matt and obviously we.
We don't stop there we look at the business and the environment, we're operating in and we adjust as necessary, but at this point now we're obviously confident in the 130 and we'll see what happens beyond that.
Okay. Thank you and Didnt just for my second question.
Which is obviously on a lot of investors' minds, given the supplier changes were seeing avnet, losing the T.I. business publicly talking about that in and obviously you not losing any of that business I know you've taken on some more fulfillment business with that supplier this year.
What's the opportunity there for that supplier and how open are you taking on more fulfillment business versus the demand creation model.
Yes, Matt I'll take that first off that with your third question. Okay. The first one was a two parter.
Yes.
Yes, thats quite okay.
Yes first off.
Yeah.
In the short term, there's really no no immediate change the way customers have done business.
And the long term obviously.
We are the global option for doing business and we're quite happy with that.
There is no change in how we operate what we operate with the profitability or anything like that.
With the line so.
Contrary to some of the rumors out there.
We are appreciative of the business.
There are good partner.
But I can't give you any any forecast at all because frankly I don't have any and we'll see how the market plays out and what happens over the next couple of quarters.
Okay fair enough. Thanks, a lot Mike.
Your next question comes from Steven Fox with Cross Research Your line is.
Thank you good afternoon.
A couple of questions first I was wondering.
Looking at the operating expense performance quarter over quarter.
Down about 10% can you just sort of outline exactly how.
You got that leverage.
I guess I was locking that in my model and then I had a bigger picture Carla.
Okay go ahead, Chris Yes, so Steve that's really.
Just a continuation of the cost reduction we didn't get it all out in.
In Q2, so we knew that.
The next biggest staff was really Q3 and as I said, there is a bit more to come in Q4, and then Q1, but.
We've gotten the biggest chunk of it out by now so that's really what's driving it there was a very small quarter on quarter volume impact, but that really wasn't material to the overall results.
Okay. That's helpful and then.
Just bigger picture Mike.
I guess I guess the argument is that.
We're bouncing around the bottom you made some points as to why things are still tough.
Im just wondering like what you would hang your hat on is the best evidenced that.
No it doesn't get worse from here, what what what.
Are you seeing in the supply chain.
Well I mean, I guess, what I could start with is in the middle of our call last quarter Trump put more tariffs on.
On the good and.
Our forecast still held.
What I would say is we saw that gave you the 0.91 book to Bill.
You know.
We saw improvement in October and the book to Bill but of course, the waterfall doesnt filled upon yet it's just sort of one.
One month into it but what we're seeing is sort of steady is as it goes right now there has been.
The biggest thing that we've seen has been the business movement, you know customers moving business.
Back to China, and doing things to try to avoid tariff.
You know I don't know the impeachment vote today wasn't a very good.
Outcome, I guess for the market, but.
I don't see that affecting any thing.
To me, it's it's all around these tariffs and if the bad news is out.
I would have to say I believe were around the bottom.
And we see Asia Pac improving.
Which is something that that nobody expected.
Europe decline has been slower than expected.
And North America's improvement has been a little slower than expected.
So I guess all of those factors together, we're pretty confident we're in a fairness stable place.
Okay I appreciate the color. Thank you.
Mhm.
Your next question comes from Shawn Harrison of Longbow Research. Your line is open Hi, This is Sean.
Sean.
First of all you mentioned that.
EBIT margin.
Extending next quarter.
Thank you.
Can you provide some more color on.
Please.
Good question.
I didn't get the second part of it.
Sorry, you, where you are fading out on your question and here, maybe you could get to.
Flow through.
Sorry, So I was going to ask do you think that.
And you mentioned that operating margin will continue to expand.
Sure.
Fourth quarter I was just wondering if you did provide more color on that and how much of an extension we should expect.
Sure Yeah, we we did outline a plan to everybody last year in and the fourth quarter of what we expected to happen and largely everything that we did expect has happened I'm going to let Sean comment a little further PSMC did the vast majority of the work to turn this thing around and it kind of led.
Ill take the accolades for it.
Well thanks for the question in fact, we saw in Q3 continued strength.
Across our software portfolio Thats grown for us fairly steadily this year and our software based solutions selling strategy is what certainly is having an impact on our gross and operating margins and we're going to stay the course, we also saw some.
I think a healthy returned to growth in storage after what I would call kind of a market pause in Q2 and that was driven by some supplier specific refresh activity, but more importantly.
Adoption of some of the newer technologies, specifically hyper converge.
We're very well positioned with regard to the new architectures and technologies as that transition plays out so I feel good about that going forward. So we're going to continue to work hard on the things that will.
Prove our margins.
Specifically, our investments in the kind of mid market in the longer tail of our ecosystem segments that you know more fully appreciate our value we're going to continue to work on line card in customer base expansion, we have I think some decent progress too.
Toward across the past 12 months and we'll continue to keep.
The press run in that regard and I think the.
The future outlook, notwithstanding any macro uncertainty is.
This writer.
Thanks, and then.
Cash for free cash flow goals.
Please.
Yeah, We don't generally guide a number but I would tell you that.
We expect Q4 to be strong as it normally is in Q4.
Historically, we've said that in an average year, we would generate operating cash flow of equal to roughly 70% of GAAP net income.
We will be if you adjust out.
The charges, obviously associated with the wind down of.
The disposition business and the cost reduction program, we will be in excess of 100%. This year. So Q4 will be strong.
Thank you.
Your next question comes from Mark Delaney of Goldman Sachs. Your line is.
Good afternoon, thanks, very much for taking the questions first question was on EPS in terms of the topline.
The businesses come in I think consistent with what the company I talked about 90 days ago in terms of slow topline growth. Despite some of the macroeconomic challenges and Johnny you talked about some of the specific product cycle drivers, that's helping narrow it if you think into 2020 get given the macroeconomic backdrop do you think that framework of slow growth.
With for freeze, yes, billings or revenues the right way for investors be thinking about the topline potential.
Yes, I do.
If you go back in history. This business has been typically the overall market in five to six range of growth consistently.
Over 10 year period, so to speak that got impacted a little bit when rotating storage went to solid state because it was 19 cents on every dollar that was out there.
In expenditures for ITC, so that that crippled the market a little bit.
We see more software now more software more security more solutions.
So I would say that the business should.
Returned to normal conditions.
Over the next year and I would I would argue that it would accelerate toward the second half I think it's just starting to come out of it now I think you're seeing some stabilization.
In the ITC market.
So I would be.
Pretty high on that business going into next year for us.
Got it thanks for that and from my follow up question something to ask another one related to the distribution changes and I understand this point eroded and have good clarity on potential financial implications longer term from that change, but just more big picture what would what do you think led tie to.
Choose to continue using aero as a global distributor.
When it decided to and its distribution agreement with several of your competitors. Thanks.
You know I, just think T I posted a letter on their web page.
Around their decision, making and what they were thinking and I'll go to that I'm.
I don't want to congratulate anybody disparage anybody do anything I think thats just a question you have to ask them.
Got it thank you.
No.
Your next question comes from Adam Tindle of Raymond James Your line is.
Okay. Thank you I'm going to continue beating the dead horse on T.I., but.
Mike I understand okay.
As a beneficiary on a relative basis, but hoping maybe you can touch on your comment or thoughts on what it means and says about the industry more broadly.
Also what assurances that you have that any of the business that you'll get will be kept is there anything contractual or is there just little incremental investments. So that goes direct overtime. There is no negative leverage.
Our.
First off our relationship has stayed the same as it has been all along.
I've been very clear with their movements.
All along.
And.
No I.
I don't think Theres any application.
Honestly I made certain suppliers have certain uses for our strengths.
As a corporation.
I'm require.
More engineering services for us more design in services for us others require more value stream or more.
Filament type businesses.
And I think we're in a situation that we we know our cost we know how things operate in here.
And I'm willing to sell any of our services that we have to anybody you know as I said in the first couple of paragraph we're going to sell the way our customers want to buy.
And.
If we bring you know a better value to our customers, they're going to buy more promise and that's that's ultimately the goal of the corporations. So I don't there's not one right answer for anybody here you know the path of electromechanical guys need a different type of service the semiconductor guys at certain levels in certain technologies.
Need other types of services.
And that's the way it is that's the way frankly, it's been for quite some time.
And.
I think secure supply chain now is starting to have an impact on how people think about their channel.
And I Wouldnt expect to see any major wholesale change in the industry over the next couple of years.
Okay, and maybe just a follow on to that I understand you're generating good returns on that type of engagement fulfillment engagement and components and focusing on returns on capital.
On the other side of the house I mean does this potentially open the door to perhaps exploring a more broad line business or kind of an end to end sort of the portfolio and the computing side and why or why not.
I think if we've already talked about.
More of an end to end business between the components business and the computer business.
Over time, I think we're seeing it now where we're seeing the crossovers are in software space.
Thats one area that we're seeing and of course, any CF and EPS in order for you see us to be successful, it's expanding its line card.
I think just about every quarter for.
The last year year and a half.
We do believe that there's going to be more products, they're required because the solutions are getting more complex customer, they're asking us to get involved with more than they used to.
We're actually seeing more crossover in.
Deployment of the cloud to the edge and I think thats going to continue going so yes, that's the whole purpose for us having the portfolio. We having side is that we are.
Our thing that happened.
I'll now entre, we're not in the PC business. So that's not an area that we focus on and I think if you take that piece out of it were interrupted and basically the balance of the business.
Okay. Thank you.
No.
Your next question comes from Joel Quadracci.
Wells Fargo. Your line is open.
Yes, thanks for taking the question.
I was wondering if you could kind of talk about.
Mentor your customers that you're seeing particularly I'm interested in.
You are seeing in Asia Pacific just given that it's been a little bit better than expected. We've been kind of hearing some things of maybe a little bit of inventory pull and particularly in China.
Yes.
Joe I'll, let Andy add to this but but China business model is a little different in that customers hold less inventory.
The channel holds lets say inventory.
So the cyclical nature of that business.
The demand contraction portion of it.
Ends up being less because you don't ever have.
Sort of that glut of inventory that you're trying to get rid of in a downturn, but I think.
And he can talk a little bit more about the increased number of customers in the increased demand. There. If you want to yes, you're right. Joe we don't typically have the same squeeze in customer inventory sentiment because it's a much cleaner supply chain level by definition and we definitely saw throughout the majority of this year customers remain cautious.
This in China as they see the economic kind of situation play out in that really hasn't changed that much the ship breadth of customers that we deal with enables us to write about that little bit. So we kept the good balance it goes on across our Asia business, particularly in China, We sold out in Q3, and we expect similar situations that in Q4.
Okay, and then for follow up.
I apologize if I missed it.
Could you comment on the growth of design activity I think in the past, Mike you talked about that being a good data point for.
In terms of the velocity that we could see in terms of recovery.
Yes, we actually saw design activity followed sales this quarter.
Andy you can talk about a more by region, if you'd like what you saw yes. There was definitely our design activity broadly followed sales. So it was pretty much in line with the market. We did as we said in the commentary see a shift of activity to Asia much like we saw in sales. The good news, we're pleased that were well equipped.
To follow the that design activity with our our engineering portfolio that we have but we definitely saw.
Similar trend in design activity as we saw in south and we definitely saw a geographic swing.
Thank you.
Your next question comes from Tim Yang of Citi. Your line is.
Hey, thanks for taking the questions.
Follow up question, yes.
Second sales declined 2% organically, but operating income increased than you expected operating income to grow again next quarter.
No sales level.
Yes trends and the weakness in the business, especially in North America, which I think.
The sales headwinds from.
Yes, sure Tim. So again, you have to sort of think about billings versus sales because as our mix continues to move to software and services, you're seeing the impact of.
Of agency accounting, but basically North America specifically.
Good strength with software, it's now our largest technology category and as I said earlier.
Grown steadily throughout the year.
North America was particularly strong in storage, where we have a.
It really strong install base in a well represented supplier portfolio and then we also benefited from our us public sector business.
We enjoyed a nice September close, especially at the margin line that team continues to embrace our our software based solution strategy, if I add to those drivers. The fact that our cloud business is growing at at rates significantly greater than the business. Overall I would tell you that I think we've got exposure to the right demand trends in.
We're seeing balanced activity versus having to derive just one horse and.
We see that playing out similarly in Q4.
Got it that's helpful.
From.
James can your existing infrastructure sales team support incremental business from.
It's not do you have to invest a lot to spot.
For the more.
Thanks.
First off we're not sure.
Of any windfall that you might suggest.
And our current structure is adequate to handle.
Whatever comes our way.
Got it thanks.
Your next question comes from William Stein of Suntrust. Your line is open.
Great. Thank you for taking my questions.
First Mike I'm trying to reconcile some of the.
Some of the things that were said maybe I'm just.
Misunderstanding, but in your prepared remarks, you you mentioned.
The recovery looks pushed out further into 2020, you said book to bills 0.91 below parity in all regions. You said, a large portion of customers are saying they have too much inventory.
You said, there's lower demand in key verticals.
Which sounds to me like things are still eroding demand is still getting worse, but in your.
Response to one of the earlier questions. You said you thought that things are stable.
Maybe you can help me understand which have.
Maybe just to think shouldn't be compared maybe just set me straight please.
I could go back to my events that said I think we're bouncing along the bottom and I think thats what were talking about we're not expecting a.
You know.
More roshe and we're not expecting more upside.
Sort of that bouncing along the bottom one of the bright.
Pieces of news was October book to Bill is improving.
From where it was.
And.
You know I don't think I gave anything that said that I think I also said in there that.
We're looking more towards that second half recovery that I think people are are talking about because the book to bills are not strong enough.
I would call for a January quarter recovery right now.
And.
I think we are where we are we're seeing signs on both sides. If you go back to last quarter, we didn't see any signs of improvement.
So at least having in October .
Book to Bill that's looking better.
Is it something to grab onto and it's it's.
You know very market specific right now.
Okay. That's helpful. One more if I can.
I believe it or not there's more to ask on T.I.E.
Your.
The last comment you made suggested that.
Perhaps there wouldn't be a windfall something something to that effect do you think.
Is it really realistic for us to think perhaps.
That T I would take all of this distribution business. They do with other partners direct or a meaningful portion of it direct you think that's is that a realistic way to think about it and when we think of whatever you wind up getting.
Should we plan for that or as you're calling us into how to think about how that influences. The model is that.
Would you encourage us to think about that sort of linear improvement through the year or more of a step function at the end of the year in any directional help would be appreciated. Thank you yeah. That's a lot of stuff right there.
I would say the though.
The best guidance you have is our forecast for the next quarter.
I think.
That.
The way you should plan at ice.
No if you.
If you frankly plan for a windfall that we didn't deliver a windfall you're going to be disappointed.
If we under call it an over call it youre going to be disappointed we don't we don't have you know a full plan of attack here or.
Anything that might suggest that we could do a PML of any time, so I think right now.
You know the T I a letter said at all.
And.
We'll see how it all works out going forward, but we're way early in the process I think they said the end of 2020 or something like that for everybody else. So.
Let's not jump the gun on everything and.
You know I think we have the answer is because we don't.
Fair enough. Thank you.
Uh-huh.
Your next question comes from roof flu Fatah Sharia of Bank of America. Your line is open.
Hi, Thanks for taking my questions.
As we sit today, one month into the calendar for Q, how is the geographic mix of your business trending which regions are stronger whichever which is weaker.
Hi, it's Andy I mean from a compound and standpoint that broadly in line with what we saw in.
In Q3, so no significant dramatic shifts, but where I'm talking about one month of a quarter. So we'll see but we we don't see any significant change at this point.
Okay, and then can you just talk about your priorities for use of cash I mean is this a time when you can be a consolidator of sorts and how do you see.
I think growth and.
And versus buybacks. If you can talk about yeah, we stated that our prepared remarks, it's buybacks and pay down debt.
Those are reducing the prior or priorities right now.
Okay. Thanks for taking the questions.
You bet.
And this concludes today's session I would now like to return the call to Mr. O'brien for closing remarks.
Thanks, Chris in closing I will review Arrow's Safe Harbor statement. Some of the comments made on today's call may include forward looking statements, including statements addressing future financial results. These statements are subject to a number of risks and uncertainties that could cause actual results or facts to differ materially from such statements for.
Variety of reasons and the company undertakes no obligation to update publicly or revise any of the forward looking statements detailed information about these risks is included in Arrow's SEC filings.
Turning questions about the information presented today, please feel free to contact me. Thank you for your interest in Arrow electronics and have a nice day.
Ladies and gentlemen, this concludes todays conference call. Thank you for participate.
Now disconnect.