Avnet Inc (AVT) Q1 2022 Earnings Call Transcript

Please standby. Our presentation will now begin. Welcome to the Avnet First Quarter Fiscal Year 2022 Earnings Conference Call. I would now like to turn the floor over to Joe Burke, Vice President and Treasurer and Investor Relations for Avnet.

Thank you, operator. Earlier this afternoon, Avnet released financial results for the first fiscal quarter of 2022. The release is available on the Investor Relations section of the company's website. A copy of the slide presentation that will accompany today's remarks can be found via the link in the earnings release as well as on the IR section of Avnet's website. Lastly, some of the information contained in the news release and on this conference call contain forward-looking statements that involve risks, uncertainties, and assumptions that are difficult to predict. Such forward-looking statements are not a guarantee of performance, and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in Avnet's most recent Form 10-Q and 10-K and subsequent filings with the SEC. These forward-looking statements speak only as of the date of this presentation, and the company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this presentation. Today's call will be led by Phil Gallagher, Avnet's CEO; and Tom Liguori, Avnet's CFO. With that, let me turn the call over to Phil Gallagher. Phil?

Thank you, Joe, and thank you everyone for joining us for our first quarter of fiscal year 2022 earnings conference call. As we shared last quarter, despite supply disruptions and ongoing pandemic restrictions in certain regions, we've continued to execute well in a strong market environment and progress on our margin expansion efforts by accelerating the growth of our high-margin business, while also supporting the growth of our core distribution business through investments to improve efficiencies and strengthen critical partner relationships. Our focus and execution and the durable changes we've made to position Avnet as a stronger business are reflected in this quarter's results for both our electronic components and Farnell businesses. This momentum brings us much closer to achieving our goal of delivering sustainable operating margins of at least 3% to 3.5% for total Avnet in any market. Of course, this momentum is largely due to the dedication of our employees. I cannot emphasize enough how truly lucky I am to lead a company with such hardworking and talented individuals across the globe. Our team has endured the challenges of a complex market, and I truly believe it has resulted in a stronger, more resilient organization that is poised for long-term success. Even as we've continued to navigate a difficult operating environment, our priority has remained investing in our people, our relationships, and digital enhancements that make our business more effective and efficient. These investments have been critical to our success to date, and I'm confident they will continue to yield strong returns. Now with that, let me turn to the highlights of the first quarter on Slide 5. In the quarter, we achieved sales of $5.6 billion, up 7.6% sequentially, and 17.5% year-over-year in constant currency, excluding TI sales and the extra week in the prior year, sales grew 32.9% year-over-year in constant currency. Record sales for Electronic Components and for Farnell, supported by improved operating efficiencies, allowed us to deliver operating margins that reached our short-term targets of 3% and 10%, respectively. We were pleased to achieve these targets sooner than originally forecasted. Given the current market environment and the improvements we've made to our business, we expect to sustain these margins in the coming quarters. Our strong results are partially driven by continued market strength. Overall demand was robust across vertical segments, with the industrial, automotive, and communication segments serving as significant drivers. Looking at Electronic Components segment on Slide 6, revenues for the business increased sequentially and year-over-year in the quarter to $5.1 billion with sequential growth across all three geographic regions. Growth primarily came from our largest region, Asia, which again had record quarterly sales. Strong performance in EMEA and continued improvement in the Americas also contributed to better-than-expected results in the quarter. Our investments in digital and design tools and field application engineers continue to pay off as we had another strong quarter of design and engineering activity across all regions. Strong levels of design registrations and design wins in prior quarters have resulted in record sales in design win revenue, and gross profits for the first quarter. These design wins and registrations continue to be a key organic growth driver for Avnet, benefiting our operating margins while also driving new business for our supplier partners. As mentioned last quarter, our supply chain services capabilities also continue to be of great value to new and existing customers as they navigate the increasingly complex supply chains. We're excited to continue to build out this capability and demonstrate Avnet's vital role at the center of the global technology supply chain. We were pleased this quarter with a positive book-to-bill in all regions well above parity. Now, before I move on to Farnell, I would like to briefly address the Analog Devices Maxim decision. As we shared a few weeks ago, Maxim intends to discontinue its distribution relationship with our Tronic components business. Maxim products only accounted for about 3% of the company's sales during fiscal year 2021, and the financial impact on our business won't be immediate. Given current market dynamics, the strength of our existing line card and supplier partners and our track record of managing through the impact of industry consolidation, we believe we can replace the margin dollars. We're proud of the strong supplier partnerships we have today and look forward to expanding these relationships to meet the specific analog needs and broader technology needs of our customers. Now turning to Farnell Slide 7. Our strategic investments in SKUs and e-commerce continue to benefit performance at Farnell as we achieved record revenues of $455 million and operating margins up 10.9% in the quarter. Our investments in Farnell continue to deliver meaningful returns. In the quarter, Farnell's digital capabilities yielded notable performance with 53% of revenues and 69% of total transactions attributed to e-commerce sales. We've seen positive results from the Farnell platform over the last 18 months as the team has embraced digital transformation. We're excited about the potential for even greater success as we move all Avnet businesses to the platform over the coming quarters. We also continue to invest in inventory this past quarter adding 18,800 SKUs. This reflects continued progress on our plan to add an additional 250,000 SKUs through the fiscal year 2022. Our inventory investments at Farnell have been critical to our success. This quarter, 15% of Farnell sales were derived from new SKUs added over the last two years. We look forward to delivering continued returns on these investments, as they've enabled us to grow and strengthen our overall offering to our broad base of engineering customers and suppliers around the globe. With that, I'll turn it over to Tom to dive a bit deeper into our first quarter results.

Thank you, Phil. Good afternoon, everyone. And thank you for attending today's call. As Phil stated, we were very pleased with our results this past quarter. While there's still work ahead, I am encouraged by our strong start to the fiscal year and excited to share some highlights from the quarter. Turning to Slide 9, our revenues of $5.6 billion and adjusted EPS of $1.22 both exceeded guidance. Consistent with our objective of growing higher-margin businesses, our Farnell revenues grew 33.5% year-over-year, although electronic components grew 17.1%. We delivered our second consecutive quarter of record sales in both our electronic components and Farnell segments. We reached our short-term operating margin objectives, achieving 3.2% for electronic components and 10.9% for Farnell. Our operating expenses remain well managed, declining $12 million sequentially in a quarter in which our revenues grew. We continue to manage our working capital with net working capital days decreasing to 69 days compared to 79 days a year ago. All of these contributed to a return on invested capital of 11% in the quarter. As demonstrated on Slide 11, this was our fifth consecutive quarter of operating margin expansion. It was also our fifth consecutive quarter of reducing our operating expenses as a percentage of gross profit dollars. Our goal is to deliver sustainable operating margins of at least 3% to 3.5% for total Avnet. Moving to the first quarter income statement on Slide 12, gross margin of 11.8% was down slightly from 12.3% last quarter, primarily due to regional mix. The September quarter is seasonally slower for EMEA, while Asia remains strong. Compared to the prior year quarter, gross margin improved by 88 basis points. All of our businesses improved gross margin year-over-year. Adjusted operating expenses of $481 million were down $12 million or 2.5% sequentially. On the non-operating front, interest expense decreased slightly to $22.8 million from the prior quarter. We recorded foreign currency transaction losses of $5.1 million, which represent the impact of FX fluctuations throughout the quarter, primarily between the U.S. dollar and the Euro and British pound, as well as the costs associated with hedging foreign currency risk. We booked a 21% adjusted tax rate in the first quarter, which is also our estimated rate for total fiscal year 2022. On Slide 13, we highlight results across our Electronic Components segment and Farnell. Looking first at Electronic Components, we achieved revenues of $5.1 billion with every region growing sales in a strong market. Operating margins were 3.2%, a slight improvement from last quarter as the team continues to manage operating expenses while growing revenues driven by improved efficiencies across the business. Farnell achieved a record sales quarter with revenues totaling $455 million. The Farnell segment had an operating margin of 10.9% in the quarter. While favorable pricing contributed approximately 200 basis points of the 10.9%, the Farnell team has made notable improvements in their business, primarily driven by investments made over the last two years. As Phil noted, these initiatives include our efforts to expand SKUs in Farnell's inventory and enhance new product introductions, as well as make investments in systems and e-commerce, all of which have been major contributors to strong and sustainable operating margins. Overall, we're extremely pleased with Farnell. We continue to believe that Farnell is a critical component of our long-term margin expansion effort. Turning to cash, liquidity, and the balance sheet on Slide 14. Inventory remained relatively flat sequentially, and as a distributor, we're pleased that we are able to maintain these levels in a tight market. While working capital dollars were up, we were still able to improve our working capital days to 69. Our liquidity position remains strong; we ended the quarter with cash and equivalents of $299 million, and $1.5 billion in available lines of credit. We remain comfortable with our debt position. Our gross debt leverage was 2.1, and net debt leverage was 1.7. Our net book value per share increased to $41 compared to $38 in the year-ago period. On Slide 15, I would like to reiterate our capital allocation priorities. We should expect a balanced approach to our capital allocation with approximately half going to reinvestment in our business and half to shareholder returns. Reinvestments will primarily be capital expenditures for distribution centers and business systems for continued efficiency improvements, as well as expansion, and a portion will be dedicated to M&A to grow our higher value-add businesses, such as Farnell, IP&E and embedded systems. For shareholder returns, you voiced your desire for steady and reliable returns, and we have responded by focusing on delivering a steadily increasing dividend. We increased our dividend by 9.1% in the quarter on top of a 4.8% increase in the June quarter. As a shareholder, you should expect an increasing dividend through the cycle. We also reinitiated our share repurchase program toward the end of the quarter, and we expect to continue our repurchase activity going forward as an integral part of our capital allocation plan. Let me wrap up on Slide 16 with guidance. Our second quarter guidance today assumes ongoing strong demand, continuing supply constraints, and associated electronic components price inflation. The impact of COVID-19 across the globe remains uncertain, as it relates to potential shutdowns and constraints. Today's guidance assumes conditions remain above where they are today. For our fiscal Q2, we're guiding revenue in the range of $5.3 billion to $5.7 billion and adjusted EPS in the range of $1.20 to $1.30. Turning to Slide 17, in summary, we remain committed to building a better business supported by excellent execution in our core distribution and growing our higher value-add businesses such as Farnell. Through the cycle, our objective is sustainable operating margins of at least 3% to 3.5%. Our focus on growing higher value-add businesses, reliable and increasing dividends, opportunistic buybacks, and investments in both organic and inorganic growth remains steadfast. We believe we are on a solid path to increasing shareholder value. With that, I'll turn it over to the operator for questions-and-answers.

Thank you. We will now be conducting a question-and-answer session. Our first question is from Nick Todorov with Longbow Research. Please proceed with your question.

Yes, thanks. And good afternoon, congrats on achieving the margin goals ahead of timeline. So question on that, Phil, given that you reached that milestone now and it seems like you're seeing the benefits of the current backdrop in the whole environment, how should investors think about the next near-term goal for the margins? I think you've mentioned that you anticipate that you're going to sustain those, but what are the levers that you can pull so you can continue to see improvement in those margins?

Sure, Nick. Yes, we've achieved them early. We expect to be able to do that for the next several quarters and beyond. The levers are really what we've always talked about with Farnell; they got to 10% and we think they can do more, their investments in the SKUs and inventory are paying off, as you can see in the revenue, investments in the e-commerce are paying off. You'll see that in the e-commerce revenue as a percentage of total. And then, over on the core side, what we've talked about with Americas; that team has done a stellar job of driving growth and throughout margins are over halfway of where we want them to be. But what you should all know is that there's still more to come. Those are the main levers we pointed out with Farnell; yes, they are benefiting from pricing. So, we want to be sustainable, regardless of that pricing benefit. I think the other thing you should know is that there are some headwinds in all of our businesses, like fuel costs and expediting costs. So, we expect those to subside over time. It's hard to say when, but our team did a good job managing margins, and there is more to come.

Okay, great. And a question - you obviously raised the dividend again, how should investors think about the balance of increasing the dividend throughout the cycle and return through buybacks, given just where the stock is? I think it's fairly obvious that it's pretty attractive to buy back the stock here. But how do you balance that with the dividend increases that you're planning to do through the cycle?

Yes, we spent a lot of time internally, as most companies do, modeling our cash flow through different cycles, many sessions with our finance committee. What our message is that we believe that we're at a point where we can deliver an increasing dividend through the cycle every year going forward. Why is that different from the past? We're starting with a much lower debt position, right? So we're just in a better position from the balance sheet. You may see more on the dividend. What we're trying to do is get it to the level we consider appropriate as a percent of net income. I'm not going to go into the specifics, but from there, we will continue to increase it on an annual basis. Buybacks are more opportunistic. This took a lot of time to refine our capital allocation plan, but we're really happy with where it landed. You should expect variability based on share price, and we're in the market, back in the game on buybacks.

Okay, thanks. And last one from me. Phil. Just on Maxim. Can you dive a little bit on the strategy to replace the gross revenue from that end? Can you give us some timeline? I'm guessing you're sold out on Maxim for the next few quarters; help us understand the timing of transition into commitment there. Thanks.

Yes, sure, Nick. Thanks. Yes, on Maxim, we actually put the impact at roughly 3% of our total revenues as we did a few weeks ago. Internally, we're not doing any re-budgeting; we don't see it anticipated affecting our earnings over the next few quarters. Frankly, we have plans in place; we've got great supplier partners that have parts of that technology, and we're mapping it over. That’s going to be the goal for the team. This one is again relatively small; we see it as an opportunity for us to go replace it, but it won't be an issue. We've got a great line card and we've got great technologies to fill the gaps.

Got it. Thanks. Good luck.

Thanks, Nick.

Thank you. Our next question comes from Matt Sheerin with Stifel. Please proceed with your question.

Yes, thanks. Good afternoon. Phil, I just wanted to ask about the supply environment; everyone has been talking about supply constraints. A lot of your big EMS customers are all missing guidance because they can't get parts. They're talking about de-commits from semi-suppliers. Could you give us a color on what you're seeing? I noticed your inventory was up slightly, but I imagine you'd probably want to have more if you could get it. So, are you having issues getting parts as well? Could you just give us color there?

Yes, Matt. There is a broad spectrum of commodities. As you particularly know, some parts are more readily available than others. As a standard, the lead times I'm looking at now across the commodities have not really expanded out much since the last quarter, but they're still pretty far out there. Pretty much across the board, we're expediting everyday different commodities. The $50 million roughly as you pointed out, or inventory being up, is something we're quite fine with. Our days of inventories are fine; we'd like to have more, right? No question about it. But as we were last quarter, we were okay with the inventory going up. As you saw that play out in other numbers, our customers have really improved their numbers. So yes, it's a tough call, Matt. It's customer-by-customer. Overall, we saw good growth, and we're pleased with that; we can always do more if we had more inventory for sure. Tough to say exactly how much, but there is still a lot of pain in the supply chain. There is no doubt about it.

Okay, thank you. And on the gross margin, which was down sequentially. I imagine that was mostly on mix. But I also would think that you're benefiting in addition to Premier Farnell, but your core business a little bit on the pricing side in terms of a margin. So, what should we expect for December? It looks like backing into the number, it seems like that it should be up sequentially the gross margin?

Yes, Matt. The gross margin was down in the current quarter primarily due to mix. Europe is generally slower during this time of year, but they did a great job this time. They were not slower though. But Asia really performed well. The good news is if you look at every one of our businesses year-over-year, their gross margin is up.

Right. Okay. All right. Thanks very much.

Thanks, Matt.

Thank you. Our next question is from Ruplu Bhattacharya with Bank of America. Please proceed with your question.

Hi, thank you for taking my questions. Congrats on the quarter and on the strong guide. My first question has to do with Farnell margins. I think Tom, you said on the prepared remarks that of the 260 basis points sequential improvement, 200 of those basis points were from pricing. I also see that you had a good e-commerce transaction quarter, 69% of transactions were from e-commerce. The question I have is, do you think this is sustainable given it’s a demand-constrained environment, and so pricing is strong? Do you think there is room to increase further pricing on the Farnell side? And then just going forward, when should we think about 15% as the next target? Is that something you can achieve in fiscal '22? Just puts and takes on this, things that made it strong this quarter? And if that can sustain going forward?

Yes, Ruplu, thank you for the question. Farnell had a stellar growth, operating margin, and gross margin quarter, and the 200 basis points were achievable. If you take out the pricing benefit, that would have left 8.9%, which is still a strong quarter. Keep in mind, there was a pricing benefit, in the quarter before and the quarter before that, so this isn't anything new. To us, they're performing well, and we think without the pricing, they could still get to 10% or higher. We're not going to give targets, but the puts and takes are, number one, continue to invest in SKUs; that is bringing new people to the website, and you're seeing that in revenue. Number two, continue with our investment in systems in the e-commerce. E-com web orders are cheaper to process and are generally less price sensitive. We have very good things happening with Farnell.

Thanks for that, Tom, I appreciate the details. Then on, I wanted to ask you about OpEx. You've done a good job controlling expenses. Can you give us an update on your restructuring efforts? Is there any more opportunity to have more operational efficiencies, and take more cost out? How should we think about SG&A going forward?

Yes, we've really focused on and we've got everybody in the company focused on really their operating expense as a percentage of gross profit dollars. The reason for that is in a growing market, we're going to need more costs for freight out, for logistics, for sales commissions. The good news is, that was one of the slides — OpEx as a percent of gross profit dollars come down for five quarters in a row, now to the low 70s—72%. I think it was; we like to get that into the mid to high-60s. We think that's very doable. There are specific things that we can continue to work on to reduce costs. Yes, we keep outsourcing parts, but we view those more as reinvestments; dollars available for reinvestments in the business to deal with an inflationary economy.

Yes, Ruplu, let me jump in. There's the hard costs energy efficiencies, right? And we talk a lot about the digital side of the equation. You just brought it up — Farnell — close to 70% of their transactions, over 50% of their dollars, are being generated online. Well, the same digital automation needs to be taken out to the core business as well, right? So, not just in e-commerce, but digital automation is needed; customer self-serve, technical support online to supplement our FAE community. So a lot of this is in those areas where we can get efficiencies. So as we grow, we can automate a lot more of that.

Okay, thanks for that. If I can just squeeze one more in for Phil. Can you remind us of the TI revenue that you're trying to make up? Where does that stand? How much more do you need to make up based on your target? And then with the Maxim; is there a similar target for how long it can take for you to make up that revenue? Thanks.

Yes, Ruplu. The TI situation is kind of in the rearview mirror at this point in time. Most regions have recovered, though we need to support the market there. If you look at Asia for example, we had a record quarter in Asia without Texas. Parts of our divisions in Europe had record quarters — all-time record quarters — without them. So we're kind of moving on. As far as Maxim, we're not anticipating any significant effect on our earnings in the next several quarters. As we plan for fiscal '23, it'll be just a net number that we planned for and baked into the budget. So, there's no re-budgeting on this end for Maxim.

Okay. Thank you for all the details. Congrats again.

You got it.

I should look.

Our next question comes from Jim Suva with Citigroup. Please proceed with your question.

Thank you very much. I have two questions. You can ask in any order and then I'll be finished and get off the mic. The first question is, there's been talk over the past handful of years about relationships shifting. With that, are there others in the works apart from Maxim, or do you think we are nearing an end now? As the semiconductor industry continues more integration, do you think we could see further share shifts? That's my first question.

Yes, Jim, I'll take your first question. In some cases, you are talking about supplier consolidation, right? With supplier consolidation comes risks of share shifts; sometimes you win, sometimes you lose, and sometimes there's no change. But, it's not new—I’ve been around for four decades. I’ve seen the top-line consolidation in the industry with many companies. This most recent one was a decision that went the other way for us. However, if you look at Cypress, they were acquired by Infineon, we picked up Microchip when they acquired Microsemi, and we've added Renesas when they acquired IDT — that came into the Avnet house. They go back and forth — our job is to adjust to that. We can't predict how it will go, but we have to drive and execute to the value proposition we’re bringing to the market, from design through to our supply chain being at the center of technology. So, it’s just a matter of adapting and continuing our offense. There will be further share shifts; there’s no doubt about it.

The second question is, everyone asks if you are over-earning on components, given the shortages. Perhaps you can clarify the elephant in the room question: are you over-earning or not?

Yes, Jim, I'm assuming you're talking about the average selling prices. Well, yes, there’s been some lift due to AS price inflation, right? We’ve been experiencing increased costs from the suppliers, which we've been trying to pass on to our customers as quickly as we can. But you need to keep in mind that these price increases are not uniform across our entire portfolio. They pertain to a smaller portion of the portfolio, potentially 30% or 40% with the balance being priced competitively in the marketplace. So, I would say 3% to 5% might be in that range. We're capturing that information tracking it per SKU, trying to understand how much is inflationary ASPs versus not. But it's not as high as you might think. Tom, do you want to add anything?

Yes, exactly. To summarize, we’re looking to sustain operating margins around 3% to 3.5%. While we recognize that there are benefits here, we’re being careful handling price increases. Through Farnell, there is some benefit; however, they also have freight headwinds. Overall, we're trying to be transparent that we aim for that 3% to 3.5% sustainably.

Thank you so much for the details and clarification. That's greatly appreciated. Thank you.

Thanks, Jim.

Thanks, Jim.

Thank you. Our next question is from Melissa Fairbanks with Raymond James. Please proceed with your question.

Hi guys, thanks for taking my question. I just had a quick question on the capital allocation slide. A couple of things we noticed; it’s been a while since you've done M&A, and that’s one of the things you highlighted as one of your priorities in your capital allocation slide. What are potential targets you’re looking at? I know you mentioned benefiting Farnell and that would be accretive to margins. Is this a shift in strategy related to growing the business or is it just business as usual? As a follow-up, with the share buyback reintroduced, do you have a target for an optimal capital structure, normalized capital returns, or any color that you can provide?

Sure, thanks Melissa, and welcome to Avnet. We're glad to have you on the call. The M&A capital allocations represent a slight refinement; we are looking at smaller strategic refinements. This is more about growing our higher value-add businesses. That's why we mentioned Farnell, passives interconnects and embedded systems. We think these initiatives can make Avnet a better company. Yes, we have targets internally, but we’re not going to share them. On the capital structure side, we look to the mid-twos as desirable leverage. Depending on where you are in the cycle, it can vary below or above that. Our target, through the cycle, is more like mid-two times gross leverage; that's what we're targeting for safety.

It sure does. Thanks very much.

Thanks, Melissa.

Thank you. Our next question comes from Joseph Quatrochi with Wells Fargo. Please proceed with your question.

Yes, thanks for taking the question. I'm curious about the Farnell pricing benefit of the 200 basis points you talked about; what was that last quarter? Also, is there a goal in terms of targeted e-commerce percentage sales for that business over time?

I think last quarter, we said it was about 150 basis points. So, this is not new, Joe. It continues to perform well in that range. We haven't publicized a specific goal for web orders. However, we aim to continue increasing that. It's clear that e-commerce is enhancing efficiency.

Yes, Joe, we’re really pleased. We broke over 50% in revenue, and we’re closer to get to 70% of the transactions. This really takes weight off the team. The exact goal is not established, but it's obviously to continue to increase that. What’s helping with that, is our increase in SKUs.

Thanks, that’s helpful. I was wondering if you could maybe talk about the demand that you're seeing for your supply chain services given all the disruptions. I assume that's relatively sticky with higher margins?

Yes, the demand for our supply chain services is certainly picking up. People don't tend to worry about supply chains until they can't get what they need. We’re receiving calls from many Tier-1s and many of our suppliers for assistance. We're actually increasing our supply chain architects because they’ve reached near capacity. Yes, this has a stronger stickiness overall. The margin may differ, but the returns are well above the corporate goal of net 20%-25%. So, it’s a good business, but to your point, it’s also very sticky.

Thank you.

Thanks, Joe.

Thank you. Our next question comes from Nick Todorov with Longbow Research. Please proceed with your question.

Yes, just one follow-up. Do you guys see a change in the volume or breadth of expedite requests by customers? Some suppliers have talked about that, and if you do, what do you think is driving that?

Nick, this is the same earnings call, and you jumped back in again. Yes, I would say this past quarter was as interesting as any regarding expedites. They are not declining by any stretch. I'm involved in quite a few myself. A lot of Tier-1s are reaching out to us next. I think it's just a sign back to Matt's question about which products are tighter than others and what's causing the issues — right now, it's broad. There are many products that are fine, but certain controller spaces, certain analog, discrete, and power sensors, are really tight, which is causing disruption.

Got it. And last question just on Asia. Strong performance in the quarter. What do you think about order trends there? Some indicate softening or moderation, specifically from China. What do you see from your perspective in Asia, particularly in China, and do you hear about any impact from the power shortages there too? Thanks.

Yes, great question. We've had incredible performance in Asia-Pac over the past months. It's not just China or Greater China, which is really encouraging. I think moderation is probably the right word. The book-to-bill ratios are still positive and we have pretty much record doubling figures. A moderation isn't necessarily a bad thing; it may just signal a move toward normalization. We’ll see how this plays out this quarter, then when we approach Chinese New Year next year — last year, it was effectively canceled. So, we've got a lot more variables to take into consideration over the next few months in Asia-Pac, but overall, the outlook remains strong.

Got it. Thanks.

Thank you. There are no further questions. At this time, I'd like to turn the call back over to Phil Gallagher for any closing comments.

Great, thank you very much. I want to thank everybody for attending today's earnings call. Appreciate all the questions. It’s incredible that this year we’ll be wrapping up our 100th year anniversary celebration — that's a century in business — an outstanding accomplishment that not many companies achieve. During my time here, I’ve certainly seen our company adapt, persevere, and evolve. I'm excited for what's to come in the next 100 years. As we look ahead to next quarter, we expect the current operating environment to persist. Our priority remains staying close to all our customers and supplier partners, and continue demonstrating that Avnet’s role at the center of the global technology supply chain is more vital than ever. We've made significant durable changes over the past year that positions us to capture growth, continue to invest in our business, and sustain at least 3% to 3.5% operational margins for total Avnet regardless of market conditions. Our results from the past year reflect the impact of these changes, and we are confident that we will continue to execute and capitalize on the current market to capture opportunities. With that, I hope everyone stays healthy and safe. I look forward to speaking to you again in January for our fiscal year 2022 second quarter earnings results. Have a great day. Thanks.

Ladies and gentlemen, this does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation. Have a wonderful evening.