Ladies and gentlemen, thank you for standing by, and welcome to the Arrow Electronics Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to turn the call over to Steven O’Brien, Vice President, Investor Relations. Please go ahead.

Thanks, Denise. Good day and welcome to Arrow Electronics third quarter 2020 earnings conference call. With us on the call today are Mike Long, Chairman, President and Chief Executive Officer; Chris Stansbury, Senior Vice President and Chief Financial Officer; Andy King, President, Global Components; and Sean Kerins, President, Global Enterprise Computing Solutions. During this call, we will 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 in our most recent 10-K and 10-Q filings with the SEC. We undertake no obligation to update publicly or revise any of the forward-looking statements. As a reminder, some of the figures we will discuss on today’s call are non-GAAP. We have reconciled those to the most directly comparable GAAP financial measures in our earnings release. These non-GAAP measures are not intended to be a substitute for our GAAP results. You can access our earnings release at investor.arrow.com, along with the CFO commentary, the non-GAAP earnings reconciliation and a replay of today’s call. We will begin with a few minutes of prepared remarks, which will then be followed with a question-and-answer period. I’ll now hand the call over to our Chairman, President and CEO, Mike Long.

Thanks, Steve. Thanks to all of you for joining us today. I’m pleased to report that our hard-working and dedicated team delivered strong financial results in the third quarter. Our reputation for reliability and consistency are the hallmarks that have allowed our customers and suppliers to place their trust in Arrow for critical engineering, design and supply chain services. To maintain that consistency, we continue to put the health of our people first, and I want to thank our employees for keeping our distribution facilities and offices running safely and smoothly, and continuing to move our business forward. As I mentioned on our prior quarterly earnings calls this year, Arrow had faced adverse conditions many times in the past and has always emerged stronger than before. Our business model is resilient and unique. Even during periods of decreased demand, our ability to generate substantial cash flow allows us to invest in areas that represent the best long-term opportunities. Our foundation will be even stronger exiting the pandemic, and already we’re seeing concrete proof of that. Global components sales returned to year-over-year growth, driven by record third quarter sales in Asia. And we’ve only just started to see the demand stabilize and recover in the Americas and Europe. Additionally, earnings per share increased 12% year-over-year, and Arrow is delivering differentiated performance, thanks to our customers and suppliers, who recognize the value-added products and services we provide. Another way we build confidence in the marketplace is to keep our balance sheet strong. Our results this quarter showed just that. Cash flow from operations totaled $275 million in the third quarter, and that’s $1.7 billion over the last 12 months. And we have reduced our debt by nearly $1.5 billion since the first quarter of 2019 when the semiconductor market correction began. Additionally, we remain committed to returning excess cash to shareholders, and the third quarter was no different. We repurchased another $150 million worth of shares this quarter for a total of $375 million this year. Turning to current business conditions, as I mentioned, strong third quarter sales in global components were driven by tremendous growth in the Asia region. We see further opportunities for strengthening future performance once the Americas and Europe start to recover. We previously mentioned that regional inventories had been destocked prior to the onset of the pandemic. Starting from those lean levels, global components sales increased sequentially in each region for the first time since third quarter of 2017. Demand in Asia has been robust across all the key verticals. And the third quarter is typically the strongest quarter for that region. All regions benefited from a strong turnaround in transportation-related demand compared to the second quarter. Design activity again reached an all-time record for any quarter in our history. And design activity increased year-over-year for the fourth quarter in a row. This is a positive leading indicator. Arrow will continue to increase our engineering and design efforts as we believe this is the best way to position our business for the long term. Other indicators are consistent with improving trends. Third quarter backlog increased year-over-year for the second quarter in a row. Lead times increased slightly compared to last year. Global components’ book-to-bill was 1.03 exiting the second quarter. Book-to-bill was again the highest in the Asia region where businesses normalized quicker than the other two regions. Our Americas customer sentiment survey shows that further improvement. The percentage of customers saying they had too little inventory was slightly above the long-term average. The percentage of customers saying they had too much inventory returned to the long-term average. Turning to enterprise computing solutions, we’re pleased to deliver sales that were near the high end of our prior expectations and above second quarter’s level. We also achieved operating profit leverage on that sequential growth. In terms of IT spending, we continue to see purchases directed towards the tactical areas of endpoints and devices rather than transformational areas. We participate and work from home spending through security and cloud-based solutions, but some more complex projects remain delayed as companies limit outside workers. However, we continue to believe some of those delayed investments in mission-critical technologies cannot be pushed out indefinitely. Looking at the mix, demand from larger, better-capitalized VARs and MSPs, who rely on fewer of our capabilities and services, remained resilient. Demand from the smaller customers, who rely on more of our capabilities, has been weaker in this environment. Even with a less favorable margin mix, we are still able to generate strong economic returns from this business. You can see this in our third quarter return on working capital, return on invested capital and cash-to-cash cycles in the third quarter. Looking ahead, we’ll continue to support our stakeholders and communities, and are committed to providing our customers with products and solutions they need when they need them. I’ll now turn the call over to Chris to provide more details on third quarter results and our expectations for the fourth quarter.

Thanks, Mike. Third quarter sales were $7.23 billion. Sales increased 2% quarter-over-quarter. The average euro-dollar exchange rate for the quarter was $1.17 to €1 compared to the rate of $1.12 we used for forecasting. Favorable foreign exchange increased sales growth by approximately $97 million. Global components sales were $5.31 billion. Sales were above the high end of our prior guidance and increased 5% year-over-year on a non-GAAP basis. Global components’ non-GAAP operating margin was 3.9%, down 50 basis points year-over-year. This was mainly due to regional mix with Asia contributing 49% of global components sales, up from 45% in the second quarter and 40% last year. In addition, despite significant improvement in the Americas and Europe regions compared to the second quarter, there remains substantial opportunity for further sales recovery that should also drive future operating income leverage. Enterprise computing solutions sales of $1.92 billion decreased 7% year-over-year on a non-GAAP basis, but were near the high end of our prior expected range. Third quarter billings increased year-over-year after having been approximately flat year-over-year in the first and second quarters. We experienced strong demand for security solutions and also grew sales of services. Demand for storage and networking were weaker year-over-year. Global enterprise computing solutions non-GAAP operating income margin decreased by approximately 30 basis points year-over-year to 4.4% due to both product and customer mix. Returning to consolidated results for the quarter. Interest and other expense of $30 million was below our prior expectation due to lower interest rates and lower borrowings. The non-GAAP effective tax rate of 23.6% was approximately in line with our expectation and was within our long-term range of 23% to 25%. Non-GAAP diluted earnings per share were $2.08, $0.38 above the high end of our prior expectation. Approximately $0.06 of the upside to both prior guidance and year-over-year growth were attributable to more favorable exchange rates. Turning to the balance sheet and cash flow. We reported strong operating cash flow of $275 million. During the quarter, we reduced debt by approximately $79 million through lower short-term borrowings. Our balance sheet is in great shape, and our liquidity position remains strong. Current committed and undrawn liquidity stands at over $3.4 billion, including our $227 million cash balance. We’re closely monitoring credit and receivables. Collections remained healthy and the percent current is near all-time highs. DSO decreased by more than DPO. Inventory days were the lowest level since the fourth quarter of 2017. And as we’ve said in the past, it’s fair to measure our performance by the cash conversion cycle, not by any one metric in isolation. The third quarter cash conversion cycle was 15 days shorter than last year. We returned approximately $150 million to shareholders during the quarter through our share repurchase plan. The remaining authorization under our existing plan is approximately $563 million. Please keep in mind that the information I’ve shared during this call is a high-level summary of our financial results. For more detail regarding the business segment results, please refer to the CFO commentary published on our website this morning. Now, turning to guidance. Midpoint fourth quarter non-GAAP EPS of $2.65 per share would be an all-time quarterly record. While we recognize tightened risks from the potential future return to virus-related restrictions, right now, we continue to see improving trends for both businesses. Our guidance reflects global components delivering profit leverage on accelerating sales growth; it also reflects a continued recovery in enterprise computing solutions margins back to prior levels. Lastly, please note that CFO commentary includes information on our fiscal calendar closing dates for 2021. In 2021, the first, second and third quarters closed on April 3rd, July 3rd and October 2nd, unlike in 2020, where they closed on March 28th, June 27th, and September 26th. Full year comparisons are not affected as our year ends on December 31st, as always. The first quarter of 2021 will benefit from the extra quarter close compared to the first quarter of 2020. While the fourth quarter of 2021 will be negatively impacted by only capturing one calendar close, instead of two. We believe the second and third quarters are still comparable as each will capture one calendar close. We also believe there are a few impacts for the global components business in any quarter as sales for that business tend to be more linear rather than back-end loaded, like the enterprise computing solutions business. As we sit here in late October, it’s difficult for us to estimate a dollar figure for this calendar shift. For modeling purposes, we would recommend starting with an expectation for full year ‘21 enterprise computing solutions growth, then attributing 1 to 2 percentage points of greater contribution from the first quarter and 1 to 2 percentage points less contribution from the fourth quarter. With that, I’ll turn the call over to the Operator for Q&A.

Yes. Thanks very much for taking the question. The question is just regarding how we should be thinking about gross margin in OpEx in the December quarter. I know there are some moving parts. It looks like the Asia business in components may be lower sequentially, seasonally. I’m wondering if that has a positive impact on gross margin, and same thing for the ECS business. In terms of what we should be thinking about kind of heading into next year in terms of that mix, because the mix seems to be working against you in terms of margins, but there’s drawn through there. Thanks.

Yes. Matt, this is Mike. Clearly, the Company is operating at a pretty good pace right now, with Asia being 50% of the global components sales. So, I know there was a time that nobody thought the company could still have leverage in the cash flows and everything that we have with Asia being that much. But, it’s been a good year and they returned. Certainly, we would expect the mix to improve in the fourth quarter, because the third quarter is typically Asia’s biggest quarter due to the holiday builds going into Q4. So, we would expect things to firm up. The real question there is, when will the Americas and Europe take off? We are seeing signs now that those markets are getting better, but I wouldn’t expect them to get overly better until we get into next year. Of course, the computer products have their biggest quarter. We are excited to see that come. As you can see from what we’ve seen in that business with the work-from-home, those types of things, it’s been good for us. We do expect a bit of an acceleration in that business going into the first quarter also. All-in-all, Matt, it’s really good news because as you know, North America and Europe are typically more profitable regions than Asia. So, it’s sort of at this point, when the volumes start to come back there, we’re expecting another uptick in what we see.

Okay. Got it. And just in terms of follow-up. It just seems like gross margin at best will be sort of flattish to perhaps down sequentially due to that mix issue, but you also should get really strong OpEx leverage. I know you were kind of flat to down slightly year-on-year. So, should we expect sort of a similar year-on-year comparison in terms of OpEx this quarter?

I think, what you’re going to see is OpEx go up a little bit because of the change of mix. I’ll have Chris sort of highlight that.

Yes. So, Matt, just to make sure we’re aligned, because we talked about sequential and we also talked about year-over-year. So, sequentially, we would expect gross margins to be up a little bit. We would expect that operating expense as a percentage of sales will come down. Dollars will be up a bit because of the sales growth. But, we expect operating expense as a percent of sales to come down as we drive operating leverage. So, all-in, we’re guiding to improved operating income margins sequentially in the quarter. And actually, we’ll see how it sorts itself out, but that could actually mean we’re up a little bit year-over-year in operating income margin.

And just lastly, does your guidance for the component segment include incremental share gains from TI or other suppliers?

Our guidance assumes everything that we see coming our way in Q4.

In your prepared remarks, you mentioned the significant recovery and a record outlook, which makes me think about the strength of the recovery in your business. My question is about the sustainability and continuation of this trend into next year. It seems possible that customers might be over-ordering and building up inventory. Do you have any insights on that? Do you believe this could explain the current situation, or are you confident that your shipping demand reflects that customers are not accumulating inventory? Thank you.

Yes. Let me bring it back a little bit. Remember, we started going into a downturn the prior December, I think it was, it showed earlier in the year. But, there was an economic downturn that we were starting to go through, and then COVID hit. So, COVID hit that pretty much, put the brakes on a lot. We had to put 20,000 people to work from home in a matter of a couple of weeks, and we were able to accomplish that. So that showed some resiliency and could start building back with our customers at that point. I would say that one of the reasons you’re seeing the suppliers and us sort of go up at the same time is that we’ve been through sort of the time frame that it would take for us to catch up with the suppliers and COVID was just sort of that false economic downturn as it came. We are seeing steady growth. We are seeing steady growth book-to-bill. We are not seeing crazy book-to-bill that would suggest inventory build at this point. And we’re seeing consistent order patterns from our customers or more consistency in the order patterns. And as I said to you right now, slightly, the number of customers that are slightly don’t have enough inventory is slightly bigger than normal, but the average number of customers that have the right inventory are within normal trends. So, we don’t see a crazy supply chain. We do see consistent growth. Our backlogs are up. The backlogs are looking solid. And the ship within the window, nothing is tail-end loaded. So, we’re feeling pretty good about going through December and into the New Year at this point.

That’s really helpful. Maybe a follow-up, if I can. Mike, you mentioned that you expect to emerge from this downturn stronger than previously. It seems to an earlier question that TI being available effectively only through Arrow is a major advantage. Let’s put that aside for a minute. What metrics can we look at, or will you talk about to make a judgment as to a stronger business? Is it expected operating margin, what you achieve, what you can target or some other metric, perhaps growth rate?

I believe the industry's growth rate is evident. We have become stronger, notably reduced our debt by $1.5 billion. Our cash flow has improved over the past couple of quarters, and we anticipate further enhancement in the future. Despite some concerns about efficiency, I am confident that the Company will become even more efficient. We have invested in various areas that will significantly increase our capacity to ship more products over the next year. The number of design wins we're experiencing suggests a positive growth trajectory ahead. Currently, almost every metric indicates strong performance. Furthermore, many of our suppliers also reported solid Q3 results. While I am unable to discuss any specific supplier, I can share that we had a robust quarter with several of our suppliers. Overall, it was a good, solid quarter across the board.

Your next question comes from Shawn Harrison with Loop.

Hi all and congrats on the strong results. I wanted to get back to the profitability question because you brought this up a little bit, Mike. But, last time, the components did a 5% or greater operating margin. Asia sales were, I don’t know, $700 million, $800 million a quarter lower. And so, I wonder is Europe and European and North American demand comes back, what does that mean for kind of future normalized margins in the business, given maybe performance right now with Asia so much stronger?

Well, I think, you could expect it to be right back up where it was before. I mean, it’s really a testament to the organization that the efficiency has got into a place it has. And the mix being at the percentages that it is for Asia right now says a lot, A, for our Asia business. It says a lot for the other businesses to remain profitable as those businesses are down. But, as far as the long-term numbers, we actually see with the situation we’re in now and how we could come out of this, greater longer term profitability than what you’ve seen in the past. And I’ll say, our engineering business is operating very strongly, right now, as you can tell by the design wins. And we fully expect that to continue, and we continue to invest in that business. And that business is even getting more efficient, which was not the expectation.

Great. Then on ECS, I guess the worry out there is that 2021, we don’t see spending come back on the on-prem side. I know, you guys have been long proponents of hybrid cloud. But, even if that weakens a little bit, what does that do to kind of the growth profile and maybe the profitability of the business as we don’t see boxes sold anymore? I know, it’s been a declining business for a while, but maybe that deceleration accelerates in the downside in 2021?

Yes. I don’t see that gloom and doom that you see. I don’t think that’s a big legitimate concern. I think, you’ll continue to see us expand in software. You’ll continue to see us expand the line card into more items that the customers are buying. You’ll continue to see expansion in networking, cloud, ArrowSphere, which are all doing very well for us right now. Sean, do you want to add a little to this because the outlook is really not bad?

Yes, Shawn, I understand your perspective, but I'm actually more optimistic. If you consider our hardware business as a whole, it represents about a third of our overall mix. We have a substantial installed base, and I believe that when the broader market improves, we will see an increase in on-premises businesses and mission-critical application environments. For example, both our storage and compute sectors showed significant improvement in their year-over-year performance in Q3 compared to the first half of the year. This indicates that there is still unmet demand in mission-critical environments that customers cannot postpone indefinitely. I see this as a positive sign that when the broader market bounces back, our installed base will work to our advantage.

Our next question comes from Joe Quatrochi with Wells Fargo.

Yes. Thanks for taking the question, and congrats on the results. I was wondering if you could talk about, as we see improved demand for the other regions and maybe we start to think about some investments more in your working capital, can you talk about what level of, I guess, components growth you think about where you can still generate positive cash flows? And then, maybe dovetailing on that, is there any difference that we should think about relative to historic, just given the mix of the revenue now?

Yes. I think, one thing you’ll see, and I’ll let Chris highlight it. But, as you know, we’ve been working very hard on the cash side of our business for some time. And it used to be, we would start using cash at 10% to 15% growth. We are in a position where we think we’ll continue to throw off cash now well past that going into the next year. So, the dynamics have changed, our cash to cash days come in. We’re not seeing big credit risks. We’re not seeing craziness in the inventory. In fact, I mean, I understand you guys a couple of times have mentioned, I’ve heard even on other calls is double ordering phenomena. But our inventory was down I think $200 million roughly quarter-on-quarter and the book-to-bill is up. So, we’re not seeing the dynamics that we’d use cash. And again, remember, the growth rate could be there, but it’s the rate and pace of that growth rate. So, if all of that growth came immediately tomorrow, yes, you might see a little cash usage. But, for the most part, that’s not how we’re seeing ourselves come out of this. So, I think, you’re going to see some pretty good cash benefit this year. Chris, do you want to add?

I think, Mike answered it really well. I mean, we’ve shared with you guys in the past that kind of above that 10% growth level in components, operating cash flow gets a little lean. But to Mike’s point, we’ve been very focused on getting the cash conversion cycle back down into the high-40-day range. We’re going to be very focused on maintaining that. Personally, I like the reduced credit risk exposure when we’re staying as current as we are in our receivables, and that’s not something we’re going to let go up easily, and aside from that, just our continued focus on services within our business that allow us to drive more margin, EBITDA and cash flow with less working capital investment are things we’re going to continue to focus on.

That’s super helpful. And then, just following up on that. I mean, the pace of share repo, obviously, you stepped it up this quarter sequentially. Should we think about that kind of pace going forward I guess then?

Yes. This is Mike. I think, we’ve said what our use of capital is and is going to be. And I would expect that pace for the near-term here.

Your next question comes from Adam Tindle with Raymond James.

Thanks. Good afternoon. Mike, I wanted to start by trying to understand your very positive tone regarding the Q4 revenue outlook, which seems to be generally seasonal. Despite that, the environment appears to be improving; suppliers are optimistic, and there may be some remaining share shift in Q4. Additionally, in ECS, while you mentioned a timing benefit, if we account for that, it might fall below seasonal levels. However, hardware suppliers are indicating sequential improvements, suggesting a positive trend. I'm curious if there's anything I might be overlooking or potential headwinds that I haven't taken into account as I consider the optimistic tone alongside the Q4 revenue outlook.

Well, it’s an interesting thing. You would say that if it’s seasonal, but the Q3 numbers were pretty high we think, as far as sales go. So, while you take that account is only seasonal, it was a pretty good uptick in the third quarter, and it was the uptick for the industry. So, if it was an uptick for only us and others didn’t feel it, I guess, I wouldn’t be as bullish. But, as I said before, we saw a nice uptick from several of our suppliers. It was broad-based. We saw a nice uptick in design wins, that was broad-based. We’ve seen an increase in our book-to-bill, that has been broad-based. So, that’s what I would tell you right now. And a seasonal outlook off of what we’ve come off of, I would say, if you’ve got the seasonality numbers correct, would be pretty good. But, I think, we see continued growth going in and through next year, at this point, with all of our metrics.

Okay. That’s a fair point and helpful. Maybe just as a follow-up, bigger picture on the components competitive environment. Supplier M&A is obviously heating up again, you alluded to it earlier. Last time that led to exclusive deals, share shift, you were largely a beneficiary. I’m not asking to get into individual suppliers, but maybe just reflect on what might be similar or different about this cycle of supplier consolidation from a share shift perspective, and any thoughts on distributor gross margin as that unfolds?

Mergers are unavoidable. To you, they appear as significant individual transactions, but I believe the industry is entering a phase of growth. Some of these mergers aim for efficiency, while others have a more suitable fit than others. We've had successful periods, but there were also times over the past 12 years when things weren't so positive. Overall, the business's profitability has remained strong and I expect it to continue. The number of engineers we have globally is advantageous. I don’t anticipate anything that will seriously impact us as we move into the New Year; in fact, we could benefit from some of these changes. It's interesting to note that one company divested parts of its business to private equity, which raises questions about their sales ambitions. I wouldn't say this indicates a reduction in channels. Many mergers will likely remain as they are, while others may face changes. However, I don’t expect that everything out there will undergo a complete transformation.

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

Is there a way to quantify what the mix of recurring revenue was in ECS in the quarter? And as that recurring revenue mix grows, how should we think about the impact of that on your operating margins?

Yes. I don’t think we’ve put a number out on recurring revenue. I’m not sure how much of that we would share for competitive reasons. I think, what we do is sort of once a year, we update you on the size of sort of our cloud and our hybrid business, and that would be scheduled to happen in the fourth quarter.

Thank you for that information. I wanted to clarify the quarter ending dates. Earlier this year, you mentioned a figure of $225 million. As we look towards fiscal '21, will that same figure be relevant? Are we expecting a revenue shift of $225 million, or was that specific to this year?

Yes. No. So, as I was trying to cover in the guidance, what I would do is take your estimates for next year for the full year and assume about a 1% to 2% shift from fourth quarter to first quarter, because we got two calendar quarter ends in Q4 ‘20. And next year, we’re going to have one in every quarter.

Your next question comes from Nikolay Todorov with Longbow Research.

I think, you mentioned that on the components side, Asia billings remain strong. And it appears that the region is coping better than North America and Europe with the COVID wave. So, I just wonder if you expect Asia as a percent of mix to remain elevated here maybe into next year relative to historical patterns. And if that is the case, how should we think about the incremental margins in the component business? And, when can we expect that you’re going to achieve that 5% component targets on the EBIT margin?

Well, it’s pretty simple. I think, you guys have your models to do the math. You guys have this thing pretty nailed. I think, the Asia levels will not have as robust growth going into next year as you saw this year. Their ability to cope with the virus was clearly better than the other two regions saw. Their ability to keep manufacturing going was better than we saw in the other two regions. It doesn’t take much of an uptick. I mean, if you took North America and Europe and went up 10% or so, which would not be unheard of going into next year, you’re going to be right there.

You mean next year 5% component margin is pretty achievable?

Yes. I think, you’ll kind of work into it. It isn’t going to happen in the January quarter. But, if you see the growth rates over the course of the year, it’s totally dependent upon the other regions. This performance right now is interesting because two regions are dragging, which is Europe and North America. They’re not back to growth. And right now, the book-to-bill suggests for us that Europe is coming back before North America. Good news, but it all depends when those volumes in those two regions come back. And I’m fairly bullish that they will come back and we will continue to see improvement. But, as far as to when they’ll come back fully, I don’t have that answer for you. I don’t know.

Okay.

Probably you can tell me.

Yes. I wish I can. Just as a quick follow-up on the component side. I think, you mentioned that lead times have started to tick up. I wonder if you can give us any more color maybe by product line or specific end market. What are you seeing specific to that?

Yes. We’ve seen a minor tick up. Andy, you want to add a little color to this?

Sure, Mike. Yes. As Mike mentioned, we’ve seen a minor increase. It’s been fairly specific to certain large-scale 32-bit MCUs and analog products that are heavily driven by consumer and automotive growth, which is where we’ve noticed most of the impact, Nikolay.

Okay, great. And as I switch, one question on the IT business. On-prem IT suppliers have all announced OpEx model or on-prem as a service. I just wonder if that shift starts to gain momentum as customers like to consume more on-prem hardware, the OpEx model, would that have any impact on your ability to continue to participate in that business in any way?

Sean?

Yes, you're correct. Many of our hardware suppliers are working on implementing models that provide their customers with a cloud-like experience while keeping the infrastructure primarily on-premise. I don't see any downside to this for us because we already have established relationships, and we are in fact assisting them. We can certainly support them with our configuration tools and expertise, as well as our financial programs, which are crucial for an as-a-service business. Therefore, I expect that as they pursue this direction, we will continue to collaborate with them to ensure they successfully navigate this transition. It's similar to the software evolution from perpetual licensing to term agreements and ultimately to SaaS. So, this doesn't concern me at all, to be honest.

Your next question comes from Steven Fox with Fox Advisors.

Chris, I’m still trying to get my head around the idea that when you guys grow more than 10% that you’re still going to be able to throw cash off. If you’re able to do that, that’s fantastic. I mean, it has big implications for probably your equity. But, can you sort of put some parameters around that? You mentioned services in the mix helping, how do you sort of maintain service levels and grow at that rate? What else are you doing to tactically advance that? And then, I had a follow-up.

Yes. I mean, there is a few things. One is we’ve gotten, as I said, I think much more efficient on collections. We’re going to maintain that. But also, let’s not forget that the way suppliers go-to-market has changed in part, right? In some cases, we’ve got inventory that’s consigned versus inventory that’s owned. So, there’s a lot of dynamics that come into play on that. But, really, when you got above 10% in the past, there was very little to no cash flow. And we’re saying that that line now creeps up a bit as we go forward. So, our Q4 guide is up 11%. And I think, we’re going to have decent cash flow performance in the quarter. And I think that’s just an early proof point. What I can’t give you yet is new guidance on what we think are good parameters, because we’re evolving through this as well. But, when we get a little more clear on that, we’ll definitely provide some more structure around that thinking.

I think, Mike answered it really well. I mean, we’ve shared with you guys in the past that kind of above that 10% growth level in components, operating cash flow gets a little lean. But to Mike’s point, we’ve been very focused on getting the cash conversion cycle back down into the high-40-day range. We’re going to be very focused on maintaining that. Personally, I like the reduced credit risk exposure when we’m staying as current as we are in our receivables, and that’s not something we’re going to let go up easily, aside from that, just our continued focus on services within our business that allow us to drive more margin, EBITDA and cash flow with less working capital investment are things we’re going to continue to focus on.

That’s super helpful. And then, just following up on that. I mean, the pace of share repo, obviously, you stepped it up this quarter sequentially. Should we think about that kind of pace going forward I guess then?

Yes. This is Mike. I think, we’ve said what our use of capital is and is going to be. And I would expect that pace for the near-term here.

Your next question comes from Adam Tindle with Raymond James.

Thanks. Good afternoon. Mike, I wanted to start by understanding your positive tone regarding the Q4 revenue outlook, which seems to be seasonal. However, the environment appears to be improving; suppliers are optimistic, and there's potential market share growth expected in Q4. In ECS, while you have a timing benefit that brings us below seasonal expectations, hardware suppliers indicate sequential improvement, suggesting a positive trend. I’m curious if there’s anything I might be overlooking or any headwinds I should be aware of that could clarify the optimistic Q4 revenue outlook.

Well, it’s an interesting thing. You would say that if it’s seasonal, but the Q3 numbers were pretty high we think, as far as sales go. So, while you take that account is only seasonal, it was a pretty good uptick in the third quarter, and it was the uptick for the industry. So, if it was an uptick for only us and others didn’t feel it, I guess, I wouldn’t be as bullish. But, as I said before, we saw a nice uptick from several of our suppliers. It was broad-based. We saw a nice uptick in design wins, that was broad-based. We’ve seen an increase in our book-to-bill, that has been broad-based. So, that’s what I would tell you right now. And a seasonal outlook off of what we’ve come off of, I would say, if you’ve got the seasonality numbers correct, would be pretty good. But, I think, we see continued growth going in and through next year, at this point, with all of our metrics.

Hi. Thanks for taking the question. On your Q4 guidance, I think you have three extra selling days in the Q4 guidance. Can you maybe just quantify what’s the impact from those extra selling days for components and ECS sales guidance? And then, I have a follow-up.

Yes. It's two days. We’re not providing the calculations on that. However, I would refer back to the earlier comments, which indicate that for components, it has very little impact. Those are typically scheduled orders, and two days do not make a significant difference. If anything, we have operating expenses that we must account for during the quarter. Regarding ECS, it's more applicable, and I would reiterate my previous comments concerning next year and the shift in the 1% to 2% range for the full year.

Got it. Okay. That’s helpful. Can you maybe just share your backlog and bookings on a year-over-year basis for your ECS business? I think you mentioned the project pushout, but many investors are actually concerned about demand advantage rather than that delay. So, wondering if you can just provide some color on that front.

Well, it’s the same thing you’re seeing with the suppliers. As the suppliers start to pick up and show more opportunity, so will we. But, that business is tracking very close to what’s happening in the overall marketplace with your IT suppliers. And we are seeing more and more activity, and we do expect some things to happen over the fourth quarter. But, I think, as you get into next year, you’ll probably see some of these infrastructure investments have to ultimately come back to play. What holds them up is really a strategy of where these businesses are going to go? How much is going to be continued work for home? Is there a strategy to do that ongoing now, or is it a strategy to get everybody back in the office? I think, you have that uncertainty. So, therefore, computing these change as a result of that. But, the truth is, either one is not bad for us. So, however the companies decide to move in that direction, is going to be okay when it comes to our business.

On the bookings on a year-over-year basis or the trend, can you maybe just talk about that?

That’s more of an ongoing demand and project-focused management forecasting. And I don’t have hard bookings for you to take care or to answer that question.

There are no further questions queued up. At this time, I’ll turn the call back over to Steven O’Brien for closing remarks.

Thanks, Denise. If you have any questions about the information presented on the call today, feel free to reach out to me. Thanks for your interest in Arrow Electronics, and have a nice day.

This concludes today’s conference call. You may now disconnect.