Q3 2025 Avnet Inc Earnings Call
Greetings and welcome to the Avnet third quarter fiscal year 2025 earnings conference call. At this time all participants are in a listen only mode. If anyone should require operator assistance. Please press star zero on your telephone keypad.
A question and answer session will follow the formal presentation.
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Under this conference is being recorded.
My pleasure to turn the call over to Joe Burke, Vice President of Investor Relations. Joe. Please go ahead.
Thank you operator, I'd like to welcome everyone to Avnet third quarter fiscal year 2025 earnings Conference call. This morning, <unk> released financial results for the third quarter fiscal year 2025, and the release is available on the Investor Relations section of Avnet website, along with a slide presentation, which you may access at your convenience.
As a reminder, some of the information contained in the news release and on this conference call will contain forward looking statements that involve risks uncertainties and assumptions that are difficult to predict such forward looking statements are not a guarantee of performance and the company's actual results could differ materially from those contained in such statements.
Several factors that could cause or contribute to such differences are described in detail in avnet as most recent Form 10-Q, and 10-K and subsequent filings with the SEC. These forward looking statements speak only as of the date of this presentation and the company undertakes no obligation to publicly update any forward looking statements or supply new information regarding the circumstances.
After the date of this presentation.
Please note unless otherwise stated all results provided will be non-GAAP measures. The full non-GAAP to GAAP reconciliation can be found in the press release issued today as well as in the appendix slides of today's presentation and posted on the Investor Relations website.
Speaker Change: Today's call will be led by Phil Gallagher, Avnet, CEO and Ken Jacobson Avnet CFO.
With that let me turn the call over to Phil Gallagher Phil.
Speaker Change: Thank you Joe and thank you everyone for joining us on the third quarter of fiscal year 2025 earnings call.
Speaker Change: Please we delivered financial results ahead of our expectations for the third quarter.
Speaker Change: We achieved sales of $5 $3 billion.
High end of our guidance and adjusted EPS of <unk> 84 cents above guidance.
Speaker Change: We also generated $141 million of cash flow from operations in the quarter.
Speaker Change: Our results were driven by slightly better than expected performance in Asia, and Parnell offset by expected ongoing weaknesses in the west with your presenting the most challenging market conditions.
Speaker Change: Some inductor and ITD lead times and pricing continue to be stable for most technologies.
Speaker Change: Our global book to Bill ratio continues to improve with the Asian region, achieving parity in the quarter and with the Americas and EMEA approaching parity.
Speaker Change: I would note that the IP and a book to Bill ratio across the company continues to improve above parity.
Speaker Change: Our backlog continues to be lower due to a combination of shorter lead times and customers still and the Destocking mode cancellations have remained at normal levels.
Customers continue to work through their elevated inventories well.
Speaker Change: All of our inventory is down marginally after accounting for foreign currency I want to emphasize that inventory on hand, which is comprised of a diverse supplier mix is a strategic asset and an important part of the value proposition, we bring to our customers.
Speaker Change: And we stand at the ready to provide our customers with the product they need.
Speaker Change: Z Destocking process runs its course.
Speaker Change: At the same time, we expect to continue to optimize our inventory composition and reduce core inventory levels were needed in the coming quarters.
Speaker Change: Turning to our electronic components results.
Speaker Change: At the topline or electronic components sales declined on a sequential basis and on a year on year basis due to the economic backdrop and certain geopolitical factors on the other hand Asia was the only region with year on year sales growth.
Speaker Change: In EMEA, we continued to experience weak demand across the region.
Speaker Change: In the quarter, the industrial end market increased slightly while other vehicles were down sequentially.
Speaker Change: Aerospace and defense end market was the only vertical that show growth on a year on year basis.
Speaker Change: In the Americas, we saw sequential growth in the transportation and compute end markets.
Speaker Change: All other verticals were down sequentially.
Speaker Change: All verticals with the exception of compute we're down on a year on year basis.
Speaker Change: We do not see any meaningful increase in shipments in advance of the anticipated tariff increases.
Speaker Change: Results for our Asia region were better than expected, even after allowing for the seasonal declines attributed to the lunar new year.
Speaker Change: Sales for Asia were down eight 5% sequentially. However, sales increased 13% year on year, representing the third consecutive quarter of year on year growth.
Speaker Change: While sales for all verticals were down sequentially as expected we saw year on year growth in the industrial communication and transportation end markets.
Speaker Change: Similar to last quarter, we experienced a slight benefit in Asia from customers are ordering due to the uncertainty of potential regulatory changes in the U S.
Speaker Change: Demand creation revenues as a percentage of total revenues remained stable.
Speaker Change: Our demand creation wins increased as our field application engineers continue to find ways to create solutions for our customers even in these challenging markets.
Speaker Change: One bright spot dimension is advocacy our specialty <unk> business in EMEA recorded solid increases in demand creation revenues and gross profit dollars.
Speaker Change: Now turning to for now we are encouraged by the progress when I was making our sales increased 6% sequentially and operating income increased to 3% for the quarter.
Speaker Change: We continue to be challenged given the macro environment in Europe, where a large portion of their sales are derived.
Speaker Change: Our teams still has a lot of work to do I expect that we will see steady improvements at farnell.
Speaker Change: We will continue to execute against our strategy and focus on those growth opportunities, we can't control, including leveraging existing avnet core customer and supplier relationships. Thus our branding of the power of one.
Speaker Change: Okay.
Speaker Change: Now regarding recently announced tariffs we understand that this topic is front and center for all of Avnet stakeholders.
Speaker Change: I want to take a moment to talk about what we're doing to mitigate the impact of tariffs when our customers and our own financials.
Speaker Change: First I would start by saying the current environment regarding tariffs is dynamic and our remarks today are based on what we know at this time.
Speaker Change: As we've mentioned before when tariffs on goods originating from China went into the effect in 2018, we implemented changes to our systems and processes to minimize the impact of tariffs, where we could pass through tariffs to our customers as seamlessly as possible.
Speaker Change: In response to recently enacted tariffs earlier this month, our team has been making the necessary adjustments to our systems and processes to capture and mitigate the widening scope of those that are currently applicable.
Speaker Change: Some of our solutions to minimize the impact to include leveraging our global logistics and services footprint.
Speaker Change: Collaborating with suppliers, we could minimize the impact on our customers.
Speaker Change: And offering alternative country of origin products and solutions that are not subject to tariffs.
Speaker Change: To conclude we are experiencing one of the most challenging and uncertain times that I've witnessed in my 40 plus years in distribution.
Speaker Change: Supply chain today are very complex.
Speaker Change: And as I like to say complexity is our friend.
Speaker Change: That's our job and a big part of our value proposition is to minimize the complexity, so our suppliers and customers can achieve their goals in the most cost effective way possible.
Speaker Change: Weird Avnet have a long history of adapting to evolving technologies market cycles, geopolitics and shifts in regulations.
Speaker Change: I'm confident we will weather these current challenges and emerge stronger.
Speaker Change: I want to thank our team for their dedication and perseverance and helping us to achieve our goals.
Speaker Change: It is during times like these that our efforts demonstrate to all of our stakeholders the value that we provide at the center of the technology and supply chain.
Speaker Change: With that I'll turn it over to Kansas dive deeper into our third quarter results.
Speaker Change: Thank you Phil and good morning, everyone. We appreciate your interest in Avnet and for joining our third quarter earnings call.
Speaker Change: Our sales for the third quarter were approximately $5 $3 billion near the high end of our guidance range and down 6% both year over year and on a sequential basis.
Speaker Change: Relative to expectations.
Speaker Change: I was in Asia and for now were higher than expected, while the Americas and EMEA sales were slightly lower than expected.
Speaker Change: Regionally on a year over year basis sales increased 13% in Asia, but declined 24% in EMEA and 9% in the Americas.
Speaker Change: From an operating group perspective, electronic components sales declined 6% year over year and decreased 7% sequentially.
Speaker Change: <unk> sales declined 10% year over year, but increased 6% sequentially.
Speaker Change: For the third quarter gross margin of 11, 1% was 78 basis points lower year over year, but 54 basis points higher sequentially in part due to a seasonal mix shift to the west the.
Speaker Change: The same seasonal mix shift impacted he see gross margin, which was higher sequentially, but down year over year gross margins for each E. C region remained relatively consistent on a sequential basis.
Speaker Change: <unk> gross margin was also down year over year, but up sequentially largely due to an increased mix of on the board components.
Speaker Change: Farnell gross margin of the product category level, including on the board components continues to be stable.
Speaker Change: Turning to operating expenses, we continue to manage expenses, well and take costs out where necessary SG&A expenses were $435 million in the quarter down $32 million or 7% year over year and down $1 million sequentially.
Speaker Change: Operating expenses for the quarter included a 9 million dollar benefit from the gain on the sale and leaseback of the facility.
Speaker Change: As a percentage of gross profit dollars SG&A expenses were slightly higher sequentially and 74%.
Speaker Change: Foreign currency positively impacted operating expenses by approximately $4 million sequentially and $7 million year over year.
Speaker Change: For the third quarter, we reported adjusted operating income of $153 million and our adjusted operating margin was 2.9%.
Speaker Change: By operating group electronic components operating income was $172 million and E. C. Operating margin was three 5%.
Speaker Change: The year over year decline in E. C. Operating margin was primarily due to the sales mix shift to Asia.
Speaker Change: We're now operating margin was 3% up approximately 200 basis points quarter over quarter, reflecting improved sales and gross margin. It is early days, but we're encouraged by this improvement.
Speaker Change: We believe the farnell business has stabilized and it's a modest improvement in the number and size of customer orders.
Speaker Change: We're now operating expenses were down $12 million year over year, but up $3 million sequentially on higher sales.
Speaker Change: Cornell continues to execute against its cost reduction program, but a majority of the planned actions have been completed exiting the third quarter.
Speaker Change: Turning to expenses below operating income third quarter interest expense of $61 million decreased by $12 million year over year and decreased $1 million sequentially due to lower average borrowings. This lower interest expense positively impacted adjusted diluted earnings per share by <unk> 11 cents year over year.
Speaker Change: Our adjusted effective income tax rate was 23% in the quarter as expected.
Speaker Change: Adjusted diluted earnings per share of 84 exceeded the high end of our guidance for the quarter and included an approximately eight cent benefit from the gain on sale and leaseback of the facility during the quarter.
Speaker Change: Turning to the balance sheet and liquidity during the quarter working capital remained flat sequentially, including a slight increase in reported inventories of $18 million of.
Speaker Change: $326 million decrease in receivables and a $307 million decrease in payables.
Speaker Change: Sequential increases in foreign currency exchange rates added $93 million of working capital, including $75 million to reported inventories excluding.
Speaker Change: The impact of changes in foreign currency exchange rates inventories decreased by $57 million compared to last quarter.
Speaker Change: Main focus on reducing inventory levels were elevated noting that we also want to make investments where needed.
Speaker Change: On working capital stable with last quarter.
Speaker Change: We generated $141 million of cash from operations in the quarter $585 million fiscal year to date and $859 million over the past four quarters, we expect to generate positive operating cash flows next quarter year.
Speaker Change: Year to date, our debt is lower by $260 million, we ended the quarter with a gross leverage at three two times and we had approximately $1.2 billion of available committed borrowing capacity.
Speaker Change: During the quarter net cash used for Capex was $27 million within our expected quarterly levels of approximately 25 million to $35 million.
Speaker Change: Is it capex is expected to be between 55 million to $65 million next quarter due to the planned purchase of an office building.
Speaker Change: In the third quarter, we paid a quarterly dividend of 33 cents per share or $28 million.
Speaker Change: We also repurchased approximately $201 million of the shares bringing the year to date repurchase total to $251 million. We were ahead of our goal to reduce shares outstanding by at least 5%. This fiscal year. Additionally, we have more than $400 million left on our current share repurchase authorization.
Speaker Change: Book value per share increased to approximately $56 a share or a sequential increase of one dollar per share primarily due to changes in foreign currency exchange rates.
Speaker Change: With regard to our capital allocation, we continue to prioritize our existing business needs, including working capital and Capex.
Speaker Change: <unk> committed to a roadmap of delivering a reliable increasing dividend and balancing debt paydown with share repurchases as our shares continue to be undervalued by the market.
Speaker Change: Turning to guidance for the fourth quarter of fiscal 2025, we are guiding sales in the range of $5. One 5 billion to $5 45 billion and diluted earnings per share in the range of 65 to 75 cents.
Speaker Change: Our fourth quarter guidance assumes flat sales compared to last quarter at the mid point driven in part by favorable foreign exchange rates primarily in EMEA.
Speaker Change: Our overall sales guidance in constant currency assumes lower sales in EMEA and flattish sales in Asia and the Americas.
Speaker Change: This guidance also assumes similar interest expense compared to the third quarter, an effective tax rate of between 21% and 25% and 86 million shares outstanding is a little basis.
Speaker Change: Our team has made a significant effort to adjust our processes for this latest round of latest round of tariffs for additional context. We currently estimate that between 7% to 10% of our annual America sales is from products that originate from China.
Speaker Change: We continue to work with our suppliers and customers to mitigate the impact of tariffs where possible.
Speaker Change: In summary, our third quarter performance was better than expected. Despite the challenging market conditions. Our team continues to focus on generating operating cash flow and over the past year, we have been able to balance the pay down of debt with returning cash to shareholders through share repurchases and dividends.
Speaker Change: Before turning to questions I want to Echo Phil's comments in thanking our team for continuing to focus on the things that we can control. We will continue to work closely with our suppliers and customers to mitigate the impact of current and any future tariffs to the extent possible our global scale and the diversification of our distribution center locations. The supplier technologies, we provide.
Speaker Change: In the vertical markets, we serve gives us the ability to reduce complexities and better serve our customers with.
Speaker Change: With that I will turn it over to the operator to open up for questions operator.
Speaker Change: Thank you will now be conducting a question answer session, if you'd like to be placed in the question queue. Please press star one on your telephone keypad.
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Speaker Change: Our first question today is coming from Joe with Archie from Wells Fargo. Your line is now live.
Joe Burke: Yeah, Thanks for taking the questions.
Joe Burke: I wanted to kind of understand the puts and takes on the revenue guide for the June quarter, it's a bit weaker than some of your suppliers that they have already guided for the quarter.
Joe Burke: Find their their revenue would be up low or mid or even in some cases high single digits sequentially.
Joe Burke: So I wanted to kind of understand it the difference there and then maybe as a follow up to that you know how do we think about your inventory expectations given it here you're guiding for flattish growth in some of your suppliers are guiding for growth.
Speaker Change: Yeah, Joe Thanks, I I guess, what I would say is I think we've taken the same approach that we have over the past several quarters to kind of come up with the guide. So I don't I don't think we view it as conservative we don't view it as necessarily aggressive as well and I think you know the real story is the worst in Europe in particular, right I think in in kind of euro.
Joe Burke: You know looking at the sequential down you know 5% plus.
So I think if you look at the guidance range. You know if you look at the high end of that guidance range you could get to those you know low single digit growth sequentially, but that's all gonna be probably coming from Asia, right Asia, where we have the strength now in the west is kind of weak you know and so when you get the upside and sales in Asia, It's lower calorie sales and so that's kind of how we're thinking.
Joe Burke: Things, you know and I know, we'll get into some questions on tariffs and things like that I think I think we're going to make some more progress you know $57 million reduction in inventory in constant currency will make some more progress you know this quarter I would say you know 100 million kind of pluses what were looking at so so you know can eat it.
Joe Burke: Work that side of things and think there's more opportunity there to relieve the inventory so.
Joe Burke: That's kind of what we're what we're seeing right now.
Joe Burke: Yeah.
Joe Burke: Okay.
Joe Burke: And then as a follow up you know on terrorists.
Joe Burke: You kind of touched upon it in the prepared remarks.
Joe Burke: Gil opportunities for your supply chain services for your customers and can you talk about that and.
Joe Burke: What does that look like and can you remind us I mean, just kind of the details from the financial profiles of that business.
Joe Burke: Yeah, I think you know I think it's an opportunity to help our customers across all of our service offerings, including supply chain and service I wouldn't say, it's unique to that.
Joe Burke: How do we look at it is this is where our global scale and geographic footprint helps US you know again, we talked about 7% to 10% of our Americas.
Business being country of origin, China, you know and even some of that goes to Mexico, or Canada, which wouldn't be subject to tariff. So look it's complicated, but I think our footprint is going to serve us well to help customers reduce that complexity, but you know at the end of the day.
Joe Burke: Stuff coming from China into the U S is going to be subject to tariffs right. We can't stop that we can try to get different country origins and mitigate the best we can you know and we're working through that right. Now. So we do see this as another example, I think we referred to it is just more complexity, which serves us better to help our customers deal with that you know, but it's challenging right now in terms of everyone's run.
Joe Burke: Around their heads cut off but the team is doing a great job trying to.
Joe Burke: Just real time to what's coming out you know, we don't listen to the news we had more focus on what the government actually issues, but it's coming out as pretty fast, but we think we're you know lock step with what the changes are and we're into many things as quickly as we can.
Joe Burke: Joe This is bill I'll, just jump in on that and well we're super proud of the team here, we've got a tremendous amount of experience with this is not new I think we I reemphasize that in the script, it's going back to what 17 18. So it's just a little bit more complex than that obviously with what's going on but we have the processes in place we've got the logistics centers Oh.
Joe Burke: Options, you've got the F. T E L F T Z setup and and the word really is because everybody have you are you going to pass it on and that's going to be the next question and answers yes.
Joe Burke: And we are doing that and have done that in the past.
Joe Burke: But the real thing we tried to do is mitigate upfront altogether right. So the key is mitigation. So that's why we very intentionally put the complexity in the scripted.
Joe Burke: Complexity is fine that's what that's what we deal with okay, and that's our jobs to make make things simpler if you will or streamline for our customers and suppliers.
Joe Burke: On the guidance you know I'm going to reemphasize, what Ken Ken mentioned as well, we don't we don't stress the team we don't make up numbers do we we roll it up bottoms up we have some conversations with the field a regional presence say here's what we believe is our best.
Joe Burke: Our best estimate and I think the the guidance this quarter is particularly complex given the terrorists given the geopolitical uncertainty that there was no reason to go when you stretch that out.
Joe Burke: We do better we do better great, but we're very confident with the guide okay. As we have been in the past and it's what we're seeing today and that's what we're reporting.
Joe Burke: Thanks for the details.
Joe: You got it Joe.
Speaker Change: Thank you as a reminder, that's far one to be placed in the question queue. Our next question is coming from William Stein from tuition.
Speaker Change: Hey can you all hear me.
Speaker Change: Okay well.
Speaker Change: Oh, great I cut out for a minute there thanks for taking my questions.
Speaker Change: First on Farnell, you did a bit better there than we expected in the quarter, both revenue, but especially in margins can you elaborate a little bit on what went on in the quarter and what your longer term expectations are for that business. Please.
Speaker Change: Sure Ken well.
Speaker Change: Yeah. So the word I would use and Oh, we're not celebrating by any stretch, but the word I would use on fernando's. We're encouraged okay. We we put a plan in place with the new leader, Rebecca and team and are executing to the plan both in Opex reductions as well as SKU expansion and screaming the processes.
Speaker Change: Becoming more driving more efficiency what happened what's encouraging.
Speaker Change: Alright, and the operating margin, we our goal there I will say is I'm gonna see continuous improvement quarter on quarter and work our way back into double digit okay over what period of time exactly tough to call, but we definitely want to see that we went from you know where we were two one to three but let's get to the five to six right on down the line and that's that's the charter for for.
Speaker Change: Now and it really moves a needle as you know from a from an EPS standpoint, when not if when we do that I'll give you. Let me give you some encouraging comments your.
Speaker Change: Will that happen throughout the quarter.
Speaker Change: Cross the board, we saw customer of line items continue to increase in shipments in all three regions. Okay. So that's it I don't know that's you know Canary in a coal mine in Hawaii. So we talk about it you know, but it was a good sign it wasn't any one region, but in Asia Pac were up close to double digits.
Speaker Change: European and line items of the activity was up in the teens and almost 10% in the Americas. So across the board. We saw increased lining of activity. The order values, maybe not be tracking quite at the same rate, but the volume is going up and we continue to see that as we get into April and the book to Bill is positive so.
Speaker Change: It's kind of steady as she goes with with for now we we believe as you know passionately in the a success for for now and the impact. It can have an Avnet, Inc. And will continue to leverage Avnet and for now is that you know that power. One theme, we continue do a marketed out to suppliers and customers.
Speaker Change: Thanks for that the next thing I'd like to linger on for a minute as AR inventory.
Speaker Change: There's always this sort of.
Speaker Change: Pushing tool at least in the discussion I think you tend to always site <unk> com.
Speaker Change: You know investors push you to keep that number low.
Speaker Change: That's fair.
Speaker Change: But you today and in the past I've talked about this as being sort of strategic.
Speaker Change: And highly valuable to both customers and suppliers.
Speaker Change: So I wonder first.
Speaker Change: Would you consider establishing a higher.
Speaker Change: Sort of go forward target level for inventories like maybe this is the right level for a longer term level.
Speaker Change: And if not if you're trying to get them down I am sort of surprised that even on the.
Speaker Change: You know FX, adjusted or constant currency basis with revenue down 6% in the quarter.
Speaker Change: Talk about trying to get this number down yet it was only down about 1% on constant currency. So.
Speaker Change: Sort of which which approaches right are you targeting higher levels longer term and if not why didn't come down faster. Thank you.
Speaker Change: Yeah.
Speaker Change: So you were talking in total Avnet then okay first I would like to talk about for now Okay. Let me take a shot at that and pass it over to Ken.
Speaker Change: As we've stated in the past will.
Speaker Change: We have suppliers that listened to this as well as our customers inventory is not a bad thing okay. So in distribution.
Speaker Change: And what we shoot for we're going to we are going continue to shoot to bring our inventory down more we we have to do that but I want to emphasize that the inventory is not up across the board mentioned this before and there's there's there's a most of our inventory and skus by commodity or are fine and actually we need to invest.
Speaker Change: More okay, but theres a handful of let's just say wind that we have more inventory than we'd probably had anticipated and we need to work that down and some of that was also a strategic we'd call that out.
Speaker Change: A few earnings calls ago, a couple of calls in a row that we had a few strategic opportunities to increase our inventory and get some better returns for that and and we did it and it's good inventory.
Speaker Change: And again, we've got the returns on it so I think there's a constant as a constant balancing act I mean, the end of the day, what we shoot for is the right returns, okay, and we need to get the right return on working capital and Rosy number that's ultimately.
Speaker Change: The metric that we get more inventory and we get higher margins and even get a greater return that's fine okay, but right now we're just a little bit over inventory, we want to bring it to continue to bring it down.
Speaker Change: And that's what we're going to track to do but we don't want to bring our inventory down to where we're not competitive okay, or where were not helping with the suppliers and customers meet their goals. Okay.
Speaker Change: I'd, just say what I think.
Speaker Change: As the sales are down it's more challenging to continue to turn turn the inventory, but we have made a lot of progress in certain areas, but not inventory is not one thing its a lots of things and there is some progress behind the scenes, though even though you know you could say optically. The 57 million is not a not a big number relative to the base, we'd say, but there was a lot of churn within that that was helpful for.
Speaker Change: Future quarters. It come so I think I would echo Phil's comments theres opportunity here. It doesn't mean, we're going to just you know necessarily bring inventory levels down to a target number just for the target number right. We want to have it within the context of the business I think it's a fair statement to say, perhaps in some supplier lines or in some opportunities we might need a whole more than historical levels, but.
Speaker Change: Maybe there's others, where you have more opportunity you know so we continue to drive that with the team and again, we think we'll make additional progress this quarter clearly slower than we would have anticipated you know a year ago, and not where we want it to be but we do think we're making progress even if it's modest.
Speaker Change: Thank you.
Speaker Change: Thanks will.
Speaker Change: Thank you. Our next question today is coming from Romsey Mohan from Bank of America. Your line is now live.
Speaker Change: Yes. Thank you itself once you're feeling in Peru blue today, a few questions around their own towers for me.
Speaker Change: Have you seen any activity around order patterns of the linearity changed at all based on all the tariff news in.
In particular has there been anything that you can see a world relative to Colin or maybe activity jumping up in Asia ahead of us.
Speaker Change: And products getting shipped into the U S.
Speaker Change: Yeah, Hey wanted to see how you're doing it I'll go first Mike can jump in.
Speaker Change: Oh, the overriding answer not much okay and maybe that's.
Speaker Change: Surprising it kind of just to us, but we thought we would see more of what you talked about pull ins ahead of tariffs and things along those lines.
Speaker Change: We didn't see it we thought we would actually see onesie and <unk> in the December quarter before all this started and that didn't happen either I mean modestly.
Speaker Change: Not not much and we didn't see much in the March quarter.
Speaker Change: We'll see how that plays out we we as we called out in the script, we saw some modest pull ins in in Asia Pac, but again in the Grand scheme of things not not that much really so.
Speaker Change: And anyway, you said it kind of surprises, but we thought we would have seen more.
Speaker Change: But at the same time, it's as Ken pointed out in the script that you know the.
Speaker Change: The impact US today, you know coming out of China as you know, but you know seven 7% to 10%. So it's not that I think sometimes the perceptions. It's everything we have is is getting hit and it's really not it's still a big still sizeable number but as a percentage over our I'll call. It exposal sales to tariffs it's relatively low.
Speaker Change: Okay, I think I think in Asia in particular, you know in the December quarter, maybe we saw you know five zero 50 million kind of let's say attributed to pull and benefit and maybe this quarter. It was closer to 100 I think in the guidance, we assume something similar so it's you know we're seeing a little bit of uptick that's contributing to the overall demand, but we're not seeing it to be.
Speaker Change: Massive swings in demand there, but we continue to monitor it definitely some uncertainty and definitely some.
Speaker Change: Currency movement in Asia, as well as of late.
Speaker Change: Yeah that's helpful. Thanks.
Speaker Change:
Speaker Change: Maybe just to to think through.
Speaker Change: Quantifying that your Dod and 7% to 10%.
Speaker Change: As we as we think about that.
Speaker Change: I think you said that some of that also goes via Canada and Mexico. So.
Speaker Change: What is the ability for you to kind of shift maybe geographical.
Speaker Change: Exposure, they are and working with your customers.
Speaker Change: That's question, one and two as you think through.
Speaker Change: Are you expecting.
Speaker Change: Cash flow timing issues relative to.
Speaker Change: When these tariffs go into effect.
Speaker Change: One that Explosible piece can you just walk us through the dynamic there based on when maybe payments are being made worse as what you might be able to recoup.
Speaker Change: Yeah, So maybe I'll start I mean again.
You know we think are.
Speaker Change: Flexibility on our footprint our distribution center footprint in particular, it's helpful. So we do have.
Speaker Change: Not only warehouse in the U S. But also warehouses in Mexico, the warehouses in the U S are.
Speaker Change: Designated as foreign trade zones, which means.
Speaker Change: Until the product moves out of their it's not subject to tariffs. So it's you know acts as a.
Speaker Change: Buffer there. So you know high level numbers, you know that 7% to 10% that originates from China you know.
Speaker Change: 30% of that probably ultimately goes to Mexico, or Canada. So it was not subject to tariffs.
Speaker Change: We've done certain things with our suppliers to become an importer of record. So we can control the drawbacks and things like that so I'd say you know right now not a significant heavy lift on working capital or cash flow. Yeah, I think as the tariffs start to multiply we got a monitor right again.
Speaker Change: Our goal is to mitigate or minimize the tariffs, but we're gonna have to pass it through if we have to pay them you know customers don't want to pay tariffs, they're already paying you know what they perceive as high prices. So there's always that dynamic but again that's.
Speaker Change: That's not new to US we'll continue to work through it and so we don't see as of this date with the terrorists. We were kind of commenting on the script of any meaningful working capital drag or cash flow drag you know beyond what we deal with in terms of you know sometimes receivables come past do we work with our customers to collect them you know the inventory is still probably the biggest opportunity much more than than the.
Speaker Change: Terrorists kind of draw on working capital.
Speaker Change: In terms of cash flow and once he will talk and that's why we focus mostly on the China.
Speaker Change: For Mexico.
Speaker Change: We think at the end of the day somebody less less than one maybe one 5%.
Speaker Change: Revenues cause that kind of a product's coming in from Mexico in the Americas and NTT America's Yep.
Speaker Change: Okay. That's super helpful. If I could just one one quick last one this might be a little unusual but in terms of your visibility into looking into.
Speaker Change: Yeah, I agree with it and components.
Speaker Change: Or components that end up in AI based systems.
Speaker Change: How much visibility do you have into that and would you say that anything has changed for the better or worse.
Speaker Change: And that if if to the extent that you have visibility there.
Speaker Change: Yeah no.
Speaker Change:
Speaker Change: We do have some visibility to that are predominantly in Asia Pac and within Asia Pac Taiwan. So we we are seeing some benefit it's not it's not monstrous for US why don't you why that goes direct into some and there are some like the number one line out there we don't happen to have that wanted you know and that goes direct but we're seeing ancillary product.
Speaker Change: If you will around.
Speaker Change: The AI that we're seeing some benefit we do have visibility to that and it's I could call that it's it's it's it's.
Speaker Change: 3% to 7% of our 3% to 5% of our business probably in Asia Pac or in some sort of along those lines.
Speaker Change: Okay. Okay, great. Thanks, so much though but we do we do with it that's fine I'll just for you you can see but we do believe it's gonna be a tail of opportunity you know coming out of AI on the edge that it's going to for sure benefit of what we do okay and on a more global basis overtime and that also that as the supply chain and service.
Speaker Change: As you know the large Oems there's opportunity to practice that we're seeing more and more.
Speaker Change: Opportunities to get our foot in the door, there and that kind of area with.
Speaker Change: Supply chain services.
Speaker Change: Thank you we've reached end of our question and answer session I'd like to turn the floor back over to Phil for any further or closing comments.
Speaker Change: Yeah.
Speaker Change: Yeah, Thanks for the well.
Speaker Change: Thank you everybody for attending today's earnings call. Yeah, I look forward to speaking to you again at our full fiscal year 2025 earnings report in August have a great day.
Speaker Change: Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.