Q3 2022 Avnet Inc Earnings Call
Please stand by our presentation will now begin welcome to Avnet third quarter fiscal year 2022 earnings call I would now like to turn the floor over to Joe Burke, Vice President of Treasury and Investor Relations for Avnet.
Thank you operator earlier this afternoon <unk> released financial results for the third fiscal quarter of 'twenty to 'twenty two.
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 on the lake.
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 such.
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 that in its most recent Form 10-Q , and 10-K and subsequent filings with the SEC.
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 or supply new information regarding the circumstances. After the date of this presentation.
Today's call will be led by Phil Gallagher, Avnet, CEO and Tom Liguori Avnet CFO .
With that let me turn the call over to Phil Gallagher.
Bill.
Yeah.
Thank you Joe and thank you everyone for joining us for our third quarter fiscal year 2022 earnings conference call I'm very pleased to share that our team's continued focus on execution has yielded yet another quarter of strong financial performance and competitive gains across our business our focus on accelerating the growth of <unk>.
Now and on strengthening the operational efficiency and critical partnerships of our core distribution business is yielding consistent results.
And this is demonstrated in the numbers.
We posted 32% year over year revenue growth with Asia exceeding expectations by defining the traditional March quarter seasonality two years arrow.
Margins were also very robust.
In the quarter revenues of $6 5 billion were up sequentially and year over year.
Our adjusted operating margin increased sequentially to four 7% driven by the continued margin expansion of farnell and electronic components business.
We are competing favorably across the board and are pleased to see continued improvement in our Americas business, where strong demand and expanded supply chain orchestration opportunities helped us grow revenue by over 40% year over year and achieve our fifth consecutive quarter of operating margin growth.
We are also especially pleased with the strong results from farnell, which has proven to be an important needle mover for total avnet and is now responsible for 7% of our sales and 23% of our adjusted operating income.
Robust demand was again widespread across our end markets, we continue to see strength in the automotive transportation and industrial segments and.
And we expect the aerospace and defense segments to remain elevated over the coming quarters overall.
Overall, we continue to forecast favorable demand conditions to hold throughout the second half of this calendar year.
Before I turn to segment performance.
Like to briefly address the conflict in Ukraine.
Our team has been deeply saddened by the violence that is unfolding and continues to closely monitor the safety of our colleagues in the region.
Our thoughts are with all who have been affected by these tragic events.
We have just a small number of employees in Ukraine, most of whom have safely left the country.
We also have some in Russia and of course, many partners suppliers and customers in the region.
Due to that we do expect some minor impact to our business, while we have no distribution or integration centers in the region. We have ceased all business activities in Russia.
Which represents less than 1% of our annual revenues and gross profit dollars.
Our focus remains supporting our impacted employees and partners.
And while I'm deeply unsettled by the situation in Ukraine, I've been heartened by the incredible efforts undertaken by Avnet and farnell of employees to provide direct support to Ukrainian refugees entering Poland.
Clothing through the delivery of supplies and equipment.
I couldn't be more proud of these efforts and the supportive culture, we've built here at Avnet.
Turning to the performance of our electronic components business.
Revenues were up 11% sequentially and 33% year over year in the quarter due to strong sales across all of the regions, we posted double digit sequential growth in EMEA and in the Americas and as previously mentioned this is usually a seasonally slower quarter in Asia due to the lunar holiday.
So we were very pleased to see results in Asia that exceeded our expectations for the March quarter, which we believe was driven by share growth in the region solid demand creation and growth in the power and programmable logic controller segments.
We saw a continued rebound in our Americas region, which is again up significantly year over year and sequentially, what's more the team's ability to maintain expense levels. While also capturing significant business opportunities from new and existing customers driving improved margins in the region of note we've expanded opera.
In the Americas, and EMEA to engage directly with tier one automotive and transportation companies very exciting.
This broad engagements speaks to the value add and it brings with our deep expertise in supply chain orchestration and is this the exemplary of the new contracts, we are winning across our business.
Our book to Bill ratios at the end of the quarter remained strong.
Lead times remained consistently extended at this point in time.
We continued to tightly manage our backlog and are satisfied with our inventory levels as we support strong demand across our operating regions.
Our continued investments in digital and design tools and field application engineers are paying off as demonstrated by another solid quarter of design and engineering activity across all regions. These high levels of design registrations and wins in prior quarters resulted in yet another quarter of record demand creation sales and gross.
<unk>.
Turning to farnell.
Sales were up over 18% year over year, a reflection of the impact of our investments in for an old inventory and its e-commerce capabilities.
We added over 19400, skus in the quarter, which gets us well on our way toward our plans to add 250000, skus through 2020 two.
Our sustained investment in Farnell e-commerce platform and improving the user experience has yielded meaningful results 50.
56% of our total sales and 72% of the total transactions were placed through Farnell is E. Commerce platform. This quarter and we expect that to continue to see increased traffic and new customer acquisitions in quarters to come.
Our ecommerce web speed is 54% faster than in the same quarter, one year ago, providing a much better customer experience over.
Over the past 18 to 24 months for now it was added 40, new supplier partners.
Quite a few of whom are existing electronic components partners.
And this really speaks to the distinct value proposition of farnell and the complementary offering it provides alongside our electronic components business to avnet its customers and suppliers.
In summary, we're very pleased with our performance over the past several quarters I'd like to personally thank our employees for their unwavering commitment to executing on our strategy and delivering top and bottom line growth there.
Their efforts coupled with the durable changes we've made to our business over the last several years have helped us gain considerable share and continue to position us to capture new opportunities as we progressed through 2022.
I remain very optimistic about what lies ahead for avnet I look forward to sharing more on these opportunities at our upcoming Investor day.
So with that let me turn the call over to Tom to report on our financials for the quarter.
Uh huh.
Thank you Phil good afternoon, everyone and thank you for attending today's call.
As Phil mentioned, we are very pleased with our third quarter performance.
Our team's focus on growth and margin expansion continues to drive higher top and bottom line performance I'm excited to share for the highlights from the quarter.
Our revenues of $6 5 billion and adjusted earnings per share of $2.15 both exceeded guidance.
For now our revenues grew 18% year over year, and 6% sequentially to $469 million.
Operating margin in Farnell increased 123 basis points sequentially to a record 14.9%.
The growth and margin expansion.
Is in large part due to the for now team's focus on improving the total customer experience and as Phil mentioned, adding suppliers.
Many of which have been long term electronic component suppliers and are now also with farnell.
Electronic components grew revenues, 33% year over year to 6.0 billion GP.
Driven by increased demand creation, and <unk> revenue as well as new supply chain orchestration engagements.
Both Americas and EMEA benefited from the growing supply chain engagements.
These are large scale engagements to help customers manage supply chains.
We were specifically pleased by the continued improvement in our Americas business, which grew 17% sequentially and over 40% year over year.
But you also had better than anticipated results in Asia, where we did not see a seasonal decline.
Electronic components operating margin improved to four 4% an impressive 92 basis point improvement from the prior quarter.
Each of our regions grew gross margin over the prior year quarter benefiting from pricing and <unk>.
<unk> expense management during this period of significant growth.
For total Avnet, we couldn't be happier with our seventh consecutive quarter of adjusted operating margin improvement.
A 4.7% operating margin is far higher than we've seen in the past.
The reason is we are a different company.
A stronger more resilient company.
Today, we are focused on our distribution capabilities being efficient and meeting our customer supply chain needs.
Our supplier base is solid with suppliers like AMD, Xilinx, broadcom and others that differentiate avnet and its a wide breadth of suppliers with no one supplier greater than 10% of revenues.
Our investments in F. A he's an online design tools has increased our percentage of revenues from demand creation.
Demand creation has a percentage of revenue is now 500 basis points higher which means higher gross margins.
Our Americas team has made great progress with strength in automotive industrial MFS, and aerospace and defense all high growth verticals.
This quarter operating margins were well ahead of our previous expectations Americas is now a solid contributor to our success.
And for now we've invested in for now for four years to create a better customer experience.
We have an engineering community online.
Online tools and product info.
Our ordering process is streamlined.
We offer a much broader selection of inventory.
As well as more payment options, all of which make it easier to buy from farnell.
And best of all most product to ship same day.
All of these contributed to the higher revenues better pricing and a more efficient fulfillment process has reflected in their financials.
Lastly.
Our expense structure is more streamlined today.
We've talked to you for four years about 245 million Opex initiative say.
Saving money in the back office and investing in the front office.
Compared to four years ago, our quarterly revenues are $1 7 billion higher yet.
Yet our adjusted operating expenses are up only $30 million.
That is why you see tremendous drop through to the bottom line.
All of these contribute to avnet today, being a stronger and more resilient company.
Some of our investors and analysts are concerned about pricing and its contribution to our operating margins.
We've been very transparent about this and we will continue to be.
And this quarter, we estimate that higher year over year pricing contributed 220 basis points to Ferndale margins.
And electronic components. The contribution is about 45 basis points.
Combined our avnet adjusted operating margin of four 7% would have been a healthy four 1% without the benefit of higher pricing.
Our teams continue to manage our balance sheet and generate cash cash flow from operations. This quarter was $244 million.
That was comprised of $77 million of cash generated by operations and $167 million from a cash income tax refund.
Our days working capital decreased to 67 days this quarter.
Down from 70 days in the prior quarter.
Inventory dollars increased sequentially by $138 million.
Continue to be in line with the increase in customer demand.
As evidenced by the slight decrease in inventory days.
From 60 days last quarter to 58 days this quarter.
We continue to maintain a solid liquidity position with cash and equivalents of $199 million and $1 6 billion of available lines of credit.
Our gross debt leverage this quarter was one four and net debt leverage was one point too.
To build on what Phil said about our business activities in Russia, and Ukraine, We took non cash reserves of $26 3 million.
Primarily related to reserves on receivables in the region.
We do not expect to incur any further reserve adjustments going forward due to the conflict.
Regarding progress on our capital allocation priorities, we repurchased 1.1 million shares in the quarter and our dividend of 26 cents per share represented a 23, 8% increase over the prior year.
We remain committed to increasing shareholder value by.
By delivering a reliable increasing dividend and continued share repurchases.
Let me finish with a few notes on guidance.
Our fourth quarter guidance today is based on current market conditions, including ongoing strong demand in pricing and the current state of Covid restrictions as well as geopolitical events.
For our fiscal Q4, we are guiding revenue in the range of 6.0 to $6 4 billion and.
And adjusted diluted EPS in the range of $1 90 to $2.
In conclusion.
We remain committed to providing reliable returns to shareholders through revenue growth and margin expansion and a commitment to our dividend payout and share repurchases.
With that I'll turn it over to the operator for questions and answers.
Thank you we will now be conducting a question and answer session.
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 the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Okay.
Thank you. Our first question is from Melissa Fairbanks with Raymond James. Please proceed with your question.
Hi, guys, great quarter and outlook. Thanks for taking my question.
I assume you'll be giving us some updated long term margin targets in June at the Investor day, but I was just wondering if you could maybe give us a little bit of kind of near term expectations. The operating margins had been running kind of well above where when your target was exiting last year in the back half of the year just wondering.
If you could maybe.
Guide us to the sustainability of those margin levels, how much of that is demand creation and how much we should factor in from demand creation going forward.
Yeah.
Sure.
First of all Hello, Melissa Thank you for having us at your conference. This year, we thoroughly enjoyed it.
Near term operating margins core to 5% range is a pretty solid we feel very good about the execution and the demand creation and the cost structure and.
That will continue for the near term longer term, we will address it at Investor Day, you know like we said at your conference.
This is all about investing for growth and margin expansion. So it's growing for now embedded Americas, our digital platforms and more and we will be showing a path to a greater than 5% operating margin so more to come and everybody on the call is June six in New York and we welcome your attendance.
Yeah. So I'll just jump on that on top of our high Melissa It's Phil. Thanks for thanks for the question then the complements on the demand creation specifically to your question that we were a record demand creation revenue quarter in the AR and the pipeline actually grew nicely as well. So that's that is that is for sure contributing and we'll continue to.
So it's not there's not a spike by any stretch. It's just its continued to to grow in a positive direction.
Excellent look forward very much look forward to the to the updated targets. Maybe one quick follow up I know you said that demand creation has grown 500 basis points have you broken out what percentage of total revenue demand creation is today.
Yeah, it's roughly 30% 28, 32% in that range and that's total revenue, which includes a lot of products that aren't aren't a sole source proprietary.
Okay fantastic, thanks, very much guys.
You Gotta most thanks Melissa.
Thank you. Our next question is from <unk> <unk> with Bank of America. Please proceed with your question.
Hi, Thanks for taking my questions and congrats on the strong quarter.
I have two questions, maybe I'll start with the one for Phil.
You know some investors are concerned about a recession either in the in the U S or maybe in Europe . So.
So Phil can you talk to us a little bit about if there is a recession how would your playbook change.
And when you look back at the old seven sorry, the O eight or nine downturn recession, then how has that changed over the years and do you think the company is better prepared to weather a downturn if it happens so maybe just give us your thoughts on you know.
You know how you see the company positioned if there is a recession coming in and in a recession due to distribute do suppliers use distribution more and how would how would you see that your services are trending.
Yeah, I'd say, yeah, that's a great question group, who.
Big question by the way so.
First of all for 2000, and 8009, Yeah, where we're 100% components now so we don't have the computer side of the business. So that's the way we're free from that I shouldn't say fragrances disengaged with that obviously as you know and our art and a whole models about variability right and driving drop through.
So a lot of our costs are variable from the standpoint of commissions and.
And freight and logistics costs and whatnot, so we adjust those.
So as we go and some of them. So it's self adjust right.
As far as the the mix you know so back on the components side with a much higher margin business that we think is sustainable Tom talks about it and far now that even in a downside you know that's going to we believe that will maintain a double digit operating margin line. Okay. Even even if there is a.
A downturn so we think between the mix on the bullishness question on demand creation continuing to grow our line card. We think we can we can drive through that well have to make some adjustments and then the other thing we do ruble you know if there's a downturn we spin off a lot of cash which makes Tom real happy Okay, and Joe right. So we so we're counter cyclical and so did that.
Oh, we spin off the cash on the supplier side.
I'm really excited about the suppliers I mean right now they're they're there we're working with them in more and more new and advanced opportunities I think the engagements as good as ever yeah, even in downturns, they they leverage us as much as they possibly can cause and variable model that we bring them from a scale standpoint, so I don't see much much adjustment in the mix from a supplier.
Standpoint of Tam to D. Campbell whatnot, you know so I'm very very confident they are never comfortable right I've talked about that all the time, but we're very confident of our supplier engagements whether it is an upmarket or downmarket.
Got it no that's a that was quite helpful.
Maybe the second one and then my follow up for for Tom. So you know Phil mentioned strong cash flow during a downturn.
You've had a strong cash flow quarters can you update us on your capital allocation priorities I mean in a in a macro environment like this and then you mentioned investments and for now have really driven a.
Margins in that segment and you're a lot of cost for your customers are using the E. Commerce side of that business. So can you tell us how much more investment is still left in that business and how that impacts our margins going forward.
Yeah. Good question. So a lot there capital allocation I think you're really driving at dividend and buybacks. We're committed to both we're committed to shareholder returns the dividend, we're really happy with where it's at we're going to get it on.
And annual sequencer Youll see increases, but you know the last couple of years was to get it to the level. It is today on buybacks, we bought back that 1% of our shares this quarter last quarter, we talked to you about over three years, reducing the outstanding share count by 8%.
<unk>.
That's still.
Our minimum intent and one thing we will talk about at Investor Day is buybacks are a very important part of the shareholder return.
And we will be doing more so that'll be explained in in June .
You know I think what Phil said is very important.
We look at this has in a growing economy with our investments in farnell and embedded yeah. We are we are in for over 4% op margin faster than we thought and over three years, we can get it up over five.
The way, we think of a downturn, even though we've done a lot of work internally about what maintaining margins during a downturn.
The benefit the opportunity for us in the downturn does generate cash and buy back shares and and that's the way we're going to be thinking about this.
You mentioned the recession last time in 2007, 2008, I believe we had more debt and I'm one of the things. We said a few quarters ago was our debt level today is pretty similar to at least 2010 2011.
And I say that because we're much better positioned going into.
Hey, downturn, when and if it she'll happened right.
It's ironic if you look at our metrics internally, we showed no evidence of any.
Anything slowing our book to Bill.
Still high on a percent of the quarter booked is higher than it's ever been.
There is more price increases coming but we'll lay this out in Investor day capital allocation shareholder returns is very important as far as for now we still have.
Okay.
A lot of inventory, we're going to be adding and this is a good thing. This is what is helping driving revenue and in margins.
We're gonna be expanding let's say in the final inventory, we have <unk>, we have some MRO.
Chris <unk>, our President will talk to you more about this in <unk>.
In June but in terms of dollars.
You still have another 100 million to go in for Nellix that Opex is primarily inventory.
But that's what we've done in the last three years and with those expenses and those inventory investments for now is continue to expand operating margins continued to expand returns on capital and that's going to continue our plan for the next three or four years.
Okay. That's very helpful. Thanks, again, and congrats on the strong quarter and guide.
Thanks, Chris.
Sure.
Thank you. Our next question comes from Matt Sheerin with Stifel. Please proceed with your question.
Yes.
Hello, everyone.
My first question guys is just on.
On the guidance and.
This guidance sequential sequentially down and I think if you exclude.
The T I D.
The divestiture of a few quarters ago, it looks like you've been growing sequentially for like seven or eight quarters in a row and he's going to be the first down quarter.
Is that coming from across the region or is it more a job because what youre seeing with COVID-19 restrictions and the fact that we probably had some some significant pull in in the March quarter in nature.
Yeah, Hey, Matt its Phil I'll take first crack at it.
Yeah.
We think the guy is actually quite quite good coming off of the strength I mean so.
As we pointed out in his script Asia now two years in a row has.
Going against the grain of the typical seasonality being down in March quarter, and they were actually up okay. So we had a really strong quarter in Asia as we did in Europe and the Americas as you saw so I look at it more as a you know last quarter, we were up 25% year on year. This quarter, 34% next quarter. The current guys he's doing.
10% growth year on year, Okay taken out and that's given the even maxon, which you Didnt mentioned, so we're actually pretty pretty confident with the with the with the guide the field.
We feel pretty good about it.
Tom you want to comment on that I feel I think he said it well, we're coming off a really strong quarter and theres uncertainty, there's more uncertainties with Asia coverage restrictions and geopolitical but.
So those are reflected in and we think we'll do quite well.
Understood and then.
Inventory your inventory remains lean and a lot of suppliers already this week are pointing to distribution inventories as being low and no concern about an inventory build you had if you look at most of the EMS suppliers and Oems and their inventories are at record highs and concern about an imbalance of inventory.
We're obviously, they're waiting for hard to get parts and building others.
Are you seeing that at all in and at what point would you start to see it in your order books is that when lead times stabilize and ERP systems, correct or what what are what are some of the things that you'll be looking for.
Yeah. Thanks, Matt Yeah, we're watching that with our customers as well and the anticipated that question. Yeah. There is for sure a bit of a build up there, but and I've been to most of those guys. You referred to that are public and their backlog is solid you know so they feel really good about the backlog, although inventories might be elevated a bit in there just you know the determined that the Goldman.
Screw regular was waiting for that Golden screw and then when you go back and check with their OEM you worked at backup the winding down the line and what do you want to talk about it that the demand looks really solid and real for lack of a better better work on our end.
We're tracking that very closely on the the amount of Mlps, we take it across the spectrum of M. S OEM et cetera.
And we feel confident with the backlog that we have as well. Okay. Now it's further out right because lead times are further out, but we feel really good about the backlog and yeah, we'd love to have a little bit more inventory that would that would be a good thing, but we're servicing the customers that you know pretty darn well, although one extra.
He calls pretty much every day still the sign it was indicated we look for bad Yeah. The book to bills will start to come down if there is any kind of correction and they remain elevated as we pointed out and then we look at cancellation rates rising and cancellation rates, we look at cancellations and in that bucket. We look at push outs are Poland's right. It's a combo.
Combination number if you will and that is steady state right now we're not seeing an elevation in adjustments to backlog that are out of the norm in our normal adjustment isn't a let's call. It the 18% to 20% range in any given day, that's typical and that's about what we're running so that'll be that that's what we'll be watching really really closely.
Okay. Thank you that's super helpful and interesting if I can just ask another question regarding the supply chain.
Engagements or orchestration engagements that you talked about with big customers needing help.
And that sounds fairly new I know you've been talking about over the last couple of quarters, but could you tell us how big that is how many customers and what the margin profile I would imagine maybe a lower margin or perhaps you got a consignment fee that's.
That's higher.
Yeah to get to.
Very in depth question, we will be covering that in detail by the way at the D&O stated Tom referenced in June because it's yeah, it's continuing to grow mat, which is a good thing and.
We call it it's in our we call it our avnet, United a which is the large global engagements as well as the velocity, Okay and it's it's it's.
Growing in numbers of opportunities of what I'll call them nontraditional customers coming our way and.
And suppliers, taking us in that need help with the supply chain management.
The orchestration of the control towers, if you will the up to the end customer manage manage their supply chain through and with the EMS providers, if they're if they're using those.
So that's you know some of it as far as financial modeling.
There's reports right into finance I believe that's not right. So we don't do any of these without a model that gives us a fair returns. So some might be more inventory heavy others, maybe inventory light or zero inventory and in our service fee right. So they're all they're all above our return on capital, Okay, and that's how we model that mats. So it's a completely.
Different way well keep that out of our our core distribution businesses, there are capacity and growing which is exciting.
Uh huh.
To add to what Phil said, Matt.
Good portion of these are services type arrangements.
So we're not really taking.
The inventories so to speak so they tend to be higher margin they tend to be higher margin engagements and that'll help out help us over three or four years.
Okay, alright, thanks, a lot.
Thanks, Matt It's Matt.
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Yes.
Our next question is from Jim Suva with Citigroup. Please proceed with your question.
Thank you you mentioned that consignment model, some and you know some of these new terms like cabinet tower in one and stuff like that is this kind of the result of having gone through.
Hmm.
The trade wars are shipping constraints challenges logistics power outages and all that and if so is it.
Kind of more of the consignment model you see is winning out more or more.
Your customers like e-commerce companies or your end customers asking you to hold more inventory I'm just kind of wondering how this sorts out is it more becoming.
Find that model this the new the new chapter or more holding more inventory and getting paid for it or some type of hybrid.
First of all it is what you started off with him is true is that even though we've always done these engagements.
They've really accelerated because of the last two or three years and supply chain disruptions the shortages and.
So, but you know our team here and we will talk about this more at Investor day, which these are typically.
Named customers large scale engagements, where they want avnet.
To manage some portion of their supply chain, because we have multiple routes to move material. We do hold inventory that many of these you know because they want us to solve a problem.
Even though it has the same financial effect as consignments that takeaway consignment, it's more of a services type type of arrangement, we have Phil anything to add yeah, No John Hey, Jim.
What about this a little bit before it's I wouldn't say hybrid it is the right word, but it's a mix of all those Jim. So some are traditional consignments are still alive and well, we do consignments, but what are the way. These again without the financial modeling right consignment and there has to be more inventory all right. That's fine, but you know who's gonna who's going to pay for that but I would I would sum it up just saying I've said this many times Warner Center.
Would your supply chain I think in these past several years.
Companies in general in our industry and outside kind of took supply change for granted right and until they can't get what they need. So I think we've always known there's an appreciation for what we do on the expertise we bring I think there's a renewed appeal.
<unk> of what we can bring to the party with the analytics and the expertise that we have so.
Again, these are very complex engagements and when you're done.
These arent done in a week or two youre talking months, how do you rebuild the processes from from the back end all the way up.
Great. Thanks, so much and look forward to seeing you in June .
Thanks, Jim.
Thank you. Our next question is from Nick Todorov with Longbow Research. Please proceed with your question.
Hey, guys good afternoon, and congrats on great results.
Okay question on.
I think the acceleration in <unk> in the March quarter, it's quite substantial either sequentially or year over year. So it really begs. The question. You know are you seeing any signs of supply of loosening I mean based on your comments I don't think so but how would you explain that acceleration and maybe similar to <unk>.
How you broke down the impact of pricing on margins.
Can you give us any sense of how pricing impacted revenues sequentially or year over year over year.
Yeah, Nick I'll take the first crack at that so I'll turn it over to Tom as far as let's just talked about.
The first part of your question is our lead times coming in or.
But for the most part as we pointed out in the transcripts or there's no real indication of of lead times coming in.
And that's a general state of nurse Theres, some that might be getting better and some of them are getting worse, but overall, it's still pretty tight out there was a settlement calls pretty much every day with customers and suppliers trying to work the expedites, but again pretty much across the board. It's still has it gotten worse, okay for the most part.
It's pretty steady as far as lead times goes as far as ASP piece. It's a great question and we got a lot of analytics around there's been a lot of conversation internally and met with a customer last week and shared some of the data.
Some isps have actually come down right. So if you look at we look at this by average selling price from <unk>.
Zero to a dime and dimed over quarter end, but you could imagine that the amount of data in the millions of items that were shipping and then above $10 a S p's, which we'd love to have more of those would be above $10 and five to 10. When you average it all out that's the biggest increase has been in the higher ASP parts, because that's where we've seen more of the price increases and we average it out were estimating.
Somewhere between six and 7% of the growth is in Asp's and go that's a that's an estimate I will say in all categories.
The units Okay. We're just thrilled to merit the units.
Our up okay. In all categories units increased so hopefully that helps give you a little bit of color and we looked at that again by average selling price by technology discrete analog controller caps et cetera.
Okay.
That's good detail. Okay go ahead, Nick Yeah.
Just to kind of a follow up again, so is that pricing impact six or 7% first I'm, assuming it's a year over year comment is that substantially different from what you're seeing in the December quarter, just again because.
Judging by the sequential increase in revenue and implies that you're able to get your hands on a lot more product than you probably anticipated going into the quarter.
No it it would be somewhere in the December quarter, I would just say that we we got the products we needed to suffice to backlog that we had.
Some of that you don't you don't know all of that going into the quarter. There are some.
Suppliers in certain commodities that are there aren't commit dates yet.
We have the backlog rights, but theres no firm commitment of supplier base and all that's going on so we've got some some shipments in the end of the quarter that were yeah. They come in and they can go right out. So yeah, we've probably got a little bit more on some products that we werent expecting that.
They're not shipping ahead make it really quick not ahead instead of backlog.
We did get some at the end of the quarter that enabled us to.
Have a good quarter, but it was it was it was just good demand Nik and I Gotta get my argue could give our product teams and our supply chain teams are.
Call out I mean, they're doing a heck of a job in and some constrained times work with our suppliers and again our team has done a nice job in product and asset.
Yeah, most definitely Oh, Tom one question you.
If we look at the guide sequentially is there any way you can give us any kind of a directional sort of breakdown what are the assumptions in terms of impact from China, lockdowns and potentially from Maxim.
That is some of that is starting to tail off as well any any color additional would be appreciated.
Yeah Yeah.
<unk> way behind US we've made up that business. So the way we look at our guidance as is.
Similar mix are very similar gross margin.
Our opex will be down just a bit because regarding the revenues down.
The operating margin because of suddenly lower revenues, they're not going to be 4.7%, but there might be in the $4 three to four 5% range.
Everything else snake down the line should be about the same same interest expense same tax rate, 23%, Oh hope that helps.
Okay, Yeah that does help alright, that's all okay. Thanks, guys. Good luck.
Thanks, Nick.
Thank you. Our next question is from Joe Quattrochi with Wells Fargo. Please proceed with your question.
Yeah. Thanks for taking the question.
I think you earlier mentioned that you've seen further price increase that's coming I'm curious how do we think about the percent of increase relative to maybe what you've been seeing in the past quarters. I mean are you starting to see that no price increase percentage.
Kind of slow down in terms of the momentum over there.
Good question.
No I don't see a big dramatic much of it much of a change Joe It is and it's what makes it hard to answer that question is there's so many different suppliers in different types of commodities. So it's hard to make a one fell swoop.
It's just you know at this point, we've had well north of 50 different suppliers raised prices upwards of six to seven different times and more coming as was pointed out in the script. So it's tough to answer the question. When you net it out as I just shared I mean net net we think its somewhere between 6% to 7% total because remember some supply some some commodities are still very.
Competitive an ASP fees aren't going up.
Got it that's helpful and then.
Early you mentioned opportunities may be opening up at tier one auto suppliers can you just double click on that help us understand what that opportunity looks like you know like that more of a fulfillment or are there some kind of additional services and things that you can add on from a supply chain perspective that this could be pretty good margin and looking at opportunities.
Yeah, you, obviously can't share who what yeah, there's different types of.
Vehicles out there right and it's really you know we tried to use transportation, we did say automotive in the in the script, but internally it's transportation because it's really broad right is from.
Golf carts, the cars detractors in trains and everything else.
But it is some our services as Tom pointed out earlier, where it's going to be more of a.
I'll call it supply chain as a service okay, a very working capital right.
Others are I'll just call it maybe a little bit more traditional in our supply chain services and then others were actually doing demand creation right on through our supply chain. Okay.
Particularly when you get into E V in the grid and battery management things along those lines.
Huge opportunity for us and in those cases, it's it's everything that we do from demand creation IP and he's a semi after supply chain.
They're all a little bit different.
[laughter].
Thank you.
Thank you Joe.
Thank you. Our next question is from William Stein with Truth Securities. Please proceed with your question.
Great. Thanks for taking my question and congratulations on these really eye popping results a lot of my questions have been asked and answered, but I have a couple of sort of off the beaten path ones first.
I wonder what you're seeing in terms of your customers and your own ability to source.
<unk> kit during the quarter versus what the ability looked like.
Quarter ago, do you think that that ability has been improving in the last quarter, that's sort of how I'm interpreting.
Inventory.
Reduction that we saw.
Let me try and understand the question, where you said well we do.
Do we think our customers have more with.
With.
They can do I mean.
Let me try to let me try it again.
Zinc.
Inventory had been somewhat elevated at least the last quarter and one of the things you spoke to fill was this problem of not being able to source complete kits and in some cases you had these mismatch situations and that was driving at least part of the elevated inventory this quarter, we saw that reverse.
And I Wonder if that's.
Message that in fact, either you or your customers through through using your services and maybe others are a little bit better able to source complete kits today or am I over interpreting that.
Yeah, you might be over interpreting it a little bit well I think its great question, though and you're right because our inventory did oh, you're right just a couple of quarters and we share with all of you on the phone that day, we were fine with that inventory because we knew it was going to go back out. So it did I'd say, it's going to be really customer specific well, you know, where we are and and.
And to the earlier question you know we did we did get some good shipments in the end of the quarter that we've.
We've been expediting and you have customers that you know lines down to you're trying to help out. So we did have a nice last few weeks of the quarter.
Okay. It was kind of ahead of what we thought.
I appreciate that the other question is about far now and I think in your prepared remarks, you noted that there were a lot of.
Suppliers that you added to far now that you already had in the components business.
And I want to make sure I understand what this is this sounds like there's a supplier that you serve sort of regular way components distribution and you're now adding the same <unk>.
Playa and Siem product.
In this fundamental channel, which is of course.
No we can call it higher service, but we know it's higher margin also is that the way to interpret that or is there something else going on is it the same.
Plier, but you're adding more unusual parts or more I don't know what lower runners or.
Is there something that weighted status.
So it's a good question what was the point, we're making is we talk and they wanted to take the opportunity to for now.
It gives them new products introduction to the core business right because it's their servicing a lot of our new product introduction, a lot of Ftes and designers and then we can transition or if you are sure that lead with our core.
Business, which is great and get our account managers and salespeople.
We wanted to point out is there's a lot of leverage and opportunity. The other way round, two where farnell you know Newark here in the U S. You know may not have had winds like oh, micron or and I don't want to down the whole pie.
We have great relationships with some major suppliers of front I'll just didn't have okay and for now it was definitely higher in the muni space than the semi so we were able to now share those lines.
And the authorization of the franchise authorization to two farmhouse and when we looked at it.
There were several quarters to yourselves.
It was a it was a big number but it's all the same products, but again remember the difference though is for now carries a really broad SKU count right because they're handling the engineers in there then it is higher services quote unquote and they want to get to ship complete kits. So, but then having a broader line card expanded skus It helps service.
That customer base better so that's been a real opportunity then theres otherwise, we got it right and we've talked about this before like national instruments, and I Wouldnt carry that on the core side. Once you know that was a big win for an Apple to get the well the one of the top instrumentation companies out there and that's one of the phenomenon. That's just been out in the last few quarters and we expect that to.
Got some really nice top line growth so hopefully that helps.
Thank you and congrats again.
Thanks, Paul.
Yeah.
Thank you there are no further questions at this time I'd like to turn the call back over to Phil Gallagher CEO for any closing comments.
Yeah. Thank you and I'll be brief I appreciate everyone. Joining our call today are much appreciated and look forward to speaking to you all and seeing at the upcoming Investor Day on June six and by the way, we'll have a lot of our executive team with us from around the world and supply chain and design demand creation. So you'll have a chance to meet him.
A team that makes all this happen because without them, we don't have a business. So anyway. Thanks again appreciate it and we'll catch you June six hopefully if not we'll catch you in August at the fourth quarter earnings results take care. Thanks, everyone.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Okay.