Earnings call transcript: Arrow Electronics beats Q3 2025 estimates, stock dips

Arrow Electronics Inc. (ARW) reported its third-quarter 2025 earnings, surpassing both revenue and earnings per share (EPS) forecasts. Despite the positive financial results, the stock experienced a decline in after-hours trading. The company continues to focus on strategic initiatives, including expanding its value-added services and strengthening its market position in key sectors.

Key Takeaways

• Arrow Electronics reported Q3 2025 revenue of $7.7 billion, a 13% year-over-year increase.
• EPS came in at $2.41, beating the forecast of $2.29.
• The stock fell 2.47% to $116.10 in after-hours trading.
• Strategic focus on value-added services and hybrid cloud is a key driver.
• The company projects a gradual recovery in 2026.

Company Performance

Arrow Electronics demonstrated robust performance during the third quarter of 2025, achieving a 13% increase in revenue compared to the same quarter last year. The company continues to leverage its diversified business model, with significant contributions from its electronic components and enterprise IT segments. Despite a challenging macroeconomic environment, Arrow is capitalizing on early signs of recovery in its key markets, including transportation, industrial, and aerospace/defense.

Financial Highlights

• Revenue: $7.7 billion, up 13% year-over-year.
• Non-GAAP EPS: $2.41, exceeding the guidance range.
• Gross margin: 10.8%, down 70 basis points.
• Took a $21 million charge in the ECS segment, reducing EPS by $0.31.

Earnings vs. Forecast

Arrow Electronics reported an EPS of $2.41, surpassing the consensus forecast of $2.29 by 5.24%. Revenue also exceeded expectations, coming in at $7.71 billion against a forecast of $7.66 billion. This marks a positive earnings surprise, reflecting the company's effective cost management and strategic focus on high-margin services.

Market Reaction

Despite the earnings beat, Arrow Electronics' stock declined 2.47% in after-hours trading to $116.10. The stock remains below its 52-week high of $134.74, indicating cautious investor sentiment. The decline may reflect broader market trends or concerns about the company's future growth prospects amidst ongoing economic uncertainties.

Outlook & Guidance

For the fourth quarter of 2025, Arrow Electronics projects sales between $7.8 billion and $8.4 billion, with non-GAAP EPS guidance ranging from $3.44 to $3.64. The company anticipates a gradual recovery in 2026, driven by strategic initiatives in value-added services and hybrid cloud solutions.

Executive Commentary

Interim CEO Bill Austin remarked, "We are seeing trends in our Global Components business that suggest we are in the early stages of a gradual recovery." CFO Raj Agrawal emphasized the long-term benefits of strategic outsourcing agreements, stating, "These strategic outsourcing agreements will be margin-accretive and a key part of our long-term business."

Risks and Challenges

• Supply chain disruptions could impact product availability and costs.
• Economic uncertainties may delay recovery in key markets.
• Competitive pressures in the technology sector could affect market share.
• Currency fluctuations pose a risk to international revenue.
• Potential regulatory changes in key regions could impact operations.

Q&A

During the earnings call, analysts sought clarification on the $21 million charge in the ECS segment, which was attributed to strategic outsourcing learning. The company also addressed questions about regional market dynamics and the timeline for appointing a permanent CEO, confirming that interim CEO Bill Austin is not a candidate for the role.

Full transcript - Arrow Electronics (ARW) Q3 2025:

Operator: Good day and welcome to the Arrow Electronics third quarter 2025 earnings call. Today's conference is being recorded. At this time, I'll turn the conference over to Michael Nelson, Arrow's Head of Investor Relations. Please go ahead.

Michael Nelson, Head of Investor Relations, Arrow Electronics: Thank you, Operator. I'd like to welcome everyone to the Arrow Electronics third quarter 2025 earnings conference call. Joining me on the call today is our Interim President and Chief Executive Officer, Bill Austin, our Chief Financial Officer, Raj Agrawal, our President of Global Components, Rick Marano, and our President of Global Enterprise Computing Solutions, Eric Nowak. During this call, we'll make forward-looking statements, including statements about our business outlook, strategies, plans, and future financial results, which are based on our predictions and expectations as of today. Our actual results could differ materially due to a number of risks and uncertainties, including due to the risk factors and other factors described in this quarter's associated earnings release and our most recent annual report on Form 10-K and other filings with the SEC.

We undertake no obligation to update publicly or revise any of the forward-looking statements as a result of new information or future events. As a reminder, some of the figures we will discuss on today's call are non-GAAP measures, which are not intended to be a substitute for our GAAP results. We've reconciled these non-GAAP measures to the most directly comparable GAAP financial measures in this quarter's associated earnings release. You can access our earnings release at investor.arrow.com, along with a replay of this call. We've also posted a slide presentation on this website to accompany our prepared remarks and encourage you to reference these slides during this webcast. Following our prepared remarks today, Bill, Raj, Rick, and Eric will be available to take your questions. I'll now hand the call over to our Interim President and CEO, Bill Austin.

Bill Austin, Interim President and CEO, Arrow Electronics: Thank you, Michael, and good afternoon, everyone. I am humbled, honored, and excited to serve as Interim President and CEO of Arrow Electronics. I have been a director at Arrow since 2020, and I deeply believe in the management team and strategic direction that we have been charting. I, along with the full board, am committed to maintaining continuity, driving execution, and delivering results for our customers, partners, and shareholders while we search for a permanent successor. During my first few weeks, I have been meeting with employees, customers, suppliers, and investors. The message is simple: there will be no change in Arrow's commitment to excellence and customer service, which has been foundational within this business for 90 years. I have also taken the opportunity to listen to all parties to get an understanding of what makes us unique, respected, and sets us apart from the competition.

Our management team remains committed to our strategic direction. We remain focused on delivering high-quality, innovative technology solutions for our stakeholders. As we review today's results and outlook, you'll see that we are executing well in a market that continues to gradually recover from a prolonged cyclical correction. The fundamentals across both our Global Components and Enterprise Computing Solutions, or ECS, businesses remain resilient, and we believe we are positioned to emerge with improved momentum. I would like to comment on the U.S. Department of Commerce's Bureau of Industry and Security, or BIS, placing three of Arrow's Chinese subsidiaries on its entity list in early October. The Arrow team took decisive action, and ten days later, BIS informed us that it intends to remove these subsidiaries from the entity list and granted a letter of authorization to resume normal business activities.

I am pleased with the prompt resolution to this matter, which underscores Arrow's robust and continuously evolving trade compliance program, a significant reason why suppliers and customers choose Arrow. Starting on slide three, in the third quarter, we delivered revenue above the midpoint of our guide, as well as earnings per share above the high end of our guidance range, with contributions from both our Global Components and ECS segments. While we are taking decisive action to navigate the current environment and continue to improve operational and financial performance, I want to remind the investment community of Arrow's strengths and opportunities for growth. Turning to slide four. Arrow is a leader in electronic components and enterprise IT industries, underpinned by a platform-based, data-driven business model. We play a pivotal role in connecting the world's leading technology manufacturers and service providers. Our business operates in a large and growing market.

We know that there are ample opportunities to grow our core product distribution business by leveraging our global logistics footprint to deliver the latest technologies to the market. The distribution total addressable market, or DTAM, for our core distribution business is over $250 billion, with demand for value-added services extending Arrow's addressable market even further. Supporting the DTAM is the strength of six primary end markets that we serve: transportation, industrial, aerospace and defense, medical, consumer electronics, and data center. We are well aligned with all six core markets and believe our strategy is on point for delivering long-term sustainable growth. As our business continues to evolve, we intend to drive profitable growth through a deliberate shift toward an increased mix of higher-margin value-added offerings in relation to the product distribution services.

Suppliers and customers can rely on Arrow for a broad range of services, deepening our legacy relationships and opening the door to new opportunities. This has been a natural extension for Arrow, building upon our core distribution platform with accretive value-added offerings like supply chain services, engineering and design services, and integration services. Drilling down into a few examples. First, within our Global Components segment, our supply chain services offering is well established and positioned to support growth in AI infrastructure build-out. For example, many of the hyperscalers and even some of the other players that are making massive infrastructure investments in large language models need help with sourcing, managing, staging, and provisioning of electronic components globally. Arrow Supply Chain Services provides this support so hyperscalers get the right source in the right region of the world at the right time so they can build out their points of presence.

In short, our customers stick to their competency, and we leverage ours. Staging and moving materials throughout a very complex global supply chain, and we do it with confidence and ease. We are effectively enabling customers to outsource a piece of their entire supply chain or a piece of their bill of material to Arrow. They can then focus on what they do best, like research and development or go-to-market. We focus on what we do best, and the result is a win-win. Supply chain services are accretive to our core business, and we expect that the global trend toward investment in AI will create a significant tailwind. Second, let's focus on our engineering and design services. Engineering and design services is another area where we become an extension of OEMs and suppliers' product development and design team.

Not for days or weeks, but for quarters and potentially years to help them design the next generation of their product portfolio. It gives us a completely different way to not only serve our OEM customers, but in some cases, even our traditional suppliers. Like supply chain services, engineering and design services carry a higher margin profile than the core business. Lastly, in our intelligence solutions business, we are involved in designing, building, and testing discrete compute hardware and associated software that enables our suppliers to quickly bring unique appliances to the market. This is a growing unit and margin accretive to the core business. Another lever for margin expansion is our ability to create a productivity flywheel that focuses on driving costs out, which in turn creates reinvestment capacity for growth and margin expansion. Our efforts to date have focused on simplifying operations, consolidating resources, and geographic realignment.

Our productivity and cost-out efforts are becoming part of everyday life at Arrow as it creates reinvestment capacity and leverage in the business. One of Arrow's key differentiators is our diversified business model, which enables Arrow to become more relevant to suppliers and customers, and it provides us the right to play more completely throughout the technology lifecycle. In other words, we participate from design and planning to deployment and further to management and support of technology solutions. Our ECS business is a nice complement to our electronics business and is comprised of hybrid cloud and infrastructure software, hardware, and services to deliver solutions such as cybersecurity, data protection, virtualization, and data intelligence, much of which is on the ramp to AI. This reflects our ongoing alignment to the higher growth demand trends across enterprise IT, many of which are now served on an as-a-service basis.

This continues to contribute to the growth of our recurring revenue volumes, now roughly one-third of our total ECS billings. Within our ECS business, we are capitalizing on an opportunity to expand our addressable market and accelerate growth through evolving strategic outsourcing arrangements, which we have implemented with multiple large suppliers. Under the strategic outsourcing model, Arrow becomes the brand and the exclusive partner of the supplier in the region, taking control of the go-to-market activities. Our diversified business model that includes electronic components and enterprise IT solutions contributes to our capital allocation strategy because it creates more resilience on the balance sheet and helps us to continue to generate strong, free cash flow over time. Our capital allocation strategy is focused in three areas: reinvesting in organic growth opportunities, M&A opportunities, and returning excess capital to shareholders.

As a reminder, we have returned approximately $3.5 billion to shareholders via share repurchase since 2020. As always, we are committed to carefully and rigorously evaluating all uses of capital with the ultimate goal of generating the highest risk-adjusted return on investment over the long term and maintaining an investment-grade credit rating. Before I turn the call over to Raj, I want to emphasize that Arrow remains committed to disciplined execution, strengthening our supplier and customer partnerships, and delivering sustainable value for our shareholders. With that, I'll now hand things over to Raj, who will walk you through the financial results in more detail. Raj?

Raj Agrawal, Chief Financial Officer, Arrow Electronics: Thanks, Bill. On slide five, sales for the third quarter increased $890 million year-over-year to $7.7 billion, exceeding the midpoint of our guidance range and up 13% versus prior year, or up 11% year-over-year on a constant currency basis. Third quarter consolidated non-GAAP gross margin of 10.8% was down approximately 70 basis points versus prior year, driven primarily by regional and customer mix in Global Components and by product mix and a $21 million charge we took in ECS, which I'll detail in a moment. The charge reduced consolidated non-GAAP gross margin by 30 basis points. Our third quarter non-GAAP operating expenses declined $15 million sequentially to $616 million. The decline was largely driven by a reversal of stock-based compensation expense and cost savings initiatives, which more than offset higher variable costs to support top-line sales growth, as well as the impacts of currency exchange rates.

In the third quarter, we generated non-GAAP operating income of $217 million, which was 2.8% of sales. Margins remained flat sequentially due to continued headwinds from our regional mix and customer mix, offset by growth in our accretive value-added offerings and continued productivity initiatives. Interest and other expense was $55 million in the third quarter, and our non-GAAP effective tax rate was 22.5%. Finally, non-GAAP diluted EPS for the third quarter was $2.41, which was above our guided range, driven by a number of factors, including favorable sales results and a lower interest expense. The aforementioned charge lowered EPS by $0.31. Turning to slide six, let's take a closer look at our Global Components business. Global Components sales increased $610 million year-over-year and $271 million sequentially to $5.6 billion, above the midpoint of our guidance range and up 5% versus prior quarter.

We continue to believe that the business remains in the early stages of a modest cyclical upturn supported by several key data points. Our book-to-bill ratios remain above parity in all three regions. Our backlog continues to improve, growing again in the third quarter. All three of our operating regions continue to perform at or better than seasonal trends. Sales for both semiconductor and IP&E components grew sequentially in the third quarter. Activity levels across our industrial and transportation markets remain healthy. These are our two largest verticals globally. Our value-added offerings, namely supply chain services, engineering and design, and integration services performed well and remain margin-accretive to our business. Stated lead times remain at low levels, and despite our continued backlog growth, visibility is muted relative to a normal environment. Inventory levels in aggregate have normalized.

However, mass market customers are not recovering as quickly as compared to larger OEMs, which is a headwind to profit margins. This is not atypical to prior cycles, and we believe this tail of the market remains healthy, and we're still seeing restocking among mass market customers. Lastly, our APAC business was first in and first out of the downturn and continues to outpace the Americas and EMEA at this stage of the upturn. This, again, is not atypical. However, it does create a headwind to overall profit margins. Taking a closer look at each of the regions, in the Americas, sales were flat sequentially at $1.7 billion, and strength in industrial and transportation markets drove our results. Sales in EMEA were $1.4 billion, with industrial and aerospace and defense markets proving resilient despite macroeconomic and geopolitical headwinds. Finally, our sales in Asia grew sequentially 12% to $2.4 billion.

Our growth was once again broad-based, highlighted by strength in industrial, compute, and consumer, along with continued EV momentum in the transportation sector, similar trends to what we observed in the second quarter. Global Components non-GAAP operating income increased $10 million sequentially to $199 million, representing 6% growth. Non-GAAP operating income margin was flat sequentially at 3.6%. Turning to slide seven in our global ECS business, Global ECS sales increased $300 million year-over-year to $2.2 billion, above the midpoint of our guidance range and up 15% versus prior year. Global ECS billings were $5.2 billion, up 14% year-over-year. We experienced continued momentum in hybrid cloud, infrastructure software, hardware, and services to deliver solutions for cybersecurity, data protection, and data intelligence related to data center activity for AI investment.

We, again, enjoyed healthy backlog growth in excess of 70% year-over-year to an all-time high as our mix of business continues to shift to more recurring multi-year revenue. As Bill mentioned, our ECS go-to-market strategy is broadening as we continue to prove the value that we provide in the distribution channel. From technical expertise and project management to mid-market channel enablement through our ArrowSphere digital platform, which supports cloud and AI scale and acceleration, our ECS business is going beyond the traditional distribution model and expanding our addressable market through new strategic outsourcing engagements. This new motion provides Arrow exclusivity, cross-sell opportunities, and stickier relationships as Arrow becomes the sole operator in the market. From a margin point of view, if we are successful in selling the product well in the strategic outsourcing model, engagement is accretive.

In the third quarter, we took a $21 million charge, largely due to lower profit expectations on multi-year contracts that have underperformed. Broadly, we believe these strategic outsourcing agreements will be margin-accretive and a key part of our long-term business. We are learning from each agreement and believe it will better position our ECS business for the future. ECS non-GAAP operating income declined $12 million year-over-year to $65 million, driven by the $21 million charge. Non-GAAP operating income margin was 3% as the charge lowered margin by 100 basis points. On slide eight, networking capital grew sequentially in the third quarter by approximately $450 million, ending the quarter at $7.3 billion, driven primarily by sales growth that led to higher accounts receivables. Our cash conversion cycle increased sequentially by five days in the third quarter to 73 days as a result.

Inventory at the end of the third quarter remained at $4.7 billion, and our inventory turns continued to improve. We will maintain our focus on matching our inventory to associated demand trends as the current cyclical recovery continues. Cash flow used for operating activities in the third quarter was $282 million. On a year-to-date basis, cash used for operating activities was $136 million, which supported revenue growth of approximately 6%. Gross balance sheet debt at the end of the third quarter was $3.1 billion. Now, turning to Q4 guidance on slide nine, we expect sales for the fourth quarter to be between $7.8 billion and $8.4 billion, representing an increase of 11% year-over-year at the midpoint of the range. We expect Global Components sales to be between $5.1 and $5.5 billion.

In Enterprise Computing Solutions, we expect sales to be between $2.7 billion and $2.9 billion, which is up approximately 13% at the midpoint year-over-year. We're assuming a tax rate in the range of 23% to 25% and interest expense of approximately $60 million. Our non-GAAP diluted earnings per share is expected to be between $3.44 and $3.64. Details of the foreign currency impact can be found in our earnings release. I want to provide some color as you build your 2026 model. At this stage, the pace of the cyclical upturn is proving to be gradual, given the level of broader macroeconomic uncertainty. Many of the primary end markets that we serve are finding momentum and achieving year-over-year growth. However, regional and customer mix dynamics are presenting headwinds to profitability.

It is our belief that, similar to cycles of the past, the West will catch up to the East along with a recovery among mass market customers. We're seeing this in the leading indicators that we've highlighted. However, the pace of this shift appears measured as we look into 2026. We will provide more color during the fourth quarter earnings call. I'll now turn things back over to Bill for some closing thoughts as we look ahead.

Bill Austin, Interim President and CEO, Arrow Electronics: Thanks, Raj. Turning to slide 10, looking forward, our key priorities are clear. First, we are seeing trends in our Global Components business that suggest we are in the early stages of a gradual recovery. Second, we will continue to leverage the strong secular trends in cloud and AI that are driving strong growth in both our supply chain services business and in our ECS segment. Third, we are focused on delivering profitable growth through a persistent shift toward an increased mix of higher margin, value-added offerings, and a continued execution of our productivity initiatives. Finally, we will continue to allocate capital to the highest return on investment opportunities with the goal of increasing returns for our shareholders. With that, Raj, Rick, Eric, and I will now take your questions. Operator, please open the call to questions.

Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. We'll take our first question from William Stein at Truist Securities.

William Stein, Analyst, Truist Securities: Great, Will. Hey, thanks for taking my question. First, Bill, thank you for this introduction. I appreciate it and congrats on the good results. I'm hoping you can maybe clarify whether you might be a candidate for the permanent CEO position or are you limiting yourself to an interim role?

Bill Austin, Interim President and CEO, Arrow Electronics: Thanks, Will. Nice to meet you. Good question. I'm really happy, humbled, and honored to be in the interim role. I'm in the interim role. I am not on the candidate list for the full-time CEO role. At the board level, we've put a search committee together led by Steve Gunby, our Chair. We have several board members and myself on the initial committee. We are fully moving down the path at this point to finding a candidate. We have selected a search firm, which I will not name at this point. We are going to be in the throes of reviewing candidates in the not-too-distant future, but I will not be one of them. I will go back to retirement. I will remain on the board. Thanks for the question.

William Stein, Analyst, Truist Securities: Got it. As a follow-up, really sort of taken into a different direction a little bit, whether it's you or Raj, could you maybe linger on the charge that the company took during the quarter? Maybe explain what this contract was. Is it still in force? Is it completed? Is it abandoned? What was the economic condition that gave rise to the charge? Thank you.

Raj Agrawal, Chief Financial Officer, Arrow Electronics: That's a good question. Since Eric Nowak is here, let me give it to him first to talk a little bit about what these contracts are in terms of strategy. I'll come back to the financial impact that we've seen.

Eric Nowak, President of Global Enterprise Computing Solutions, Arrow Electronics: Thank you, Raj. We are talking about strategic outsourcing. This is a fast-growing part of our business. Our suppliers are subcontracting to us diverse non-core parts of their business to focus on their own priorities. We are implementing these models with several large suppliers in both North America and EMEA. As Bill said already, under these agreements, Arrow is acting on behalf of the vendor for a given perimeter and becomes the brand. We take control of the go-to-market activities. This new motion provides us exclusivity, cross-selling opportunities, better margin, and stickier relationships as we become the sole operator in the market, including for the white space of the supplier and sometimes also in other parts of the world.

Raj Agrawal, Chief Financial Officer, Arrow Electronics: Yeah. Will, I would just also add that we're really excited about these contracts. We've already gotten several hundred million dollars of billings this year, and that's going to be a big growth vehicle for us longer term for ECS and for the company. We do evaluate the performance on these contracts every period, and the charge is related to underperformance. I would think about it as underabsorption of fixed fee payments that we're supposed to be making. What I would say is that we're going to continue to go through some growing pains. We're going to get some margin variability. If you were to think forward a couple of years in terms of when these things get to steady state, we should be able to achieve double the gross margins on these versus what we achieve in the rest of ECS. That's why we're really excited about it.

It should give us really good top-line growth and bottom-line growth. We've called out the $21 million charge this quarter only because it's more material in size. We have taken some smaller charges during the first part of the year, but this one was more material. We would hope that we wouldn't have anything material like that in the future, but we're likely to have some additional charges in the future that are just going to be part of our normal P&L.

Bill Austin, Interim President and CEO, Arrow Electronics: Thank you.

Operator: We'll move next to Ruplu Bhattacharya at Bank of America.

Ruplu Bhattacharya, Analyst, Bank of America: Hi. Thank you for taking my questions. Raj, I want to delve a little bit more into the ECS margins. Typically, you see a strong growth between the September quarter and the December quarter. Can you talk about what you're seeing in terms of mixed hardware versus software? How should we think about that sequential change in margins given this quarter had the charge and it was lower than expected? How should we think about that ramp between September and December?

Raj Agrawal, Chief Financial Officer, Arrow Electronics: Yeah. Look, I would think about and we quantified the impact of the charge in the third quarter. It was worth almost 100 basis points, so about 100 basis points. If you were to adjust for that, we would still. We expect fourth quarter to be very strong for the ECS business. That is really reflected in our outlook. You can see if you we gave you sort of the net sales outlook, but the billings growth, GP dollar growth, and operating profit dollar growth should be quite good in the business. Margins should also be strong compared to last year. We have no concerns about what the performance will be in the fourth quarter for ECS.

Ruplu Bhattacharya, Analyst, Bank of America: Okay. Maybe as a follow-up, if I can ask you, Raj, or Bill. Bill, by the way, congrats on the interim role. If you guys can give a little bit more detail on the comment you made about things being recovering a little bit slower, which end markets or which verticals are you seeing slower growth in? As it pertains to the outlook for regions, it looks like Asia remains strong. Just how should we think about margin progression in this environment? I know you're not giving full guide for 2026 right now, but how does this temper your thoughts 90 days ago versus what you have thought about components segment margins and ECS segment margins going forward? Thank you.

Bill Austin, Interim President and CEO, Arrow Electronics: Yeah. This is Bill. I'm going to have Rick Marano answer that question to give you the insight as to how the verticals look in Asia.

Raj Agrawal, Chief Financial Officer, Arrow Electronics: Yeah. Thank you, Ruplu, for the question. I would say kind of touching on what both Bill and Raj said overall, look, we firmly believe we're in a recovery, in the early stages of a gradual recovery in the marketplace overall. The leading indicators in all three markets remain robust, meaning book to bill, meaning backlog coverage, and design starts as well are very positive for us at this point in time. Transportation and industrial, which are two very large verticals for us, continue to respond in positive results for us. They are leading the way for us in our Asia markets as well.

Again, as Bill and Raj touched on earlier, we truly believe that based off of what we're seeing in APAC today, as the market recovers in the West and the mass market recovers, we'll see both increased sales and margin accordingly as the year goes on in 2026. Yeah. Ruplu, let me just add on. Your question around the 2026 trajectory. I did make some comments towards the end of my prepared remarks, primarily because we continue to see a gradual recovery. As we look at our leading indicators and how we see the business playing out during the course of next year, we do believe that it is recovering, that it will be a gradual recovery. As we've looked at some of the models that are out there for the space that we operate in, they seem to be quite aggressive.

We just wanted to make a point that we see more of a gradual recovery in the business next year.

Ruplu Bhattacharya, Analyst, Bank of America: Okay. Thanks for that. If I can sneak one more in, given the recovery that you're seeing in hardware and maybe it's a gradual recovery, you also talked about some new type of contracts. How would this impact your working capital and inventory requirements going forward? How should we think about cash conversion cycle in this environment? Thank you so much.

Raj Agrawal, Chief Financial Officer, Arrow Electronics: Yeah. I mean, this is more on the ECS side with the newer contracts, newer distribution agreements that we talked about. I mean, look, as I mentioned, we're still in the early stages. We're learning from how these things will ramp up. There may be some more working capital required in some of these contracts, but we're still learning and it's early stages. I think the key point to remember here, Ruplu, is that these things can be very margin-accretive. It's okay to deploy a little bit more working capital if we have margins that are coming with it. That's how we really think about it. We're certainly going to manage the working capital appropriately. ECS overall is a relatively light working capital business, and it provides us higher returns. I wouldn't see that changing time.

Ruplu Bhattacharya, Analyst, Bank of America: Okay, thank you so much for all the details.

Raj Agrawal, Chief Financial Officer, Arrow Electronics: Sure.

Operator: As a reminder, if you do have a question, press star one. We'll go next to Joe Quatrochi at Wells Fargo.

William Stein, Analyst, Truist Securities: Yeah. Thanks for taking the questions. Maybe just a couple if I could. How big is the supply chain services today? Some of the focus that you talked about in the prepared remarks of going after some of these AI insertion opportunities, what type of investment do you need to make on your side to address those?

Raj Agrawal, Chief Financial Officer, Arrow Electronics: Yeah. Let me just start off here. When we talk about value-added services, one of the items is supply chain services. The other couple of areas are engineering and design and then the integration services business that we have. Supply chain and most of these are not going to be that impactful from a revenue standpoint. They're higher margin businesses because we typically will get paid a fee for the supply chain services offering and then for the engineering and design services. We don't really talk about them in terms of what's the mix of the business. From a profit standpoint, all of these are very margin accretive. They could easily be, in some cases, double the gross margins that we get in the regular part, if I can say it that way, in the components business.

The great thing about these things is that we get paid fees for the services that we're providing. Whatever investment we're putting into this, we want to get compensated for it. We certainly want to make sure that our costs are being covered in this kind of an offering. This is really a win-win-win for all parties involved here. We're getting paid for the services we provide, and we're making money on that. The parties that we're serving here, the large customers, are also benefiting with our supply chain services. We like the business. It's a really good margin accretive part of our components business.

William Stein, Analyst, Truist Securities: Perfect. Thank you.

Raj Agrawal, Chief Financial Officer, Arrow Electronics: Sure.

Operator: That concludes our Q&A session. I will now turn the conference back over to Bill Austin for closing remarks.

Bill Austin, Interim President and CEO, Arrow Electronics: Thank you. Thank you, everybody, for joining the call today. Once again, I'm excited, humbled, and happy to be here. Looking forward to being the interim CEO at Arrow Electronics until we find the permanent CEO. I'm really glad to be leading this team among this big global powerhouse of Arrow Electronics. Thanks for joining.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

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