Avnet, Inc. (AVT) Earnings Call Transcript & Summary

All right. I think we're live. Everyone ready? All right. Let's get this started. Hi, everyone. Good morning. I'm Melissa Fairbanks from the IT Supply Chain and Semiconductors teams here at Raymond James. We're thrilled to have Avnet to kick things off this morning. Joining us, we've got Phil Gallagher, CEO; Tom Liguori, CFO; Joe Burke from Treasury and IR; Adam Tindle will be joining us shortly. But before we get started, Joe has a brief statement to read before we get to the Q&A.

Thanks, Melissa, and good morning. Good day, everyone. And as a reminder, today's discussions may include forward-looking statements that include risks, uncertainties and assumptions that are difficult to predict, and actual results could differ materially. Several factors that could cause or contribute to such differences are described in detail in Avnet's most recent filings with the SEC. Any forward-looking statements are only as of the date of this investor call, and Avnet undertakes no obligation to update or supply new information after this call. So thank you, Melissa, and take it away.

Okay. Thanks, guys. I think to start, we'll just do -- if you could just do a brief overview of the company, kind of the background, the history of the company, evolution of the business. Just kind of get us started that way.

Okay. Melissa, do you want me to take that one? I guess you do, right?

Sure.

Melissa, welcome, and thank you for having us and thank the investors on the line Okay. I'm going a little bit [indiscernible]. You guys hear me okay?

Breaking up a little bit. But I'm not sure which side that's on.

Let me -- hopefully that's okay.

That's good.

Okay. Well, thanks, Melissa. I appreciate that again. Good morning, everybody. hope everyone is well. Well, Avnet, we're industrial, the industrial distribution business, primarily semiconductors, interconnect pass and electromechanical as well. That's about 30% of our business to balance, 70% is semiconductors. We've just celebrated our 100-year anniversary and -- which is exciting. We started in 1921, just post World War I. It was all ground surplus, surplus photonic surplus mostly into round transistors, radios and military connectors. I guess I would summarize for investors that aren't that familiar with us that we're in the center of the technology supply chain. And what I call, I call it upstream and downstream. But we manage hundreds of suppliers from a semiconductor interconnect, gas, electric mechanical standpoint. And we represent them into the customer base, which is including Farnell, north of 1 million plus customers that we touch every single day. And I think people can truly appreciate supply chains today as -- I think everyone takes supply chains for granted until they can't get what they need. Now what's happening is with the shortages and what's going on out there in the marketplace right now, we've just become increasingly more valuable to the market, to our suppliers and our customers and helping to manage the supply chains around the marketplaces globally. And we exist in new business in about 140 countries. We're actually physically present at roughly 125 countries. 55%, 60% of our business coming out of Asia right now, the balance between -- Europe is #2, and the third is the Americas around 30% of our business. But again, very diversified, all around technology. And we have a division called Farnell, which we'll talk about, which services all the engineering communities out there, and it's much more of an online e-commerce digital business for us, and that's roughly $1.8 billion -- $1.6 billion to $1.8 billion of our total portfolio of roughly $20 billion. So that's kind of an elevator speech. But we're right in the middle of any technology you look around, your house, your car, et cetera, we've got products going into them.

Okay. Are there any -- do you have exposure to any specific end markets or customers? Or is it just a broadly diversified business? Maybe how we think about the areas where you're playing, where your strengths are and maybe how you stack up against the competition?

Yes, great, Melissa. So from a supplier stand -- starting with suppliers, we have no one supplier that is any greater concentration of 10%. So we're really diversified from a supplier standpoint. From a customer standpoint, that's what's -- I know it's been a tough market and whatnot for -- you hear about shortages. But what's exciting is the proliferation of electronics is so diversified. We're playing in the transportation market. It includes auto, but anything transportation, cars, electric bikes, to cars and tractors and whatnot, is electronics. Then you've got industrial automation, factory automation, you've got the consumer space, defense and aerospace. So it's a really very diverse market that we play in. And there's still one market that again, it's more than 20%, 30% of our business. The industrial is where we -- that's kind of where we were founded, if you will. I mean that's the long tail of customers that have all the different applications for electronics, and we're going to continue to grow. As far as us versus the competition or the value we think we bring to the marketplace, we know we bring to the marketplace, is from a demand creation standpoint, we also have 1,000-plus engineers out in the marketplace that helps drive. We call it demand creation, demand identification on behalf of our suppliers, where we actually -- roughly 30% of our business is tied to what we call a registration and design, where we're actually influencing design on behalf of our suppliers, which is great. Again, that's about 1/3 of our business. So we call it design chain through supply chain. So we can help -- take a customer from inception, if you will, of a new design to production anywhere they want to go in the world. They move manufacturing from XYZ country to another country, no problem, we can do that for them. So I think the biggest differentiator we bring is design, supply chain anywhere in the world. We have one of the broadest global footprints in the industry.

Okay. I guess one other kind of differentiation is with the Farnell business. And you touched on it earlier, but it's been about 5 years since that acquisition. How has Farnell kind of changed the financial profile of the company? What are the expectations for this business? And is this -- do you view this as a differentiator?

Yes. For sure, Farnell is a differentiator for us. As I said, it's roughly a little less than 10% of our business, about $1.6 billion, $1.8 billion per year. And we've spent the last several years investing back into Farnell, in its infrastructure, IT, e-comm, search engine optimization, et cetera. What's neat about Farnell is if you look at the core, what we call the core business, we're servicing more of the higher volume, okay? So you would summarize us as a more narrow SKUs, deep inventory, taking in forecast, thousands of customers on a weekly -- daily, weekly, monthly basis and doing a forecast management, and helping drive high-volume production around the world. And that's where 100,000-plus customers. Farnell, on the other hand, services a really broad SKU count, more narrow inventory. And it's -- we call it kind of speed and convenience. So it's more of an online business for customers that are doing newer designs, we call NPI, new product introduction, et cetera, and they got millions plus customers, okay? And it's a -- well, we call it speed and convenience, but it -- and then before that, they run at a much higher margin. So we're last quarter north of 10%, we're predicting that again. So they're getting the value prop, okay, for what you need today, tomorrow, immediately. And then what we're doing is we're connecting we're the only brand out there, if you will, today that connects the new product introduction with a high-service model like at Farnell to the core. So we're doing a lead generation, okay, finding those customers early and then flipping them over to the core. So we're really pleased with where Farnell is today. Very optimistic about the future for Farnell. It's a big part of our strategy, from a strategy standpoint for customers, suppliers as well for the profitability of the organization. Tom, anything you want to add on the Farnell?

Yes, Phil. No, I think that covered that. I would say that Farnell is less than 10% of our revenue, but it's about 1/4 of our operating income. So it's really, really important to us. And to Phil's point, we did buy them 5 years ago, and we've been on this journey of investing it, making it better and better. So we've added substantially to the inventory because you want breadth of inventory. So when those engineers come on, they can get anything they want. We've invested a lot in systems, on the e-commerce experience when you go on and you do your buying is much smoother process. We have electronic payments there. We've invested in a distribution center expansion. If it wasn't for our leads DC, they wouldn't be posting the revenues that they're doing. So we're really happy that they got to 10% operating margin, much more to come for Farnell, and it's a very, very important part of our business. And we're -- it is a different business model. So as Phil said, our core is high volume. So it tends to be high volume, lower margin, quicker inventory turns to get your return on capital. Farnell, much higher margin, more inventory because you have a lot of breadth, but it's actually a higher return on capital and a higher return on working capital than our broadline distribution business.

Okay. Maybe that kind of leads us into the next -- just in terms of talking about the financials. What are some of the metrics that you use to gauge the performance of the company? And where are you kind of focusing your efforts today?

Phil, do you want me to take that?

Sure, Tom. Go ahead.

Yes, we focus on, obviously, revenue growth, margin expansion and return on capital. I think in our investor calls, we talk definitely talk about revenue and doing very well. Farnell had record revenues, electronic components had record revenues, but that's part of the sign of the times. More importantly, though, I think we're up to 5 quarters of operating margin expansion. And we had laid out goals for operating margin probably 6 quarters ago. So we've had a lot of help from the market, but we're really pleased with what we've been able to do with our operating margins. Core is now over a 3% operating margin, which is very good. And a lot more to come on core, predominantly in the Americas, and I'm sure Phil will talk about that later, and Farnell for now is up to a 10% operating margin. So what we're focused on internally in the business is continued growth. We want to be able to maintain our margins through the cycle. But we've been very open about -- pricing is helping us, especially in the Farnell side. So we want to be able to maintain that 3% plus, 3% to 3.5% operating margin through the cycle. But if you were in any of our ops reviews and business meetings, a lot of emphasis also on return on capital. I think last quarter, we were at 11%. We guide all of the business to a return on working capital. And I know your -- Adam is very, very large promoter of return on capital for distribution. So Adam, we follow religiously. And that's about it, Melissa.

Okay. That kind of sets us up probably the biggest topic of discussion this conference is going to be supply and demand environment, and you guys are kind of in the catbird seat when it comes to viewing how demand is, what your availability of supply is. Maybe just give us an overview of what you're seeing in terms of supply and demand? Are there any hotspots or areas that are particularly tight? How are you working with your suppliers in order to kind of meet these demand expectations?

Yes. I'll go there, Melissa. Yes, it's an interesting time. I mean it's...

To say the least.

To say the least, exactly. Again, I've been around for 4 decades. And this -- with Avnet for 4 decades, I'm a little bit older. But this one is really unique. So I touched on it a little bit earlier, it's the pervasiveness, I think, on the electronics, semiconductors and chips that's really driving some of this. Of course, we had the pandemic, which is -- well, we have the pandemic, which is still that wildcard and certainly what happened in the last several years, we've had to manage through. I've never seen book-to-bills and a backlog build like it has in the last year, 1.5 years. We're still well above parity from a book-to-bill standpoint. On calls almost every day with various customers. It doesn't matter, it's not discriminate what industry it is. I get back to your question earlier, the diversification of different verticals, it's impacting everybody. As far as lead times go, and I was just at a supplier conference that will remain nameless, but let's just talk about high-end controllers. That's a common -- that just seems to be one of the most common areas of constraint and challenge. When you talk to some suppliers, those will say, "Hey, through 2022, basically sold out that capacity into 2023." That's not us necessarily saying that, but that's what the suppliers are saying. And I take a bit more of a conservative view that. And certainly demand is high now through this quarter. It looks like solid demand through March into June quarter. And beyond that, I start to kind of just -- we'll manage it as we go. But the backlog has built, the demand feels very real, okay, whether it's, again, the automotive, transportation, consumer, industrial. It just really is pretty much across the board, which is way different, Melissa, you might remember, maybe not, some of the investors in '99, 2000, we had the -- that went way up in '98, '99 and 2,000. Very heavy concentration towards Y2K, data center, the networking guys. So it drove a lot of that bubble, if you will. This one is much broader. So it's a tough one to call. It really is. Right now, I just know that it's tight. If we had more product, we'd ship it. But we're trying to do all we can to manage through this with our customers. It's tough for many, but we're doing all we can to keep the lines going. But it looks pretty tight for the next 3 to 6 months, at least.

Okay. How does this current environment impact your long-term planning in terms of your own capacity, how much capacity you're securing from your suppliers, geographic distribution? Some -- we've heard a lot of dynamics about kind of shifting out of potentially problematic regions into different regions. And then does that impact your margin structure or just your long-term investment plans?

Yes. No, I'll let Tom jump on some of the long-term investment plans. We'll continue to invest, period. I mean there's no question about it. And whether it be physical presence of expanding warehouses and logistics centers, like we did with U.K. one with Farnell, looking continuing to evaluate our footprint across all regions of the world. We're investing in FAEs and technical communities. We're investing in digital. We're investing in e-commerce. So we're -- our foot is on the pedal, I guess, but when it comes to investing. No backing off at all. As Tom said earlier, we're managing through returns, what we call it drop-through, but -- we look at net GP as far as drop-through those or we're trying to drive as much of that drop through back into investment for the future. As far as -- it's not a problematic region, just talk about Asia Pac as China, Greater China, you're view is better than I am probably No, we're investing in China. I mean we're -- and again, a lot of our investment in that region would be more people. So it's maybe it's more fungible, if you will. There is a conversation, people talk about the region. It's a growth region. Let's face it, it's not going away yet. There are some political issues which we stay away from as far as that goes. But if customers or suppliers for that matter, decide they want to move or add capacity somewhere else, that's no problem for us. If the customer decides to shift from China to South Korea or the Guadalajara or Eastern Europe, no problem. We're everywhere. We can move those supply chains. And we do. We can move those supply chains anywhere they need to go. So I call it more of a China plus one. If there is some movement, it's more -- maybe it's more hedging than anything. But I don't think there's a wholesale shift out of that region by any stretch imagination. And if there is, fine by us. We're global. And it's one of the questions you asked earlier, what's the differentiator we bring, We can go anywhere they want in the world. Tom, any comments on it?

Yes. I guess, Phil, just to add, demand is very, very strong. So we're investing. The world is different today, right? So we're more virtual spending a lot of money on e-commerce. Distribution centers were always doing that. 2 years ago, we did it in Hong Kong. This year's lead needs -- plans for EMEA expansion. So a lot of investment in the business, self-help tools. And e-commerce is in addition to Farnell, it's also on the core side. Lastly, I think 1 thing that is different is facilities, right? We're all investing in facilities with new ways of work. So that takes some investment, but it also is an opportunity for some savings. And we've been doing that for the last 18 months as facility leases come up, renewing leases, smaller space and things of that nature. So I'd say it's evolving. It's a really exciting time and a lot of investment going on internally in that, Melissa.

Okay. Okay. Demand is obviously very strong. And I think you've been somewhat like others up and down the supply chain have been somewhat constrained into how much you can grow into that demand just because of the tight supply. Do you -- is this changing at all the way that you interact with your customers and suppliers? Do you have any ability to maybe protect against potential double ordering? Are you seeing double ordering? It doesn't seem as though even if there were double ordering, anyone could actually ship to it. But do you have any protections in place or any ways of managing that as maybe we start to get a little bit of normalization with the supply and the demand?

Yes. So let me go a couple of questions in there, I guess. One, as far as the opportunities go, what's happening, Melissa, I think I said this in the beginning, there's renewed appreciation for what we bring to the marketplace. I mean we've always brought value, okay, from a supply chain standpoint. So we are seeing opportunities today that maybe we weren't seeing directly before. We're seeing opportunities from some Tier 1s, OEMs, from suppliers, call in and say, "Hey, we need some additional help with supply chain". So for us, it's actually been -- I think it's fortified our position in the marketplace, okay, from being in the center of technology supply chain. So we're seeing more opportunities than that, even as there's constraints in product, because companies will realize they need to build out a more strategic supply chain. So that's actually been exciting. You don't hear about that a whole lot because there are so many other issues, but our supply chain architects and our -- what we call United and Velocity group they're pretty much at constrained. We're actually adding more supply chain expertise to go work as consultants for these customers. So that's really actually quite exciting. As far as the double ordering and double booking and -- we try to track that. Its -- I've shared this before double water is going to be caught more by the supplier side. They might see that a customer is ordering multiple parts from multiple sources or the same part from multiple sources. What we look for is inflated forecast because we take in these forecasts from the customers. I said earlier, like thousands on a daily, weekly, monthly basis. And if let's say, Melissa Inc. is buying 50 pieces a week. And all of a sudden, Melissa she needs 500 pieces a week. I'm going to say, time out, the analytics is going to catch that and go back to that customer. Do you really need that kind of volume or what is your demand? And we have all the history. So we try to track that as much as we can. I mean the next question would be, what's your end customers' inventory? Well, we try to get a look at that. It's really difficult for us to get to that other than those that are public, then we can -- obviously, when they do their analysis, we can hear, like you can, our inventory position. But for the most part, that's how we're managing it. It's a challenge, no question. Bookings have been inflated now for some time. So we know that. The other we watch is the backlog adjustments. So we track cancellations, pushouts, pull-ins, which, in our world, 19% to 20%, 25% is a normal adjustment in our backlog, and that's about what we're running right now. So there's nothing -- there's no signs yet of anything abnormal.

Okay. Great. I think, Tom, earlier you did mention pricing has been a little bit of a tailwind for you and helped to drive some improvement in the revenue and the margins. What's your current view of the pricing environment? Are you just -- we're seeing costs being inflated up and down the supply chain. Are you managing those costs by passing them along to customers? Or how frequently are you able to kind of adjust your contract pricing with your customers?

Yes. Pricing continues to be strong. It is ever changing. We're on the side -- it's not everything. But we're typically giving an advanced notice of supplier cost increases, so we pass along virtually pretty close to all of the price increases. It has a different effect in core, right, these are long-terms supply contracts. There's a lot of mechanisms for when prices go up, go down. It protects both sides, both suppliers and Avnet. So when you look at -- on the core side, a price increase will go to a customer with the cost increase, it will increase our gross margin -- gross profit dollars, not necessarily the percentage that much. Farnell side is a different, right? Like this is -- remember, they have 5, 6 months' worth of inventory because they have a lot of breadth. And most of their orders are online. They're e-commerce, right? So the -- if I go in today to Farnell. I'm looking at a market price and as an engineer, I'm buying that, and I'm expecting that with that SKU on my desk in 2 days. Well, that's there for benefits Farnell, because they have a cost that is a historical cost and at current market price. So that's why we disclosed this. It's about 200 basis points of Farnell's operating margins. So that will level off at some point in the future. But what's so positive at Farnell is despite of that, we're getting close to 10% and there's more to come on that. So pricing, yes, it keeps us on our toes a lot of work every day with our teams to manage that, but I think that's going very well at Avnet.

Okay.

Looking good. Go ahead, sorry.

This may not be a fair question, but do you think some of these pricing increases are permanent? Is this a structural change in the industry? Or is this kind of just more natural inflationary environment with strong demand?

Suppliers are indicating they're here to stay. So we'll manage via either way, but I think that's worked in the supplier base.

Okay.

Yes, it's good answer, Tom. And it's tough for us when we said to call that at this point in time. But the suppliers are indicating that this is going to be more permanent. And again, if you look at the history, right, 25, 30 years of average selling prices, ASPs, we call it, margin overall, it's been on the decline. I think with the amount of investments, which is, as you know, tens of billions of dollars going back into capacity, they not be able to get a return. So we'll see. We're the middle guy. So as Tom said, we're definitely passing on. And I would say customers have been very amenable to that. They understand, okay, based on the supply constraints, but we'll see what the future holds there.

Okay. I should stop here and just point out to those of you that are listening, you can use the dialogue box here in Zoom to ask questions. I'll do my best to get to them. And so we can move on from there. I'm not seeing any yet. Let's see, have you ever seen in industry, similar conditions to what we're seeing now with the supply and demand? It's -- I think we've heard from some of your suppliers, they've said they're 40-year careers, they've never seen this kind of environment. What's kind of your view? How is this business mix changing? How is the value of distribution changing in this environment?

Yes, I'll take that and Tom can jump in. But I agree with the quote. I mean I've been here 40 years. We've been around 100. This is just unique. It really is different. I always compare it to not so much the financial crisis '08, '09. But I always go back to the '99, 2000, which was a tough time for the industry. And at that point in time, prognosticators just said there'll never be another downturn in the industry, of course, that was a very difficult year, 2000, 2001. This does feel different. And it feels different, because, one, the pandemic, right? So where we had all deal with that adjustment over the last several years, and we continue to manage that as we move forward. So put that aside, which definitely through monkey-wrenching things. And the amount of technology that's just out there today that's going to continue to expand, Melissa, I think, is really the difference. The applications for technology today versus even 20, 21 years ago is phenomenal. I kid you, just look around your house and your car, what could be agriculture. I mean -- it's just -- I mean a smart LED light bulb has 20 chips in it, right? So I think that's the difference. 5G is really just coming on, so we're not -- we've not even seen all the effects what 5G is going to bring. So yes, it is a little bit different or maybe a lot of bit different. So we'll see how that plays out. But again, I think it's the diversification across all the verticals, the applications of technology and it's only going to continue to expand. So it's going to be interesting to see how it all plays out. But certainly, I'll say this is certainly an exciting time to be in the industry, one of the most exciting times at least in my career. And I think it's bringing back, to the other part of your question, the value of what technology distribution brings to the marketplace, okay? And being in the middle of that, working with our suppliers and customers, I don't think it's ever been as valuable as it is today.

Okay. So there's been a lot of consolidation in the industry, obviously, on the supplier base, and that's been going on for the past several years. also kind of among the end market customers, though we're probably seeing greater distribution, to your point, but electronics are more and more pervasive and everything. So maybe less impactful on the end market customer side. But how has the consolidation both among your suppliers among some of the distribution? How have you seen that impact your business and how you're managing long term?

Yes. So if you go back to the '80s and through the '90s, we were the great aggregators, right? We were the one acquiring everybody and it gave us our global footprint. If you look across the world and the presence we have Avnet has been through -- through organic but a whole lot through acquisition, right? Now you see it on the supplier side, and that's not new for us. So this consolidation of the market is not new. And I mean -- and there's been -- it does seem like in the last, what, 5, 7, 8 years whatever, there's been an acceleration on the supplier side. Maybe that was just a long time coming about that stuff. And we -- how has that changed? Well, let's say, we benefit from that in some cases and other times we don't. I mean I think that's where you're probably going. Some acquisitions that have benefited us, i.e. Infineon with Cypress, and Microchip with Microsemi, going down the line. And some most recently did all they go our way, ADI Max, I'll just put it out there. And that's the way it is. We've got a great line card. Our job is to adapt to these situations and we'll do that. In this case, it was roughly 3% of our revenue. We think we've already got that replaced as forecast and different opportunities we have. But again, it's adaptability, perseverance. You got to go to the balances. And there will be more. There might be more in our end, there might be more supplier side. And again, it could be go better and different, our job is to adapt.

Okay. That kind of leads me into a good question about M&A, maybe review your M&A strategy, if there are some areas you're looking to add technology, looking to add geos, any kind of view there.

Tom, do you want to take that?

Sure. When we look at M&A -- first of all, just to put it on the table for all investors, we're talking about smaller M&A., but there are companies that would bring $100 million, $200 million, $300 million of revenue to the company. So we look at things that are both strategic, meaning fits in our core, what we do, something that a customer would want, but also meaningful. So how do you make it meaningful? Well, look at for new, let's say, we could get Farnell to $2 billion, $2.5 billion or $3 billion of revenue, right, we would do that by finding companies that maybe are more industrial, MRO, testing equipment to broaden that product line. So these are overall -- we would do -- this is all in higher value-add businesses, our embedded business, which is part of core, which is software, chip and board, things of that nature, expanding that. But it's also -- there are still IP&E distributors, there are still core distributors. Primarily, we see most of them in Europe that are candidates. So as an investor, we didn't expect anything large transformational, but I would expect periodically things have fit our business that make Avnet a better company.

Okay. Great. We do have one question that came in. How are -- in terms of demand, how are your different geographies trending? Are there any major differences between APAC, Europe, Americas? What are you seeing there?

Yes, I'll take that. All pretty good.

Great.

I think we -- it's a great question, but we do track that obviously. And Asia still remains pretty darn strong, okay? Now the word I think -- we said it looks like it might be normalizing a bit. Again, we're trying to -- normal seasonality or typical seasonality is kind of out the window these days because of the COVID and like last year, Chinese New Year got canceled. So we're trying to -- what's this March quarter going to look like versus last year's March quarter. But overall demand in Asia looks still pretty darn good, book-to-bill still positive. But I think it's normalizing. And when I say normalizing, that's not a bad, that's actually I think is a good thing. Europe continues to be strong. Americas looks very positive at this point in time. So which -- and again, this quarter, typically coming off our September quarter, December tends to be a little bit softer. We're tracking. It looks like it's going to be a little bit above normal seasonality.

Okay. Okay. Great. Let's see. I guess I probably could have asked this after the M&A subject of capital allocation. So what cash generation has been pretty good and keeps improving and strong conditions, market conditions, probably support that going forward. What are your priorities for cash?

Go ahead, Tom.

Yes. So very balanced. Half of it is reinvestment in the business, which is our distribution centers, as Phil has talked about. We've got to expand them. We've got to keep them efficient, putting in the systems, e-commerce, self-serve tools. Continually upgrading our systems growth for efficiencies and for our customers use. In that 50% reinvestment would be those the smaller acquisition. The remaining 50% is really important, it's shareholder returns. So our -- we talked to our investors about this a year ago, what is really important is a steady, reliable returns. So our dividend, we've increased 15% in the last 12 months or so. We're up to a 2.5% yield. And to investors, that dividend, we've done a lot of work to ensure that it is reliable, we can increase it every year, and we can do that through the cycle. So we're a bull in the bear market. The other half of the shareholder returns would be buybacks. We're currently in the market today, look at that as an opportunistic type approach. But over a 2- to 3-year period, we would like to continue to bring down the share count, Melissa.

Okay. All right. I think we just got a couple of minutes left. It's amazing how quickly the time goes. Maybe I'm going to take a page from Simon Leopold, our colleague's book, and ask you closing, are there any areas that maybe you think investors should be paying closer attention to? Or maybe there's some misunderstanding with the business? What is your pitch for Avnet?

I'll go there. Tom, you can jump in. Well, we think it's a really exciting time for the industry. It's an exciting time to be where we are. Again, we talked about our 100-year celebration. So you can imagine what the ebbs and flows we've seen over the last 100 years. But right now, I've not been more excited. I've been with Avnet since 1982, left for a short period of time, got back 5 years ago. And from demand generation and what the suppliers are asking us to do for them as part of their extended teams, into the customer base, helping them impact design, and then manage the supply chains around the world. I mean it's amazing. I mean it really is an exciting time. And then you complement that the operational efficiencies we've been driving. From an Avnet standpoint, we're back to our core, we know exactly where we want to go. You asked a question earlier, Melissa, about Farnell, we're really excited about Farnell. It's over 2x our operating margin with Farnell runs. They're adding tremendous value to the marketplace, and it connects those newer customers, small valued customers into the core for sales lead generation for the future. So look, I think future is bright. The future is bright for electronics. And the more expanded verticals or the extended customer base goes out, the more value we bring to our suppliers from a standpoint of scalability, okay? We enable scale. And that's what we do. And then we drive our own drop-through to get the operating income and EPS and return metrics that Tom talked about earlier. So we're feeling as good as we have. Hey, I know there's some pain right now short term. We got some -- there's some supply constraints. But that's only because the applications are so pervasive and there's so much electronics going on one out there, which is, again, positive overall for the industry. We're right smack in the middle of it and love what we do. Tom, anything you want to add to that?

Phil, I would just agree with you. It's an exciting time. But [indiscernible] are everywhere. We're distributing them, and it's exciting time. Thanks, Phil.

Great. Yes. Well, we're excited to work with you and look forward to what's yet to come. Gentlemen, I just want to -- I think we are out of time. So I just want to thank you very much for joining us, and be catching up with you again soon later in the day.

You got it. Thanks, Melissa. Thanks to all the investors on the call today. Have a great holiday.

Take care. Bye-bye.