Q4 2025 Avnet Inc Earnings Call

Please stand by our presentation. We will now begin. Welcome to the Avnet Inc. Fourth Quarter Fiscal Year 2025 Earnings Call.

I would now like to turn the floor over to, to Joe Burke VP Treasury and investor relations for abnett.

Thank you, operator. I'd like to welcome everyone to AET's fourth quarter, fiscal year 2025 earnings conference call this morning. Annette released financial results for the fourth quarter and fiscal year 2025, and the release is available on the investor relations section of AET's website, along with a slide presentation, which you may access at your convenience. As a reminder, some of the information contained in the news release and on this conference call includes 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 contribute to such differences are described in detail in AET, 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 circumstances after the date of this presentation.

Please note that unless otherwise stated, all results provided will be non-GAAP measures. The full non-GAAP to GAAP reconciliation can be found in the press release issued today, as well as in the appendix slides of today's presentation and posted on the investor relations website.

Today's call will be led by Phil Gallagher, Annette, CEO, and Ken Jacobson, CFO of Avnet.

With that, let me turn the call over to Phil Gallagher. Phil.

Thank you, Joe, and thank you everyone for joining us on our fourth quarter of fiscal year 2025 earnings call.

Technology, supply chain control, and cost.

while continuing to make investments and enable our long-term strategy,

optimizing our working capital and generating healthy cash flows.

And continuing to return cash to shareholders through buybacks and the dividend.

We also announced a couple of key executive additions this fiscal year, including the appointment of Dave Young Bud, a 25-year industry veteran, as our Chief Digital Officer, and more recently, the promotion of Gilbert Tran, a 23-year veteran of Adnan, as the new President of the Aria region. Congratulations to Jill, who will be succeeding Sloan on Paric, better known as Pulley, and Mario Orlando Landy, who have co-led the Amia region with distinction for many years.

They will remain with us for the next several quarters to ensure a smooth transition.

Succession planning is critical to any organization, and we have a thoughtful, structured process in place at Avnet.

Mario and Pulley did a great job leading to the success of our air region over the years and also developing talent for the next generation of leadership.

I want to thank them for the many years of tireless dedication.

I want to express my gratitude to our team for their unwavering commitment and hard work in driving us toward our objectives in the challenging markets we have faced over the past couple of years. Our collective efforts truly highlight the critical role we play at the heart of the technology supply chain, reinforcing our value to all stakeholders.

Now, turning to the recently completed fourth quarter, I am pleased to report that we delivered another quarter of financial results that exceeded our sales and EPS guidance.

In the quarter, we achieved sales of $5.6 billion and adjusted operating margins of 2.5%.

Highlighted by a 4.3% operating margin in our Farnell business.

We also generated $139 million of cash flow from operations in the quarter.

Sales were better than expected, led by Asia, which delivered 18% year-over-year growth in the quarter.

Sequentially, demand increased across most of the markets we serve on a year-to-year basis. Demand increased in the compute, transportation, and communication markets globally.

Send a doctor, and IP lead times and pricing remain stable for most technologies.

Our Bill ratio improved across all regions. And for our last quarter,

The improvement was led by our Europe and Asia regions, which were both above parity.

Bookings also continue to grow in our IP business and remain above parity as well.

We continue to coordinate closely with suppliers and customers to effectively manage our backlog, which is growing again.

New customer orders within lead times, which we refer to as our turns business, also increased across all regions. This is a positive sign that customer inventories are normalizing.

Orders have remained at normal levels. Cancellations have also stayed consistent.

I am pleased with our progress on reducing inventories.

Although there is still work to do.

Even so, we believe we are well positioned today and remain focused on ensuring we have the right inventory at hand.

Balancing reductions with investment opportunities.

We expect to continue to be disciplined and optimize our inventory as we move through fiscal year 2026.

Now, with that, let me turn to the fourth quarter results.

At the top line, our electronic components business increased on a sequential basis and year-over-year.

All regions were higher sequentially and notably. This was our fourth consecutive quarter of year-over-year growth in Asia.

Sales in Asia were better than expected, and demand in most end markets increased both year-over-year and sequentially.

Similar to last quarter, we experienced a slight benefit from customers ordering due to the uncertainty of potential regulatory changes in the U.S.

In the Americas, demand increased sequentially for the communications and markets and compute segments, with the strongest growth on a year-on-year basis. We did not see any pins of any magnitude, and customer billings were not meaningful during the quarter.

And the market is still mixed, with some signs of improvement in certain markets.

In the quarter, most end markets increased sequentially.

The communications market was the only vertical that showed growth year on year.

With that said, we are optimistic that bookings in the meal will grow in September as the Europeans return from their typical summer vacation period.

From a demand creation standpoint, revenues increased 7% sequentially as our field application engineers continue to engage with our customers and suppliers on design wins and registrations.

A value proposition.

Now, turning to Farnell, the team continued to deliver on the strategy that Rebecca Overberg and her leadership team put in place one year ago.

Right? Sides in the call structure, reorganizing the management team and leveraging Adnet, broader relationships, and bolstering our digital and e-commerce capabilities. In the quarter, sales were higher both sequentially and year-over-year, with improved operating margins. We are pleased that those results have stabilized. But we still have work to do to achieve our full margin potential.

We are confident there are well positioned for steady improvement.

To conclude, Avnet has momentum. As we enter into the new fiscal year, despite challenging business conditions over the last two years.

And with that, we have a number of reasons to be optimistic about fiscal 2026.

Beginning with Asia's double-digit growth in fiscal 2025.

The region has historically led us out of cycles in the past, and this one should be no different.

Stabilization. That's for now, with the right size, cost structure, and synergies from the Power of 1 Initiative. For now, we are poised for steady growth.

Both the bills above parity in all regions and in our IP business, which is one of our higher-margin growth opportunities.

We have made significant investments in our digital infrastructure to boost our customer experience and data insights.

Demand creation at 7; good luck to become more pervasive. The value of Adette's engineering capabilities will further increase.

And finally, lead times have normalized. Our backlog and turns business are improving, and through it all, gross margins have held up well for each of our EC regions in fiscal 2025 compared to fiscal 2024.

I continue to feel optimistic about our value proposition. And I am encouraged by the positive signs that market conditions are beginning to turn in the Americas and the media.

At the center.

Of the technology supply chain, we are well positioned to help solve for the increasing complexity our customers and suppliers face around the world and bring resiliency to the supply chain.

With that, I'll turn it over to Ken to dive deeper into our fourth-quarter results. Okay?

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

Our sales for the fourth quarter were approximately $5.6 billion above the high end of our guidance range, up 6% sequentially and up slightly year-over-year.

Basis sales increased 18% in Asia, but declined 17% in EMEA and 2% in the Americas. In constant currency, EMEA sales were down 21% year on year.

From an operating group perspective, Electronic Component sales improved 1% year-over-year and 6% sequentially.

For now, sales increased 3% year-over-year and 5% sequentially.

For the fourth quarter, gross margin of 10.6% was 999 basis points lower year-over-year, mainly due to a higher mix of Asia sales and 49 basis points lower sequentially. This was mainly due to product and customer mix, in addition to some impact from foreign currency exchange rate changes.

The regional mix shift to Asia impacted EC gross margin year-over-year. Sales from the Asia region represented 48% of fourth quarter sales and fiscal 2025, compared to 41% in the year-ago quarter.

Gross margins for the Americas and Asia regions were lower both sequentially in year. 1 year while gross margins for a media increase year on year and decline than a sequential basis.

Overall, on a region-by-region basis, we believe gross margins are generally stable, although they can be impacted by product or customer mix within any given quarter.

For no gross margin decline, both sequentially and year-over-year, primarily as a result of a higher mix of off-the-board components and single board computers.

El gross margins at the product category level, including on the board components, continue to be stable.

Turning to operating expenses, we continue to manage expenses well and take costs out where necessary. SG&A expenses were $451 million in the quarter, up $1 million year-over-year and up $16 million sequentially.

Foreign currency negatively impacted operating expenses by approximately $14 million sequentially and $10 million year over year.

Excluding the impact of foreign currency and the prior quarter benefit from the gain on sale and leaseback of the facility.

Our operating expenses decreased approximately 2% both year-on-year and sequentially.

As a percentage of gross profit dollars, SG&A expenses were slightly higher sequentially at 76%.

Moving into fiscal year 2026, we expect some operating expense headwinds as a result of our decision to invest in our people by providing merit pay increases, which were not awarded in fiscal year 2025. We believe these increases are necessary to reward and retain our employees, especially ahead of the expected market recovery this fiscal year.

Operating income of $143 million in our adjusted operating margin was 2.5%.

By operating group, electronic components operating income was $157 million in EC. The operating margin was 3%. The year-over-year decline in EC operating margin was primarily due to the sales mix shift to Asia and the sales decline in AMER.

For now, operating income was $17 million. The operating income margin was 4.3%. The operating margin was up approximately 129 basis points quarter over quarter and up 25 basis points year over year, reflecting improved sales and the benefits of prior operating expense reduction efforts.

It is worth noting that this is the first year-on-year improvement in Farnell operating margins since Q1 of FY23. For now, operating expenses were down $7 million year-on-year and down $5 million sequentially on higher sales.

There's still a lot of work ahead of us at Farnell. But as expected, we are seeing steady improvement, led this quarter by the increase in sales of single-board computers and the improvement in the number and size of customer orders.

Turning into expenses below operating income, fourth quarter interest expense of $58 million decreased by $6 million year-over-year and increased by $3 million sequentially due to lower average borrowings. This lower interest expense positively impacted adjusted diluted earnings per share by $0.05 year-over-year.

We continue to look for ways to further reduce interest expense, including paying down debt with operating cash flows or reducing our average borrowing rates.

Our adjusted effective income tax rate was 23% in the quarter, as expected.

Adjusted diluted earnings per share of $0.81 exceeded the high end of our guidance range for the quarter.

Turning to the balance sheet in liquidity, during the quarter, working capital increased by $29 million sequentially and included a $35 million decrease in reported inventories, a $232 million increase in receivables, and a $168 million increase in payables.

Sequential increases in foreign currency exchange rates added $202 million to working capital, including $150 million to reported inventories.

Excluding the impact of changes in foreign currency exchange rates, inventories decreased by $185 million, or approximately 4%, compared to last quarter.

On a year-over-year basis, in constant currency, inventories are down over $400 million or approximately 8%.

We remain focused on reducing inventory levels where elevated, noting that we also want to make investments where needed.

Our return on working capital is 9.4% for the quarter.

We generated $139 million of cash from operations in the quarter and $725 million for the fiscal year. We expect lower cash flow from operations in Q1, primarily due to certain income tax payments that need to be made.

For the fiscal year, we lowered our debt by $237 million. We ended the quarter with a gross leverage of 3.4 times, and we had approximately $1.1 billion of available committed borrowing capacity.

During the quarter, net cash used for capital expenditures was $60 million, which included the planned purchase of an office building.

We expect capital expenditures to return to normal levels of approximately $25 million to $35 million per quarter in fiscal year 2026.

For the fiscal year, we returned a total of $45,015 million to shareholders through our share repurchases and dividends in the fourth quarter. We paid our quarterly dividend of $0.33 per share, totaling $28 million. We also repurchased $50 million worth of our shares.

We achieved our goal to reduce shares outstanding by at least 5%. This fiscal year, we repurchased nearly 7% of our outstanding shares. Additionally, we have more than $300 million left on our current share repurchase authorization.

Book value per share increased to approximately $59, a sequential increase of $3 per share, primarily due to changes in foreign currency exchange rates.

With regard to our capital allocation, we continue to prioritize our existing business needs and invest in areas that can make our overall business better.

We also remain focused on ensuring we have a strong balance sheet and making sure our leverage remains at appropriate levels.

Turning to guidance for the first quarter of fiscal 2026, we are guiding sales in the range of $5.55 to $5.85 billion and diluted earnings per share in the range of $0.75 to $0.85.

Our first quarter guidance assumes sequential sales growth of approximately 2% at the midpoint and assumes sales growth in all regions.

This guidance also assumes similar interest expense compared to Q4, an effective tax rate of between 22% and 26%, and 85 million shares outstanding on the diluted basis.

Our team has made significant efforts to adjust our processes for tariffs. We continue to work with our suppliers and customers to mitigate the impact where possible. During the fourth quarter, less than 3% of the Americas sales and less than 1% of global sales were from customer tariff billings.

In summary, our fourth-quarter performance is better than expected, despite the challenging market conditions.

Pay down a debt while returning cash to shareholders through our share repurchase and dividend programs.

I want to echo Phil's comments and thank our team for continuing to focus on the things we can control.

Our global scale and the diversification of our distribution center locations, the supplier technologies we provide, and the vertical markets we serve.

Gives us the ability to reduce complexities and better serve our customers with that. I will turn it back to Phil for one last word before questions. Phil.

thanks Ken.

And before we go to questions, as some of you may know, Joseph Burke will be retiring and leaving Avnet at the end of the year.

And I wanted to thank him for his many contributions over his remarkable 37-year career at Avnet.

Joe's been instrumental in setting the foundation of our finance team.

Having served as our longtime Treasurer and head of Investor Relations.

I'm grateful for his leadership through the years, and I'll miss his insights and wisdom.

And his dry sense of humor.

Joe, we wish you the best in your retirement. Congratulations! You got it, okay?

So, with that, I'll turn it over to the operator, and we'll open it up for questions. Thank you.

Thank you, ladies and gentlemen. We will now be conducting a question-and-answer session. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you'd like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions.

Our first question comes from the line of Joe Cointreau Choi from Wells Fargo and Company. Please go ahead with your question.

Hey, thanks for taking the questions and, and congrats to, to, uh, to Joe Burke. Thanks for all the help over the last, uh, several years, um, maybe just to, to, to, to start. Um, you know, it feels like the, the commentary around Amia, um, is definitely maybe a bit more positive than 90 days ago. So can you talk about just kind of what's what's changed there? And like what what in markets maybe are driving

Yeah, Joe, thanks. Um, I appreciate the question and comment on Joe. Um,

Well, it it we have more optimism. Okay. As we look at it at me right now, I I would put it that way. I mean it says you know it's falling down and you look at our charts as a percentage of of our Revenue, it's come down quite a bit. Uh, it's been soft. So we're just starting to see uh, again, we're not celebrating, I'll be really clear, but the bookings are coming back modestly. When I look at the backlog, build up in the media, it's starting to, uh, increase a year on year. I'm looking at it as we speak and Q and Q. So, I would just say it's, it's modest, but we're definitely starting to see some some movement there. And for us that that's, that's a big deal. It's a critical region for us from the profitability standpoint. As, you know,

Got it. That's helpful. And then I guess as a follow-up, you know, I appreciate that the FX is kind of making, you know, the inventory dynamics a bit more difficult to kind of, you know, track quarter to quarter, for at least just looking, you know, at it on the balance sheet at a point in time. But I guess how should we think about just inventory trends in the September quarter? Um, you know, that you're thinking about, um, you know, relative to trying to still work that down, maybe in some pockets.

Yeah. Joe I'd say you know we expect the the EC business to continue to drive inventory down so, you know, a modest decline um next quarter, you know, and then offset a little bit by far now so I think this quarter was about 186 million, net of FX. Some of that was coming from for now, a lot of it came from Europe but continued progress in the core including, you know, Asia and the Americas. So um, you know, still still have work to do there on the inventory side but would expect

Uh, despite the, you know, upsales, a little bit to bring inventory down a little bit. Still.

Yeah, and I'll just add to that the, uh, as we talked in the past Joe and we put in the script, we're still, you know, uh, making investments in inventory, too. So, it's not all, it's not all bad thing, right? Um, so, it's a handful of Commodities more that are driving a lot of The Upside and inventory need to keep working that down while we continue to make sure, we have the appropriate skus and inventory levels to service the balance of the customer base.

And we we want to get back into the we uh mid 80s if we can from a days Days of inventory. That's that's still our goal.

Thank you.

Thanks Joe.

Once again, as a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

1 moment while we pull for more questions.

Our next question comes from the line of Route Blue Bataria with Bank of America. Please go ahead with your question.

My questions Joe uh, we're going to miss you. Stay in touch. Um you're returning too soon. I mean, so so really uh really appreciate all the help. Um, thank you, thank you.

All right. Uh, Phil, I wanted to start by asking about the core business. So, Asia remains strong. How do you see that trend continuing over the next couple of quarters? How do you see the mix of regions, and how does that impact the core business margins as we go forward?

Yeah, uh, great question. I was like, can jump in on the margins a bit. Yeah, we're, yeah, that would make it really, really quick too. We're super proud of our team in Asia Pacific.

And you know, they've been not only growing in increasing, you know, share but holding their their, their margins as well. So um to have 4 quarters in a row of year-on-year. Growth is is pretty good, um and again I'm proud of them in our position there as far as. Um, the next several quarters we feel pretty good about Asia, you know. So um there there are still cranking along and

As, you know, ruple typically and it's, it's a little delayed this time. It seems but typically the turn of the market which is why we're, you know, cautiously optimistic, you know, starts in Asia packed and then typically swings around to the west and that just hasn't happened yet. But, um, but that we, we, we feel we feel confident about our Asia continuing to perform well. Um, and then yeah, as we put in the slide, you can see as Asia has grown, as a bigger percentage of our business, you know, it's had a uh impact on the margin. That really is the impact, you know, with Europe coming down uh and Asia going up. It's just been been the swing in March just it's just a clear math issue but we have no.

Intention of slowing down in Asia, you know, to increase the the balance of the other regions. We got to get the other regions to start growing. Again, an increase in the margin profile. Ken you want to jump, I think Phil mentioned the script but I don't want to emphasize you know, we kind of measure the businesses in terms of their Standalone, gross margin, right? We can't necessarily control the mix because of the fact of where the different markets are at, but but each of the regions really, you know, we're we're flattish, um, year over year for the full year, so we feel pretty good about that that, you know, fundamentally the the gross margins are holding up, you know. And again, Amia was down 21% in constant currency, you know, year over year, this past quarter, we can kind of move that tied you should see normal, you know, margin uplift, you know. So how long, um, it takes to kind of catch up that mix, you know, from what it was before. Um, you know, it's still to be determined based on how fast the recovery is, but, you know, just getting back to growth in

Europe, you know, has some positive benefits on on the margin and and the Americas as well, right? So you know, we should as the West Begins to grow year-over-year and starts to recover. You know, we should start to see a more favorable mix to the west but but you know getting back to where it was you know, may take some more time and and you know, get clearly that would have an impact on the broader. Operating margin of BC but you also have you know Farnell that's out there that could help lift that up to if that begins to recover, um, and expand their margin that helps the overall, um, you know, business uplift, their their role overall operating margins.

Okay, well, that's a great segue into my next question, which is on for now. Um, you know, what are some of the things that you guys are doing to improve margins there? 1 aspect was, you know, you've hired a digital office, Chief digital officer and you were, can you give us like how much of sales for fornell are? Now, is now coming through the online portal and and how do you see margins training? It was at 4.3% this quarter, how should we think about that? How about that going forward?

Yeah. So um

Some of the things we've done there, as you know, we change, we put in the script, we change leadership at for now roughly a year ago and uh Rebecca is uh made a lot of changes. We probably turn it over roughly 70% of the executive team or a little bit more. Um and have been very assertive on reducing non-value, added expenses and getting that out, um which is uh, ongoing like to drive more efficiency. Um, as far as the digital

Side of the equation.

Is.

And we, and that will continue to increase.

That we have the you know, the the opportunity we have with, you know, more partnering with abnett to help Drive the Top Line too. So in addition to, you know, the the belief that the market will recover for on the board opponent components, which should help their gross margin and their sales overall. You know, there are some things on the revenue side that we have within our control, including the efficiency of our e-commerce and and proposition there as well as the the partner with an Avenue that that should continue to give Farnell a lift over the upcoming quarters. Yeah, well the margin um, just going back the message to the for now. Team is continuous Improvement. Okay we'll we'll be a Tailwind for abnett to Ken's point, so got the 4.3. Now we just need to you know quarter and quarter see that you know continue to improve and and that's the plan um over the next. Uh let's call it 48 quarters and to get back into double digit, operating margins Plus

And thanks for all the details there. If I can just make 1 quick 1 in and it's a very top-level high-level question. You know, the industry has been going through an inventory correction, or the last year year and a half. Phil do you think that we're at the bottom of, this is X, is inventory. Now, out of the channel. And, and how do you see that? Uh, are we now at a at an inflection point? Do you think,

I think we're getting close. We're blue. I don't have the, I don't have a crystal ball in front of me, to, to give you an exact answer. Um, but when you look at some of, you know, the book, the bills started to increase the alcohol shorter interval or turns business, you know, drop in orders from customers are starting to increase, which means they're, they're, they're they're short, right? And they're coming in and buying, um, still would like a little bit more visibility, um, out there from the customers, from a, a forecasting standpoint. There's still a little conservative on that front and because lead times are kind of settled down, right? There's not much change. Actually, look at the lead times, there's hardly any change at all across the board in semi passives, and interconnect other than, you know, high bandwidth memory and things like that.

We track and I'm looking at it as we speak and and um, the inventory, you know, by our top suppliers, which I won't get into by individual. Um, but there's no question. If you look at the, the semi set of suppliers that have reported so far, the inventory days are, are definitely down. Uh, in total, um, roughly 11 to 12 days from a couple quarters ago and uh, IP has been pretty well steady. So there's not been an issue in the ipen

You know, when you look at EMS, uh again not mentioning any names, um, you know, their inventories are down. You know, from a year ago, rough roughly, you know, 20 plus days. So, uh, and then there's some oems we we tracked and and they're, they're in the in the 54-day range of inventory, which is also down. So there are some indicators again, that's not, you know, a statement of fact across the board, you know, because I think there's still a little bit more inventory than than uh, we would like to see out there but

And speaking of ourselves, we brought inventory down. You know, we want to bring it down more, but it's definitely down. Um, and so I—so that's.

We just need to inject some of our optimism, not overly optimistic, but optimism as our backlog increases and lead time stabilizes. You see some of the days of inventory coming down.

Okay, thanks for all the details. I appreciate it.

Our next question comes from the line of Melissa Fairbanks with Raymond James. Please proceed with your question.

Hey guys, thanks so much. Um, I have a few questions. Uh, to start with, though, Joe, I'm hopeful we can still play golf together in the spring. That would, uh, that would be great.

You might have more time um just to uh just to follow up on some of rupu questions. Um on fornell margins in particular um Phil I think you kind of hinted at it, get back to a double digit margin percentage. Um I'm wondering what we should think of as being a normalized margin for far. Now obviously we had some pretty extraordinary uh, you know situations conditions going on during the supply chain crisis. Um, just wondering what kind of the if you could let us see that spreadsheet. Let us know what the internal targets are for margins. No, I can't do that. Melissa. Um, yeah, so I would love, I would love to see whatever spreadsheet you're looking at right now with all the lead times and inventory levels. I would love to see that too, but it is about 20 of them on the table, you want to pop over. But anyway so uh thanks Melissa. Um, yeah. So we do have um, you know, you're right. We went to that we

Went down to damn near, you know, a break even to 1%.

We can't let that happen again. So we are modeling a, you know, I don't want to say a peak, but they're definitely getting into double digits, you know, 10, 11, 12, 13% operating margin over the next couple of years. And if there's a correction, like we saw, you know, which will come, you know, as the market goes up, it'll come down again someday. But, um, to not let it get down to like,

Below a mid-point, you know, like a 5 or something like that. So that's kind of the range, but we definitely want to get to an average of greater than 10% operating margin, which is where we want to get to.

Okay, great. That makes sense. Um, maybe.

Yeah, yeah, yeah.

Any, any follow-ups, guys? Sorry, yeah.

I had, uh, a couple of questions for Ken. Um, you mentioned that, you know, you would re restart the Merit increases that we didn't see in, uh, in fiscal 25, just wondering how we should model Opex, going forward. If it's the September quarter Outlook that kind of uh contemplates that entire uplift or if it's going to be kind of like a, a rolling, I don't know if it's on a, a calendar year or fiscal year. Uh, for those Merit increases

Yeah, it's it's the full impacts in the, uh, guidance in the first quarter. So, you know, how I think about it is, you know, there's been some currency impact on, on the Q4 number, but really the the impact here is really, um, you know, the merits. So think about it being, you know, 8 to 10 million, um, for those, um, and it's, it's already in the Run rate now with that being said, you know, there's a few things we're looking at to help curb, you know, potentially other inflationary things that come with the new fiscal year. Um, so so I wouldn't expect expense to go down a lot, but there could be a little bit of movement there down. But, you know, that was probably a good point for your model is the the number, uh, modeling for q1. Extrapolating out to the year. Assuming there's no, you know, massive volume increases. We always have some Opex, tied to volumes, you know, up or down. Um, but it it it's a pretty good run rate now getting into the q1.

Okay, and, and maybe, um, as a last question, asking you guys to, to pull out your crystal crystal ball, um, forecasting. Um, it was nice to see interest expense come down a little bit in, uh, in the June quarter. Um, I see that your guiding for flattish during the September quarter. Assuming that we are starting to see some stabilization, maybe even an inflection point in some of the broader demand. Um, what should we be assuming in terms of inventory investment and then potentially

What does that mean for, uh, the interest expense going forward?

Yeah, I think most of how we look at it is we have enough dollars of inventory, right? For the current level of sales, even for some growth. It's really about, you know, continuing to get a higher quality mix. Um, there are some pockets where we need to continue to work it down. So I would say, you know, we expect it to still come down again modestly. Um, but at the same time, we wouldn't expect to utilize a lot of cash to, um, you know, grow the business here. Um, so there's still some work to do internally in terms of the inventory. But, you know, we expected it to go down a little bit. Still, all things being equal, um, but even with, you know, more aggressive recovery, you know, we think we've got enough dollars, and we'll be able to turn it faster.

Great. Thanks very much, guys. I appreciate all the detail.

Thanks Melissa.

Thank you, gentlemen. There are no further questions at this time. I'll now turn it back to Phil Gallagher for closing remarks.

Thank you, operator. And let me thank everyone for attending today's earnings call. I look forward to speaking to you again at our first quarter fiscal year 2026 earnings report in October. Have a great rest of the summer.

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