Ladies and gentlemen, thank you for standing by and welcome to the Arrow Electronics Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a quick question-and-answer session [Operator Instructions].

I would now like to turn the conference over to your speaker today, Steve O'Brien with Investor Relations. Thank you. Please go ahead, sir..

Thanks, Chris. Good day, everyone. And 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.

As a reminder, some of the figures discussed on today's call are non-GAAP. You can access our earnings release at investor.arrow.com, along with the CFO commentary, non-GAAP earnings reconciliation and webcast of this call. We will begin with a few moments of prepared remarks, which will then be followed by a question-and-answer period.

I'll now hand the call to our Chairman, President and CEO, Mike Long..

Thank you, Steve, and thanks to all of you for taking the time to join us today. During the third quarter, thanks to our team's focused execution, we delivered bottom line results that exceeded our original expectations.

We took advantage of opportunities to increase the scale of our Asia components business and our focus on realigning the enterprise computing solutions business to target newer technologies and nontraditional customers delivered strong operating income growth.

Additionally, our cost optimization program, combined with the wind down of our PC and mobility asset disposition business, has sharpened our focus on the long-term strategy to be the leading enabler of the next-generation technology solutions. Last quarter, I said that the markets where, we serve were bouncing along the bottom.

If you look at our third quarter results, it's clear that assessment was broadly correct. However, by remaining nimble and flexible during the quarter, controlling what we could control, we are able to see sales in line with our expectations.

Because we're able to adapt to the current conditions, we delivered improved profits and strong cash flow that are hallmarks of our differentiated business model. Additionally, economic returns reverted to the higher levels as we aligned our working capital investments to industry conditions.

To provide some additional context on the near-term market conditions we're facing, the demand environment for components further deteriorated during the third quarter as we continue to see the effects of the ongoing geopolitical tensions.

Demand from smaller customers who utilize more of our engineering and design services was weaker than anticipated. Tariffs and trade wars are seeing consequences that are opposite of their intended goals. Manufacturing, engineering and design work are moving east. At the same time, consumption of our European exports is declining.

Customer and supplier expectations for the demand recovery in these regions are pushing further out into 2020. Further to this point, design activities slowed consistent with sales in the third quarter.

But as I mentioned a moment ago, we're capitalizing on the strong design activity growth in Asia, which puts Arrow in a greater position to weather through these near-term challenges. Other indicators remain consistent with current market correction.

Backlog declined sequentially and year-over-year, lead times are shorter than last year but remained consistent with the second quarter and longer term averages. Overall, book-to-bill was a little below parity at 0.91 exiting third quarter and was below parity in all regions.

Our Americas customer sentiment survey results were consistent with the last two quarters, with a large portion of the customers responding they had too much inventory and a small portion reporting that they did not have enough. The ratios remain similar to those we've seen during past market downturns.

As I mentioned last quarter, the decline in global components margins has been driven mostly by customer mix, and secondly, by regional mix. Sales to our larger, better-capitalized customers who rely less on our designs and engineering services are holding up better than sales to smaller customers who rely more on our services.

Our third quarter profit performance is encouraging on this front. It demonstrates our ability to quickly adapt to change in the short-term business mix while preserving and enhancing capabilities for the long term.

Despite this challenging backdrop, I want to emphasize that Arrow's resilient business model and global reach have allowed us to remain flexible, taking advantage of near-term opportunities where they present themselves, Arrow takes a thorough bottoms-up approach to forecasting based on detailed demand analysis from our more than 200,000 customers around the globe.

We verify that data with key economic indicators and what our suppliers are saying. With this understanding, we saw no incremental contribution to our third quarter sales results from any supplier program changes, and our fourth quarter guidance assumes no incremental contribution from any recent changes.

We continue to do business the way our customers and suppliers want us to do business. Importantly, our goals remain clear. Regardless of the external factors at play, we continue to advance engineering and supply chain services to make our customers successful.

By connecting our customers with the best technologies available, we equip them with the tools to improve their products and bring them to market faster. Arrow's unique ability to deliver complete end-to-end solutions and our commitments to design and innovation have been and will continue to be our key strengths.

These strengths are what will drive our differentiated financial performance. Now turning to our enterprise computing solutions business. The demand environment has been consistent with our expectations. In aggregate, billings grew at low single-digit rates year-over-year again in the third quarter.

Our portfolio approach is designed to deliver consistent results. Newer software and hardware and hybrid cloud architectures are offsetting declines in legacy systems. The success of our approach drove a return to operating income growth in the third quarter as we expected and as we outlined last year at this time.

We expect enterprise computing solutions operating income to increase again in the fourth quarter. In closing, we continue to proactively address what we can control while remaining nimble and adaptable to face external challenges head-on. Our engineering capabilities remain our key strategic advantage.

We are confident that our engineering know-how will continue to set us apart over the long term, leading to tremendous opportunities to expand our business, drive innovation and improve people's lives. I look forward to updating you on our performance and our progress in the coming quarters.

I'll now hand the call over to Chris to provide some more details on our third quarter results and expectation for the fourth quarter..

Thanks, Mike. Third quarter sales were $7.02 billion, excluding the PC and mobility asset disposition business. Sales decreased 3% year-over-year adjusted for the wind-down and changes in foreign currencies.

The actual exchange rate for the quarter was $1.11 to €1, which is slightly less favorable than the $1.12 rate we previously used for our forecast. Global components sales were $4.99 billion, excluding the PC and mobility asset disposition business.

This is slightly below the midpoint of prior guidance and represents a 4% year-over-year decrease adjusted for the wind-down and changes in foreign currencies. Asia sales increased 5% year-over-year adjusted for changes in foreign currencies and reached an all-time record quarterly level.

For the second quarter in a row, the sales contribution percentage from Asia was also an all-time record for any quarter. As we've mentioned before, while higher Asia contribution is a headwind to margins, we do not anticipate that regional mix will be a headwind to returns. In Europe, sales decreased 2% year-over-year as adjusted.

It's worth noting that our strong execution in the European market had enabled us to deliver a remarkable 25 straight quarters or more than 6 years of uninterrupted adjusted year-over-year growth.

As Mike referenced a moment ago, the year-over-year decline in the third quarter was due to lower demand for the products made by our exporting customers in the region. In the Americas, sales decreased 15% year-over-year as adjusted. Outside of strength in aerospace and defense, we are experiencing lower demand in all of our key verticals.

Mike mentioned geopolitical tensions earlier, and we believe these are a key factor here as manufacturing continues to move offshore due to tariffs and trade restrictions. Global components operating income decreased 21% adjusted for dispositions and changes in foreign currencies. Operating margin was 4.4%.

We continue to believe we can make progress towards returning to the 5% operating margin level we achieved in 2018. This progress will come, first, through our cost optimization program and then from a return to a more optimal product mix and region mix when demand conditions improve.

Enterprise computing solutions sales of $2.03 billion decreased 2% year-over-year as adjusted. Sales decreased 4% year-over-year as reported and were above the midpoint of our prior expected range. Billings increased at a low single-digit rate year-over-year adjusted for changes in foreign currencies and increased in both regions.

Growth was driven by infrastructure software and next-generation hardware, including storage in both regions. Europe enterprise computing solutions sales were flat year-over-year as adjusted. Europe sales decreased 6% year-over-year as reported. America's sales decreased 2% year-over-year adjusted for changes in foreign currencies.

Enterprise computing solutions operating income increased 12% year-over-year and increased 14% year-over-year adjusted for changes in foreign currencies. Operating margin increased 70 basis points year-over-year. Returning to consolidated results for the quarter, total company operating expenses decreased 9% year-over-year.

Consolidated operating income decreased 17% year-over-year adjusted for the wind down disposition and changes in foreign currencies. Interest and other expense was $50 million below our prior expectation due to lower borrowings during the quarter and slightly lower interest rates on floating rate debt.

The effective tax rate for the second quarter was 22.3% below our prior target range of 23.5% to 25.5% and below our prior third quarter expectation of 25.5%.

Our lower effective tax rate was due to several factors, including greater clarity surrounding prior tax reforms, more precise measurement of tax advantaged exports sales enabled by our global ERP system and a larger relative profit contribution from lower tax jurisdictions.

We expect the fourth quarter effective tax rate to be at the low end of our target range. Based on these same factors, beyond 2019, we now expect our tax rate range to be between 23% to 25%, 50 basis points lower than our previous target range. Net income was $155 million, down 17% year-over-year as adjusted.

Earnings per share were $1.86 on a diluted basis, down 12% year-over-year on an adjusted basis. We estimate the stronger dollar negatively impacted the EPS by approximately $0.04 and negatively impacted earnings per share growth by approximately 2 percentage points compared to the third quarter of 2018. Turning to cash flow.

We reported strong operating cash flow of $287 million, driven by our greater ability to convert EBITDA to cash flow in the current weak demand environment and by a reduction in working capital, including inventory. We expect cash flow to remain strong in the fourth quarter. We remain committed to returning excess cash to shareholders.

We repurchased approximately 1.4 million shares of our stock or $100 million during the quarter. We repurchased approximately $440 million over the last 12 months and have reduced shares outstanding by approximately 6% over that time. During the third quarter, we also reduced borrowings by approximately $137 million.

Our near-term priorities continue to focus on share repurchases and debt reduction. Please keep in mind that the information I've shared during this call is a high-level summary of our financial results. For more detail regarding the business segment results, please refer to the CFO commentary that we published this morning. Now turning to our outlook.

Our guidance, again, excludes the PC and mobility asset disposition business. However, the contribution from this business will be included in our reported net income statement for the fourth quarter. As we disclosed in our press release, we will provide all the reconciling items to exclude this business from our ongoing results.

With that said, we anticipate that total fourth quarter sales will be between $7.125 billion and $7.525 billion, with global components sales between $4.625 billion and $4.825 billion and global enterprise computing solutions sales between $2.5 billion and $2.7 billion.

We expect interest and other expense to be approximately $52 million and average diluted shares outstanding of 83 million. As a result, we are forecasting earnings per share on a diluted basis, excluding any charges, to be in the range of $2.10 to $2.26. The average U.S. dollar to euro exchange rate we're using for our forecast is $1.10 to €1.

This was the average for the month of October. We estimate that changes in foreign currencies will have negative impacts on growth of approximately $100 million or 1% on sales and $0.05 or 2% on earnings per share compared to the fourth quarter of 2018. With that, I'll turn the call over to the operator for questions and answers..

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

A couple of questions for me, the first around the gross margin, which was down about 100 basis points year-over-year in each of the last two or three quarters, and Mike, I understand the mix of the business working against you, lower demand creation, higher fulfillment business.

As you look over the next 2 quarters, looks like you're not really expecting any change in the demand environment.

So should we expect the gross margin to remain at these depressed levels for a while?.

I think that certainly for the fourth quarter, Matt, we see that. I think some will depend on the strength of the first quarter and the second quarter. But what I'm hearing out there, obviously, is the same thing you're hearing, the market improving toward the second half of next year. So I wouldn't expect anything major to happen.

We might tick it up a little bit, which I would fully expect to start seeing some improvement. But as far as the wholesale change in the business until the market starts coming back, I wouldn't commit to that..

And then you, obviously, are making some of that up with fairly significant OpEx cuts down year-over-year.

Could you just share with us what's left in terms of incremental costs coming out of the business over the next two to three quarters or year?.

Sure, sure. We don't mind doing that at all. Chris can give you some of the input. Matt, what I would say is, we can probably give you stuff over the next quarter or two, but past that, it'll get fuzzy depending on demand. So go ahead..

Yes, we've gotten a lot of the costs out. There is still more to come in Q4, a little bit in Q1, Matt, and obviously, we don't stop there. We look at the business and the environment we're operating in, and we adjust as necessary. But at this point, we're obviously confident in the 130 and we'll see what happens beyond that..

And then just for my second question, which is, obviously, on a lot of investors' minds given that supplier changes we're seeing, Avnet losing the TI business, publicly talking about that, and obviously, you not losing any of that business. I know you've taken on some more fulfillment business with that supplier this year.

What's the opportunity there for that supplier? And how open are you to taking on more fulfillment business versus the demand creation model?.

Yes, Matt, I'll take that. First up, that was your third question..

Well, the first one was a two-parter..

First off, in the short term, there's really no immediate change in the way customers are doing business. In the long term, obviously, we're the global option for doing business, and we're quite happy with that. There is no change in how we operate, what we operate with, the profitability or anything like that with the line.

So contrary to some of the rumors out there, we're appreciative of the business, they're a good partner, but I can't give you any forecast at all because frankly, I don't have any. And we'll see how the market plays out and what happens over the next couple of quarters..

Your next question comes from Steven Fox of Cross Research..

A couple of questions. First, I was wondering looking at the operating expense performance quarter-over-quarter, it's down about 10%. Can you just sort of outline exactly how you got that leverage? I guess I was lacking that in my model and then I had a bigger picture follow up..

Yes. So Steve, that's really just a continuation of the cost reduction. We didn't get it all out in Q2. So we knew that the next biggest step was really Q3, and as I said, there's a bit more to come in Q4 and then Q1. But we've gotten the biggest chunk of it out by now. So that's really what's driving it.

It was a very small quarter-on-quarter volume impact, but that really wasn't material to the overall results..

And then just bigger picture, Mike, I guess, the argument is that we're bouncing around the bottom you make some points as to why things are still tough.

I'm just wondering like what you would hang your hat on as the best evidence that it doesn't get worse from here? What are you seeing in the supply chain?.

Well, I mean, I guess, what I could start with is in the middle of our call last quarter, Trump put more tariffs on the goods, and our forecast still held. What I would say is, we saw -- as I gave you the 0.91 book-to-bill, we saw improvement in October in the book-to-bill, but of course, the waterfall doesn't fill the pond yet.

It's just sort of 1 month into it. But what we're seeing is sort of steady as it goes right now. There's been -- the biggest thing that we've seen has been the business movement. Customers moving business back to China and doing things to try to avoid tariffs. I don't know. The impeachment vote today wasn't a very good outcome, I guess, for the market.

But I don't see that affecting anything. To me, it's all around these tariffs, and if the bad news is out, I would have to say I believe we're around the bottom. And we see Asia Pac improving, which is something that nobody expected. Europe's decline has been slower than expected. And North America's improvement has been a little slower than expected.

So I guess, all of those factors together, we're pretty confident we're in a stable place..

Your next question comes from Shawn Harrison of Longbow Research. Your line is open..

Hi. This is Gausia Chowdhury on behalf of Shawn. First of all, you mentioned that -- about ECS and EBIT margin improvement expanding next quarter.

Do you think ECS has really turned the quarter -- corner? And can you provide some more color on the improvement year-over-year in the fourth quarter, please?.

Did you get the question?.

I didn't get the second part of it..

You were fading out on your question in here.

Maybe you could get to the speaker a little closer?.

I'm sorry, yes. Can you -- yes, okay, sorry. So I was going to ask do you think that ECS has turned the corner and you mentioned that operating margin will continue to expand year-over-year in the fourth quarter. I was just wondering if you could provide more color on that and how much of an expansion we should expect..

We did outline a plan to everybody last year in the fourth quarter of what we expected to happen. And largely everything that we did expect has happened. I'm going to let Sean comment a little further since he did the vast majority of the work to turn this thing around. I'm going to kind of let him take the accolades for it..

Well, thanks for the question. In fact, we saw, in Q3, continued strength across our software portfolio. That's grown for us really steadily this year, and our software-based solutions selling strategy is what certainly is having an impact on our gross and operating margins, and we're going to stay the course.

We also saw some, I think, a healthy return to growth in storage after, what I would call, kind of a market pause in Q2, and that was driven by some supplier specific research activity, but more importantly, the adoption of some of the newer technologies specifically hyper-converged.

We're very well positioned with regard to the new architectures and technologies as that transition plays out. So I feel good about that going forward.

So we're going to continue to work hard on the things that will improve our margins, specifically our investments in kind of the big market and the longer tail of our ecosystem, segments that more fully appreciate our value. We're going to continue to work on line card and customer base expansion.

We have, I think, some decent progress to report across the past 12 months, and we'll continue to keep the pressure on in that regard. And I think the future outlook, notwithstanding any macro uncertainty, is brighter..

And then can you give us operating cash flow or a free cash flow goal for either the year or fourth quarter, please?.

We don't generally guide get a number, but I would tell you that we expect Q4 to be strong as it normally is in Q4. Historically, we've said that in an average year, we would generate operating cash flow of, equal to roughly 70% of GAAP net income.

We will be, if you adjust out the charges, obviously, associated with the wind down of the disposition business and the cost-reduction program, we will be in excess of 100% this year. So Q4 will be strong..

Your next question comes from Mark Delaney of Goldman Sachs..

First question was on ECS in terms of the top line. The business is coming in, I think, consistent with what the company had talked about 90 days ago in terms of slow top line growth, displacement in the macroeconomic challenges, and Sean, you talked about some of the specific product cycle drivers that's helping Arrow.

As you think into 2020, given the macroeconomic backdrop, do you think that framework of slow growth for ECS billings or revenue is the right way for investors to be thinking about the top line potential?.

Yes, I do. If you go back in history, this business has been typically the overall market in 5 to 6 range of growth consistently, over a 10-year period, so to speak. That got impacted a little bit when rotating storage went to solid state because it was $0.19 on every dollar that was out there in expenditures for IT.

So that crippled the market a little bit. We've seen more software now, more software, more security, more solutions. So I would say that this business should return to normal conditions over the next year, and I would argue that it would accelerate towards the second half. I think it's just starting to come out of it now.

I think you are seeing some stabilization in the IT market. So I would be pretty high on that business going into next year for us..

And for my follow-up question, I was hoping to ask another one related to the TI distribution changes.

And I understand at this point, Arrow doesn't have good clarity on potential financial implications longer term from that change, but just more big picture, what do you think led TI to choose to continue using Arrow as a global distributor when it decided to end its distribution agreement with several of your competitors?.

I just think, TI posted a letter on their web page around their decision-making and what they were thinking, and I'll go to that. I don't want to congratulate anybody, disparage anybody, do anything. I think that's just a question you have to ask them..

Your next question comes from Adam Tindle of Raymond James..

I'm going to continue beating the dead horse on TI, but my understanding, Arrow is a beneficiary on a relative basis, but hoping maybe you can touch on your comment or thoughts on what it means and says about the industry more broadly? And then also, what assurances you have that any of the business that you'll get will be kept? Is there anything contractual or is there just little incremental investments that goes direct over time, there's no negative leverage?.

First off, our relationship has stayed the same as it has been all along. They've been very clear with their movements all along, and I don't think there's any implication, honestly. I think certain suppliers have certain uses for our strengths. As a corporation, some require more engineering services for us, more designing services for us.

Others require more value stream or more fulfillment-type businesses. And I think we're in a situation that we know our costs. We know how things operate in here, and I'm willing to sell any of our services that we have to anybody. As I said in the first couple of paragraphs, we're going to sell the way our customers want to buy.

And if we bring a better value to our customers, they're going to buy more from us, and that's ultimately the goal of the corporation. So I don't, there's not one right answer for anybody here. The passive electromechanical guys need a different type of service.

The semiconductor guys at certain levels and certain technologies need other types of services. And that's the way it is. That's the way, frankly, it's been for quite some time. And I think the securer supply chain now is starting to have an impact on how people think about their channels.

And I wouldn't expect to see any major wholesale change in the industry over the next couple of years..

And maybe just a follow-on to that. I understand you're generating good returns on that type of engagement, fulfillment engagement in components and focusing on returns on capital.

On the other side of the house, I mean, does this potentially open the door to perhaps exploring a more broadline business or kind of an end-to-end sort of a portfolio in the computing side and why or why not?.

Well, I think, we've already talked about more of an end-to-end business between the components business and the computer business over time. I think we're seeing it now where we're seeing the crossovers that are in the software space. That's one area that we're seeing.

And of course, in ECS -- in order for ECS to be successful, it's expanding its line card, I think, just about every quarter for the last year or 1.5 years. We do believe that there is going to be more products there required because the solutions are getting more complex. Customers are asking us to get involved with more than they used to.

We're actually seeing more crossover in deployment of the cloud to the edge. And I think that's going to continue going. So yes, that's the whole purpose for us having the portfolio we have inside is that we are seeing that happen. Now contrary, we're not in the PC business, so that's not an area that we focus on.

And I think if you take that piece out of it, we're interested in basically the balance of the business..

Your next question comes from Joe Quatrochi of Wells Fargo. Your line is open..

Yeah, thanks for taking the question. I was wondering if you could kind of talk about your inventory at customers that you're seeing, particularly, I'm interested in what you're seeing in Asia Pacific just given that it's been a little bit better than expected.

We've been kind of hearing some things of -- maybe a little bit of inventory pull-ins, particularly in China..

Yes. Joe, I'll let Andy add to this. But the China business model is a little different in that customers hold less inventory, the channel holds less inventory.

So the cyclical nature of that business, the demand contraction portion of it ends up being less because you don't ever have sort of that glut of inventory that you're trying to get rid of in the downturn. But I think Andy can talk a little bit more about the increased number of customers and the increased demand there if you want to, Andy..

No, you're right, Joe. We don't typically have the same swings in customer inventory sentiment because it's a much leaner supply chain model by definition. And we definitely saw throughout the majority of this year customers remain cautious in China as they see the economic kind of situation play out, and that really hasn't changed that much.

The sheer breadth of customers that we deal with enables us to write about that a little bit, so we get a good balance. It goes on across our Asia business, particularly in China. We saw that in Q3, and we expect similar situations to play out in Q4..

Okay. And then for a follow-up, and I apologize, if I missed it. Could you comment on the growth of design activity? I think in the past, Mike, you talked about that being a good data point for -- in terms of the velocity that we could see in terms of recovery..

Yes. We actually saw design activity follow sales this quarter.

Andy, you can talk about it more by region, if you'd like what you saw?.

There was -- definitely our design activity broadly followed sales, so it was pretty much in line with the market. We did, as we said in the commentary, see a shift of activity to Asia much like we saw in sales.

The good news we're -- is that we're well equipped to follow that design activity with our engineering portfolio that we have, but we definitely saw a similar trend in design activity as we saw in sales, and we definitely saw a geographic swing..

Your next question comes from Tim Yang of Citi..

A follow-up question on ECS. Segment sales declined 2% organically, but operating income increased and you expect that the operating income to grow again next quarter.

On regional sales level, can you comment on your strengths and the weakness in the business, especially in North America, which I think is where the sales have been strong?.

Yes. Sure, Tim. So again, you have to sort of think about billings versus sales because as our mix continues to move to software and services, you're seeing the impact of agency accounting. But basically, North America, specifically, we saw good strength with software.

It's now our largest technology category, and as I said earlier, that's grown steadily throughout the year. North America was particularly strong in storage, where we have a really strong install base and a well-represented supplier portfolio. And then we also benefited from our U.S. public sector business.

They enjoyed a nice September close, especially at the margin line. That team continues to embrace our software-based solution strategy.

If I add to those drivers the fact that our cloud business is growing at rates significantly greater than the business overall, I would tell you that I think we've got exposure to the right demand trends, and we're seeing balanced activity versus having to ride just one horse, and we see that playing out similarly in Q4..

If you benefit from TI change, can your existing infrastructure and sales team support incremental business from TI? If not, do you have to invest a lot to support the more TI business?.

First off, we're not sure of any windfall that you might suggest. And our current infrastructure is adequate to handle whatever comes our way..

Your next question comes from William Stein of SunTrust..

First, Mike, I'm trying to reconcile some of the things that were said, maybe I'm just misunderstanding. But in your prepared remarks, you mentioned the recovery looks pushed out further into 2020, you said book-to-bill is 0.91, below parity in all regions. You said a large portion of customers are saying they have too much inventory.

You said there's lower demand in key verticals, which sounds to me like things are still eroding, demand is still getting worse. But in your response to one of the earlier questions, you said you thought that things are stable. Maybe you can help me understand which of, maybe these 2 things shouldn't be compared, maybe, just set me straight, please..

Yes, I go back to my sentence that said I think we're bouncing along the bottom. I think that's what we're talking about. We're not expecting more erosion. We're not expecting more upside. It's sort of that bouncing along the bottom. One of the bright pieces of news was October book-to-bill is improving from where it was.

And I don't think I gave anything that said that, I think I also said in there that we're looking more towards that second half recovery that I think people are talking about, because the book-to-bills are not strong enough to call for a January quarter recovery right now. And I think we are where we are. We're seeing signs on both sides.

If you go back to last quarter, we didn't see any signs of improvement. So at least having in October book-to-bill that's looking better is something to grab on to, and it's very market-specific right now..

One more, if I can? Believe it or not, there's more to ask on TI. Your, the last comment you made suggested that perhaps there wouldn't be a windfall, something to that effect.

Do you think, is it really realistic for us to think perhaps that TI would take all of this distribution business they do with other partners direct or a meaningful portion of it direct? Do you think that's, is that a realistic way to think about it? And when we think of whatever you wind up getting, should we plan for that or as you're cluing us into how to think about how that influences the model? Is that -- would you encourage us to think about that sort of linear improvement through the year or more of a step function at the end of the year? Any directional help would be appreciated..

Yes. That's a lot of stuff right there. I would say the best guidance you have is our forecast for the next quarter. I think that, the way you should plan it. If you frankly plan for a windfall and we didn't deliver a windfall you're going to be disappointed. If we under call it and over call it, you're going to be disappointed.

We don't have a full plan of attack here or anything that might suggest that we could do a P&L of any kind. So I think, right now the TI letter says it all, and we'll see how it all works out going forward. But we're way early in the process. I think they said the end of 2020 or something like that for everybody else.

So let's not jump the gun on everything and think we have the answers because we don't..

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

As we sit today one month into the calendar 4Q, how is the geographic mix of your business trending, which regions are stronger, which is weaker?.

It's Andy. Yes, I mean, from a component standpoint, they're broadly in line with what we saw in Q3, so no significant dramatic shifts, but we're only talking about 1 month of a quarter. So we'll see, but we don't see any significant change at this point..

And then can you just talk about your priorities for use of cash? I mean is this a time when you can be a consolidator of sorts? And how do you see inorganic growth and, versus buybacks, if you can talk about that?.

We stated that in our prepared remarks, it's buybacks and pay down debt. Those are our priorities right now..

And this concludes our Q&A session. I would now like to return the call to Mr. O'Brien for closing remarks..

Thanks, Chris. In closing, I will review Arrow's safe harbor statement. Some of the comments made on today's call may include forward-looking statements, including statements addressing future financial results.

These statements are subject to a number of risks and uncertainties that could cause actual results or facts to differ materially from such statements for a variety of reasons, and the company undertakes no obligation to update publicly or revise any of the forward-looking statements.

Detailed information about these risks is included in Arrow's SEC filings. If you have any questions about the information presented today, please feel free to contact me. Thank you for your interest in Arrow Electronics, and have a nice day..

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect..