Welcome to the Avnet Fourth Quarter Fiscal Year 2023 Earnings Conference Call. I would now like to turn the floor over to Joe Burke, Vice President, Treasury and Investor Relations for Avnet.

Thank you, Paul. I'd like to welcome everyone to the Avnet fourth quarter fiscal year 2023 earnings conference call. This afternoon, Avnet released financial results for the fourth quarter of fiscal year 2023, and the release is available in the Investor Relations section of Avnet'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 our website. As a reminder, some of the information contained in the news release and on this conference call contains 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 Ken Jacobson, Avnet's CFO. With that, let me turn the call over to Phil Gallagher. Phil?

Thank you, Joe, and thank you, everyone, for joining our fourth quarter and fiscal year 2023 earnings conference call. I'm pleased with the execution of our team throughout the year as we continue to drive growth while navigating through market uncertainty. We maintained our momentum from fiscal year 2022 to deliver robust financial results for fiscal 2023, including a record of over $8 of earnings per share. Our sales were up more than 13% year-over-year in constant currency. Operating income grew at two times the rate of sales. Our business units achieved operating leverage, with Electronic Components delivering a 4.8% operating margin and Farnell delivering a 9.5% operating margin for the fiscal year. As we look ahead, with the breadth of our supplier line card, our diversified customer base, and the strength of the end markets they serve, we are well positioned to capitalize on the industry growth expected over the next several years. Now, let's turn to fourth-quarter results. In the quarter, we grew 3% year-over-year in constant currency and we delivered adjusted EPS of $2.06, which is six consecutive quarters of adjusted EPS of $2 or greater. Similar to last quarter, we continue to drive efficiency in our operations while still making the necessary investments in our business. These efficiencies, coupled with the stronger-than-expected sales in our Americas and EMEA businesses, helped us achieve a 5.1% operating margin at Electronic Components in the quarter. It's notable that this is the second consecutive quarter of 5% or greater operating margin at EC and 4.8% adjusted operating margin for Avnet overall, delivering on the margin targets we communicated at our Investor Day in June last year. During the quarter, we saw continued year-over-year sales growth in the Americas and EMEA regions, partially offset by expected sales declines in Asia, which was a continuation of the slowdown in demand in certain Asian end markets. From an overall demand perspective, we experienced continued strength in key verticals, most notably transportation, automotive, and industrial. We also saw continued solid demand in defense and aerospace. Average lead time for many components continues to decrease, although lead times remain elevated for certain product categories such as high-end microcontrollers, some power components, and many of the components that go into the automotive segment. Lead times for these constrained categories have improved but more modestly than in other categories. As a result of the current demand and lead time conditions, our book-to-bill ratio remains below parity in all regions, similar levels to last quarter. Our backlog remains relatively steady and consistent with last quarter as well. While cancellations are elevated, the impact on our backlog has been minimal to date. The pricing environment also remained stable during the quarter with declines in some standard product pricing. We are hearing from some of our supplier partners that they don't expect input costs to come down anytime soon, which was a big driver of price increases over the past few years. As we value our customer relationships, our historical approach in our EC business was to merely pass along price increases to our customers without marking them up. We believe this approach is the reason we've seen stable gross margins in our EC business year-over-year, including this past quarter. Turning to our operating group highlights, Electronic Components had a strong year, reaching nearly $25 billion in sales. Sales for the fourth quarter increased 3% year-over-year and were flat sequentially. This marks the 12th consecutive quarter of year-over-year sales growth in our EC business. As mentioned earlier, EC achieved a 5.1% operating margin for the quarter, noting that our EMEA region achieved a second consecutive record sales quarter with very strong operating margin, and the Americas team delivered another solid quarter of sales and market share gains. From a demand creation standpoint, once again we had a great quarter for design and engineering activity across all regions. High levels of design registrations and wins in prior quarters resulted in another quarter of record demand creation in sales and gross profit. Our customers are engaging our FAEs for new designs for the next-generation products as opposed to the redesign activities that were occurring in the past couple of years to overcome some component shortages. Demand creation continues to be an essential capability needed in today's technology and supply chain. Our EC inventory levels were relatively flat on a sequential basis. And as I mentioned on last quarter's earnings call, we expect it will take a couple of quarters for the inventory correction to play out. This quarter, we would characterize our inventory levels as stabilizing and we are optimistic that as we enter calendar 2024, they will be more closely aligned with sales. We continue to be confident in the quality of the inventory, and our ability to work down inventory days in the quarters to come. Moving on to Farnell, following a record sales and margin year in fiscal year '22, Farnell had a solid year in fiscal '23 with sales of $1.7 billion and operating margins of 9.5%. In the fourth quarter, Farnell sales were up 1% year-on-year and down 3% sequentially in constant currency. Operating margins were affected primarily due to an unfavorable sales mix of lower-margin products. As constraints on components related to single-board computers have now eased, Farnell is making strides in filling the backlog for single-board computers, which will help their sales and operating income dollars in coming quarters. As I reflect back on fiscal year '23, I'm very pleased with the progress we've made with the near-term goals we communicated at Investor Day just over a year ago. We've grown our revenues, gained market share, attained our operating margin goals, and achieved a record EPS for the year. I'm especially proud of the commitment of our team to execute and deliver in one of the most dynamic and uncertain markets I've seen in my career. But there is still more to accomplish, and the future is really bright for Avnet. As we head into fiscal year 2024, we will continue to make good on our commitments to focus on reducing our inventory levels to be in line with sales, generating cash, and growing operating profit greater than sales. Our supplier partnerships continue to be one of our key strengths, which has helped lead to market share gains for several quarters. We are confident that our supplier partners see the value we bring in helping to increase both our sales and customer accounts. We are extremely well positioned for the industry growth expected over the next several years. Our line card features substantially all of the key technologies our customers need, and our high-performance line card is unmatched. The key end markets we serve, including industrial, transportation, and defense, are expected to have high growth rates over the next three to four years. When combined with our supply chain as a service capabilities and the overall market need for customers to have resilient supply chains, we're really excited about our opportunities at the center of the technology and supply chain. So with that, let me turn it over to Ken for a look at the financial results for Q4 and the fiscal year. Ken?

Thank you, Phil. Hello, everyone, and thank you for your interest in Avnet. We believe our fourth quarter and full fiscal year 2023 performance are a positive validation of our strategy over the past couple of years to focus on efficient and effective operations while working closely with our supplier and customer partners at the center of the technology supply chain. This continued focus has helped us gain share and makes us a stronger, more profitable company. Our sales for the fourth quarter were approximately $6.6 billion, exceeding the top end of our guidance range and up 3% year-over-year. On a sequential basis, sales were up slightly in constant currency. Sales growth year-over-year was led by a record quarter for EMEA with nearly 90% growth and the Americas with 7% growth. This growth was partially offset by an expected sales decline in Asia of 12%. In constant currency, year-over-year sales grew 17% in EMEA, 7% in the Americas, and declined 11% in Asia. From an operating group perspective, Electronic Component sales grew 3% year-over-year, both as reported and in constant currency. Quarter-over-quarter, Electronic Component sales were 1% higher in constant currency. Farnell sales grew 1% year-over-year both as reported and in constant currency. Farnell sales were 3% lower sequentially in constant currency. For the fourth quarter, gross margin of 12.5% improved 25 basis points year-over-year and was relatively flat quarter-over-quarter. Gross margin improved year-over-year primarily due to a greater mix of sales from our Western regions. Electronic Components' gross margin was up both year-over-year and sequentially primarily due to a greater mix of sales from our Western regions. Farnell gross margin was down both year-over-year and sequentially, primarily due to a combination of the unwinding of pricing premiums as on-the-board component lead times have improved and from unfavorable foreign exchange rate impacts from when products were purchased versus when products were sold. We continue to remain focused on maintaining efficient and effective operations. Our operating expenses continue to be well controlled, as we have been able to grow our sales without any significant increase in overall expenses. During the quarter, adjusted operating expenses were $505 million, up 3% year-over-year and up 2% sequentially. Foreign currency negatively impacted operating expenses by $3 million sequentially. As a percentage of gross profit dollars, adjusted operating expenses were 62% in the fourth quarter, 132 basis points lower than a year ago and 53 basis points higher than last quarter. For the fourth quarter, we reported adjusted operating income of $313 million, which increased 9% year-over-year and grew three times faster than sales in constant currency. This is the 10th consecutive quarter of operating income growth exceeding our sales growth by more than two times. Our adjusted operating margin was 4.8% in the fourth quarter, which improved 26 basis points year-over-year and was flat quarter-over-quarter. By operating group, Electronic Components' operating income was $310 million, up 21% year-over-year. EC operating margin was 5.1%, up 77 basis points year-over-year and essentially flat quarter-over-quarter. The improvement was led by our EC Americas and EC EMEA businesses, which both expanded operating margin year-over-year by more than 80 basis points. Farnell operating income was $36 million, down 43% year-over-year. Farnell operating margin was 8.1% in the quarter, down 90 basis points quarter-over-quarter. Farnell operating margin continued to be impacted by the unwinding of pricing premiums, foreign exchange rate impacts, and an unfavorable sales mix of lower-margin products. Our combined operating groups, when excluding our corporate expenses, delivered on our targeted margin goals by achieving a 5.1% operating income margin for fiscal 2023 with a fourth-quarter exit operating income margin of 5.3%. Turning to expenses below operating income, fourth quarter interest expense of $75 million increased by $45 million year-over-year and $3 million quarter-over-quarter. The sequential increase was primarily due to increases in market interest rates. Increased interest expense negatively impacted adjusted diluted earnings per share by $0.39 year-over-year. Our adjusted effective income tax rate was 21.6% in the quarter and was 23.9% for the full year. Adjusted diluted earnings per share were $2.06 for the quarter, which decreased $0.01 year-over-year but was $0.06 higher quarter-over-quarter. A better-than-expected effective income tax rate benefited adjusted diluted earnings per share by approximately $0.06 in the quarter. Turning to the balance sheet and liquidity. During the quarter, working capital decreased by $33 million, including an increase in payables of $237 million offset by a $111 million increase in inventories. As a result, our working capital days increased by one day quarter-over-quarter to 97 days. Our inventory days increased by approximately four days, and our receivables days decreased by approximately one day quarter-over-quarter. Our return on working capital continues to be two times our cost of capital. Our inventories increased 2% during the quarter primarily due to increases at Farnell, largely for replenishment and continued investment in inventory breadth. As Phil mentioned, we believe our inventory levels have stabilized. Near term, we expect inventory levels to be generally consistent with the fourth-quarter levels when adjusting for the effects of any strategic initiatives which may create temporary increases in inventory levels. We continue to work collaboratively with customers to purchase the inventory ordered on their behalf. We remain confident in the quality of our inventories and are focused on improving inventory turnover and our related inventory days over the next few quarters. Looking to the first quarter, we expect to see a temporary increase in inventories for our EC business due to a strategic opportunity for which inventories will come in towards the end of the first quarter and are expected to ship out during the second quarter. In the fourth quarter, we generated $235 million of cash flow from operations and we expect to generate cash flow from operations in the first quarter. Our debt decreased by approximately $51 million during the quarter, with a gross leverage of 2.2 times, which was a sequential improvement. At quarter end, we had approximately $844 million of available committed borrowing capacity. With regard to our capital allocation, in the near term, we continue to evaluate all opportunities to drive shareholder returns including dividends, share buybacks, and M&A. But the priority remains to support the needs of our business, including working capital and capital expenditures. During the fourth quarter, cash used for capital expenditures was $57 million, and as a reminder, our capital expenditures during fiscal 2023 were elevated due to investments in a new warehouse in Europe. In the fourth quarter, we paid our quarterly dividend of $0.29 per share or $27 million. We continue to assess share repurchases to increase our shareholder value when we believe our shares are undervalued by the market, which continued to be the case in the fourth quarter. Book value per share improved to approximately $51 a share, a sequential increase of approximately $1 per share. Turning to guidance, for the first quarter of fiscal 2024, we are guiding sales in the range of $6.15 billion to $6.45 billion and adjusted diluted earnings per share in the range of $1.45 to $1.55. Our first-quarter guidance is based on current market conditions and implies a sequential sales growth rate of down 2% to down 6%. This guidance assumes a seasonal mix shift in sales, with Western regions declining more and Asia sales increasing less than a typical first quarter. For Farnell, we expect near-term reduced operating margin due to a combination of factors, including seasonal sales declines which include reduced demand in on-the-board components, and gross margin levels continuing to be pressured due to similar factors that impacted fourth-quarter gross margins. In response to the expected decline in Farnell operating margins, we are evaluating the acceleration of previously identified opportunities related to Farnell operating expenses. This guidance also assumes similar interest expense compared to the fourth quarter on an effective tax rate of between 22% and 26% and 93 million shares outstanding on a diluted basis. In closing, I would like to take this opportunity to thank the entire Avnet team around the world for their outstanding efforts in the fourth quarter and for their hard work in closing out a record year for the company. With that, I will turn it back over to the operator to open up for questions.

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. Operator instructions. Thank you. Our first question is from Ruplu Bhattacharya with Bank of America. Please proceed with your question.

Hi. Thanks for taking my questions. Phil, can you talk about what surprised you in the quarter and led to the revenue outperformance? You beat the high end of the guidance. And part of that, can you talk about the linearity in the quarter? You had talked about an inventory correction last quarter; is the industry still experiencing that? How long do you think that's going to last and what parts are in excess supply?

Yeah. Thanks, Ruplu. Let me start with the first part of your question. I wouldn't say it was surprising. I would just say it was terrific execution in the quarter by the teams. The inventory came in, and as we've been saying, we work with the customers to get it back out, and I think the team just did a really nice job. We saw continued strength in the markets where we're very strong in—industrial, transportation, automotive, and, of course, defense. So as the quarter went on, it just continued to stay strong. So maybe it was not entirely expected. But I think it's really down to the execution by the team. As we've been saying for quite a long time, Ruplu, inventory is not a bad thing when you have the right inventory, right? So, we are able to get the inventory in and get it back out. As we touched on in the call, last quarter, I mentioned the industry inventory correction. I think that's still playing out in a two to three-quarter time frame, which is basically what we saw, as inventory sequentially was up really modestly. So I think that's still playing out. And again, the inventory is healthy, so it's not a bad thing. I also want to just note that when we talk about inventory, not all inventories are created equal. There are a handful of suppliers that tend to be heavier weighted, where we're growing the inventory, while there are other areas where we would like to have more inventory. So we kind of generalize inventory as a lump sum, but it isn't all the same. Hopefully, that answered your question there, Ruplu?

Yeah, thanks for the details there. Phil, if I can ask you about the Farnell operating margins. You mentioned a couple of things for fiscal 1Q. You said that single-board computers are more available, so that should help sales and operating income dollars, but you also talked about some mix issues that maybe persist. And I think Ken talked about some opportunities to reduce costs. So, net of it, if you can talk a little bit about what opportunities you have to reduce costs in Farnell and how should we think about segment operating margins? Do they remain below 10% over the next couple of quarters, or how should we think about this in the near term and medium term?

Yeah, let me work backwards and I'll turn it over to Ken on the expenses. Yeah, it's going to take a few quarters to get back over to 10% in Farnell. Again, we had some FX issues in Farnell, and the product mix shipments of some products that are benefitting us are coming from customers that are non-traditional and buying more product from Farnell. Let's say the on-the-board components are coming down a little bit, which creates some margin headwind, with things like single-board computers, which we've been discussing that were heavily backlogged, and that's starting to catch up with the long pole in tent parts that we were looking for. Those shipments are going up, and that's good business for us. So, it's important to note that it tends to be lower margin, but still drives dollars, just not percent. In short, it's going to take us a couple of quarters to get back into that double-digit margin range, maybe two or three quarters. Ken, any thoughts on OpEx?

Yeah, I think, Ruplu, you should think about the OpEx as things that we have to go after. It's not all based on people. I want to be clear that a lot of it’s about opportunities such as freight savings and some others. We're looking closely at the operations of the business, specifically because we've had to pull in initiatives due to the overall demand and margin environment Farnell is experiencing. But I think you can think about it being meaningful to Farnell, but not necessarily as impactful for Avnet overall.

Okay. And if I can sneak one more in, Ken? Inventory was up I think 2% sequentially. Are we now at a peak for inventory for Avnet? I think you said something about EC inventory maybe going up a little bit in the first quarter. So just in terms of your thoughts on cash conversion cycle and working capital requirements over the next couple of quarters and free cash flow?

Yeah. So I think EC inventory was up modestly this quarter compared to last quarter. We'd like to term the word stabilized, so flattish inventory levels. But what we did comment on is that there is an opportunity where we're getting inventory late in the quarter and are set to ship it out the next quarter. So there is likely to be a temporary increase in inventory going into the first quarter, but we still believe stabilizing is the right term. From a cash flow perspective, we are happy to generate over $200 million this quarter. I think the cash flow will continue. You see the sales guidance being down slightly sequentially, but it's probably still going to take a few quarters to generate cash flow from the inventory is how we see it with stable inventory levels.

Yeah, I'll add to that, Ruplu, just good pickup and thanks, Ken. For our modeling with finance, it's about evolving and understanding the cash flow impact and return. So it's not just something that is happening; it's very strategic, and positive for the company. It will just drive up the inventory a bit, which is probably neutral to working capital, and should be good returns for the company. Outside of that, the inventory should be stable, flat, or down a bit.

Okay, thanks for all the details. Appreciate it.

Thank you, Ruplu.

Thank you. Our next question is from Joe Quatrochi with Wells Fargo. Please proceed with your question.

Yeah, thanks for taking the questions. The comments on some pricing pressure that you saw: is that solely in the Farnell business, or are you also seeing that in the Electronics Components business as well?

Yeah, good question, Joe. Predominantly, it's in Farnell. It's just the way that they procure products and hold inventory, leading to lower inventory turns, about one to two per year. So, they've just got caught a little upside down on the foreign exchange rates and then just the natural pricing pressures where they had some additional inflation in the prior 18 months or so. On the component side, as we mentioned in the script, when we received price increases from suppliers, we just passed those on to the end customer without marking them up again. We made these long-term arrangements. So what we're seeing is actually stabilization in pricing compression there, but there are always complexities related to how you buy and sell. With regards to high-end products such as microcontrollers, the input costs are still elevated, and as long as they remain high, we don't expect pricing pressures or average selling price erosions that we've seen in the past. I mean, gold, silver, palladium have seen some repricing, but silver and copper are still high, and labor costs remain elevated. So as long as those costs stay up, we don't foresee suppliers bringing prices down.

Got it. And maybe as a follow-up to that, we’re starting to see some reports of price cuts from some of the foundries in Asia. How do you think about the flow-through of that? I assume that probably takes some time to play out to kind of get to where you are in the overall distribution supply chain?

Yes, short term, we're reading the same things and seeing some discussions from the suppliers. However, short term, we don't expect it to have any significant effect on us. That may be a better question for the suppliers.

Fair enough. And then just maybe as a follow-up, Asia, China weakness continuing. I think last quarter you mentioned that lasting for at least the next two quarters. Has anything changed from that view since last quarter? Are you seeing things slightly stabilize, or perhaps improving as we approach during the quarter?

We've spent a lot of time in Taiwan with the Taiwan team, and also with the regional leaders from China, Southeast Asia, and Japan. As you mentioned, the demand is down a bit, no question about that. However, there are some positive signs of optimism in various sectors over the next several quarters, although it is tougher to generalize because there might be more optimism in some industrial applications versus consumer goods, or vice versa. However, from reports we heard, along with what you are reading, wind, solar, energy storage, and charging in China is showing progress, and we are well positioned there. So while I’m not particularly bullish, I also am not negative. I think there are positive signs, and China will eventually bounce back. We are also well positioned for that. Across Asia Pacific, it's stable overall. Japan has been positive for us. But I should additionally add that we’re not overly weighted in China within Asia or certainly across our overall business.

Helpful. Thank you.

Our next question is from Matt Sheerin with Stifel. Please proceed with your question.

Yes, thank you. And, hello, Phil, and everyone. Just following up on the first question regarding the cycle. Obviously, things seem to be holding up better than most people expected, particularly in EMEA, in North America, and especially compared to your bigger competitor. As you think about this below seasonal guide for the next quarter, should you expect it to continue into December where it should remain below seasonal with this whole correction and downcycle? Alternatively, would you expect March to be similar, or is the visibility too tough at this point?

Thanks, Matt. I appreciate the compliment. Just to reiterate, Europe continues to show strong performance. December, March, June—it's been pretty phenomenal. As far as seasonality is concerned, we typically do not guide as you know into December or March because it's tough to predict. There are many mixed signals. As I said in the script, I haven't seen this much complexity in our industry in a long time because there are still a lot of excellent developments happening in areas like transportation, energy storage, and industrial applications to offset some of the weaker demand in other markets. However, I want to reiterate what I said last quarter; I believe we have another two to three quarters of inventory correction to manage. As we approach 2024, I anticipate seeing additional growth. The December quarter is a challenging one to forecast because we usually start to observe an uptick around September and October. We do believe there will be a modest uptick in Asia Pacific later this quarter as well.

In December to next — yeah, go ahead.

I'll just add that we feel pretty good about the $6.3 billion, down 4%. The good news is there's still seasonal growth in Asia. We talked about that earlier, and in Europe, it's the busiest holiday period in the summertime. So as we transition into the December quarter, there is also the Christmas holiday period. Those are perhaps going to be more normal than they have been. But we’re feeling pretty good about maintaining sales at around that $6 billion per quarter level. We don't expect to dip below that, based on what we discussed last quarter.

Yes, Matt, just to jump in, we are likely to see increasing seasonality in markets. We should define 'normal' in the past few years, but I believe we're heading toward a more typical summer quarter in Europe that hasn’t been as prevalent lately due to COVID, and I also think we can anticipate more typical seasonality from Asia.

Got it. Okay. That's helpful. And then just on the margins, backing into—based on your guide, it looks like gross margin and operating margin will be down sequentially, and it looks like operating margin will be down year-over-year in the low 4%, 4.1%. You mentioned headwinds with Farnell and EMEA and North America down. Is there anything else to read into that?

Yeah, Matt, I’d say that you've captured the main factors; however, let me frame it for you. Think about half of it coming from just the anticipated sales decline, which is naturally going to lead to lower gross profit dollars, while still being efficient on the cost side. Additionally, approximately 25% of that variance comes from the typical seasonal shifts in sales mix, with a higher proportion from Asia, and less from EMEA. The remaining 25% is likely attributed to the pressure on Farnell. Note that there will be typical variances impacting the gross margin on EC, but it's worth mentioning that we still anticipate year-over-year operating margin expansion in EC with the guidance.

Okay. In EC, okay, but not for the company, though. Got it. And just lastly, on the interest expense, which you discussed in the presentation. Obviously, that's been a big EPS headwind. Is that a major priority regarding your free cash usage to reduce those borrowings, especially if you're seeing margin pressures from mix and continuing corrections as a headwind to operating margins?

Yes, Matt. We definitely will evaluate using some of our cash to pay down borrowings, especially if we see sales decline. We want to ensure that we maintain a strong balance sheet; however, we'll also need to identify other capital allocation priorities as well. We believe the cash flow is starting to come in. We just need to ensure we're wisely deploying it. Paying down some interest is high on our priority list, given the rising costs, while we also see considerable value in our shares, which are continuing to trade below book value.

Right. Okay, thank you very much.

Thanks, Matt.

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

Hi, guys. Thanks very much. Most of my questions have been asked and answered. But I just had one for you. It's great to hear both Europe and the Americas margins were up really nicely year-on-year. I think Europe is still your highest-margin market. Could you give us an update on closing that gap between those markets? Do you have any opportunities to drive margin in Asia to align closer to the Western market?

Hi, Melissa, thanks. Yeah, we're really pleased with the Americas compared to where we were three, four, or five years ago. We are about 80% there, likely back to the issues we had with the ERP, which is well behind us. We're about 80% where we need to be. Closing the gap to Europe—however, Europe’s been strong over the last 10 to 15 years. It's always been a higher-margin operating business for us. I don’t believe we’ll fully close the gap to Europe, but I’m certainly challenging the Americas team to do that. I want the Americas to catch Europe, not the other way around. Regarding opportunities, Asia's mix is predominantly volume-based. The returns in Asia have improved significantly. We closely measure Asia based on both operating margin and return on working capital. Japan has been particularly successful for us, and we’re pleased with the returns there. While there are opportunities for growth in Asia, the overall returns are in line with our expectations and strategy— we could shrink Asia while growing the operating margins, but that would not necessarily be strategic.

Additionally, Melissa, there are opportunities in supply chain as a service-type engagements and Farnell. Farnell maintains a healthy margin in Asia, and there's considerable potential for growth there. However, given the vastness of that base, moving the needle takes time. Thus, we see margin opportunities in certain markets, as Phil highlighted, especially in Japan, which yields better margins than other markets. However, the substantial size complicates rapid shifts.

Okay, great. Thanks very much, guys.

Thanks, Melissa.

Thank you. There are no further questions at this time. I'd like to hand the floor back over to Phil Gallagher for any closing remarks.

I want to thank everyone for attending today's earnings call and wish you all a great rest of the summer. I look forward to speaking to you again at our next fiscal quarter earnings report in November. Thanks a lot.

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