Ladies and gentlemen, thank you for standing by, and welcome to the Arrow Electronics Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to turn the call over to Steven O’Brien, Vice President, Investor Relations. Please go ahead. Steven O’Brien: Thanks, Denise. Good day and welcome to Arrow Electronics third quarter 2020 earnings conference call. With us on the call today are Mike Long, Chairman, President and Chief Executive Officer; Chris Stansbury, Senior Vice President and Chief Financial Officer; Andy King, President, Global Components; and Sean Kerins, President, Global Enterprise Computing Solutions. During this call, we will make forward-looking statements, including statements about our business outlook, strategies 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 the risk factors in our most recent 10-K and 10-Q filings with the SEC. We undertake no obligation to update publicly or revise any of the forward-looking statements. As a reminder, some of the figures we will discuss on today’s call are non-GAAP. We have reconciled those to the most directly comparable GAAP financial measures in our earnings release. These non-GAAP measures are not intended to be a substitute for our GAAP results. You can access our earnings release at investor.arrow.com, along with the CFO commentary, the non-GAAP earnings reconciliation and a replay of today’s call. We will begin with a few minutes of prepared remarks, which will then be followed with a question-and-answer period. I’ll now hand the call to our Chairman, President and CEO, Mike Long.

Thanks, Steve. Thanks to all of you for joining us today. I’m pleased to report that our hard-working and dedicated team delivered strong financial results in the third quarter. Our reputation for reliability and consistency are the hallmarks that have allowed our customers and suppliers to place their trust in Arrow for critical engineering, design and supply chain services. To maintain that consistency, we continue to put the health of our people first, and I want to thank our employees for keeping our distribution facilities and offices running safely and smoothly, and continuing to move our business forward. As I mentioned on our prior quarterly earnings calls this year, Arrow had faced adverse conditions many times in the past and has always emerged stronger than before. Our business model is resilient and unique. Even during periods of decreased demand, our ability to generate substantial cash flow allows us to invest in areas that represent the best long-term opportunities. Our foundation will be even stronger exiting the pandemic, and already we’re seeing concrete proof of that. Global components sales returned to year-over-year growth, driven by record third quarter sales in Asia. And we’ve only just started to see the demand stabilize and recover in the Americas and Europe. Additionally, earnings per share increased 12% year-over-year, and Arrow is delivering differentiated performance, thanks to our customers and suppliers, who recognize the value-added products and services we provide. Another way we build confidence in the marketplace is to keep our balance sheet strong. Our results this quarter showed just that. Cash flow from operations totaled $275 million in the third quarter, and that’s $1.7 billion over the last 12 months. And we have reduced our debt by nearly $1.5 billion since the first quarter of 2019 when the semiconductor market correction began. Additionally,…

Thanks, Mike. Third quarter sales were $7.23 billion. Sales increased 2% quarter-over-quarter. The average euro-dollar exchange rate for the quarter was $1.17 to €1 compared to the rate of $1.12 we used for forecasting. Favorable foreign exchange increased sales growth by approximately $97 million. Global components sales were $5.31 billion. Sales were above the high end of our prior guidance and increased 5% year-over-year on a non-GAAP basis. Global components’ non-GAAP operating margin was 3.9%, down 50 basis points year-over-year. This was mainly due to regional mix with Asia contributing 49% of global components sales, up from 45% in the second quarter and 40% last year. In addition, despite significant improvement in the Americas and Europe regions as compared to the second quarter, there remains substantial opportunity for further sales recovery that should also drive future operating income leverage. Enterprise computing solutions sales of $1.92 billion decreased 7% year-over-year on a non-GAAP basis, but were near the high end of our prior expected range. Third quarter billings increased year-over-year after having been approximately flat year-over-year in the first and second quarters. We experienced strong demand for security solutions and also grew sales of services. Demand for storage and networking were weaker year-over-year. Global enterprise computing solutions non-GAAP operating income margin decreased by approximately 30 basis points year-over-year to 4.4% due to both, product and customer mix. Returning to consolidated results for the quarter. Interest and other expense of $30 million was below our prior expectation due to lower interest rates and lower borrowings. The non-GAAP effective tax rate of 23.6% was approximately in line with our expectation and was within our long-term range of 23% to 25%. Non-GAAP diluted earnings per share were $2.08, $0.38 above the high end of our prior expectation. Approximately $0.06 of the upside to both…

Certainly. [Operator Instructions] Your first question comes from Matt Sheerin with Stifel.

Yes. Thanks very much for taking the question. The question is just regarding how we should be thinking about gross margin in OpEx in the December quarter. I know there is some moving parts. It looks like the Asia business in components may be lower sequentially, seasonally. I’m wondering if that has a positive impact on gross margin, and same thing for the ECS business. In terms of what we should be thinking about kind of heading into next year in terms of that mix, because the mix seems to be working against you in terms of margins, but there’s drawn through there. Thanks.

Yes. Matt, this is Mike. Clearly, the Company is operating at a pretty good pace right now, with Asia being 50% of the global components sales. So, I know there was a time that nobody thought the company could still have a leverage in the cash flows and everything that we have with Asia being that much. But, it’s been a good year and they returned. Certainly, we would expect the mix to improve in the fourth quarter, because the third quarter is typically the Asia’s -- typically Asia’s biggest quarter due to the holiday builds and the things going in to Q4. So, we would expect things to firm up. The real question there is, when will the Americas and Europe take off? We are seeing signs now that those markets are getting better, but I wouldn’t expect them to get overly better until we get into next year. Of course, the computer products have their biggest quarter. We are excited to see that come. As you can see from what we’ve seen in that business with the work-from-home, those types of things, it’s been good for us. We do expect a bit of an acceleration in that business going in to the first quarter also. All-in-all, Matt, it’s really good news because as you know, North America and Europe are typically more profitable regions than Asia. So, it’s sort of at this point, when the volumes starts to come back there, we’re expecting another uptick in what we see.

Okay. Got it. And just in terms of follow-up. It just seems like gross margin at best will be sort of flattish to perhaps down sequentially due to that mix issue, but you also should get really strong OpEx leverage. I know you were kind of flat to down slightly year-on-year. So, should we expect sort of a similar year-on-year comparison in terms of OpEx this quarter?

I think, what you’re going to see is OpEx go up a little bit because of the change of mix. I’ll have Chris sort of highlight that.

Yes. So, Matt, just to make sure we’re aligned, because we talked about sequential and we also talked about year-over-year. So sequentially, we would expect gross margins to be up a little bit. We would expect that operating expense as a percentage of sales will come down. Dollars will be up a bit because of the sales growth. But, we expect margin -- or its operating expense as a percent of sales to come down as we drive operating leverage. So, all-in, we’re guiding to improved operating income margins sequentially in the quarter. And actually, we’ll see how it sorts itself out, but that could actually mean we’re up a little bit year-on-year in OI margin.

And just lastly, does your guidance for the component segment include incremental share gains from TI or other suppliers?

Our guidance assumes everything that we see coming our way in Q4.

Your next question comes from William Stein with Truist Securities.

I think, in the prepared remarks, you referred to the significant recovery and the sort of all-time record outlook? And it sort of makes me consider perhaps with the recovery being as strong in your business as it’s been, so my question, sort of the sustainability and follow through, through the rest of, let’s say, next -- into next year, let’s say, perhaps customers are overshooting and over ordering a little bit and building a bit of inventory. I’m wondering if you have any judgment on that. Do you think that could potentially explain what’s going on, or do you have confidence that your shipping demand, customers aren’t building any inventory? Thanks.

Yes. Let me bring it back a little bit. Remember, we started going into a downturn the prior December, I think it was, it showed earlier in the year. But, there was an economic downturn that we were starting to go through, and then COVID hit. So, COVID hit that pretty much, put the brakes on the lot. We had to put 20,000 people to work from home in a matter of a couple of weeks, and we were able to accomplish that. So that showed some resiliency and could start building back with our customers at that point. I would say that one of the reasons you’re seeing the suppliers and us sort of go up at the same time is that we’ve been through sort of the time frame that it would take for us to catch up with the suppliers and COVID was just sort of that false economic downturn as it came. We are seeing steady growth. We are seeing steady growth book-to-bill. We are not seeing crazy book-to-bill that would suggest inventory build at this point. And we’re seeing consistent order patterns from our customers or more consistency in the order patterns. And as I said to you right now, slightly, the number of customers that are slightly -- don’t have enough inventory, slightly bigger than normal, but the average number of customers that have the right inventory are within normal trends. So, we don’t see a crazy supply chain. We do see consistent growth. Our backlogs are up. The backlogs are looking solid. And the ship within the window, nothing is tail-end loaded. So, we’re feeling pretty good about going through December and into the New Year, at this point.

That’s really helpful. Maybe a follow-up, if I can. Mike, you mentioned that you expect to emerge from this downturn stronger than previously. It seems to an earlier question that TI being available effectively only through Arrow is a major advantage. Let’s put that aside for a minute. What metrics can we look at, or will you talk about to make a judgment as to a stronger business? Is it expected operating margin, what you achieve, what you can target or some other metric, perhaps growth rate?

I think, if you look at it, the growth rate within the industry is clearly one. We’ve emerged stronger, obviously, $1.5 billion less in debt. I think, you’re seeing as cash flow better now for a couple of quarters. We expect cash flow to get better going forward. Despite some of the questions on the efficiency, I think the Company is going to get even more efficient. We still have plenty of places to go that we have been investing that over the next year has increased our capacity significantly to be able to ship more product. Clearly the number of design wins that we have going on in the business would tell you right there that there’s a nice increase coming down the road. So, I would say, virtually every metric right now seems to be operating in a good way. You’re looking at it right now that a lot of the suppliers also had strong Q3 performance. So, I think what’s notable, what I can tell you is while I will never talk about one supplier, no matter how many times you guys ask or each -- or one individual supplier, no matter where it is, whether you guys want to get into the Xilinx AMD deal, the ADI Maxim deal, the GI deal, I’ll never do it. But what I can tell you is, we had very strong quarter -- we had a very strong quarter with many of our suppliers on the line card. It was a good solid quarter, across the board.

Your next question comes from Shawn Harrison with Loop.

Hi all, and congrats on the strong results. I wanted to get back to the profitability question, because you brought this up a little bit, Mike. But, last time, the components did a 5% or greater operating margin. Asia sales were, I don’t know, $700 million, $800 million a quarter lower. And so, I wonder is Europe and -- European and North American demand comes back, what does that mean for kind of future normalized margins in the business, given maybe performance right now with Asia so much stronger?

Well, I think, you could expect it to be right back up where it was before. I mean, it’s really a testament to the organization that the efficiency has got into a place it has. And the mix being at the percentages that it is for Asia right now says a lot, A, for our Asia business. It says a lot for the other businesses to remain profitable as those businesses are down. But, as far as the long-term numbers, we actually see with the situation we’re in now and how we could come out of this, greater longer term profitability than what you’ve seen in the past. And I’ll say, our engineering business is operating very strongly, right now, as you can tell by the design wins. And we fully expect that to continue, and we continue to invest in that business. And that business is even getting more efficient, which was not the expectation.

Great. Then on ECS, I guess the worry out there is that 2021, we don’t see spending come back on the on-prem side. I know, you guys have been long proponents of hybrid cloud. But, even if that weakens a little bit, what does that do to kind of the growth profile and maybe the profitability of the business as we don’t see boxes sold anymore? I know, it’s been a declining business for a while, but maybe that deceleration accelerates in the downside in 2021?

Yes. I don’t see that gloom and doom that you see. I don’t think that’s a big legitimate concern. I think, you’ll continue to see us expand in software. You’ll continue to see us expand the line card into more items that the customers are buying. You’ll continue to see expansion in networking, cloud, ArrowSphere, which are all doing very well for us right now. Sean, do you want to add a little to this because the outlook is really not bad?

Yes. Shawn, I understand your sentiment, but I’m certainly more optimistic than that as well. I mean, if you look at our hardware business in total, remember, it’s still -- at any given time, it’s roughly a third of our mix. And we do have a great big install base. And I think when the broader market comes back, we’re going to see more of that on-prem business and mission-critical application environments return. Just as a proof point for that, both our storage and compute businesses improved their year-over-year performance in Q3 compared to the first half quite significantly. And I think it speaks to the fact that there’s still pent-up demand out there in mission-critical environments that customers can’t sit on indefinitely. And I think it’s a good sign again that when the broader market returns, our installed base is going to be a benefit to us.

Our next question comes from Joe Quatrochi with Wells Fargo.

Yes. Thanks for taking the question, and congrats on the results. I was wondering if you could talk about, as we see improved demand for the other regions and maybe we start to think about some investments more in your working capital, can you talk about what level of, I guess, components growth you think about where you can still generate positive cash flows? And then, maybe dovetailing on that, is there any difference that we should think about relative to historic, just given the mix of the revenue now?

Yes. I think, one thing you’ll see, and I’ll let Chris highlight it. But, as you know, we’ve been working very hard on the cash side of our business for some time. And it used to be, we would start using cash at 10% to 15% growth. We are in a position where we think we’ll continue to throw off cash now well past that going into the next year. So, the dynamics have changed, our cash to cash days come in. We’re not seeing big credit risks. We’re not seeing craziness in the inventory. In fact, I mean, I understand you guys couple of times have mentioned, I’ve heard even on other calls is double ordering phenomena. But our inventory was down I think $200 million roughly quarter-on-quarter and the book-to-bill is up. So, we’re not seeing the dynamics that we’d use cash. And again, remember, the growth rate could be there, but it’s the rate and pace of that growth rate. So, if all of that growth came immediately tomorrow, yes, you might see a little cash usage. But, for the most part, that’s not how we’re seeing ourselves come out of this. So, I think, you’re going to see some pretty good cash benefit this year. Chris, do you want to add?

I think, Mike answered it really well. I mean, we’ve shared with you guys in the past that kind of above that 10% growth level in components, operating cash flow gets a little lean. But to Mike’s point, we’ve been very focused on getting the cash conversion cycle back down into the high-40-day range. We’re going to be very focused on maintaining that. Personally, I like the reduced credit risk exposure when we’re staying as current as we are in our receivables, and that’s not something we’re going to let go up easily, and aside from that, just our continued focus on services within our business that allow us to drive more margin, EBITDA and cash flow with less working capital investment are things we’re going to continue to focus on.

That’s super helpful. And then, just following up on that. I mean, the pace of share repo, obviously, you stepped it up this quarter sequentially. Should we think about that kind of pace going forward I guess then?

Yes. This is Mike. I think, we’ve said what our use of capital is and is going to be. And I would expect that pace for the near-term here.

Your next question comes from Adam Tindle with Raymond James.

Thanks. Good afternoon. Mike, I just wanted to start to try to understand -- you sound like you have a very positive tone, but the Q4 revenue outlook is just seasonal overall in components in the seasonal, but the environment seems better; suppliers are upbeat, whatever share shift is left to come in Q4; and then, in ECS, you’ve got the timing benefit, and we backed that out, it would be below seasonal in that. But, the hardware suppliers are talking about sequential improvement, it seems like things are upticking. So, I’m just wondering if there’s anything maybe I’m missing there or headwinds that I’m not considering trying to put the positive tone with the Q4 revenue outlook?

Well, it’s an interesting thing. You would say that if it’s seasonal, but the Q3 numbers were pretty high we think, as far as sales go. So, while you take that account is only seasonal, it was a pretty good uptick in the third quarter, and it was the uptick for the industry. So, if it was an uptick for only us and others didn’t feel it, I guess, I wouldn’t be as bullish. But, as I said before, we saw a nice uptick from several of our suppliers. It was broad-based. We saw a nice uptick in design wins, that was broad-based. We’ve seen an increase in our book-to-bill, that has been broad-based. So, that’s what I would tell you right now. And a seasonal outlook off of what we’ve come off of, I would say, if you’ve got the seasonality numbers correct, would be pretty good. But, I think, we see continued growth going in and through next year, at this point, with all of our metrics.

Okay. That’s a fair point and helpful. Maybe just as a follow-up, bigger picture on the components competitive environment. Supplier M&A is obviously heating up again, you alluded to it earlier. Last time that led to exclusive deals, share shift, you were largely a beneficiary. I’m not asking to get into individual suppliers, but maybe just reflect on what might be similar or different about this cycle of supplier consolidation from a share shift perspective, and any thoughts on distributor gross margin as that unfolds?

Mergers are inevitable. I know, to you guys, they seem like massive discrete deals one at a time. And I think that -- I don’t -- I think the industry first off is going into a growth mode. And I think that some of these mergers are for efficiency. And I think some of these mergers have a natural home and some of these mergers don’t. As I’ve said, and as you guys have said, we had a good run at it, but there were times over the last 12 years that we didn’t have such a good run at it either. But, the overall profitability of the business has been strong, and I think will continue to be strong. And I think the engineering piece does have a play in it. The ability to have the number of engineers that we have all over the world is a plus. But,I’m not expecting anything to seriously hurt us going into the New Year. I mean, I think we could be aided by some of these. And it’s an interesting -- I mean one of them sold off portions of their business to private equity. So, what would that be? They typically want as many sales as they have. So, that suggests channel reduction or not? I would say no. And some of them are just natural mergers and just stay right where they sit. Others will have a change. But, as far as thinking everything that is out there is going to have a wholesale change, I just don’t see it.

Your next question comes from Ruplu Bhattacharya with Bank of America.

Is there a way to quantify what the mix of recurring revenue was in ECS in the quarter? And as that recurring revenue mix grows, how should we think about the impact of that on your operating margins?

Yes. I don’t think we’ve put a number out on reoccurring revenue. I’m not sure how much of that we would share, for competitive reasons. I think, what we do is sort of once a year, we update you on the size of sort of our cloud and our hybrid business, and that would be scheduled to happen in the fourth quarter.

Okay. All right. Thanks for that. And I just wanted to clarify, with respect to the quarter ending dates, I think, beginning of the year, you had suggested a number of $225 million. As we look to fiscal ‘21 -- to the next year, would that same number apply? I mean, are we talking about that kind of a revenue shift $225 million, or was that only for this year?

Yes. No. So, as I was trying to cover in the guidance, what I would do is take your estimates for next year for the full year and assume about a 1% to 2% shift from fourth quarter to first quarter, because we got two calendar quarter ends in Q4 ‘20. And next year, we’re going to have one in every quarter.

Your next question comes from Nikolay Todorov with Longbow Research.

I think, you mentioned that on the components side, Asia billings remains strong. And it appears that the region is coping better than North America and Europe with the COVID wave. So, I just wonder if you expect Asia as a percent of mix to remain elevated here maybe into next year relative to historical patterns. And if that is the case, how should we think about the incremental margins in the component business? And, when can we expect that you’re going to achieve that 5% component targets on the EBIT margin?

Well, it’s pretty simple. I think, you guys have your models to do the math. You guys have this thing pretty nailed. I think, the Asia levels will not have as robust growth going into next year, as you saw this year. Their ability to cope with the virus was clearly better than the other two regions saw. Their ability to keep manufacturing going was better than we saw in the other two regions. It doesn’t take much of an uptick. I mean, if you took North America and Europe and went up 10% or so, which would not be unheard of going into next year, you’re going to be right there.

You mean next year 5% component margin is pretty achievable?

Yes. I think, you’ll kind of work into it. It isn’t going to happen in the January quarter. But, if you see the growth rates over the course of the year, it’s totally dependent upon the other regions. This performance right now is interesting because two regions are dragging, which is Europe and North America. They’re not back to growth. And right now, the book-to-bill suggests for us that Europe is coming back before North America. Good news, but it all depends when those volumes in those two regions come back. And I’m fairly bullish that they will come back and we will continue to see improvement. But, as far as to when they’ll come back fully, I don’t have that answer for you. I don’t know.

Okay.

Probably you can tell me.

Yes. I wish I can. Just as a quick follow-up on the component side. I think, you mentioned that lead times have started to tick up. I wonder if you can give us any more color maybe by product line or specific end market. What are you seeing specific to that?

Yes. We’ve seen a minor tick up. Andy, you want to add a little color to this?

Sure, Mike. Yes. As Mike mentioned, we’ve seen a minor tick up. It’s been fairly specific in certain kind of large-scale MCU -- 32-bit MCUs and analog products that’s heavily driven by consumer and by automotive growth is where we’ve seen most of the impact, Nikolay?

Okay, great. And as I switch, one question on the IT business. On-prem IT suppliers have all announced OpEx model or on-prem as a service. I just wonder if that shift starts to gain momentum as customers like to consume more on-prem hardware, the OpEx model, would that have any impact on your ability to continue to participate in that business in any way?

Sean?

Yes, sure. Nikolay, you’re exactly right. A number of our hardware suppliers are looking at deploying models that give their customers a cloud-like experience, but in a way that still keeps the infrastructure largely on-premise. And I don’t think that there’s any downside to that for us because, A, we already have the relationships; and B, in fact, we’re helping them. We can -- we can certainly help them with all of our configuration tools and expertise, and then all of our financial programs, which are so essential to as-a-service business. So, I expect that as they go down that path, we’ll continue to partner with them to help them complete that journey. It’s not unlike the software journey from perpetual to term ultimately to SaaS. And so, this doesn’t worry me 1 bit, quite frankly.

Your next question comes from Steven Fox with Fox Advisors.

Chris, I’m still trying to get my head around the idea that when you guys grow more than 10% that you’re still going to be able to throw cash off. If you’re able to do that, that’s fantastic. I mean, it has big implications for probably your equity. But, can you sort of put some parameters around that? You mentioned services in the mix helping, how do you sort of maintain service levels and grow at that rate? What else are you doing to tactically advance that? And then, I had a follow-up.

Yes. I mean, there is a few things. One is we’ve gotten, as I said, I think much more efficient on collections. We’re going to maintain that. But also, let’s not forget that the way suppliers go-to-market has changed in part, right? In some cases, we’ve got inventory that’s consigned versus inventory that’s owned. So, there’s a lot of dynamics that come into play on that. But, really, when you got above 10% in the past, there was very little to no cash flow. And we’re saying that that line now creeps up a bit, as we go forward. So, our Q4 guide is up 11%. And I think, we’re going to have decent cash flow performance in the quarter. And I think that’s just an early proof point. What I can’t give you yet is new guidance on what we think are good parameters, because we’re evolving through this as well. But, when we get a little more clear on that, we’ll definitely provide some more structure around that thinking.

Thanks for that. That’s very helpful. And then, just secondly, any color -- obviously, you talked through the mix issues on the margins, but what about if we just sort of look within each of the component regions. How are your margins trending within region, sort of like-for-like and where the headroom is going forward? Thanks.

Yes. Steve, we see them firming. I think, the situation, as we told you, in the early days, people go down and they just bring in their commodities, because nobody wants to have their lines go down over commodity sales, which are typically the lower profit sales for us. And they manage what I would call the design-win type products, as we’re seeing volumes pick up, we’re seeing more of the demand generation type products going out the door. So, that is good news. We’re also seeing the same in Asia as the design win products are starting to pick up there. That’s really the piece that we’ve always told you matters in the firming of the margins. And the trick is, the firming of the margins and then there’s the growth that is going to take place, which will be those higher end products, as we move forward and people start to get their inventories organized the way they want them. So, we do expect things to firm going into next year.

Your next question comes from Toshiya Hari with Goldman Sachs.

Hi. Thank you so much for taking the question, and congrats on the results. I just had one question, which is a follow-up to the prior one. Obviously, you guys have done really, really well in the Asia Pac region. I think, you guys talked about doubling your business over the past five years. In terms of the go-forward strategy in the region, how do you go about striking the balance between revenue share and profitability? Obviously, you want to go after both. But, to the extent you’re sort of cornered into choosing one over the other with specific -- customer-specific deals, which one would you prioritize over the next couple of years? Thank you.

Well, I think, the truth is, both. Our margins have been going up in Asia. So, we’ve seen a consistent uptick in margins, and we’ve seen a consistent uptick in growth. So, we’re not going to book orders here that we don’t make money at. That’s really the overriding rule, I guess, within the business. Our job is to design products for our suppliers. Our job is to manage the supply chain for them. And if you’re going to grow, you obviously have to generate money and you have to generate cash to grow. We are not using the cash in Asia like the old days. Because it’s moving to a more traditional type supply chain as we have seen ourselves over the last three quarters or so. It’s a business that’s starting to act a little more like the other two regions. And, I don’t expect to have to make that trade-off. But if that is trade-off sales for no profit, well, then we’re not going to do it.

Okay. And maybe as a quick follow-up, I mean, given the evolution in profitability for the region that you see internally, and I guess the growth in demand generation business in Asia. I mean, is there a point in time in maybe three years, five years where profitability in the region could converge towards the U.S. and Europe, or would that be a stretch?

Yes. Let me maybe talk to a little bit about how Asia itself has evolved and maybe take it up. Asia used to be a pure supply chain marketplace. All we did was get back-to-back orders and ship those orders. The only service Asia used was really our supply chain, or the shipping portion of what we had. We did work on the basis of each individual supplier at the time. And yes, you could say, there was some design work, but I would call it engineering help, more than I would call design. The other thing that you’re seeing is more and more designs themselves are actually moving to Asia. So, our design activity in Asia is up significantly, and in fact, is now the largest design activity region that we have. So, with that, that right there will tell you the profitability and the Asians are more apt to use our services, now engineering services than they used in the past. We’re also seeing an uptick in profitability as a result of that. And I would expect, as they become more and more self-sufficient in their own economy, it will be better for us long term.

Thank you for the context. Good luck.

Steve, you have something you want to add? Steven O’Brien: The only thing I’d add to that is you’ve got to think about Asia margins beyond OI because they’re also a lower tax rate, and it’s also inventory that turns more quickly. So, what we really look at globally across regions is the return on capital we can earn region to region. And I would say, absolutely, when it comes to return on capital, the opportunities for continued improvement and a narrowing of the performance across those regions definitely exist.

Your last question comes from Tim Yang with Citi.

Hi. Thanks for taking the question. On your Q4 guidance, I think, you have three extra selling days in the Q4 guidance. Can you maybe just quantify what’s the impact from those extra selling days for components and ECS sales guidance? And then, I have a follow-up.

Yes. It’s two days. We haven’t -- we’re not providing the math on that. But, I will kind of point back to the comments earlier in the script, which is that for components, that has very little impact. Those are usually scheduled orders and two days don’t make a difference. If anything, we’ve got OpEx dollars that are real that we have to incur during the quarter. On ECS, it’s more so -- and again, I would use my comments that I used as it relates to next year and the shift in that 1% to 2% range of the full year.

Got it. Okay. That’s helpful. Can you maybe just share your backlog and bookings on a year-over-year basis for your ECS business? I think, you mentioned the project pushout, but many investors are actually concerned about demand advantage rather than that delay. So, wondering if you can just provide some color on that front.

Well, it’s the same thing you’re seeing with the suppliers. As the suppliers start to pick up and show more opportunity, so will we. But, that business is tracking very close to what’s happening in the overall marketplace with your IT suppliers. And we are seeing more and more activity, and we do expect some things to happen over the fourth quarter. But, I think, as you get into next year, you’ll probably see some of these infrastructure investments have to ultimately come back to play. What holds them up is really a strategy of where these businesses are going to go? How much is going to be continued work for home? Is there a strategy to do that ongoing now, or is it a strategy to get everybody back in the office? I think, you have that uncertainty. So, therefore, computing these change as a result of that. But, the truth is, either one is not bad for us. So, however the companies decide to move in that direction, is going to be okay when it comes to our business.

On the bookings on a year-over-year basis or the trend, can you maybe just talk about that?

That’s more of an ongoing demand and project-focused management forecasting. And I don’t have hard bookings for you to take care or to answer that question.

There are no further questions queued up. At this time, I’ll turn the call back over to Steven O’Brien for closing remarks. Steven O’Brien: Thanks, Denise. If you have any questions about the information presented on the call today, feel free to reach out to me. Thanks for your interest in Arrow Electronics, and have a nice day.

This concludes today’s conference call. You may now disconnect.