Q3 2024 Avnet Inc Earnings Call

Please standby.

Our presentation will now begin.

Operator: Please stand by. Our presentation will now begin. Welcome to the Avnet third quarter fiscal year 2024 earnings call. I would now like to turn the floor over to Joe Burke, Vice President, Treasury, and Investor Relations, for Avnet.

Hmm to the <unk> third quarter fiscal year 2024 earnings call I would now like to turn the floor over to Joe Burke, Vice President Treasury and Investor Relations for asthma.

Joseph Burke: Thank you, Operator. I'd like to welcome everyone to the Avnet Third Quarter Fiscal Year 2024 Earnings Conference Call. This morning, Avnet released financial results for the third quarter of fiscal year 2024, and the release is available in the Investor Relations section of Avnet's website, along with a slide presentation, which you may access at your convenience. As a reminder, some of the information contained in the news release and on this conference call contains forward-looking statements that involve risks, uncertainties, and assumptions that are difficult to predict.

Thank you operator, I'd like to welcome everyone to the Avnet third quarter fiscal year 'twenty 'twenty four earnings conference call. This morning, <unk> released financial results for the third quarter fiscal year 'twenty 'twenty four and the release is available on the Investor Relations section of its website, along with a slide presentation, which you may access that you can be.

Joseph Burke: Yes.

Joseph Burke: As a reminder, 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 forward looking statements are not the guarantee of performance and the company's actual results could differ materially from those contained in such statements.

Joseph Burke: Such forward-looking statements are not guarantees of performance, and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in Avnet's most recent Forms 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.

Joseph Burke: Factors that could cause or contribute to such differences are described in detail in avnet as 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.

Joseph Burke: New information regarding the circumstances after the date of this presentation.

Joseph Burke: Please note, unless otherwise stated, all results provided will be non-GAAP measures. The full non-GAAP to GAAP reconciliation can be found in the press release issued today as well as in the appendix slides of today's presentation and posted on the Investor Relations website. Today's call will be led by Phil Gallagher, Avnet's CEO, and Ken

Joseph Burke: Please note unless otherwise stated all results provided will be non-GAAP measures. The full non-GAAP to GAAP reconciliation can be found in the press release issued today as well as in the appendix slides with today's presentation and posted on the Investor Relations website.

Joseph Burke: Today's call will be led by Phil Gallagher, Avnet, CEO and Ken Jacobson Avnet CFO with that let me turn the call over to Phil Gallagher Hill.

Philip R. Gallagher: Thank you, Joe. And thank you everyone for joining us on our third quarter fiscal year 2024 earnings conference call. I am pleased to share that we delivered another quarter of financial results in line with our guidance. In the quarter, we achieved sales of $5.7 billion and adjusted operating margins of 3.6%, highlighted by a 4.1% operating margin in our electronic components business, and we generated nearly $500 million of cash flow from operations.

Philip R. Gallagher: Thank you Joe and thank you everyone for joining us on our third quarter fiscal year 'twenty 'twenty four earnings conference call.

Philip R. Gallagher: I'm pleased to share that we delivered another quarter of financial results in line with our guidance in.

Philip R. Gallagher: In the quarter, we achieved sales of $5 $7 billion and adjusted operating margins of three 6% highlighted.

Philip R. Gallagher: Highlighted by a four 1% operating margin and our electronic components business.

Philip R. Gallagher: And we generated nearly $500 million of cash flow from operations.

Philip R. Gallagher: This demonstrates that we can maintain reasonable profit margins even during the challenging cycles we face. As I've mentioned on previous calls, we've been working through an inventory correction on a global basis over the past couple of quarters. And while we've made progress in working down our inventory levels, we, like many in the industry, still have a ways to go. Our customers are facing a variety of factors that are contributing to the current challenging business environment, including elevated inventory levels, some cash flow constraints, diminished customer visibility, and shortened lead times. These market conditions are among the most challenging in recent memory. At times like this, I am proud to have one of the most experienced and dedicated teams on the ground.

Philip R. Gallagher: This demonstrates that we can maintain reasonable profit margins, even during the challenging cycles, we face.

Philip R. Gallagher: As I've mentioned on previous calls we've been working through an inventory correction on a global basis over the past couple of quarters and while we've made progress in working down our inventory levels. We like many Indian Street still have a ways to go.

Philip R. Gallagher: Our customers are facing a variety of factors that are contributing to the current challenging business environment, including elevated inventory levels, some cash flow constraints diminished customer visibility and shorten lead times. These.

Philip R. Gallagher: These market conditions are among the most challenging in recent memory.

Philip R. Gallagher: At times like this I am proud to have one of the most experienced and dedicated teams on the field.

Philip R. Gallagher: As you all know, the economic conditions evident in the second quarter continued in the third quarter. Sequentially, demand declined across most of the end markets we serve. However, defense and data center markets showed improvement. On a year-on-year basis, transportation was a bright spot, with increasing demand globally. Semiconductor lead times have continued to decline over the last several months and are generally stable, although the growth in data center buildouts is driving longer lead times for certain products, and we would expect this to continue.

Philip R. Gallagher: You all know the economic conditions evident in the second quarter continued in the third quarter.

Philip R. Gallagher: Sequentially demand declined across most of the end markets. We serve however, defense and data center markets showed improvement on a year.

Philip R. Gallagher: Year on year basis transportation was a bright spot with increasing demand globally.

Philip R. Gallagher: So let me look at the lead times have continued to decline over the last several months and are generally stable. Although the growth in data center Buildout is driving longer lead times for certain products and we would expect this to continue.

Philip R. Gallagher: On the IP&E side, lead times and pricing are generally stable, and we are seeing increased demand for interconnect products and capacitor families, most notably TENL. Our backlog is lower as a result of shorter lead times and customers working through their inventory on hand. Cancellations have remained at normal levels.

Philip R. Gallagher: Well, I mean, I P and east side lead times and pricing are generally stable and we're seeing increasing demand for interconnect products and could pass or families most notably channel.

Philip R. Gallagher: Our backlog is lower as a result of shorter lead times and customers working through their inventory on hand.

Philip R. Gallagher: Cancellations have remained at normal levels.

Philip R. Gallagher: As expected, our global book-to-bill ratio remains below parity at the end of the third quarter, though modestly above last quarter, led by our Asia region, which finished the quarter approaching parity. I'm really pleased by the work of the team in approving our inventory position. It is worth noting that we reduced inventory and reduced our receivables at the same time, demonstrating sound working capital management. This is a key focus area for our organization, and we expect to see further progress in the current quarter, which should drive solid cash flow from operations.

Philip R. Gallagher: As expected our global book to Bill ratio remains below parity at the end of the third quarter, though modestly above last quarter led by our Asia region, which finished the quarter approaching parity.

Philip R. Gallagher: I'm really pleased by the work with the team and improving our inventory position.

Philip R. Gallagher: It is worth noting that we reduced inventory and reduced our receivables at the same time, demonstrating sound working capital management.

Philip R. Gallagher: This is a key focus area for our organization and we expect to see further progress in the current quarter, which should drive solid cash flow from operations.

Philip R. Gallagher: I am proud of our position as a key enabler of healthy, more reliable supply chains in the semiconductor and electronic components ecosystem, and it's only getting stronger. Our position at the Center Technology Supply Chain allows us to pursue opportunities with our longstanding customers and suppliers, who increasingly rely on AdNet to meet their needs. With that, let me turn to the third quarter results. At the top line, the electronic components business declined revenues across all the regions. But I will note that the third quarter of fiscal year 23 in Amia was a record revenue quarter, so they're going against some tough comparisons.

Philip R. Gallagher: I am proud of our position as a key enabler of healthy more reliable supply chain and the semi locker and electronic components ecosystem and it's only getting stronger.

Philip R. Gallagher: Our position at the center technology supply chain allows us to pursue opportunities with our long standing customers and suppliers, who increasingly rely on avnet to meet their needs.

Philip R. Gallagher: With that let me turn to the third quarter results.

Philip R. Gallagher: At the topline electronic components business decline in revenues across all the regions I will note that the third quarter of fiscal year 'twenty three in EMEA. It was a record revenue quarter, so they're going against some tough comp comparisons.

Philip R. Gallagher: In EMEA, we're glad to see that demand in the transportation end market increased sequentially and the defense end market increased on a year-on-year basis. In the Americas, demand in the transportation and computing end markets increased on a year-on-year basis, and in Asia, demand in the transportation, compute, and consumer end markets all increased on a year-on-year basis. We continue to move successfully up the value chain. In the quarter, our engineering teams continued to engage with our customers and suppliers on design wins and registrations, which drove increases in revenues and margins and further validated the value proposition we deliver in any type of market. Before we get into Parnell's results, I want to let you know of a leadership change in that business. Chris Breslin, our Fresnel president, is leaving Avnet.

Philip R. Gallagher: In EMEA, we're glad to see that demand in the transportation end market increased sequentially and the defense end market increase on a year on year basis.

Philip R. Gallagher: In the Americas demand in the transportation end market increase on a year on year basis, and then Asia demand in the transportation computing and consumer end markets all increased on a year on year basis.

Philip R. Gallagher: We continue to move successfully up the value chain.

Philip R. Gallagher: In the quarter, our engineering teams continue to engage with our customers and suppliers on design wins, and registrations, which drove increases in revenues and margins and further validates the value proposition, we deliver in any type of market.

Philip R. Gallagher: Before we get into a pronounced results.

Philip R. Gallagher: But you know the leadership change in that business.

Philip R. Gallagher: Chris spreads Wayne Parnell President is leaving.

Philip R. Gallagher: I want to thank Chris for leading the Cornell team over the past six years. Given their close proximity, industry knowledge, and proven track record, I've asked two of our veteran EMEA core business leaders to temporarily assume executive oversight for the Fresnel organization. I want to reiterate that Fresnel remains a critical part of Avnet's overall success and value proposition, so stay tuned for upcoming announcements on the Fresnel leadership transition. In the third quarter, Parnell sales were up sequentially, led by strength in IP&E products and single board computers. However, the margins are not where they need to be.

Philip R. Gallagher: I want to thank Chris for leading the finance team over the past six years.

Philip R. Gallagher: Given their close proximity industry knowledge and proven track record I've asked two of our veteran EMEA core business leaders to temporarily assume executive oversight for the Pheno organization.

Philip R. Gallagher: I want to reiterate that for now remains a critical part of that and that's the overall success and value proposition. So stay tuned for upcoming announcements on the sterno leadership transition.

Philip R. Gallagher: In the third quarter <unk> sales were up sequentially led by strength in my opinion products and single Board computers.

Philip R. Gallagher: However, margins are not where they need to be.

Philip R. Gallagher: As a result, we are making cost reductions primarily related to warehousing costs, freight, marketing costs, and headcount. We are well on our way to achieving our previously disclosed savings target, which should be substantially implemented by the end of June, so improvement should be apparent in the second half of the calendar year. As a key player in the supply chain, we continue to leverage our value proposition in areas such as demand creation, IP&E, and embedded computing.

Philip R. Gallagher: As a result, we're making cost reductions primarily related to warehousing costs freight marketing costs and head count.

Philip R. Gallagher: We are well on our way to achieving our previously disclosed savings targets, which should be substantially implemented by the end of June so improvement should be apparent in the second half of the calendar year.

Philip R. Gallagher: As a key player in the supply chain, we continue to leverage our value proposition in areas, such as demand creation, I Feeney and embedded computing.

Philip R. Gallagher: Global sales force and our technical capability.

Philip R. Gallagher: With our global sales force and our technical capabilities, I believe we have all the right resources to grow our top and bottom lines over the long term. While it is difficult to say just when this correction will have run its course, I am encouraged by a number of signs I see at Avnet and in the market. Current business activity in our Asia region is indicating that we are likely near the bottom and may potentially see some sequential growth as we move through the balance of calendar 2024.

Philip R. Gallagher: I believe we have all the right resources to grow the top and bottom lines over the long term.

Philip R. Gallagher: Well, it's difficult to say just when this correction will have run its course I'm encouraged by a number of signs I see at Avnet and in the market.

Philip R. Gallagher: First current business activity in our Asia region is indicating that we are likely near the bottom it may potentially see some sequential growth as we move through the balance of calendar 'twenty 'twenty four.

Philip R. Gallagher: Second, we're seeing a nice pickup in bookings in our IP&E business and at Parnell as well. Finally, the industry sources we follow, as well as the customer and supplier executives I meet with regularly, are projecting a return to growth as we move into calendar year 2025. To conclude, we remain focused on bringing our considerable experience and relationships to bear as we navigate this choppy period. We're managing the things we can't control

Philip R. Gallagher: We're seeing a nice pick up in bookings in our <unk> business.

Philip R. Gallagher: And at Farnell as well.

Philip R. Gallagher: Finally, the industry sources, we power as well as the customer supplier executives I meet with regularly are projecting a return to growth as we move into calendar year 2025.

Philip R. Gallagher: To conclude we remain focused on bringing our considerable experience and relationships to bear as we navigate this choppy period.

Philip R. Gallagher: We were managing the things we can't control.

Philip R. Gallagher: Delivering increasing value to our customers and supplier partners, reducing working capital, especially inventory, aligning costs, and driving shareholder return. I believe we have the right strategy and team members in place to both drive and benefit from the market recovery. Again, I want to thank our team for bringing their unmatched expertise to work every day. It is important to Avnet and it's important to the industry. With that, I'll turn it over to Ken to dive deeper into our third quarter results.

Philip R. Gallagher: Delivering increasing value to our customers and supplier partners, reducing working capital, especially inventory aligning cost and driving shareholder return.

Ken: I believe we have the right strategy and team members in place to both drive and benefit from the market recovery.

Ken: Again, I want to thank our team for bringing their unmatched expertise to work every day. It is important to add that.

Ken: And it's important to the industry.

Philip R. Gallagher: With that I'll turn it over to Ken to dive deeper into our third quarter results.

Ken Jacobson: Thank you, Phil. Good morning, everyone.

Ken: Thank you Phil and good morning, everyone. We appreciate your interest in Avnet and for joining our third quarter earnings call.

Ken Jacobson: We appreciate your interest in Avnet and for joining our third quarter earnings call. Our sales for the third quarter were approximately $5.7 billion, in line with guidance and down 13% year-over-year. On a sequential basis, sales were down 9% in constant currency due to expected sales declines in the western regions and a seasonal decline in Asia due to the Lunar New Year. On a year-over-year basis, sales declined in constant currency by 7% in Asia. 15% in EMEA and 18% in the Americas.

Ken Jacobson: Our sales for the third quarter, approximately $5 $7 billion in line with guidance and down 13% year over year.

Ken Jacobson: On a sequential basis sales were down 9% in constant currency due to the.

Ken Jacobson: Expected as sales declines in the western regions and a seasonal decline in Asia due to lunar new year.

Ken Jacobson: On a year over year basis sales decline in constant currency, 7% and Asia <unk>.

Ken Jacobson: Presenting them yeah.

Ken Jacobson: 18% in the Americas.

Ken Jacobson: From an operating group perspective, electronic component sales declined 13% year-over-year and 10% quarter-over-quarter in constant currency. For now, sales declined 10% year over year and 11% in cost of currency. For now, sales grew 3% sequentially in the cost of currency. For the third quarter, gross margin was 11.8%, 62 basis points lower year over year, but up 46 basis points sequentially. EC gross margin was down year over year, primarily due to a lower mix of sales from the western region. However, EC gross margin increased sequentially, primarily due to the seasonal makeshift to the western region.

Ken Jacobson: From an operating group perspective, electronic component sales declined 13% year over year, and 10% quarter over quarter in constant currency.

Ken Jacobson: Farnell sales declined 10% year over year and 11% in constant currency.

Ken Jacobson: <unk> sales grew 3% sequentially in constant currency.

Ken Jacobson: For the third quarter gross margin of 11, 8% with 62 basis points lower year over year, but up 46 basis points sequentially.

Ken Jacobson: EC gross margin was down year over year, primarily due to a lower mix of sales from the western regions.

Ken Jacobson: E C gross margin increased sequentially, primarily due to the seasonal mix shift to the western regions.

Ken Jacobson: For now, gross margin continued to be down year over year but was higher sequentially, largely due to pricing stability and an improved demand for IP&E products. Turning to operating expenses, selling, general, and administrative expenses were $467 million in the quarter, down 6% year-over-year and largely flat sequentially, with a slight increase due to differences in foreign currency exchange rates. As a percentage of gross profit dollars, selling general and administrative expenses were 70% in the third quarter.

Ken Jacobson: Gross margin continued to be down year over year, but was higher sequentially largely did pricing stability and an improved demand for <unk> products.

Ken Jacobson: Turning to operating expenses, selling general and administrative expenses were $467 million in the quarter down 6% year over year, and largely flat sequentially with a slight increase due to differences in foreign currency exchange rates.

Ken Jacobson: As a percentage of gross profit dollar selling general and administrative expenses were 70% in the third quarter.

Ken Jacobson: For the third quarter, we reported adjusted operating income of $203 million, and our adjusted operating margin was 3.6%. By operating group, electronic components operating income was $217 million, and EC operating margin was 4.1%. This was the ninth consecutive quarter of EC operating margin being above 4%.

Ken Jacobson: For the third quarter, we reported adjusted operating income was $203 million and our adjusted operating margin was three 6%.

Ken Jacobson: By operating group electronic components operating income was $217 million in EC operating margin was four 1%.

Ken Jacobson: This was the ninth consecutive quarter of EC operating margin being about 4%.

Ken Jacobson: For now, operating income was $16 million, and operating margin remained at 4%. As we communicated last quarter, we have initiated cost reduction actions at Farnow, which when completed will provide annual expense reductions of between $50 million and $70 million. We had completed approximately two-thirds of the reductions as we exited the third quarter. The remainder of the reductions are expected to be completed over the next couple of days. Additionally, due to our current sales outlook and demand environment, we are taking action to reduce total Avnet operating expenses by $40 million to $60 million per year. These actions include a combination of permanent and temporary cost reductions across all regions.

Ken Jacobson: For now operating income was $16 million in farnell operating margin remained at 4%.

Ken Jacobson: As we communicated last quarter, we have initiated cost reduction actions at Farnborough, which when completed will provide annual expense reductions of between 60 million to $70 million.

Ken Jacobson: We had completed approximately two thirds of the reductions as we exited the third quarter.

Ken Jacobson: The remainder of the reductions are expected to be completed over the next couple of quarters.

Ken Jacobson: Additionally, due to our current sales outlets and demand environment. We are taking action to reduce total avnet operating expenses by 40 million to $60 million per year. These actions include a combination of permanent and temporary cost reductions across all regions.

Ken Jacobson: We will continue to make operating expense investments where needed, but the current market conditions require some incremental cost action. Turning to expenses below operating income, third-quarter interest expense of $73 million increased by $2 million year over year and was down approximately $1 million sequentially. Our adjusted effective income tax rate was 24% in the quarter, as expected.

Ken Jacobson: We'll continue to make operating expense investments where needed, but the current market conditions require some incremental cost actions.

Ken Jacobson: Turning to expenses below operating income third quarter interest expense of $73 million increased by $2 million year over year was down approximately $1 million sequentially.

Ken Jacobson: Our adjusted effective income tax rate was 24% in the quarter as expected.

Ken Jacobson: Adjusted diluted earnings per share was in line with our expectations at $1.10 for the quarter. Turning to the balance sheet and liquidity, during the quarter, working capital decreased $574 million sequentially, including a decrease in reported inventories of $364 million, a $194 million decrease in receivables, and a $16 million increase in payables. Working capital days increased 8 days, quarter over quarter, to 115 days. However, our return on working capital decreased to quarterly on the lower operating income. Our inventories were down 6% during the quarter, reflecting decreases across all regions within EC and, to a lesser extent, Farnell.

Ken Jacobson: Adjusted diluted earnings per share was in line with our expectations at a dollar churn for the quarter.

Ken Jacobson: Turning to the balance sheet and liquidity during the quarter working capital decreased $574 million sequentially, including a decrease in reported inventories at $364 million $194 million decrease in receivables and a $16 million increase in payables.

Ken Jacobson: Working capital days increased eight days quarter over quarter at 115 days a return on working capital decrease the quarterly on the lower operating income.

Ken Jacobson: Our inventories were down 6% during the quarter, reflecting decreases across all regions with any seat and to a lesser extent find out.

Ken Jacobson: The declines in EC inventories were net of increases in inventories due to strategic opportunities. Inventories for these arrangements are expected to build into the June quarter, with the underlying inventories selling through by the end of the calendar year. We expect continued overall progress on achieving inventory reductions during the fourth quarter, excluding these strategic arrangements. As Philip mentioned many times, part of our role at the center of the technology supply chain is to play a shock absorber between our suppliers and customers.

Ken Jacobson: The declines in D. C inventories were net of increases in inventories due to strategic opportunities inventories for these arrangements are expected to build into the June quarter with the underlying inventory selling through by the end of the calendar year. We expect continued overall progress on achieving inventory reductions during the fourth quarter. Excluding these strategic arrangements.

Ken Jacobson: As Phil has mentioned many times part of our role at the center of this like technology supply chain has to play a shock absorber.

Ken Jacobson: Our suppliers and customers.

Ken Jacobson: Despite the near-term challenges of the current market environment, we still want to be opportunistic as new business opportunities present themselves, even those opportunities that may require additional inventory. We take a holistic approach when evaluating any such opportunities but are disciplined in making sure there is a proper ROI for Avnet in any such arrangement. Our decrease in working capital led to a decrease in debt of $495 million. We generated nearly $500 million of cash from operations in the quarter, and we have generated $650 million of cash from operations over the past four quarters.

Ken Jacobson: The near term challenges of the current market environment, we still want to be opportunistic as new business opportunities present themselves, even those opportunities that may require additional inventory.

Ken Jacobson: Take a holistic approach when evaluating is there any such opportunities, but our discipline in making sure theres a proper ROI for avnet and any saturation.

Ken Jacobson: Our decrease in working capital led to a decrease in debt of $495 million, we generated nearly $500 million of cash from operations in the quarter and we have generated $650 million of cash from operations over the past four quarters.

Ken Jacobson: We expect to generate positive operating cash flow in the fourth quarter, although more modest than this past quarter. We ended the quarter with a gross leverage of 2.5 times, and we had approximately $890 million of available committed borrowing capacity. With regard to our capital allocation, we continue to prioritize our existing business needs. As previously noted, we are driving working capital reductions to be more in line with our current level of sales.

Ken Jacobson: We expect to generate positive operating cash flow in the fourth quarter, although more modest than this past quarter we.

Ken Jacobson: We ended the quarter with a gross leverage of two five times and we had approximately $890 million of them.

Ken Jacobson: Available committed borrowing capacity.

Ken Jacobson: With regard to our capital allocation, we continue to prioritize our existing business needs.

Ken Jacobson: As previously noted we are driving working capital reductions to be more in line with our current level of sales.

Ken Jacobson: During the quarter, cash used for CapEx was $42 million, primarily to support a new distribution center being constructed in EMEA. We expect CapEx to return to historical levels in the fourth quarter of fiscal 2024 of approximately $25 million to $35 million per quarter. In the third quarter, we paid our quarterly dividend of 31 cents per share, or $28 million. We have $232 million left on our current share repurchase authorization entering the fourth quarter.

Ken Jacobson: During the quarter cash used for Capex was $42 million, primarily to support a new distribution center being constructed in EMEA.

Ken Jacobson: We expect Capex to return to historical levels in the fourth quarter of fiscal 'twenty 'twenty four of approximately 25 million to $35 million per quarter.

Ken Jacobson: In the third quarter, we paid a quarterly dividend of 31 cents per share or $28 million, we have $232 million left on our current share repurchase authorization entering the fourth quarter.

Ken Jacobson: As a result of our strong cash flow generation, we expect to repurchase Avnet shares in the fourth quarter. However, our shares continue to trade at a meaningful discount to book value, as book value was $55 a share for the third quarter.

Ken Jacobson: As a result of our strong cash flow generation, we expect to repurchase avnet shares in the fourth quarter. Our shares continue to trade at a meaningful discount to book value as book value was $55 a share for the third quarter.

Ken Jacobson: Turning to guidance, for the fourth quarter of fiscal 2024, we are guiding sales in the range of $5.2 to $5.5 billion and diluted earnings per share in the range of $0.90 to $1. Our fourth quarter guidance assumes current market conditions persist and implies a sequential sales decline of 3% to 8%. This guidance assumes below seasonal sales declines in the western regions and below seasonal growth in sales in Asia. This guidance assumes similar interest expense compared to the third quarter, an effective tax rate of between 22% and 26%, and 91 million shares outstanding on a diluted basis.

Ken Jacobson: Turning to guidance for the fourth quarter of fiscal 'twenty 'twenty four we're guiding sales in the range of 5.2 to $5 $5 billion and diluted earnings per share in the range of 90 to one dollar.

Ken Jacobson: Our fourth quarter guidance assumes current market conditions persist and apply the sequential sales decline of 3% to 8%. This guidance assumes below seasonal sales declines in the western regions and below seasonal growth in sales in Asia.

Ken Jacobson: This guidance assumes similar interest expense compared to the third quarter effective tax rate of between 22% and 26%.

Ken Jacobson: And 91 million shares outstanding on a diluted basis.

Ken Jacobson: Before we take questions, I want to echo Phil's sentiment in thanking our team for staying focused on the things that will drive success for us in the coming quarters. Most importantly, closely monitoring operating expenses, generating operating cash flow from working capital reductions, and winning new sales opportunities to drive profitable growth and continue market share gains. With that, I will turn it over to the operator to open up for questions. Operator. Thank you. Ladies and gentlemen, we will now be conducting a question and answer session.

Ken Jacobson: Before I take questions I want to echo still sentiment and thanking our team for staying focused on the things that will drive success for us in the coming quarters. Most importantly closely monitoring operating expenses.

Ken Jacobson: <unk> operating cash flow from working capital reductions and winning new sales opportunities to drive profitable growth and continued market share gains.

Speaker Change: With that I will turn it over to the operator to open up for questions operator.

Operator: Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants, you can see your equipment. It may be necessary to pick up your handset before pressing the star keys.

Speaker Change: Thank you, ladies and gentlemen, we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you May press.

Operator: Star two if you'd 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 of them in place, while we poll for questions.

Operator: One moment, please, while we call for questions. Thank you. Our first question is from Matt Sheerin with Stiefel. Please proceed with your question. Yes, thank you. And hello, everyone. Phil, first question, just in terms of your forecast.

Operator: Okay.

Operator: Yeah.

Operator: Thank you. Our first question is from Matt Sheerin with Stifel. Please proceed with your question.

Philip R. Gallagher: Yes, thank you, and hello everyone. Phil, first question just in terms of your forecast for below seasonal growth again in all regions but for sequential growth in Asia. So that would imply a year-over-year decline of, I know, 20 to 25 percent year-over-year in the Americas and in the EMEA. And do you expect, do you think that's sort of the last drawdown, if you will, in terms of inventory, and are you getting any signs you know that that may be it, and then we're going to start to see at least more stability in terms of customer orders or anything else that makes you optimistic that this may be the bottom here?

Matthew John Sheerin: Yes, Thank you and Hello, everyone.

Philip R. Gallagher: First question just in terms of your forecast or below seasonal again in all regions, but for sequential growth in Asia. So that would imply a year over year declines of I know, 20% to 25% year over year and in the Americas and in EMEA.

Philip R. Gallagher: And do you expect do you think that's sort of the last.

Philip R. Gallagher: Down if you will in terms of inventory and are you getting any signs.

Philip R. Gallagher: That may be at and then we're going to start to see at least more stability in terms of customer orders or anything else. That's that makes you optimistic that this may be the bottom here.

Philip R. Gallagher: Yeah.

Philip R. Gallagher: Okay.

Philip R. Gallagher: Hello.

unknown: I'm coming down. Can you hear me?

Speaker Change: Coming down can you hear me.

unknown: Yeah, I didn't hear you on the first part, Phil.

Speaker Change: Yeah I didn't hear you the first part Phil Okay. Let me start again right. So thanks, Matt appreciate it.

Philip R. Gallagher: Okay, let me start again. That's fine. So thanks, Matt. I appreciate it.

Philip R. Gallagher: In Asia, you know as we sit in the script we.

Philip R. Gallagher: We do believe.

Philip R. Gallagher: We've hit bottom in Asia, we're seeing some moderate.

Philip R. Gallagher: I said I'd start with Asia. You know, as we said in the script, we do believe we've hit bottom in Asia; we're seeing some moderate growth through 2024. Again, moderate, but that's good news. And as we know, historically, a lot of times the signs start in Asia and circle around to the West, and that's kind of where you're going, I think. In Europe, I mean, part of the challenge in Europe with the year-on-year drop is that we're coming off record highs, you know, so it's compounding the image, if you will.

Philip R. Gallagher: Forecasting through 2024 again moderate but that's good news and as we know historically a lot of time to sign start in Asia circle round to the west and that kind of where you're going I think.

Philip R. Gallagher: In Europe I mean, it's all part of the challenge in Europe with a year on year drop as we just were coming off record highs.

Philip R. Gallagher: It's compounding.

Philip R. Gallagher: The image, if you will but tough to call. If that's the biomet it feels like it might be Matt, but theres. So many mixed signals out there.

Philip R. Gallagher: But tough to call if that's the bottom line. It feels like it might be, Matt, but there are so many mixed signals out there. I wouldn't want to project that as absolute, but we do think it'll start bouncing back in the second half, very slowly, more into 2025.

Philip R. Gallagher: I wouldn't want to project that is absolute.

Philip R. Gallagher: But we do think it'll start bouncing back in the second half very slowly more into 2025.

Ken Jacobson: Okay, thank you for that. And then on cost cutting, I think you said it was a $40 million annual run rate. When should we think about those costs coming out? Will they start in the June quarter? And what should we think about OPEX sequentially? Will that be down, or will that be up?

Philip R. Gallagher: Yeah.

Matt: Oh, Okay. Thank you for that and then on.

Ken Jacobson: On the the cost cutting.

Ken Jacobson: And I think you said it was a $40 million annual run rate what should we think about those costs coming out a well that's well then start in in the June quarter, and what should we think about opex sequentially, how would that be down or would that be up.

Ken Jacobson: Yeah, Matt, this is Ken. I'd just say that, you know, a lot of those new incremental actions beyond Farnella are actually occurring kind of as we speak during the quarter, so expect it to be more of an FY25 kind of benefit and think about OPEX being down slightly next quarter due to the Farnell actions plus the volume decline.

Ken Jacobson: Yeah, Matt This is Ken I'd, just say that you know a lot of those actions for the new incremental actions beyond farnell are actually occurring.

Ken Jacobson: As we speak during the quarter, so expect it to be more of an FY 'twenty five.

Ken Jacobson: Kind of a benefit in and think about opex being down.

Ken Jacobson: Down.

Ken Jacobson: Next quarter slightly due to the farnell actions plus the plus the volume decline.

Ken Jacobson: Okay, great. And just quickly as a follow-up, that would imply that gross margin actually holds fairly steady, and I would think that that might be down because of the mix.

Matt: Okay, Great and just quickly as a follow up with it that would imply that gross margin actually holds fairly steady.

Speaker Change: I would think that that might be down because of the mix.

Ken Jacobson: Yeah, you know, I think there's a mixed offset by some opportunistic things that are kind of balancing it out. So gross margins are holding up to up slightly in the EC business.

Speaker Change: Yeah, Yeah, I think theres, a mix offset by some opportunistic things that are kind of balancing it out so the so gross margins holding up to up slightly in the EC business.

unknown: Okay, great. All right. Thanks a lot.

Speaker Change: Okay, Great alright, thanks, a lot.

Speaker Change: Thanks, Matt.

unknown: At Stifel.

unknown: Okay.

Operator: Thank you. Our next question is from Joe Quatrochi with Wells Fargo. Please proceed with your question.

unknown: Thank you. Our next question is from Joe Quattrochi with Wells Fargo. Please proceed with your question.

unknown: Yeah, thanks for taking the question. Maybe just on the ECA margin front, I guess, like, as you think about that mixed benefit, or we assume that, you know, that margin can remain still above that 4% threshold for the June quarter.

Joseph Michael Quatrochi: Yeah. Thanks for taking the questions maybe just on that on the margin front I guess as you think about that makes center theater, we assume that that.

Joseph Michael Quatrochi: That margin can remain still above that 4% threshold for the June quarter.

Ken Jacobson: Yeah, Joe, I guess I'd characterize it as, you know, it could be slightly below or slightly above the 4%, right? It's kind of within that range. So, you know, depends on how the regional mix shakes out ultimately, but it's, you know, the guidance implies it is, you know, right around the 4%, but it could be slightly below or slightly above.

Joseph Michael Quatrochi: Yeah, Joe I guess, how I'd characterize it it's you know it could be slightly below it could be slightly above the 4% right. It's kind of within that range. So you know it depends on how how the regional mix shakes out ultimately, but it's you know the guidance implies it right around the 4%, but a bit of a slight it could be slightly below it could be slightly above.

unknown: Okay, thanks. And then as a follow-up, I think last quarter you talked about, you know, discussions with their suppliers and customers kind of suggested that, you know, you were thinking about inventory reductions continuing through a large percentage of this calendar year. And I guess my question is, you know, is that still the right way to think about it? Or has that maybe even pushed a little bit into 2025? As you just think about returning to growth in 2025, I guess, has there been any change, really, in how you think about the trajectory of inventory reductions to the base this year? No, I wouldn't say it was really a change, I think.

Speaker Change: Okay. Thanks, and then as a follow up I think last quarter you talked about.

unknown: The discussions with your suppliers and customers kind of suggested that you.

unknown: You were thinking about inventory reductions continuing through the large percentage of this calendar year and I guess my question is is there.

unknown: That's still the right way to think about it or has that maybe even pushed a little bit into 2025 and you just think about returning to growth in 2025, I guess is there any change any change really in how you think about the trajectory of inventory reductions in the basin. This year.

Philip R. Gallagher: No, I wouldn't say that there's really been a change. I think that, you know, we're happy that we started making some progress. Again, we hadn't had much progress there. Flattish has been, you know, or Stable has been our commentary for the last couple quarters. So I feel good about the direction we're headed. You know, still a lot of work to do is how I characterize it. But so think about it, you know, through the remainder of the county year, still knocking away at that, you know, because the sales levels are down as well.

unknown: No I wouldn't say really a change I think that we are happy that we started some progress again, where we haven't had much progress. There flattish has been you know our stable had been our commentary the last couple of quarters out.

Philip R. Gallagher: Feel good about the direction. We're headed you know still a lot of work to do is how I'd characterize it. So think about it you know through the remainder of calendar year still still knocking away at that you know because the sales levels are down as well.

Speaker Change: Got it thank you.

Speaker Change: Thanks, Joe.

Operator: Our next question is from William Stein with Truist Securities.

Philip R. Gallagher: Our next question is from William Stein with Truth Securities. Please proceed with your question.

unknown: Great. Thank you for taking my questions. First, I'm hoping you can comment on order trends in the first month of the current quarter and how they might have progressed relative to what you characterized for the last quarter. And then I have a follow-up.

William Stein: Great. Thank you for taking my questions.

unknown: First.

William Stein: I'm, hoping you can comment on order trends in the firm.

William Stein: First month.

William Stein: Current quarter and how they might have progressed relative to what you characterize for us for last quarter, and then I took the helm.

Philip R. Gallagher: Yeah, I'll take that. Well, thanks.

Speaker Change: Yeah, I'll take that well thanks.

Philip R. Gallagher: Yeah, the book-to-bills have improved modestly. We're seeing more improvement in AsiaPAC, and as we call it out, we're seeing some improvement in Parnell, as well as in IP&E. And even within IP&E, there are probably more iConnectors, and eMEC is bound. So, we are seeing some recovery in book-to-bill. But, the real issue is with the lead times down in the inventory out there; we're just trying to get customers to give us pipeline, and more visibility is key, and of course, we're the middle guy to help the suppliers get the visibility that they're looking for, and it's still just not happening on a wholesale basis, if you will. But that's what we're working on, but it is slightly improved beginning this quarter versus last quarter.

Philip R. Gallagher: Okay.

Speaker Change: Yeah, I wonder if given the book to bills had improved.

Philip R. Gallagher: But modestly we're seeing more improvement in Asia Pac and as we called out we're seeing some improvement in part now as well is it.

Philip R. Gallagher: And even within the IP needs by more ice connectors in EMACS.

Philip R. Gallagher: This balance so we are seeing some recovery.

Philip R. Gallagher: Recovery and book to Bill you know the real the real issue.

Philip R. Gallagher: Is the wheat with the lead times down to the inventory out there. We're just trying to get customers to give us pipeline.

Philip R. Gallagher: More visibility is key in the.

Philip R. Gallagher: The little Guy to help the suppliers get the visibility, they're looking for and it's still just not happening on a wholesale basis. If you will.

Philip R. Gallagher: That's what we're working on but it's it has slightly improved beginning this quarter versus last quarter.

unknown: Great, that helps. And one end market follow-up, you know, channel checks I was doing in the middle of the quarter reflected a recovery or, let's say, some better than expected conditions in the automotive sector. And we did see that from a few semis, and now you're citing the same thing.

Speaker Change: Great that helps and.

unknown: One end market follow up you know channel checks I was doing it in the middle of the quarter reflected a recovery or let's say at least some better than expected conditions in automotive and we did see that from a few semi and now you are citing the same thing, it's sort of still surprising and maybe a bit of a.

Philip R. Gallagher: It's sort of still surprising and maybe a bit of a head scratcher to investors because they're looking at the 201s and the OEs themselves, and their business doesn't seem to be really picking up. I wonder if this is because they sort of all pipeline material for EVs? Demand for that didn't materialize, so we've got to go place a bunch of new orders for internal combustion and hybrid cars, or is there some other dynamic? Like, is it an inventory mismatch, or did they just take their inventory too low? However, you might help us understand this would be really helpful. Thank you. Yeah, well, it really is a mixed bag.

Philip R. Gallagher: A head scratcher to investors because they are looking at the tier ones.

Philip R. Gallagher: Iliad themselves and there isn't it doesn't seem to be really up ticking.

Philip R. Gallagher: I Wonder if is this because they sort of all pipelines materials for evs.

Philip R. Gallagher: Demand for that didn't materialize. So they've got to go place a bunch of new orders for internal combustion hybrid or is there. Some other dynamic like is it an inventory mismatch or did they just take inventory to low. However, you might help us understand that would be really helpful. Thank you.

Philip R. Gallagher: Yeah, well, it really is a mixed bag. You see, the different reports out in the last week or so, some are calling it out as negative, others as positive. I think it really depends, you kind of answered the question, really depends on the content you have in the automobile and where that content is. And whether it be combustible or EV, the ADAS, again, the content in the EV is much higher.

Speaker Change: Yeah, well it really is a mixed bag.

Philip R. Gallagher: You can see the different report outs in the last week or so some are calling it out as negative others is positive I think it really debate you you kind of answered the question really depends on the content you have in the automobile and where that content is and whether it be combustible or or or E. V. The aid as they began to content and the E V is much higher.

Philip R. Gallagher: But you know, even I'm looking at the numbers now, you know, yeah, we saw, you know, up year on year, last quarter, and we call it transportation, to be fair. So it's a little broader than just automotive. But the automotive sector is the bulk of it, and on a three-quarter trend, you know, globally, we still saw it go up year on year. So not only not only last quarter but over the last three quarters, it's kind of now that you're looking at by region might be a little bit different. But that's, that's kind of how we're seeing it at this point in time. So

Philip R. Gallagher: But even even though I'm looking at the numbers now yeah, we saw up year on year last quarter, we called transportation to be fair. So it's a little broader than just automotive.

Philip R. Gallagher: But automotive is the bulk of it.

Philip R. Gallagher: And on a three quarter trend globally.

Philip R. Gallagher: We still saw it up year on year, so not only not only last quarter, but you know over the last three quarters. So it's kind of now that you're.

Philip R. Gallagher: Looking at by region might be a little bit different but that's that's kind of how we're seeing it.

Philip R. Gallagher: At this point in time so.

Philip R. Gallagher: Yeah.

Philip R. Gallagher: Okay.

Speaker Change: Thank you.

Philip R. Gallagher: Hmm.

Philip R. Gallagher: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.

Philip R. Gallagher: Yeah.

Operator: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question is from Ruplu Bhattacharya with Bank of America. Please proceed with your question.

Philip R. Gallagher: Our next question is from Brooklyn, <unk> with Bank of America. Please proceed with your question Hi, Thanks for taking my questions.

unknown: Hi, thanks for taking my questions. Maybe this time I'll start with Ken. Ken, can you remind us, like, what revenue level do you need to keep in order to keep the components operating margin above 4%? I know you talked about some restructuring and cost control. How much of that is split between Fornell and components?

unknown: At this time I will start with Ken.

unknown: Ken can you remind us like what revenue level do you need for keeping in order to keep the.

unknown: Importantly, operating margin above 4% I know you talked about some restructuring and cost control how much of that is split between farnell and components.

Ken Jacobson: Yeah, I mean, I think most of the cost actions that you're going to see through the remainder of the year will be more fernal because the core business is in the process of executing some of those things. I would kind of say, Ruplu, the question I got before was, you know, the guidance implied below 4%, does it apply at 4%? So I'd kind of flip it and just say, hey, this level of revenue, you know, depending on regional mix, is kind of where we're at to maintain the 4%.

Ken Jacobson: Yeah, I mean, I think most of the cost actions that youre going to see.

Ken Jacobson: Through the remainder of the year would be more for now.

Ken Jacobson: Because of the core businesses in the process of executing some of those things.

Ken Jacobson: I would kind of say you root of the question I got before was.

Ken Jacobson: The guidance imply below 4% is at play at 4%, So I'd kind of.

Ken Jacobson: Flip it and just say hey, this level of revenue depending on regional mix is kind of where we're at to maintain the 4%.

Ken Jacobson: Okay, the guidance implies, you know, kind of right around 4%. And, you know, there's obviously a take of plus or minus 20 basis points, depending on how much the media is in America versus Asia, some of those things, but that's, we're kind of at that level. Absent some other, you know, meaningful increase in demand creation mixer, you know, supply chain, the service scaling a lot more than we've had implied.

Ken Jacobson: So the guidance implies you know kind of right around 4% and you know, there's a obviously put or take of plus or minus 20 basis points, depending on how much is EMEA and Americas versus Asia. Some of those things, but that's we're kind of at that level.

Ken Jacobson: So absent some other you know a meaningful increase in demand creation makes her.

Ken Jacobson: Supply chain and service scaling a lot more than we would have implied.

unknown: Okay, that's helpful. And Ken, maybe another one for you.

Speaker Change: Okay. Okay. That's helpful and again, maybe another one for you can you talk about how you think about the cash conversion cycle trending over the next couple of quarters, how should we be thinking about free cash flow and then you laid out uses of cash.

Ken Jacobson: Can you talk about how you think about the cash conversion cycle trending over the next couple of quarters? How should we think about free cash flow? And then, you know, you laid out uses of cash. I mean, can you give us your thoughts on buybacks and any opportunity for M&A in this environment, or not?

Ken Jacobson: Can you give us your thoughts on buybacks and any any opportunity for M&A in this environment or are or not.

Ken Jacobson: Yes, I mean, I think, you know, we'd expect positive free cash flow. We are going to be in the market in the fourth quarter buying back shares. You know, we believe they're still at great value considering they're, you know, well below book value. I would not anticipate any M&A activity through the remainder of this calendar year. You know, I think we're always looking, but again, looking at smaller IPD-type acquisitions, nothing transformational, but you know, at this point, we're probably not going to be active in M&A over the next, you know, few quarters, you know, and CapEx should return to normal levels. So think about it as, you know, 25 to 35 million a quarter as a normal run rate.

Speaker Change: Yes, I mean, I think you know, we'd expect positive free cash flow.

Ken Jacobson: We are going to be in the market in the fourth quarter buying back shares.

Ken Jacobson: We believe there they're still at a great value considering they're well below book value you know I I would not anticipate any M&A you know through the.

Ken Jacobson: Under this calendar year, you know I think we're always looking but again.

Ken Jacobson: Looking at smaller like <unk> type acquisitions, nothing transformational, but you know at this point, we're probably not going to be active in M&A over the next few quarters.

Ken Jacobson: Capex should return to normal levels, So think about it is.

Ken Jacobson: 25% to $35 million a quarter.

Ken Jacobson: As a normal run rate.

Philip R. Gallagher: Okay, that's helpful. Maybe I can sneak one more in for Phil, you know. I mean, the operating environment is tough right now, Phil, but can you, as a high-level question, talk about what are some of your focus areas to grow revenue over the next 12 months? Where do you think, like, either which end markets or which geography do you think will come back sooner? And when that happens, like, you know, where do you see Avnet best positioned, like, which end markets, which verticals, which geographies? And is there anything you're investing in, even in this climate, is there anything you're investing in right now to better position the company for the recovery? Thanks.

Speaker Change: Okay. Okay. That's helpful.

Speaker Change: Maybe I can sneak sneak one more in for Phil you know I mean, the operating environment is tough right now, but can you at a high level question talk about what are some of your focus area is to grow revenue over the next 12 months, where do you think like either which end markets or which geographies do you think.

Philip R. Gallagher: Yeah, thanks, Ruplu. Yeah, a lot packed into that question. We'll do the best I can to pare it down. Well, we already talked regionally. So we feel Asia-Pac is going to start to bounce back, which is positive. We're well positioned in Asia-Pac and continuing to gain share there. So at a high level, we've shared before on earnings calls, we're trying to keep the team intact. We're not trying to overreact to the market. We've had great momentum for many quarters in a row now.

Philip R. Gallagher: <unk> sooner and when that happens like where do you see like Avnet.

Philip R. Gallagher: Patient like which.

Philip R. Gallagher: Which end markets, which verticals or geographies and is there anything youre investing even in this climate is there anything you're investing in right now to better position the company for the recovery.

Speaker Change: Yeah. Thanks, Paul.

Philip R. Gallagher: Yeah, a lot packed into that question, but what's the best agenda.

Philip R. Gallagher: Now well I already talked regionally. So we we feel Asia, Pat is going to start to bounce.

Philip R. Gallagher: Bounce back, which is positive we're well positioned in Asia Pac and continuing to gain share there so at a.

Philip R. Gallagher: High level statement, you know, we we've shared before on the earnings calls.

Philip R. Gallagher: We're trying to keep the team intact and we're not trying to overreact to the market we've had.

Philip R. Gallagher: So we're being very careful where we reduce expenses while still making investments. And we're continuing to invest in the verticals. So we, although industrial, everybody knows industrial has kind of been hit harder, and that's a big play for us. We're very, we're positioned extremely well in industrial and going to continue to stay positioned there. We talked about transportation earlier with Will a bit.

Philip R. Gallagher: Had great momentum on many quarters in a row now so we're being very careful where we we reduce expenses, while still making investments and we're continuing to invest in the verticals. So we although industrial everybody knows the vessels kind of been hit harder and that's a big play for US, we're very well positioned extremely well.

Philip R. Gallagher: On industrial and going to continue to stay position there.

Philip R. Gallagher: That is going to be a good market for us, and it continues to be, and it will be in the future. We're continuing to invest in that space. The other vertical, Defense Aerospace, you know, unfortunately, with what's going on in the world today, that's going to continue to grow on many fronts. So there are a handful of verticals. And then inside the company, we talked about in the script, you know, our continued focus on IP&E. We're starting to see that move back into the positive, which is good news, particularly from a book to bill perspective.

Philip R. Gallagher: I talked about transportation earlier with Wil a bit that's going to be a good market for us continues to be continues to be and will be in the future. We continue to invest in that space.

Philip R. Gallagher: The other vertical the defense Aerospace you know unfortunately, with what's going on in the world today.

Philip R. Gallagher: That's going to continue to grow our.

Philip R. Gallagher: Many fronts.

Philip R. Gallagher: So there are a handful of verticals and then inside the company, we talked about that in the script. Our continued focus on IPD, we're starting to see that move back into a positive which is good news, particularly from a book to bill.

Philip R. Gallagher: And we talked about Avnet Embedded. And again, that's a business that's continuing to grow and generate higher margins for us. That's where we're actually building, designing, and building manufacturing boards to go into those same verticals.

Philip R. Gallagher: And we talked about avnet embedded.

Philip R. Gallagher: Okay, and that's a it's a.

Philip R. Gallagher: Business, that's continuing to grow generates a higher margins for us, that's where we're actually building designing and building manufacturing boards that.

Philip R. Gallagher: To go into those same verticals I, just I, just talked about including medical those would be a couple of areas that we're focused on right now and we want to continue to maintain that focus and again not no.

Philip R. Gallagher: I just talked about including medical. Those would be a couple areas that we're focused on right now. And we want to continue to maintain that focus and again, not overreact. Okay. And have the pendulum swings that we may have seen in the past, manage what we can to drive the inventories down, generate cash while servicing our customers and suppliers. Thanks for all the details.

Philip R. Gallagher: Not overreact, okay. It had the pendulum swings that we may have seen in the past manage what we can drive the inventories down generate cash while servicing our customers and suppliers.

unknown: Thanks for all the details. I appreciate it.

Speaker Change: Okay. Thanks for all the details I appreciate it.

unknown: Yeah.

Philip R. Gallagher: Thank you. There are no further questions at this time. I'd like to hand the floor back over to Phil Gallagher for any closing comments. All right,

unknown: Thank you there are no further questions at this time I'd like to hand, the floor back over to Phil Gallagher for any closing comments.

Operator: Ladies and gentlemen, this does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

Philip R. Gallagher: Great. Well, I want to thank everyone for attending today's earnings call, and I look forward to speaking to you again at our fourth quarter fiscal year 2020 earnings report in August. Have a great summer.

Philip R. Gallagher: Great well I want to thank everyone for attending today's earnings call and I look forward to speaking to you again at our fourth quarter fiscal year 2020 core earnings report in August have a great summer.

Philip R. Gallagher: Okay.

Philip R. Gallagher: Ladies and gentlemen, this does conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.

Philip R. Gallagher: Okay.