Welcome to Avnet's Second Quarter Fiscal Year 2026 Earnings Call. I would now like to turn the floor over to Lisa Mueller, Director of Investor Relations for Avnet. Please go ahead.

Thank you, operator. I'd like to welcome everyone to Avnet's Second Quarter Fiscal Year 2026 Earnings Conference Call. This morning, Avnet released financial results for the second quarter of fiscal year 2026, and the release is available on the Investor Relations section of Avnet's website, along with a slide presentation which you may access at your convenience. As a reminder, some of the information contained in the news release and on this conference call 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. Please note, unless otherwise stated, all results provided will be non-GAAP measures. The full non-GAAP to GAAP reconciliation can be found in the press release issued today as well as in the appendix slides of today's presentation and posted on the Investor Relations website. Today's call will be led by Phil Gallagher, Avnet's CEO; and Ken Jacobson, Avnet's CFO. With that, let me turn the call over to Phil Gallagher. Phil?

Thank you, Lisa, and thank you, everyone, for joining us on our second quarter fiscal year 2026 earnings call. I'm pleased to share that we delivered another quarter of financial results that exceeded the high end of our sales and EPS guidance. In the second quarter, we achieved sales of $6.3 billion, driving a 3.2% operating margin in our Electronic Components business and a 4.7% operating margin in our Farnell business. We also generated over $200 million of cash flow from operations in the quarter and reduced inventory dollars and days as projected. Our double-digit year-on-year sales growth was led by record revenues in Asia along with better than typical seasonal growth in the Americas, Europe and Farnell. I want to thank our team for delivering this performance while remaining focused on the areas we can control. In the quarter, we made solid strides in expanding operating margins, optimizing inventory and generating cash flow while continuing to make necessary investments to best support future growth. From a demand perspective, sales increased sequentially in most of the verticals we serve and not surprisingly, were led by strong demand in compute and aerospace and defense. Year-over-year, we also saw a broad-based improvement across most verticals. Now turning to today's market. Demand signals continue to reset globally, resulting in lead times trending higher across most product categories. This trend is still largely driven by the data center, artificial intelligence, but is also broadening as projected growth rates at all segments we track continue to improve. We're also seeing an increasing number of customer orders being placed within lead times, along with higher instances of deliveries beyond lead times. These factors are driving a mismatch, if you will, between customer request dates and supplier delivery dates. This creates an opportunity for us to deliver our supply chain value to our customers by addressing those misalignments. The pricing environment remained stable during the quarter, but we have seen spot price increases with a few suppliers and commodities. The supply dynamics suggest there may be upward pricing pressure across many technologies going forward. We exited the quarter with robust book-to-bills in every region, led by Asia and EMEA. As momentum builds, we are coordinating closely with customers to effectively validate and manage our backlog while continuing to encourage customers to provide us extended visibility that we can share with our supplier partners. The more visibility we can give to our supplier partners, the more supply chain expertise we can bring to bear to solve for the complexities in the market. With that, let me turn to our highlights for our businesses. At the top line, our Electronic Components business drove year-over-year growth and sequential sales growth across all regions. In Asia, sales reached a record high of over $3 billion. This marks our sixth consecutive quarter of year-on-year sales growth in the region. Demand increased across most of the verticals and geographies we serve for both the year-on-year and sequential comparisons. In EMEA, we're seeing clear signs of recovery, with sales growing both sequentially and year-on-year. Most end markets showed year-on-year growth, including industrial, while compute, consumer and transportation were the strongest end markets quarter-over-quarter. We are encouraged by the improving outlook in the region, especially given the continued market uncertainty. I'm confident that EMEA's new leader, Gille Petron, will continue to drive profitable growth in the region. In the Americas, sales grew both sequentially and year-over-year, marking our second consecutive quarter of year-on-year growth. Most end markets showed sequential growth led by Aerospace and Defense, while Industrial, Communications and Compute were the strongest end markets year-over-year. Our EC team is focused on several growth and margin expansion opportunities, including demand creation supply chain services, embedded solutions and our Interconnect Passive and Electromechanical business or IP&E. Demand creation revenues increased sequentially by 7% as our field application engineers continue to drive the funnel for converting design wins into revenues. Our design registrations and wins also increased sequentially, which is a positive indicator for future revenues. We continue to develop and invest in both digital tools and hardware solutions that will allow our design engineers to better support our customers' design requirements. We are also pleased with the growth in our IP&E business, which had double-digit growth year-on-year. As a reminder, IP&E products carry higher gross margins, and there are many cross-selling opportunities with IP&E components that are complementary to our semiconductor business, including through our demand creation efforts. Now turning to Farnell. Sales grew sequentially and year-on-year. Farnell's continued improvement reflects recovery across all three regions. We believe this is a sign engineers are working on developing new products, which we view as another indicator of the upturn in demand for electronic components. Operating margins improved sequentially in line with our expectations. We also continue to gain traction in growing Farnell sales, which leverages the best of Avnet Core on the board components through our Power of One initiatives and Farnell digital platforms. Although we are seeing improvement in sales of higher margin on board components, Farnell continues to have a higher relative sales mix of test and measurement, maintenance and repair, and single board computers. As the recovery of demand for the onboard components continues, especially in Europe, we expect Farnell's gross and operating margins to continue to improve. So here at the center of technology supply chain, as we look forward, there are many reasons why I am optimistic about Avnet's future and our position in the marketplace. We have in areas of need. To conclude, we are pleased with the momentum we are seeing moving into the new calendar year. For those of you who attended CES this year, there was a lot of excitement at the show. We had the opportunity to meet with leadership of many of our supplier partners and customers, and we continue to be encouraged that 2026 will be a year of growth and margin expansion and improved returns for Avnet. With that, I will turn it over to Ken to dive deeper into our second quarter results. Ken?

Thank you, Phil, and good morning, everyone. We appreciate your interest in Avnet and for joining our second quarter earnings call. Our sales for the second quarter were approximately $6.3 billion, above the high end of our guidance range, and up 12% year over year. On a sequential basis, sales were higher by 7%. Regionally, on a year-over-year basis, sales increased 17% in Asia, 8% in Europe, and 5% in The Americas. During the second quarter, sales from Asia grew to over 50% of total sales compared to approximately 48% of sales last quarter. From an operating group perspective, electronic component sales increased 11% year over year and increased 7% sequentially. Constant currency, electronic component sales increased 9% year over year. Farnell sales increased 24% year over year and 7% sequentially. In constant currency, Farnell sales increased 20% year over year. For the second quarter, gross margin of 10.5% was flattish year over year and up slightly sequentially. EC gross margins are still being impacted by the Asia region growing than the West. From a regional perspective, EC gross margins were stable by region with gross margin improvement in Europe compared to last quarter. From a Farnell perspective, gross margins were up over 100 basis points year over year and were down 25 basis points sequentially. As Phil mentioned, we anticipate improvement in Farnell gross margins as we see more growth in on-th-board components relative to other product categories. As a reminder, Farnell's Europe region has the highest regional mix of on-the-board components and has been the slowest to recover. Gross margins at the product category level for Farnell continue to be stable. Turning to operating expenses. SG&A expenses were $492 million in the quarter, up $55 million year over year and $27 million sequentially. The sequential increase in SG&A cost is primarily from a combination of higher sales volumes and increases in stock-based compensation expense. As a percentage of gross profit dollars, SG&A expenses were lower sequentially at 74% compared to 76% last quarter. We anticipate that our operating expense to gross profit ratio will continue to improve as we grow our gross profit dollars. Turning to expenses below operating income. Second quarter interest expense was $61 million and our adjusted effective income tax rate was 23%, both consistent with expectations. Adjusted diluted earnings per share of $1.05 exceeded the high end of our guidance for the quarter. Adjusted diluted earnings per share grew nearly 4x sales compared to last quarter. Turning to the balance sheet and liquidity. During the quarter, working capital decreased by $42 million sequentially. Working capital days decreased seven days quarter-over-quarter to 88 days. From an inventory perspective, we reduced inventory by $126 million or 2.3% sequentially. At the end of the quarter, our EC business received approximately $150 million of high demand inventory related to memory and storage products, which partially offset some of the broader inventory reductions that took place across EC this quarter. Substantially, all of the memory and storage products received at the end of the quarter have already been shipped to customers in January. We ended the quarter with 86 days of inventory as we continue to make progress on reducing total Avnet inventory days to below 80. As a reminder, the inventory turn models are different between the EC business and Farnell. Our EC business typically runs between four to six turns per year, whereas Farnell typically runs between 1.5 to two turns per year. Farnell's high service value proposition requires a breadth of on-the-board, test and measurement, and maintenance and repair product inventories. For further context on these inventory model differences, at the end of the second quarter, our EC business had less than 80 days of inventory and our Farnell business had less than 230 days of inventory. Even with the overall inventory improvement, our team remains focused on reducing. We still anticipate reducing our leverage to approximately three times over the next year. We continue to deploy cash in a manner that generates the greatest long-term return on investments for our shareholders. In the second quarter, we paid our quarterly dividend of $0.35 per share or $28 million. Turning to guidance. For 2026, we are guiding sales in the range of $6.2 billion to $6.5 billion, with diluted earnings per share in the range of $1.20 to $1.30. Our third quarter guidance assumes current market conditions persist and implies a sequential sales increase of approximately 1% at the midpoint. The sales guidance implies sales growth in The Americas and EMEA, and a less than seasonal sales decline in Asia due to the Lunar New Year. Our third quarter guidance also implies further recovery in our higher margin Western regions, which accelerates the operating leverage in our business model. This guidance also assumes similar interest expense compared to the second quarter, an effective tax rate of between 21% and 25%, and 83 million shares outstanding on a diluted basis. In closing, I want to thank our team for delivering a solid quarter of improved financial results with the third quarter guidance giving us further confidence in the overall recovery of our business. 2026 should provide several opportunities for Avnet to help our customers and suppliers adapt to continually changing market conditions, and will serve us well as we continue to create value for our stakeholders. With that, I will turn it over to the operator to open it up for questions.

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. You may press 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question is from William Stein with Truist Securities. Please proceed.

Hey, thanks for taking my question. I guess I would like to squeeze in two, if I can. First, could you talk to us about the linearity of orders during the quarter? Anything unusual or noteworthy there? I think, typically, new orders tend to fade as you go into December. Maybe I have that wrong, but whether right or wrong, maybe comment on that trend. And also, the duration of your backlog as it stands now? Do you have a bit more visibility? Are you seeing customers place it longer at a longer sort of time to request? Thank you.

Yeah. Thanks, Will. I appreciate you joining the call. So I guess that was the two questions. Right? So I will go first, Ken wants a heads up. On the linearity, the December quarter is always an interesting one, right, because your billings continue through the quarter. But your bookings do tail off near the end of the, you know, the December, let's say, give or take a few days. So, it is definitely a stronger booking on in this case, October, November, pretty good through December till that midway, then that booking starts to trail off, you know, the billings continue because even if there are shutdowns, through the holiday, manufacturing starts up when they get back. So, you know, you do go out some a bit more in bookings. But even that said, the book to bills were positive on top of a pretty good billing quarter. So that is it. It is improving. Will, the suppliers in part of them are on this call. They are asking us for backlog. They want to know what to build and we are asking the customers for more visibility into the future longer-term bookings, if you will, or forecast. We are starting to see that increase. Still probably not at the level we would like to see it. But, yeah, we are starting to get a bit more visibility into the future, which any customers on the call, and we will see a lot of them next week here in Arizona, that is the message. Still we still want that visibility and pipeline. So we can pipeline appropriately for them. But it is improving, not where it needs to be quite yet.

Okay. Answered your question. Our next question is from Joseph Michael Quatrochi with Wells Fargo. Please proceed.

Hey, thanks for taking the question. These storage controllers, certain capacitors in the IPD space, we are starting to see some pricing inflation. And a lot of that is driven obviously by the activity around data centers, increase in hyperscalers, but it is really a lot of our industrial customers are increasing demand based on their exposure to the data center, if you know what I mean. So overall, it is not across the board over pretty much from Q2 is stable. But we are starting to see some increases. And I think that will continue as we move forward.

And Joe, maybe just a point of clarity that we have seen the increases announced and we know they are coming. Right? But the actual quarterly results did not have a lot of impact from actual price increases in the quarter. So just to kind of clarify the timing of some of those things.

Okay. That is helpful. And then just as I guess as I am thinking about the just the guidance on the revenue, you talked about Americas and EMEA up. And then Asia maybe a bit better than seasonal in terms of, like, the rate of decline. How do I think about just, like, Americas and EMEA relative to seasonality? Like, what is your expectation for the March?

Yeah. So the March, I would Ken jump in. Typically, Joe, the West bounces back in the quarter over December, a lot of that is a math equation with just more days and whatnot. But last year, it was an anomaly, you might recall, where the West did not increase over December. That was kind of the first time that saw that and ever, I think. So this year, it is back to more, you know, typical seasonality. Where the West will be up, which is positive. And outside our higher margin regions as you know. And Asia, you know, it is going to have a, you know, typical well, maybe not too well. Lunar New Year, Chinese New Year going to have an impact but not as significant as we have seen in the past. Right? So that is also positive. So our regional mix shift is in our favor this quarter as we get into March, which is good news. Ken, anyone add that? Yeah. I think I think steady, you know, high single-digit is how I think about it in terms of the growth in the West, which is kind of as expected. Impacted by mix.

That is really helpful. I appreciate all the color. Thanks.

Glad, Joe. Thank you.

Our next question is from Ruplu Bhattacharya. And do you think the seasonality in the March quarter being different than the past couple of years impacts the seasonality going forward for the rest of the quarter? So how are you thinking about as you go through the year, do you think you will see more than seasonal growth either in revenues or year-over-year growth in margins?

So, Ruplu, let me take the last part first. And I think, you know, there is no reason to believe seasonality would change. And how we think about seasonality is simply just the number of shipping days. And if you had a traditional Lunar New Year, with, you know, let us say, you know, seven to ten days depending on the country of shutdowns. You know, you have less shipping days that you know, we are still, you know, roughly 20 to 25% off the top line. In The Americas and probably 30 to 35% of the top line in Europe relative to shipping days from the second quarter to the first quarter. It is encouraging. That is the word I am using with the team. It is very the signs are all very encouraging but as you know, we do not guide out beyond the quarter. But we are encouraged and optimistic about the next several quarters.

Okay. That is helpful. Can I ask a follow-up question on the pricing comment you made? Can you remind us how like, if suppliers are raising prices, how does that impact Avnet's revenues and margins in the near term as well as in the more medium term? And, Phil, I missed this if I might have missed this, but did you specify which product categories or areas you are seeing spot prices increases?

Yeah. Thanks, Ruplu. So pricing really affects the average selling price, right? So we have kind of our business is under contract and some of it is not. You know, where it is not, and it is, let us call it spot buys, if you will, customers come in, you know, time, place, utility, we can increase margins there, the price and the margins. Particularly the products, you know, tough to get. We are not breaking pillaging or anything, but, you know, just to kind of get a little bit of fair margin on that, which is positive for us. In the contracted customers, you know, it is the price gets passed on, so it does not have as much effect on the margin percent. But it does it can affect the revenue dollars and margin dollars. That makes sense. And similar to what we saw in the last tightness in the market, and then we do not the customers are you know, we cannot absorb it. That is for sure. But we are definitely starting to see that particularly in certain areas, memory storage, storage takes memory. So anything around memory storage we are starting to see some more in the controllers, some of the high-end products in networking, and are selected parts like antenna, capacitors, things along those lines we are starting to see some price increase. So some are modest right now, others a little bit more than modest based, particularly in the memory space.

Okay. Thanks for that. If I can sneak one more in. As Europe is recovering, right, I think you said for Farnell, maybe 50 basis points improvement every quarter. But as the region itself improves, do you think that can accelerate and you can see a faster recovery in Farnell margins? I mean how just help us level set our expectations for where this can go from a margin standpoint by the end of the year. Thank you.

Yeah. Thanks, Ruplu. Yeah. So, you know, specific to Farnell, typically their largest region and most profitable is Europe. Okay? And that has not been the case here the last several quarters based on Europe's softness. Still doing well, but actually The Americas, which is a higher, like we also pointed out a higher mix in The Americas of test and measurement which is really good business, just runs at a different margin level than the onboard components being semiconductors and the IP and E. So any additional lift in Europe will further drive the drop-through as for now it could. Possibly accelerate that you are right that 50 bps points of margin that we are looking to see them improve on quarter on quarter. That is the message of the leadership team as far now with who I know are on this call. You know, we need to see them and expect them to continue to show incremental improvement in operating margin that could be accelerated. To your point, with higher revenues in the right mix. And although we may not be projecting that, certainly we would really like to see them accelerate that and beyond 50 to 100 bps. So that is our commitment at this point in time. While they continue to manage their expense line. Right? So there are still other things they are doing. We are all doing. We are always doing as a company. And for now, specifically as well, you know, driving out more efficiencies, taking out costs where we need to take out costs, while making investments where we need to make investments, i.e., in digital, e-commerce, AI, etc. So that answers your question. But we do see it as a continuing tailwind for us as we move forward. And we will look to accelerate getting to that double-digit operating margin.

Okay. Thanks for the details.

Yep. You got it, Ruplu.

Gentlemen, there are no more questions at this time. I would like to turn the conference back over to Phil Gallagher for closing remarks.

Okay. Thank you very much. And I want to thank everyone for attending today's earnings call. We look forward to speaking to you at upcoming conferences and at our third quarter fiscal year 2026 earnings report in April. Okay? Have a great day. Thank you.

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