艾睿電子 (ARW) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Arrow Electronics First Quarter 2017 Earnings Conference Call. My name is Tony, and I will be your operator for today. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Steve O'Brien, Director of Investor Relations. Please proceed.

Thanks, Tony. Good day, everyone. With us on the call today from Arrow Electronics are Mike Long, Chairman, President and Chief Executive Officer; Chris Stansbury, Senior Vice President and Chief Financial Officer; Andy King, President, Global Components; and Sean Kerins, President, Global Enterprise Computing Solutions. As a reminder, you can access our earnings release at investor.arrow.com, along with our CFO commentary, the non-GAAP earnings reconciliation and a webcast of this call. We will begin with a few minutes of prepared remarks, which will then be followed by a question-and-answer period. I will now hand the call to our Chairman, President and CEO, Mike Long.

Thanks, Steve. Thanks all of you for taking your time to join us today. I'm pleased to report first quarter sales of $5.8 billion, gross profit of $760 million and earnings per share of $1.46. Last quarter, I mentioned I've never seen greater opportunities for our business. I believe the first quarter accomplishments and results have provided more evidence for that statement. Customers and suppliers are migrating to our platform. They see the value of our fully integrated online and off-line component distribution and our design and supply chain services. They see the value in our flexible on-premise and off-premise software-led solutions. We're hoping customers run mission-critical applications securely, with a very attractive return on their investment. They see the value of our full service, sensor to sunset, sustainable technology solutions to help them repurpose, recondition or responsibly dispose of their electronic products. Customers and suppliers see how being part of the Arrow platform can drive growth for their business and they want to be a part of this. In turn, this is driving growth for Arrow's business and that's why at Arrow, we say, growth is the mindset, not a goal. I would like to share with you the story of one of our new customers. I believe this illustrates how our fully integrated platform can deliver more value for our customers and for our suppliers than any other company can. It also illustrates our unmatched reach in process solutions. We have a new customer based in China, with an innovative idea for an IoT product in the category of home automation. We identified the customer, embedded and secured the new customer's bill of materials through our digital platform. Our Arrow Asia components team assisted with the sensor to sunset design work, the customer is entering full-scale production. With the hardware design in place, we didn't stop. Arrow engineers saw the opportunity to assist with the product data solution. As a result of that work, we were able to sell the customer subscriptions to infrastructure as a service, platform as a service and an artificial intelligent machine learning tool. All are cloud-based. We were able to identify, engage with the customer via arrow.com, and we were able to deliver a reoccurring cloud-based IT solution via our ArrowSphere cloud-enablement tool and marketplace. Meanwhile, the customer is delighted that we were able to meet so many of their needs with our comprehensive solutions. And to me, the best part is that no one else can do it. This is just one small example of the kind of business that Arrow is now winning every day, all around the world. I mention it to illustrate the success of our fundamental strategy that uniquely addresses contemporary changes in our business environment. Turning back to the first quarter and to our current market conditions. Global components experienced strong demand. First quarter global components sales were $4.06 billion, up 10% year-over-year and up 12% adjusted for foreign currencies. We saw robust growth in all 3 regions. We've noted a small increase in lead times across our line card and, in some spot instances, significant lead time expansion. Entering the second quarter, the percentage of customers saying they did not have enough inventory, we did the highest level since 2010. The percentage of customers saying they had too much inventory was at the lowest level in over 10 years. We've taken all appropriate steps, including taking on inventory, to assure our customers get the parts they need. Keep in mind that when our sales per growth approaches 10% or more, we must make working capital investments that have short-term effects on our cash flow and returns. Global enterprise computing solutions for the first quarter sales of $1.7 billion were in line with our expectation. Operating income is the best measure for this business and that grew 5% adjusted for acquisitions and changes in foreign currency. Our infrastructure software business posted strong growth, led by security and analytics. The rate of decline for our hardware products, most notably storage, improved meaningfully. I'm encouraged by the performance of both the global components and the global enterprise computing solutions business in the first quarter. Consolidated backlog grew 20% year-over-year. I'm even more encouraged by the traction we have gained towards having these 2 businesses work together as one. In closing, last quarter, I said we had the opportunity to make 2017 the most exciting year in our 82-year Arrow history. We delivered record performance in the first quarter and are on track to deliver a record year for 2017. As we move ahead in the year, I look forward to updating you on our progress. I'll now hand the call over to Chris to provide more details on our first quarter results and our expectations for the second quarter.

Thanks, Mike. First quarter sales of $5.76 billion were at the high end of our prior guidance range. Sales increased 6% adjusted for acquisitions and changes in foreign currencies and 5% year-over-year as reported. The stronger dollar relative to the euro and British pound reduced our sales growth by approximately $73 million or 1% compared to the first quarter of 2016. First quarter global components sales of $4.06 billion grew 12% year-over-year, adjusted for acquisitions and changes in foreign currencies and 10% year-over-year as reported. Sales were above the high end of our expectations for the second quarter in a row. Asia again produced exceptional growth in the first quarter, growing 17% year-over-year. In the Americas, sales grew 9% year-over-year, driven by our digital platform and our sustainable technology solutions. In Europe, sales grew 10% year-over-year adjusted for changes in foreign currencies. Europe sales have grown year-over-year for 16 straight quarters, adjusted for acquisitions and changes in foreign currencies. Global Components first quarter book to bill was 1.14, which is well above 1.07 in the first quarter of last year. First quarter global components operating income grew 2% year-over-year, adjusted for acquisitions and changes in foreign currencies. Operating margin declined 40 basis points year-over-year due to mix of business in all regions and headwinds from regional mix. First quarter enterprise computing solutions sales were $1.7 billion, in line with our prior expectations. ECS's first quarter operating income and operating income margins reached record levels. First quarter ECS operating income grew 5% year-over-year, adjusted for acquisitions and changes in foreign currencies, and increased 4% as reported. Returning to consolidated results for the quarter, total company operating expenses were relatively flat, increasing 1% year-over-year. Operating expenses decreased 40 basis points as a percentage of sales on a year-over-year basis. Our effective tax rate for the quarter was 26.7%. The first quarter effective tax rate benefited from both higher earnings and low tax jurisdictions as well as from some discrete items that we do not expect to recur in the second quarter. First quarter net income was $132 million, up 2% year-over-year, adjusted for acquisitions and changes in foreign currencies and flat year-over-year as reported. Earnings per share were $1.46 on a diluted basis, above the midpoint of our prior guidance range. Changes in foreign currencies negatively impacted EPS growth by approximately $0.03 per share. And first quarter earnings per share grew 5% when adjusted for changes in foreign currencies and 3% as reported. First quarter operating cash flow was a seasonal use of $21 million, which is an improvement from the negative $34 million in the first quarter of last year, despite significant working capital investments. Trailing 12-month cash flow from operations was $372 million at our minimum target level of 70% of GAAP net income. The spread between our days sales outstanding and our payable days remained constant year-over-year. However, our inventory investments to support our global components growth caused a near-term elongation in our cash conversion cycle. Consolidated return on working capital for the first quarter was 22.3% and return on invested capital was 9.2%. We repurchased approximately $56 million of our stock in the first quarter, approximately $254 million over the last 12 months and over $1.4 billion over the last 5 years. Entering the second quarter, authorization remaining under our share repurchase programs is approximately $464 million. This is a high-level summary of our financial results. For more detail regarding the business unit results, please refer to the CFO commentary published this morning. Now moving to guidance. We believe the total second quarter sales will be between $5.975 billion and $6.375 billion, with global components sales between $4.05 billion and $4.25 billion and global enterprise computing solutions sales between $1.925 billion and $2.125 billion. We expect second quarter 2017 operating expenses to be consistent with the second quarter of 2016. As a result, we expect earnings per share on a diluted basis, excluding any charges, to be in the range of $1.70 to $1.82. Our guidance assumes an average non-GAAP tax rate towards the higher end of our longer-term range of 27% to 29%. We expect our effective tax rate for the first half of 2017 and for the full year to be within our longer-term range. For the second quarter, average diluted shares outstanding are expected to be 90 million and the average U.S. dollar to euro exchange rate, we are using for forecasting purposes is $1.07 to EUR 1. We estimate a $110 million headwind to sales and a $0.05 headwind to earnings per share when compared to the second quarter of 2016 due to changes in foreign currencies, principally the euro and British pound.

Thank you, Chris. Tony, could you please open up the call to questions at this time.

(Operator Instructions) Your first question comes from the line of Mr. Adam Tindle of Raymond James.

Just wanted to ask on the components revenue guide. I understand that you had a strong Q1, so the comp maybe a little more difficult. But I would have thought that some of the wins continuing to ramp in Q2 would have led to an above-seasonal June components revenue guide. So the question is, were the supplier wins already reflected in Q1? Or might we see a very different Q3 than what historical seasonality would suggest as these come through?

Right now, for the first quarter, you didn't see anything come over in Q1 from any changes that the supplier marketplace is making. And right now, the forecast that we have for Q2 is based completely on the best information we have right now and as business starts to come over, some will come in Q3 and some will come in Q4. So I'm not expecting any major changes this next quarter from the transference of any business.

Okay. And maybe just one for -- I'm not sure if Sean is there. But I know you made a comment on the computing business on the last call that you thought ECS revenue could grow in 2017. I know you're focused on operating profit dollars, but wanted to get a sense if you thought 2017 would be a year of revenue growth for ECS. Or are you still incurring things like mix shift that may contribute to a revenue decline for the year?

Great. Go ahead, Sean?

No, you bet, Adam. Good question. We are optimistic about the full year, as we -- as Mike noted in his opening remarks, we saw the rate of hardware decline meaningfully in Q1 versus Q4, so we think that's a good trend. In fact, in storage, we saw modest growth in Europe in the first quarter. So along with our software-based solutions growth, which we expect to continue this year and continued progress with what I call next-gen hardware, not to mention some of the share shift that we continue to identify and enjoy due to some of the competitive realignment in the marketplace, I feel good about the full year, and I think we'll see more of that ramp across the second half.

Is there share shift beyond the $350 million you've already talked about?

Anytime you see competitive realignment, you're going to create some uncertainty in the channel. And so I think you have a lot of resellers and solution providers who are looking for a safe pair of hands in the value channel. We clearly are standing in the value space. And so we're getting a lot of good looks and a lot of good calls. And I would say the run rate of net new customers and line card extensions with existing customers continues to improve.

Your next question comes from the line of Mr. Steven Fox of Cross Research.

First question, in terms of the inventory position that you talked about. It's been quite a while since we've had to worry about investments in inventory. Can you give us a sense for how you think this plays out during the course of the year? In other words, are you positioning inventory now so that we won't see as big of a jump in the middle of the year? Or should we think in terms of consistent build as -- on the balance sheet as the year goes on? And I have a follow-up.

Yes. The inventory that's been coming in is for 2 reasons, right now. Some is for anticipated sales that will be coming and some is for current sales that we expect to increase given some of the lead chart time changes in the market. But remember what we'd said is that our first goal for our cash is to invest in the business to grow the business as fast as we can. The second place we apply our cash is in M&A. And then the third place we invest our cash is in buyback and return to shareholders. Right now, our backlog is up over 20%, as I indicated in my opening remarks. So we do see some significant changes and significant swings coming our way that's going to require more inventory, and we started that build process now. But that will start to abate and not be that dramatic over the balance of the year.

Got it. That's helpful. And then in terms of the component mix pressures that occurred in Q1 on the margins, a little bit surprised by that. I don't know if I should be or not. But can you talk about maybe how the mix changes over the course of the rest of the year? And what it means for the margin swings quarter-on-quarter, if you could?

Yes, okay. There's obviously a lot of changes to put in here, but I'll make it as simplistic as I can for what we see. In the first quarter, as you know, I think our Asia business was up something like 17%. So if you take the margin swing that came with that, that came at about normal Asia rates that we have always seen and that we have all always operated our business under. The balance of the growth obviously came from Europe and North America. We didn't see a dramatic change in the normal margins based off of that. We also had a little bit of mix shift in the quarter of the type of business that came in, which was a little more supply chain business. We had a meaningful increase in number of customers. So the point there is, the design win activity mix that we have enjoyed for the last year is less than it was prior to that. It's actually good news on 2 sides. Because now we have more customers to go do more designs with and raise that margin that came over. We also expect that to be continuing on as some of the supplier shifts come over, the supply chain business comes first, followed by the design activity, which usually takes as you well know and we've been very honest to communicating 6 to 9 months past that point, for us to have that activity. The good news is, we told you we built the company for that. We told you the math. Vast majority of our engineering investments were made, and we're really in great shape going into the rest of the year. Hopefully, that gives you an idea of how we're looking at.

Yes. That's very helpful. And just one clarification on that. Would it be then safe to assume that your overall design activity, say, by the third and fourth quarter is higher than the first quarter? Or maybe this is more elongated than that?

The design activity is going to be going through the roof over the next few quarters. The actual design to production, as you know, given the long times out will start happening in the beginning of next year for us.

Your next question comes from the line of Mr. Shawn Harrison of Longbow Research.

This is Frankie filling in for Shawn. Just a follow-up on that last question. Given the mix shift that you discussed, do you still expect to kind of hit that 5% component, your margin goal that you've kind of been targeting?

We expect over time that we will still be in that range. Given the supply chain business that will be coming in first, I don't think we'll quite be there for the balance of this year. But given the design activity, I think we'll start to see that leverage come back to us in 2018 sometime. And by the way, I'm not -- we can get there tomorrow. Our businesses, if you take our businesses in totality, there are still investments in digital we're making. There are still investments in reverse logistics that we're making, and we're not going to back off of those investments just because we see an upside in activity that we didn't see before. We actually are looking at that business as it's good. And it's also going to get us several thousand more customers in which to do more design work with. So we're pretty excited about the long-term prospects. We just have to manage this now, short term. And as I said, we're in for a record year this year.

Got you. That was really helpful. And then changing gears just one other question I had was, obviously supply and pricing pressures aren't new to you, but when your competitors outline a little bit steeper pricing pressures than typical and a negative impact from TI shifting to filament. So I'm just curious how much of that dynamic you kind of have factored into your outlook. And then, if you can -- if we potentially see this accelerate in out quarters of this year, outweighing the supplier wins you've been getting.

We have 100% of what we know into our outlook.

Your next question comes from the line of Mr. William Stein of SunTrust.

Congratulations on the strong results and the outlook, in particular, on the components side, and that's where I'd like to focus my time too. First, regarding TI removing compensation for design activity. Is that entirely out of the model at this point? Or should we think about that having a continuing pressure for...

That's out of model. That's completely gone out of the model. There was 3 years' notice on that. I'm surprised anybody is talking about it anymore. I said that last year. I'm not trying to be flippant about it, but that train left the station a couple of years ago.

Okay. That's helpful, Mike. And then maybe one more, if I can. You've had some very impressive supplier wins. Those are obviously more visible to us than the customer side, in particular, with ADI and Cyprus. The question relates to both, on the supplier side and the customer side. Do you think that any of the wins or any of the share gains, either from the supplier or customer side are -- could be related to Avnet's ERP issues and therefore, perhaps not as permanent as you'd hope?

No. I haven't heard of any customers coming our way because of that. I think that's a very minimal, if anything, reason that we have customers coming in and most of what I have seen has been good, long-term contracts good, long-term supply chain activity, totally based upon our complete solution sell, our opportunity to go seamlessly from digital to salesforce, back to digital and into the cloud. We've built a very robust platform. That's been our strategy. We're sticking with our strategy. Little hiccups by a boutique competitor are things that I think are going to drive our growth in the future here.

Your next question comes from the line of Adrienne Colby of Deutsche Bank.

I was wondering if you could talk about how much of your lead generation at this point is coming from your digital media portfolio. And what effect that change in sourcing the leads is having on your headcount needs?

Yes. Actually, I'm going to let Andy answer this. I'm going to start with saying, digital today is our largest lead generation that we've ever had in the corporation. And we expect that to continue. The early adoption of inventors and builders and sort of dreamers and plus our core customer base, that is an early end for us and that's a real trigger. Andy, you want to light it up.

Yes. And absolutely, I think we sort of reported last year that our customer count was up 25,000 year-on-year and those sort of growth trajectories continue. And the good news is that that's feeding into the core business, as we planned. The core customer count through our off-line channel continues to build. Most, if not all of those customers started life as a digital transaction of some degree or another. And the beauty of it comes in from, either a component side or from a cloud side or from the entire enterprise position there. So it's meaningfully driving our customer count, our customer penetration and our top line sales. Hope that answers the question.

It does. And as a quick follow-up, CapEx came in a bit higher than how we were modeling it. How should we be thinking about that for the balance of the year?

I think our CapEx for the year is going to be similar to what you've seen in recent years. We're obviously getting to the later stages of our full ERP deployment, which is a big driver of that. But for the year, I don't expect you'll see any major differences versus where we were in the last few years.

Your next question comes from the line of Mr. Matt Sheerin of Stifel.

So if I can just go back to the some of your vendor issues that we've been talking about. Obviously, big opportunities and your competitors are talking about losing up to $1 billion in revenue opportunity. Is that the opportunity that we see for Arrow, that kind of number?

I would tell you, Matt, our full anticipation is, we would grow the number that you've heard on the Street.

Okay. And you talked about some margin headwind as you ramp those vendors, obviously, because of the demand creation being -- having a lag effect. But would you also expect to make investments on the OpEx side, particularly in FAEs and technical sales and other support? Or do you have the resources in-house that you're shifting from guys like TI and others on to those lines?

We -- as you know, Matt, we went on a concerted effort a few years ago to really build our engineering capabilities both digitally, service vendor wise, so we are open 24/7, 24 hours a day, 7 days a week in every country for designers, and our FAE population. That has generated great activity for us. We expect that activity to continue and what we won't do is get behind. I sort of look at that as our R&D and our future health on the margin. It does 2 things. It does well for the suppliers who choose to take advantage of that and it helps our margins. So we won't fall behind there. We will keep invested where we need to keep. But right now, we believe, we're invested fully of where we need to be, and it's a very experienced team and I expect that they're going to help us throughout the year here.

Okay. And just a couple of quick ones, if I may. We haven't heard the word ERP mentioned much, which is probably a good thing because I know you just went through integration, final integration in North America last quarter in the component business. Just kind of update us where we stand there? And are you basically done now?

We still have some more to do, Matt. We have been taking this off in sort of bite-size chunks, as you know, over the last couple of years. And the good news is, you haven't heard about it. We believe our approach and the way that we're approaching this is so you won't have to hear about it. I've had some interesting conversations with customers that have asked us to delay things because of what they had happen to them in the marketplace, and I had to let them know that they were already converted and that there is really nothing else to worry about. So I think right now, our approach is the one that we're happy with. I've got a great IT team, a great IT leader. They're doing the job. And our job is to make sure, you don't hear about it, and that's what we're trying to do.

Okay. Great. And just lastly, just regarding the component lead times and stretching and the backlog building. Obviously, when we get into this part of the cycle, there is concern about potential excess or double ordering, and you don't really know until sort of after the fact. But what sense do you have that there is some underlying demand supporting this as opposed to supply demand -- or supply issues, which is leading to inventory building?

Well, the good news is we have had a strong book to bill that I think we reported to you guys several quarters now. And what we've been able to do is, we have gotten better with our design activity. We've been able to kind of match where this is coming from. I wouldn't say we have it totally protected that I could totally call it for you. But I'm pretty confident that at any one time we would know -- if we were ever over-inventoried, it's usually less than a 3-month issue to get it solved now. But I think there's some real underlying demand that is happening. The demand looks a little different than it looked in the past. We see customers that are looking for more solutions come to us, so I would say there's actually a little bit of a shift, not only in some DTAM wins that we're getting, but some TAM wins also. The total available market is starting to come our way just because of some of the value-added services. I would expect things to be strong through the balance of the year. We're obviously cautious and conservative about how we operate our business. We'll stay that way. It's treated as fine so far. And we'll be very aggressive when it comes to our strategy, and what we think we need to do to be successful. So hopefully that gives you the balance that you're looking for of how we try to run plays.

The next question comes from the line of Param Singh of Merrill Lynch.

I just want to spend some more time on the component side. Now, your book to bill is 1.14. I had expected your guide to be a little better and kind of at the low end of seasonality at midpoint, right, and you haven't seen this kind of delta. When I look at the previous years, usually it's a few points inorganic growth behind the book-to-bill number. Now is this because you're seeing more orders in to, say, the September quarter, like you mentioned, last quarter? Or is there anything else like the wins that's creating that delta, if you could expand upon that?

Well, if you think sort of average lead time of being 12 weeks, right, that's a full quarter. So while your book to bills are coming in, if it's not an existing customer, we have to start building the supply chain, we have to start building the inventories for when those orders kickoff. And as a result of that, you'll see the inventory build a quarter -- it will start building a quarter, maybe a little more, before it really starts going, when you're bringing on the customer number and the magnitude of customers that we're bringing on. And remember, our job, I mean, even more than sort of producing an inventory number for you guys, our job is to service the customer base. That's how we make sure they remain long-term customers here, and that's exactly what we're doing and that's exactly where we're putting our money. We're being thoughtful. This is nothing new. Unfortunately, we haven't seen these kind of growth rates in this industry for some 7, 8 years. So the good news is, we're back to growth. Sort of the bad news is everybody forgot it's not business as usual, but we're back to investing in our business, which I actually, think is great for the long term.

Okay. So then should we expect a greater delta between your book-to-bill number and actual revenue guide, given the extended lead times?

That will start to abate as we get into the summer more.

Understood. Could you remind me how the ramp for the new customer wins through the year? And how much in the September quarter? How much in the December quarter?

Boy, I'll tell you. You know what, I would be a genius if I could give you that right now, based off of how things are moving in the industry. I just -- I can't give you that far out of detail, other than its more.

Okay. I was just talking about the wins that you've already disclosed.

Yes. I think you'll see -- well, you should see, if you talk about the disclosed wins, you'll see full run rate in the fourth quarter. It's how we get there between the second quarter and the fourth quarter that's confusing us a little bit.

Understood. Okay. And on the gross margin side, your competitor's talking about demand creation margins being lower from a lot of suppliers. Have you seen any of that? Or was that part of impact on this quarter's component operating margin in addition to the Asia mix?

We've seen nothing. We've not seen any of that and, as I said, I don't know what they're seeing. I don't run their business. I run ours, and I'm seeing more opportunity.

Your next question comes from the line of Mr. Mark Delaney of Goldman Sachs.

First question is on the component's book to bill of 1.14. I know it's a lot versus the prior quarters and prior year. So I think about $4.6 billion of components bookings, if I do the math. And so if I try and split that out between the wins that you're picking up from your competitor versus an increase in the market if I think about $250 million per quarter, $1 billion of annualized revenues, it seems like half the booking strength from wins and half from just the core market picking up. Is that a fair way to think about it? Or would you guy assess it differently?

I don't know, Andy, you want to take a stab at that?

Yes. I don't think it's gone exactly that mathematically pure, to be honest with you. We're certainly seeing some minor impact on our bookings right now from some of those wins, but as Mike said, that will really plays out more aggressively through the second half of the year. For the most part, the health in the bookings and the strength in the business has come from execution to the strategy that we've had to put for some considerable period of time and customers and suppliers wanting to work with us on programs to help grow their businesses and that's what's really driving the bookings growth.

Okay. And just to make sure I understand, you wouldn't report some of the potential revenue wins from your competitor in the book to bill until you get closer to shipping it?

Until we book it, it won't be in the book to bill. So there's a little bit of it in there right now, but it is not the major driver of the bookings trend we're seeing.

I mean, our competitor knows exactly when their last ship date is. So you could assume our bookings date would start right then.

That's helpful, understood. And then one final question. I know you guys talked about SG&A leverage and like you talked about it, you haven't made a lot of the investment. As a clarification, Chris, I think you said SG&A similar in June versus last year. Did you mean, similar as a percentage of revenue as last year? Or similar in dollars...

Yes, dollars, Mark. So we're basically, if you think about it, the investments that we're making in digital and IoT and some of the other things that Mike talked about, we're able to do that, while driving other internal efficiencies in back-office and we'll hope the dollars flat.

Your final question comes from the line of Mr. Jim Suva of Citi.

You've answered many of the questions in great detail, which is fantastic. On the component, the operating margin has now been down year-over-year, I think, it is for about 2 years for this first quarter, and it sounds like the investments you're making plus the business mix explains that. Could you maybe just take a step back and help us understand, strategically, do you care or manage the percent much? Or are you more focused on the dollar amount? And what I mean by that is, should we think about pay the percent is just a function of the investments so focus on the dollar amount? Or do you think that the margins in the components can kind of go back to historically where they have been, because the investment seems like they should be higher margin? Or maybe it's just the costs pulling it down right now before it ramps.

Yes. I think you're giving that. As I said, we're dealing with several investments, Jim, as we outlined over the last several years. And even if it did take even more broader than components, right. We build a complete integrated digital business. We've built and grown our reverse logistics business, which is the business that repurposes old electronics. We are continuing and have built out in the cloud, which is still doing great for us from a growth perspective as well as trying to build really a world-class design center with digital design, service center design, as I said before, open 24/7, plus an increase in FAEs. We've been able to do all of that, given what our percent of sale, if you will, expectation was for cost. And it was really last quarter that we first started to talk about dollars because most of the investments we have in there have been in there. So I would expect overall, if you're asking the question, that the cost per sale is going to go down.

Thank you for your questions. We will now proceed with any end or closing remarks.

Thank you, Tony. In closing, I will review Arrow's safe harbor statement. Some of the comments made on today's call may include forward-looking statements, including statements addressing future financial results. These statements are subject to a number of risks and uncertainties that could cause actual results or facts to differ materially from such statements for a variety of reasons, and the company undertakes no obligation to update publicly or revise any of the forward-looking statements. Detailed information about these risks is included in Arrow's SEC filings. If you have any questions about the information presented today, please feel free to contact me. Thank you for your interest in Arrow Electronics, and have a nice day.

Ladies and gentlemen, that concludes today's presentation. You may now disconnect. And everyone, have a great day.