Press Release

Quarterly sales and EPS in line with guidance

Book to bill metrics at quarter end improved across all regions

PHOENIX--(BUSINESS WIRE)--Jan. 23, 2020-- Avnet, Inc. (Nasdaq: AVT) today announced results for its second fiscal quarter ended December 28, 2019.

Second Quarter Key Financial Highlights:

• Sales of $4.5 billion were in line with guidance.
• GAAP diluted EPS from continuing operations totaled $0.05, compared with $0.33 a year ago.
  • Non-GAAP adjusted diluted EPS totaled $0.40 compared with $1.04 a year ago.
  • Foreign exchange rates negatively impacted adjusted diluted EPS by $0.02.
• GAAP operating income totaled $46.5 million, compared with $96.1 million a year ago.
  • Adjusted operating income declined 54% year over year to $82.2 million.
• GAAP operating income margin was 1.0%, compared with 1.9% a year ago.
  • Adjusted operating income margin was 1.8%, compared with 3.5% a year ago.
• Achieved operating expense reduction goal of $50 million annually.
• Cash flow from operations totaled $149 million, and totaled $948 million over the trailing four quarter period.
• Returned $109 million to shareholders with $88 million in share repurchases and $21 million in dividends paid during the quarter.
• Reduced revolving debt by $144 million with net debt of $1.20 billion at the end of the quarter.

CEO Commentary

“While our second quarter results reflected the ongoing correction the industry has experienced, we saw good signs of stabilization across key geographies,” said Avnet CEO Bill Amelio. “Meanwhile, our transformation initiatives are helping drive significant cost savings and our new way of doing business will keep us nimble and better equipped to serve our customers over the long term. This includes growing our electronics components customer and supplier base while continuing to expand our ecosystem and broaden our reach into new areas.”

Key Financial Metrics

CFO Commentary

“Progress on key goals to manage costs and generate cash continued during the quarter as we generated $149 million of cash flow from operations and completed our $50 million annual cost reduction initiative,” stated Tom Liguori, Avnet Chief Financial Officer. “Our cash flow from operations for the last four quarters now totals $948 million. Our capital allocation this quarter continued to reflect our strategy of using cash to grow the business through acquisition, returning cash to shareholders and managing our debt during the slowdown.”

Additional Second Quarter Fiscal 2020 Highlights and Key Developments

• Completed the construction of Farnell’s new state-of-the-art distribution center in Europe. This will enable significant SKU expansion as well as cost savings. Products will begin to ship from the center in early 2020.
• Announced a new IoT Partner Program at the Consumer Electronics Show (CES) this month. The new program enables partners to leverage Avnet’s IoT Connect Platform and its ecosystem of experts to build and scale IoT solutions businesses. The program also enables developers to write to, and sell, solutions in the marketplace.
• Launched MaaXBoard, a low-cost, production-ready qualified single board computer that is ideal for embedded computing and applications that leverage AI at the edge with reduced cost and time to market. MaaXBoard is based on the NXP i.MX 8M applications processor.
• Launched Avnet Guardian 100, a new wireless edge module powered by Microsoft Azure Sphere that quickly and securely adds connectivity to existing equipment so that enterprise customers can confidently leverage the benefits of IoT to innovate and deliver a better customer experience.
• Completed the acquisition of Witekio, which strengthens Avnet’s software and IoT capabilities at the device level.
• Acquired Phoenics, a well-respected regional distributor that will complement Avnet as it adds additional customers and suppliers.
• Continued to improve the customer experience by expanding E-payment options in Europe (PayPal) and China (WeChat Pay, Alipay and Union Pay).

Awards Received and Notable Client Wins During the Quarter

• Added the leader in the 5G revolution to the list of customers that relies on Avnet for complete supply chain and new product solutions.
• Added a global innovator of aerospace and defense solutions to Avnet’s customer base.
• Named Avnet Asia Pacific a Top 10 International Branded Distributor for the 18th consecutive year by Electronics Supply & Manufacturing-China (ESM-China).
• Panasonic named Farnell the “2019 High Service Distributor of the Year” (EMEA).
• Received several awards for Farnell including “Innovator of the Year in 2019” (Germany) from Design & Elektronik magazine.
• Received the Gold Superior Performance Award for Outstanding performance in OTD (on time delivery) and Quality by a leading aerospace and defense customer.

Outlook for the Third Quarter of Fiscal 2020 Ending on March 28, 2020

The above guidance is based upon market conditions existing as of today, and excludes amortization of intangibles, restructuring, integration, and other expenses and certain income tax adjustments. The above guidance assumes 100 million average diluted shares outstanding and average currency exchange rates are as shown below:

Today’s Conference Call and Webcast Details

Avnet will host a quarterly teleconference and webcast today at 2:30 p.m. MST/4:30 p.m. EST to discuss the financial results and provide a business update. To participate in the live call, dial 877-407-8112 or 201-689-8840. The slides can be accessed via Avnet’s Investor Relations web page at: www.ir.avnet.com, or from the following link Avnet Earnings Call Webcast and Slides. A replay of the conference call will be available for 30 days, through February 22 at 5:00 p.m. ET, and can be accessed by dialing: 877-660-6853 or 201-612-7415 and using Conference ID: 13697491. The webcast will be available for 90 days.

Forward-Looking Statements

This document contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are based on management’s current expectations and are subject to uncertainty and changes in facts and circumstances. The forward-looking statements herein include statements addressing future financial and operating results of Avnet and may include words such as “will,” “anticipate,” “intend,” “estimate,” “forecast,” “expect,” “feel,” “believe,” “should,” and other words and terms of similar meaning in connection with any discussions of future operating or financial performance, business prospects or market conditions. Actual results may differ materially from the expectations contained in the forward-looking statements.

The following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements: Avnet’s ability to retain and grow market share and to generate additional cash flow, risks associated with any acquisition activities and the successful integration of acquired companies, implementing and maintaining IT systems, supplier losses and changes to supplier programs, an industry down-cycle in electronic components including semiconductors, declines in sales, changes in business conditions and the economy in general, changes in market demand and pricing pressures, any material changes in the allocation of product or price discounts by suppliers, and other competitive and/or regulatory factors affecting the businesses of Avnet generally.

More detailed information about these and other factors is set forth in Avnet’s filings with the Securities and Exchange Commission, including Avnet’s reports on Form 10-K, Form 10-Q and Form 8-K. Except as required by law, Avnet is under no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

About Avnet

Avnet is a global technology solutions provider with an extensive ecosystem delivering design, product, marketing and supply chain expertise for customers at every stage of the product lifecycle. We transform ideas into intelligent solutions, reducing the time, cost and complexities of bringing products to market. For nearly a century, Avnet has helped its customers and suppliers around the world realize the transformative possibilities of technology. Learn more about Avnet at www.avnet.com. (AVT_IR)

Non-GAAP Financial Information

In addition to disclosing financial results that are determined in accordance with generally accepted accounting principles in the United States (“GAAP”), the Company also discloses certain non-GAAP financial information including (i) adjusted operating income, (ii) adjusted operating expenses, (iii) adjusted other income (expense), (iv) adjusted income tax expense, (v) adjusted income from continuing operations, (vi) adjusted diluted earnings per share from continuing operations, and (vii) sales adjusted for the impact of significant acquisitions and other items (as defined in the Organic Sales section of this document).

There are also references to the impact of foreign currency in the discussion of the Company’s results of operations. When the U.S. Dollar strengthens and the stronger exchange rates of the current year are used to translate the results of operations of Avnet’s subsidiaries denominated in foreign currencies, the resulting impact is a decrease in U.S. Dollars of reported results. Conversely, when the U.S. Dollar weakens and the weaker exchange rates of the current year are used to translate the results of operations of Avnet’s subsidiaries denominated in foreign currencies, the resulting impact is an increase in U.S. Dollars of reported results. In the discussion of the Company’s results of operations, results excluding this impact are referred to as “constant currency.” Management believes organic sales and sales in constant currency are useful measures for evaluating current period performance as compared with prior periods and for understanding underlying trends. In order to determine the translation impact of changes in foreign currency exchange rates on sales, income or expense items for subsidiaries reporting in currencies other than the U.S. Dollar, the Company adjusts the average exchange rates used in current periods to be consistent with the average exchange rates in effect during the comparative period.

Management believes that operating income and operating expenses adjusted for restructuring, integration and other expenses, goodwill impairment expense and amortization of acquired intangible assets and other, are useful measures to help investors better assess and understand the Company’s operating performance. This is especially the case when comparing results with previous periods or forecasting performance for future periods, primarily because management views the excluded items to be outside of Avnet’s normal operating results or non-cash in nature. Management analyzes operating income and operating expenses without the impact of these items as well as other income (expense) excluding certain amounts as an indicator of ongoing margin performance and underlying trends in the business. Management also uses these non-GAAP measures to establish operational goals and, in many cases, for measuring performance for compensation purposes. Management measures operating income for its reportable segments excluding restructuring, integration and other expenses, goodwill impairment expense and amortization of acquired intangible assets and other.

Additional non-GAAP metrics management uses is adjusted operating income margin, which is defined as adjusted operating income (as defined above) divided by sales.

Management also believes income tax expense, income from continuing operations and diluted earnings per share from continuing operations adjusted for the impact of the items described above and certain items impacting other income (expense) and income tax expense are useful to investors because they provide a measure of the Company’s net profitability on a more comparable basis to historical periods and provide a more meaningful basis for forecasting future performance. Adjustments to income tax expense and the effective income tax rate include the effect of changes in tax laws including recent tax law changes in the U.S., changes in valuation allowances and unrecognized tax benefits, income tax audit settlements and adjustments to the adjusted interim effective tax rate based upon the expected annual adjusted effective tax rate. Additionally, because of management’s focus on generating shareholder value, of which net profitability is a primary driver, management believes income from continuing operations and diluted earnings per share from continuing operations excluding the impact of these items provides an important measure of the Company’s net profitability for the investing public.

Any analysis of results and outlook on a non-GAAP basis should be used as a complement to, and in conjunction with, results presented in accordance with GAAP. All amounts below relate to Avnet’s continuing operations.

Organic Sales

Organic sales is defined as sales adjusted for the impact of significant acquisitions, divestitures and other items by adjusting Avnet’s prior and current (if necessary) periods to include the sales of acquired businesses and exclude the sales of divested businesses as if the acquisitions and divestitures had occurred at the beginning of the earliest period presented. Organic sales in constant currency is defined as organic sales (as defined above) excluding the impact of changes in foreign currency exchange rates.

The following table presents reported and organic sales growth rates for the second quarter of fiscal 2020 compared to fiscal 2019.

Historical Segment Financial Information

Guidance Reconciliation

The following table presents the reconciliation of non-GAAP adjusted diluted earnings per share guidance to the expected GAAP diluted earnings per share guidance for the third quarter of fiscal 2020.

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Source: Avnet, Inc.

Investor Relations Contacts

Joe Burke, 480-643-7431
Joseph.Burke@avnet.com

Ina McGuinness, 480-643-7053
investorrelations@avnet.com

Media Relations Contact

Jeanne Forbis, 480-643-7499
jeanne.forbis@avnet.com