Q4 2021 Arrow Electronics Inc Earnings Call

Have a good day and thank you for standing by. Welcome to the Arrow Electronics fourth quarter and year end 2021 earnings conference call. At this time all participants are...

Good day, and thank you for standing by and welcome to the Arrow electronics fourth quarter and year end 2021 earnings conference call. At this time, all participants are in a listen only mode.

After the speaker presentation, there will be a question and answer session.

After the speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.

To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further questions, please raise your hand.

Please be advised that today's conference is being recorded.

If you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Steve O'brien. Please go ahead.

I would now like to hand the conference over to your speaker today, Steve O'Brien. Please go ahead.

Thanks April .

Thanks, April . And with us on the call today are Mike Long, Chairman, President and Chief Executive Officer, Sean Cairns, Chief Operating Officer, and Chris Stansbury, Senior Vice President and Chief Financial Officer.

This on the call today are Mike long, Chairman, President and Chief Executive Officer, Sean Kerins, Chief operating Officer, and Chris Stansbury, Senior Vice President and Chief Financial Officer.

During this call, we'll make forward-looking statements, including statements about our business outlook, strategies, and future financial results, which are based on our predictions and expectations as of today. Our actual results could differ materially due to a number of risks and uncertainties, including the risk factors in our most recent 10-K and 10-Q filings with the SEC.

During this call we will make forward looking statements, including statements about our business outlook strategies and future financial results, which are based on our predictions and expectations as of today, our actual results could differ materially due to a number of risks and uncertainties, including the risk factors in our most recent 10-K and 10-Q filings with.

The SEC, we undertake no obligation to update publicly or revise any of the forward looking statements. As a reminder, some of the figures we will discuss today on today's call are non-GAAP , we have reconciled those to the most directly comparable GAAP figures measures in our financial statements and <unk>.

We undertake no obligation to update publicly or revise any of the forward-looking statements.

As a reminder, some of the figures we will discuss today on today's call are non-GAAP .

We have reconciled those to the most directly comparable gap figures.

measures in our financial statements and earnings release. These are non-GAAP measures and are not intended to be a substitute for our GAAP results. You can access our earnings release at investor.aero.com along with the CFO commentary, the non-GAAP earnings reconciliation, and a replay of this call. We will begin with a few minutes of prepared remarks, which will then be followed by a question and answer period. I'll now hand the call to our chairman, president and CEO .

<unk> released these are non-GAAP measures are not intended to be a substitute for our GAAP results you can access our earnings release at Investor Day, the Arrow Dot com along with the CFO commentary the non-GAAP earnings reconciliation and a replay of this call. We will begin with a few minutes of prepared remarks, which will then be followed by a question.

And answer period, I will now hand, the call to our chairman President and CEO , Mike long.

Thanks, Pete. Thanks all of you for joining us today. Before I get into our most recent results, I'd like to take a minute to reflect on the past year at AERO.

Thanks, Steve Thanks to all of you for joining us today before I get into our most recent results I'd like to take a minute to reflect on the past year at arrow.

In today's environment, our focus on constantly evolving our business to better serve our customers is more important than ever.

In today's environment, our focus on constantly evolving our business to better serve our customers is more important than ever.

Our team has long recognized that the future of business will not look like the past. And in order to win, we must both maximize our current business and embrace new avenues and sources of profitability.

Our team has long recognized that the future of business will not look like in the past.

And in order to win.

Both maximize our current business and embrace new avenues and sources of profitability.

At Arrow, we continue to enhance the solutions and services we provide as the markets we serve change at an increasingly rapid pace.

At Arrow, we continue to enhance the solutions and services, we provide as the markets. We serve change at an increasingly rapid pace.

And it's clear that our work is paying off. Our strong results demonstrate that we remain ahead of the curve, supported by the best team in the industry.

And it is clear that our work is paying off our strong results demonstrate that we remain ahead of the curve supported by the best team in the industry.

This year, our colleagues worked tirelessly to overcome the many challenges caused by the lack of supply in the face of an acute need for components and IT solutions.

This year, our colleagues worked tirelessly to overcome the many challenges caused by the lack of supply in the face of an acute need for components and solutions.

While our sales, gross profit, and operating income set all-time absolute records, our team's efficiency was also unmatched.

While our sales gross profit and operating income set all time absolute records our team's efficiency with also unmatched we reached new benchmark levels on an individual employee basis for all three metrics.

We reach new benchmark levels on an individual employee basis for all three metrics.

This increased efficiency was a direct result of our work over the last several years to assemble the most capable workforce possible, leveraging diverse skills, experiences, and backgrounds to best serve our customers across the different regions and industries.

This increased efficiency was the direct result of our work over the last several years to assemble the most capable workforce possible.

Leveraging diverse skills experiences and backgrounds to best serve our customers across the different regions and industries.

credibility and transparency continue to be the hallmarks of our business.

Credibility and transparency continue to be the hallmarks of our business.

Instances of severe supply chain bottlenecks have resulted in production slowdowns, but they also have enabled Arrow to showcase our unmatched experience, industry knowledge, products and services to customers new and old. We understand the demand dynamics and are uniquely positioned to help our customers navigate today's challenges.

Instances of severe supply chain bottlenecks and resulted in production slowdowns, but they also have enabled arrow to showcase our unmatched experience and industry knowledge products and services to customers new and old.

We understand the demand dynamics and are uniquely positioned to help our customers navigate today's challenges.

This includes companies and industries who may be unaccustomed to shortages or supply restrictions.

This includes companies and industries, who may be unaccustomed to shortages or supply restriction.

by helping to mitigate production risks and assure a continuous stream of products to the market, Arrow deepens customer relationships and solidifies our position as a trusted partner.

By helping to mitigate production risks and ensure a continuous stream of products to the market.

Aero deepens customer relationships and solidifies our position as a trusted partner move.

Moving to the most recent results, we continue to believe our investments in design engineering and supply chain services are bearing fruit. However, there is certainly an element of favorable pricing that is beneficial to our March.

Moving to the most recent results we continue to believe our investments in design engineering and supply chain services are bearing fruit. However, there is certainly an element of favorable pricing that is beneficial to our margins.

We have reason to believe that the overall industry pricing environment has structurally improved and could be better from cycle to cycle.

We have reason to believe that the overall industry pricing environment has structurally improved and could be better from cycle to cycle.

From a structural perspective, consolidation is a key factor in pricing. In addition, we see only modest capacity additions coming online within the next couple of quarters compared to the overwhelming demand. Longer term, we recognize that there'll be more challenging demand conditions. At some point in the future, this will touch the piece.

I'm a structural perspective consolidation is a key factor in pricing. In addition, we see only modest capacity additions coming online within the next couple of quarters.

Impaired to the overwhelming demand.

Longer term, we recognize that there'll be more challenging demand commit conditions at some point in the future. This will test the thesis.

In this shortage environment is paramount that we rethink the way business in our industry has done in order to manage the dynamic nature of demand. Error has been working to address, from our own perspective, the potential for rising inventory levels in the electronics component industry, despite claims of unmet demand in the channel.

And this shortage environment is paramount.

Rethink the way business and our industry has done in order to manage the dynamic nature of demand Arrow has been working to address from our own perspective, the potential for rising inventory levels in the electronics component industry. Despite claims of unmet demand in the channel.

Stocking higher value inventory with greater design and engineering component contributed to record margins and Returns on working capital and invest in capital that said we know we must balance the competing near-term priority of keeping our cash cycles short With our long-term goal of maximizing economic return

Stocking higher value inventory with greater design and engineering component contributed to record margins and returns on working capital and invested capital.

Said, we know we must balance to competing near term priority of keeping our cash cycle short with our long term goal of maximizing economic returns. We're monitoring the quantities types in terms of our inventory closely and believe we are well positioned to sell through our inventory and collect future cash on our <unk>.

We're monitoring the quantities, types and turns of our inventory closely, and believe we're well positioned to sell through our inventory and collect future cash on our working capital invest.

<unk> capital investments.

Turning to enterprise computing solutions close followers of our story recognize that sales and profit growth have become disassociated due to the accounting treatment of software services and cloud.

Turning to enterprise computing solutions, close followers of our story recognize that sales and profit growth have become disassociated due to the accounting treatment of software services and cloud.

We're pleased to deliver on our main focus, operating income growth for the full year. While supply chain issues continue to limit our ability to capitalize on strong demand, we saw postponed or realigned projects turn into available cloud-based resources.

We're pleased to deliver on our main focus operating income growth for the full year, while supply chain issues continue to limit our ability to capitalize on strong demand we saw postponed a realigned projects turn into available cloud based resources.

The flexibility of our business model has made us, in either case, well positioned to remain engaged with customers and tailor our solutions to their needs.

The flexibility of our business model has made us in either case, well positioned to remain engaged with customers and tailor our <unk>.

Solutions to their needs.

With enterprise computing solutions operating income on solid footing, we enter 2022 with excitement to serve our customers.

With enterprise computing solutions operating income on solid footing, we enter 2022 with excitement to serve our customers now more than narrow ever arrow is unmatched in its services and support when compared to the competition.

Now more than Arrow ever, Arrow is unmatched in its services and support when compared to the competition.

We're providing much needed stability and experience to value added resellers and manage service providers without distress.

We're providing much needed stability inexperienced to value added resellers and managed service providers without distraction.

In closing, I'd like to congratulate our team for delivering strong financial results and economic returns that we have been striving towards. In 2021, we have turned each potential challenge that came our way. From consolidation to tariffs, to cloud, and to shortages, end opportunities in terms that that-

In closing I'd like to congratulate our team for delivering strong financial results and economic returns that we have been striving towards.

In 2021, we have turned each potential challenge that came our way from consolidation to tariffs to cloud and the shortages in the opportunities in turn successes.

While our industry continues to change over time. The fact remains that Aero continues to improve and expand our business to the benefit of our customers suppliers and team. We look forward to continuing to build on this momentum.

While our industry continues to change over time, the fact remains that Arrow continues to improve and expand our business to the benefit of our customers, suppliers and team. We look forward to continuing to build on this momentum. With that, I'll now hand the call over to Chris to provide more details on results in our expectation.

With that I'll now hand, the call over to Chris provide more details on our results and our expectations.

Thanks Mike. Fourth quarter sales increased 8% year over year on a non-gett base.

Thanks, Mike fourth quarter sales increased 8% year over year on a non-GAAP basis. The average euro dollar exchange rate for the quarter was $1 14.

The average Euro dollar is change rate for the quarter was a dollar and 14 cents to one euro below or four cap expectation of a dollar and 16 cents and below the dollar and 19 cents in the fourth quarter of 2020. Changes in foreign currencies understated sales growth by approximately $73 million a year over year and had an approximately $58 million dollar larger negative impact than we originally forecast.

To one euro below our forecast or expectation of $1 16, and below the $1 19 in the fourth quarter of 2020.

Changes in foreign currencies understated sales growth by approximately $73 million year over year and had an approximately $58 million larger negative impact than we originally forecast.

Fourth quarter growth's margin of 13.3% returned to its highest level since Q1 of 2017. Growth's margin improved year-over-year in global components in each of our operating regions and enterprise computing solutions in both regions.

Fourth quarter gross margin of 13, 3% returned to its highest level since Q1 of 2017 gross margin improved year over year in global components in each of our operating regions and enterprise computing solutions in both regions.

operating expense increased slightly as a percentage of sales during the fourth quarter, but decreased as a percentage of gross profit. As a reminder, many of our value-out of services and solutions can be independent to the sale of electronic components, and therefore contribute more meaningfully to profit than to sale.

Operating expense increased slightly as a percentage of sales during the fourth quarter, but decreased as a percentage of gross profit.

As a reminder, many of our value added services and solutions can be independent to the sale of electronic components, and therefore contribute more meaningfully.

The sale.

Interest expense was slightly above our prior expectation. This was mainly attributable to higher interest rates on floating rate debt, but also due to the issuance of $500 million of 2.95% 10-year note.

Interest expense was slightly above our prior expectations. This was mainly attributable to higher interest rates on floating rate debt, but also due to the issuance of $500 million of 295% 10 year notes. The proceeds were mainly used to meet the recent maturity of $350 million of three 5% seven year notes.

Proceeds were mainly used to meet the recent maturity of $350 million of 3.5% seven-year notes.

Fourth quarter tax rate was slightly below our expectations. This was primarily due to the timing of the street tax items. And we also saw some favorability in regional profit mix. Our long-term target effective tax rate remains 23 to 25%.

Fourth quarter tax rate was slightly below our expectations. This was primarily due to the timing of discrete tax items and we also saw some favorability in regional profit mix, our long term target effective tax rate remains 23% to 25%.

Turning to the balance sheet and cash flow fourth quarter operating cash flow was $28 million compared.

Turning to the balance sheet and cash flow, fourth quarter operating cash flow was $28 million. Compared to the third quarter, DSO's and inventory days lengthened, but were naturally offset by an increase in our payable days. As a result, our cash cycle of approximately 54 days was three days longer than the third quarter.

Compared to the third quarter, Dsos and inventory days lengthened, but we're naturally offset by an increase in our payable days as a result, our cash cycle of approximately 54 days was three days longer than the third quarter.

As Mike mentioned earlier, with returns metrics, as such, his return on invested capital and return on working capital at the highest levels in our modern history, we are being mindful of incremental working capital investments, but also want to capitalize on this growing demand environment.

As Mike mentioned earlier with returns metrics.

Such as return on invested capital and return on working capital at the highest level in our modern history, we are being mindful of incremental working capital investments, but also want to capitalize on the strong demand environment.

Our liquidity position is the best in the history of our company and continues to improve leverage as measured by total or net debt to EBITDA is at its lowest level in over 10 years and was slightly lower than the third quarter.

Our liquidity position is the best in the history of our company and continues to improve. Leverage as measured by total or net debt to EBITDA is at its lowest level in over 10 years and was slightly lower than the third quarter.

We return approximately $250 million to shareholders for the third quarter in it rose through our share of a purchase plan.

We returned approximately $250 million to shareholders for the third quarter in a row through our share repurchase plan.

These are the largest single quarter share repurchases and arrow history enabled by our strong profits and proactive working capital management we.

These were the largest single quarter share of purchases in Arrow's history, enabled by our strong profits and proactive working capital managed.

We were purchased $900 million when the shares in 2021 by far the largest single year of repurchases in our history. We reduced it, diluted shares by approximately 8% over the course of the year.

We repurchased $900 million worth of shares in 2021 by far the largest single year of repurchases in our history, we reduced reduced diluted shares by approximately 8% over the course of the year we.

We remain committed to returning cash to shareholders by adding an additional 600 million to our authorization during the month of December . And as of right now, we have approximately $763 million remaining on our share of repurchased authorization plan.

We remain committed to returning cash to shareholders by adding an additional 600 million to our authorization during the month of December .

And as of right now we have approximately $763 million remaining on our share repurchase authorization plan.

We're confident that we are repurchasing shares below the entrance of the value based on increasing return on invested capital and return on working capital.

We're confident that we are repurchasing shares below their intrinsic value based on increasing return on invested capital and return on working capital.

Please keep in mind that the information I shared during this call is a high level summary of our financial results.

Keep in mind that the information I shared during this call is a high level summary of our financial results.

For more detail regarding the business segment results, please refer to the CFO commentary published on our website this morning.

For more detail regarding the business segment results. Please refer to the CFO commentary published on our website. This morning.

Now turning to guidance, mid-point of sales and ETS guidance imply all-time first quarter record.

Now turning to guidance mid point of sales and EPS guidance imply all time first quarter record.

Midpoint Global Component Sales Guidance would be an all-time record for any poor.

Midpoint global components sales guidance would be an all time record for any quarter.

Our guidance reflects continued strong operating leverage for global components on the year-over-year basis with profit growing several times faster than sales. Our forecast to Jeff Enterprise's computing solutions profits grow slightly year-over-year as reported and at a somewhat higher rate year-over-year adjusted for current.

Our guidance reflects continued strong operating leverage for global components on a year over year basis with profit growing several times faster than sales our forecast suggest enterprise computing solutions profits grow slightly year over year as reported and at a somewhat higher rate year over year adjusted for currency.

We estimated approximately $160 million or headwinds of sales and 10 cent had went to EPS growth due to the strength of the US dollar principally compared to the euro.

We estimate an approximately $160 million headwind to sales and <unk> <unk> headwind to EPS growth due to the strengthening U S dollar principally compared to the euro.

Finally, please note the CFO commentary includes information on our fiscal calendar closing dates. Our 2022 quarter closing dates are mostly aligned to those of 2021. With that, I'll turn the call over to the office.

Finally, please note that the CFO commentary includes information on our fiscal calendar closing dates are 2022 quarter closing dates are mostly aligned with those of 2021.

With that I'll turn the call over to the operator for Q&A.

As a reminder, to ask a question, please press star, then the number 1 on your telephone keypad. Again, that is star, then the number 1. And your first question—

As a reminder to ask a question. Please press Star then the number one on your telephone keypad again that is star then the number one in.

And your first question comes from Jim Suva with Citigroup.

high profile job just a great opportunity. So this is a career thing and that's why people on my team.

It's a high profile job great opportunity so.

This is a career thing and that's why people on my team just Hush Hush.

Yeah, we're meeting with Bruno Mars, you know, for dinner. Oh, yes. Well, we have Jim. Jim's doing some finale. So, no, call me and I'll call him. This is the real... April , can you throw out the move to the next one? Yes. Call him? Yes, your next question is from Nikolay Totorov with Longbow Research.

We're meeting with Bruno Mars for dinner.

We have Jim.

I think Jim is doing something else.

Call me and I'll call that this is the real April droughts and move to Nick Yes.

And your next question is from Nikolay Todorov with long Beach.

Longbow Research.

Yeah, thanks. Hey guys, good afternoon and congrats on great results.

Yeah, Thanks, Hey, guys good afternoon, and congrats on great results.

Mike, first I want to start with a comment that you see reasons to believe that the override pricing is going to be better cycle or cycle.

Mike first I want to start with a comment that you see reasons to believe that override pricing is going to be better cycle over cycle.

Do you have any type of framework that you have? You've been thinking obviously.

Do you have any type of framework that you have you been thinking obviously.

How should how do you think prices will evolve traditionally obviously, they've been coming down cycle over cycle, but what do you see different and how do you see them evolving going forward.

How do you think prices will evolve traditionally obviously they've been coming down side covers cycle but what do you see different and how do you see them involving going forward?

Well, if you take this cycle compared to past cycles past cycles were purely demand and then there was the.

Well, if you take this cycle compared to past cycles, past cycles were purely demand. And then there was the expectations that you could get more efficient there by getting more product. And this cycle is a little different because you've got inflation hitting too. And that's raw material prices and prices for raw products of buildings. The mic inductors have gone up.

The expectation that you could get more efficient, thereby getting more product in this cycle is a little different because you've got inflation, hitting too and thats raw material prices and prices.

For raw products of building semiconductors have gone up.

So there's a structural change there that's not expected to have those raw materials come down anytime soon. The same thing you've seen now in transportation of those products.

So there is a structural change there that is not expected to have those raw materials come down anytime soon.

The same thing <unk> seen now in transportation of those products are.

all around the world. Those prices are up at the same time and again not expected to come down. And some of that would come down with fuel cost, right?

All around the world those prices are up at the same time and again not expected to come down and some of that would come down with fuel cost right, but.

You don't see any limiting factor there right now other than that's likely to go up again before it comes down. So you have that, which means the price of the component itself is higher, where the cost to manufacture is higher. And I don't see that changing in the near term. And I certainly don't see that changing going from cycle to cycle here.

Don't see any.

Limiting factor there right now other than Thats likely to go up again before it comes down so you had that which means the price is a component itself.

Is higher or the cost to manufacture is higher.

And I don't see that that changing in the near term and I, certainly don't see that changing going from cycle to cycle here.

Okay. That's helpful.

Okay, that's helpful. As a follow-up, I think you guys do a survey of your customers. Obviously, you're doing your due diligence, and sometimes you've shared findings from that survey on the calls regarding customer inventory.

Follow up I think you guys do a survey of Europe customers, obviously, youre doing your due diligence and sometimes you've shared findings.

That survey on the calls regarding customer inventory I think you touched on the call that you are monitoring the situation carefully and despite that there are some shortages.

I think you touched on the call that you're monitoring the situation carefully and despite that there's some shortages.

I might have heard that you said that there's some signs that inventory is uneven. I don't know I would you characterize inventory downstream of your customers and maybe what the feedback on on the service that you guys do each quarter on your customers. Yeah

It might've occurred that you said that there is some signs that the inventory is uneven I don't know how would you characterize inventory downstream with your customers and maybe what the feedback on the survey that you guys do each quarter on your customer.

Customers.

Yes.

Yeah, this is a highly interesting question because

This is.

Highly interesting.

Question because.

prices have gone up significantly and some I can doctors and it really started to hit in the fourth quarter and going into the first quarter. So customers inventory values are going up.

Prices have gone up significantly in semiconductors, and it really started to hit in the fourth quarter and going into the first quarter.

Customers' inventory values are going up so.

So whatever they had traditionally and stock, they've probably gone up by somewhere between 10 and 20% now. And so they, they,

So whatever they had traditionally in stock they've probably gone up by somewhere between 10 and 20% now.

And so they probably are reacting to the fact that they have more inventory dollars that may bebber hat now in our situation here our actual units that we're getting from the manufacturers have gone down.

probably are reacting to the fact that they have more inventory dollars than they've ever had. Now in our situation here, our actual units that we're getting from the manufacturers have gone down, quarter on quarter, which is another reason to believe that the demand situation isn't going to fix itself anytime soon.

Quarter on quarter, which is another.

Reason to believe that the demand situation isn't going to fix itself any time. Soon so what you have is customers that have a mix of products that may be out of skew a bit.

So what you have is customers that have a mix of products that may be out of a skew a bit, which is slowing their manufacturing time, but still there's a lot of hand and mouth. But again, inventory levels are up. Just like they're up here, you'll see that. You'll eventually ask it. But that's inventory value is the units are actually down.

<unk>.

Slowing their manufacturing time.

But still there is a lot of a lot of hand to mouth, but again inventory levels are up just like they are up here youll see that youll eventually ask us but that inventory value is up units are actually down.

Okay, helpful. Last question for me and I'll go back in the queue. On the ETS side, I think in the CFO commentary, there was notes that you're seeing increased customer engagement and I think order activity.

Okay helpful. Last question for me and I'll go back in the queue on the ETS side I think in the CFO commentary there was a note that you're showing you're seeing increased customer engagement and I think order activity.

What else can you share in terms of are you seeing upticks in activities in the hardware side and it's a matter of supply chain improvements or is that activity more so like you talked because of the supply chain constraints, more projects are moving to the cloud and how would that reflect on your ECS top line over the next couple of quarters? Thanks.

What else can you share in terms of are you seeing.

<unk> and activities in the hardware side, then it's a matter of supply chain improvements or where is that activity more so like you talk how because of the supply chain constraints more projects are moving to the cloud and how would that reflect on your ECS top line over the next couple of quarters. Thanks.

I'll be happy to take that question. Actually, if you look at our progress in ECS, I'll take you back to something like that about the way we treat reported sales. We've been pivoting our focus.

I'll be happy to take that question.

Actually if you look at.

Our progress in ECS I'll take you back to something Mike said about the the way we treat reported sales we've been pivoting our focus to the market for hybrid and multi cloud for some time and that really is all about.

to the market for hybrid and multi-cloud for some time. And that really is all about, you know, all things Ikea as a service. And that implies more software, more cloud, more services. And that's gonna not look as good on the reported sales line, but it's really gonna show up nicely, you know, when we get to the operating margin line. And I think you saw some of that in our Q4 results. You know, we think it validates that we're in the, you know, the right market space for our value-based selling motion. And frankly, we just need more scale.

Things IP as a service and that implies.

Software more cloud more services and that's going to not look as good on a reported sales line, but it's really going to show up nicely.

We get to the operating margin line and I think you saw some of that in our Q4 results. We think it validates that we are in the right market space for our value based selling motion and frankly, we just need more scale.

And I think the underlying indicators we're seeing from that business are encouraging. We might be a quarter or two away from seeing even more momentum. But if you look at the market headwinds, either supply chain or pandemic related restrictions, I think they're ultimately transitory. So we're expecting to see even more improvement from that business across the course of 2022.

And I think the some of the underlying indicators, we're seeing from that business are encouraging.

We might be a quarter or two away from seeing even more momentum, but if you look at the market headwinds either supply chain or pandemic related restrictions I think theyre ultimately transitory. So we're expecting to see even more improvement from that business across the course of 2022.

Okay got it thanks, guys. Good luck.

Your next question is from Melissa Fairbanks with Raymond James and Associates.

Your next question is from Melissa Fairbanks, with Raymond James and Associates.

Hi guys, thanks very much. Just wondering if you could highlight any hot spots where maybe supply constraints worsened in the quarter. You didn't mention that unit volumes were down in terms of your inventory. Just wondering if there was one area in particular that was worse than the other. Or if you're, you know, what we've heard is that some of the suppliers are kind of playing whack-a-mole, chasing constraints in one area from the other.

Hi, guys, thanks very much.

Just wondering if you could highlight any hotspots, where maybe supply constraints worsened in the quarter. You did mentioned that unit volumes were down in terms of your inventory just wondering if there was one area in particular that was worse than the other or if you're you know what we've heard is that some of the suppliers are kind of playing whack a mole chasing.

Chasing constraints in one area from the other.

So so.

So I like your analogy there and unfortunately that fits. We don't have a lot of suppliers that we could say are...

I like your analogy, there and unfortunately that fits.

Yeah.

We don't have a lot of suppliers that we could say are.

up to date on everything. And again, I think the Golden Screw piece that you're talking about is different for every cup.

Up to date on everything and again, the I think the Golden screw piece that Youre talking about is different for every customer.

So every customer has a shortage of product that is keeping them from producing something, and it may or may not have overlap with other customers.

Every customer has a shortage of product that is keeping them from.

Producing something and it may or may not have overlap with other customers. So the moral of the story as we're doing more expediting here than we've ever done we are on the phone with suppliers more than we ever have been and delinquencies.

So the moral of the story is we're doing more expediting here than we've ever done. We are on the phone with suppliers more than we ever have been. And the link with these continue. I even hate to say continue to rise, but our demand curves are very strong right now. And we don't see catching up.

Continue I, even hate to say continue to rise, but our demand curves are very strong right now and we don't we don't see catching up.

all of 2022, I can tell you that because anything coming online is very modest compared to what's up.

All of 2022, I can tell you that because anything coming online is very modest compared to what's out there right now.

Okay, great. Thanks, so much.

Okay, great. Thanks. Yeah, that we're kind of hearing the same thing across the board from your suppliers as well. I'm just wondering. So your

Hearing the same thing across the board from your suppliers as well.

Just wondering.

So here.

What you said was that supply is not going to ease meaningfully or you're going to be in delinquency through 2022. Is there any sort of baseline assumption that we should use for how much that's constraining your revenue upside or are there just too many moving parts to call that?

What you said was that supply is not going to ease meaningfully or are youre going to be in delinquencies through 2022.

Is there any sort of baseline assumption that we should use for how much. That's constraining. Your your revenue upside or are there just too many moving parts to call that.

I think it's a lot of moving parts and the reason is

I think it is.

It's a lot of moving parts and the reason is.

For example, you might have seen a A bit of a drop in Asian the fourth quarter which is typical seasonality for Asia however More product went into North American Europe . So Product is moving around based on demand based on where the suppliers have constraints and and really attempting to keep everybody

For example, you might have seen a.

A bit of a drop in Asia in the fourth quarter, which is typical seasonality for Asia. However, more product went into North America and Europe . So product is moving around based on demand based on where the suppliers have constraints.

And really attempting to keep everybody.

moving as far as their production goes. So there's a lot of hand-to-mouth, there's a lot of work being done on behalf of the customer.

Moving as far as their production goes so theres a lot of hand to mouth. There is a lot of work being done on behalf of the customers to make sure that they can continue to produce their products.

to make sure that they can continue to produce their products. Yes, we are constrained right now due to...

Yes.

We are constrained.

Right now due to supply and you see our first quarter forecast and what that is that purely a supply forecast still compared to a demand forecast. That's what we think we're going to get in enough supply to be able to deliver those sales to you in the first quarter.

And you know, you see our first quarter forecast and what that is, that's purely a supply forecast still compared to a demand forecast. That's what we think we're gonna get in enough supply to be able to deliver those sales to you in the first quarter.

And when we start to see it free up, we obviously will acknowledge that and we'll go to more inventory control, but we're not seeing that at this point. The other thing I might highlight for our first quarter of the reason that we could come out.

And when we start to see it free up we obviously will acknowledge that and we will go to more inventory control, but we're not seeing that at this point. The other thing I might highlight for our first quarter. The reason that we could come out as strong as we did is that our inventories were up a little bit.

as strong as we did is that our inventories were up a little bit in some of the products that we were delinquent on. And...

And some of the products that we were delinquent on and we're going to be able to fulfill those needs. So we are more confident in our first quarter number forecast.

we're going to be able to fulfill those needs. So we have more confident in our first quarter number forecast.

as being more accurate than I could say we have been for the last three or four. Perfect, that's excellent color. Thanks very much guys.

It's being more accurate than I could say, we have been for the last three or four.

Okay.

Perfect. That's excellent color, thanks, very much guys.

You bet.

Your next question is from Matt Sheerin with Stifel.

Yes, thank you and good afternoon. I wanted just to ask regarding the strength in the gross margin you're seeing on the component side multi year record. It looked like operating margin was the best number in twenty plus.

Yes, Thank you and good afternoon.

I have to ask regarding the strength in the gross margin Youre seeing.

On the component side.

Multi year a record it looked like operating margin was the best number in 20 plus years and obviously as you said youre benefiting from favorable pricing also mixed with Asia down in the other regions up. So my question is how sustainable do you see that over the next two to three quarters, Mike Youre, saying basically it sounds like Youre pretty.

years and obviously as you said you're benefiting from favorable pricing also mixed with age down the other regions up. So my question is how sustainable do you see that over the next two to three quarters? Mike you're saying basically sounds like you're pretty much booked.

<unk> booked.

and you found confident in the next couple of quarters. So can we expect the elevated margins here for the New York term?

And you've got town.

Comp in the next couple of quarters. So should we expect that elevated margins here for the near term.

I think what Youll see is.

I think what you'll see is some hovering around and changes based on customer mix and product mix, Matt. You know, I expect our growth margins to come down slightly in the first quarter, just because of some mixed issues. Fourth quarter was highly engineering, high level of engineer product.

Hovering.

A round and changes based on customer mix and product mix Matt.

I expect our gross margin to come down slightly in the first quarter, just because of some mix issues fourth quarter with highly engineering.

A high level of engineered products.

that we were able to get back into the marketplace and we expect that to subside for the first quarter and have a more level next, not only across the regions.

That we were able to get back into the marketplace and we expect that to subside. Some for the first quarter and have a more level mix not only across the regions, but also with product and with customer base.

but also with product and with customer base. We didn't have a lot of...

We didn't have a lot of fallen activity or or high level computing activity customers in the fourth quarter and some of those have demand again going into the first quarter, but very little very little fluctuation over the next couple of quarters Matt.

phone activity or high level computing activity customers in the fourth quarter and some of those have demand again going into the first quarter. But very little fluctuation over the next couple of quarters now.

Okay, great. And just regarding the outlook for computing, it sounds like component constraints is an issue there. But in terms of outlook, what you're hearing from your reseller customers in terms of backlog projects, you know, that need to be done at customers. What's the outlook as you look through the next rest of the year?

Okay, great and just regarding the outlook for computing.

It sounds like.

Component constraint there is an issue there.

But in terms of outlook, what you're hearing from your reseller customers in terms of backlog projects that need to be done at customers, but what's the outlook as you look through the rest of the year.

Yeah, I'll, let Sean go into more detail, but in general we're seeing higher demand now.

Yeah, I'll let Sean go into more detail, but in general, we're seeing higher demand now.

and higher demand for the services that we're providing. And a lot of the slowdown is on the hardware side which pushes those out. Sean, I'll let you add some more color to that. No, that's right, Matt. I think Mike captured it. I would just add that, you know, since sort of mid last year, we've seen lead times for most of our, our hardware businesses nearly double.

And higher demand for the services that we're providing and a lot of the slowdown is on the hardware side, which pushes those out Sean I'll, let you add some more color to that so thats right Matt.

Matt I think Mike captured it I would just add that since sort of mid last year.

We've seen lead times for most of our our hardware businesses nearly double.

And that probably will be the case for a couple of three quarters until the old semiconductor supply situation starts to normalize. But the good news is our visibility to the pipeline for our channel partners and users is only improving because they're giving us backlog with visibility much further out. So that gives us pretty good confidence that the man remains strong. And again, I think as...

Probably will be the case for a couple of three quarters until the whole semiconductor supply situation.

It starts to normalize but the good news is our our visibility too.

The pipeline for our channel partners and end users is only improving because theyre, giving us backlog with visibility much further out so that gives us.

Pretty good confidence that demand remains strong and again I think as.

some of the limitations to traditional data center business continue to abate, things will ultimately look up even more nicely. OK, thank you.

Some of the limitations too.

Traditional datacenter business continued to abate things.

Things will ultimately look up even more nicely.

Okay. Thank you.

Your next question is from Joe <unk> with Wells Fargo.

Yes, thanks for taking my question.

You know, I'm curious, your leverage remains at an all-time low. And I guess, you know, given your commentaries very positive on the forward demand, how do we think about what the right level for leverages in the context is, you know, where your shares are trading today and then you're working capital needs and just the expectations of interest rates increasing this year?

I'm curious.

Leverage remains at an all time low and I guess given your commentary is very positive on the forward and then how do we think about what the right level for leverage is in the context.

Where your shares are trading today in your working capital needs and just the expectations of interest rates increasing this year.

Well I think if you look at the working capital.

Well, I think if you look at the working capital since the beginning of

Beginning of.

this uptake, if you will, or this demand cycle, we've had to put less working capital in per dollar sale than we ever have in the past. So there's...

This uptick if you will or this demand cycle we've.

We've had to put less working capital and per dollar sale than we ever have in the past.

So there is a.

And if you would think any time you've had growth rates, like we've had over the last two years, in the past we wouldn't have been able to cash flow and this time we're cash flowing on a higher basis than we have. I'm going to say, expect more of this thing of what you've seen because there's no physical way to get a whole head of the inventory demand and get enough inventory in here.

And if you would think any time you've had growth rates like we've had over the last two years in the past we wouldn't have been able to cash flow and this time, we are cash flowing.

Yeah.

A higher basis than we have I'm going to say expect more of the same.

What you've seen.

Because there is no physical way to get a whole head of the inventory demand and get enough inventory in year.

to catch up with that demand. So just the market itself keeps us from spending the money on inventory where, frankly, I'd love to have it.

To catch up with that demand. So just the market itself keeps us from spending the money on inventory, where frankly I'd love to have it but I know if all the inventory shortages come in at one time this cycle is over.

But I know if all the inventory shortage has come in in one time, this cycle is over. And we're just not going to see it. I don't think it's a concern. Nor do I think it's going to be an increase at least for this year 2022.

And we're just not going to see it I don't I don't think its a concern.

Nor do I think it's going to be an increase at least for this year 2022.

Chris do you want to add something I would just add given that.

Chris, you want to add something? I would just add, given that, Joe, I mean, we've been very aggressive, obviously, with a buyback 900 million last year. At current valuations, safe to say that does not slow down.

Joe I mean, we've been very aggressive obviously with the buybacks $900 million last year.

At current valuations safe to say that does not slow down.

Got it that's helpful and then just a question.

Got it, that's helpful. And then just a question, we're starting to see the component shortages actually impact the guys who make the equipment to increase semiconductor capacity. So how do you maybe prioritize your customers because it seems like

We're starting to see the component shortages actually impact.

The guys, who make the equipment to increase.

Semiconductor capacity so.

How do you maybe prioritize your customers because it seems like.

you know, you're at a position where you could help kind of alleviate some of the supply issues by, you know, advocating for certain components to go to customers that they could help, you know, increase the semiconductor supply.

You're in a condition, where you could help kind of alleviate some of the supply issues by.

Advocating for certain components that go to customers that can help increase semiconductor supply.

Yeah.

You know what I'm going to say as everybody is getting what they can hand to mouth to produce their equipment, but do I stop.

You know, what I'm going to say is everybody is getting what they can hand them out to produce their equipment. But do I stop?

giving semiconductors to people that are making heart machines for people that are doing transplants? Do I stop giving semiconductors to other industries that are helping people? Do I shut down automotive? No. The answer is everybody has to manage their inventory effectively in a cycle.

Given semiconductors to people that are making art machines for people that are doing transplants due I stopped giving semiconductors to other industries that are helping people do shut down automotive now the answer is everybody has to manage their inventory effectively in a cycle.

And as long as those people have put their orders in in.

people have put their orders in and a first end, first-out basis, that's how they're being supported largely by the semiconductor manufacturers. And we're not talking about one product here. We're talking about thousands of products.

First in first out basis, that's how they are being supported largely by the semiconductor manufacturers and we're not talking about one product here, we're talking about.

The products.

And in the case of the broader market, millions of products.

And in the case of the broader market millions of products. So now you just cant start taking at your own whim and cutting people out of what's rightfully theirs to give to another industry that doesn't say, we don't lean in and try to get extra product or that.

start taking at your own whim and cutting people out of what's right there is to give to another industry. That doesn't say we don't lean in and try to get extra product for that.

type of a situation, but everybody's feeling the pain equally here.

Type of situation, but everybody is feeling the pain equally here and I don't know.

And I don't know, you can say they're building the equipment, but what fab is it going into and what's the end result going to be as a result of them getting more product right now? I don't know that answer, and I don't know that that's a proven statement. Yeah, that's fair. Thank you.

You can say theyre building the equipment, but what fab as they going into and what's the end result is going to be as a result of them getting more product right now I don't know that answer and I don't know that Thats us.

Our proven statement.

Yeah, that's fair thank you.

The next question is from Chris <unk> with Goldman Sachs <unk> company.

Hi, gentlemen, thank you so much for taking the question and congrats on the very strong results.

Hi, gentlemen. Thank you so much for taking the question and congrats on the very strong results. I had one clarification question and then a follow-up. As my clarification question, just on inventory, I think Mike, you mentioned that value was up, but I'm sorry, value was up, but volume was down on your balance sheet. Was that a Q over Q statement or a year of a year or was that both? And do you think you can build inventory and the current?

I had one clarification.

Clarification question and then a follow up.

My clarification question just on inventory I think Mike you mentioned that valley.

Value was up but volume I'm, sorry value was up the volume was down.

On your balance sheet was that a Q over Q statement or a year over year or was that both and do you think you can build inventory in the current quarter.

That's a statement for both quarter over quarter and year over year.

That's a statement for both quarter over quarter and year over year.

Our forecast is not anticipating us building inventory units.

Our forecast does not anticipating us building inventory units.

Got it okay.

And no, I don't think we can over the next couple of quarters, just to finish that.

Don't think we can over the next couple of quarters.

Just to finish that thought for you got.

got it. Okay, very clear. And then my question, I just wanted to get your thoughts on sort of the competitive landscape. Obviously in the near term, you know, the higher tide, I suppose, is lifting all both and you guys are performing really well. As you think about, you know, your business longer term, you know, the competitive dynamics between, I guess, that's just hate this, that you guys just don't do something mítr? Just be aware about that and guess

Got it okay very clear.

And then my question.

I just wanted to get your thoughts on sort of the competitive landscape, obviously in the near term.

The higher tide I suppose is lifting all boats and you guys are performing really well.

As you think about your business longer term.

The competitive dynamics between I guess Dusty and direct.

It is something that I wanted to ask about, you know, TI in particular, they continue to talk about.

It's something that I wanted to ask about.

Ti in particular, they continue to talk about.

you know the advantages they see in going direct to their customers.

The advantages, they see and going direct to their customers.

They hosted a call earlier this morning and you know talked about ti.com and those kind of things I think your other suppliers are taking a much more balanced approach But just curious from your perspective. How are you thinking about that dynamic between distis and direct and I guess more importantly within the disti Industry what have you done? I guess over the past couple of years during the pandemic to better position the company as you come out of the pandemic Thank you

Or is it a call or earlier this morning and.

<unk> talked about <unk> dot com and those kind of things I think your other suppliers are taking a much more balanced approach.

But just curious from your perspective, how are you thinking about that dynamic between <unk> and direct and I guess more importantly within the Dusty.

Industry, what have you done I guess over the past couple of years during the pandemic to better position the company as you come out of the pandemic. Thank you.

Well, if you, there's a lot of questions in there. First off, and I'll try to hit them all and be as concise as I can. First off, on the changing dynamics of distribution, I haven't really seen a lot at this point.

Well if you.

There is a lot of questions in there first off and I'll try to hit them all in.

As concise as I can first off on the changing dynamics of distribution.

I haven't really seen a lot at this point with those changing dynamics individually with different manufacturers sure they've changed their dynamics, but yet have increased their participation in distribution. So as you said I think theres a balanced out there and there is a balance that will be out there for.

with those changing dynamics. Individually with different manufacturers sure they've changed their dynamics, but yet some have increased their participation in distribution. So as you said, I think there's a balance out there and there's a balance that will be out there for a long time.

For a long time.

Also, we've seen huge increases in our engineering business.

Also we've seen huge increases in our engineering business.

over the last two years now. And in fact, we're seeing a marketable...

Over the last two years now and in fact, we're seeing a.

Marketable.

Change and customers looking to redesign some old products to make sure that they can still manufacture With as many types of Products as they can so we're seeing that come into play also our supply chain business is Really way up and that is

Change in customers looking to redesign some old products to make sure that they can stall manufacturer.

With as many types of products as they can so we're seeing that come into play also our supply chain business is is really way up and that is some of the.

arrangements we have with customers to either ship their products directly to them, handle freight only or do handling of their inventory. Those types of activities are up too. But the one activity that is way up right now is going out there and finding shortage components for...

Arrangements, we have with customers to either ship their products directly to them handle freight only or do handling of their inventory those types of activities are up to but the one activity that is way up right now is as going out there and finding shortage.

Bonus or.

customers and I expect that that business will will always be there for us but it's heightened activity right now. Then you just think more broad with the digital changes we've made in the business for customers to come online and do some of their own designs to setting up supply chain over the web to the cloud business in ERP and the ECS business.

Our customers and I expect that that business will will always be there for us but its heightened activity right. Now then you just think more broad with the digital changes we've made in the business for customers to come online and do some of their own designs to setting up supply chain over the web.

To the cloud business in ERP in the ECS business.

So we've done an awful lot if I have to highlight that over the last couple of years. And those businesses are just starting to come online and expect to be high producers in the future. So it's not all about products. Thank you so much and congrats again.

So we've done an awful lot if I have to highlight that over the last couple of years and those businesses are just starting to come online and expect to be high producers in the future. So it's not all about product.

Thank you so much and congrats again.

Thank you.

Your next question is from William Stein with <unk> Securities.

Great, thanks for taking my question. Mike, I'm hoping you can talk about the timing of impact of price increases from suppliers, whether when they announce that, does that affect your backlog and does it affect your customers backlog onto you at the same time, or is there a timing difference that might allow you to capture a better margin today? Thank you.

Great. Thanks for taking my question.

I'm, hoping you can talk about the.

The timing of impact of price increases from suppliers, whether when they announced that does that.

Affect your backlog and does it affect your customers backlog on to you at the same time or is there a timing difference that might allow you to capture a better margin today.

No.

So far what we've seen is sort of immediate price increases and those immediate price increases affect everything.

So far what we've seen is sort of immediate price increases. And those immediate price increases affect everything. And

And.

Really.

really that is due to the nature of increases that the suppliers have received.

That is due to the nature of increases that the suppliers have received.

in making their product and that has to be passed on because they're not going to take losses of course.

Making their product and that has to be passed on because they're not going to take losses of course on what they're selling.

on what they're selling to get more product in the market. So really, there's an immediacy of this that I've never seen before, ever. Usually they say we're gonna do it over the next couple of quarters and we're gonna hit this family or that family.

To get more product in the market. So really there's an immediacy of this that I've never seen before ever usually they say, we're going to do it over the next couple of quarters and we're going to hit this family of that family. It's first time, we've seen it and by the way the price increases are still coming by some of the manufacturer.

first time we've seen it. And by the way, the price increases are still coming by some of the manufacturers that are getting a late start on it. So it's not over and it's not gonna go away. I guess that would be the answer and it's more immediate than it's ever been.

<unk> that are getting a late start on it so it's not over.

And it's not going to go away I guess that would be the the answer and it's more immediate than it's ever been.

No, the opportunity to really raise your margin because the price increases is not the activity to sign your mind right now. This is a supply activity market.

No the opportunity to really raise your.

Your margin.

Because of the price increases if not the.

If not the activity that's on your mind right now this is a supply activity market.

appreciate that. I wonder also you touched on this for a moment earlier you said there's a business where you just case shortages. I'm not sure if I'm sure I'm not capturing all of the work because on there with that small explanation but it was an interesting dynamic that you call out as a specific business but what I'm hoping you might address is the portion of revenue that you're doing in the components business that relates to...

Appreciate that I Wonder also you touched on this for a moment earlier you said there is a business where you just.

Chase shortages.

Sure.

Sure I'm not capturing all of the work because on there with that small explanation, but it was an interesting dynamic that you'd call out as a specific business, but what im hoping you might address is the portion of revenue.

You're doing in the components business that relate to sort of these <unk>.

sort of these established franchise agreements where there's

Stablish franchise agreements where there's.

no price protection, which is probably not super relevant in this cycle. But those sorts of agreement versus more arms-length transactions where you might be able to e-calc better margins. Can you run just what the split is between those two types of businesses and whether it's changed in the last year?

Price protection, which is probably.

Probably not super relevant in this cycle, but those sorts of agreements versus more arm's length transactions, where you might be able to eke out better margins.

Can you remind us what the split is between those two types of businesses and whether it's changed in the last year.

And I probably misspoke is an activity we're doing not a specific business. So that's...

And I, probably misspoke spoke it's an activity were doing not a specific business. So.

That's.

One way to put it is that we have groups of people that are doing nothing but trying to chase down products of maybe where we sold something before and that customer isn't using it anymore and we can divert that product to another customer and then the transaction comes through us but you know, the selling company sets the price and the buying company decides whether they want it or not. So that does exist.

One way to put it is that we have groups of people that are doing nothing but trying to chase down product of maybe where we bolt something before and that customer isn't using it anymore and we can divert that product to another customer and then the transaction.

Come through us but.

The selling company sets the price and the buying company decides whether they wanted or not so.

That does exist.

And as far as putting a cost on it, I think what you're seeing is the business is the business.

And as far as putting.

Cost on it I think what Youre seeing is the businesses the business.

right now, the mix is the mix. You know, if for example,

Right now the mix is the mix.

If for example.

Demand starts to get fulfilled.

Demand starts to get fulfilled. Then that activity I just talk about will go down to, but it'll probably stay the same percentage of the business even when the demand goes the other way because there's always shortages out there.

And that activity I, just talked about will go down to but it will probably stay the same percentage of the business even when the demand goes the other way because theres always shortages out there and so that activity is still goes so I don't see a structural change in that in the future just happens to be more because there's more shortages right now but also sales.

And so that activity still goes. So I don't see a structural change in that in the future. It just happens to be more because there's more shortages right now. But also, sales are elevated, right? So you've got both things going on at the same time. I think what you see right now in our margins is mixed between.

We're elevated right. So you've got both both things going on at the same time I think what you see right now in our in our margins is mixed between U S. Asia Europe same mixed issues, we've had before and the same thing goes for mix issues on the type of product that goes out the door.

UF Asia, Europe , same issues we've had before, and the same thing goes for mixed issues on the type of product that goes out the door.

And other than that we shouldnt have any other changes that take place.

And other than that, we shouldn't have any other changes that take place over the next year. Thank you.

Over the next year.

Great. Thank you.

Mhm.

Your next question is from Jim Suva with Citigroup.

Thank you I have a long term.

Thank you. I have a long-term kind of strategy question.

Strategy question.

You know, we've been through the China trade wars, COVID, power outages, tsunamis, all these type of things. I was just wondering, Chris and Mike, are you having discussions with your suppliers?

You know we've been through that.

Trade Wars Covid power outages tsunami. All these type of things I was just wondering Chris and Mike are you having discussions with your suppliers.

or maybe even your customers about adjusting the model less from just in time and more.

Or maybe even your customers about adjusting the model less from just in time and more.

inventory and housing stuff longer term and even if it's like a price to carry or Consignment inventory. I was kind of wondering you know, what's the next risk thing that they can navigate? And are there some active discussions and anything coming out of it or just discussions that maybe is different than last site?

Inventory and housing stuff longer term and even if it's like a price to carry or consignment inventory I'm just kind of wondering.

What's the next risks thing that they can navigate and are there some active discussions and anything coming out of it or just discussions that maybe is different than last cycles.

I think it's a great question, Jim. That's stuff that we think about here every day. And the answer to your question is yes. Of course, we're looking at housing situations for customers that possibly you would pay by the month or pay by the quarter or something like that. Then you have to get into the carrying cost and the working capital that goes into whose inventory is it.

No I think it's a great question Jan that's stuff that we think about here every day and the answer to your question is yes of course, we're looking at housing situations for our customers.

Possibly you would pay by the month of may by the quarter or something like that.

Then you have to get into the carrying costs and working capital that goes into whose inventory is it but yes. Those kinds of models will start to start to materialize in the future. Although what I can tell you with high degree of confidence nobody would've carried as much enough inventory to solve.

But yes, those kinds of models will start to materialize in the future. Although what I can tell you with high degree of confidence.

Nobody would have carried as much enough inventory to solve this problem. They might have had a quarter's worth of inventory which would have protected them for one more quarter because nobody's gonna put a year of inventory and across the board of everything that they need.

This problem they might have they might have had a quarter's worth of inventory, which would have projected them for one more quarter, because nobody is going to put a year of inventory at across the board of everything that they need.

and typically our lead times aren't that. What you're into now is you actually have to build fabs to get more product out the door. And that's waiting. That's just...

And.

Typically our lead times aren't that whats your into now is you actually have to build fabs to get more product out the door and that's.

That's waning that's just.

waiting out there because the demand is so high and you know what is it I heard 10 million less cars being built over over the next year or two that's an awful lot of components and that's an awful

Waiting out there.

Because the demand is so high.

And you know what is it I heard 10 million less cars being built.

Over over the next year or two that's an awful lot of components.

And that's an awful lot to catch up on.

But the answer to your question is yes, Jim that is is that's Nirvana. We are working on those models right now those will be introduced but first and foremost is just getting more supply for our current customers and getting them out of this problem. So they can live.

But the answer to your question is yes, Jim, that is it. That's Nirvana. We're working on those models right now. Those will be introduced. But first and foremost is just getting more to apply for our current customer and getting them out of this problem so they can live at the other day for that problem you just talked about.

The other day for that problem, you just talked about.

That's very insightful. Thank you so much.

Mhm.

I will now like to turn the call back over to Steve O'Brien for close.

And I would now like to turn the call back over to Steve O'brien for closing remarks.

Thank you for everyone for joining.

Thank you for everyone for joining us today. If you have any questions, you can reach out to me. We appreciate your interest in aeroelectronics and have a nice day.

Joining us today.

You have any questions you can reach out to me.

We appreciate your interest in Arrow electronics and have a nice day.

This concludes today's conference call. Thank you for participating you may now disconnect.

This concludes today's conference call. Thank you for participating. You may now disconnect.