Phil Gallagher: Thanks, Jim
Operator: Thank you. Our next question is from William Stein with Truist Securities. Please proceed with your question.
William Stein: Great. Thanks for taking my questions. First, the receivables increase I think was a little bit unusual. I know you guys historically have not had any sort of unusual collection issues. So I don’t think, we expect that this during the cycle. But I wonder if you can comment as to any concentration in the AR increase either by geo or end market or any other way you’d categorize it?
Ken Jacobson: Yes. Thanks, Bill. I guess I would say no specific concentration. But again, we don’t have any major customer concentrations or supplier concentration that matters. We like the fact that we’re not beholding to any one customer or supplier. But what I would tell you is it was kind of across the board regionally, and part of it was challenges the customers with their own cash flow situations that we worked through like Phil talked about. And on the other part was just quite frankly, it was December 31 and people want to pay us in January and that was a piece of it which kind of then recovered early in the next quarter. So I would say we actually just had a call with the team today because we are definitely focused on credit collections, any high-risk areas that we can get the business involved in.
And I think they’re saying actually the aging has improved a little bit. Still have about a normal amount of past dues but it’s improved a little bit but clearly something we continue to focus on.
Phil Gallagher: Well I’ll just jump on that. You actually €“ because actually a couple of years ago when all this started to happen with COVID, 2.5 years ago, we actually were very concerned about receivables and from a standpoint of bad debt and we’re concerned that customers aren’t going to make it the ones with the weaker balance sheets. And actually we’ve been pleased, frankly that we’ve not had that, okay? A little extension yes for sure we’re all over it. But our bad debt exposure of write-offs if you will have been minimal, okay? And that’s a complement to our collections and receivable teams and the business overall. I just want to add that on.
William Stein: Yes. I appreciate that. Two other real €“ well, one quick one and then a more in depth one if that’s okay. It sounded like the way you were talking about the changes in order patterns, the backlog, the order reduction. It sounds like that was more of a China-focused event, but I would think lead time is more of a global metric. So, I’m hoping you can just level set me on that.
Phil Gallagher: It is. No, I don’t know. The lead times are definitely on a global basis. And it’s not — no it’s not just Asia. As I said, we saw the West — I just said that the West was still a little bit stronger in book-to-bill than Asia Pac that’s all. And again, it would surprise anybody with the — what’s going on in Asia Pac right now. And what we’re doing is, as I said, we’re being a little bit more assertive and even the customers are with us in making sure we’re working to clean that backlog up. So to Matt’s point, we’re in fair negotiations with the suppliers in that side. Well, we don’t want product coming in that the customers don’t want, right? And suppliers don’t want us to have the product on the shelf that’s no good.
As they build out their capacity. They want to know what’s real and what’s not. So, that’s going back to Matt’s question, the suppliers some are working with us really, really well and letting customers out of the NCNRs because they don’t want to build stuff that they’re ultimately not going to want, other suppliers are a little bit more rigid. So everyone is a little bit of a one-off, but not unique to Asia.
William Stein: Appreciate that. Last one, if I can squeeze it in. Can you remind us of the capital allocation strategy or tactics however, you want to describe it the dividend in particular, what the plan might be for future increases there? Thanks so much guys.
Ken Jacobson: Yes. I think our — in the dividend in particular, our historical pattern has been once a year in the September quarter, we would look at increase, buybacks I think we’ve been pretty good there. We’ve bought back 8% of our shares since the last 12 months. This quarter, I would say, if you’d look at our buybacks plus dividend plus CapEx that was actually higher than any of the past few quarters, so we did have a larger CapEx. So from a priority standpoint, we’re going to continue to prioritize the business, in terms of needs for working capital and CapEx, before we get into returning to shareholders. But we think especially, as we start to get back to cash flow generation versus use of cash on working capital, we’ll be able to have enough to repurchase shares and we do look at it still is below — trading below book value and it still looks like an attractive price even though our stock has performed relatively well to others over the past couple quarters.
William Stein: Thank you.
Phil Gallagher: Thanks, Will.
Ken Jacobson: Thanks, Will.
Operator: Thank you. Our next question is from Joe Quatrochi with Wells Fargo. Please proceed with your question.
Joe Quatrochi: Yes. Thanks for taking the question. I was curious, how do you guys thinking about the pricing pressure that you’re seeing in Farnell, as being maybe correlated to the components business. Is this kind of like a leading indicator or a precursor that you are a little bit worried about?
Ken Jacobson: I guess, I would answer that. I don’t know that we’re worried about it. I think it was expected. We knew that we got some uplift there in the market and normally would correct itself. And I guess, how I would characterize it is, I think we talked about it as in the 200 basis points range maybe a little bit north of there, but we still have a very healthy margin gross margin in Farnell and they do have a pretty diverse product set, right? There’s on-the-board type components. And that’s really what we’re talking about pricing premiums when we talk about on-the-board semiconductors certain IP&E. But they also have a lot of their business in other kind of areas test and measurement, maintenance and repair. So there’s a nice balanced portfolio that can keep that steady margin we believe.
Phil Gallagher: Yes. So, Joe this, is Phil. I’ll just ramp that. No, it’s not a concern. We just spent a week with them in the UK last week. As matter fact, Ken and I, we’ve got a solid team. We’ve got a solid plan. Since we call this — we signaled this quarters ago. They’re a little afraid that’s going to come down. But on top of that the single-board computer backlog is really, really growing. So that’s impacting some of the top line. And that will definitely come back as Ken pointed near the end of our fiscal year into Q1 fiscal ’24.
Joe Quatrochi: Got it. And maybe just ask it a little bit differently. Do you see I guess the pricing pressure that’s happening in Farnell potentially spreading into the core components business, I guess is what I’m trying to ask.
Phil Gallagher: Yes. Okay. Got you. Yes. So — good question. Again, Farnell buys different than the core, right? There’s not as much from the shipping debit and things along those lines. So, you’ll see — it’s different. On our side — on the core side, we’ll start seeing some pricing pressure. Right now, not so much, okay? There’s still — a matter of factor there’s still as I called out 20-plus suppliers that raised prices in January. So back to the first question on lead time. Lead times are all coming in — not all of them because they’re still raising prices. So, there’s always pressure in the system, right? But right now we’re not seeing anything that overt that’s going to have that big a negative impact.
Ken Jacobson: And I would just add to that, there are competitive pressures will always put pressure on our gross margin, but we do have — we talk about Supply-Chain-as-a-Service, IP&E initiatives as well as our demand creation to help us kind of keep the margin stable, right? So we’re always probably going to have some competitive pressure going down, but we can keep on filling the funnel with the higher-margin revenues including Farnell and getting Farnell growing again helps offset that overall and that’s kind of how we’re thinking about the model.
Phil Gallagher: Yes. Sorry to jump back in Joe, but just because this is a good question. And that’s why we got to drive digital, right? And that’s why we’ve got to drive eCommerce and online sales. And in Farnell, we had I think a record-breaking number and 55% of the revenues were actually done online and 73% of the transaction. So, that really helps you drive and offset some pressures, because you have a much lower touch, lower cost to serve on that piece of business. So, I just want to add that in.
