VISHAY INTERTECHNOLOGY 08-02-22/9:00 a.m. ET

Vishay Intertechnology

August 2, 2022

9:00 AM ET

Peter Henrici

Thank you, Sherry. Good morning. And welcome to Vishay Intertechnology's second quarter 2022 conference call.

With me today are Dr. Gerald Paul, Vishay's president and chief executive officer, and Lori Lipcaman, our executive vice president and chief financial officer.

As usual, we'll start today's call with the CFO who will review Vishay's second quarter 2022 financial results. Dr. Gerald Paul will then give an overview of our business and discuss operational performance as well as segment results in more detail. Finally, we'll reserve time for questions and answers.

This call is being webcast from the investor relations section of our website at ir.vishay.com. The replay for this call will be publicly available for approximately 30 days.

You should be aware that in today's conference call, we will be making certain forward-looking statements that discuss future events and performance. These statements are subject to risks and uncertainties that could cause actual results to differ from the forward-looking statements. For a discussion of factors that could cause results to differ, please see today's press release and Vishay's Form 10K and Form 10Q filings with the Securities and Exchange Commission.

In addition, during this call, we may refer to adjusted or other financial measures that are not prepared according to Generally Acceptable Accounting Principles. We use non-GAAP measures because we believe they provide useful information about the operating performance of our businesses and should be considered by investors in conjunction with GAAP measures that we also provide.

On the investor relations section of our website, you can find the presentation of the second quarter 2022 financial information containing some of the operational metrics Dr. Paul will be discussing.

Now, I turn the call over to chief financial officer, Lori Lipcaman.

Lori Lipcaman

Thank you, Peter. Good morning, everyone.

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VISHAY INTERTECHNOLOGY 08-02-22/9:00 a.m. ET

I am sure that most of you have had a chance to review our earnings press release. I will focus on some highlights and key metrics.

Vishay reported revenues for Q2 of $864 million, a quarterly record despite a temporary closure of two key facilities in Shanghai China for over two months. EPS was 78 cents for the quarter. Adjusted EPS was 82 cents for the quarter.

We've identified certain charges for the COVID related shutdowns of our facilities in China during Q2. The cost of these government mandated shutdowns in China are incremental to and separable from normal operations. These items impacted cost of goods sold by $6.7 million and selling general and administrative expenses by 0.5 million, and our added back net of tax when calculating our non-GAAP adjusted EPS.

We did not include in this amount indirect cost of the pandemic, which are normal cost of doing business in 2022.

During the quarter, we repatriated cash from Israel as part of a program we initiated in response to a change in Israeli tax law. We repatriated 81 million to the United States, net of paid withholding in foreign taxes of $13 million. We also paid Israeli claw back tax of $12 million. These taxes had been accrued in Q4 2021 when the new tax law was enacted.

The payment of these taxes is reflected as an operating cash flow on the statement of cash flows. The repatriated cash is used to fund our stockholder return policy.

As we announced in February, Vishay adopted a stockholder return policy which calls for us to return at least 70 percent of annual free cash to stockholders directly in the form of dividends or indirectly in the form of stock repurchases. For 2022, we intend to return at least $100 million.

During Q2, we repurchased $1.4 million shares of common stock for approximately $26.3 million. We paid $14.3 million for our quarterly dividends for a total stockholder return of $40.6 million. Year-to-date, we repurchased 1.9 million shares of common stock for approximately $36.2 million and paid 28.8 million in dividends for total stockholder return of 65 million.

Revenues in the quarter were $864 million, up by 1.1 percent from previous quarter, and up by

  1. percent compared to prior year. Gross margin was 30.3 percent. Adjusted gross margin was
  1. percent. Operating margin was 17.5 percent. Adjusted operating margin was 18.3 percent.

EPS was $0.78 cents. Adjusted EPS was $0.82 cents. EBITDA was $192 million, or 22.2 percent. Adjusted EBITDA was $199 million, 23.0 percent.

Reconciling versus prior quarter. Adjusted operating income Q2 2022 compared to operating income for prior quarter based on $10 million higher sales, or $24 million higher sales excluding X-rate impacts. Adjusted operating income increased by $12 million to $158 million in Q2 2022 from $146 million in Q1 2022.

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VISHAY INTERTECHNOLOGY 08-02-22/9:00 a.m. ET

The main elements were average selling prices had a positive impact of $24 million, representing a 2.9 percent ASP increase. Volume decreased with a negative impact of $1 million, equivalent to a 0.1 percent decrease primarily due to the COVID related plant shutdowns in Shanghai.

Variable costs increased with a negative impact of $15 million primarily due to higher metals and material prices. Fixed costs were flat quarter over quarter. Inventory impacts had a negative impact of $1 million. Exchange rates had a positive effect of $4 million.

Reconciling versus prior year, adjusted operating income Q2 2022 compared to operating income in Q2 2021 based on $44 million higher sales were $78 million higher excluding exchange rate impacts. Adjusted operating income increased by $33 million to $158 million in Q2 2022 from $125 million in Q2 2021.

The main elements were average selling prices had a positive impact of $64 million, representing an 8.1 percent ASP increase. Volume increased with a positive impact of $14 million, representing a 1.6 percent increase.

Variable cost increased with a negative impact of $30 million, primarily due to increases in cost of materials and services, labor, silicon, metals, and logistics, not completely offset by manufacturing efficiencies and cost reduction efforts.

Fixed cost increased with a negative impact of $17 million, primarily due to annual wage increases as well as general inflation. Inventory impacts had a positive impact of $4 million. Exchange rates had a negative effect of $3 million.

Selling general and administrative expenses for the quarter were $110 million, slightly less than expectations due to foreign exchange effects. For Q3 2022, our expectations are approximately $107 million of SG&A expenses at current exchange rates. For the full year 2022, our expectations are $440 million of SG&A expenses.

The debt shown on the face of our balance sheet at quarter end is comprised of the convertible notes due 2025, net of debt issuance costs, and $6 million outstanding on a revolving credit facility at the end of the quarter. No principal payments are due until the expiration of the revolving credit facility in June 2024.

We had total liquidity of $1.6 billion at quarter end. Cash and short-term investments comprised $847 million and $744 million is available on our credit facility.

Total shares outstanding at quarter end were $143 million. The expected share count for EPS purposes for the third quarter 2022 is approximately $143 million, excluding any impact of share repurchases.

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VISHAY INTERTECHNOLOGY 08-02-22/9:00 a.m. ET

Our U.S. GAAP tax rate for the quarter and year-to-date was approximately 24 percent. Our normalized effective tax rate, which excludes the tax effect of the COVID costs in China, was also approximately 24 percent for the quarter and year to date periods.

We expect our normalized effective tax rate for full year 2022 to be between 23 and 24 percent. Our consolidated effective tax rate is based on an assumed level and mix of income among our various taxing jurisdictions. A shift in income could result in significantly different results. Also, a significant change in U.S. tax laws and regulations could result in significantly different rates.

Cash from operations for the quarter was $75 million. Capital expenditures for the quarter were $60 million. Free cash for the quarter was $15 million.

For the trailing 12 months, cash from operations was $391 million. Capital expenditures were $253 million, split approximately for expansion, $161 million; for cost to reduction, $16 million; for maintenance of business, $76 million.

Free cash generation for the trailing 12-month period was $139 million. The trailing 12-month period includes $15 million cash taxes paid for the 2022 installment of the U.S. tax reform transition tax and $25 million cash taxes paid pursuant to our Israeli repatriation program.

Vishay has consistently generated in excess of $100 million cash flows from operations in each of the past 27 years and greater than $200 million for the past 20 years.

Backlog at the end of quarter two was at $2.425 billion or 8.4 months of sales. Inventories increased quarter over quarter by $46 million, excluding exchange rate impacts. Days of inventory outstanding were 95 days. Days of sales outstanding for the quarter were 45 days. Days of payables outstanding for the quarter were 37 days, resulting in a cash conversion cycle of 103 days.

Now, I will turn the call over to our chief executive officer, Dr. Gerald Paul.

Gerald Paul

Thank you, Lori. And good morning, everybody.

Despite the pandemic and the further accelerating rate of inflation globally, the second quarter for Vishay has been even more successful than Q1. That had been one of our best quarters ever. Following the increasing market demand, we steadily expand critical manufacturing capacities.

In Q2, we achieved quite excellent results. In Q2, gross margin of 30.3 percent on the level of Q1. Adjusted gross margin of 31.0 percent versus 30.3 percent in Q1. Operating margin of 17.5 percent of sales versus 17.1 percent in Q1. Adjusted operating margin of 18.3 percent versus

17.1 percent. Earnings per share of 78 cents versus 71 cents in Q1 and adjusted earnings per share of 82 cents versus 71 cents in Q1.

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VISHAY INTERTECHNOLOGY 08-02-22/9:00 a.m. ET

Due to some temporary increase of receivables and inventories in the context of the Shanghai shutdown, free cash generation in the quarter still has been modest, $15 million. For the entire year, we again expect a solid performance concerning free cash.

Vishay continues to operate under extraordinarily good economic conditions. Orders and backlogs are at historically high levels. All regions remain principally strong with a currently non-transparent situation of the Chinese market. Most of the market segments do very well whereby there is an exception in computers and smart phones.

Major shortages of supply continue to exist for many product lines. In view of increased inflationary pressures on the cost of manufacturers, the market continues to accept price increases.

Global distribution overall remains in good shape. The midterm business outlook continues to be strong.

POS in the quarter were 13 percent below Q1, that clearly represented a spike and 2 percent below prior year. POS in all regions declined from a quite extreme first quarter. Global inventories in the second quarter increased by $54 million, or by 10 percent versus Q1 and were 28 percent above prior year that had been characterized, you remember, by rather extreme shortages. There's an impact of price increases indicting a lower increase in terms of pieces, in particular, versus prior year.

Inventory turns of global distribution in the second quarter were at a good level of 3.6. Notice simply down from 4.2 in the first quarter and down from 4.4 in prior year. The Americas showed

2.1 turns after 2.3 in quarter one and 2.1 in prior year. Asia, 4.6 turns after 5.6 in Q1 and 7.4 in prior year. Europe, 4.3 turns after 4.9 in Q1 and 4.6 in prior year. Summarizing, the extremely lean supply chain of prior quarters is in process to normalize.

Coming to the industry segments, automotive customers in general continue to be impacted by shortages of components, expect a strong demand in the second half as the customers will start to work down the high vehicle backlog based on an improving supply situation.

Growth in the automotive market is expected to remain strong midterm with electronic vehicle scaling market share and due to a further growing electronic content in general. Furthermore, significant investment is still to be made in charging infrastructure.

Industrial market sectors are expected to show continued growth. In view of an accelerated move to green energy, smart home automation systems, factory automation, and growing investments are also in traditional power infrastructure projects.

As I said, demand for notebooks is declining, but growth is expected to continue in server and storage hardware. 5G continues to provide growth opportunities but some slowdown is apparent due to supply chain issues. Business with smart phones presently is declining.

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Vishay Intertechnology Inc. published this content on 03 August 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 03 August 2022 15:28:07 UTC.