Q1 2021 Avnet Inc Earnings Call
[music].
Please stand by our presentation will now begin welcome to the Avnets second quarter fiscal year 2020 earnings call.
I'd now like to turn the floor over to Joe Burke, Vice President of Treasury and Investor Relations Crap.
Thank you operator earlier this afternoon I've never released financial results for the first fiscal quarter of 2021.
The release 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 as well as on the IR section of <unk> website.
Lastly, some of the information contained in the news release and on this conference call contain forward looking statements that involve risks uncertainties and assumptions that are difficult to predict in particular, the scope and duration of the COVID-19 outbreak and its impact on global economic system in our operation employees customers and supply chain.
Such forward looking statements are not a guarantee of performance and the company's actual results could differ materially from those contained in such statements.
Several factors that could cause or contribute to such differences are described in detail in avnet. Most recent form 10-Q, and 10-K and subsequent filings with the FTC. 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 are so.
By new information regarding the circumstances after the date of this presentation.
Today's call will be led by Phil Gallagher, Avnets interim CEO and Tom Luxuriate Avnet CFO.
With that let me turn the call over to Phil Gallagher self.
Thank you Joe and thank you everyone for joining us for our first quarter fiscal year 2021 earnings conference call before.
Before we begin I would like to start by thanking our employees for their continued hard work and dedication throughout pandemic.
These uncertain times, our priority has remains ensuring that health and safety of all of our employees, while keeping our business running as smoothly as possible.
I personally proud of persistence and effectiveness they show.
Now turning to the quarter highlights on slide four.
The recent months have continued to be a time of transition both for the global economy responds to the COVID-19 pandemic adhered Adnan as we've taken actions internally to reinvigorate the business and best position it for the future.
We have sharpened our focus on our primary components distribution operations, while taking steps to separate the profitable growth of four now.
And enhanced focus on these priorities is to the benefit of both supplier partners and end customers as well as the quarter reflects the initial results.
A renewed emphasis on execution as well as improving market conditions combined to drive revenue and adjusted diluted earnings per share significantly above our prior guidance in the quarter revenues were 4.7 billion up both sequentially and year over year and our adjusted diluted earnings per share was.
36 cents.
Our business out of the Asia region benefited from industry tailwinds across a variety of verticals, most notably auto.
We were pleased to see an improvement in demand in industrial and are further encouraged by the positive sentiment, we're hearing from electronic manufacturing services customers.
They look out into early 2021.
While we are encouraged by our operational improvements and financial results uncertainty still remains regarding the pandemic and how it will impact the global economy broadly the supply chain, specifically in the coming quarters.
Looking at our core electronic components business on slide five.
Revenues were up both sequentially and year over year in the quarter to 4.4 billion and we posted sequential growth across all three geographic regions.
As referenced earlier, we saw particularly strong growth results in Asia, our largest segment, which was up 22% sequentially on a constant currency basis.
No. This was aided by the extra week in the quarter.
We exited the quarter with a positive book to Bill.
The Asia region, well above parity, the Americas above parity and the EMEA region, a bit below parity, but above expectations with an encouraging trajectory coming out of September.
Really exciting is our design activity is at an all time high for Adnan well design registrations at the highest levels since fiscal year 2018, and most importantly, we are seeing design wins in key vertical markets increasing year over year.
Additionally, we are seeing an increase in lead times for certain components as the quarter progressed.
Typically we're seeing this increase for fiveg related products.
Automotive specific products at certain popular products into 32 bit Microcontrollers area.
Let me note that our backlog, which we continue to manage very tightly with strong and we're very pleased with our inventory levels.
Our teams are working with our customers to manage forecast and mitigate supply chain risk. They are watching and working capital just as we are but they're number one focus is continuity of supply. This is exactly the value that and it brings to the table. The very core of what we do is to act as an extension of our customers' business to ensure we have a healthy.
Supply chain.
I'm proud of the work we are doing in this regard during these challenging times.
Turning to for now on slide six you.
You'll see sales were up sequentially big.
They grew 13.3% on a constant currency basis.
We continue to actually to execute on our commitment to our Fearnow segment. We added 28000 skews to the 80000, we already invested in over the past 12 months.
Making progress on our plan to add up to 250000 skews through.
Through fiscal year 2022, we.
We completed the rollout of our pricing optimization tool as part of our effort to improve the online user experience for our for an l. customers in a similar vein, we made significant improvements to our ecommerce functionality.
Progress continues despite covert related challenges and we continue to see great value in for nails opportunity to strengthen added digital footprint. Ultimately this technology will allow us to better serve our customers and enhance the products we provided them globally.
At this point I want to address a question has frequently been asked in the past few months.
What are my strategic priorities for the company.
On slide seven you'll see both our near term priorities and the action we've taken since our last earnings call.
Throughout the quarter the team work to define the organization guiding principles and strategic priorities.
We remain committed to focusing on our primary components distribution operations, while continuing to strategically invest in for now.
As I noted earlier, the combination of Avnets core competency and components distribution and.
No digital capabilities globally allow us to serve our customers and supplier partners efficiently and effectively while also positioning us to drive revenue growth and Jay to generate greater operating margin.
Our highest priorities are to improve revenue growth and increased market share in our key target markets.
We've made changes to our operations and processes to improve our profitability and return on capital metrics, while maintaining our global footprint to provide scale and operational support around the world.
We are moving to a flatter organization with more regional authority, which will allow us to be more responsive to our customers and suppliers.
We cannot deliver revenue growth for capture additional share unless our relationships with our external partners remains a key priority.
One way we do this is by making the world's largest communities of engineered paxar enablement 14, allowing customers to gain access to the latest insights.
About our supplier partners, leading technology offerings.
Our work in Aiotv and Avnet integrated are in the service of bringing the best possible solutions to our customers.
And we were pleased to have the opportunity earlier this month the host our global supplier VIP summit, where we re committed to sustaining win win relationships with our long time supplier partners.
And because nothing gets done on paper.
We have also worked to communicate our strategies and set up companywide goals and expectations, we can all get behind.
Building upon our strong culture is the foundation of our next chapter.
I am personally so proud of the culture, we have built one of the various people that thrive at high performance environment, and fosters employee engagement investing retention and commit to diversity.
As part of our commitment to one vision.
One mission and action as one team we recognize the importance of engaging all of our stakeholders and communities and our shared goal of create creating sustained long term value.
Additionally work is underway to ensure we are leveraging and extending our initiatives with regard EPS sheet, including disclosing our strong track record more to come.
On this in future quarters.
Before Tom things further into the numbers, let me summarize.
We committed to laser focused on execution and corporate bonus distribution.
We are investing for an l. digital capabilities, and leveraging aiotv and avnet integrated to deliver greater value to both customers and suppliers.
In parallel we are aligning our structure to be more responsive to our customers and suppliers need and as that underpin to our strategy building upon our culture to ensure we are positioned for success in the long term.
Now with that let me turn the call over to Tom to report on the financials for the quarter Tom.
Tom.
Thank you Phil Good afternoon, everyone and thank you for attending today's call has.
As Phil stated our priority this quarter was to implement actions to sharpen our focus on our primary distribution operations subsidy.
Specifically to drive market share and revenue growth.
Prove our profitability through increased operating efficiency.
And earn a return on capital of greater than our cost of capital.
We made progress in each area.
Revenues grew to $4.7 billion, a sequential growth of 13.5%.
Revenues were helped by the extra week adjusted to a 13 week quarter revenues would have been $4.4 billion or a sequential increase of 6%.
Revenues grew sequentially in all of our businesses, particularly in Asia.
We controlled our operating expenses has our topline grew with opex as a percent of revenues declining from 10.4% to 9.6% and.
And we continue to improve working capital, reducing working capital days to below 80 days the lowest level since 2016.
Turning to slide 10.
See these actions benefited our results this quarter.
Revenues of 4.7 billion and adjusted EPS of 36 cents were both well above our guidance range.
Cash flow from operations totaled $122 million, the eighth consecutive quarter of positive cash flow debt.
Demonstrating our team's execution in managing cash and working capital as we proceed through the economic cycle.
We use the cash to reduce our debt to 1.36 billion.
We returned $21 million to shareholders with our dividend.
Looking at the income statement.
Gross margin of 10.9% was down 49 basis points from last quarter due.
Due to the mix of higher Asia revenues as well as lower EMEA gross margins.
Adjusted operating expenses of 451 million.
Up by 19 million sequentially, primarily due to the extra week.
Adjusted to a 13 week quarter operating expenses were approximately $431 million.
A slight decrease sequentially done substantially higher revenues.
Interest expense of $22.3 million continue to decline and is now $11 million or 34% lower than a year ago due to lower debt.
Foreign currency expense was 6.9 million this quarter.
An unfavorable swing from the prior quarter as a euro and pound depreciated against the dollar.
And our adjusted tax rate was 7%.
The result of a favorable geographic mix of income and the U.S. Cares Act.
On slide 11.
We highlight results from our two business segments and our three geographic regions.
Electronic components revenue of 4.4 billion increased 13.3% versus the prior quarter.
On a normalized 13 week basis revenues were 4.1 billion, a 6% sequential increase.
All regions contributed to the growth.
As previously highlighted we were especially encouraged by our performance in Asia This quarter.
The electronic components operating margins were 1.9%.
41 basis point improvement from last quarter has the higher sales volume more than offset the decline in gross margin.
For now revenues for the quarter totaled $341 million up 16.7% sequentially.
And approximately 9% on an equivalent week basis.
The segment had an operating margin of 3.5% in the quarter as anticipated in our guidance.
We expect for an l. operating margins to slowly improve over the next several quarters as revenues recover.
We had skews improve ecommerce capabilities and control cost.
Our T.I. revenues this quarter were 241 million.
We expect to complete the T.I. transition by December 30 Onest.
Excluding CCI and adjusting for the extra week total.
Total avnet revenues were flat year over year and up 9% sequentially.
Turning to cash liquidity in the balance sheet on slide 12.
Our liquidity position remains strong.
We ended the quarter with cash and equivalents a 483 million.
And with 1.5 billion of available lines of credit.
Our gross debt leverage was 3.4 and net debt leverage was 2.2.
Our net book value per share was $38 into tangible book value per share was $30.
While we are pleased with the progress made in the quarter. We recognize we have work to do on our profit margins and returns on capital.
Our teams are focused on getting these two where they need to be.
Going forward.
We expect to see a continued focus on execution.
Quarter by quarter to grow market share in revenue has filled discussed coupled with disciplined management of cost and working capital.
Let me spend a few minutes on the status of our operating expenses and working capital initiatives.
Let's begin with operating expense.
We announced the plan last quarter to reduce annual operating expenses by 75 million or $19 million per quarter.
These savings are expected to be fully realized in our December quarter financials.
Although we are experiencing some foreign currency headwinds.
In the December quarter, we anticipate our opex of approximately 425 million.
To 75 million reduction is on top of the $245 million Opex reduction plan, we announced at our Investor day two years ago.
Today, we have achieved $204 million the reduction.
We have 41 million to go.
There are four projects underway that contribute the majority of savings.
Outsourcing various finance activities.
Migrating more work to our lower cost service centers.
Continuing to streamline our information systems cost and completing our leads distribution center.
All of these are well underway and the savings are expected to be realized by the end of calendar year 2021.
On the working capital side, we continue to work toward our plan of reducing working capital to the mid 70 day range.
When we started this initiative.
Days working capital when the mid nineties.
We've made steady progress.
I'm pleased that this quarter, we dropped below 80 days.
As each day is worth about $50 million.
These efforts have generated significant cash flows.
Enabling us to reduce our debt this quarter to $1.36 billion.
The lowest level since 2010.
And the buyback 20% of our shares over the last few years.
While we expect to invest cash in inventory as the economy in revenues recover.
We remain focused on our net working capital days target.
Turning to slide 14.
That will conclude with some comments about our expectations for next quarter.
For our fiscal Q2.
We are guiding revenue in the range of $4.0 billion to $4.4 billion.
And adjusted EPS in the range of 33 cents to 43 cents.
Compared to our first quarter, we are guiding the midpoint of revenues down due to T.I. rolling off.
T.I. revenues included in our guidance or a $40 million to $60 million.
Excluding tea.
And adjusted for the extra week Q2 revenues are forecast to be flat at midpoint.
Let me reiterate we expect to complete the T.I. transition by the end of December.
In spite of the lower revenues, we are guiding higher EPS has our cost reductions are expected to improve profitability.
In summary.
We will continue to take actions in line with our priorities.
We are aligning our operations and processes to improve the top line trends in gain market share in key areas.
We also committed to enhancing profitability and our return on capital metric.
These actions uphold our ability to generate cash in.
Keep our balance sheet healthy and untapped with.
With that let US open the line for Q and a.
Operator.
Thank you, ladies and gentlemen, we will now be conducting a question and answer session. If you would.
Like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star one.
One moment, please while we poll for questions.
Okay.
Thank you. Our first question is from Adam Tindle with.
Raymond James. Please proceed with your question.
Okay, Thanks, and good afternoon, and they see a an upturn tier continue Phil I just wanted to start in the press release, you talked about fiscal 21 gold improved top line growth generate greater operating margin inadequate Oh I see.
I want to ask about the first two there on improving topline growth just to clarify.
Flying that 21 that you'll see year over year revenue growth are you, saying that the declines will be less than the down 10% or so from last year and maybe just the drivers to that assumption.
Yeah, Adam Thanks.
If you net out.
Hi, Anthony.
The answer to that as we see it today. Okay is yes, okay. So when you when you net out T. I. So the answer is yes.
The things we're doing to drive that to the second part of your question is really we're talking much about in the in this script you know were really looking to streamline the organization, we're driving the structure to align with the strategy. We have a market share goals very clearly outlined we are putting in.
A lot of the businesses if you will at the forefront so in other words.
As we streamline the structure, we're putting a lot more the ornate if you will that's already into the regions. We'll still have the global obviously leverage and scale that we bring from an admin standpoint, but really trying to push the businesses close that reach as we possibly can.
And as I talked a lot about really critically aligning with our suppliers, okay and and partner with our suppliers. We had over 400, but just a couple about a week or so ago and our supplier VIP event. So work into what we've been in line, but even stronger alignment with our supplier partners.
And make sure that upstream with them.
We're driving downstream our customers the services today that they're looking for so simplification back to basics, a we're proud to be a technology enabled distributor thats, what we are going to center technology, and we see it as a real opportunity.
Okay, maybe just as a follow up on them.
Second goal of generating greater operating margin.
I kind of look at the moving parts are now would seem to be a big opportunity for you, but near term. If you look at numbers in the quarter revenue grew by 50 million sequentially in the September quarter, and operating margin was flat. So I guess why is it incremental revenue coming with better margin near term changes that trajectory to get to that goal.
The rating greater operating margin for the company in fiscal 21.
Hi, Adam Tom.
As we go forward.
Revenue will help obviously right that's operating leverage.
We did we did ask is we need to continue adding skews.
We need that for now.
Lead distribution center to get up and running.
Really at a 100% that's been.
Take some headwinds with the Cove it and.
It really depend damage and as that comes online we'll start to see uplift in margins.
We tried to be clear in the script. This this is going to be a slow improvement quarter by quarter.
Do you at this time, you will feel that we have leveled off and for now.
And we do expect to see some uplift in the December quarter, and this is going to be a quarter by quarter execution to get the operating margins back up.
Hey, I'm not just on the topic that we're absolutely continuing to double down on personnel to Tom's point out a few unexpected headwinds there but.
But we do have a trajectory to get to the operating margins will.
It will be resetting those with you over the next several quarters.
Makes sense. Thank you so much more detail thanks, Dan Thanks, Adam.
Thank you. Our next question comes from Matt Sheerin with Stifel. Please proceed with your question.
Hi, yes, thanks for taking the question I just comment regarding your outlook on a S.T.N.A. I think you said around 430 million Oh, so backing into your net income Oh. Your EPS guide it looks like gross margin is going to be up fairly significantly at least 100 basis points or so.
So is that a.
Related more toward a.
Mix in terms of regions or I'm does it also reflect the T.I. going away.
You answered the question, Matt It's both of those it's you.
This this quarter, we had strong Asia revenues, we also had a.
T I still healthier than expected in both of those will help them as they transition in the December quarter. They will improve margins. The Opex guide was 425 million for December four to five.
For 25, okay. Okay.
Okay great.
And then you got the what's it's still going to be a bunch here.
And then just.
On that Yeah, 425 guide you.
You said you were at I think at $430 million run rate apples to apples in the September quarter, and you're looking for I think 19 million a quarter in savings from this latest cost cutting or is that.
You're basically looking out kind of a 5 million dollar savings and is that because you're not going to realize that until you sort of exit the quarter are there so many and incremental expenses.
That that factored in as well.
It's actually exchange rate or exchange rate assumption accounts for about a 10 million dollar increase so to Matt you're right. You know I think last quarter, we talked about like the cost reductions are in place and they are in place today. So they are fully in place for the quarter, we'd be at 415 million 441 5 million the with the.
The stronger euro weakening dollar that's increasing our opex by about 10 million.
That makes sense, okay, yeah that's.
Great and just lastly, I feel if I can just ask a question just regarding your supplier relationships I know there's been a lot of moving parts in the last couple of years or so and and the latest news is the xilinx pending.
Pending acquisition by M.D. I know you've got a very strong relationship there was xilinx as well as M.D.. So any any update on thoughts that consolidation or other things that are going on that that may be either beneficial or or negative for avnet.
Yeah. Thanks, Matt appreciate that yeah, well. This is all on your hot off the press there were some rumblings a few weeks ago, <unk> and our relation with Mds outstanding our relationship Xilinxs is terrific from Victor.
On down through the organization. So we feel there's very minimal risk here at this point I'm actually think there's tremendous opportunity for us as these two companies continues start building out the.
The data centers the technology solutions, they're looking to do to combine the best of both so we think we're really well positioned here and as.
As you said, we've been was learning so long time were very self sufficient that a major investment into technical communities around the world for Xilinx and don't see any at this point in time any any negatives of course, you know it's been it's been two days or not even right, but we feel pretty positive about it.
Okay. Thanks.
Thank you Matt.
Yeah.
Thank you. Our next question comes from Ruplu Bhattacharya from Bank of America. Please proceed with your question.
Hi, Thanks for taking my question, maybe Tom can you talk about your capital allocation priorities.
Both in terms of you know what your plans are for the dividend and and share buybacks and any thoughts on M&A is this the right time are you looking at targets and what are you looking at.
Yeah, the near term.
Really focused on cash liquidity Roop, Lou and we do intend to support the dividend that you know that's a priority for us.
You know the buybacks are on pause they continue to be on pause till you until we see some certainty really with.
COVID-19.
Because that is an ever changing I think you last part of that was M&A up.
You know, we're we're not active in M&A you know I think we've always said that.
You know near term.
They would be smaller tuck ins.
Probably more distribution and getting customers or suppliers, we don't have a product line, we don't have but you know nothing.
No nothing active we're focused in the near term on cash liquidity.
Got it.
And then maybe just for my follow up a couple of quarters ago, you took the charge for goodwill intangible asset impairments I.
I mean can you address any concerns that investors might have on any further impairment that might be required I mean in your opinion do you see any further impairments coming up or how are you doing in terms of write down or receivables can you just talk to us about your thoughts on that.
Sure I will first of all on receivable as you know our working capital performance. This quarter was really because of good collections.
We actually added 200 million to inventory we added skis. So collections are like are were very positive.
No globally people are concerned about has government support for smaller businesses try up that could be an issue. You know today, we haven't seen any I'm not trying to predict that we haven't seen any as far as goodwill and intangibles. Yes, you know I know everybody is focused on for now.
We're quite comfortable with for now we see the value in for now we see the path to recovery and for now.
Where we were as Phil said, we were so we're investing in for now.
You know it for now.
As a lot of leeway before we'd be in pairing intangibles. So you know.
I can never predict the future forever, but we feel very confident on it I just want to be very clear you know, we we continue to see high value and for now we are the only people that do both high high volume distribution into the manufacturing side of the business as well as do the upfront.
Ryan design team the engineering side of the business to a different value propositions for no value for value proposition is hey, you can buy anything you can get it on your desk in 48 hours that continues and you know really our margin issues right now they know their internally inter internal things that we need to correcting and we'll get there.
We're on track so that's a very good question. Thank you for letting us address that.
Alright, thanks, Thanks for all the detail.
Thank you. Our next question comes from Tim Yang with Citibank. Please proceed with your question.
Hi, Thanks for taking my question I guess, a couple of quarter operating margin for those component of forming all were nowhere on he'll be a baby.
Disposed styles are actually higher year over year basis can you just talk about how much of that decline from the mix how much of that incremental costs from corporate.
Yeah, I would say, it's a little of both 10 and you know.
The way we view this is when you look at gross margins on the electronic components side, you know historically during a macro pullback you do see some degradation in gross margin and then you do see it come back as the economy recovers and that's the way we see electronic component.
On the Indian of course, our Asia makes it contribute to that as well.
For now side, you know that that mix that things that we have more under our control a as you know this last I would say at this stage you know market related and were no as I said to replenish question. You know we have a path we're confident we're going to get it back.
Got it can you maybe just quantify how much of the call. The call is like you said last.
Last quarter.
Well, we're not breaking them add anymore, but you know I would say it's in the.
The upper single to 10 $10 million range, roughly but you know we're not breaking them out because we're not really sure that.
You know they are nonrecurring anymore right. We may be we may be have these but the good news is we're managing them, we're dealing with it and we continue to hear our opex.
Got you.
Can you give us an update on the T.I.E. replacement programs I think a couple of months ago. They ship that you are roughly 20 facility percentile. So given the other vendor consolidation it'd be great. If you can just provide some color on that front.
Thank you.
Yeah, Kevin This is still a a I'll take that one so as Tom pointed out were in our last quarter effectively with with T. I, a week, which is great and we've been working in tracking as we've talked in the past of EUR three buckets really were track.
Tracking the cross cross pins for Ben It was relatively small number frankly, it would tie and then we've got full.
Demand creation will we're designing out the T.I.s sockets, you catch that in the next generation so that tends to be a bit of a longer point to 10 takes a little bit longer that's actually one of our biggest pipelines right now those who are excited about that from a registration and design win standpoint with many of our other suppliers that are probably listening to this call its an exciting opportunity for them.
And then we got share shift customers or not.
Not enjoying being told where to go or where they have to go for business. So there's opportunity inside the customers to grow or with other lines, okay, otherwise by the way in semiconductors and passive connectors electro mechanical so we have that we're tracking at a at the global level regional level by country City individual and we've got a path and.
What we said from day one it roughly two years from from that period of time is about 12 to 18 months in that period left to go to fulfill that that gap.
Being tracked daily.
Great. Thanks.
Uh-huh Thanks, Tim Thank you.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad a confirmation Tom will indicate your line is in the question queue. You May proceed star to be we'd like to remove your question from it.
Our next question comes from Shawn Harrison with Loop capital. Please proceed with your question.
Hi, everybody afternoon, congratulations on some improvement results [laughter] had a few questions.
Phil the design registration comment in the slides stood out to me. It's just what was the highest numbers since fiscal 18, maybe if you could kind of just drill down on that you know.
Why do you think it's so high where are you seeing that activity.
And correct me, if I'm not wrong, but usually it's probably about 18 months from when that was really accelerate before you start to see some revenue from that.
Yes, thanks, Sean well, you'll want to revenue from a design.
<unk> registrations and its design wins into revenue so depending on the technology was the low end of control or it can be a lot quicker versus and that you gave for example, but yeah. You're right 12 18 months typically is to revenue and it's high it's really exciting we had our all the regional technical managers on a on a phone today, we have a monthly review with them with a regional.
Residents and our teams and the activities just extremely high I think you know.
What's happening is there is that much more accessibility I think the idea of a silver lining in this country that much more accessibility to our customers and the engineers at the customers and so much more can be done digitally and I think it speaks a lot of what we've done with putting digital design or mine, we talk a lot about our avail tool, which our suppliers have embraced so there's a lot more self serve plus the assistant.
With that I'd be I'd say he is then of course, you've got centralized tech support to leave Weve and some of the cost effective geography, so beefed up over the last several years, our I'll call. The deep dive technical support as well. So I know on the surface that became a you look and say why has that happening, but they think it's the accessibility you do it a technical.
Seminar today for a customer your lunch and learns we call them years ago. They still own that actually you may get 10, or 20 engineers from a customer now you're getting 50 to 100, because they're all they're all available to us and that much more accessible. So it's exciting I know and we're seeing it showing up in all regions again, we measure that.
There are several important parts suppliers to sit there and its board to them. It is important to us and we compensate our people want it. So yeah. That's it's a pleasant surprise and what else is there is whole go on as the design win revenue cases, not just the registrations, but the design win revenue having to see if you have a little bit more stickiness, if you will a than the b.
Most of the business, which is also positive.
<unk>.
That's great Hey, two parter on inventory kind of looking into two different side, maybe you could talk about how you think your customers are in terms of their inventory levels right now given I'd imagine some lead times moving out and I just wanted to clarify I think.
Slide It said you would add at 80000 skews at Cornell already another 28000 this quarter or so.
That's 110000, new skews and you want to get the 250 at some point in time.
Is that right and kind of what's the dollar amount of so you have to put in place.
You know essentially more than double the skew kind of Cornell.
The dollar amount was originally that 100 million. So we're about halfway there.
And that and that skew count is the expansion of the skews to get the 250000, expanding skews there our total skews Sean.
I want to be a lot higher than that okay. That's the that's just the expansion a portion of it.
Hope that answers that question on the inventory overall, we're feeling very confident with our position in inventories. We don't you know we continue to drive working capital. There's a lot of parts of working capital a be a our inventory. So obviously, we watch all three but they talk you know pointed out in the script, we're working diligently with our customers 60% of our.
Business today is coming in or more on an m. RP forecast sharing of sorts. So just haven't even even tighter cadences or with our customers before we got them covered.
We're not seeing any major gaps or anything I think the inventory levels out there.
Our in check I think I think are okay. We're confident with ours and of course, we track that closely back with our suppliers. So we're feeling good about that and also the pipeline. So yes, I did mention it in the script just to kind of put it out there that it's a mixed bag when lead times, Sean So it's kind of tough to it's not anything.
Matic by any stretch imagination, but it doesn't take much with some of the constraints out there in some of the I called to the backend with testing from packaging to some of our suppliers talked about that if there is a a tick.
Pick up you know there could be some issues, but right now it's kind of a mixed bag.
Hi, and controller seems to be the one that's going out the most are the tide to fiveg the rest of them, yet or they might be going out like two weeks four weeks, you know something in those want and that that range, but I just threw it out there to say we're watching it closely when a customer.
Customers and over watch that closely 'cause that's part.
Part of the the job that we have to do for them. Okay distribution as you know, it's our job to see the pitcher with as few of the pixels built in right. So we're trying to constantly connect connect those dots.
Sean any other follow up.
I'm good. Thank you very much thanks, Sean Thank you Chuck.
Thank you. Our next question comes from William Stein with true Securities. Please.
Please proceed with your question.
Great. Thanks for taking my question first I, just want to or maybe follow up on the last question to make sure I heard you right. So.
Yeah. The question was about customer inventory levels I think the reason.
People want to understand that as you know in these sort of kind of.
Dislocations in questionable.
Sort of.
Supply conditions and they see the big recoveries.
Hi, everyone wondered you know is somewhat scrolling away locks inventory do you have visibility into your customer into your very what does the very broad customers that you have visibility into their inventories are they building safety stock relative to take any more than they typically do.
Yeah, well how are you doing.
Yes, do we have a macro view into every customer out there to see visibility into her in inventory not be interest. Let me know do we do we meet with them regularly in our account management teams. Our supply chain teams are meeting with them on a regular basis, obviously, yes, and we get the forecast. So we can see the adjustments in our forecast upward down so.
To your point, it's growing away, we pick up very quickly if we see a an increase in demand from a customer to choose and hypothetically 100 pieces of my bolster their ordering 1000 or 2000 of the part that might be started quite we catch that and we have the analytics to go back and reconfirmed that with the customers. So I, but I was just saying generally.
I'm talking to you know a lot of the customers and all household names that you would know.
And they're feeling pretty good they don't they don't feel there they're building up a lot of inventory I think they've worked Lucent endemic you know that March April timeframe, where we all had some of that concern is is worked off and then well. We watch is also our cancellation rate. So we can see you know pushouts pullins things.
On those lines and our cancellation rates are right in that 20, 25% range, which includes push out some pull ins, which is about right. I mean, they were that shock absorber for the industry right away. That's part of the the role that we play, but we're not seeing anything that would insight or cause us to think that there is a building up of inventory out there.
Okay that helps.
One other topic really two premier and how it integrates with the rest of Avnet your predecessor used to talk about this concept where.
You know they will premiere customers.
Business a little volume.
Frankly, it took quite high margins for you and then as the customers graduated to buying bigger volumes. They my transition to Avnet, where there was.
Very significant step function.
Lower ASP and therefore, obviously lower margin and there was this concept.
Making it more of a sliding scale transition is that still part of the strategy with.
Premier is they've gone is it going a different direction any sort of update there would be helpful. Thank you no no that's great and we're doing this is you know I still still work in process, but we're excited about the opportunity. We have there. So basically it will you have the you know for an Els got million plus a customer slash contacts.
Then they got visibility into a new product introductions and MRO all kinds of different information and what we're really doing is taking that information as appropriate in a that the sales leader start up phone, we're picking up through more capital into CRM, which were both companies for now and in the core if you will or on a CRM.
In generating sales lead management out of that and doing prospecting. So that's a that's a big piece of it but the other big thing that's exciting about away and Theres some going back the other way as well as we add product lines as we mentioned last quarter, we have Mike one as an example in the funnel well they didn't have access to micron before globally. They do now because of greater I've never.
They can ship, which which is great. The other one that we're seeing some really good opportunities and doing selling you know we've got again Arnaud has a really broad line card and we've got some major major Oems NMS customer that we're doing business in and we leverage that relationship to bring for an l. in for a lot of the baby wipes, we don't have help with.
Engineering services or new product introduction and the MRO stuff. Okay. So we're actually of our programs put together where the two teams are working collectively K to further penetrate degree Radnet. If you will could if I know in some of these larger Oems and Dms provider. So that's really what we're doing.
We havent I know, what you're talking about this graduation and no look there.
That's that's more [noise] grades.
Great and black and white, Okay, how that happens when those customers that grow up and when do they shipped over to the to the core if you will that's not as much of a science as it might be one or the other two or definitely science in black and white and we're managing that.
Great. Thank you.
Thank you.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question in the queue.
Our next question comes from golf salary of Longbow Research. Please.
Thanks for taking my question.
Hi, good afternoon.
The bill in order trends by the then.
Parents can you talk about how they compare to <unk>.
Now I'd you know you mentioned yoplait below one on exiting the quarter has that improved at all and then I'm just wondering if there's any additional pullback related shutdowns and that's and that had a impact.
Okay.
Okay.
Yeah, I'm, sorry, I'll take that that Tom So yeah, we talked about in the script on the the book to bills improving through July August September quarter in all regions Europe.
Well it was not at parity for the September quarter, but as noted they were a good trajectory coming out of the September quarter and as we sit in October.
Globally, where we're sitting in a positive book to bill, so well and including including Europe as.
As far as.
The corporate related shutdowns or or adjustments, we all of our we've been proud of this proud of the teams the frontline therapy for sure all of our logistic centers are up and running we've not had a one day, where they've been shutdown at all so that's a positive and that still continues.
As everyone knows we are seeing upticks in cases, and we are seeing that in Europe and right now we're managing through that.
We don't have any planned shutdowns necessarily we are being very careful how we bring our employees back to work. Okay. I shouldn't say, let me check that theyre working back to the office, Okay, and we're making a very optional at this point in time in Europe.
To actually reduce the percentage of the people we will allow in a building yeah.
And in the Americas were looking over the next couple of weeks to possibly start making that optional as well but.
Product, primarily to see safety employees and it'll be it'll be their choice, 100% and.
And outside of that we've not seen any other real.
Negative effects, yet to the increase in the cobot.
Okay. Thanks, and then let's say that you're setting the mid 70 day working capital at par that what kind of timeline you can set up for that and then you rank the leverage that you probably got there is that primarily.
Well are you, saying.
Thank you.
Sure that would be the end of calendar year, Tony Tony one.
And.
You know, it's it's really it's a disciplined process. There's there's no one item that's going to get US. There. It is a mix of continued focus on receivables payables and inventory we have a very disciplined process. Here every week, we're getting a forecast from our businesses on their working capital we need as a management team every week.
It is every other week meeting with the business President So I say that because you know we don't have a rank order of things that have to happen. If we know where we have a gap that we can improve and it's a nice execution actually she's been an execution story for 18 months, it's going to be next you should story for.
The next you know fourth.
Four or five quarters. Thanks for the question. Thanks.
Thank you.
Thank you there are no further questions at this time I will now turn it back to Phil Gallagher for any closing remarks.
Great. Thanks. Thanks, Thank you very much and thanks again for all the participants let.
Let me end and just end my comments by acknowledging it.
We're excited about an upcoming milestone and Avnets history.
In calendar year, 2021, we will be celebrating and Miss 100 year anniversary again really excited about that you'll be hearing a lot more about it but does have their approach. It's under your mark I couldn't be prouder of all that we've achieved a game business. We've had certainly some some ups and downs in up and down cycles, but over the years we've.
Stay close to our customers and suppliers and remain nimble with our execution in our longevity demonstrates our ability to maintain technology go technological innovation and financial discipline. So once again I want to thank our employees for their continued hard work and dedication throughout the pandemic and all prior phases of Avnets journey.
I am truly grateful to be surrounded by some of the most talented people in the industry and excited for what the future holds radnet.
So with that again I want to thank you all for attending today's earnings call. You know look forward to speaking to you again in January with our fiscal second quarter earnings report stay safe and be well. Thank you.
Ladies and gentlemen that does conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.
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