Q3 2020 Earnings Call
Please standby.
Our presentation will now begin.
Welcome to the after that third quarter fiscal year 2020, <unk> earnings call.
I would now like to turn the floor over to Joburg BP Treasury and Investor Relations correct.
Thank you operator earlier this afternoon I've not released financial results for the third fiscal quarter of 2020 released is available on the Investor Relations section of the company's website a copy of the slide presentation that will accompany today's remarks can be found by the link in the earnings release.
Yes, as well as on the IR section about that website.
Lastly, some of the information contained in the news release and on this conference call contain forward looking statements and involve risks uncertainties assumptions that are difficult to predict in particular, the scope and duration of the code at 19 outbreak and its impact on global economic systems, and our operations employees customers.
And supply chain.
Such forward looking statements are not the guarantee performance in the company's actual results could differ materially from those contained in such statements.
Factors that could cause or contribute to such differences are described in detail in avnets. Most recent form 10-Q, and 10-K and subsequent filings with the FCC.
These forward looking statements speak only as of the date of this presentation and the company undertakes no obligation to publicly update any forward looking statements where supply new information regarding the circumstances. After the date of this presentation.
Today's call will be led by Bill Emilio Avnets, CEO, and Tom, Missouri Avnet CFO.
So Phil Gallagher Global President electronic components joins us to participate in the queue in a session.
With that let me turn the call over to Bill Emilio Bill.
Thank you Joe and thanks, everyone for joining us on our third quarter After school year 2020 earnings call.
Oh, well aware the whole world, it's dealing with the challenge is brought on to watch by coping banking NAV that it's no different today will walk you through the impact it has aren't business.
Our third quarter revenues Aes were down sequentially and year over year softer demand, particularly in Asia impacted our core would result, as well it's softer pricing increased costs related to the impacting told at 19 on our logistics operations.
That said revenues in our Americas EMEA regions increased sequentially in the third quarter, which reflects normal seasonality as wells are focused on keeping the business running as effectively as possible over the past few months.
We met the low end of our original guidance for the quarter, which Tom will talk about a bit later in the call.
Last quarter on our second.
Order earnings call. We told you that despite the ongoing industry correction, we're starting to see some good signs of stabilization across key geography at that time Cobot 19 was still in the early days confined to Asia during the third quarter, it's covert ninetys reach why.
We act quickly to conserve cash and manage our debt prudently as a result, our focus on working capital management enabled us to generate positive operating cash flow.
Looking at our electronic component business revenues and operating margins were down both sequentially and year over year in the March quarter. The most notable region impact with Asia. We saw orders decline early in the quarter due to the seasonal effect of the Chinese new year, how much further affected by covert 90.
That said, we did not experience any material disruption to our upstream supply chain or incoming goods from suppliers for the most part or distribution centers. We made operational as we implemented our business continuity plan to ensure worker safety first and foremost and then to mitigate any does this impact.
Yes.
In certain areas, we had some minor disruptions due to travel restrictions and other related issues.
Shipments to our customers continued but we experienced longer lead times, new orders in certain regions and some delays due to the challenges that freight forwarders had volumes and border crossing checks.
There was no meaningful impact on bookings our book to Bill ratio at the end of the third quarter was well above parity, we kept a close eye on the rate of bookings and backlog to ensure the integrity and transparency of our supply chain. We continue to work diligently to confirm the orders our customers had much.
The vertical market segments as most of you know we saw weaknesses auto plants in the United States in Europe shut down due to cope with 90.
Transportation with strong in the beginning of the quarter, we saw a trend down at the end of the court.
Throughout the quarter and even today, we see continue strength enter the fence and aerospace businesses.
As well as medical and various parts of industrial, particularly where they are seen as essential.
Although not a vertical segment necessarily we did see strength in stating it and R.E.M.F. segment.
Overall, some operations in our electronic component business appeared to be operating as business as usual during the quarter. However, it is clear that coven 19 create a high level of uncertainty with some recent reports referring to the possibility of advanced buying and Poland's leading to panic by.
What's that mine, we're preparing for all scenarios, including potential challenges. The next couple quarter's <unk> provide more detail on that later.
Turning to for now.
Sales and operating income margins in the third quarter up slightly sequentially.
For an L. started shipping from its new distribution center in Europe, the progress to wrap up the new facility will be slower than initially planned due to cope with 19.
During the quarter, we continued to execute a five pong plan that we put in place to improve foreign else competitiveness in the high service model and promote longterm success.
Five parts of our plan are listed here on slide six.
We saw signs of progress marplan in the beginning of the quarter. However, once the locked down started in the European countries like Italy, and the U.K. for an l. slowed down as well.
Turning dial tea.
It was expressed interest in our ability to skill or <unk>.
Or new I.O.T. partner program will allow us to do just that.
Although the operating environment, it's changed we signed up a number of I.O.T. partners in the quarter and we'll update you on additional biopsy developments in the months ahead.
Despite the current operating environment, we continue to work on our five strategic priorities as outlined on this slide.
Amplifying, our core distribution that scaling or high margin businesses, extending or digital capabilities, leveraging our ecosystem for growth and driving continuous operational improvement.
Declare while we are still executing on the long term goals that we laid out previously.
We have adapted are near term priorities to respond to the Cove in 19 <unk>.
Overall can sit on your challenge is coping 90, and its impact on global Commerce, We believe our third quarter results demonstrate the following.
Burst, our commitment to ensuring our employees health and safety, while keeping our business running as efficiently as possible.
Resilience of our business model and the strength of our counter cyclical balance sheet.
Or flexibility to adapt quickly to changing mark conditions, allowing us to maintain quality service levels for our customers and ongoing value for our supplier partners.
Our success Inactivating, our business continuity plan and lastly, our company strength overall in our ability to withstand challenges and navigate market turmoil.
The last point reminds us of Avnets longevity, and wire company has been able to bring technology to market for 99 years.
I'm, so proud of our employees across the entire copy and what they've been able to do working together to collaborate with our customers and partners in the fight against covert 90.
Our press release.
You will see specific examples of ways, we are leveraging avnet end to end ecosystem to accelerate our customers abilities to provide life saving medical solutions and increase the overall supply of medical quit.
Of course at the forefront of it all we were doing everything we can ensure the safety and health of all of our employees.
As we look to the macro forces that play and consider the range of economic forecast.
Unanimous agreement to the global GDP will contract substantially in 2020.
The I.M.F. forecast that the global economy open track, 3% in 2020.
And contract in the mid to high single digits in most of the developed countries we sir.
Some estimates.
At the end utilized U.S.G.D.P. will fall as much as 40% in the current quarter from a year ago.
As we know.
Unemployed that increase at a warming rate with 26 million people currently unemployed in United States. This reflects a level job loss that is the worst our country you seen since the great depression.
But these factors in mind and as we look ahead, we acknowledge that them macro economic environment will likely have a meaningful impact on our fiscal fourth quarter financial result across geography and across our business units.
Well no one knows exactly what the extent of the global recession will be well how long the health crisis will last.
We were all taking numerous steps to prepare for a significant downtown <unk> explained in detail. The actions we are taking to ensure financial stability drabness. During the current uncertain times that we face.
Closing, we were encouraged by our performance and the third court. Despite recent uncertainty one key point to remember that Adam that plays a critical part in the supply chain for our customers and our suppliers they depend on us and many electronic products will get made without us.
Well, we continue to respond to the coven, 19th condemn again adapt our business for the challenges ahead, Andy opportunities, we remain confident in our long term strategy without altering the call over to Tom to report on our financial so the quarter Tom.
Thank you Bill and good afternoon, everyone.
I hope everyone and their families are healthy and safe.
Let me start by adding onto a bill said about how we play a critical role and the supply chain.
You supply electronic components globally.
Operating in 100 plus countries.
<unk> components to customers as they are needed.
We are one stop shop for our customers Putterman staff.
And by using are strong balance sheet, you provide inventory receivables financing to our customers.
All of these continue today and they will for years to <unk>.
[noise] differ as we managed through the color of at 19 crisis or.
For national priorities are centered on.
We can't even the critical internal resources and capabilities required.
To be an integral player in the electronics supply chain.
[noise], maintaining a strong and healthy balance sheet.
So that we can continue to provide financing to our customers.
And ensuring the necessarily liquidity and financial flexibility.
To run or operations no matter the economic environment.
As we review our third quarter financial performance I will discuss these priorities interactions to support each.
Turning to slide 11.
Revenues for the third quarter of 4.3 billion and adjusted E.T.S. was 38 cents.
Both our revenues and adjusted E.T.S. were within the original died in this range is provided during our last earnings call.
Well, we pre announce that we would most likely falls short of guidance.
Or teams were able to keep our global distribution centres operating throughout the quarter and continue to support our customer needs.
A lower tax rate an interest expense contributed to the P.S. performance.
The lower tax rate was part of our longer term effort to work with operations.
And improve the geographic income mix of our business from attacks as well as cost perspective.
[noise] gross margin of 12% was higher than last quarter, primarily due to a lower mix revenues from Asia.
Respected R.A.'s are avenues to decline in the third quarter as a result of Chinese new year.
So cold at 19 played a part as well.
It became the first region impacted by the pandemic.
[noise] adjusted operating expenses of 449 million were hired those sequentially and over the prior your recorder.
As we encourage additional costs to manage to cope with 19.
[noise] dis include as cost and inefficiencies for new health and safety work procedures. It on a distribution centers.
<unk> shift patterns as well as higher freight costs.
These costs increases overshadowed lower class in areas like travel and conferences.
Well it is difficult to put a precise number on the net additional costs related to cope with 19, we estimate the impact to be roughly 10 million.
Or just the tax rate was 12.8% and benefited from a favorable mixup income.
Interest expense was lower due to our improve debt position.
Regarding the Texas instruments transition.
Revenues from T.I. and the third quarter were 401 million plastic <unk> and the 50 million declined from a year ago.
We expect to see a decline of T.I. revenues has we continue through the calendar year.
As a result, a macro economic impacts to cope with 19.
We performed an interim tests of goodwill and recorded a charge of 160 million, which includes goodwill an intangible asset impairment <unk> related to electronic components acquisitions in equity investments.
The 160 million chart includes a 15 million impairment of equity investments, which is included in other expense.
There were no impairments to our for now segment.
[noise] I fly 12, so revenues by segment and region.
Electronic components revenues of 4 billion declined 5.5% sequentially.
Primarily due to lower revenues in Asia has results of the Chinese new year included 19.
Sequentially.
Kids in the me or revenues increased which reflects typical seasonality.
Electronic components operating margins were 2.1%.
Down slightly from 2.2% sequentially usable lower sales volume.
Cornell revenues for the quarter total 335 million.
Up 1.2% sequentially.
The for an L. team a cheat to seven per cent operating margin showing progress and operating margin improvement.
Cornell began to March quarter was fairly strong demand.
The demand trailed off in March it appears to be weakening in April due to cope with 19 impacts.
Turning to cash flows and balance sheet on slide 13.
We continue to have a healthy balance sheet.
Fission liquidity to support our global business operations, and the working capital needs of our customers.
We ended the quarter with a cash balance of 403 million.
And get a 1.6 billion.
I grossed out laboratory she was 2.8.
You know net that leverage ratio was 2.1.
[noise] or net booked value per share was $37.
A two dollar decrease sequentially due to the impairment charge, we previously discussed.
Tangible book value per share remained relatively constant at $29.
[noise] recently investors have asked says about or inventory and the quality of receivables.
Both key parts of our tangible book value.
As of March quarter end, we had 4 billion of working capital.
Including 3 billion of accounts receivable and 2.7 billion of inventory.
We regularly <unk> valuations.
Has a quarter end receivable aging remains healthy in similar to you too.
In a me in Asia, we have credit insurance programs that provide some risk mitigation for receivables in those markets.
Disorderly during the downturn, we may experience some slow down in the timeliness of customer payments.
We have not encouraged significant reserves are right towns in receivables.
Tribute that to the quality of our experience credit team.
The same goes with them and story.
A global teams focus daily on managing inventory.
We have various contractual arrangements with suppliers sure their inventories become aged.
Obsolete are affected by changes a market prices.
We ensure a healthy avenue balance sheet, maintaining or disciplined working capital of processes.
And performing quarterly reviews.
Turning to liquidity on slide 14.
Liquidity position remains strong.
All of our businesses are focused on managing working capital in generating cash.
During calendar year 2019, you put in place improved processes reporting countability automated tools and metrics to focus on cash generations.
These actions we'd benefits in 2019 with the generation of 948 million of cash flow from operations.
The processes and systems, we put in place during the last year or serving as well today.
How did you manage our liquidity throughout the pandemic and downturn.
In the third quarter regenerated 98 million of cash flow from operations.
This is the six straight quarter of positive cash flow from operations.
We usually cast to pay down 92 million a debt.
And returned 58 million to shareholders.
Going forward, we want to remind you.
We have a counter cyclical balance sheet.
Meaning that when revenues decline, we collect receivables reduce inventory purchases.
Both of which contribute to positive cash flow.
We expect that to continue.
And when revenues improving the future we would expect to use some of that cash to accommodate the additional working capital.
Turning to slide 15 has a management team along with our board.
We evaluated several possible economic scenarios for the future.
In order to identifying implement any action is required to Mr liquidity.
The results we have taken the following actions.
We continue to focus our businesses on managing inventories receivables generating cash.
Suspended our share buyback program in early March as a result of the economic uncertainties.
We also pause <unk> activities <unk>.
Curtailed non essential outside services and tires.
We are implementing actions to manage our debt for background or debt maturities a spread out as shown a slide 14.
We have a 300 million dollar note do in June, which we will redeem at the end of April.
The next know does not mature until December 2021.
Which means we do not have another debt maturity do for the next 21 months.
In addition, we have open lines of credit at 1.6 billion.
Receivable securitization line matures at the end of this summer.
And we intend to renew it.
And it is supported by or U.S. receivables.
Overall.
What did he includes $2 billion of cash in credit facilities.
<unk> two medium term operation.
And our debt maturity gates are spread out over time.
Turning to business outlook on slide 16.
Despite covert 19.
We continue to serve the needs of our employees suppliers customers and business partners.
We are confident you know liquidity position.
Like many companies, we aren't able to pretend to what extent the global <unk> 19 pandemic may adversely impact their businesses for the next quarter.
Therefore, we are not providing guidance for the fourth quarter.
The color we can provide for the fourth quarter is greater China is operational and the region appears to be recovering from the Coovick 19 outbreak.
Some uncertainty remains in parts of Southeast Asia, India in Japan.
We expect to drop off in me revenues.
For now has experienced may affect fairly expensive downturn and wrap needs.
The America's region is cautious given that continued covert 19 cases, along with government restrictions.
However, we see strength in aerospace defense and medical markets.
We expect to continue to incur higher operating expenses has we managed through the government oppose travel and commerce restrictions.
These are uncertain times, but avnet took proactive steps in the third quarter to stabilize or near term performance.
Liquidity.
We will continue to do so in the months ahead that'd be navigate to cope with 19 crisis.
<unk>.
It has served customers and suppliers for 99 years and next year is our centennial anniversary, which is a huge milestone.
The management team, we our focus on keeping avnet healthy and strong for years to calm.
With that let's open the line for Q. in a <unk>.
Operator.
Mm.
Thank you so much ladies and gentlemen, we will now be conducting a question and answer session.
He would like to ask that question. Please press star one on your telephone keypad.
A confirmation of tone will indicate your line isn't the question cue.
You may pressed starts you if you would like to remove your question from the queue.
Per participants using speaker equipment and may be necessary to pick up your handset before pressing the star case.
One moment, please while we Paul for your questions.
First questions come from the line of Adam Tenable, Raymond James Please per se with your questions.
Okay. Thanks, good afternoon, and <unk> all the color by region, and then I want to ask about Ah four trends into June I was a little bit confused by the commentary that book to Bill was above 30 at the end up to three but the mixed by region sounds like a lot of local to go to court. So no first maybe you could touch on were booked ability.
Now at the end of April and as we think about.
A quarter I'm not asking for for guidance, but maybe you could just touch on what you're currently seeing in terms of a sequential declined just for perspective, if you're lucky semiconductor customer was alluding to load double digit sequential decline that did you and then I'm wondering if that's kind of the level that you're at least currently sitting thing.
Okay and I'll do the booked the bill question and all that have comments all your little color on the sequential moves with respect to the <unk> on booked a bill we're definitely over parity in every region.
And we've also normalize that by given the fact that buildings are down we look back words at previous quarter in previous years.
Billings and said what are we stand against bookings <unk>. What are we spending is that if we normalize to hire position and we're still above one. So there's no question that we see some level robustness <unk> with respect to book to deal with that will have Tom and Phil chime in on the revenues.
Hi, [noise].
Oh you today.
You know, we're not giving guidance and a lot of somebody depends on cope with 19 related events timing of return to work changes in restrictions and.
No. It is still April so a lot can change between now and then you know the Rangers, you threw out or or reasonable, but however, [noise] you know we're not sure exactly we'll we'll transpire in May and June I have looked at the models that are out there it would bring to everybody.
Attention that.
You know our break even from any P.S. perspective is in the 3.7 to 3.8 billion.
The range. So if we were at that range us about a 500 million dollar reduction from March quarter [noise] in at a 12%.
<unk> $60 million that we'd be making up and that's the commentary on the break even you know that said.
We will be at the end of June it is difficult to say, what what we really like is overseen with the upper in performance or for now.
The operating performance and potential of V.C.
Yeah, we still have our project <unk> <unk>.
<unk> generation seems to be working well, Oh, I would reiterate before turning over to fill is that you know he do.
Remains to be stable, but we did we all have seen.
Recent changes in restrictions in Singapore, India, Japan, and elsewhere <unk>. The one data point that in the near turn that is you know concerning says is that for now is the minus see a fairly sizable downturn of of revenues, which is part of our break even commentary.
That Phil.
Yeah. Thanks, Thanks time, thanks, Adam how does that have a little bit like I think builds on covered it really well you know on the backlog the bills pointing to build your your booking question, where we have a rigorous management process managing that backlog. Okay is that <unk> went out were but parody. Okay. We also very.
Cautious to be sure that all the inventory coming in is going to go back out. So we're we're working with it's I said rigorous in day to day with our customers in our suppliers of we're we're sitting right in the middle of it as far as the outlook, you're you're going to not give it an outlet, but you know.
[noise] Asia it seems to be his comment bill both pointed out yeah. We're we're we're 100% operational crossed asiapac all we're back in the offices in Taiwan on a <unk> on a limited schedule.
Demands seems to be coming back a decent person Asian held up you know we screw April.
<unk>, which is really positive the marriage has been pointed out on <unk> <unk> were.
<unk> you know little optimistic Americans, we're we're not it's not where we wanted to be but it's it's not as far now as we thought and then Europe is the one if I got the bigger impact Oh, I've just been shut down though for so long and the automotive this such a big part of the European market place, but as the country start the open.
Oh, that's <unk>, well I'm not managing you know between Italy, and Oscar did.
<unk> back the question will be how fast they bring back manufacturing, okay and with the full month and make you laugh you know we're we're we're hopeful that will turn it back one is quickly possible, but that's really bad it fill so it's Tom pointed out defensive strong medical strong parts of industrial are are are still doing doing well.
And we know where we got some of the gaps with the automotive transportation.
Yeah.
Got it very helpful and just as a follow up maybe one for calm and and just because of stock is basically trading at tangible book. So mark. It obviously has a negative view on me intangibles enough that I think you did mention.
You know parnella isn't large portion of of the goodwill and there was no impairments related to far no in the quarter So moving forward.
And expecting a fairly sizable downturn in revenue in far no can you just talk about the gaiting factors to the impairment tests and that segment in your view on those as the market seems to be expecting another impairment. Thanks.
[noise] Yeah <unk>. Thanks, Adam for that we're we're not expecting another experiment that said right. We don't know where Kobe 19, we'll go the testing that we did Cornell actually has a fair amount of headroom still available.
And with our current projections I would think about it in terms of it for operating margins were nine or 10% or lower long-term then for now would come up for possible impairment. You know we saw a good progress is last quarter.
Yeah. It was only for a quarter is what we were at 12% operating margin. So that's that's that's very encouraging to us. So you know right now we see a fair amount of headroom for for now and impairment.
And yeah, you're right you know avnet as though it was traded at 1.1 times that book value.
37.
We we did the test we tried to be conservative.
You know the real number smaller things that were impaired, but you know I think we ended up in a [noise].
In a good position given all of the you know you uncertainty out there and as you can imagine users you know if we've added with auditors and then he many companies going through the same type of exercise that help Adam's okay.
It it does <unk> I in one left clarification I know you've mentioned some capital location priority changes I think you're maintaining the dividend correct me if I'm wrong and tell me what that says about your feelings about cash flow into next quarter and beyond that.
Yeah, we're gonna make a decision on the dividend in May you know the dividend is is not a huge large cash outlay is for a 21 million a quarter. You know that said, let's see where the macro environment is a few quarters down the road I'm, sorry, [laughter] now a few weeks down the road too.
He gets a mid may I, but we'll make a decision on that again, it's not a large out outlay.
Okay, I I'd add to that I I'd add to that M- look we paused me by back which is a much bigger outweigh and we think the dividend sends us all message, though that we what we what we feel about the conference or the company no strong points out, though if covert goes further south that you know all options are still on the table, but this at this juncture, we don't see that.
It'd be a threat.
That's a couple of tax bill.
Thank you out.
The next question, it's come from the line or Ruplu boxer Charisa of Bank of America. Please proceed with your questions.
Hi, Thanks for taking my questions I think Tom you said that that caused additional cost associated with covert 19 was about 10 million in the Porter, how should we think about those additional costs trending and in the fourth quarter and and in general how should we think about Opic's has a per cent of sales are there any incremental costs.
Actions, you can take to Ah lower AAPEX. Thanks.
Sure thing truthfully [noise] first of all that 10 million is is related to things like for freight which is the near term issue for us personal protective gear you know all of our distribution centers.
Then a great job of operating continued operate but no they're they're working within social distancing work rules cleaning disinfecting. So this june quarter, we would expect most of those to continue probably start to subside through the quarter.
Meaning things like.
You know freight costs, we fully anticipated start returning to normal and I think as or distribution centres get.
Layer was working with the new rules, they're productivity will go up for the June or I would plan on it being.
Aim level or slightly.
Hello are March quarter, you know seeing up and says up sent a revenue you have to forecast revenue. So let's leave that suicide. We circle you talked about in up actually in the mid 430 million.
I'm, assuming that revenue stay within a reasonable range you know I think that's what's a good number to go with going forward on or Opic's, we continue to work with the 245 million.
Cost reduction plan that that's going well you know we've talked about the defined projects in that to fully achieved that right. Now we're about 190 million of the 245 achieved we we believe will end up at 245 or a million of savings are probably more.
The one thing I would say is that those are those are going to take a little longer meaning in the three to six months longer time frame. The reason is that some of those savings.
Based on.
Moving various functions either to lower costs country or or now source type mode and with our new work restrictions on people working at home the knowledge transfer case, a little longer but so near term you know <unk> going to be very similar to March once we.
We get the additional costs associated with coping 19 normalize will be enough before 30 million for 35 35 million.
Quarter and over the next 18 to 24 months, you'll see the rest of that 245.
Billion dollar plant come to fruition.
Okay. Thanks for the details on that just from I follow up you know you talked about the the counter cyclical balance sheet. If I look back to fiscal 2009, I I think you guys generated about a billion dollars and free cash flow.
You know.
Any any idea if if that kind of that level of free cash flow makes sense for the fiscal year.
And and in terms of your uses of cash you know you pay down some debt you delivered this quarter should be afraid that delivering to to continue a if you go forward I in the next couple of quarters. Thanks.
Sure so as far as I'm cash flow and compare it to 2008 2009. The model is similar so I think it 2000, a 2009 or revenues decline, 20% to 30%, it's quite substantial at that level of decline, yes, we would generate hundreds of millions just not a billion dollars of.
Cash flow I'm, sorry, what was the second part of the question.
And I in terms of delivering the balance on it that he lever yeah.
Yeah. So right now our focus is on the balance sheet in in really liquidity. So I would anticipate in June or get to be at the same or or lower and you know one thing to keep in mind up.
To the extent, we generate a lot of cash because they slow down and macro good part of it will go back into the business wants to recovery comes thank you <unk> <unk>.
Thank you thanks for the details.
As a friendly reminder, we ask that you. Please let me yourself to one question on one follow up question.
Our next question come from the line of Wells Diana Suntrust. Please proceed with your questions.
Great. Thanks for taking my question, many companies and Avnet falling in this category or posting huh.
Oh.
Reasonable results for Q1, and highlighting reasonably strong bookings, but sort of with drawing an outlook or not providing in outlook for key too as it stands now when you. When you look at that backlog <unk> and you think about revenue for cute who is the concern more that you think.
Perhaps some of the orders could get cancelled are pushed.
Or is the concern instead that you feel comfortable with the backlog but.
Ace of turns business would be slower than typically and then as the follow up that's related to this I think typical revenue was up a couple of percentage point sequentially is there any chance you think revenue could be flat and a quarter.
Yeah. It was packed in there well, let me give it a shot and then I'll have my teammates take a shot at it as well.
That's that's the first start with the idea that how good the backlog don't mention that in a previous why should we put a regular as management system in place, we're actually able to look at any individual customers and know what they're booking patterns are and be able to Germany and their ability patterns and be able to remember the discrepancy between bookings in billings any given quarter.
As well as going back previous quarters in previous years to see if all of a centers I don't normally there that we can.
See where the outliers aren't question customers on whether or not they're true true bookings or in fact, there are back during some additional bookies that we that would say <unk> stricter terms in place so.
So I think that's helping us clean up the backlog to make sure. It's it's really good position because as you can imagine some of our suppliers more concerned with during their factories, when they're only running or 40% they want to make sure. The orders they get a really good orders in an are going to go to actual demand to customers or in some cases lifesaving devices for customer. So that's critically important to all of a.
<unk> supplied drink.
With respect to what we think about how the orders look then there is a concern that <unk> if that covert gets worse, we could see things happening like what happened automotive word the production actually stops and then all beside we'll see and user demand kind of get curtailed pretty quickly and that happen almost overnight. If you recall, what's what happened.
Automotive sector.
<unk> industrial when something the other sectors that ran communication consumer et cetera. So that's really what the concern is with respect to what's going to happen in the uncertainty with respect to demand in the future at this given juncture are booked the bills look solid.
<unk> past the Tom.
[noise], Thanks, Bill I.
Just said will that today is April 27th is a big difference between today in March 27th.
And maybe in a different situation may 27th they could be much better could be much worse and and so that's truly you know, what we're saying by not giving guidance.
Yeah.
Thanks, Yeah, Bill fill anything there Ya go ahead.
I I would just say I think I got to you I said, it well and it it's the the question and and we're we're using frankly I, we thought about accountability in the backlog accountability the customers, it's really we're getting.
Talk to <unk> about being responsible.
And you know, we're we're we need to be good responsible partners with our suppliers as they some of them. Some of them have some limited capacity as you guys. All no yeah, it'd be sort of the products that they were asking for based on our customers backlog, they really neat, okay and a week so working upstream of our suppliers and downstream every day, okay with our customers and.
So just say everybody seems to be responsible right. Now this is something like none of us have have seen before.
I, you know I would add to that well what Phil said you know, we're having weekly calls with each of the businesses fills losing them up. It's it's it's very impressive and comforting to look at what the sales and supply chain people are doing.
In each one of our businesses of seeing in contact with the customers.
Checking what do you brought up you know is that order will record that go away in May and June and adjusting our purposes to ensure our cash flow. So it's it's you know one of them joked that this this message well transpire and five seconds back to the admission.
Possible show, which I have a very humorous, but that's really what it but but it is it's every day.
We're getting borders new changes are made new demands signals and just an uncertain time, but you know this that everybody's on top of it managing and.
<unk>, we we we will have a good <unk> and keep the company liquid and keep a balance sheet strong.
Thanks will <unk>.
[noise] or next question has come from the line of mass sharing of stable planes per se with your question.
Yes. Thank you I I wanted to ask about the Texas instruments revenue run rate. It sounds like that 400 million was was higher than you had expected I I think you expected it to be down from last quarter I. So could you give us an update on and how you see that transitioning over the next two to three.
Orders and I know also feel you've talked about backfilling of the that lost revenue with other suppliers and other share games can you update us on that and is this current environment, making it more difficult to win incremental business now.
Yeah, So I'll I'll I'll start with that one that.
What is back the T.I. there's of course, a lot of questions about the timing of the transition. So here's what you can expect is still more ontrack for a senior completed by December 31st otherwise you pointed out we would expect to see a little bit more of a decline most likely or something some impact would covert 19. So it was essentially flat.
Actually.
Well, we continue with our plan on how we're going to be take or replace that revenue with in fact richer margin <unk> other suppliers products. What we're doing tend to pay replacement wherever possible you got to share ships going on between supplier lines in World War customers want to make sure they say balanced whether distributors and of course the anchor.
Edition, which takes a little bit longer to get into the design when that leads into revenue, but those three are active in place and we have they really tightened management system across the world and make sure we can maximize on the results associated with that.
So it's really want to add something else that.
Yeah, great great job Bill Thanks, and that's good good to hear from you. Thanks for the question. Yeah. This this is a another one of those routers processes. We have in place we're meet regularly with the regions.
Down to the country level, we know every single customer every single part and the P.P. dollar generation by customer by part. So that's the that's the the detail what we're doing and Bill just pointed infant then new generation designs and I'm sure shift okay internal the customer with the tracking processing.
Right now we're.
We're we're satisfied number please write but we're satisfied with with where we are in the process against the timeline to replace that business I'll be can yeah. I think we're probably pleasantly surprised that the declined really hasn't come sequentially. We are Saddam is the point planning on it.
The end of the calendar year, but I think it's a tribute to Frank if I could put a plugging for all sales and marketing team in our in our customer engagement customers, obviously aren't aren't really looking to move that business too fast and I have to complement to the team, but we will be planning on them by the end of December.
Are you expecting that to be down in line with the overall business or a little bit more because that might happen or just no visibility.
Yeah.
Well.
Definitely says Oh go ahead, though.
<unk> at this juncture I would planet linearly to the end of the year, but you know you can never tell if it's going to expand or not I mean, because it's it's not as as you as we're seeing is not an easy thing to move quickly, but we're our plan is that every quarter reassess their but were essentially putting the line in place and said, it's going to be gone by the end of the year.
Yeah, Okay. Thank you <unk> financially it's ever bottling yep.
<unk> interest on my follow up regarding close margin, which was you know up nicely, it's a 12% and obviously mix. It helped you a lot there, particularly with premiere for an L.L. flat in Asia down it looks like that's kind of work against you pretty significantly this quarter and also so could you call.
I'm in on that way that you think gross margin, it's gonna be weaker and then the demand creation business. So job. He's he drive gross margin is is that a week or just because of customer engagements, our our down because of Kobe, it or or there are no changes there.
Okay I'll take the demand crash question at a time to talk about the regional mix on demand on <unk> back holding saw it back it's it's even a little bit more robust than we expected to be so it's still roughly in the core business, 30% of our revenues and continues to be that way Tom.
[noise] true man gross margin was up because of mix when you looked at each individual business or gross margin was.
Pretty much flat to slightly down and mix will play a part going forward and but you're bringing up is for now we said would be down the most and Asia seem to be flat or so you are correct. Thank you. Okay. Thanks very much.
Thanks, Matt.
[noise] our next questions come from the line up Stephen Fox Fox Advisers [noise]. Please proceed with your questions.
Thanks to take my question. Good afternoon, I guess first question I was just curious if you guys can provide a little bit more in insider color into the receivables collectible question that you brought up earlier.
I know there's differences between I'm collecting from a small business versus collecting from a large G.S.M.S. provider can.
Can you talk about how you're supporting some of the smaller customers in terms of credit terms et cetera, and then I had a follow up question.
Sure I I'll start on that and then talking to some more tolerant <unk>. The good news as we've gone through cycles before and when we've gone through cycles. We had we didn't see a significant amount of bad debt come out from our our customers, which is great thing and what were we believe that may be current this time as well we do have.
Some level of insurance coverage across the world, but that's not enough to cover is this this gets it into a worst position, but we're pretty comfortable with that level of the receivables and we do an audit check on I'm on a regular basis to make sure that they are in fact, good receivables and and they and they fit our accounting standards Tom.
They feel <unk> no change in our receivables aging quarter to quarter. So that's a very good sign.
Okay. Appreciate that color and then just I'm getting back 20 original comments in terms of potential panic buying reports I mean like is there a certain area that maybe you are more <unk> suspect of in terms of orders, you're seeing or certain region. I mean, what is it that.
No you must <unk> look out for in terms of maybe over Overbuying right now.
I I would say the falling on that it's it's.
You got to think about <unk>, maybe on commodities, if you <unk> hot commodities that you're considering whether they're S.S.C. <unk> the around some memory.
There's one where you could have some level concern book by focusing on individual customers and individual customer behavior, we're able to ferret out pretty quickly, where we think there could be some double ordering or a quote unquote panic buying is occurring and then we go discuss with the customer we put copper terms. It plays when we believe that's the case and that helps essentially.
Normalize the demand profile, we average sure ourselves that we're not going to get caught with orders that aren't going to be fulfilled.
Right, but your general viewpoint right now is broadly speaking you're not seeing that.
<unk>.
Cancellation rate, they're not abnormal at this juncture either so that's another good indicator tells you that.
We got a pretty solid backlog.
Great. That's very helpful. Thank you.
<unk>.
Our next question has come from the line of Sean Harrison I believe capital. Please proceed with your question.
Hi afternoon, everybody.
I guess, either bill or fill could you remind us kind of what percentage of your sales or automotive versus you know aerospace defense kind of medical given it kind of the emerging trends you're saying.
Sure. If you look at the split of the T. vertical is in revenue.
Yeah, misrepresenting instead of you about 30, 35% of our business.
Industrial and transportation represents another almost 30% and the rest of it is well call diversified which includes aerospace and defense.
That kind of gives you the balance of the major revenue streams yeah.
Okay.
As a follow up I just wanted the far no weaknesses it solely a function of that it's it's more.
I guess it stronger position within Europe are you seeing any changes and design activity within the business, there's there's something else going on and far now where you're saying kind of the most.
The greatest sweetness currently.
Well a couple things I mean before I know at the beginning of the quarter was off to a good really solid start now and we know finished really strong from operating income point of view demonstrating the fact that are skew expansion that we're doing the work that we're doing our user experience <unk> be the mark marketing dollars that we're spending is all effectively started.
In the work and then as we we went into the latter part of the quarter, when the UK, Italy and others in the.
Market went dark that created insurance problem for us as far as you know things slowing down and that's what we as essentially so as far as the design activity goes no. We're not saying anything different with respect to that and I think is that as a people come start going back to work again and country started opening back up again, we'll hope for that.
Back around again, but it's still a wildcard.
Right.
Oh, just say, we we got a lot of confidence in in our for now position right now and in in the bills. One of the run around March 17th frankly, starting to see that decline of which is where you started you'd be acceleration onto your point in Europe, okay in the U.K. and whatnot, where yes that that that's their strongest region by a good shot.
Okay. That's helpful. In time, if I may slip in one last question. Just you know inventory velocity, you think you'll be able to keep it at this level, there's <unk> into the gym quarter or do you use somehow think with Asia coming back you'll actually improving toy velocity into the gym quarter.
[noise] well, we we think Asia will improve inventory velocity.
You know they think the bottom line, but we're wanting to be able to achieve in June.
Sean is no positive cash flow.
And that implies working capital [noise].
Well you know, we'll continue to get better.
Thank you.
[noise] our next questions come from the line of Tim Yang City. Please proceed with your question.
Hi, Thanks for taking the question are you mentioned witnessing Asia in March quarter, I think it was 34% of you over here, but one of your largest <unk> W.P.G. reported double digit you'll you'll gross for the March quarter can you provide some color on a disconnect between will perform as much and stuff.
You.
Oh, you want to take a shot at that one.
Yeah, I think a shot at that one in goes with the low exactly all the details about W.P.G. They do play in a different market than we play, particularly in in processors a memory. They they they they had a very substantial size business isn't that in that space and tends to be much lower margin.
Business and we we just don't play there so as far as a shared goals in our in our lines that we manage as far as the basket in Asia. We're we're holding her own plus some so <unk> I I'm going to.
Estimate that it's a commodity situation.
So it's not to share a shift is more like just dog and the marketing mix that <unk>, Yeah, I'd say, it's it's it's it could be n. market mix as to where to processors memory.
Those part those types of Prattas go that we don't play in as much correct gotcha.
One question is can you talk about a demand them being an hour to during the quarter. I think that you mentioned that in early March that you would not be into March quarter Guide and <unk>. The other haven't decided to go to achieve the new point of the Orange Archive is you just see a strong demand in the most of the March which drove die off site.
I'm, sorry, I can't repeat the last part of that question.
So.
Just the performance of the most of March that drive to our the off site. So that you could actually achieved the mute point or the guy this range, but at the beginning of the March you actually measured that you know you cannot meet the Guy does.
Well, we felt we cannot be the guy and said look like things are going to fall off faster than they did and we were able to an end up doing better than we expected and as you know to when you look at at some of its operationally. We also have some advantages aren't taxed so that that helps us along as well, but we were really close to that bottom and that's one reason why we did it did.
<unk>.
<unk> Okay. Thank you.
[noise] [noise]. Our next question, it's comforting to line up neck Todoroff of long Ball research. Please proceed with your questions.
[noise], taking so good afternoon, gentlemen, given that some of the education I suppose extended lead times can you talk about the pricing outlook I know that matters, mostly for for now, but and that that same is gonna get help from the top line perspective, but if you use that potentially area near term benefit here over there.
Couple of quarter scanning talk about the pricing place.
Of course, when lead times start to extend that's always an opportunity to see some S.B.'s expand as well we haven't we haven't seen that occurring yet but of course as time goes on in the situation gets tighter and tighter you will you will start to see that occur.
Okay and as a follow up you mention most trentham aerospace multiple times you know typically we think about you know <unk> production cuts from the major aerospace companies. So is there anything different of your exposure that allows it to see extracting that business and do you expect distracted going forward.
Yeah, I think like when we we made that comment we're talking more about the fence than we are actually aerospace because clearly the with planes not flying <unk> that has in fact gone <unk> aerospace, but we're not seen that in defense and also as you would imagine medical is up for us doing that's on the same sector.
Okay, if I guess sneak warm or can you talk a little bit about that expanding relationship with my crush on what does then tail for which products or and Mark has that is.
Absolutely. So you want to give them the details, especially up <unk>.
Yeah, well, we've got Mike run around the world in the AD an accord in the simple simple response sneakers really just we're expanding out with a with far now so it's a it's a real big one it'll be a across the portfolio of a microphone.
It's a it's a nice when Chris there.
Okay Gotta. Thanks.
Oh.
Our next questions come from the line of joke bought Roci of Wells Fargo. Please proceed with your question.
Yeah. They stay in the question just kind of building on the last one and there any products are categories, where we should think about you know being the most likely to see shortages or or extended lead times at this point.
Well I think that's specific by supplier and I think you could talk to your every one of the suppliers to know which ones have facilities in some of the countries that have had lockdowns like the Philippines in Malaysia to name a couple.
Oh.
Okay Fair enough and then just one kind of housekeeping question. How do you think about the tax rate just given the.
You know quite significant decline into March quarter relative to your long term target rate.
[noise] [noise]. It you know until till your estimate is about 19% and our long term targeted to get it under 20%. So you know we feel really good about the progress with her.
With our.
No tax Rachel.
The answer it.
Yeah, that's perfect. Thank you.
Thank you.
Gentleman there are no further questions at this time I'll now trying to call back to Bill Emilio for closing remarks.
Thank you, operator, and enclosing I'd like to say that our thoughts or with all those that are impacted by the code in 19 across our global community.
We're credibly grateful for the dedication of the flushes Bonders and health care professionals, Rob there each day working tirelessly the flight virus and we're proud of our employees have risen to challenge and I've come together to make a positive difference in our industry in our communities in other People's lives.
Continue to monitor that covert 19 developments closely if things continue to a ball and we'll we'll update you on our fiscal fourth quarter result, you just a few months. Thank you operator.
[noise], ladies and gentlemen. This does include today's teleconference. You may disconnect your lines at this time.
If your participation and have a great like.