Avnet (AVT) Q1 2026 Earnings Call Transcript

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DATE

Wednesday, Oct. 29, 2025, at 12 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Philip R. Gallagher
• Chief Financial Officer — Kenneth A. Jacobson

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TAKEAWAYS

• Sales -- $5.9 billion for Q1 FY2026, up 5% year-over-year and up 5% sequentially, exceeding the high end of guidance.
• Adjusted EPS -- $0.84 adjusted diluted earnings per share for Q1 FY2026, at the high end of guidance.
• Asia Sales Growth -- Increased 10% year-over-year in Asia and sequentially, accounting for 49% of total sales, compared to 47% in the year-ago quarter.
• Americas Sales Growth -- Rose 3% year-over-year in The Americas, marking the first annual increase since FY2023.
• EMEA Sales -- Flat year-over-year; down 6% in constant currency; improved sequentially, outperforming normal seasonality.
• Farnell Segment -- Farnell sales increased 50% year over year in the first quarter and rose 3% sequentially; operating income of $17 million and operating margin of 4.3%, which is approximately 375 basis points higher year-over-year compared to the year-ago quarter.
• Gross Margin -- 10.4% gross margin for Q1 FY2026, down 42 basis points year-over-year and down 15 basis points sequentially, driven by regional and product mix.
• Electronic Components Segment -- Operating income of $159 million; operating margin of 2.9%; fifth consecutive quarter of year-over-year sales growth in Asia.
• SG&A Expenses -- $464 million for SG&A expenses in Q1 FY2026, up $26 million year over year and $13 million sequentially, mainly from higher sales volume and employee raises; remained 76% of gross profit sequentially.
• Inventory Metrics -- Inventory days decreased three days sequentially to 92 days; Working capital days dropped four days sequentially to 95.
• Book-to-Bill Ratio -- Improved globally and exceeded parity across all regions, led by Asia and Americas.
• Dividend -- Dividend has more than doubled over the past ten fiscal years with an average annual increase of 10%.
• Share Repurchases -- 2.6 million shares repurchased for $138 million in share repurchases, including $100 million related to convertible debt issuance; 3% of outstanding shares repurchased.
• Leverage -- Gross leverage ended at 4.0x, with management guiding toward a reduction to approximately 3.0x gross leverage over the next year.
• Guidance -- Next quarter sales expected in the $5.85 billion to $6.15 billion range, with EPS between $0.90 and $1.00; implies a sequential sales increase of 2% at the midpoint.
• Operating Expenses Currency Impact -- $11 million year-over-year.

SUMMARY

Avnet (NASDAQ:AVT) leadership reported an acceleration in revenue and earnings primarily led by Asia and Farnell, with notable expansion of Asia's revenue share and a reversal of declining sales trends in the Americas. The company prioritized investments in inventory to support future sales growth and maintained above-parity book-to-bill ratios globally, reflecting a strengthening demand environment and increasing backlog.

• CEO Gallagher highlighted that "extended lead times and price increases in memory storage and certain interconnect products" are emerging, especially for data center and AI build-outs.
• Gross margin deterioration was attributed mainly to less favorable product and geographic mix, and a greater sales mix from Asia, which carries lower margins.
• Management stated the longer-term inventory days target is to "get the days down into the eighties," with expectations to reach this within the next quarter.
• Farnell's enhanced product mix in onboard components improved gross margin, yet growth in lower-margin categories limited overall gains.
• Guidance indicates ongoing sales momentum in Asia and the Americas, with European revenue expected to remain flat due to mixed demand recovery.
• Return on working capital increased 36 basis points sequentially, driven by higher operating income.
• Leadership described continued discipline in expense management and a commitment to lowering leverage, supported by ample borrowing capacity of $1.7 billion.
• Management noted continued signs of stabilizing end-markets in EMEA, a growing backlog, and sustainable demand creation activity as strategic strengths.

INDUSTRY GLOSSARY

• IP and E: Interconnect, passive, and electromechanical devices—higher-margin electronic components used in a wide array of industrial, computing, and communications applications.
• Book-to-Bill Ratio: A measure of new orders received (bookings) relative to the amount billed (shipments/revenue); ratios above 1.0 indicate rising demand and potential future revenue growth.
• Hyperscalers: Large-scale cloud service providers or technology companies operating massive data center infrastructures, typically significant buyers of advanced electronics and computing equipment.
• Onboard Components: Products such as semiconductors and integrated devices physically installed on printed circuit boards, often yielding higher margins in distribution.
• FAE: Field Application Engineer—technical experts employed by distributors to provide design support and technical guidance to customers, commonly referenced in demand creation activities.
• Turns: Industry term describing inventory or orders fulfilled and shipped within the same quarter, rather than booked in advance or added to backlog.

Full Conference Call Transcript

Philip R. Gallagher: Thank you, Lisa, and thank you, everyone, for joining us on our first quarter fiscal year 2026 earnings call. We are off to a solid start in the new fiscal year. In the first quarter, we achieved sales of $5.9 billion above guidance, and adjusted EPS of $0.84 near the high end of guidance. Our performance was led by strength in Asia and Farnell, which both had double-digit year-on-year growth. Sales in our Americas region grew year-on-year for the first time since fiscal 2023. While sales in our EMEA region were flat with the year-ago quarter, they did grow better than seasonal on a sequential basis as did all of our regions.

From a demand perspective, in the quarter we saw strength in certain key vertical segments, most notably transportation, compute, and communication. Overall, setting up lead times and pricing continue to be stable for most technologies. That said, we do see extended lead times and price increases in memory storage and certain interconnect products particularly those supporting data center and AI build-outs. On the IP and E side, lead times also continue to be stable. Our book-to-bill ratio improved globally, led by Asia, and The Americas, and all regions were above parity. Our backlog is growing and we continue to see customers placing orders within lead times which is a sign of strengthening market. Cancellations have remained at normal levels.

In the quarter, we had a modest increase in inventory to support sales growth in Asia and certain supply chain opportunities. Although we did see improvement in days of inventory on hand. We remain focused on balancing these growth opportunities with reductions in the near term and optimizing the inventory we have on hand. Now turning to our electronic components results. At the top line, our electronic components sales increased on a sequential and year-on-year basis due to a generally improving demand environment led by Asia and The Americas. In Asia, sales grew sequentially and year-on-year, and now represent just over half of EC sales. This marks our fifth consecutive quarter of year-on-year sales growth in the region.

Driven by strength across the communication, and transportation end markets. Americas are showing signs of recovery with sales growing both sequentially and year-on-year. Sales were strongest in the industrial, and communications end markets followed by transportation and consumer. In EMEA, sales were basically flat year-on-year and higher sequentially which is better than seasonal for the region. Bookings improved as the region returned from its summer slowdown. The industrial and communications end markets showed year-on-year growth while compute grew both sequentially and year-on-year. We are optimistic about continued modest improvement in Q2. We continue to see healthy design win activity and momentum in demand creation. We've recorded solid increases in demand creation revenues, and gross profit hours for the quarter.

We are also pleased with progress in our IP and E product sales. As we mentioned in the past, IP and E is one of our higher margin businesses. Sales have been steady with improving margins and doing particularly well in Asia. Now turning to Farnell. Farnell delivered sequential and year-on-year growth and experienced similar sales trends to EC with strengthening in Asia, and The Americas. Operating margin remained stable sequentially. Due mostly to increased sales of the onboard components offset by higher sales of single board computers and test and measurements. Which tend to be a bit lower in margin.

The team continues to execute on their strategy, including enhancing digital capabilities and leveraging Avnet, Inc.'s core ecosystem for new and additional opportunities. While there is still plenty of work to do, we are pleased with Farnell's progress especially given its improved performance while the macro environment in Europe its largest region, has yet to fully recover. To conclude, we are encouraged by the increasing number of positive signs in our business. We feel good about the recovery in Asia Pac. And progress in The Americas. Conditions in EMEA are stabilizing and modestly improving.

While geopolitical and market uncertainties remain, we believe our strong supplier line card and diverse customer base and the strength of the end markets they serve position us well as the market recovers. During the quarter, spent some time with the leadership teams from several of our supplier partners, both in The US and Europe. Most recently attended the Electronic Components Industry Association ECIA, conference in Chicago. Consistent with our views, our supplier partners are also seeing several positive signs including lead times extending in certain technology and discussions on actual or potential price increases.

Maintaining and strengthening our supply relationships through these challenging times has helped us navigate the market which also translate into increased value for our end customers. It is times like these that I am especially thankful for our dedicated and experienced team across our whole organization who have led us through this prolonged market cycle. I want to thank them for their efforts that continue to reinforce Avnet, Inc.'s position at the center of the technology supply chain. Helping our customers and suppliers navigate complexity and unlock new opportunities. With that, I'll turn it over to Ken to dive deeper into our first quarter results. Ken? Thank you, Phil, and good morning, everyone.

We appreciate your interest in Avnet, Inc. and for joining our first quarter earnings call.

Kenneth A. Jacobson: Our sales for the first quarter were approximately $5.9 billion above the high end of guidance of our range and up 5% both year over year and sequentially. Regionally, on a year-over-year basis, sales increased 10% in Asia and 3% in The Americas. Sales in EMEA were flat year over year and were down 6% in constant currency. From an 5% year over year and sequentially. Farnell sales increased 50% year over year and 3% sequentially. For the first quarter, gross margin of 10.4 was 42 basis points lower year over year and 15 basis points lower sequentially. The year-over-year decline is primarily driven by declines in the Western regions partially offset by improvements at Farnell.

The sequential decline in gross margin is primarily driven by a decline in Europe, partially offset by improvements in The Americas, Asia, and Farnell. The sequential gross margin declines in EMEA were primarily driven by a less favorable product and customer mix compared to last quarter. The regional mix shift to Asia, also had a negative effect on EC gross margin year over year and sequentially. Sales from the Asia region represent 49% of first quarter sales in fiscal 2026, compared to 47% in the year-ago quarter and 48% last quarter. Farnell gross margin increased both sequentially and year over year in part due to improved product mix of on the board components. Turning to operating expenses.

SG and A expenses were $464 million in the quarter, up $26 million year over year and up $13 million sequentially. Foreign currency negatively impacted operating expenses by approximately $5 million sequentially and $11 million year over year. The expected increase in sequential SG and A expenses was primarily driven by the additional sales volume and from higher salary expenses due to employee raises that took effect in the '26. Six. A percentage of gross profit dollars, SG and A expenses were flat sequentially at 76%. Overall, first quarter operating expenses were as we move through fiscal 2026, we expect expenses to be well controlled but would expect modest increases with sales growth as the market recovery unfolds.

For the first quarter, we reported adjusted operating income of $151 million and our adjusted operating margin was 2.6%. By operating group, electronic components operating income was a $159 million and EC operating margin was 2.9%. The sequential decline in EC operating margin of 11 basis was primarily due to higher SG and A expenses. Farnell operating income was $17 million and operating income margin was 4.3%. Operating income margin was up approximately 375 points year over year. And flat sequentially. Turning to expenses below operating income. First quarter interest expense $60 million decreased by $5 million year over year and was up $1 million sequentially.

Our adjusted effective income tax rate was 23% in the quarter, as expected, Adjusted diluted earnings per share of $0.84 was at the high end of our expectations for the quarter. Turning to the balance sheet and liquidity. During the quarter, working capital increased $160 million sequentially, primarily driven by a $176 million increase in receivables. The increase in inventories of a $185 million was offset by a corresponding $201 million increase in accounts payable. Excluding the impact of currency, working capital increased by a $198 million sequentially. Working capital days decreased four days quarter over quarter to ninety-five days. Inventory days decreased by three days sequentially, to ninety-two days.

Our return on working capital increased 36 basis points sequentially from higher operating income. The increase in inventories and corresponding increase in accounts payables primarily driven by increases in The Americas, to support supply chain services engagements, and increases in Asia to support overall growth. Overall, the quality, and aging of our inventory continues to improve. We remain focused on reducing inventory levels where elevated, noting that we also want to ensure our electronic components and Farnell businesses have the right inventory in our distribution centers to position ourselves appropriately as the market recovers and as lead times extend for certain products.

Our increase in working capital led an increase in debt of $323 million, We used a $145 million of cash for operations in the quarter, primarily due to the increase in receivables to support the growth in Asia revenues. From a cash flow perspective, increases in inventory were offset by increases in accounts payable. With regards to our capital allocation, we have a consistent disciplined approach. We continue to deploy cash in a manner that generates what we believe will have the greatest long-term return on investment for our shareholders. Prioritizing reinvestments in the business, and returning excess cash to shareholders. During the quarter, used for CapEx was $25 million within our expected quarterly levels.

We ended the quarter with a gross leverage of four point zero times, and we had approximately $1.7 billion of available committed borrowing capacity. We will continue to prioritize lowering our leverage to appropriate and historical levels in order to maintain a strong balance sheet. Which we continue to believe is an important aspect of having a sustainable and profitable distribution business. We anticipate reducing our leverage to approximately three point o times over the next year. We increased our quarterly dividend by approximately 6% to 35% per share. We have increased our dividend in each of the last twelve fiscal years.

We have more than doubled our dividend in the past ten fiscal years, which is an average annual dividend increase of more than 10%. In the quarter, we repurchased approximately 2.6 million shares totaling $138 million including $100 million of shares repurchased in connection with our convertible debt issuance. We repurchased 3% of outstanding shares in the first quarter and have repurchased 8% of outstanding shares over the past four quarters. Book value per share decreased to approximately $57 a share. Turning to guidance. For the 2026, we're guiding sales in the range of $5.85 billion to $6.15 billion and diluted earnings per share in the range of $0.90 to $1.

Our second quarter guidance considers the uncertainty that continues to impact the market and implies a sequential sales increase of 2% at the midpoint. This guidance assumes sequential sales growth in The Americas, and Asia, with flattish sales in Europe. This guidance also assumes similar interest expense compared to the first quarter an effective tax rate of between 21-25%, and 83 million shares outstanding on a diluted basis. In closing, our team continues to execute well against the areas we can control and we still have opportunities for improvement. Given today's rapidly changing market conditions, our team continues to demonstrate the value we bring to our customers and suppliers.

We remain confident in our approach through this market downturn will benefit our stakeholders in the long term. With that, will turn it over to the operator to open up for questions. Operator, Thank you.

Operator: Now be conducting a question and answer session. If you'd like to ask a question, please press 1 on your telephone keypad. And maybe not. To Thank you. Our first question is from William Stein. With Truist. Securities. Great. Thank you for taking my question. Congrats on the good quarter at Outlook. First, I wanted to ask Phil, you mentioned revenue in the data center. I think, AI application category. I suspect your exposure there is still relatively small compared to the overall sales. Can you just bring us up to speed on that metric, please?

Philip R. Gallagher: Sure can. Thanks, Will. I appreciate the question. Yeah. So it is relatively small. So our exposure to the hyperscalers is on a grand scheme, you know, maybe in the Asia, 7% of our business, give or take, will. Of Asia Pac, where most of that's happening right now for us. But the reason I bring it up is you know, it's well beyond the GPUs and even the FPGAs. You know, the opportunities we're seeing, you know, in storage, connectivity, power cooling, connectors, that's where we're seeing the opportunity for us right now.

And, really, I think the big value for where we sit in the technology supply chain is it's gonna enable Let's say, the really downstream opportunities is gonna be massive in particular in our MCU, MPU area. You know, we're gonna get the applications out on the edge, and that's where our customers at the sweet spot for us, you know, whether it'd predictive maintenance, smart wearables, smart agriculture, smart security and surveillance, etcetera. So we thought about AI. Yeah. We're playing in it today. We are selling into the data center, into the hyperscalers. But today, our customers are also selling into the hyperscalers.

So as we're calling on anybody in power, power management, etcetera, and you're seeing some guys announce in the EMS provider space. Some nice growth here. Well, we're gonna participate in that as well. Right? So that hope that answers the question. I'm really excited about it.

William Stein: Yeah. So it sounds like 7% of your Asia sales As a follow-up on a different topic, inventory days in the quarter were flattish, I think, I think you called out down a couple of days sequentially, but my model says roughly flattish. It's not a huge difference anyway. But we expected this number to be down more meaningfully. Maybe I just got a little bit ahead of myself, but that drove cash flows negative. In the quarter. And you talked about investing for future growth, and other things. Maybe I'm just hoping you can help set expectations going forward a bit here.

Should we expect this relatively higher number of inventory days to persist for longer term, maybe even perpetually? Or should we expect inventory days to come down over time? Thank you. Yeah. I'll let Ken answer that question. I think I think

Kenneth A. Jacobson: you know, first, think you kinda calculated end of quarter inventory. We use an average inventory, so it's little bit different in terms of how measure the inventory days. But I think we're continuing to see a trend of declines, you know, in the easy business. You know, we're down roughly ten days you know, year over year. You know, inventory went up a little bit, you know, partially in Asia. You know, and that's, you know, we don't have all the right inventory to service where the growth is. Right? So you're investing in certain inventory, but there's still opportunities including in Asia, you know, where we where we need to inventory down.

Which will help the days as well. And then for the supply chain services, we're actually seeing that business come back a little bit. It was down in FY 2025, and we're seeing that come back a little bit. And, again, some of that 's gonna turn this quarter. So there's still opportunity to go after inventory where it's in excess and to kinda drive the inventory down a little bit at the same time, you know, as the sales grow, the day should improve. So I think the expectations are still there. You know, it was a little higher than we had anticipated. Coming into the end of the quarter.

But there's nothing of concern or anything terms of the longer term trend that we would see. Because of, you know, what happened towards the end of the

Philip R. Gallagher: Yeah. I'll add to that. Well, the quality of the inventory is good. Okay. The aging and the quality is good. So we have no concerns there. And our longer term goal will get back into the eighties. So we know we wanna continue you know, it down a little bit while still making investments. Right? We still need to do that. Inventory is not a bad thing in distribution. Is actually a good thing. I think the get the days down into the eighties as we continue to drive the top line up. Up. Just

William Stein: one follow-up to that. Quantification. '80 is like in a year, in three years, any sort of trajectory you can give us would be helpful. Thank you.

Philip R. Gallagher: I think

Kenneth A. Jacobson: I think when we talk about, you know, an eight in front of it, I think by next quarter, you know, exit of the quarter, roughly ninety-one, ninety-two days. We think we'll be with an eight in front of the next quarter. And then, you know, kinda gradual projection down. Thank you.

Philip R. Gallagher: Thanks, Will. Wells Fargo.

Kenneth A. Jacobson: Yeah. Thanks for taking the question. You know, you called out EMEA being better than seasonal. In the September quarter and then you know, thinking that it could be flattish for December. You know, I can appreciate that seasonality is a little bit difficult to kinda call right now, but, like, how do we think about, I guess, the demand profile of that for the December quarter and kind of your visibility relative to seasonality in EMEA?

Philip R. Gallagher: Yeah. So I'll go first. Thanks, Joe. Positive. I mean so but modest. I think we used the word modest. You know, December quarter is usually not a growth quarter sequentially in Asia Pac. To your question on seasonality. This quarter, we're expecting modest growth. And why is that? Well, we believe Europe's about hitting the bottom. It's been a tough several years in Europe, as you know. But we're seeing the bookings positive now for a couple quarters. Backlog's building. So based on that, we think we'll see some modest growth in September to December in Europe.

Kenneth A. Jacobson: Got it. And then just trying to think about it, you know, now that the total business has returned to year over year growth, how should we think about just incremental margins for the business? Appreciating, obviously, that the geographic mix matters, but America is turning to year over year growth, think, is a positive. Yeah. Joe. I think it's a positive in terms of, you know, that'll start to give some more you know, operating leverage there and kind of start to expand the operating margins. How we look at it is the guidance implies flat gross margin year over year you know, which we think is good.

There's still some things we wanna, you know, do in terms of mix but as well as, you know, EMEA had gross margin down this quarter, but I think flat year over year at least as, know, holding our own in gross margin. But I think in next quarter, we should see a seasonal mix shift. Right? So part of it depends on what the lunar new year looks like for Asia. But just seasonal growth in the West should have a nice impact to gross margin. Which should then have some operating margin impact, all things being equal. So, you know, not ready to talk about third quarter yet, but book to bills are healthy right now.

Thanks for that. Maybe just as one last follow-up. In the prepared remarks, you talked about you know, suppliers seeing potential for price increases. Just wondering if you could maybe provide any more color on that front and just any additional details.

Philip R. Gallagher: Yeah. We're not getting too specific, Joe. It's in certain technology. Because lead times overall haven't are overall pretty unchanged. I mean, they're it's a modest increase in lead times. But for sure, some of the let's call it, the interconnect and maybe the power, you know, type of products going into the data center and hyperscalers starting to see a little inflation. And for sure, with memory. Right? With HPM taken off, there's definitely some lead time issues in memory We'll start seeing price increases there as well. And then some selective higher end technology suppliers have been calling out potential increases as well. Which caught in the higher end MCU space.

Kenneth A. Jacobson: The only other thing I'd say, Joe, is that, you know, input costs are still high. You know? So it's overall, ASPs are holding up pretty well.

Philip R. Gallagher: Thank you. Thanks, Joe. Hi. Thanks for taking my questions. I want to ask a couple of more questions on margins. So if I look at core segment margins, they were down 10 bps sequentially on $250 million higher sales sequentially.

Ruplu Bhattacharya: And look, from the guide, it looks like, you know, the trends are the same with Asia growing and America is growing as well, whereas Europe is flat. So Ken, when we think about core business margins, I mean, how should we think about that over the next couple of quarters? And what needs to happen for the margins there in the core business to get above 4% And do you think that can happen in fiscal 2026? I have a follow-up.

Kenneth A. Jacobson: Yeah. Ruplu, I'm not sure that I would wanna call fiscal 2026 core margins, you know, I guess, possible depending on where the mix shifts in the in the fourth quarter. But I think what I would say is, you know, again, we're managing gross margin at the business unit level. You know, trying to drive that, you know, a little discipline in where the EMEA margin was at, but we understand, you know, it's it's a few different things going on there, but nothing to be concerned with in terms of a longer term deterioration of the gross margin in Europe. You know, should see some improvement in gross margin as we have a seasonal mix shift.

But I think again, Asia is gonna be 50% of our business, right, it's gonna take a little longer in terms of growth. With the West to kinda get the operating margin to that 4% level. So we'll continue to kind of focus on each business and making sure they're being consistent with their gross margin but, you know, we would expect going into the second half of the year we're at least gonna get the seasonal mix shift that would occur. Absent, you know, Asia continuing to reach record levels. Right? The guidance implies record sales and in Asia.

Ruplu Bhattacharya: Okay. Yeah. No. That makes sense. Can I ask the same question on margins for Farnell? You know, if Europe remains flat from a revenue standpoint, can you still see more for net margins continue to grow 50 bps? I think you were targeting that does it depend on the overall revenue or does it is it more dependent on mix? I think you called out some mix impacts this quarter. So again, how should we think about Farnell margins going forward?

Kenneth A. Jacobson: Yeah. From a from a gross margin perspective, Ruplu, I think about Farnell being a little different than the core business. That they, you know, regionally you know, EMEA still has the best margin, but that's more because they sell more semiconductors and IP and E products. Right, relative to the to the US and Asia. But in general, you know, each region has a pretty healthy gross margin there. So regional mix isn't as impactful to Farnell, but product mix is impactful. So there's still some runway to go on Farnell gross margin as you know, the broader market recovers and the mix improves in on the board components.

We saw a little bit of uptick here you know, but I think there's still some runway there. To go. And, you know, again, going into the third quarter, in the March, you would have, you know, seasonality impacting Farnell as well because most of their business in the West, so they would still have that kind of seasonality in terms of sales demand

Philip R. Gallagher: Yeah. Rupu, just to build on Ken's point and reemphasize it, their mix is both regional, not as not as big a deal, although the tailwind that we were kinda counting on for Farnell in the September out of Europe didn't didn't come. September kinda just didn't didn't happen like we had expected. So that dampened it a little bit. And then you got to Ken's point that onboard components, you know, semis, IP and E, run at the higher margin than the test and measurement MRO. And there's a mix issue there. We're starting to see it improve. But as the as the onboard components increases, that runs a higher margin business.

That all said, our expectation is to continue to grind it out at Farnell and continue to see modest improvement sequentially quarter on quarter. Whether through revenue, profit, or OpEx.

Ruplu Bhattacharya: Got it. Can I sneak one more in for you, Phil? You've mentioned demand creation revenues and IPNE. What are those each as a percent of revenue? And are but I'm assuming these are higher margin businesses. I mean, what is the margin delta with the core business? And can they be meaningful drivers for margin upside the next couple of quarters? Thanks.

Philip R. Gallagher: Yeah. The rain I'll give you a range of what I think is what we typically do in the IP and E. So it's called 15 to 20% of our of our total components business. Roughly. And that demand creation in the twenty-eighth to 33, you know, depending on the quarter. Demand creation revenue. And call it three, 400 bps incremental margin. But keep in mind on the demand creation to get that three, 400 bps, we also have more cost. Right? Because we had FAEs and, you know, the technical support, things along those lines.

So it's not, you know, it's not it doesn't all drop because we gotta make investments to for the suppliers with the technical front end.

Ruplu Bhattacharya: Okay. Got it. Thanks for all the details. Appreciate it.

Philip R. Gallagher: Thanks, Rupul.

Melissa: Hey, guys. Thanks so much for taking my questions. I wanted to start off first with some questions around the transport business. So I think you highlighted that as being one of the areas where that you saw some favorable trends. Was that across all geographies, or was it kind of more limited to the areas where there you saw growth in Asia and The Americas?

Philip R. Gallagher: Yeah. Hey, Melissa. How you doing? It was dependent on year on year or q o q, it was up in both in Asia Pac. Right? And The Americas, we saw it up sequentially down a little bit year on year. And Europe negative in both, as you might imagine.

Melissa: Sure. Yeah. Do you have any kind of visibility into what your exposure to either Pure EV or hybrid versus know, kind of that traditional supply chain for ICE vehicles?

Philip R. Gallagher: I don't have that off the off the top. It would definitely be retiring the EV in Asia. Asia would be heavier EV. Sure. Americas would be higher combustible. And Europe will be somewhere probably in between.

Melissa: Okay. Yeah. That was a bit of a trick question. I didn't expect you to help me.

Philip R. Gallagher: No. It's fine. That's fine.

Melissa: Maybe one quick follow-up on the data center business. Especially as you're getting deeper into some of these higher value components whether it's the memory, the storage, you know, the FPGA, the interconnect, Is there any change in linearity with either how the bookings come through for that business or is it still just kind of book and ship and you see turns in the quarter.

Philip R. Gallagher: Yeah. No. It was most of those will be a chain arrangement. Okay. Melissa, so for the most part, we're gonna see it would probably for the most part, show up as a turns in the quarter because we're managing forecast. And then when the forecast flags shipment, we kinda book and bill at the same time. You know what I mean? So that we so we don't A lot of that, we don't show in the bookings long. Long term booking. It kinda happens same day almost, frankly. Once they pull it and So it's not it's it's it's in other words, it's not really it's not inflating it's not inflating the bookings unrealistic.

Melissa: Okay. Gotcha. Thanks very much. That's all for me, guys.

Philip R. Gallagher: Thanks, boys.

Operator: There are no further questions at this time. I'd like to hand the floor back over to Philip R. Gallagher for any closing comments.

Philip R. Gallagher: Great. Thank you. And I want to thank you everyone for attending today's earnings call. And I look forward to speaking to you again at our second quarter fiscal year 2026 earnings report in January. Have a great holiday.

Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

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