Thank you, Patricia. Good day and welcome to the Arrow Electronics first quarter 2022 earnings conference call. With us on the call today are Mike Long, Chairman, President, and Chief Executive Officer; Sean Kerins, Chief Operating Officer; and interim Principal Financial Officer. During this call, we’ll make forward-looking statements, including statements about our business outlook, strategies and future financial results, which are based on our predictions and expectations as of today. Our actual results could differ materially due to a number of risks and uncertainties, including the risk factors 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 with the most directly comparable GAAP figures 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 this call. We will begin with a few minutes of prepared remarks, which will then be followed by a question-and-answer period. I’ll now hand the call to our Chairman, President and CEO, Mike Long.

Thanks, Rick and thanks to all of you for joining us today. For the first quarter, we built on the record performance we delivered in 2021. We saw the continuation of strong demand conditions from last year. As a result, demand for electronic components and associated design, engineering, and supply chain services remained high. This led to record sales in the first quarter, exceeding the top end of our expectations. Additionally, our record gross profit and earnings per share for the quarter were driven by strong execution amidst supply chain demand and balance challenges. I’m pleased to report that our past investments to enhance our capabilities, especially in the area of supply chain as a service, are leading to growth and our profit performance. While some bottlenecks persist, demand for electronic components across key industries and all three regions, particularly the Americas and the EMEA region, remains strong. A favorable mix of higher margin products and solutions, along with a solid regional mix, resulted in record quarterly operating income and margin. This demonstrates Arrow's commitment to helping customers navigate shortages and supply chain challenges so they can maintain production, bring new products to market, and securely manage their applications and data. By helping to mitigate production risks and ensuring a steady stream of products to the market, Arrow solidifies its position as a trusted advisor, working alongside customers and suppliers. Thanks to focused execution, our components business produced record results this quarter. Our global components business delivered the highest ever operating income along with sales above our expectations. The Americas experienced robust demand across most end markets and industries, while EMEA performance was strong across all industries due to improved supply. Asia’s performance was impacted by product mix and supply disruptions. Design activity improved in all three regions, and backlog continues to grow, indicating that customers are still concerned with securing supply. Our enterprise computing solutions business delivered solid operating performance, and we saw demand continue to grow for more complex solutions, including hybrid systems, with backlog at record levels in all regions. As operating performance grows year-over-year, our business has positioned well for the remainder of the year, as customers anticipate longer fulfillment times and place orders further out, resulting in a strong pipeline. While the IT demand environment was healthy, the business mix was skewed towards software and services due to customer preferences. Hardware-related sales continue to face challenges from supply chain bottlenecks, resulting in slightly lower net sales than anticipated compared to the prior year. I’d like to congratulate all of our teams for their strong execution and for delivering a record quarter. Arrow is well-positioned to continue to deliver results, given our investments that are driving our growth. Arrow’s strength comes from consistently emerging stronger from downturns and disruptions, evidenced by our performance. We look forward to expanding our business to benefit our customers, suppliers, and teams. We also believe our strength comes from working on technology solutions that make a difference in people’s lives, that is, engineering the power of innovation to improve life quality. Before I hand the call back over to Rick for more details on our results and expectations for the next quarter, I’d like to add a personal note. On Monday, we announced that Sean Kerins will assume the role of President and Chief Executive Officer effective June 1, and I will become Executive Chairman. Over the years, I have enjoyed our conversations about the business and the dynamics affecting our industry at large. I’m grateful for all the relationships we’ve built, and I wish you all much success in your careers. Sean has been a leader with Arrow for 15 years, most of them working closely with me, so you already know you’re in great hands with him. With that, Rick, I’ll hand it over to you.

Thanks, Mike. First quarter sales increased 10% year-over-year on a non-GAAP basis. The average Euro-dollar exchange rate for the quarter was $1.12 to 1 Euro. Changes in foreign currencies negatively impacted sales growth by $152 million year-over-year, slightly below the prior expectation of a $160 million negative impact on growth. First quarter gross profit margin of 13.3% was about 220 basis points year-over-year due to higher margins in both global components and enterprise computing solutions. Operating expenses increased slightly as a percentage of sales year-over-year but decreased significantly as a percentage of gross profit. As a reminder, many of our value-added services and solutions can be independent of the sale of electronic components and therefore contribute more meaningfully to profits than to sales. Interest and other expenses were $34 million, which was slightly below our prior expectation and mainly attributable to higher interest income, offset partially by higher rates and floating-rate debt. Our effective tax rate of 23.5% was in line with prior expectations in the target long-term range of 23% to 25%. Turning to the balance sheet and cash flow, the first quarter operating cash flow was negative $200 million. The first quarter is typically our most challenging quarter for cash flow generation compared to the fourth quarter, as our inventory days have increased. However, this is largely due to us stocking higher-value inventory with a greater design and engineering component. Our cash cycle of approximately 60 days was six days longer than the fourth quarter. However, our return on invested capital and return on working capital reached new highs for any first quarter and nears our all-time highs achieved in the fourth quarter. We are making responsible working capital investments to capitalize on a strong demand environment. Net debt totaled $2.9 billion, and total liquidity was $2.6 billion when including cash of $243 million. Our liquidity position is one of the best in the history of our company. Our strong profitability and effective management of our balance sheet have enabled us to deliver on our commitment to return cash to shareholders through the repurchase of approximately $250 million of shares for the fourth consecutive quarter. This brings total cash returned to shareholders over the last 12 months to approximately $1 billion, reducing our diluted shares by approximately 9%. We remain committed to returning cash to shareholders, as we are confident that we are repurchasing shares below their intrinsic value. At the end of the first quarter, our remaining repurchase authorization stands at approximately $513 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 business segment results, please refer to the CFO commentary published on our website this morning. Turning to guidance, midpoint sales and EPS guidance imply all-time quarterly records. Midpoint global component sales guidance would be an all-time record for any quarter. Our guidance reflects continued strong operating leverage for global components on a year-over-year basis, with profit growing several times faster than sales. Our forecast suggests enterprise computing solutions' profits will grow year-over-year, achieving its strongest second quarter in several years. We estimate approximately $300 billion headwind to sales and $0.20 headwind to EPS growth due to the strengthening of the U.S. dollar compared principally to the Euro. Finally, please note the CFO commentary includes information on our fiscal calendar closing dates. With that, I’ll turn the call over to the operator for Q&A.

Hi, thank you so much for taking the question, and congratulations on the strong results. And congrats to Mike for a very successful career. I had two questions. First, I guess on the pricing environment. We’re obviously hearing from your partners, your suppliers about inflation and how they’re passing that through to partners and customers like yourselves. What are you seeing from a cost perspective? How are you translating that into your pricing? And how should we expect that to impact margins going forward? And then I’ve got a quick follow-up?

Sure. Well, as you know, we’ve been discussing this for a few quarters, and the increases do get passed along all the way through to the customer base. We started seeing that those increases were coming more often at the end of last year and into this year. Most of it will stick because raw materials are up, trucking costs for moving products around are more expensive, and generally manufacturing costs for the suppliers have risen. So, I expect that trend to continue. Having said that, this does impact your inventory ratios and returns, especially if you’re stocking more value-added products. Pricing has gone up significantly, and I would say that we expect pricing to ease towards the second half of the year, but anticipate some price increases to persist until then, leading to more normalcy in product availability.

That’s very helpful. And then as a follow-up, I just wanted to ask about your views on the overall cycle. You guys sound really positive, and your suppliers and partners sound very good about the demand profile going forward and the visibility you have. At the same time, we hear about some moderation in consumer-facing applications. You’ve got a war going on in Europe, and you’ve got the lockdowns in Asia. So I guess the fear is that things might slow down from here onward. But what are you seeing and what are you hearing from your customers? And how are you planning your business for the next 6 to 12 months? Thank you.

Yes. I can address most of that with the things we’ve indicated and in some of the new points mentioned. First off, the scale of the current war is not as large as some past conflicts. However, during wartime, military spending tends to increase, which creates additional demand. While the war represents a negative, it's important to note that a war economy isn’t always detrimental. The second takeaway is that we've observed pricing rising, but unit shipments have declined over the last year. Thus, we’re not fulfilling the total demand reaching the market. The core question is whether certain end-use markets have pulled back their demand entirely, and the answer currently is largely not significantly. Demand from Ukraine and Russia has completely diminished, yet the demand structure remains intact. Therefore, we are in a position of having higher-priced products with fewer units filling a market that has an expectation of receiving product. I do not foresee manufacturing ramping up sufficiently to offset this trend through the first half of next year, even though it might extend beyond that, but I won't commit to that. However, I anticipate the demand forecasts remain strong for the foreseeable future.

Yes, thanks for taking the question. And I would like to echo the congratulations to Mike and Sean for their new roles. I’d like to understand the incremental EBIT margin that you’re seeing in the components business on a year-over-year basis is remarkable. How should we think about that looking into the second half of the year, particularly as we start to maybe compare against more significant price increases observed in the second half of last year?

I think our position remains strong. We do not foresee a decline in our ratios at this point because we believe the demand will hold steady. Nonetheless, supply factors do warrant cautious optimism. With access to approximately four quarters of demand from our suppliers, we are better positioned for forecasting, although it remains challenging since there’s potential for upside. We expect margins to persist given the efficiencies we’ve developed, and I don’t see a significant decline in the foreseeable future.

Okay, that’s helpful. And just out of curiosity, you mentioned higher value inventory additions this quarter. Should we interpret that to mean your inventory on a unit basis is continuing to decline or remaining flat?

Yes, I think that’s accurately observed. I wouldn’t say it’s declining, nor would I say it’s entirely flat. It’s certainly not increasing. As we start to see more supply, it will likely be irregular initially as suppliers ramp up their volumes. However, that may still be some time off. I do expect additional price increases and a decline in product shortages towards the second half of this year.

Yes, thank you and good afternoon. Mike, regarding the components business and the revenue decline in Asia year-over-year. You talked about constraints and challenges, yet your largest competitor reported strong double-digit growth year-over-year. What might account for that difference in customer mix, and does supplier relationships, such as the one with TI where you took market share, play a role as well?

Several factors contribute to this. First, we’ve seen WPG and WT experience growth, but that growth was predominantly in Taiwan, where we are not a major player. Additionally, the consumer segment has not been as strong for us, and supply challenges have persisted. When this situation developed, we were shipping significant quantities of product, especially as China held the largest portion of our business. Most manufacturers have begun to recover, but not entirely. Our supply situation has shifted from an oversupply to a much more hand-to-mouth scenario, where we can be impacted by backlog circumstances, although I believe we are in a strong position. We should not signal any major concerns about demand across the board. As for the computing side, while increased profits year-over-year for Q2 are promising, you mentioned guidance for revenue to decline. This is primarily due to hardware supply constraints. However, we remain optimistic about prospects in the second half of the year, once supply improves.

To add to what Mike said, our focus remains on driving hardware growth, but we've been intentionally shifting the business mix towards more software, hybrid cloud, and services. This shift inevitably creates a different dynamic in reported sales. Moving forward, we anticipate growth in billings, and it’s crucial to evaluate on the basis of gross profit and operating income dollar growth year-over-year. Although hardware supply chains remain constrained, our hardware pipeline and backlog continue to grow, providing confidence in renewed activity in the traditional on-prem portion of our data center offerings.

Have you seen the supply constraints worsen in the quarter, as we've heard from some others, or is it at a similar level?

Unfortunately, yes. We began to observe increased lead times extending in our systems, storage, and networking business, particularly since mid last year. It has been challenging, as in some cases lead times have doubled or even quadrupled. We're addressing these on a case-by-case basis with suppliers. However, while it will eventually improve, it's difficult to pinpoint when exactly.

Thank you for taking my questions. I would also like to extend my congratulations to Sean and Mike. You had a very strong quarter in ECS for software and services, and your commentary on supply chain as a service highlights a probable recurring revenue component to your ECS sales. Is that meaningful? Can you comment on this and whether it’ll be something you’ll disclose later? How do you see the trend of software and services mix evolving over the upcoming quarters?

Yes. You are correct that this is going to pick up, and it would be something we’d consider disclosing in the future as we notice a trend building. Currently, it does not fit neatly into a line of business but rather manifests as a product sale under our normal operations. However, as we observe a diverging trend, we will indeed start tracking this more formally. We’re very pleased with the increase in services and cloud business, which we have strategically pursued over the last couple of years, as we recognize how rapidly the revenue model is evolving.

For my follow-up, could you elaborate on your capital allocation priorities for the next 12 months? While strength in backlog and end-market demand endure, is there any notable concern as you plan for the next three to four quarters? How do you envision allocating cash?

In terms of capital allocation priorities, we will continue to invest in the business to facilitate growth and profitability. M&A options are limited at this time. Lastly, we will continue with share buybacks, maintaining a consistent approach to returning cash to shareholders, which we have done successfully. Concerns I foresee are if inflation persists, along with increased costs for higher-value inventory, as this could require more cash to stock inventory until we reconcile price receivables. It’s essential to maintain a balancing act between cash flow and investment.

I’d like to examine the cyclicality of each business briefly. In terms of components, we’ve seen elevated margins similar to post-financial crisis periods. Do you believe this expansion will sustain despite facing cyclical downturns in the future?

Several changes have occurred both in the industry and within Arrow specifically. There’s been significant emphasis on engineering, services, and software, which bolsters our offerings. Additionally, inventory management is evolving towards just-in-time strategies, reducing overall inventory levels in response to market visibility. Demand will shift towards longer lead times to ensure supply security, rather than minor price adjustments. Although some price reductions may occur, I do not expect dramatic decreases because current conditions stem from supply constraints far more than economic state issues.

Could you elaborate on which areas or products are showing signs of loosening supply? Regarding your forecast for the components business in Q2, is the strength predicted due to expectations of supply easing?

We are confident in the supply we're anticipating for Q2, and we have been monitoring it closely. Demand is up across almost every vertical market in North America, Europe, and Asia, aside from a few exceptions. However, it’s challenging to pinpoint precise regions for supply increases. Pricing and inventory levels provide us insights, and that's how we prepare for demand. Lastly, with respect to pricing, I believe we will see some easing during the latter half of the year, but significant price increases are likely to remain. Suppliers are keen to adjust their pricing as raw material costs have surged; however, I expect we won't see extraordinary hikes similar to the beginning of this period.

Congratulations, Sean and Mike. I've been aware of your achievements for decades, and it’s a joy to see your success. My inquiry revolves around inventory increases. Noting a year-over-year increase of over 40% and quarter-over-quarter growth of around 10-11%, while sales outlooks don’t seem to align. Can you clarify this discrepancy? I’m not implying it's negative, but rather, I want to understand the extent of the variance.

You’re observing changes based on timing; inventory can fluctuate rapidly. A single week or day can show significant variance. We’re observing the inventory adjustments and higher product values, which means that the cost of parts may have dramatically changed but not necessarily the volume sold. Thus you see the dollar value rise in inventory while units may not reflect that increase as vividly. I do want to point out that we are addressing supply issues and expect improvements if we manage inventory levels carefully, particularly to ensure that inventory aligns with higher-value parts being delivered more consistently.

Thank you for your interest in Arrow Electronics, and have a nice day.

This concludes today’s call. Thank you for participating. You may now disconnect.