Avnet, Inc. (AVT) on Q4 2021 Results - Earnings Call Transcript
Operator: Welcome to the Avnet Fourth Quarter Fiscal Year 2021 Earnings Call. I would now like to turn the floor over to Joe Burke, Vice President of Treasury and Investor Relations for Avnet. Joe, you may begin.
Joe Burke: Thank you, operator. Earlier this afternoon, Avnet released financial results for the fourth fiscal quarter of 2021. The release is available on the Investor Relations section of the company's website. A copy of the slide presentation that will accompany today's remarks could be found via the link in the earnings release, as well as on the IR section of Avnet's website. Lastly, some of the information contained in the news release and on this conference call contain forward-looking statements that involve risk, uncertainties and assumptions that are difficult to predict. Such forward-looking statements are not the guarantee of performance, and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in Avnet's most recent Form 10-Q and 10-K and subsequent filings with the SEC. These forward-looking statements speak only as of the date of this presentation, and the company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this presentation. Today's call will be led by Phil Gallagher, Avnet's CEO; and Tom Liguori, Avnet's CFO. With that, let me turn the call over to Phil Gallagher. Phil?
Phil Gallagher: Thank you, Joe and thank you, everyone for joining our fourth quarter and fiscal year 2021 earnings conference call. I hope everyone is safe, healthy, and has taken some time to enjoy this summer. I’d like to start today by reflecting on the past year. Just over a year ago today, I was named Interim CEO of Avnet. And during my first earnings call, I shared with you my immediate priority will be to lay the ground work to focus on our strengths to truly reinvigorate our business. Despite ongoing supply disruptions and global pandemic restrictions, our team did just that and delivered some incredible results. I am extremely proud to be leading this team during this challenging period. We have made important improvements to our go-to-market strategy, focused spending on the right things, and as a result, we are able to post record sales for both operating groups in the fourth quarter and make notable margin and revenue progress over the year. I am truly excited for the continued journey that lies ahead. Now, let me highlight some of this past year’s accomplishments before diving into the fourth quarter performance. In the past year, we continued to strengthen our foundation based on decades long relationships with our industry-leading semiconductor and IP&E supplier partners. We supported our customers and suppliers by utilizing our capabilities and expertise to help decrease risk in their supply chains. We made significant investments in our sales and engineering personnel enabling differentiated design solutions for our customers resulting in demand creation numbers at record levels for fiscal year 2021. We also continued to invest in the digitization of our business across both Avnet and Farnell allowing for support across the entire customer product life cycle. That in turn, attributed to margin growth moving us towards our 3% and 10% operating margin targets for Electronic Components and Farnell businesses respectively. Tom will get into that in more detail later. We grew market share operating income dollars and improved our return on working capital. And finally, we began the celebration of our 100th year anniversary reflecting on the critical role we played in electronics supply chain for multiple decades. Now, all this could not have been done without the dedication of our team across the globe. Throughout this fiscal year our whole team continued to prove that Avnet’s role at the center of the global technology supply chain is more vital than ever for our customers and suppliers and that expertise and relationships truly matter. While I am pleased with what we’ve accomplished to-date and excited for what’s ahead, we are still operating in a dynamic market where we continue to experience a supply-driven marketplace as extended lead times persisted throughout the quarter driving very high book-to-bill ratios in every region. As such, tightly managing our backlog and working closely with customers to gain extended visibility continued to be a priority as we manage our own supply chains. Further, component cost for certain technologies have increased on average of 10% to 15% this past year, and some even higher. As always, as I try to mitigate any customer impact where possible and we work closely with our customers when we've had to pass some of these costs along. Now, turning to the fourth quarter results on Slide 5. We achieved fourth quarter sales of $5.2 billion, up sequentially and year-over-year on a constant currency basis. Excluding TI, sales grew 31.7% year-over-year. Electronic Components and Farnell both achieved record sales in the quarter and delivered strong operating margins. We expect continued progress at the operating margin line, given the strength of the market, solid execution across all regions, as well as the durable improvements we've made to our business. Looking at the Electronic Components business on Slide 6, the depth of our relationships with our suppliers and customers is driving excellent results across all regions and positioning us for continued progress in fiscal year 2022. Strong performance in EMEA and Asia and continued operating improvements in the Americas, all contributed to better than expected results in the quarter. In terms of vertical segments, the Industrial, Automotive, Communications, Computing segments continue to be major drivers. Global demand creation also continues to be a key competitive advantage supporting our long-term growth and profitability in Electronic Components with Demand Creation accounting for roughly 30% of our Electronic Components revenue, we will continue to invest in digital and design tools, field application engineers and relationships to drive stronger engagements as we enter fiscal year 2022. We will also continue to enhance our current business offerings while driving demand for our suppliers with broad based solutions, software capabilities, and value-added services across vertical markets, including IoT Solutions allowing our customers to differentiate their solutions and address their current needs. Now, turning to Farnell on Slide 7. Farnell continues to be an important contributor and saw record sales this past quarter. Revenues were up year-over-year and sequentially in the quarter at $441 million and operating margin increased sequentially to 8.3%, progressing towards our target of 10%. Our investment in Farnell’s digital capabilities continued to pay off with nearly 51% of revenues attributed to ecommerce sales. We also added 20,530 SKUs this past quarter, progressing on our plans to an additional 250,000 SKUs throughout the fiscal year 2022. The combination of Farnell’s high service model and Electronic Components business capabilities, enable us to uniquely service customers from new product introduction to mass production. As we continue to enhance our digital capabilities in fiscal year 2022, we expect Farnell’s value proposition to continue to increase. Now with that, I'll turn it over to Tom to dive a bit deeper into our fourth quarter and fiscal year results.
Tom Liguori : Thank you, Phil. Good afternoon, everyone, and thank you for attending today's call. As Phil stated, we are very pleased with the results we posted in the fourth quarter and the progress we've made over the last year. While there is still work ahead, I am excited to share some highlights. Turning to Slide 9. In the fourth quarter, we grew our top-line by 25.7% year-over-year. Our revenues for the fourth quarter were $5.2 billion and adjusted EPS was $1.12. Both our revenues and adjusted EPS exceeded our guidance range and grew from $4.2 billion and $0.64 in the prior year's quarter. As Phil mentioned, strong revenues were primarily driven by exceptional quarter performances in EMEA, Asia and Farnell and continued operating improvement in the Americas. Turning to Slide 10. For the fiscal year, we achieved sales of $19.5 billion, representing a 10.8% increase from the prior year. Throughout the year, our teams improved execution and efficiency; expanding operating margins for four consecutive quarters; and bringing us to a 3% target for Electronic Components and closer to 10% for Farnell. We controlled operating expenses, improving the ratio of OpEx to gross profit dollars from 91% a year ago to 76.5% this quarter. Our asset and finance teams consistently managed working capital, reducing working capital days to 70 by year end. And we grew earnings per share to $1.12 in the fourth quarter. Moving to the fourth quarter income statement on Slide 11. Gross margin of 12.3% was up sequentially, evidence that we are effectively managing our pricing in this supply constrained market. Every Electronic Components region and Farnell saw notable improvements in their gross margin sequentially, an encouraging trend as we continue to work toward enhancing margins. OpEx as a percentage of gross profit continues to improve reaching 76.5% from 80.6% last quarter. Adjusted operating expenses of $493 million were up 7.7% sequentially due to increased cost associated with our sales growth. On the non-operating front, interest expense was up slightly due to higher debt through the quarter for working capital, reaching $23.3 million. We recorded foreign currency transaction losses of $2.1 million, which represents the cost associated with our foreign currency hedging activities. We booked a 13.5% adjusted tax rate in the fourth quarter to get us to a 15% adjusted annual tax rate, which was an improvement from our expectation of 16% last quarter. On Slide 12, we highlight results across our two business segments. Looking at the Electronic Components segment, we achieved revenues of $4.8 billion, increasing 23.7% versus the prior year and 5.9% sequentially. For the Electronic Components segment, operating margins were 3.1% a 47 basis point improvement from last quarter and 157 basis point improvement year-over-year. As noted earlier, our Electronic Components group's performance this quarter was driven by strong sales in EMEA and Asia and supported by higher sales and continued operating improvement in the Americas. Farnell, achieved a record sales quarter with revenues totaling $441 million, up sequentially and year-over-year. The strong market demand has benefited Farnell. We continued to invest in inventory, systems, and ecommerce capabilities to further enable Farnell’s growth. The Farnell segment had an operating margin of 8.3% in the quarter, on track to achieve our 10% target by the end of fiscal year 2022. We are extremely pleased with the Farnell’s recent results and expect to build upon this momentum. Turning to cash liquidity and the balance sheet on Slide 13. We increased inventory by $475 million in the past quarter to keep up with customer demand. While working capital dollars were up, we were still able to improve our working capital days to 70, as previously noted. Our liquidity position remains strong. We ended the quarter with cash and equivalents of $200 million and $1.7 billion of available lines of credit. We remain comfortable with our debt position with debt coming in at $1.2 billion and net debt at $1 billion. Our gross debt leverage was 2.2 and net debt leverage was 1.9. We increased our dividend by 4.8% in the quarter, returning $22 million to shareholders. Our net book value per share increased to $41, compared with $38 in the year ago period. I will wrap up with some comments about our expectations for the next quarter on Slide 14. Our first quarter guidance today assumes ongoing strong demand, continuing supply constraints, and associated Electronic Components price inflation. As a result, we expect to perform better than the normal seasonal pattern. For our fiscal Q1, we are guiding revenues in the range of $5.1 billion to $5.4 billion and adjusted EPS in the range of $1.02 to $1.12. While we expect persisting supply constraints to continue to benefit the pricing and demand environment through Q1, we also have made significant durable changes to our business. As you'll see on Slide 15, as a result of these changes, we now expect by the latter half of fiscal year 2022 to deliver sustainable operating margins in the 3% to 3.5% range for total Avnet. We had spent the last year positioning the business to operate efficiently in all manners of challenging macro environments and we're confident in our ability to continue delivering value to our customers and shareholders. I will turn it back over to Phil for some closing comments, before we open it to Q&A. Phil?
Phil Gallagher: Thanks, Tom. As we kickoff fiscal year 2022, we see positive growth in our markets and are excited to capitalize on every opportunity. Now is the time to build on our strategies around financial and competitive performance and our earnings growth and investing in the digitization of our business, as well as in our employees. I am incredibly proud of our team’s resilience, and met the challenges this past year. They've delivered significant value in providing uninterrupted service at a global scale and then working collaboratively with our customers and suppliers to manage forecast, navigate current market dynamics, and mitigate supply chain risk. Because of their hard work and focus, we are well positioned today to leverage our strengths going into fiscal year 2022. I cannot be more excited about what the next year holds in store for Avnet. With that, I'll turn this over to the operator for questions and answers.
Operator: Thank you. Our first question comes from Matt Sheerin with Stifel. Please proceed with your question.
Matt Sheerin : Yes. Thank you. And good afternoon, everyone. My first question, Phil, is just regarding the inventory build that you saw in the quarter. You seem to be one of the few companies with a supply chain to be able to do that. So, the question is, do you expect – I mean, – you said a lot of that inventory is already sold. In other words, do you expect them to run that through your balance sheet? And could you tell us where you built it? Is that across your portfolio?
Phil Gallagher : Yes. Thanks, Matt. I appreciate that. We are actually pretty comfortable with the inventory build, Matt. And you got to remember, it doesn't all come in this case closing out the June quarter. It doesn't all come in, in April or May, right? So this comes in throughout the quarter, near the end of the quarter. So it doesn't all get out. But now we're comfortable with because as we grew the inventory, we actually reduced the working capital days and inventory days, right? So, arguably, we probably use a little bit more to continue to drive the top-line, right? So we're comfortable with where that is. We are meeting with the suppliers pretty much every day. We got our supply chain folks involved on a regular basis evaluating it. And we're comfortable with the level of inventory and the age of the inventory and the quality.
Matt Sheerin : Okay, okay. Thank you for that. And then regarding your order growth that was up pretty significantly. So the question is, is that sustainable? Do you expect to remain at those levels? And how much of that is benefiting from the favorable pricing and the short, because the component constrained environment versus your mix or versus anything you're doing differently and whether that's sustainable or not?
Phil Gallagher : Yes. It's a probably a little bit of both, Matt. So we definitely as we noted in the script, we're definitely seeing price increases. I'm sure there'll be more questions on that as it get through the call anywhere from 10% to 15% and some higher than that. That tends to drive the gross profit dollars more than the percent and a little bit in the percent, okay? And where we can pass that along and we do try to pass that along and customers have been pretty good and working with us in that. And then, of course, some of this also a mix. The mix of what we're shipping and by region of what the mix is also impacts the margin. But we're pleased. We're pleased with the acceleration in some GP percentage comp point. That was is pretty much across the board. But again, it's a combination of things. And going back on your inventory comment, also just further clarify. There is a lot of stuff we didn't get in that we need, okay? There is still a lot of lead times, extended lead times of things on those lines at there, Matt, that we are still looking to increase our position on.
Matt Sheerin : Okay. Great. Thanks very much and congratulations on appointment as CEO.
Phil Gallagher : Thanks, Matt.
Operator: Thank you. Our next question will come from Ruplu Bhattacharya with Bank America. Please proceed with your question.
Ruplu Bhattacharya: Hi. Thanks for taking my questions. So, I wanted to ask you, you said a target of getting to 250,000 SKUs in Farnell by the end of next fiscal year - fiscal 2022. I mean, it looks like you've added about 87,000 this year. So, that means you're going to add almost double like almost 160,000 SKUs next year. Just wondering how that happens? Do you think, are you planning to add more suppliers? Or do you think you can get there by penetrating more into the line cars of existing suppliers? And to do that, do you need to hire more FAEs and sales people and how does that affect OpEx going forward?
Phil Gallagher : Yes. Thanks, Ruplu. Appreciate that. Well, we're always looking in our line cars, we're always looking for we call it gaps and overlaps. Where do we have gaps in technology. Where we need to add lines and where do we have overlaps. Where we're comfortable with the position that we have to cover what we call the board, right the whole board in technology. Farnell is pretty well set. I mean, we've been blushed to be able to leverage the Avnet Core along with Chris’ Farnell team in Newark and element14 to help them get some lines in the last couple of years, just to name a few with some of our top brands like Xilinx, for example we now have at Farnell. So, we added Xilinx to add SKUs, okay, Renasas and IDT, it could go on Micron, that could go on and on. So, that’s right there, as you expand SKUs. But most of it's going to come from existing lines, but where we're just expanding our SKU count, okay? It's critical for NPI, a new product introduction. We've - remember we've expanded our warehouse, although it's a little bit late and coming totally online as we've shared in the past, that's allowing us to expand our SKU count from the physical space position. So, as far as that's happening and we're on track. So, your numbers are right, by the way it’s even adding them up as we've gone through the quarters. So we're comfortable with where we are in that SKU expansion. And as far as adding cost to do that, not really. I mean, we're leveraging the current infrastructure. It wouldn’t really lead to new FAEs. Farnell doesn't really have a field application engineers to do us some account managers. They leverage the - we leverage the combined Avnet FAE team on the Core side. So, shouldn't be any real OpEx expansion there other than where it leads to new demand creation, which is on a Core side anyway.
Ruplu Bhattacharya: Got it. And thanks for the details on that, Phil. For my second question, if I can just ask on Farnell margins. So you had about 230 basis points sequential margin improvement and you're at 8.3%. How much of that was mix versus pricing versus FX and volume? Because, I think you mentioned on one of the slides that half of the revenue, 50% of revenues came from ecommerce, which I think has higher margins. So do you think that is sustainable? And given you're at 8.3% margins now, I mean, your target was to get to 10% by the end of fiscal 2022. Do you think that kind of speeds up and we can get there faster than that? Thanks.
Phil Gallagher : Do you want to take that, Tom?
Tom Liguori : Sure. Hi, Ruplu. So, yes, we think, first of all, we can get to the 10% probably faster than we’ve expected. The 8.3% yes, part of it is due to a favorable market as volume and pricing and the way we look at it is if we didn't have a favorable market environment, it was more the steady state. We would be on our original trajectory, which would have been about a 6.5% to 7% op margin for Farnell in this quarter. That said, we are really happy with the performance of Farnell, what they're doing with the volume with the ability to ship it, with pricing, things are really hitting on all cylinders in Farnell.
Ruplu Bhattacharya: Okay. Thanks for all the details. Congrats on the quarter.
Tom Liguori : Thank you, Ruplu.
Phil Gallagher : Thanks, Ruplu.
Operator: Thank you. Our next question comes from Jim Suva with Citigroup. Please proceed with your question.
Jim Suva : Thank you so much. You just completed a very good year of revenue growth. Any initial thoughts for fiscal 2022 outlook, I know it's early in a lot of changing things? But you came off of a very good year where I think sales were up about 10%, 11% and I think consensus is kind of modeling 4%, 5%. Any thoughts around the outward year?
Phil Gallagher : Well, let me go first, Tom. Thanks, Jim. I appreciate that. You're exactly on the year-on-year growth for us at the – so, good job there. Just from a market environment, I’ll let Tom get in more details. I mean, it's tough to look out. I mean, the backlog looks good. The book-to-bill’s income and there is still really positive and we track that very closely from a standpoint of the supply chains in particular, upstream and downstream with our suppliers and customers. But right now, as we look at it, through December, it looks pretty solid and into 2022, we don't like to give much, and when you call guidance and much, much beyond that, because things can change pretty quickly, but it's pretty pervasive across the board from a technology standpoint and from a vertical standpoint. So it feels very positive. As we get through this first quarter as well, Tom, anything you want to?
Tom Liguori : Jim, I, would just add, I think when you look at consensus for fiscal year 2022, we feel very good about it. We feel we'll probably do better. When you go further out, it depends on the economy, we feel very confident, because of the changes we've made, they are not - just where we're trying to be open with, Ruplu, on the operating margins in spite of the market or with the help of the market, because we didn't have that we'd be posting improved margins. So, we think longer term, we are on a good path and that's why we gave the signal of the 3% to 3.5% sustainable margins, because the changes are the durable. They are significant than it needs? Does that help?
Jim Suva : Yes. And then, my follow-up question, there is going to be a lot of scrutiny on your inventory build, while book-to-bill is solid and your major competitor said that they're basically selling everything that comes in the door right away, and they had a delivery that came to last day or two the quarter that they said they already sold. So, is it you didn't have the right parts that everybody wanted? Or you had the chance to say, you already sold the inventory, but you said you feel pretty comfortable in inventory build? I'm trying to triangulate or square the book-to-bill, the strength of shortages in your inventory build?
Tom Liguori : Well, first of all, that would be - that's a lot of inventory to receive in the last two days and be able to get in your stock. So, I'll leave that to the site. But, yes, we feel good with the inventory. It not only come through in June. It's - we have good position with our suppliers, Jim. And our inventory days are really flattish, right? So that, we feel it is the appropriate level of inventory that came in. We were not concerned about it is that's what we are getting at.
Jim Suva : Okay. Thank you so much and congratulations for a great year and really tuning up the profitability. Thank you.
Tom Liguori : Thanks, Jim.
Operator: Our next question comes from Joe Quatrochi with Wells Fargo. Please proceed with your question.
Joe Quatrochi : Yes. Thanks for taking the question. Sorry, I just want to visit the inventory again. I guess, I just, I’d want to try to I guess, understand the inventory build relative to maybe kind of the relatively flat sequential revenue guide, I guess. I understand it's better than seasonal. But can you help us understand with demand being as strong as it is in building inventory? Is that the right level of inventory to kind of think it is, being a stable amount going forward?
Tom Liguori : So Joe, we always look at our working capital, current days working capital. If you go back last year, we consistently had 65, 66 days, even with the $475 million, we added we're at 60 days. So, this is not an abnormal buildup up of inventory. We view it actually the opposite of quite positive that, A, we have it and we can sell it. And inventory days are they are in line if not, they are so tight inside our company.
Phil Gallagher : Yes. I think there is a - glad, got asked the questions on the inventory. There is - when the inventory is of good quality, it's an asset. Okay? And we measure our businesses based on the return on working capital and we've seen continuous improvement there as well and we will continue to see improvement in return overall working capital. So, I look at it and I have the luxury doing that by business and by region. You start to look at a little bit in Farnell, a little bit in the Americas, little bit in Newark. So, it’s not like all was in one SKU that came in or one region or a business. It's really a $50 million there and a $100 million there and it's pretty well balanced, frankly when you look at it by region and by business unit.
Joe Quatrochi : Okay. And then, as a follow-up, clearly as the build close online, in terms of just thinking about the lead times for your customers that you're getting, I mean, how do we think about that relative to the normal? Is it 20% higher, 50% higher? Just any color there would be helpful?
Phil Gallagher : You mean, lead times from our suppliers? I am sorry, Joe.
Joe Quatrochi : I am talking like in terms of demand visibility that you're getting from your customers.
Phil Gallagher : Yes. Yes. Well, 55% of our business or so is supply chain, Joe, where we're actually getting in, EDI feeds, MRPs, implant stores, consignment programs, a lot of that's part of businesses forecast management. So, we're getting to triangulate thousands of customers basically across the world. And then, upstream with our suppliers to make sure we're managing that closely. So, again, right now, as we see it to your earlier question, the demand looks very good inside maybe six months or I'd say, December quarter, looks very positive. The adjustments on our back, I have shared this before normal adjustments on our backlog, whether hard orders or supply chain forecast is somewhere 20% roughly 15%, 25%. So, we're confident seeing that adjustment and it's not increasing at this point in time. So it's pretty stable. And what we are seeing is, which is driving some of the book-to-bill higher is with longer lead times, which is why I get that question from our suppliers. We load that into the MRPs and you end up getting extended booking as well, right? Because people managing their lead times out further. The demand as we see it right now today it looks pretty good
Joe Quatrochi : Got it. That's helpful. Thank you.
Phil Gallagher : You bet, Joe. Thank you.
Operator: Thank you. Our next question comes from William Stein with Truist Securities. Please proceed with your question.
William Stein: Great. Thanks for taking my question and congratulations on the very good results and outlook. I am going to ask a very similar question, pardon me for beating this horse. But I'm trying to understand the changes in the balance between supply and demand that might have happened in the last quarter or so. We see the inventory build relative to historical levels. It's certainly not alarming, it seems pretty likely you're getting the somewhat shorter lead time stuff and maybe having a hard time with certain inventories. So you can't get full kits and it’s probably why that’s happening. But, I'm wondering about, how the balance between supply/demand changed during the quarter? And so for that, I wonder if you might disclose the actual book-to-bill, maybe the backlog dollars, or the – and maybe the way I think about it is the average duration of the backlog today? Really wondering whether lead times are still increasing or if they are moderating now? Thank you.
Phil Gallagher : Well, book-to-bill is across the board or just well in excess of one, Will. So, and that’s been that way now for work on three quarters or so. So, what we do is, we try to again triangulate that back to what supplier - the customers’ typical demand has been. So, we've got all that information with the shift this quarter last year. Last quarter, what the bookings were, what the backlog was, what their backlog is today, and what the book-to-bill is today on us. So we manage that really closely. And once you have that information and that data is, where the strength and relationships coming. You got to go to discuss and make sure you're verifying the reality of the book-to-bill, reality of the backlog, and really driving responsibility in the supply chain, which I've used that word now a bunch of times and we need to be responsible, as we've seen these types of situations before this one's definitely have been unprecedented given the COVID situation. As far as lead times, I'm looking at all right now is as we're sitting here. Not - if there is any improvement that’s modest right now and it's out of the same area as we've talked about with the controllers, some interface products, some analogues, starting to see some capacitors go out and programmer logics extended. So it's really - it's pretty broad at this point in time That said, you’re right. There is a lot of stuff that's readily available that we're making sure we got the inventory on. But that's probably the best I could do on the call today, Will, without really drilling down.
Tom Liguori : And I would go back to at our Q4 revenue level or guidance for Q1 revenue level, the amount of inventory we have is fine. It's appropriate. We look at the inventory addition as a good thing. And we do have strong, as Phil said, book-to-bills and it's positive. We are not concerned of that.
Phil Gallagher : Not – no, Will, well, just building that, I mentioned in the script what’s happened is, unfortunate with the pandemic, which we're obviously all still dealing with right now, right? Again, unfortunately - and it's just been a little unprecedented and I think what it's done, I don't think I know is it's put more value in supply chain services, right? And we say we're Avnet is going to move the technology supply chain. So we're actually seeing more opportunities today from, let's say, maybe customers who weren't seeing before or increased opportunities inside of existing customers and suppliers coming to us saying, hey, we need some help with supply chain services. So, I think all that's a combination of positives, if you will for the supply chain and what we do there in addition to demand creation. So, again, there is no concern on our end at this point
William Stein: Great. Thank you.
Phil Gallagher : Thanks, Will.
Tom Liguori : Thanks Will.
Operator: Thank you. Our next question comes from Toshiya Hari with Goldman Sachs. Please proceed with your question.
Toshiya Hari : Hi, guys. Thank you so much for taking the question and congratulations on the strong results. I had a similar question, as well. Phil, can you describe the gap that exists today between supply and demand? How big that is today relative to three months ago, six months ago? And I guess, going forward, based on indications from your suppliers and demand signals from your customers, at what point would you expect or do you expect supply to catch up to demand? And then I've got a quick follow-up.
Phil Gallagher : Not only I have all that detail in front of me, Toshiya, so I apologize for that. But right now, again based on what I shared on how we track bookings, our billings to book-to-bill. our cancellation rates and adjustments to backlog, right now, we're feeling again we are pretty darn good through the December quarter, which is on it things are not all going to free up here in the next 30, 60, 90 days. So, I would put that at a high confidence level at this point. And then, when you look outside 90 days, 180 days in our backlog, it really swings quite a bit at that point, right, which is again, very normal. And that's what we do. Again it's an asset and it’s a value we bring to market.
Toshiya Hari : Okay. So would it be fair to say that, for the balance of the calendar year, do you expect to be supply constrained? And then beyond that, 2022is is kind of TBD? Is that a fair statement?
Phil Gallagher : Yes, I think that's a pretty fair statement, okay? And again, there is a lot of information, and therefore lot of our suppliers that are writing right now. And some of them are more – you can give them more guidance out there from a standpoint of what they are seeing. But that's as far as, I'd like to go.
Toshiya Hari : Okay. And then, as a quick follow-up, just wanted to ask about your margins in both Electronic Components and at Farnell. Obviously, you're doing a great job in improving operating margins. I think pre-pandemic, Farnell margins were as high as 12-ish percent. And I think on the EC side, you're in the mid 4s. So, curious, is there a path kind of back to 12% for Farnell and 4.5% for EC. Or is that a bit of a stretch in your view? Thank you.
Tom Liguori : Clearly a path for both. And our game plan Toshiya, is that, we put out 3% to 3.5%, which assumes Farnell gets to 10% and EC continues in the low 3s. And once we get solidly to those levels, we will update you on the next steps.
Toshiya Hari : Thanks, Tom.
Tom Liguori : You bet.
Operator: Thank you. There are no further questions at this time. I'd now turn it back to Phil Gallagher for any closing comments.
Phil Gallagher : Thanks very much. I really just thank everyone for attending today's earnings call. Really appreciate it. Hope everyone stays healthy and safe. I look forward to speaking to you again in October for our fiscal 2022 first quarter earnings results. Enjoy the rest of this summer. Take care.
Operator: Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
