Q2 2024 Arrow Electronics Inc Earnings Call

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Operator: Good day, and welcome to the Arrow Electronics second quarter 2024 earnings conference. Today's conference is being recorded. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you'd like to withdraw your question, again, press star. At this time, I would like to turn the conference over to Brad Windigler, Arrow's Treasurer and Vice President of Investor Relations. Please go ahead.

Operator: Good day, and welcome to the Arrow Electronics Second Quarter 2024 earnings call. Today's conference is being recorded.

Speaker Change: Good day and welcome to the Arrow Electronics second quarter 2024 earnings call.

Speaker Change: Today's conference is being recorded.

Operator: After the speaker's remarks, there will be a question in the answer session. If you would like to ask a question during this time, simply press star, blah, blah, the number one on your telephone keypad. If you would like to withdraw your question, again, press star one.

Speaker Change: After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad, if you'd like to withdraw your question again press Star one.

Brad Windbigler: At this time, I would like to turn the conference over to Brad Windbigler, Arrow's treasurer and vice president of investor relations. Please go ahead.

Speaker Change: At this time I would like to turn the conference over to Brad when Big work.

Brad: Arrows Treasurer, and Vice President of Investor Relations. Please go ahead.

Brad Windbigler: Thank you, operator. I'd like to welcome everyone to the Arrow Electronics second quarter 2022 earnings conference bill. Joining me on the call today is our President and Chief Executive Officer, Sean Kerins; our Chief Financial Officer, Raj Agrawal; President of Global Components, Rick Murano; and our President of Global Enterprise Computing Solutions, Eric Noah.

Brad Windigler: Thank you, operator. I'd like to welcome everyone to the Arrow Electronics second quarter 2024 earnings conference. Joining me on the call today is our President and Chief Executive Officer, Sean Kerins, our Chief Financial Officer, Raj Agrawal, our President of Global Components, Rick Morano, and our President of Global Enterprise Computing Solutions, Eric Nowak. During this call, we'll make forward-looking statements, including statements about our business outlook, strategies, and future financial results, which are based on our predictions and expectations as of today.

Brad: Thank you operator.

Brad: Like to welcome everyone to the Arrow Electronics second quarter 2024 earnings Conference call.

Speaker Change: Joining me on the call today is our president and Chief Executive Officer, Sean Kiernan, Our Chief Financial Officer, Raj Agarwal, President Global components, Rick Murano our.

Speaker Change: Our President Global Enterprise Computing solutions Eric.

Unknown Executive: During this call, we'll make forward-looking statements, including statements about our business outlook, strategies, and future financial results, which are based on our predictions and expectations as of today. Our actual results could differ materially due to a number of risks and uncertainties, including the risk factors described in our most recent Violence at the FEC.

Speaker Change: During this call we will make forward looking statements, including statements about our business outlook strategies future financial results, which are based on our predictions and expectations as of today our.

Speaker Change: Our actual results could differ materially due to a number of risks and uncertainties, including the risk factors described in our most recent filings with the SEC.

Unknown Executive: We undertake new obligation to update publicly or revise any of the forward-looking statements as a result of new information or future events.

Speaker Change: We undertake no obligation to update publicly or revise any of the forward looking statements as a result of new information or future events.

Unknown Executive: As a reminder, some of the figures need to discuss on today's call are non-GAAP measures, which are not intended to be a substitute for our GAAP results. We've reconciled these non-GAAP measures to the most directly comparable GAAP financial measures in this quarter's associated earnings release or Form 10-Q. You can access our earnings release at investor.arrow.com, along with the replay of this call.

Speaker Change: As a reminder, some of the figures discussed on today's call are non-GAAP measures, which are not intended to be a substitute for our GAAP results. Please reconcile these non-GAAP measures to the most directly comparable GAAP financial measures in this quarter's associated earnings release or Form 10-Q.

Speaker Change: Can access our earnings release at Investor about Aero Dot Com, along with a replay of this call.

Unknown Executive: We've also posted a slide presentation to accompany our prepared remarks and encourage you to effort these slides during the webcast.

Speaker Change: We've also posted a slide presentation to accompany our prepared remarks I encourage you to reference these slides during the webcast.

Unknown Executive: Following our prepared remarks today, Sean and Raj will be available to take your questions.

Following our prepared remarks today, Shawn and Raj will be available to take your questions.

Sean Kerins: I'll now hand a call over to our President and CEO, Sean Caron. Thanks, Brad, and thank you all for joining us. Today, I'd like to discuss our second quarter results, provide some commentary on the markets in which we compete, and then close with some thoughts as to how we're lining up for the future.

Brad Windigler: Our actual results could differ materially due to a number of risks and uncertainties, including the risk factors described in our most recent filings with the SEC. We undertake no obligation to update publicly or revise any of the forward-looking statements as a result of new information or future events. As a reminder, some of the figures we will discuss on today's call are non-GAAP measures, which are not intended to be a substitute for our GAAP results. We've reconciled these non-GAAP measures to the most directly comparable GAAP financial measures in this quarter's associated earnings release or Form 10-Q.

Speaker Change: I'll now hand, the call over to our President and CEO Sean <unk>.

Sean Kerins: Thanks, Brad, and thank you all for joining us. Today, I'd like to discuss our second quarter results, provide some commentary on the markets in which we compete, and then close with some thoughts as to how we're lining up for the future. I'll then turn things over to Raj for more detail on our financials, as well as our outlook for the third quarter. In the second quarter, we once again executed well in an evolving market environment as we continued to navigate the later innings of a prolonged inventory correction throughout the electronic supply chain in a very mixed spending environment in enterprise IT.

Brad Windigler: You can access our earnings release at investor.arrow.com, along with a replay of this call. We've also posted a slide presentation to accompany our prepared remarks and encourage you to reference these slides during the webcast. Following our prepared remarks today, Sean and Raj will be available to take your questions. I'll now hand the call over to our President and CEO, Sean Kerins. Thanks, Brad. And thank you all.

Sean Kiernan: Thanks, Brad and thank you all for joining us.

Sean Kiernan: Today I'd like to discuss our second quarter results provide some commentary on the markets in which we compete.

Sean Kiernan: And then close with some thoughts as to how we're lining up for the future.

Sean Kerins: I'll then turn things over to Raj for more detail on our financials, as well as our outlook for the third quarter. In the second quarter, we've once again executed well in an evolving market environment as we continue to navigate the later innings of a prolonged inventory corrections throughout the electronic supply chain in a very mixed spending environment in enterprise IT. I'd please do announce that we delivered total revenue of $6.9 billion in generated non-GAAP earnings per share of $2.78. Both numbers exceeded the high end of our guidance. Taking a closer look at our global compliance segment, we delivered solid financial results, likely ahead of our original expectations.

Sean Kiernan: I'll, then turn things over to Raj for more detail on our financials as well as our outlook for the third quarter.

Sean Kiernan: In the second quarter, we once again executed well in an evolving market environment as we continue to navigate the later innings of a prolonged inventory correction throughout the electronic supply chain and a very mixed spending environment in enterprise.

Sean Kerins: I'm pleased to announce that we delivered total revenue of $6.9 billion and generated non-GAAP earnings per share of $2.78. Both numbers exceeded the high end of our guidance. Taking a closer look at our global component segment, we delivered solid financial results nicely ahead of our original expectations. Broadly speaking, we're seeing signs of incremental improvement across several of the market segments in which we compete, leading to relative stability as we look to the future.

Raj Agarwal: I am pleased to announce that we delivered total revenue of $6 9 billion.

Raj Agarwal: And generated non-GAAP earnings per share of $2 78 sets both numbers exceeded the high end of our guidance.

Raj Agarwal: Taking a closer look at our global components segment, we delivered solid financial results nicely ahead of our original expectations.

Sean Kerins: Broadly speaking, we're seeing signs of incremental improvement across several of the market segments in which we compete, leading to relative stability as we look to the future. Although conditions have not fully normalized, and the broader industrial markets remain soft, our bookings improve sequentially, and the overall tone from suppliers and customers throughout the market has generally improved since our time together last quarter. Our focus on value-rated offerings, including supply chain management, design engineering and integration services, along with the man creation, continued to foster deeper engagement with suppliers and customers. These capabilities continued to contribute to our structural margin health.

Raj Agarwal: Broadly speaking, we're seeing signs of incremental improvement across several of the market segments in which we compete leading to relative stability as we look to the future.

Sean Kerins: Although conditions have not fully normalized, and the broader industrial markets remain soft, our bookings improved sequentially, and the overall tone from suppliers and customers throughout the market has generally improved since our time together last quarter. Our focus on value-added offerings, including supply chain management, design engineering, and integration services, along with demand creation, continues to foster deeper engagement with suppliers and customers.

Raj Agarwal: Although conditions have that fully normalized and the broader industrial markets remain soft our bookings improve sequentially and the overall tone from suppliers and customers throughout the market has generally improved since our time together last quarter.

Raj Agarwal: Our focus on value added offerings, including supply chain management design engineering and integration services, along with demand creation continue to foster deeper engagement with suppliers and customers.

Sean Kerins: These capabilities continue to contribute to our structural margin health. In fact, although impacted by regional mix, our second quarter operating margin of 4.3% was well above levels experienced at the low point of the previous cyclical correction. From a regional perspective, we experienced modestly improving conditions with mixed geographic trends.

Raj Agarwal: These capabilities continued to contribute to our structural margin health in fact, although impacted by regional mix, our second quarter operating margin of four 3% was well above levels experienced at the low point of previous cyclical corrections.

Sean Kerins: In fact, although impacted by regional mix, our second quarter operating margin of 4.3% was well above levels experienced at the low point of previous cyclical corrections. From a regional perspective, we experienced modestly improving conditions with mixed geographic trends. In Asia, revenue grew sequentially in both our semiconductor and IP&E product lines, led by mild improvement in both the industrial and compute verticals. We were specifically encouraged by sequential growth in China and fairly stable transactional pricing across the region. In the Americas, while the region declined slightly, aerospace and defense remained healthy. In addition, we saw sequential sales growth in IP&E, along with growth in his diamonds overall.

Raj Agarwal: From a regional perspective, we experienced modestly improving conditions with mix geographic trends.

Sean Kerins: In Asia, revenue grew sequentially in both our semiconductor and IP&E product lines, led by mild improvement in both the industrial and compute vertical. We were specifically encouraged by sequential growth in China and fairly stable transactional pricing across the region. In the Americas, while the region declined slightly, aerospace and defense remained healthy, and in addition, we saw sequential sales growth in IP&E, along with growth in design wins overall. In Indonesia, the broader industrial and transportation markets remained in decline, although it's worth noting, as is typical across most cycles, that Europe was the last region to enter corruption territory.

Raj Agarwal: In Asia revenue grew sequentially in both our semiconductor and IP and <unk> product lines led by mild improvement in both the industrial and compete verticals. We were specifically encouraged by sequential growth in China.

Raj Agarwal: And fairly stable transactional pricing across the region.

Raj Agarwal: In the Americas, while the region declined slightly.

Raj Agarwal: KOSPI and defense remained healthy.

Raj Agarwal: And in addition, we saw a sequential sales growth in IPD, along with growth in design wins overall.

Sean Kerins: In India, the broader industrial and transportation markets remained in decline, although it's worth noting, as is typical across most cycles, that Europe was the last region to enter correction territory. As we navigate the late stages of this cycle, several of the leading indicators we highlighted last quarter continued to reflect progress. Our book to build ratios advanced across all three regions, progressing closer to parity. Backlog in our core regional businesses has stabilized, and cancellation activity has fully normalized. As mentioned, looking accelerated across all regions, which we believe indicates a further step down in ecosystem inventory levels, as well as improved visibility to forward-looking production requirements.

Raj Agarwal: And in EMEA, the broader industrial and transportation markets remained at Macquarie.

Although it's worth noting as is typical across most cycles that Europe was the last region to enter correction territory.

Sean Kerins: As we navigate the late stages of this cycle, several of the leading indicators we highlighted last quarter continued to reflect progress. Our book-to-bill ratio has advanced across all three regions, progressing closer to parity, backlog in our core regional businesses has stabilized, and cancellation activity has fully normalized. As mentioned, bookings accelerated across all regions, which we believe indicates a further step down in ecosystem inventory levels, as well as improved visibility to forward-looking production requirements. And as for our own working capital, we again reduced inventory, reflecting market conditions, but at a reduced rate versus prior quarters as we look to position the business for future growth.

Raj Agarwal: As we navigate the late stages of this cycle several of the leading indicators, we highlighted last quarter continued to reflect progress.

Raj Agarwal: Our book to Bill ratios advanced across all three regions progressing closer to parity.

Raj Agarwal: Backlog in our core regional businesses has stabilized and cancellation activity is fully normalized.

Raj Agarwal: As mentioned bookings accelerated across all regions, which we believe indicates a further step down in ecosystem inventory levels as well as improved visibility.

Raj Agarwal: Forward looking production requirements.

Sean Kerins: And as for our own working capital, we again reduced inventory, reflecting market conditions, but at a reduced rate versus prior quarters as we look to position the business for future growth. We believe these signals point to an eventual return to growth. And as the cycle fully correct, we remain focused on diligently managing our cost structure and working capital while remaining invested in our strategic priorities. Our Q3 outlook reflects our view that conditions are generally beginning to level out, albeit with regional differences at play. As we progress through the third quarter, we're expecting more typical seasonality in the Americas and Asia, while still declining in Europe, but less so than in the second quarter.

Raj Agarwal: And as for our own working capital, we again reduced inventory, reflecting market conditions, but at a reduced rate versus prior quarters as we look to position the business for future growth.

Sean Kerins: We believe these signals point to an eventual return to growth, and as the cycle fully correctes, we remain focused on diligently managing our cost structure and working capital while remaining invested in our strategic priorities. Our Q3 outlook reflects our view that conditions are generally beginning to level out, albeit with regional differences at play. As we progress through the third quarter, we're expecting more typical seasonality in the Americas and Asia, while still declining in Europe, but less so than in the second quarter.

Raj Agarwal: We believe these signals point to an eventual return to growth and as the cycle fully correct. We remain focused on diligently managing our cost structure and working capital while remaining invested in our strategic priorities.

Raj Agarwal: Our Q3 outlook reflects our view that conditions are generally beginning to level out, albeit with regional differences that play.

As we progress through the third quarter, we're expecting more typical seasonality in the Americas and Asia, while still declining in Europe, but less so than in the second quarter.

Sean Kerins: And we do expect operating margins to be relatively stable in Q3. Now, turning to our global ECS business, in the second quarter, we exceeded our original expectations for both sales and operating income while delivering year-over-year billings growth.

Sean Kerins: And we do expect operating margins to be relatively stable in Q3.

Raj Agarwal: And we do expect operating margins to be relatively stable in Q3.

Sean Kerins: Now, turning to our global ECS business. In the second quarter, we've seen our original expectations for both sales and operating income, while delivering year over year buildings growth. Globally speaking, cloud and AI related solutions, along with better server demand, contributed to our results while also adding to our future backlog. On a regional basis in America, we achieved year-over-year buildings and growth profit dollar growth based on continued strength in hybrid cloud adoption. During the quarter, we also expanded our line card to enhance our offerings for our channel partner. and in North America, relative strength in the public sector and for cloud-related solutions was partially offset by softness and data storage.

Raj Agarwal: Now turning to our global ECS business in the second quarter, we exceeded our original expectations for both sales and operating income while delivering year over year billings growth.

Sean Kerins: Globally speaking, cloud and AI-related solutions, along with better server demand, contributed to our results while also adding to our future backlog. In EMEA, we achieved year-over-year billings and gross profit dollar growth based on continued strength in hybrid cloud adoption. During the quarter, we also expanded our line card to enhance our offerings for our channel partners. In North America, relative strength in the public sector and for cloud-related solutions was partially offset by softness in data storage.

Raj Agarwal: Globally speaking cloud and AI related solutions, along with better server demand contributed to our results, while also adding to our future backlog.

Raj Agarwal: On a regional basis.

Raj Agarwal: EMEA, we achieved year over year billings and gross profit dollar growth based on continued strength in hybrid cloud adoption.

Raj Agarwal: During the quarter, we also expanded our line card to enhance our offerings for our channel partners.

And in North America relative strength in the public sector and for cloud related solutions was partially offset by softness in data storage. We continue to reshape our go to market model in this region to one that better approximates our selling motion in EMEA.

Sean Kerins: We continue to reshape our go-to-market model in this region to one that better approximates our selling motion in and of the up. In general, as we continue to capitalize on the market's transition to IT as a service, we are growing our mix of multi-year subscriptions and recurring revenue streams. This is leading to a growing backlog, sticky-year relationships, and accretive contribution margins. Our Q3 Outlook indicates typical seasonal patterns in our ECS business as we anticipate a modest sequential decline, and we do believe market conditions will continue to improve throughout the balance of the year.

Sean Kerins: We continue to reshape our go-to-market model in this region to one that better approximates our selling motion in EMEA. In general, as we continue to capitalize on the market's transition to IT as a service, we are growing our mix of multi-year subscriptions and recurring revenue streams. This is leading to a growing backlog, stickier relationships, and accretive contribution margin. Our Q3 outlook indicates typical seasonal patterns in our ECS business as we anticipate a modest sequential decline.

Raj Agarwal: In general as we continued to capitalize on the markets transition to IP as a service we are growing our mix of multiyear subscriptions and recurring revenue streams. This is leading to a growing backlog stickier relationships and accretive contribution margins.

Raj Agarwal: Our Q3 outlook indicates typical seasonal patterns in our ECS business as we anticipate a modest sequential decline.

Sean Kerins: And we do believe market conditions will continue to improve throughout the balance of the year. In closing, given the market backdrop, I'm pleased with our solid second quarter performance, and I'm confident in our future. As I mentioned, we're seeing mild improvement across several market segments, and so we do expect stronger performance in the second half of the year, reflecting both improving stability in components and a benefit from ECF seasonality later in the year.

Raj Agarwal: And we do believe market conditions will continue to improve throughout the balance of the year.

Sean Kerins: In closing, given the market backdrop, I'm pleased with our solid second-quarter performance and I'm confident in our future. As I mentioned, we're seeing mild improvement across several market segments, and so we do expect stronger performance in the second half of the year, reflecting both improving stability in components and a benefit from ECS seasonality later in the year. As I look beyond the next couple of quarters, I think we're well positioned for the next growth cycle and well equipped to shepherd the next generation of technology, specifically artificial intelligence, to the broader market. Although still in the earlier phases of broad industry adoption, we're building upon our capabilities for the future with some notable areas of focus, including our supply chain services offering, where we enable cloud and platform players to deploy and scale their next generation AI infrastructure.

Raj Agarwal: In closing given the market backdrop I am pleased with our solid second quarter performance and I'm confident in our future as I mentioned, we're seeing mild improvement across several market segments and so we do expect stronger performance in the second half of the year, reflecting both improving stability in components and a benefit from.

Raj Agarwal: ECS seasonality later in the year.

Sean Kerins: And as I look beyond the next couple of quarters, I think we're well positioned for the next growth cycle and well equipped to shepherd the next generation of technology, specifically artificial intelligence, to the broader market. Although still in the earlier phases of broad industry adoption, we're building upon our capabilities for the future with some notable areas of focus, including our supply chain services offering, where we enable cloud and platform players to deploy and scale their next-generation AI infrastructure.

And as I look beyond the next couple of quarters I think we are well positioned for the next growth cycle and well equipped to Shepherd. The next generation of technology, specifically artificial intelligence to the broader market.

Raj Agarwal: Although still in the earlier phases of broad industry adoption, we are building upon our capabilities for the future with some notable areas of focus including our supply chain services, offering where we enable cloud and platform players to deploy and scale their next generation AI infrastructure.

Sean Kerins: Given our substantial field application engineering and embedded integration offerings, we're well suited to help design and deploy AI-related solutions at the intelligent edge. And through investments like our Robotics Center of Excellence, we're actively engaged in solution design from the GPU to the image sensor for a variety of industries, applications, and use cases. We're obviously excited by these and other longer term prospects, and in the meantime, we're cautiously optimistic that we're approaching a turning point in our core markets.

Sean Kerins: Given our substantial field application engineering and embedded integration offerings, we're well-suited to help design and deploy AI-related solutions at the intelligent edge. And through investments like our Robotics Center of Excellence, we're actively engaged in solution design from the GPU to the image sensor for a variety of industries, applications, and use cases. We're obviously excited by these and other longer-term prospects. And in the meantime, we're cautiously optimistic that we're approaching a turning point in our core market. Before I turn things over to Raj, I'd like to acknowledge the resilience of the Arrow team across the globe and thank them for their ongoing dedication to our suppliers and customers.

Raj Agarwal: Given our substantial field application engineering and embedded integration offerings were well suited to help design and deploy AI related solutions at the intelligent edge and.

Raj Agarwal: And through investments like our Robotics Center of excellence, we're actively engaged in solution design from the GPU to the image sensor for a variety of industries applications and use cases.

We're obviously excited by these and other longer term prospects and in the meantime, we're cautiously optimistic that we're approaching a turning point in our core markets.

Sean Kerins: Before I turn things over to Raj, I'd like to acknowledge the resilience of the Arrow team across the globe and thank them for their ongoing dedication to our suppliers and customers.

Raj Agarwal: <unk> I turn things over to Raj I'd like to acknowledge the resilience of the Aero team across the globe and thank them for their ongoing dedication to our suppliers and customers.

Raj Agrawal: And with that, over to Raj. Thanks, Sean. Consulting sales for the second quarter were $6.9 billion above the high end of our guidance range and down 19% versus prior year. Global component sales were $5 billion, down 3% versus prior quarter, better than we had expected. Enterprise computing solution sales were $1.9 billion, or 2% higher versus prior year, due to favorable product mix.

Raj Agarwal: And with that over to Raj.

Raj Agarwal: Thanks, Sean.

Sean Kerins: Consolidated sales for the second quarter were $6.9 billion, above the high end of our guidance range and down 19% versus prior year. Global component sales were $5 billion, down 3% versus prior quarter, better than we had expected. Enterprise Computing Solutions sales were $1.9 billion, or 2% higher versus prior year due to favorable product. Moving to other financial metrics for the quarter.

Raj Agarwal: Consolidated sales for the second quarter were $6 9 billion above the high end of our guidance range and down 19% versus prior year.

Raj Agarwal: Component sales were $5 billion down 3% versus prior quarter better than we had expected.

Raj Agarwal: Enterprise computing solutions sales were $1 $9 billion or 2% higher versus prior year due to favorable product mix.

Raj Agrawal: Moving to other financial metrics for the quarter. Second quarter consolidated gross margin of 12.3% was down approximately 20 basis points, both sequentially and versus prior year, given primarily by the overall mix of business with a few segments. Non-GAAP operating expenses declined $31 million sequentially to $586 million and included a $20 million benefit in our UCS business for a positive recovery. We have a previously recognized bad dot charge. We're into one. The effect of the collections recovery, our core operating expenses declined quarter over quarter, resulting from our continuing efforts to optimize our cost structure. We expect to see further benefits and reduced expenses the rest of this year.

Moving to other financial metrics for the quarter.

Raj Agrawal: Second quarter consolidated gross margin of 12.3% was down approximately 20 basis points both sequentially and versus the prior year, driven primarily by the overall mix of business within our two segments. Non-GAF operating expenses declined $31 million sequentially to $586 million and included a $20 million benefit in our UCS business for a positive recovery of a previously recognized bad debt charge related to one customer. Beyond the effect of the collections recovery, our core operating expenses declined quarter over quarter, resulting from our continuing efforts to optimize our cost structure.

Raj Agarwal: Second quarter consolidated gross margin of 12, 3% was down approximately 20 basis points, both sequentially and versus prior year, driven primarily by the overall mix of business within our two segments.

non-GAAP operating expenses declined $31 million sequentially to $586 million and included a $20 million benefit in our ECS business for a positive recovery.

Raj Agarwal: Previously recognized bad debt charge related to one customer.

Raj Agrawal: We expect to see further benefits and reduced expenses the rest of this year. In the second quarter, we generated non-GAAP operating income of $262 million, which was 3.8% of sales, with Global Components Operating Margin at 4.3% and Enterprise Computing Solutions at 5.6%, both on a non-GAAP basis. The impact of the UCS collections recovery was 110 basis points within the UCS segment and 30 basis points on consolidated Arrow operating margin. Interest and other expense was $67 million in the second quarter as we benefited from lower working capital levels. Our non-GAAP effective tax rate was 22.4%, which benefited from favorable geographic income net.

Raj Agarwal: Beyond the effect of the collections recovery, our core operating expenses declined quarter over quarter, resulting from our continuing efforts to optimize our cost structure.

Raj Agarwal: We expect to see further benefits in reduced expenses the rest of this year.

Raj Agarwal: In the second quarter, we generated non-GAAP operating income of $262 million, which was three 8% of sales.

Raj Agarwal: With global components operating margin at four 3%.

Raj Agarwal: Enterprise computing solutions at five 6% both on a non-GAAP basis.

Raj Agrawal: The impact of the UCS collections recovery was 110 basis points within the UCS segment and 30 basis points on consolidated, Arrow operating margin. Interest in other expense was $67 million in the second quarter as we benefited from lower working capital levels. Our non-GAAP effective tax rate was 22.4%, which benefited from favorable geographic income mix. And finally, non-GAAP diluted BPS for the second quarter was $2.78, which was substantially higher than our dotted range, benefiting from better-than-expected revenue performance, and a 29-cent contribution from the previously mentioned ECS recovery and expense reductions.

Raj Agarwal: The impact of the ECS collections recovery was 110 basis points within the ECS segment, and 30 basis points on consolidated <unk> operating margin.

Raj Agarwal: Interest and other expense was $67 million in the second quarter as we benefited from lower working capital levels.

Raj Agarwal: Our non-GAAP effective tax rate was 22, 4%, which benefited from favorable geographic income mix.

Raj Agrawal: And finally, non-GAAP diluted EPS for the second quarter was $2.78, which was substantially higher than our guided range, benefiting from better-than-expected revenue performance and a $0.29 contribution from the previously mentioned ECS recovery and expense reduction. Moving over to working capital, we reduced net working capital in the second quarter by approximately $150 million compared to Q1. Ending the quarter at $6.8 billion, this is the fourth consecutive quarter of lower Networking Capital. Accounts receivable and accounts payable both decreased in the second quarter and were nearly offsetting.

Raj Agarwal: And finally non-GAAP diluted EPS for the second quarter was $2, 78%, which was substantially higher than our guided range benefiting from better than expected revenue performance and a 29% contribution from the previously mentioned lease less recovery and expense reductions.

Raj Agrawal: Moving over to working capital, we reduced networking capital in the second quarter by approximately $150 million compared to Q1. Ending the quarter at $6.8 billion. This is the fourth consecutive quarter of lower networking capital. The accounts receivable and accounts payable both decreased in the second quarter and were nearly offsetting. Inventory at the end of the second quarter was $4.7 billion, decreasing approximately $140 million from Q1. Over the last nine months, we have reduced our inventory levels by $1.2 billion, yet we remain focused on investing for future growth and expansion. Our cash conversion cycle finished the quarter at 79 days.

Raj Agarwal: Moving over to working capital, we reduced net working capital in the second quarter by approximately $150 million compared to Q1.

Ending the quarter at $6 $8 billion.

Raj Agarwal: This is the fourth consecutive quarter of lower net working capital.

Raj Agarwal: Accounts receivable and accounts payable both decreased in the second quarter and we're nearly offsetting.

Raj Agrawal: Inventory at the end of the second quarter was $4.7 billion, decreasing approximately $140 million from Q1. Over the last nine months, we have reduced our inventory levels by $1.2 billion, yet we remain focused on investing for future growth and expansion. Our cash conversion cycle finished the quarter at 79 days. Our cash flow from operations was $320 million in the second quarter, and over the last 12 months, we have generated over $1.3 billion of operating cash flow. Net debt at the end of the second quarter was lower compared to Q1, at $3.1 billion.

Raj Agarwal: Inventory at the end of the second quarter was $4 7 billion.

Raj Agarwal: Decreasing approximately $140 million from Q1.

Raj Agarwal: Over the last nine months, we have reduced our inventory levels by $1 $2 billion, yet we remain focused on investing for future growth and expansion.

Raj Agarwal: Our cash conversion cycle finished the quarter at 79 days.

Raj Agrawal: Our cash flow from operations was $320 million in the second quarter, and over the last 12 months, we have generated over $1.3 billion of operating cash flow. That debt at the end of the second quarter was lower compared to Q1 at $3.1 billion. We repurchased $50 million of shares in the second quarter, and our remaining repurchase authorization stands at approximately $425 million. In the last 12 months, we have repurchased nearly $400 million of stock.

Raj Agarwal: Our cash flow from operations was $320 million in the second quarter and over the last 12 months, we have generated over $1 3 billion of operating cash flow.

Raj Agarwal: Net debt at the end of the second quarter was lower compared to Q1 at $3 1 billion.

Raj Agrawal: We repurchased $50 million of shares in the second quarter, and our remaining repurchase authorization stands at approximately $425 million. In the last 12 months, we have repurchased nearly $400 million of stock. In the near term, we will continue to balance capital return priorities with managing our debt ratios.

Raj Agarwal: We repurchased $50 million of shares in the second quarter and our remaining repurchase authorization stands at approximately $425 million.

Raj Agarwal: In the last 12 months, we have repurchased nearly $400 million of stock.

Raj Agrawal: In the near term, we will continue to balance capital return priorities with managing our debt ratios.

Raj Agarwal: In the near term, we will continue to balanced capital return priorities with managing our debt ratios.

Raj Agrawal: Now, turning to Q3 guidance. We expect sales for the third quarter to be between $6.37 billion and $6.97 billion. We expect global component sales to be between $4.7 and $5.1 billion, which at the midpoint is down approximately 3% from prior quarter. We expect enterprise computing solutions sales to be between $1.67 billion and $1.87 billion, which is unchanged at the midpoint near and near. We're assuming a tax rate in the range of approximately 23% to 25%, and interest experience of approximately $70 million. And our non-GAAP diluted earnings for share is expected to be between $2.10 and $2.30.

Raj Agrawal: Now turning to Q3 guidance, we expect sales for the third quarter to be between $6.37 billion and $6.97 billion. We expect global component sales to be between $4.7 and $5.1 billion, which at the midpoint is down approximately 3% from prior quarters. We expect Enterprise Computing Solutions sales to be between $1.67 billion and $1.87 billion, which is unchanged at the midpoint year on year. We're assuming a tax rate in the range of approximately 23 to 25 percent and interest expense of approximately $70 million.

Raj Agarwal: Now turning to Q3 guidance.

Raj Agarwal: We expect sales for the third quarter to be between $6 37 billion and $6 $97 billion.

Raj Agarwal: We expect global components sales to be between four 7% and $5 1 billion.

Raj Agarwal: Which at the midpoint is down approximately 3% from prior quarter.

Raj Agarwal: We expect enterprise computing solutions sales to be between $1 67 billion and $1 $87 billion, which is unchanged at the midpoint year on year.

Raj Agarwal: We're assuming a tax rate in the range of approximately 23% to 25% net interest expense of approximately $70 million.

Raj Agarwal: And our non-GAAP diluted earnings per share is expected to be between $2 10, and $2 30.

Raj Agrawal: And finally, we estimate changes in foreign currencies to have the immaterial effect on our Q3 guidance. The details of foreign currency impact can be found in our press.

Raj Agarwal: And finally, we estimate changes in foreign currencies to have an immaterial effect on our Q3 guidance. The details of our foreign currency impact can be found in our press release.

Unknown Executive: with that.

Raj Agrawal: And our non-GAAP diluted earnings per share is expected to be between $2.10 and $2.30. And finally, we estimate changes in foreign currencies to have an immaterial effect on our Q3 guidance. The details of the foreign currency impact can be found in our press release. With that, Sean and I are now ready to take your questions. Operator, please open the line.

Speaker Change: With that Sean and I are now ready to take your questions. Operator, Please open the line.

Operator: Sean and I are now ready to take your questions. Operators, please open the line. At this time, I'd like to remind everybody that, in order to ask a question, please press star. We'll pause for just a moment to compile the Q&A roster.

Raj Agarwal: Okay.

Operator: At this time, I'd like to remind everybody that in order to ask a question, please press star followed by the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A. Our first question comes from the line, Melissa Fairbanks with Raymond James. Your line is open.

Speaker Change: At this time I would like to remind everybody that in order to ask a couple please.

Speaker Change: Please press star followed by the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.

Melissa Fairbanks: Our first question comes from the why Melissa Fairbanks with Raymond James, your one is over. Great quarter, obviously. Good to see that things are starting to stabilize. That's what we always want to hear from you guys. I had a quick question about the comments that you're anticipating a stronger second half. I'm wondering if that means that you're expecting revenue growth in the back half over the front half.

Speaker Change: Our first question comes from Hawaii, Melissa Fairbanks with Raymond James Your line is open.

Melissa Fairbanks: Hey guys, thanks very much. Great quarter, obviously, good to see that things are starting to stabilize. That's what we always want to hear from you guys. I had a quick question about the comment that you're anticipating a stronger second half. I'm wondering if that means that you're expecting revenue growth in the back half over the front half. I know you don't typically guide beyond one quarter, but just looking for some clarification.

Melissa Fairbanks: Hey, guys, thanks very much.

Melissa Fairbanks: Great quarter, obviously, good to see that things are starting to stabilize that's what we'd always want to hear from you guys.

Speaker Change: I had a quick question about the comments that you are anticipating a stronger second half I'm.

Speaker Change: I'm wondering if that means that you are expecting revenue growth in back half over front half I know you don't typically guide beyond one quarter, but just looking for some clarification there.

Sean Kerins: I know you don't typically guide beyond one quarter, but just looking for some clarification there. Thank you, Melissa. Good morning, sure thing. In general, we are expecting a better second half than first half. I think that's a function of two things we do see, you know, things continuing to improve in our components business across the second half. But even more importantly, we're going to see it benefit from, you know, typical ECS seasonality later in the year, but all of that should add up to more revenue in two H than one H for sure.

Speaker Change: Okay.

Sean Kerins: Thanks, Melissa. Good morning. Sure thing. Good morning.

Speaker Change: Thanks, Melissa good morning, sure thing good morning.

Sean Kerins: In general, in general, we are expecting a better second half than first half. I think that's a function of two things. We do see, you know, things continuing to improve in our components business across the second half. But even more importantly, we're going to see a benefit from, you know, typical ECS seasonality later in the year, but all of that should add up to more revenue in 2H than 1H for sure.

Speaker Change: In general in General we are expecting a better second half than first half.

Speaker Change: That's a function of two things we do see.

Speaker Change: Thing is continuing to improve and our components business across the second half.

Speaker Change: But even more importantly, we're going to see a benefit from.

Speaker Change: Typical ECS seasonality later in the year, but all of that should add up to more revenue in two H then than <unk> for sure.

Sean Kerins: Excellent, I'd love to hear that. Maybe just one quick follow-up then. The commentary regarding the inventory of investing ahead of future growth, I was just wondering if there were any specific areas that you're targeting with these investments. I assume IP&E might be one of those areas, but if you can give any additional comments.

Sean Kerins: Excellent. Love to hear that. Maybe just one quick follow-up then the commentary regarding the inventory of investing ahead of future growth. I was just wondering if there were any specific areas that you're targeting within with these investments. I assume IP&E might be one of those areas, but if you can give any additional color. Yeah, I think you nailed it. Melissa IP&E, as you know, is one of our strategic growth priorities inside Components. And so we are looking at that inventory model a little bit differently than Semi for the future. But otherwise we're managing working capital carefully.

Speaker Change: Excellent loved to hear that.

Speaker Change: Maybe just one quick follow up on.

Speaker Change: The commentary regarding the inventory of investing ahead of future growth I was just wondering if there were any specific areas that you are targeting within with these investments I assume <unk> might be one of those areas, but if you can give any additional color.

Sean Kerins: Yeah, I think you nailed it, Melissa. IP&E, as you know, is one of our strategic growth priorities inside components. And so we are looking at that inventory model a little bit differently than SEMI for the future. But otherwise, we're managing working capital carefully. I can also tell you that units came down in the quarter, but less so than from Q4 to Q1. So we're partly preparing for a better future, but also still, you know, being careful as we do so.

Speaker Change: Yes, I think you nailed that Melissa <unk> as you know is one of our strategic growth priorities inside components and so we are looking at that inventory model, a little bit differently than semi for the future.

But otherwise we're managing working capital carefully.

Sean Kerins: I could also tell you that units came down in the quarter, but less so than from Q4 to Q1. So we're partly preparing for a better future, but also still, you know, being careful as we do so.

Speaker Change: I can also tell you that units came down.

Speaker Change: In the quarter, but less so than from Q4 to Q1, so we're partly.

Speaker Change: Pairing for a better future, but also still being careful as we do so.

Melissa Fairbanks: Perfect. That's all for me for now. I'll get back in the queue. Thanks. Thanks for a second.

Melissa Fairbanks: Perfect. That's all for me for now. I'll get back in the queue.

Perfect. That's all for me for now I'll get back in the queue.

Sean Kerins: Thanks so much. Thank you.

Speaker Change: Excellent. Thank you.

Unknown Executive: Thank you.

Matt Sheeran: Our next comment comes from the wide of Matt Sheeran with Stifle. Your wine is open.

Operator: Our next question comes from the line of Matt Sheerin with Stifle. Your line is open.

Speaker Change: Our next comes from the line of Matt Sheerin with Stifel. Your line is open.

Matt Sheeran: Yes, thank you. And thanks for taking my question. Just to follow up on the regarding the revenue in the back half, specifically on components. You're guiding two, three down sequentially.

Matt Sheerin: Yes, thank you. And thanks for taking my question.

Matt Sheerin: Yes, Thank you and thanks for taking my question.

Matt Sheerin: Just a follow up on that.

Matt Sheerin: Regarding the revenue.

Speaker Change: In the back half.

Speaker Change: Specifically on components Youre guiding.

Speaker Change: Q3 down sequentially.

Sean Kerins: And my thought is that Q4 should also be plateaued down given seasonality in Europe and North America, unless there's a very big uptick in Asia. So how should we think about that? It looks like the second half should be down relative to the first half, with the bookings improving. So Matt, you know, part of that is why we only guard, excuse me, guide one quarter at a time.

Speaker Change: And my thought is that Q4 should also be flat to down.

Speaker Change: Given the seasonality in Europe, and North America, unless theres, a very big uptick in Asia.

Sean Kerins: Just to follow up on revenue in the back half, specifically on components, you're guiding Q3 down sequentially. And my thought is that Q4 should also be flattened down, given seasonality in Europe and North America, unless there's a very big uptick in Asia. So how should we think about that? It looks like the second half should be down relative to the first half with bookings improving.

Speaker Change: So how should we think about that it looks like the second half should be down.

Speaker Change: Relative to the first half.

Speaker Change: Bookings improving.

Sean Kerins: So Matt, you know, part of that is why we only go, excuse me, guide one quarter at a time. So it's a little too early for us to guide Q4. But I would say all the, you know, all the key indicators that we track are showing progress. And so we're feeling better about the near term, but it doesn't guarantee that we see sequential growth in Q4. But I would say we're more optimistic that we will now than we would have been 90 days ago, based on what we see happening in the market.

So part of that is why we only good excuse me guide one quarter at a time, so a little too early for US to guide Q4, but I would say all of the.

Sean Kerins: So a little too early for us to guide Q4, but I would say all the, you know, all the key indicators that we track are showing progress. And so we're feeling better about, you know, the near term doesn't guarantee that we see sequential growth in Q4, but I would say we're more optimistic that we will now. Then we would have been 90 days ago based on what we see happening in the market. Remember just the reinforce; you know, we are seeing modest recovery in Asia and North America.

Speaker Change: All the key indicators that we track are showing progress and so we're feeling better about.

Speaker Change: The near term.

Speaker Change: It doesn't guarantee that we see sequential growth in Q4, but I would say, we're more optimistic that we will now.

Speaker Change: Then we would've been 90 days ago.

Speaker Change: Based on what we see happening in the market.

Sean Kerins: Remember, just to reinforce, you know, we are seeing modest recovery in Asia and North America. So, implied in our outlook is, you know, a return to more normal seasonality for both. We know that the correction is still playing out to some degree in Europe, but that's normal.

Speaker Change: Remember just to reinforce we are seeing modest recovery in Asia, and North America. So implied in our outlook is.

Sean Kerins: So, you know, implied in our outlook is, you know, a return to more normal seasonality for both. You know, we know that the correction is still playing out to some degree in Europe, but that's normal. You have seen a number of suppliers in our universe guide for sequential improvement. And, you know, we think that's ultimately a good sign, as we typically follow our suppliers out of the correction.

Speaker Change: A return to more normal seasonality for both.

Speaker Change: Know that the correction is still playing out to some degree in Europe, but thats normal.

Sean Kerins: You have seen a number of suppliers in our universe guide for sequential improvement. And, you know, we think that's ultimately a good sign, because we typically follow our suppliers out of a correction. So we'll guide Q4 the next time we talk, but, you know, we're feeling like we should see, you know, steady improvement across the second half in that business.

Speaker Change: You have seen a number of suppliers in our universe guide for sequential improvement.

Speaker Change: We think that's ultimately a good sign as we typically follow our suppliers out of a correction.

Sean Kerins: So we'll guide Q4 the next time we talk, but, you know, we're feeling like we should see steady improvement across the second half in that business. It would also say that, you know, if you think about what happened in the first half of the year, we had components declining at 8% in the first quarter and then down 3% in the second quarter. So that's also part of the commentary that we'll see likely better trends in the second half versus the first half.

Speaker Change: So we'll guide Q4, the next time, we talk but we're feeling like we should see steady improvement across the second half in that business.

Sean Kerins: I would also say that, you know, if you think about what happened in the first half of the year, we had components declining at 8% in the first quarter and then down 3% in the second quarter. So that's also part of the commentary that we'll likely see better trends in the second half versus the first half.

Hey, Matt.

Matt Sheerin: Do you think about what happened in the first half of the year, we had components declining at 8% in the first quarter and then down 3% in the second quarter. So that's also part of the commentary that we will see likely better trends in the second half versus the first half.

Matt Sheeran: Guy, can you just remind me of the seasonality in North America in Q3? Is it typically what plat to down slightly, or plat to up slightly, is that about right? It's typically plat to up slightly, and we're right there, you know, with our outlook, you know, given our own internal forecast.

Sean Kerins: Got it. And can you just remind me the seasonality in North America in 2-3? Is it typically flat to down slightly or flat to up slightly?

Speaker Change: Got it could you just remind me the seasonality in North America.

Speaker Change: In Q3, as it typically what flat to down slightly or flat to up slightly.

Speaker Change: Is that about right.

Sean Kerins: Yeah, it's typically flat to slightly up. And we're right there, you know, with our outlook, given our own internal forecast.

Speaker Change: Yes, it's typically flat to up slightly.

Speaker Change: And we're right there with our outlook.

Speaker Change: Given our own internal forecast.

Matt Sheeran: Okay, that's helpful.

Sean Kerins: Okay, that's helpful. And then regarding the margins or implied margin based on the EPS guide, it looks like your gross margin will be down sequentially. I don't know, call it 12% or so. Correct me if I'm wrong there. And it looks like that's just a function of mix with Asia components up in Europe down again. Or is there anything else going on there?

Speaker Change: Okay. That's helpful and then regarding.

Raj Agrawal: And then, regarding the margins or implied margin based on the EPS guide, it looks like your growth margin will be down sequentially, I don't know, call it 12% or so. Correct me if I'm wrong there, and it looks like that's just a function of mix with Asia components up in Europe down again, or is there anything else going on there? No, in fact, as you know, Matt, we typically don't guide for growth margins, but if you look at the, you know, the EPS decline quarter on quarter, it's really just a function of volume decline overall, you know, one part in components, as you just mentioned, and then one part, you know, simply a function of typical seasonality in our ECS business, and we're actually offsetting both of those by a little bit with, you know, the benefit of our OPEX actions showing up in the P&L.

Speaker Change: The margins are implied margin based on the EPS guide it looks like your gross margin will be down sequentially.

Speaker Change: I don't know call it 12% or so.

Speaker Change: Correct me, if I'm wrong, there and it looks like that's just a function of mix with the Asia component is up in Europe down again.

Speaker Change: Is there anything else going on there.

Sean Kerins: No, in fact, as you know, Matt, we typically don't guide for gross margins. But if you look at the EPS decline quarter on quarter, it's really just a function of volume decline overall, you know, one part in components, as you just mentioned. And then one part is simply a function of typical seasonality in our ECS business. And we're actually offsetting both of those by a little bit with, you know, the benefit of our OPEX actions showing up in the P&L.

Speaker Change: No in fact, as you know, Matt we typically don't guide for gross margins, but if you look at the.

Speaker Change: EPS declined quarter on quarter, it's really just a function of volume decline overall.

Speaker Change: One part in components as.

As you just mentioned and then one part simply a function of typical seasonality in our ECS business and we're actually offsetting both of those by a little bit with the benefit of our Opex actions.

Speaker Change: Showing up in the P&L.

Raj Agrawal: So mix is a factor in the components business, and I would say it's regional mix more than anything else. But, as we talked about in our prepared remarks, we do expect operating margins to be fairly stable in that business in the third quarter.

Speaker Change: So mix is a factor in the components business.

Sean Kerins: So mix is a factor in the components business, and I would say it's regional mix more than anything else. But as we talked about in our prepared remarks, we do expect operating margins to be fairly stable in that business in the third quarter.

Speaker Change: And I would say its regional mix.

Speaker Change: More than anything else, but as we talked about in our prepared remarks, we do expect operating margins to be fairly stable in that business in the third quarter.

Sean Kerins: and do you expect OPEX to be down sequentially? on the dollar basis.

Raj Agrawal: And you expect OPEX to be down sequentially on the dollar basis? Yes, we do.

Speaker Change: And you expect opex to be down sequentially.

Speaker Change: On a dollar basis, yes, we do.

Sean Kerins: Yes, we do. Yes, we do. Great. All right. Thanks. Thanks a lot.

Matt Sheeran: All right. Thanks.

Speaker Change: Yes, we do great alright, thanks, Thanks, a lot.

Unknown Executive: Thanks a lot.

William Stein: Our next question comes from the line of William Stein with Truist Securities.

Matt Sheerin: Our next question comes from the line of William Stein with Truist Securities. Your line is open.

Speaker Change: Our next question comes from the line of William Stein with Truest Securities. Your line is open.

William Stein: Your wine is open. Great.

William Stein: Great. Thanks for taking my question. Before I start, I want to offer congratulations. You guys did a great job this quarter.

William Stein: Thanks for taking my question. Before I start, I want to offer my congratulations. You guys did a great job in the quarter. Thank you. Yeah. Thank you.

William Stein: Great. Thanks for taking my question before I start I want to offer that.

William Stein: Congratulations you guys did a great job in the quarter.

William Stein: I like, yeah, well, of course, of course, I'd like to ask about the geomix first. Most of the semiconductor companies I cover have talked about a pretty sharp inflection in China. I forget how much of your Asia revenue is there, but I suspect it's a significant amount in the components business specifically. I think in your prepared remarks, you talked about this showing some signs of recovery, but hopefully, you can talk a little bit about that. What's causing it, whether you're seeing it to the same sharp degree as your suppliers or if it's more moderate or delayed. Thanks.

Hi, Mike.

Mike: Yes, Thanks will.

Mike: Of course, I'd like to ask about.

Speaker Change: The Geo mix first.

Speaker Change: Most of the semi companies that cover have talked about a pretty sharp inflection in China.

Speaker Change: I forget how much of your Asia revenue was there, but I suspect it's a significant amount.

Speaker Change: In the components business, specifically I think in your prepared remarks, you talked about this showing some signs of recovery, but hopefully you can.

Sean Kerins: Talk a little bit about that. What's causing it? Whether you're seeing it to the same sharp degree as your suppliers, or if it's more moderate or delayed. Thanks. Yeah. I would say it's certainly not be shaped. Will. But you're correct. We did see sequential growth in Asia and specifically in China, which is a big piece of our Asia business. In the second quarter, that's obviously a good sign compared to prior trends. Most of that came from an uptick in industrial and, to some degree, compute for us, which is great. But we still saw softness and a number of other verticals.

Speaker Change: Talk a little bit about that what's what's causing it and whether youre seeing it to the same sharp degree as your suppliers or if it's more moderate or delayed.

Speaker Change: Yeah.

Sean Kerins: Yeah, I would say it's certainly not V-shaped, Will, but you're correct. We did see sequential growth in Asia and specifically in China, which is a big piece of our Asian business. In the second quarter, that's obviously a good sign compared to prior trends. Most of that came from an uptick in industrial and, to some degree, compute for us, which is great, but we still saw softness in a number of other verticals.

Speaker Change: Yes, I would say is certainly not V shaped.

Speaker Change: But youre correct, we did see sequential growth in Asia, and specifically in China, which is a big piece of our Asia business.

Speaker Change: In the second quarter, that's obviously, a good sign compared to prior trends.

Speaker Change: Most of that came from an uptick in industrial.

Speaker Change: And to some degree compute for us which is great but we.

Sean Kerins: But this outlook, as I said before, does call for more typical seasonality. So we're going to take this one quarter at a time. I think it's too early to call for a broader recovery. Remember, we play in some of the more mature parts of the industry, given our focus on the broader industrial market. So consistent with what's playing out in other parts of the world, I think that's closer to an L than a V, but we're clearly encouraged by what we're seeing. We were certainly encouraged by the increase in bookings overall in that region as well. And I think that is as far as she goes at this point.

Speaker Change: We still saw a softness in a number of other verticals.

Sean Kerins: But this outlook, as I said before, does call for more typical seasonality. So we're going to take this one quarter at a time. I think it's too early to call for a broader recovery. Remember, we play in some of the more mature pieces of the industry, given our focus on the broader industrial market. So consistent with what's playing out in other parts of the world. I think that's closer to an L than a V, but we're clearly encouraged by what we're seeing. We were certainly encouraged by the increase in bookings overall in that region as well.

Speaker Change: But this outlook as I said before does call for more typical seasonality. So we're going to take this one quarter at a time I think it's too early to call for a broader recovery.

Speaker Change: Remember we play in some of the more.

Speaker Change: The mature pieces of the the industry given our focus on the broader industrial market. So consistent with what's playing out in other parts of the world I think thats.

Speaker Change: Closer to an ELD in <unk>, but we are clearly encouraged by what we're seeing.

Speaker Change: We were certainly encouraged by the <unk>.

Speaker Change: Increase in bookings overall in that region as well.

Sean Kerins: And I think, you know, steady as she goes at this point.

Speaker Change: And I think steady as she goes at this point.

Speaker Change:

William Stein: The other question is, you know, as strong as the Q2 results were, you're guiding, you know, fairly significantly below consensus for the out-quarter.

William Stein: The other question is, you know, as strong as the Q2 results were, you're guiding, you know, fairly significantly below consensus for the next quarter, and it's just a little bit surprising to me that when you're talking about problems becoming less bad, and you're beating the quarter, I wonder the degree to which the outlook just has maybe a higher dose of conservatism, or are you seeing something pause in terms of what was maybe the Are you seeing anything pause on that trail as we progress into Q3? Or how should we think about that? You know, I don't think we're taking a different route.

Speaker Change: The other the other question is.

Speaker Change: As strong as the Q2 results were Youre guiding.

Speaker Change: Fairly significantly below consensus for the out quarter in it.

Sean Kerins: And it's just a little bit surprising to me that when you're talking about problems becoming less bad and you're beating the quarter, I wonder the degree to which the outlook just has maybe a higher dose of conservatism or are you seeing something pause in terms of what was maybe initial stages of recovering Q2? Are you seeing anything pause on that trail as we progress into Q3, or how should we think about that? I don't think we're taking a different posture relative to this guide. Then we take in any other prior quarter guide. As you know, there's always a certain element of this industry that's going to be a little bit unpredictable.

Speaker Change: It's just a little bit surprising to me that when you are talking about problems, becoming less bad and you are beating the quarter I wonder the degree to which the outlook just has maybe.

Speaker Change: Higher dose of conservatism or are you seeing something pause in terms of.

Speaker Change: What was maybe an initial stages of recovery in Q2 are you seeing anything pause on that trail as we progress into Q3 or how should we think about that.

Yes.

Sean Kerins: You know, I don't think we're taking a different posture relative to this guide than we've taken in any other prior quarter guide. As you know, there's always a certain element in this industry that's going to be a little bit unpredictable. We think we're calling this one fairly accurately, just as we did last quarter. We were pleased by the uptick. I'd like to say that, you know, we could count on the uptick more sharply going forward. But I think the reason you're not seeing a sharper recovery is really a function of the softness that we still see in the broader industrial and transportation markets.

Speaker Change: I don't think were taking a different posture relative to this guide.

Speaker Change: Then we've taken in any other prior quarter guide as you know there's always a certain element of this industry that is going to be a little bit unpredictable.

Sean Kerins: We're calling this one fairly accurately, just as we did last quarter. We were pleased by the uptick. I'd like to say that we could count on the uptick more sharply going forward. But I think, you know, the reason you're not seeing a sharper recovery is really a function of the softness that we still see in the broader industrial and transportation markets. You know, remember, together they're a pretty significant piece of our mix. And I think there's two things going on there.

Speaker Change: We think we're we're calling this one fairly accurately just as we did last quarter. We were pleased by the uptick.

Speaker Change: I'd like to say that we could count on the uptick more sharply going forward, but I think.

Speaker Change: The reason you're not seeing a sharper recovery is really a function of the softness that we still see in the broader industrial and transportation markets.

Sean Kerins: You know, remember together, they're a pretty significant piece of our mix. And I think there are two things going on there, Will. I think, you know, one of them is macro in nature, which we can't control, and the other is related to, you know, elevated inventory levels. That one, obviously, we have a better line of sight, too, and we think, for the most part, that situation continues to improve. And we do see that resolving itself very likely by the end of the year, but probably not a whole lot sooner.

Speaker Change: Yeah remember together they are a pretty significant piece of our mix.

Speaker Change: And I think Theres, two things going on there well I think one.

Sean Kerins: Well, I think, you know, one of them is macro in nature, which we can't control. And the other is related to, you know, elevated inventory levels. That one, obviously, we have better line of sight to. And we think for the most part that situation continues to improve. And we do see that resolving itself very likely by the end of the year, but probably not a whole lot sooner.

Speaker Change: One of them is macro in nature.

Speaker Change: We can't control and the other is related to <unk>.

Speaker Change: Elevated inventory levels that one obviously, we have better line of sight too and we think for the most part.

Speaker Change: That situation continues to improve and we do see that resolving itself.

Speaker Change: Very likely by the end of the year, but probably not a whole lot sooner.

Speaker Change: Well thank you.

William Stein: Thank you.

Yes.

Unknown Executive: Thanks, World.

Will: Thanks will.

Joe Katrochi: Your next question comes from the line of Joe Katrochi with Wells Fargo.

Operator: Your next question comes from the line of Joe Quatrochi with Wells Fargo. Your line is open. Yeah, thanks for taking.

Speaker Change: Your next question comes from the line of Joe <unk> with Wells Fargo. Your line is open.

Joe Katrochi: Your line is open. Yeah, thanks for taking the question. As you think about, you know, your inventory levels for the component side. As you go forward, it seems like they kind of maybe had a better, more normalized absolute level. But how do you think about the mix as you think about, you know, having to need to invest in some. Some parts of the inventory, as the answer to the crew looking to next year. So maybe if I understand your question correctly, it's more about are we confident in the mix of the inventory that we're carrying or planning to carry.

Joseph Quatrochi: Yeah, thanks for taking my question. I'm curious, as you think about, you know, your inventory levels for the component side as you go forward, it seems like they're kind of maybe at a better, more normalized, absolute level. But how do you think about the mix as you think about, you know, having to need to invest in some parts of the inventory as demand starts to improve when we look into next year?

Joe <unk>: Yes, thanks for taking my questions I'm curious as you think about your inventory levels are the component side as we go forward. It seems like they kind of maybe at a better more normalized.

Joe <unk>: Absolute level, but how do you think about the mix as we think about having to need to invest in some parts of the inventory.

As demand starts to improve when we look into next year.

Sean Kerins: So maybe, if I understand your question correctly, it's more about, are we confident in the mix of the inventory that we're carrying or planning to carry? I just want to make sure we understand, you know, what you're after here.

Speaker Change: So maybe.

Speaker Change: If I understand your question correctly, it's more about why are we confident in the mix of the inventory.

Speaker Change: That were carrying or planning to carry.

Sean Kerins: Just want to make sure we understand, you know, what you're after here. Exactly. And are there areas where, you know, there's some inventory reduction to go that maybe demand is not going to stand back as fast or, you know, areas where you need to invest more. Looking in the next years, you see industrial and transportation kind of, you know, maybe improve. Sure, well, as I said before, you know, we are managing inventory carefully. You know, we are taking a 90-day view, one quarter at a time, if you will. We do anticipate that things are getting better here in the near term.

Speaker Change: Just wanted to make sure we understand.

Speaker Change: What you are after here.

Joseph Quatrochi: Exactly. And are there areas where, you know, there's still some inventory reductions to go before maybe demand's not going to snap back as fast? Or, you know, areas where you need to invest more looking into next year as we see industrial and transportation kind of, you know, maybe improve?

Speaker Change: Exactly and are there areas where.

Speaker Change: There are still some inventory reductions to go that maybe demand capital sat back as fast or areas, where you need to invest more looking into next year as we see industrial and transportation kind of maybe improve.

Sean Kerins: Sure. Well, as I said before, we are managing inventory carefully, you know, we are taking a, you know, 90 day view, one quarter at a time, if you will, and we do anticipate that things are getting better here in the near term. I'd say we're, you know, now bouncing along the bottom. As I said, it's hard to predict when things will, you know, tick up more significantly given some of the macro.

Speaker Change: Sure well as I said before we are managing inventory carefully.

Speaker Change: We are taking.

Speaker Change: 90 debut one quarter at a time, if you will we do anticipate that things are.

Speaker Change: We're getting better here in the near term, but I'd say, we're yes, we're now bouncing along the bottom.

Sean Kerins: I'd say we're, you know, we're now bouncing along the bottom. As I said, it's hard to predict when things. You know, take up more significantly given some of the macro, but, you know, we feel in general comfortable with our inventory mix. We talked about, you know, the lean in on IP and E because of, you know, our interest in that market and our continued exposure to it. Remember that the majority of our inventory is what we would call proprietary and nature, highly engineered, you know, which supports our design in and demand creation. We have a lot of information efforts across the globe.

Speaker Change: As I said, it's hard to predict when things.

Sean Kerins: But, you know, we feel in general comfortable with our inventory mix. We talked about the lean in on IP&E because of our interest in that market and our continued exposure to it. Remember that the majority of our inventory is what we would call proprietary in nature, highly engineered, which supports our design in and demand creation efforts across the globe.

Speaker Change: Tick up more significantly given some of the macro but.

Speaker Change: We feel in general comfortable with our inventory mix, we talked about.

Speaker Change: The lean in on IPD because of.

Speaker Change: Our interest in that market and our continued exposure to it.

Speaker Change: Remember that the.

Speaker Change: The majority of our inventory is what we would call proprietary in nature highly.

Speaker Change: Highly engineered.

Speaker Change: Which supports our design in and demand creation efforts across the globe.

Sean Kerins: We certainly haven't changed that, but, you know, to give you a kind of an absolute feel for where we think we are. You saw turns improve slightly quarter to quarter. You know, we say we're within a half a turn or less where we want to be with inventory overall. As we manage this thing going forward and, you know, as in when we see sequential improvement in the business, you know, we will maintain, you know, those turn levels. And I think we'll be in great shape, you know, going forward. Again, we still have the residual of some excess inventory, you know, mainly a function of some of the long-term supply agreements that we were engaged in.

Sean Kerins: We certainly haven't changed that. But, you know, to give you a kind of absolute feel for where we think we are, you saw turns improve slightly, quarter to quarter. We'd say we're within a half a turn or less of where we want to be with inventory overall. As we manage this thing going forward, and, you know, as and when we see sequential improvement in the business, we'll maintain those turn levels.

Speaker Change: We certainly haven't changed that.

Speaker Change: But.

Speaker Change: To give you a kind of an absolute feel for where we think we are.

Speaker Change: You saw it turns improved slightly quarter to quarter.

Speaker Change: We'd say, we're within a half a turn or less.

Speaker Change: We want to be with inventory overall.

Speaker Change: As we manage this thing going forward.

Speaker Change: As and when we see sequential improvement in the business.

We will maintain.

Speaker Change: Those turn levels.

Sean Kerins: And I think we'll be in great shape, you know, going forward. Again, we still have the residual, some excess inventory, you know, mainly a function of some of the long-term supply agreements that we were engaged in. But that's abating, and we think the lion's share of that will resolve itself by the end of the year. And, you know, we should see inventory and inventory turns as fairly stable from there. But, you know, we're not bashful. We're going to lean in as we see the market firming, because we want to make sure that we can help our suppliers grow.

Speaker Change: And I think we'll be in great shape going forward again, we still have.

Speaker Change: The residual of some excess inventory, mainly a function of some of the long term supply agreements that we were engaged in but that's abating and we think the lion's share of that will resolve itself by the end of the year.

Sean Kerins: But that's debating, and we think the lion's share that will resolve itself by the end of the year, and, you know, we would see inventory and inventory turns is fairly stable from there. But, you know, we're not bashful. We're going to lean in as we see the market firming because we want to make sure that we can help our suppliers grow.

Speaker Change: We would see inventory and inventory turns is fairly stable from there, but we're not bashful, we're going to lean in as we see the market firming, because we want to make sure that we can help.

Speaker Change: Our suppliers grow.

Joe Katrochi: Thanks for that helpful.

Joseph Quatrochi: Thanks for that. That's very helpful. As a follow-up, you talked about the demand you're seeing from cloud and AI solutions. I was wondering if you could just kind of double-click on that, like, what are these solutions that you guys are providing? Are you racking and stacking full, you know, GPU server solutions? And then how do we think about the margin on that business relative to, I think, a bit of a focus on driving higher-margin dollars on the ETS? Yeah, so we don't, we don't break.

Speaker Change: Thanks for that that's helpful. As a follow up you talked about the demand you're seeing from cloud and AI solutions wondering if you could just kind of double click on that like what are the solutions that you guys are providing are you racking and stacking like Paul.

Sean Kerins: As a follow-up, you know, you talked about the demand you're seeing from cloud and AI solutions. Wondering if you just kind of double click on that, like, what are these solutions that you guys are providing? Are you racking stacking like full, you know, GPU server solutions, and then how do we think about like the margin on that business relative to, I think a bit of a focus on driving. You know, higher margin dollars on the ETS business. Yeah, so we don't, we don't break out margins at that granular level, but what I can say is we're participating in the, you know, the early days of the ramp of AI in both of our segments: in our components business, our supply chain management offering.

Speaker Change: GPU server solutions and then how do we think about like the margin on that business relative to I think Dave a focus on driving higher margin dollars on the ECS business.

Sean Kerins: Yeah, so we don't, we don't break out margins at that granular level. But what I can say is we're in the early days of the ramp of AI in both of our segments. In our components business, our supply chain management offering is directly engaged in helping, you know, the right companies, you know, source, stage, and build, you know, their AI infrastructure. And in our ECS segment, you know, we're very involved, as a function of our focus on cloud and as a service offerings and things that we can enable through our digital platform, we're very engaged in helping the channel ramp up on things like Copilot, for example.

Speaker Change: Yes, so we don't we don't break out margins.

Speaker Change: At that granular level.

Speaker Change: What I can say is we're we're participating in the <unk>.

Speaker Change: The early days of the ramp of AI in both of our segments.

Speaker Change: Our components business, our supply chain management offering.

Sean Kerins: You know, is directly engaged in helping, you know, the right companies, you know, source stage and build, you know, their AI infrastructure. And in our ECS segment, you know, we're very involved, you know, as a function of our focus on, you know, cloud and as-a-service offerings and things that we can enable through our digital platform. We're very engaged in helping the channel. You know, ramp up on things like Co Pilot, for example, and you know, that activity level is, has really taken off nicely for us and we expect that to continue. So there's other pockets of the company in which we're now engaged in, you know, AI adoption as well, but those two are the better examples, and I think there's more to come as this thing plays out.

Speaker Change: Is directly engaged in helping.

Speaker Change: The right companies.

Speaker Change: Source stage and build.

Sean Kerins: And, you know, that activity level has really taken off nicely for us, and we expect that to continue. So there's other pockets of the company in which we're now engaged in, you know, AI adoption as well. But those are two of the better examples. And I think there's more to come as this thing plays out.

Speaker Change: Their AI infrastructure.

Speaker Change: And in our ECS segment.

Speaker Change: We're very involved.

Speaker Change: Function of our focus on cloud.

Speaker Change: Cloud and as a service offerings and things that we can enable through our digital platform, we're very engaged in helping the channel.

Speaker Change: Ramp up on things like co pilot for example.

Speaker Change: And that activity level is.

Speaker Change: It has really taken off nicely for us and we expect that to continue so there's other pockets of the company in which we're we're now engaged in.

Speaker Change: AI adoption as well, but.

Speaker Change: Two of the better examples and I think theres more to come as this thing plays out.

Joe Katrochi: Got it. Thank you.

Speaker Change: Got it thank you.

Unknown Executive: Thanks, Phil.

Joe <unk>: Thanks, Joe.

Joe <unk>: Okay.

Ruplu Bhattacharya: Your next question comes from the line of Ruplu Bhattacharya with Bank of America.

Operator: Your next question comes from the line of Ruplu Bhattacharya with Bank of America.

Speaker Change: Your next question comes from the line up.

Speaker Change: But the <unk> with Bank of America. Your line is open.

Ruplu Bhattacharya: Your line is open. Hi, thanks for digging my questions. Maybe, Sean, I'll follow up on the AI question. Just asking you for a little bit more detail. What do you think is the revenue contribution in 2024 from AI, or what was the revenue contribution in this quarter? And if you can tell us like what type of customers are buying AI equipment, are you seeing demand from hyperscalers or you think enterprise AI demand is also picking up.

Ruplu Bhattacharya: Hi, thanks for taking my questions. Maybe, Sean, I'll follow up on the AI question, just asking you for a little bit more detail. What do you think the revenue contribution from AI will be in 2024, or what was the revenue contribution in this quarter? And if you can tell us, like, what type of customers are buying AI equipment? Are you seeing demand from hyperscalers, or do you think enterprise AI demand is also picking up?

Speaker Change: Hi, Thanks for taking my questions.

Speaker Change: Maybe Sean I'll follow up on the AI question, just asking you for a little bit more detail.

Speaker Change: What do you think is the revenue contribution in 2024 from <unk>.

Speaker Change: What was the revenue contribution in this quarter and if you can tell us like what type of customers are buying equipment and are you seeing demand from hyperscale.

Speaker Change: Using enterprise demand is also picking up.

Sean Kerins: So I'll start with your first question. You know, you heard us talk about some of the focal points for us in our prepared remarks. You know, what I would say about each of those is, you know, they're all real and tangible. Our intention today was simply to indicate our relevance in this part of the technology. You know, market is this piece of the industry starts to ramp up and evolve more completely. It's a little too early for us to quantify these in great detail, but they are real, and we do believe they'll become more important to our future trajectory.

Sean Kerins: So I'll start with your first question. You know, we talked about some of the focal points for us in our prepared remarks. What I would say about each of those is, you know, they're all real and tangible.

Speaker Change: So I'll start with your first question.

Speaker Change: <unk> heard us talk about some of the focal points for us in our prepared remarks.

Sean Kerins: Our intention today was simply to, you know, indicate our relevance in this part of the technology market as this piece of the industry starts to ramp up and evolve more completely. It's a little too early for us to quantify these in great detail, but they are real, and we do believe they'll become more important to our future trajectory. You know, the way we're thinking about AI is really on two fronts.

Speaker Change: What I would say about each of those is yes. They are all real intangible our intention today was simply to indicate our relevance in this part of the technology.

Speaker Change: Is this piece of the industry starts to ramp up in.

Speaker Change: And evolve more completely.

Speaker Change: Little too early for us to quantify.

Speaker Change: These in great detail.

Speaker Change: But they are real and we do believe there'll become.

Speaker Change: More important to our future trajectory.

Sean Kerins: You know, the way we're thinking about AI is really on two fronts internally. You know, we're getting after it because we think it can help us a great deal with our transactional workload, you know, which can only help to create more sales capacity for our growth priorities. But at the same time, commercially, I think you're going to see whole ecosystems emerge around AI technologies and their applications. You can think of it as a rising tide that's going to lift many boats, and we're going to want to be front and center and enabling those ecosystems to develop and get their offerings to market.

Sean Kerins: Internally, you know, we're pursuing it because we think it can help us a great deal with our transactional workload, which can only help to create more sales capacity for our growth priorities. But at the same time, commercially, I think you're going to see whole ecosystems emerge around AI technologies and their applications. You could think of it as a rising tide that's going to lift many boats, and we're going to want to be front and center in enabling those ecosystems to develop and get their offerings to market.

Speaker Change: The way, we're thinking about AI is really on two fronts.

Speaker Change: Internally.

Speaker Change: We're getting after it because we think.

Speaker Change: It can help us a great deal with our transactional workload, which can only help to create more sales capacity for our growth priorities.

Speaker Change: But at the same time commercially I think youre going to see.

Speaker Change: Full ecosystems emerge around AI technologies in their applications.

Speaker Change: You could think of it as a rising tide, that's going to lift many boats and we're going to want to be front and center and enabling those ecosystems to develop.

Speaker Change: Yet their offerings to market.

Sean Kerins: But I would say, you know, we're still in the early phases of broader AI adoption. We, again, want to signal our belief that we are relevant to it and will be more relevant to it in the future, but this will be a long journey and nevertheless, a pretty compelling one.

Sean Kerins: But I would say, you know, we're still in the early phases of broader AI adoption. We again want to signal our belief that, you know, we are relevant in it and we'll be more relevant in it in the future.

Speaker Change: But I would say we're still in the early phases of broader AI adoption, we again want to signal.

Belief that we are relevant.

Speaker Change: And we will be more relevant in the future.

Sean Kerins: But this will be a long journey, and nevertheless a pretty compelling one.

Speaker Change: But this will be a long journey and nevertheless, a pretty compelling one.

Raj Agrawal: Okay, thanks for that. Roger, I have a couple of questions for you just on ECS margins. You had good sequential growth of 140 basis points. Can you help us, like, what were the drivers for that sequential growth, like how much was impacted because of netted down items versus product mix or regional mix.

Ruplu Bhattacharya: Okay, thanks for that. Raj, I have a couple of questions for you.

Speaker Change: Okay. Thanks for that Roger I have a couple of questions for you just on ECS margins you had good sequential growth of 140 basis points can you help us like what were the drivers for that sequential growth like how much was impacted because of netted down items horses product mix.

Raj Agrawal: Just on ECS margins, you had good sequential growth of 140 basis points. Can you help us, like, what were the drivers for that sequential growth? Like how much was impacted because of netted down items versus product mix or regional mix? And as we think about the sequential decline of margins going from 2Q to 3Q, if you can help us understand that, what are some of the drivers for margins in the third quarter on the ECS side?

Speaker Change: Our regional mix and as we think about sequential decline of margins going from <unk> to <unk>. If you can help us understand that what are some of the drivers for margins in the third quarter on the ECS side.

Raj Agrawal: And as we think about the sequential decline of margins going from two to three Q, if you can help us understand that, what are some of the drivers for margins in the third quarter on the ECS? Yeah, really, it's really just a function of the business mix, you know. Buildings is the best indicator of health of that overall business, and then depending on the overall mix of parts of reselling, it will net down to certain levels of revenue. But yeah, it did uptake in the second quarter; in the third quarter, we're seeing more of the normal seasonality of that business.

Raj Agrawal: Yeah, Ruplu is really just a function of the business mix. You know, billings are the best indicator of the health of that overall business.

Speaker Change: Yes, it's really just a function of business mix billings.

Billings is the best indicator of health of that overall business and then depending on the overall mix of products that we're selling it will net.

Speaker Change: Net down to certain levels of revenue, but yes, it did uptick in the second quarter.

Speaker Change: In the third quarter, we're seeing more of a normal seasonality of that business.

Raj Agrawal: And that's why you're seeing it step down, so nothing unusual there. You know, just from a margin standpoint, and it really is just a function of what types of sales we have in the particular quarter that impact margins on a sales base.

Speaker Change: And Thats why youre seeing it stepped down so nothing unusual there.

Speaker Change: Just from a margin standpoint, and it really is just a function of what types of sales we have in a particular quarter.

Raj Agrawal: And then, depending on the overall mix of products that we're selling, it will net down to certain levels of revenue. But yeah, it did pick up in the second quarter. In the third quarter, we're seeing more of the normal seasonality of that business, and that's why you're seeing it step down. So nothing unusual there, you know, just from a margin standpoint, and it really is just a function of what types of sales we have in the particular quarter that impact margins on the sales base.

Speaker Change: That impact margins on a sales basis.

Ruplu Bhattacharya: Joseph. Okay, understood.

Ruplu Bhattacharya: Okay, understood. Maybe for the last one for me, when I...

Speaker Change: Okay understood.

Raj Agrawal: Maybe for the last one from me, when I think about free cash flow, I mean, it looks like you had pretty strong free cash flow versus the year-ago quarter. I know you don't guide to free cash flow, but maybe I can ask the question in terms of investments in inventory. I think in response to a question, you said that you're going to invest in IP&E. So, how should we think about inventory? What is a normal level of inventory or a normal level of cash conversion cycle?

Speaker Change: The last one from me.

Speaker Change: When I.

Ruplu Bhattacharya: When I think about free cash flow, I mean, it looks like you had pretty strong free cash flow versus the year-ago quarter. I know you don't guide to free cash flow, but maybe I can ask the question in terms of investments in inventory. I think in response to a question, you said that you're going to invest in IP and E. So how should we think about inventory? What is a normal level of inventory or a normal level of the cash conversion cycle? And how should we think about the second half free cash flow or the second half inventory trend as we go forward? Thank you.

Speaker Change: When I think about free cash flow I mean, it looks like you had pretty strong free cash flow versus the year ago quarter. I know you don't guide to free cash flow, but maybe I can ask the question in terms of investments in inventory I think in response to a question you said that youre going to invest in <unk>. So how should we think about it.

Speaker Change: Inventory what is a normal level of inventory are a normal level of cash conversion cycle and how should we think about.

Raj Agrawal: And how should we think about the second half free cash flow or the second half inventory trend as we go forward?

Speaker Change: The second half free cash flow or this thing enough inventory trend as we go forward. Thank you.

Raj Agrawal: Thank you. Yeah, Ruplu really comes down to our cash, which we're very pleased with. You saw in the second quarter we generated about $320 million of operating cash flow. That puts us at about $720 million a year to date. And as I mentioned, $1.3 billion over the last 12 months, our business just naturally generates cash. Obviously, working capital investments will impact that. And, as we've mentioned, also, you know, inventory has come down by about $1.2 billion in the last nine months or so. So we think we're at a good level of inventory. We'll keep investing wherever it's needed.

Raj Agrawal: Yeah, Ruple, it really comes down to our cash flow, which we're very pleased with. You know, you saw in the second quarter, we generated about $320 million of operating cash flow. That puts us at about $720 million year to date, and, as I mentioned, $1.3 billion over the last 12 months. Our business just naturally generates cash; obviously, working capital investments will impact that. And as we mentioned, also, you know, inventory has come down by about $1.2 billion in the last nine months or so.

Speaker Change: Yes, a group where it really it comes down to our cash Shannon, which we're very pleased with.

Speaker Change: You saw in the second quarter, we generated about $320 million of operating cash flow that puts us at about $720 million year to date and as I mentioned $1 $3 billion over the last 12 months.

Speaker Change: Our business just naturally generates cash obviously working capital investments will impact that.

Speaker Change: And as we mentioned also inventory has come down by about $1 $2 billion in Alaska.

Speaker Change: Nine months or so so we think we're at a good level of inventory, we will keep investing wherever it's needed <unk> is certainly one of the areas and.

Raj Agrawal: So we think we're at a good level of inventory, and we'll keep investing wherever it's needed. IP&E is certainly one of the areas, and you know, but we feel very good about the cash generation capability of this business. Okay, thank you.

Raj Agrawal: IP&E is certainly one of the areas. And, you know, but we feel very bit about the cash gen capability of this business.

Speaker Change: But we feel very good about the cash gen ability of this business.

Ruplu Bhattacharya: Okay, thank you for all the details.

Ruplu Bhattacharya: Okay, thank you for all the details. I appreciate it.

Speaker Change: Okay. Thank you for all the details appreciate it.

Ruplu Bhattacharya: Appreciate it.

Melissa Fairbanks: Thanks, Ruplu. Our next question comes from the line of Melissa Fairbanks with Raymond James; your line is open.

Rupert: Thanks Rupert.

Rupert: Yeah.

Operator: Our next question comes from the line of Melissa Fairbanks with Raymond James. Your line is open.

Speaker Change: Our next question comes from the line of Melissa Fairbanks with Raymond James Your line is open.

Raj Agrawal: Hey guys, thanks for letting me squeeze in a follow-up. I just had kind of a quick follow-up to Ruplu's question for Raj. Maybe, you know, building on the question about free cash flow and how much cash you're generating. Can you remind us what your priorities for cash use are beyond, obviously, investing in the business and investing in some of that inventory? Share count has come down very significantly over the past couple of years. And you know, the bad ones came down pretty nice with the QQ. Just wondering what you're thinking of going forward from there.

Melissa Fairbanks: Hey, guys, thanks for letting me squeeze in a follow-up. I just had kind of a quick follow-up to Rupa's question for Raj. Maybe, you know, building on the question about free cash flow and how much cash you're generating, can you remind us what your priorities for cash use are beyond, obviously, investing in the business and investing in some of that inventory?

Melissa Fairbanks: Hey, guys. Thanks for letting me squeeze in a follow up I just had kind of a quick follow up to <unk> question for.

Raj Agarwal: For Raj.

Raj Agarwal: Maybe.

Speaker Change: Building on the question about free cash flow and how much cash you're generating can you remind us what your priorities for cash use are beyond obviously investing in the business and investing in some of that inventory.

Speaker Change: Share count has come down very significantly over the past couple of years.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Q, just wondering what youre thinking of going forward from there. Thanks.

Raj Agrawal: Thanks. Thanks, Melissa. You kind of summarized it for me, but let me summarize it again. You know, we're very pleased with the cash flow, and, you know, in order of priority, which really have not changed, we will continue to invest in our business organically for organic growth. So working capital catbacks, other needs like that. You know, we'll look at M&A as well. It's got to be at the right price at the right returns, and we've, you know, we did a small acquisition in the first quarter in the engineering services side. And then, as you said, you know, we've fought back a lot of stock over the last two or three years. Last year was about $750 million in the first half of this year.

Raj Agrawal: Thanks, Melissa. You kind of summarized it for me, but let me summarize it again. We're very pleased with the cash flow. And in order of priority, which really has not changed, we will continue to invest in our business organically for organic growth, so working capital, CapEx, other needs like that. We'll look at M&A as well. But it's got to be at the right price, at the right returns.

Speaker Change: Thanks, Melissa you kind of summarize that for me, but let me summarize it again.

Speaker Change: We're very pleased with our cash flow.

Speaker Change: And in order of priority, which really have not changed we will continue to invest in our business organically and for organic growth or working capital capex or their needs like that.

Speaker Change: We will look at M&A as well and it's got to be at the right price at the right returns and we've we did a small acquisition in the first quarter and the engineering services side.

Raj Agrawal: And we did a small acquisition in the first quarter on the engineering services side. And then, as you said, we've bought back a lot of stock over the last two or three years. Last year, it was about $750 million. In the first half of this year, we're a little bit lighter at $150 million just to manage our debt ratios. And We have paid down some debt. So that's exactly what we're doing. And I wouldn't see those priorities changing as we go forward.

Speaker Change: Then as you said, we've bought back a lot of stock over the last two or three years last year was about $750 million in the first half of this year were a little bit lighter at 150 million just to manage our debt ratios.

Sean Kerins: We're a little bit lighter at 150 million just to manage our debt ratios, and we have paid down some debt. So that's exactly what we're doing. And I wouldn't see those priorities changing as we go forward. Yeah, Melissa, I would just reinforce, you know, our capital allocation priorities have not changed at all, as Rush just. Just outlined, and I would say all else being equal, you know, we're simply managing the balance of the trade-off between, you know, share repurchase and dead capacity, but again, all else being equal. We're certainly still intent on doing so.

Speaker Change: And we have paid down some debt. So that's exactly what we're doing and I wouldn't see those priorities changing as we go forward.

Sean Kerins: Yeah, Melissa, I would just reinforce, you know, our capital allocation priorities have not changed at all, as Raj just outlined. And I would say, all else being equal, we're simply managing the balance of the tradeoff between share repurchase and debt capacity. But again, all else being equal, we're certainly still intent on doing so.

Speaker Change: Yes, Melissa I would just reinforce.

Melissa Fairbanks: Our capital allocation priorities have not changed at all as Raj just.

Melissa Fairbanks: Just outlined and I would say all else being equal we're simply managing the.

Speaker Change: The balance of the trade off between share repurchase and debt capacity, but.

Speaker Change: Again, all else being equal.

Speaker Change: Certainly still intent on doing so.

Melissa Fairbanks: Great. Thanks very much, guys. Thanks, Melissa.

Melissa Fairbanks: Great. Thanks very much, guys.

Speaker Change #100: Great. Thanks, very much guys.

Melissa Fairbanks: Melissa. Thanks, Melissa. [inaudible]

Melissa Fairbanks: Thanks, Marisa Thanks Melissa.

Brad Windigler: There are no further questions at this time. I will hand things over to Brad Wimbigler to close.

Operator: There are no further questions at this time.

Speaker Change #101: There are no further questions at this time.

Brad Windbigler: I will hand things over to Brad Windbigler to close it out. I think thank you all again for joining today's call. We look forward to meeting with you at upcoming investor events.

Brad: Thanks, all of our Q, Brad when bigler to close it out.

Brad Windigler: Thank you for joining today's call. We look forward to meeting with you at upcoming investor events. Have a good day.

Brad Winbigler: I think thank you all again for joining today's call. We look forward to meeting with you at upcoming Investor events and have a good day.

Operator: Have a good day.

Brad: Okay.

Brad: Okay.

Brad: Yeah.

Brad: Thank you all again for joining today's call.