Arrow Electronics Reports Third-Quarter 2023 Results

CFO Commentary and Earnings Presentation

Please refer to the CFO commentary and the earnings presentation, which can be found at investor.arrow.com, as a supplement to the company’s earnings release. The company uses its website as a tool to disclose important information about the company and to comply with its disclosure obligations under Regulation Fair Disclosure.

Conference Call and Webcast Information

Arrow Electronics will host a conference call to discuss third-quarter 2023 financial results on Nov. 2, 2023, at 1:00 PM ET. Register online at https://conferencingportals.com/event/fEoxDDHd to obtain dial-in information for the live conference call. The conference call will also be available via live webcast at investor.arrow.com. Shortly after the conclusion of the conference call, a webcast replay will be available at investor.arrow.com.

About Arrow Electronics

Arrow Electronics guides innovation forward for over 210,000 leading technology manufacturers and service providers. With 2022 sales of $37 billion, Arrow develops technology solutions that help improve business and daily life. Learn more at arrow.com.

Information Relating to Forward-Looking Statements

This press release includes “forward-looking” statements, as the term is defined under the federal securities laws, including but not limited to statements regarding: Arrow’s future financial performance, including its outlook on financial results for the fourth quarter of fiscal 2023 such as sales, net income per diluted share, non-GAAP net income per diluted share, average tax rate, average diluted shares outstanding, interest and other expense, impact to sales due to changes in foreign currencies, intangible amortization expense per diluted share, restructuring & integration charges per diluted share, and expectations regarding market demand and shareholder returns. These and other forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which could cause actual results or facts to differ materially from such statements for a variety of reasons, including, but not limited to: unfavorable economic conditions; disruptions or inefficiencies in the supply chain; political instability; impacts of military conflict and sanctions; industry conditions; changes in product supply, pricing and customer demand; competition; other vagaries in the global components and the global ECS markets; deteriorating economic conditions, including economic recession, inflation, tax rates, foreign currency exchange rates, or the availability of capital; the effects of natural or man-made catastrophic events; changes in relationships with key suppliers; increased profit margin pressure; changes in legal and regulatory matters; non-compliance with certain regulations, such as export, antitrust, and anti-corruption laws; foreign tax and other loss contingencies; outbreaks, epidemics, pandemics, or public health crises; and the company's ability to generate positive cash flow. For a further discussion of these and other factors that could cause the company's future results to differ materially from any forward-looking statements, see the section entitled “Risk Factors” in the company's most recent Quarterly Report on Form 10-Q and the company's most recent Annual Report on Form 10-K, as well as in other filings the company makes with the Securities and Exchange Commission. Shareholders and other readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The company undertakes no obligation to update publicly or revise any of the forward-looking statements.

Certain Non-GAAP Financial Information

In addition to disclosing financial results that are determined in accordance with accounting principles generally accepted in the United States (“GAAP”), the company also provides certain non-GAAP financial information. The company provides non-GAAP sales, operating income, income before income taxes, provision for income taxes, consolidated net income, noncontrolling interests, net income attributable to shareholders, effective tax rate and net income per share on a diluted basis, which are non-GAAP measures adjusted for the impact of changes in foreign currencies (referred to as “changes in foreign currencies” or “on a constant currency basis”) by re-translating prior-period results at current period foreign exchange rates, identifiable intangible asset amortization, restructuring, integration, and other charges, net gains and losses on investments, and impact of tax legislation changes. Management believes that providing this additional information is useful to the reader to better assess and understand the company’s operating performance and future prospects in the same manner as management, especially when comparing results with previous periods. Management typically monitors the business as adjusted for these items, in addition to GAAP results, to understand and compare operating results across accounting periods, for internal budgeting purposes, for short- and long-term operating plans, and to evaluate the company's financial performance. However, analysis of results on a non-GAAP basis should be used as a complement to, in conjunction with, and not as a substitute for, data presented in accordance with GAAP.

ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)

	Quarter Ended						Nine Months Ended
	September 30, 2023			October 1, 2022			September 30, 2023				October 1, 2022

Sales	$	8,007,019		$	9,266,432		$	25,257,963		$	27,801,399
Cost of sales		7,027,422			8,079,520			22,098,495			24,170,769
Gross profit		979,597			1,186,912			3,159,468			3,630,630
Operating expenses:
Selling, general, and administrative expenses		563,150			634,353			1,822,783			1,931,918
Depreciation and amortization		45,005			46,230			137,948			141,787
Restructuring, integration, and other charges		31,359			3,635			44,252			11,027
		639,514			684,218			2,004,983			2,084,732
Operating income		340,083			502,694			1,154,485			1,545,898
Equity in earnings of affiliated companies		1,392			1,718			4,373			4,726
(Loss) gain on investments, net		(6,159	)		(3,480	)		4,649			(11,213	)
Employee benefit plan expense, net		(854	)		(890	)		(2,510	)		(2,614	)
Interest and other financing expense, net		(82,180	)		(50,936	)		(246,672	)		(123,427	)
Income before income taxes		252,282			449,106			914,325			1,413,370
Provision for income taxes		52,241			105,500			201,168			332,273
Consolidated net income		200,041			343,606			713,157			1,081,097
Noncontrolling interests		1,382			1,207			4,189			3,615
Net income attributable to shareholders	$	198,659		$	342,399		$	708,968		$	1,077,482
Net income per share:
Basic	$	3.57		$	5.33		$	12.43		$	16.31
Diluted	$	3.53		$	5.27		$	12.28		$	16.12
Weighted-average shares outstanding:
Basic		55,597			64,228			57,021			66,055
Diluted		56,298			64,979			57,715			66,845

ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
(Unaudited)

	September 30, 2023			December 31, 2022

ASSETS
Current assets:
Cash and cash equivalents	$	333,294		$	176,915
Accounts receivable, net		10,663,164			12,322,717
Inventories		5,805,520			5,319,369
Other current assets		503,982			521,339
Total current assets		17,305,960			18,340,340
Property, plant, and equipment, at cost:
Land		5,691			5,691
Buildings and improvements		185,790			184,211
Machinery and equipment		1,616,937			1,583,661
		1,808,418			1,773,563
Less: Accumulated depreciation and amortization		(1,272,214	)		(1,177,107	)
Property, plant, and equipment, net		536,204			596,456
Investments in affiliated companies		63,049			65,112
Intangible assets, net		134,811			159,137
Goodwill		2,021,987			2,027,626
Other assets		576,349			574,511
Total assets	$	20,638,360		$	21,763,182
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	9,090,554		$	10,460,419
Accrued expenses		1,256,815			1,339,302
Short-term borrowings, including current portion of long-term debt		1,588,662			589,883
Total current liabilities		11,936,031			12,389,604
Long-term debt		2,615,001			3,182,964
Other liabilities		533,853			579,261

Equity:
Shareholders’ equity:
Common stock, par value $1:
Authorized - 160,000 shares in both 2023 and 2022
Issued - 125,424 shares in both 2023 and 2022		125,424			125,424
Capital in excess of par value		1,205,788			1,208,708
Treasury stock (71,269 and 66,175 shares in 2023 and 2022, respectively), at cost		(5,307,441	)		(4,637,345	)
Retained earnings		9,923,800			9,214,832
Accumulated other comprehensive loss		(462,310	)		(365,262	)
Total shareholders’ equity		5,485,261			5,546,357
Noncontrolling interests		68,214			64,996
Total equity		5,553,475			5,611,353
Total liabilities and equity	$	20,638,360		$	21,763,182

ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

	Quarter Ended
	September 30, 2023			October 1, 2022
Cash flows from operating activities:
Consolidated net income	$	200,041		$	343,606
Adjustments to reconcile consolidated net income to net cash provided by operations:
Depreciation and amortization		45,005			46,230
Amortization of stock-based compensation		6,519			3,773
Equity in earnings of affiliated companies		(1,392	)		(1,718	)
Deferred income taxes		(19,639	)		8,152
Loss on investments, net		6,159			3,480
Other		1,092			307
Change in assets and liabilities:
Accounts receivable, net		260,749			(594,767	)
Inventories		(383,647	)		(255,871	)
Accounts payable		157,482			482,061
Accrued expenses		127,235			132,636
Other assets and liabilities		(77,897	)		(26,823	)
Net cash provided by operating activities		321,707			141,066
Cash flows from investing activities:
Acquisition of property, plant, and equipment		(20,670	)		(18,536	)
Proceeds from collections of notes receivable		—			263
Net cash used for investing activities		(20,670	)		(18,273	)
Cash flows from financing activities:
Change in short-term and other borrowings		603,693			(19,506	)
(Repayments of) proceeds from long-term bank borrowings, net		(557,308	)		328,268
Proceeds from exercise of stock options		443			762
Repurchases of common stock		(203,491	)		(241,291	)
Net cash (used for) provided by financing activities		(156,663	)		68,233
Effect of exchange rate changes on cash		(51,462	)		(82,637	)
Net increase in cash and cash equivalents		92,912			108,389
Cash and cash equivalents at beginning of period		240,382			225,596
Cash and cash equivalents at end of period	$	333,294		$	333,985

ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

	Nine Months Ended
	September 30, 2023			October 1, 2022
Cash flows from operating activities:
Consolidated net income	$	713,157		$	1,081,097
Adjustments to reconcile consolidated net income to net cash provided by (used for) operations:
Depreciation and amortization		137,948			141,787
Amortization of stock-based compensation		34,868			35,009
Equity in earnings of affiliated companies		(4,373	)		(4,726	)
Deferred income taxes		(53,038	)		1,468
(Gain) loss on investments, net		(4,649	)		11,213
Other		4,078			2,673
Change in assets and liabilities:
Accounts receivable, net		1,585,521			(628,974	)
Inventories		(525,020	)		(1,011,763	)
Accounts payable		(1,355,777	)		166,602
Accrued expenses		(88,348	)		192,759
Other assets and liabilities		(25,660	)		(128,909	)
Net cash provided by (used for) operating activities		418,707			(141,764	)
Cash flows from investing activities:
Acquisition of property, plant, and equipment		(57,775	)		(54,780	)
Proceeds from collections of notes receivable		237			20,805
Proceeds from settlement of net investment hedge		10,725			—
Net cash used for investing activities		(46,813	)		(33,975	)
Cash flows from financing activities:
Change in short-term and other borrowings		802,032			276,516
(Repayments of) proceeds from long-term bank borrowings, net		(566,734	)		1,238,268
Net proceeds from note offering		496,268			—
Redemption of notes		(300,000	)		(350,000	)
Proceeds from exercise of stock options		16,824			16,434
Repurchases of common stock		(719,708	)		(725,254	)
Settlement of forward-starting interest rate swap		56,711			—
Other		(142	)		(137	)
Net cash (used for) provided by financing activities		(214,749	)		455,827
Effect of exchange rate changes on cash		(766	)		(168,297	)
Net increase in cash and cash equivalents		156,379			111,791
Cash and cash equivalents at beginning of period		176,915			222,194
Cash and cash equivalents at end of period	$	333,294		$	333,985

ARROW ELECTRONICS, INC.
NON-GAAP SALES RECONCILIATION
(In thousands)
(Unaudited)

	Quarter Ended
	September 30, 2023		October 1, 2022			% Change

Consolidated sales, as reported	$	8,007,019	$	9,266,432		(13.6	)%
Impact of changes in foreign currencies		—		145,732
Consolidated sales, constant currency	$	8,007,019	$	9,412,164		(14.9	)%

Global components sales, as reported	$	6,245,192	$	7,300,347		(14.5	)%
Impact of changes in foreign currencies		—		96,433
Global components sales, constant currency	$	6,245,192	$	7,396,780		(15.6	)%

Americas components sales, as reported	$	1,869,934	$	2,445,647		(23.5	)%
Impact of changes in foreign currencies		—		32
Americas components sales, constant currency	$	1,869,934	$	2,445,679		(23.5	)%

Asia components sales, as reported	$	2,387,835	$	2,918,873		(18.2	)%
Impact of changes in foreign currencies		—		(27,584	)
Asia components sales, constant currency	$	2,387,835	$	2,891,289		(17.4	)%

Europe components sales, as reported	$	1,987,423	$	1,935,827		2.7	%
Impact of changes in foreign currencies		—		123,985
Europe components sales, constant currency	$	1,987,423	$	2,059,812		(3.5	)%

Global ECS sales, as reported	$	1,761,827	$	1,966,085		(10.4	)%
Impact of changes in foreign currencies		—		49,299
Global ECS sales, constant currency	$	1,761,827	$	2,015,384		(12.6	)%

Americas ECS sales, as reported	$	1,015,924	$	1,234,158		(17.7	)%
Impact of changes in foreign currencies		—		(3,105	)
Americas ECS sales, constant currency	$	1,015,924	$	1,231,053		(17.5	)%

Europe ECS sales, as reported	$	745,903	$	731,927		1.9	%
Impact of changes in foreign currencies		—		52,404
Europe ECS sales, constant currency	$	745,903	$	784,331		(4.9	)%

ARROW ELECTRONICS, INC.
NON-GAAP SALES RECONCILIATION
(In thousands)
(Unaudited)

	Nine Months Ended
	September 30, 2023		October 1, 2022			% Change

Consolidated sales, as reported	$	25,257,963	$	27,801,399		(9.1	)%
Impact of changes in foreign currencies		—		(74,613	)
Consolidated sales, constant currency	$	25,257,963	$	27,726,786		(8.9	)%

Global components sales, as reported	$	19,783,867	$	21,960,974		(9.9	)%
Impact of changes in foreign currencies		—		(68,284	)
Global components sales, constant currency	$	19,783,867	$	21,892,690		(9.6	)%

Americas components sales, as reported	$	6,169,949	$	7,265,552		(15.1	)%
Impact of changes in foreign currencies		—		(2,265	)
Americas components sales, constant currency	$	6,169,949	$	7,263,287		(15.1	)%

Asia components sales, as reported	$	7,226,871	$	9,024,188		(19.9	)%
Impact of changes in foreign currencies		—		(115,290	)
Asia components sales, constant currency	$	7,226,871	$	8,908,898		(18.9	)%

Europe components sales, as reported	$	6,387,047	$	5,671,234		12.6	%
Impact of changes in foreign currencies		—		49,271
Europe components sales, constant currency	$	6,387,047	$	5,720,505		11.7	%

Global ECS sales, as reported	$	5,474,096	$	5,840,425		(6.3	)%
Impact of changes in foreign currencies		—		(6,329	)
Global ECS sales, constant currency	$	5,474,096	$	5,834,096		(6.2	)%

Americas ECS sales, as reported	$	3,014,544	$	3,442,803		(12.4	)%
Impact of changes in foreign currencies		—		(19,051	)
Americas ECS sales, constant currency	$	3,014,544	$	3,423,752		(12.0	)%

Europe ECS sales, as reported	$	2,459,552	$	2,397,622		2.6	%
Impact of changes in foreign currencies		—		12,722
Europe ECS sales, constant currency	$	2,459,552	$	2,410,344		2.0	%

ARROW ELECTRONICS, INC.
NON-GAAP EARNINGS RECONCILIATION
(In thousands except per share data)
(Unaudited)

Three months ended September 30, 2023
	Reported			Intangible		Restructuring
	GAAP			amortization		& Integration				Non-GAAP
	measure			expense		charges ⁽¹⁾		Other ⁽²⁾		measure
Operating income	$	340,083		$	7,863	$	31,359	$	—	$	379,305
Income before income taxes		252,282			7,863		31,359		6,159		297,663
Provision for income taxes		52,241			1,959		7,321		1,476		62,997
Consolidated net income		200,041			5,904		24,038		4,683		234,666
Noncontrolling interests		1,382			138		—		—		1,520
Net income attributable to shareholders	$	198,659		$	5,766	$	24,038	$	4,683	$	233,146
Net income per diluted share ⁽³⁾	$	3.53		$	0.10	$	0.43	$	0.08	$	4.14
Effective tax rate ⁽⁴⁾		20.7	%								21.2	%


Three months ended October 1, 2022
	Reported			Intangible		Restructuring
	GAAP			amortization		& Integration				Non-GAAP
	measure			expense		charges ⁽¹⁾		Other ⁽²⁾		measure
Operating income	$	502,694		$	8,674	$	3,635	$	—	$	515,003
Income before income taxes		449,106			8,674		3,635		3,480		464,895
Provision for income taxes		105,500			2,219		892		841		109,452
Consolidated net income		343,606			6,455		2,743		2,639		355,443
Noncontrolling interests		1,207			125		—		—		1,332
Net income attributable to shareholders	$	342,399		$	6,330	$	2,743	$	2,639	$	354,111
Net income per diluted share ⁽³⁾	$	5.27		$	0.10	$	0.04	$	0.04	$	5.45
Effective tax rate ⁽⁴⁾		23.5	%								23.5	%

ARROW ELECTRONICS, INC.
NON-GAAP EARNINGS RECONCILIATION
(In thousands except per share data)
(Unaudited)

Nine months ended September 30, 2023
	Reported			Intangible		Restructuring
	GAAP			amortization		& Integration		Non-recurring						Non-GAAP
	measure			expense		charges ⁽¹⁾		tax items			Other ⁽²⁾			measure
Operating income	$	1,154,485		$	23,751	$	44,252	$	—		$	—		$	1,222,488
Income before income taxes		914,325			23,751		44,252		—			(4,649	)		977,679
Provision for income taxes		201,168			5,961		10,638		(942	)		(1,114	)		215,711
Consolidated net income		713,157			17,790		33,614		942			(3,535	)		761,968
Noncontrolling interests		4,189			408		—		—			—			4,597
Net income attributable to shareholders	$	708,968		$	17,382	$	33,614	$	942		$	(3,535	)	$	757,371
Net income per diluted share ⁽³⁾	$	12.28		$	0.30	$	0.58	$	0.02		$	(0.06	)	$	13.12
Effective tax rate ⁽⁴⁾		22.0	%												22.1	%

Nine months ended October 1, 2022
	Reported			Intangible		Restructuring
	GAAP			amortization		& Integration		Non-recurring				Non-GAAP
	measure			expense		charges ⁽¹⁾		tax items		Other ⁽²⁾		measure
Operating income	$	1,545,898		$	26,522	$	11,027	$	—	$	—	$	1,583,447
Income before income taxes		1,413,370			26,522		11,027		—		11,213		1,462,132
Provision for income taxes		332,273			6,792		2,459		—		2,711		344,235
Consolidated net income		1,081,097			19,730		8,568		—		8,502		1,117,897
Noncontrolling interests		3,615			398		—		—		—		4,013
Net income attributable to shareholders	$	1,077,482		$	19,332	$	8,568	$	—	$	8,502	$	1,113,884
Net income per diluted share ⁽³⁾	$	16.12		$	0.29	$	0.13	$	—	$	0.13	$	16.66
Effective tax rate ⁽⁴⁾		23.5	%										23.5	%

____________________

(1) Includes charges to increase the environmental remediation reserves in the amount of $20.9 million and $23.3 million for third quarter and first nine months of 2023, respectively and $1.9 million and $2.2 million for the third quarter and first nine months of 2022, respectively.

(2) Other includes (gain) loss on investments, net.

(3) The sum of the components for non-GAAP diluted EPS, as adjusted may not agree to totals, as presented, due to rounding.

(4) The items as shown in this table, represent the reconciling items for the tax rate as reported and as a non-GAAP measure.

ARROW ELECTRONICS, INC.
SEGMENT INFORMATION
(In thousands)
(Unaudited)

	Quarter Ended						Nine Months Ended
	September 30, 2023			October 1, 2022			September 30, 2023			October 1, 2022
Sales:
Global components	$	6,245,192		$	7,300,347		$	19,783,867		$	21,960,974
Global ECS		1,761,827			1,966,085			5,474,096			5,840,425
Consolidated	$	8,007,019		$	9,266,432		$	25,257,963		$	27,801,399
Operating income (loss):
Global components (a)	$	379,053		$	494,587		$	1,177,906		$	1,518,423
Global ECS (b)		54,624			83,976			221,951			253,744
Corporate (c)		(93,594	)		(75,869	)		(245,372	)		(226,269	)
Consolidated	$	340,083		$	502,694		$	1,154,485		$	1,545,898

(a)		Global components operating income includes $62.2 million in settlement charges recorded as a reduction to operating expense for the third quarter and first nine months of 2023. Charges to increase the allowance for credit losses increased $16.8 million and $11.0 million for the third quarter and first nine months of 2023, respectively, relative to the year-earlier periods.
(b)		Global ECS operating income includes charges to increase the allowance for credit losses, which increased by $20.0 million and $26.8 million for the third quarter and first nine months of 2023, respectively, relative to the year-earlier periods.
(c)		Corporate operating loss includes restructuring, integration, and other charges of $31.4 million and $44.3 million for the third quarter and first nine months of 2023, respectively, and $3.6 million and $11.0 million for the third quarter and first nine months of 2022, respectively.

NON-GAAP SEGMENT RECONCILIATION

	Quarter Ended				Nine Months Ended
	September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Global components operating income, as reported	$	379,053	$	494,587	$	1,177,906	$	1,518,423
Intangible assets amortization expense		6,640		6,691		20,064		20,303
Global components non-GAAP operating income	$	385,693	$	501,278	$	1,197,970	$	1,538,726

Global ECS operating income, as reported	$	54,624	$	83,976	$	221,951	$	253,744
Intangible assets amortization expense		1,223		1,983		3,687		6,219
Global ECS non-GAAP operating income	$	55,847	$	85,959	$	225,638	$	259,963

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