Avnet (NASDAQ:AVT) Q3 2026 Earnings Call

0:01 Please stand by. Our presentation will now begin. Welcome to the Avnet Third Quarter Fiscal Year twenty twenty six Earnings Call. I would now like to turn the floor over to Lisa Mueller, Director of Investor Relations for Avnet. Thank you, operator. I'd like to welcome everyone to Avnet's third quarter fiscal year twenty twenty six earnings conference call. This morning, Avnet released financial results for the third quarter of fiscal year twenty twenty six, and the release is available on the Investor Relations section of Avnet's website along with a slide presentation, which you may access at your convenience. As a reminder, some of the information contained in the news release and on this conference call contain forward looking statements that involve risks, uncertainties and assumptions that are difficult to predict.

0:53 Such forward looking statements are not a guarantee of performance, and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in Avnet's most recent Form 10 Q and 10 ks and subsequent filings with the SEC. These forward looking statements speak only as of the date of this presentation, and the company undertakes no obligation to publicly update any forward looking statements or supply new information regarding the circumstances after the date of this presentation. Please note, unless otherwise stated, all results provided will be non GAAP measures. The full non GAAP to GAAP reconciliation can be found in the press release issued today as well as in the appendix slides of today's presentation and posted on the Investor Relations website.

1:47 Today's call will be led by Phil Gallagher, Avnet's CEO and Ken Jacobson, Avnet's CFO. With that, let me turn the call over to Phil Gallagher. Phil? Thank you, Lisa, and thank you everyone for joining us on our third quarter fiscal year twenty twenty six earnings call. This was an outstanding quarter for Avnet, one that reflects both strong execution by our teams around the world and improving market conditions. Over the past several quarters and really over the past couple of years, our team has been operating in a challenging market environment. Throughout that period, we remain focused on the things we can control, supporting our customers, coordinating closely with our supplier partners, managing inventory and working capital discipline, investing in our people, digital capabilities and distribution centers with a long term view.

2:38 This quarter's results and our June quarter guidance demonstrates that focus positioned us well coming into the beginning of the up cycle. We delivered financial results that came in well above our expectations, including record sales in our electronic components business. As data center and AI demand proliferates throughout the market, we also saw broad based demand across most of our core end markets, which translated into meaningful operating margin and EPS improvement. Before we give more color on the business, I wanted to take a moment to mention we're closely monitoring the current geopolitical environment and remain mindful of the potential broader macroeconomic impact. The conflict in The Middle East had no material impact on our Q3 results outside of some increases in freight expenses due to rising fuel costs.

3:29 Now turning to our third quarter. We achieved sales of 7,100,000,000 driving a 3.5% operating margin in our Electronic Components business and a 5.2% operating margin in our Farnell business. We also reduced inventory days to 77 below our near term target of eighty days. Our double digit year on year sales growth was led by another quarter of record revenues in Asia along with better than typical seasonal growth in The Americas and Europe. From a demand perspective, market conditions continue to improve across the majority of the verticals we serve, includes data center, industrial, aerospace and defense, transportation, consumer and networking. The third quarter was led by strong demand in industrial, networking and our data center end markets.

4:17 Year over year, we also saw broad based improvements across most verticals led by the data center. Over the past ninety days, the lead time environment has shifted. Component lead time trends are increasing across many product categories. We have seen lead time extensions in over 50% of the product categories we track, traversing semiconductors and interconnect, passive, electro mechanical, with stability being reflected in the balance. While lead time extensions continue in components supporting data center and AI builds, they are now spreading the broader set of products supporting diverse end market applications. Customers are increasingly recognized as the challenges of the tightening supply environment and are turning to Avnet's proven expertise to help manage their component supply chains.

5:06 Our backlog is growing and our book to bill ratios are well above parity in all regions. In the December quarter, we saw early indicators of certain component price increases. During the March quarter, we had seen price increases across a few suppliers and technologies most predominantly related to memory. We expect to see additional price increases over the next several months and majority of which are being driven by increases in the underlying input cost of components. Ken will give more color on the impact of pricing during the quarter in his comments. Now with that, let me turn to highlights of our business. Our electronic components business delivered a record sales quarter driven by growth across all regions and strong execution.

5:52 Demand creation activity remained robust. Design wins continue to convert to sales and our interconnect passive and electromechanical or IP and E business outperformed reflecting the benefits of our technical capabilities and our focus on the total solution selling. In Asia, sales reached another record high of $3,500,000,000 in a quarter that is usually impacted by the Lunar New Year holiday. This marks our seventh consecutive quarter of year on year sales growth in the region, which now represents almost 50% of our total sales. Demand increased across all the geographies and verticals we serve led by the data center, industrial and networking markets. In March, I was able to spend some time in China with our Asia leadership team including visiting with local customers and suppliers.

6:42 This trip reinforced my belief in the opportunities for growth we see in the region that our Asia's team is capitalizing on. In EMEA, we're pleased to see continued rebound in the region with sales growth both sequentially and year on year for the second consecutive quarter. EMEA is experiencing growth across a number of verticals including industrial, networking and early signs of the long term opportunities we see in aerospace and defense. Overall, I would say the market conditions in Europe are improving although the demand environment is still mixed. We are seeing improvement in our strategic differentiators, including leading indicators in our embedded business as customers and suppliers are looking for board and display level solutions. I was able to spend some time in Germany in late March, meeting with several of our IP and E suppliers and customers at our Avnet, Avnet, Technical Conference.

7:35 The outlook and momentum I felt coming out of Europe was more encouraging than just even a few quarters ago. In The Americas, sales grew both sequentially and year over year marking our third consecutive quarter of year on year growth. Most end markets showed sequential growth led by networking while aerospace and defense, networking and industrial were the strongest end markets year over year. Our Americas region recently hosted an IP and E Summit, bringing together leaders from our top suppliers to reinforce our focus and commitment to accelerating growth in the IP and E space. Our IP and business had a record quarter growing 25% year on year. We carry a world class portfolio of IP E products and solutions and are benefiting from this multiplier effect as every active semiconductor chip requires surrounding IPD components to function. Think connectors, capacitors, passes, resistors, and sensors among other technologies.

8:37 We continue to see success driving conversations with customers about the full solutions we can provide with both our semiconductor and IP and E product offerings. Turning to our other value added drivers of profitable growth. We continue to benefit from our field application engineers, complemented by our digital design capabilities and tools. Our demand creation revenues increased sequentially by 16%. From a design opportunity standpoint, the leading indicators remain positive, which bodes well for future design wins and downstream revenue. Our supply chain services offerings continue to grow and expand with many OEMs that are household names. We are seeing opportunities and wins across many of the same verticals where we are experiencing strong growth in the core business.

9:23 These include transportation, data center and networking among others. We believe we have the opportunity and capabilities to be the leading supply chain services and solutions provider in the electronic components industry. Now turning to Farnell. We are seeing steady progress in Farnell's performance and recovery. Sales grew double digits year on year for the third consecutive quarter. Gross margins and operating margins expanded in line with expectations and the business remains on track with its return to double digit operating margins over the next several quarters. Our powerful focus is gaining traction as we leverage Avnet's scale and relationships with Farnell's capabilities and offerings.

10:08 This unique combination differentiates Avnet and strengthens our value proposition to suppliers and customers. Farnell's continued investment in its e commerce platform, customer experience and inventory proposition positions us well as demand accelerates. Throughout this cycle, we have remained committed to investing in the future of Avnet with a focus on the long term opportunities we see for the demand of electronic components. Our adaptability has never been more critical. The proliferation of electronic components continues at a rapid pace with emerging opportunities in drone technologies, robotics and edge AI as just a few examples of the future trends. We have made substantial investments in our digital platforms and capabilities, supply chain and distribution center infrastructure and engineering resources.

10:59 These investments are not just about near term efficiency. They are about future proofing our company and ensuring we can support increasingly complex supplier and customer needs as technology and supply chains evolve. At the same time, we have stayed disciplined in managing expenses, optimizing inventory and allocating capital. We have consistently said we will balance reinvestment in the business with returning capital to shareholders, all while prioritizing and maintaining a strong balance sheet. And we have delivered on those commitments. In closing, I'm extremely proud of what our team has accomplished and I'm excited for the continued recovery in our business. These results reflect not only an improving market environment, but also the resilience, experience and dedication of our team.

11:48 With the breadth of our supplier in Avant Garde, our diversified customer base and the strength of the end markets they serve, we are well positioned to deliver sustainable growth and improved returns into the future. We are thrilled by the momentum in the business and are confident in Avnet's ability to execute at a high level. So with that, I'll turn it over to Ken to dive deeper into our third quarter results. Ken? Thank you, Phil, and good morning, everyone. We appreciate your interest in Avnet. Our sales for the third quarter were approximately $7,100,000,000 above the high end of our guidance range and up 34% year over year. On a sequential basis, sales were higher by 13%. Regionally, on a year over year basis, sales increased 39% in Asia, 31% in Europe, and 27% in The Americas.

12:39 During the third quarter, sales from Asia were 49% of total sales compared to approximately 47% of sales in the year ago quarter. From an operating group perspective, electronic components had record sales during the quarter, as sales increased 35% year over year and increased 13% sequentially. In constant currency, electronic component sales increased 31% year over year. Farnell sales increased 24% year over year and 6% sequentially. In constant currency, Farnell sales increased 18% year over year. As Phil mentioned, supply dynamics have been driving some price increases, especially in memory. And in the third quarter, we saw the impact of these pricing increases in our sales growth. Approximately half of the sequential sales growth and approximately one quarter of the year over year sales growth was attributable to higher memory pricing.

13:27 For the third quarter, gross profit margin of 10.4% was down 68 basis points year over year and slightly lower sequentially. Electronic components gross profit margin was flattish sequentially and down year over year, primarily due to a combination of higher percentage of sales coming from our Asia region, as well as some differences in product and customer mix in the Western Regions. We reported higher gross profit dollars as a result of the previously mentioned price increases, although the pass through of these price increases has less of an impact on gross profit margin. As a reminder, when component prices increase, we communicate the changes to our customers and pass through the corresponding increases. From a Farnell perspective, gross profit margins were up 34 basis points year over year and were up 49 basis points sequentially, in part due to an expected improvement in product mix of on the board components.

14:17 Turning to operating expenses. SG and A expenses were $519,000,000 in the quarter, up $83,000,000 year over year and $27,000,000 sequentially. The sequential increase in SG and A is primarily from a combination of higher sales volumes, including related incentive compensation expense, as well as foreign currency. Foreign currency negatively impacted SG and A expenses by approximately $3,000,000 sequentially and $22,000,000 year over year. Excluding the impact of foreign currency, SG and A increased approximately 5% sequentially and 14% year over year. As a percentage of gross profit dollars, SG and A expenses were lower sequentially at 70% compared to 74% last quarter. As our business grows, we expect to continue to maintain our disciplined expense management and drive efficiencies in our business, while still making investments in the future.

15:08 We expect our SG and A expenses as a percentage of gross profit dollars to be in the mid-60s percentage wise over the next year. For the third quarter, we reported adjusted operating income of $221,000,000 and the total Avnet adjusted operating margin was 3.1%, an increase of nearly 40 basis points from last quarter. This represents the third consecutive quarter of adjusted operating income margin expansion. Adjusted operating income also grew more than two times sales compared to last quarter. By operating group, electronic components operating income was $235,000,000 and EC operating margin was 3.5%. A nearly 40 basis point sequential increase in EC operating margin was led by the business recovery in Europe.

15:55 This is EC's second consecutive quarter of operating margin expansion and is the highest EC operating margin since the first quarter of fiscal twenty twenty five. We continue to gain momentum in EC with the recovery of both Europe and The Americas. We currently expect our EC operating margin to reach our 4% near term goal within the next fiscal year. Operating income was $24,000,000 and our operating income margin was 5.2%, which was up 55 basis points from last quarter, reaching its highest level in three years. This is Farnell's sixth consecutive quarter of operating margin expansion. Similar to our EC business, we see momentum in Farnell and expect to continue driving operating margin expansion with the near term goal of getting back to double digit operating margins by the second half of calendar twenty twenty seven.

16:42 Turning to expenses below operating income. Third quarter interest expense was $63,000,000 and our adjusted effective income tax rate was 23%, both consistent with expectations. Adjusted diluted earnings per share of $1.48 exceeded the high end of our guidance for the quarter. Adjusted diluted earnings per share grew more than three times sales compared to last quarter. Turning to the balance sheet and liquidity. During the quarter, working capital increased by $145,000,000 sequentially, primarily due to an increase in accounts receivable driven by the growth in sales. Working capital days decreased eleven days quarter over quarter to seventy six days. From an inventory perspective, inventory increased by $168,000,000 or 3% sequentially. The increase in inventories was primarily driven by an increase in certain memory products to support supply chain services engagements and from an overall increase in inventory received at the end of the quarter.

17:36 Inventory net of accounts payable decreased by $115,000,000 compared to last quarter. We ended the quarter with seventy seven days of inventory, achieving our near term target of below eighty days, earlier than anticipated. Our EC business had seventy days of inventory, and our Farnell business had just over two hundred days of inventory. As a value added distributor in the center of the technology supply chain, inventory is a critical enabler for our business. We remain focused on making the necessary inventory investments to position ourselves appropriately to capture the numerous opportunities we see in the markets we serve. We continue to prioritize servicing our customers' suppliers' inventory needs through an overall pipeline of inventory and through a variety of supply chain programs to meet expected customer demand. Our return on working capital improved over 300 basis points sequentially from both higher operating income and the reduction in working capital days.

18:27 Continuing to expand our return on working capital is a focus across all of our businesses. We expect to achieve our near term goal for return on working capital of 16% by the second half of fiscal twenty twenty seven. In the third quarter, we used $54,000,000 of cash flow from operations to support $800,000,000 of sequential sales growth. We anticipate a use of cash flow from operations in the fourth quarter to continue supporting the sales growth, primarily in the form of accounts receivable. Cash used for capital expenditures was $17,000,000 during the quarter. In line with our stated priorities, we ended the third quarter with a gross leverage of 3.6 times, down from 3.9 times in the second quarter with approximately $1,700,000,000 of available committed borrowing capacity. We believe we are on track to reduce our leverage to our previously stated target of approximately three times by the end of the calendar year.

19:18 Returning excess cash to shareholders remains a core priority of our capital allocation program. In the third quarter, we paid our quarterly dividend of $0.35 per share, or $29,000,000 bringing our year to date shareholder return to $224,000,000 including both our dividend and share repurchases. Once our leverage returns to our target levels, we expect to use a portion of free cash flow to repurchase shares. We have $226,000,000 remaining on our existing share repurchase authorization. Turning to guidance. For the fourth quarter of fiscal twenty twenty six, we are guiding sales in the range of 7,300,000,000 to $7,600,000,000 and diluted earnings per share in the range of 1.70 to $1.80 Our fourth quarter guidance assumes current market conditions persist and implies a sequential sales increase of approximately 5% at the midpoint.

20:08 The sales guidance implies sales growth across all electronic components regions. This guidance also assumes similar interest expense compared to the third quarter, an effective tax rate of between 2125%, and 83,000,000 shares outstanding on a diluted basis. This was a strong quarter with solid execution and continued recovery in the West. We are proud of our team for continuing to demonstrate the value we bring to our customers and suppliers. There is always opportunity for improvement and our goal continues to be to ensure that we remain well positioned to meet our current customer needs while taking advantage of the positive market conditions we are seeing today and are expecting in the future. With that, I will turn it over to the operator to open it up for questions. Operator? Thank you.

20:54 Ladies and gentlemen, we will now be conducting a question and answer session. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Our first question comes from the line of Melissa Fairbanks with Raymond James. Please proceed with your question. Hey guys, thanks so much. I must have hit star one early enough for a change. Congratulations on a great quarter. Glad to see the continued progress and everything.

21:40 So I know you mentioned you've seen some pricing increases from some suppliers. Obviously, memory was a very significant piece of that. But is there any way of contemplating how much of your revenue growth outside of memory has been driven by higher ASPs, even if it's just for some of the higher value components, not just the price hikes or like absolute volume growth? Have you quantified volume growth recently? Yes. Hi, Melissa. How are doing? Thanks for the comments. This is Bill. Not I mean the memory we just wanted to be fully transparent on that because it's frankly so public right now. Think you have a question on that. A lot of the research I think more of the price increase will start to come into play this quarter.

22:31 It's April 1. So we have a whole lot to calculate as far as the percentages of growth based on ASPs and the balance of the technologies. And if there were ASP increase they already would have been in the run rate from the prior quarter. So effectively the bulk was memory. That might change in Q4 here in the June quarter. I would just add I think as we go forward with other price increases we don't expect those to be anywhere near the magnitude we saw in memory and it won't be everything. Okay. Yeah. Hard to replicate that level of price increases. So maybe digging in a little bit further, you mentioned that you've had incredibly strong growth across industrial networking and data center.

23:19 Are you able to quantify how much those markets contribute to overall components revenue? Yes. So roughly you you said industrial is it somewhere 50%, 60% probably. Wow, okay. Okay, all right. That's Melissa, right? The adjustment is 30 plus percent right there. Historically, it's coming back pretty strong actually year on year. So that's roughly the numbers. Okay, perfect. Thanks very much.

24:05 Can I sneak in one more? Yes. You mentioned longer lead times are spreading across more of the portfolio. I know IP and E has had some tightness for quite some time and then some of the memory or storage stuff. But just wondering if there are any areas where you're seeing stock outs yet or maybe even double ordering the taboo phrase? Well, let me work backwards on that. On the double ordering, more our suppliers will see more of that Melissa because they could see similar orders from the same customers to multiple channels. It's tougher for us to see that. We'll see inflated demand or inflated forecast from the customers, right. So we'll and we do we are pretty disciplined around that if somebody is using 100 pieces a month for years and all of sudden they want 500 pieces per month, don't get what happened right?

25:04 So we are doing our damnedest to track that and call that out as much as we can from an analytic standpoint. As far as lead times go in stock outs, no, it's mostly memory right now. However, we are for sure seeing lead times. You already mentioned the IP and E, they've gone out a bit not to stock out levels by any stretch but they've been leaking out a bit. Discrete is a tad analogs about flat to up a tad but it's been up in storage. Storage is going out and that's going to be tied to memory more than likely. Okay. For sure. Is really trying to go out memory to push out the storage.

25:52 So yeah that's about the picture right now. Okay, perfect. Thanks very much. I appreciate all the detail. I knew you had the data, just had to write that or ask the right questions. Thanks, Thanks. We'll catch you later. Take care. Thank you. Our next question comes from the line of William Stein with Truist Securities. Please proceed with your question. Great. Thanks for taking my questions. Great to see another strong quarter and I hope you're right that we're sort of in beginning of this upturn. Phil, you mentioned strength in AI data centers driving demand. Can you remind us what your exposure is to that end market? Is that simply traditional component distribution where the ODMs are using the channel or is there some sort of supply chain service associated with that?

26:57 Any characterization of that exposure or sizing for example would be helpful. Yes, thanks Will. Thanks for the comments. Yes, so I think we estimated a couple of quarters ago somewhere in the five to 7% range by increased a little bit closer to 10% to 15% that we have exposure and to be clear in your questions to do it directly into the data center and that would be I don't know what you call traditional anymore but it's definitely tied to supply chain but it's more in the core and traditional product lines. We don't as you know we don't carry NVIDIA so it's not that. And the bulk of that selling into directly the hyperscalers and data centers is more in Asian and within Asian Taiwan.

27:46 That's what we try to track is and working to track is what other verticals are being impacted with the expansion of data center, right? Industrial and others are also seeing a lift and that's our sweet spot, right? So it's directly to the data center, we're tracking is the number I gave you and then you got the I call it the N minus one factor, right? What is the amount the industrial segment is I don't like to mention customers' names, you can manage it by power, power management, heating, cooling, HVAC, etcetera. They're also increasing and we're trying to determine how much is tied to the data center. I hope that answers. And yes, we are expanding our supply chain as a service opportunities as well, but that's not as much in that number that I gave you, that'd be more services revenue.

28:41 Thanks. One other if I can. I was a little surprised to see components grow faster than Farnell in the quarter. I think based on your comments it sounds like that's more memory driven. Maybe there's less of that in Farnell. But I would just expect that at this point in the cycle when things are, you know, you're just starting to hear about lead times stretch, prices increasing, shortages starting to show themselves that perhaps Farnell starts to be a more prominent part of the business. Is that on the common your opinion or anything you can talk about the sort of performance differential between these two because Farnell has quite a bit of gearing on the margin side?

29:33 Thank you. Yes, thanks Will. I think part of it is, we've had about three quarters of double digit year on year growth. So they've kind of gotten a whiff ahead of some of the core to balance of the core outside of Asia. The other thing is they have a lesser percentage of their business is onboard components, right. So their percentages are lower because of the MRO test and measurements big part of their business. So it's not all apples to apples like everything we have. They're not 90% onboard components, 90% let's say we have left our IP and E like we are in the core. So I think that's the biggest delta difference. And then the other one is their strongest region typically the largest region is in Europe. And as we said in the script, although we're encouraged with what we're seeing in Europe and there's for sure oxygen in Europe and that's great news for us it's still a little bit more spotty than what we see in other regions. So what we need is for Farnell to accelerate its growth in Europe as well and that you're absolutely right that will help the margin mix too.

30:43 And they don't have as much memory. Yes, don't they have the volumes of memory in the core is much higher so that would also impact it. Hope that answers mostly does. Maybe just let me tack on maybe half question. Is this perhaps related to inventory work down that's still perhaps we're done with that for the most part, but is there still more of that that's going to really make the difference in the Farnell business customers truly depleting so that they have to come reorder? Yes, I think most of that's behind us. There's still probably some visibility to everybody's inventory and the end customers writing.

31:31 I think for the most part that is behind us. And we did see I mean inside of front we have seen revenue per line item is increasing the line items themselves are increasing. Those signs we're actually pretty pleased with where the progress we're making in Farnell. There's still work to do and I know that team is on this call right now so they know that and we have our long term marching orders there and we're just going to continue to work towards those goals. Great. Thank you. Thanks Will. Thank you. Our next question comes from the line of Joe Quatrochi with Wells Fargo. Please proceed with your question.

32:19 Yeah, thanks for taking the questions. Maybe a few if I could. You know, think you said 50% of the sequential increase in revenue this quarter was related to pricing. Any help on how that contributed to this the increase in EBIT on a sequential basis? Yeah, Joe, I think how I'd characterize it as we kind of try to get it in the script is as we pass on prices, right? It does and we maintain the same gross margin but get incremental gross profit dollars. So I think it contributed to the overall drop through and operating leverage. Now again, I think a lot of what we saw outside of you know the guidance and where a lot of the beat was was in Asia you know so continue to see that trend in Asia being strong which now is you know close to 50% of our REC business so but but it helped the operating margin leverage like the other sales, but didn't have a meaningful impact on the gross margin.

33:18 Brian, I guess like on the EBIT dollar increase sequentially, fair to say that it was more than 50%? I would say it was probably around the same as the sales growth. Okay. In terms of the percentage of that coming from there. Yep, okay. And then I guess, you know, as we think about just like what's embedded in the guidance, you know, think you said earlier, right, we've seen, you know, round of price increases across maybe more of the broad analog mixed signal space that kind of started taking place in April. So, how do we think about that contemplated, I guess, in the 5% sequential growth for the June quarter? Yeah, I would say it's I think it's in there at least what we know but again it's less pronounced than what we saw last quarter right. I think it's already kind of in the Q3 run rate for the memory pricing and then some of the other things are just you know a much smaller percentage and again it's not everything and the timing is kind of throughout the quarter versus everything at the beginning of the quarter so think about yes it might be double digit increases in price but it's it's you know 10 to 20 let's say on average right?

34:27 Yes it sounds like 100. Yep. Okay and then maybe just lastly a sneak one in on the inventory you know how can you just kind of update us how you feel about your inventory positioning across just kind of the broader line card and where you see that going over the coming quarters? Yes, think we feel generally good. And again, I think Phil commented on the book to bill and backlog right which is one of our challenges we've had over the past several quarters is trying to get that visibility so we can make sure our suppliers are building the right parts that are needed. So I think we feel good there's still opportunity we have to some things that are in excess and some things that are aged right continue to turn that and move that and convert into good inventory but again we're going keep investing in inventory you know we want to make sure we're prepared and we've got enough to support the needs of the customers and the overall demand You know, but we're happy with the progress on the inventory days and we'll continue to work that where we have opportunities and continue to reinvest especially in the IP and E side of things. You know, Farnell, you know, still has some continued investment to make as well. So they're improving their inventory days as well. But there's still some things we want to make sure they're prepared as well. So again, I think you see it here continuing to kind of work down as we continue to grow.

35:50 But still opportunities for some investment and some overall efficiency there. Yes, Joe, just add to that. Mean it's a lifeblood right so inventory sometimes gets a bad word. Don't want to age in, we don't want too much of anything that we don't need but we're constantly balancing that and it's critical to obviously our suppliers that we've got the appropriate inventory and as importantly as lead times go out that we're pipelining and part of that message is to our customers to continue to give us as we talked in the script more visibility longer term. And that's starting to happen, still not across the board, that's starting to happen as well. So right now we feel good with our inventory position. We'll continue to improve it. That means both the hopefully turning it but adding the appropriate inventory from a SKU standpoint and to that point at Farnell we've actually added and this is key back to Will's question even from a NPI for new product introduction we've added over 50 almost 60,000 SKUs last year another 70,000 additional SKUs just this year and a lot of that is in the IP and E space but as well across the board in semiconductor. So maybe I a good handle on it right now and we're feeling pretty good about the position of inventory overall.

37:07 Thank you. Thanks, Joe. Thank you. Our next question comes from the line of Ruplu Bhattacharya with Bank of America. Please proceed with your question. Hi, thanks for taking my questions. So, you beat guidance for fiscal 3Q, you're guiding above seasonal for fiscal 4Q. Based on the visibility that you have, do you think that you can maintain above seasonal growth for the second half of calendar twenty six? Well, I don't typically as you know, we don't typically guide out that far, right? But again, and I really remain vigilant on this roof. So we're just managing the bookings, managing the backlog and yes, it positive at this point in time that we'll continue to see some growth as we get through the year. Summer is always tough to judge, right, with the holidays and whatnot. But we're not seeing anything that would really negate that at this point in time, think is the important point.

38:20 Okay. Maybe I can ask a follow-up to Ken. On margins, on incremental margins, revenues beat quite a bit. You came above the high end of guidance. Were you was this the incremental margin that you were expecting in the core business? And how should we think about that as we move forward? And has your expectation for Farnell margins changed? Initially, had guided on the Farnell side 50 to 100 bps of improvement every quarter. I think on the call, you said that you'll get, you're targeting double digit operating margin now by sometime in the second half, I think instead of calendar twenty seven. How should we think about that incremental margin on that side of the business? Thanks.

39:05 Yeah, I'll start with the last one first about Farnell Ruplu. And I would say, you know, I think we're tracking pretty well. We saw a nice uptick in gross margin for the on the board component mix as expected. I think Phil mentioned here is that Europe really comes back and we've had a couple quarters of growth there now but it's not the same as what we're seeing in Asia for sure or even in The Americas in terms of the growth in Europe both at Farnell and for the core business. I think if that continues to recover which we're monitoring you'll get some more uplift there. So we feel good about the progress and the guidance implies improvement in that range we were expecting in terms of the fourth quarter. I think for the quarter itself going back to the last comment you know a lot of that beat came from Asia right we expected to be down a little bit because of the Lunar New Year and it was up you know and so that's impacting the overall operating margins but think in general you know, we had good progress on operating margin expansion in EC, you know, and let's say the guidance implies, you know, further improvement there. So we're tracking pretty well and have a few quarters in a row now and then the combination of the two helps the Avnet, Inc. Operating margin expansion is still, you know, a few quarters away from kind of where our near term milestones are, but I think we're making good progress and feel good about that. And then obviously, the broader leverage and operating income dollars is much growing much faster than the sales, which is what we'd expect.

40:33 Okay, let me just ask a clarification on that. So on Farnell margins, where do you think that can get to by the end of this calendar year just so that we set our expectations? And then on, maybe my last question would be, you talked a lot about memory. How much is memory as a percent of revenue or as part of the product line? Like how much, how big is that in terms of your product line or in terms of revenue? Thanks for taking my question. Yeah, few different questions there. So I think, you know, we said 50 to 100 basis points a quarter, you know, for the final improvement. So if you take that by three quarters left in the calendar year, you get 150 to 300, right? So I think that that's not changing. And then, you know, from a memory perspective, obviously, with where pricing has gone, it's become a bigger percentage, you know, so think about, you know, roughly in the low double digit range.

41:30 And that's primarily a core business kind of comment. EC, Farnell has much would be at a much smaller concentration. Thanks for the color. Thanks for the color. You. And there are no further questions at this time. I will now turn it back to Phil Gallagher for closing remarks. Okay, thank you and thanks for everyone attending the call and I appreciate all the callbacks and the questions. So again thanks for attending today's call. We look forward to speaking everybody at our upcoming conferences and at our fourth quarter and fiscal year twenty twenty six earnings report in August. Okay, thanks a lot. Ladies and gentlemen, this does conclude today's teleconference.

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