Vishay Intertechnology, Inc. — Q2 2022 Form 10-Q
Reporting period: Fiscal quarter and six fiscal months ended July 2, 2022. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Business context and reporting period
Vishay manufactures discrete semiconductors and passive electronic components for industrial, automotive, computing, consumer, telecommunications, military and aerospace, and medical markets. It reports six segments: MOSFETs, Diodes, Optoelectronic Components, Resistors, Inductors, and Capacitors. The quarter was a 13-week period.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $863.5 | $819.1 | $1,717.3 | $1,583.8 |
| Gross profit | $261.2 | $229.3 | $520.3 | $432.2 |
| Operating income | $150.8 | $125.4 | $297.1 | $222.6 |
| Net earnings attributable to Vishay stockholders | $112.4 | $93.2 | $216.0 | $164.6 |
| Diluted EPS | $0.78 | $0.64 | $1.49 | $1.13 |
| Gross margin | 30.3% | 28.0% | 30.3% | 27.3% |
| Operating margin | 17.5% | 15.3% | 17.3% | 14.1% |
Second-quarter revenue increased 5.4% year over year and 1.1% sequentially. For the quarter, higher selling prices were the main contributor to growth; year-over-year growth also reflected higher volume, partly offset by unfavorable foreign exchange. Six-month revenue rose 8.4%. Gross and operating margins improved year over year, while gross margin was unchanged sequentially. The six-month effective tax rate was 23.7%, versus 19.2% a year earlier; the 2021 comparison included tax benefits from discrete items.
Segment revenue trends were mixed: Q2 revenue increased year over year in Diodes, Resistors, Inductors, and Capacitors, and slightly in Optoelectronic Components; MOSFET revenue declined, principally due to Shanghai production disruption. Resistors had the largest Q2 segment revenue at $213.2 million.
Cash flow, balance sheet, and capital allocation
- Six-month operating cash flow: $108.3 million, compared with $174.8 million in the prior-year period. Capital expenditures were $95.7 million versus $60.7 million; reported free cash was $13.0 million versus $114.3 million.
- Cash and short-term investments: $846.7 million at July 2, 2022, versus $920.9 million at December 31, 2021. Total debt was $463.3 million, up from $455.7 million; net cash and short-term investments were $383.4 million, down from $465.2 million.
- Liquidity and working capital: Current assets were $2,070.4 million and current liabilities $704.1 million. Inventory rose to $633.8 million from $536.5 million; inventory turnover declined to 3.8 from 4.2 in Q1 2022.
- Debt and facility: Convertible senior notes due 2025 had $465.3 million principal outstanding and a 2.25% coupon; they were not currently convertible. The $750 million revolving facility had $6 million outstanding. Vishay reported compliance with covenants, with a 32.03-to-1 interest coverage ratio and 0.67-to-1 leverage ratio.
- Returns to shareholders: A new policy targets returning at least 70% of annual free cash flow, net of scheduled debt principal payments, through dividends and/or repurchases. The company expected to return at least $100 million in 2022. Six-month dividends and repurchases totaled $65.0 million; 1.9 million shares were held in treasury at quarter-end.
Outlook, management commentary, and risks
- For Q3 2022, management forecast revenue of $860–$900 million and gross margin of 29.0%, plus or minus 50 basis points, assuming a USD/EUR exchange rate of 0.98.
- Management described demand and backlog as strong, said manufacturing capacity constrained sales, and cited broad pricing actions to address inflation. Q2 backlog was $2.425 billion and book-to-bill was 1.07; management cautioned that backlog orders may be cancelled or rescheduled.
- Management expected approximately $325 million of 2022 capital expenditures, focused partly on capacity expansion. It also described a new 12-inch wafer fab under construction in Itzehoe, Germany, expected to increase in-house wafer capacity by approximately 70% within three to four years.
- COVID-19 shutdowns in Shanghai temporarily closed two facilities or reduced them below full capacity for about two months. Related net costs were $6.7 million in cost of products sold and $0.5 million in SG&A. Management cited these disruptions, inflation, metals and transport costs, supply constraints, foreign exchange, and changing demand as risks.
- Lower first-half free cash reflected working-capital changes, higher capital spending, and $25.2 million of taxes associated with repatriating $81.2 million from Israel. Operating cash flow was also affected by inventory build and tax payments. Management said future cash generation could fall if economic conditions worsen.
- The filing reported no material changes to previously disclosed risk factors or legal proceedings and no material changes to market risks. Disclosure controls were concluded to be effective.
Important facts for investors to verify
- Whether Q3 revenue and margin guidance was achieved, and whether demand, book-to-bill, and backlog trends remained supportive.
- How quickly inventory growth and lower inventory turnover convert into sales and cash, and whether free cash recovers as capital spending and working capital evolve.
- The continuing effect of inflation, pricing, foreign exchange, and production capacity—particularly any recurrence of COVID-related disruptions in China.
- Progress and funding for the announced capacity investments, including the Itzehoe fab and the $325 million 2022 capital expenditure plan.
- Execution of the shareholder return policy, including the stated 2022 return target and the effect of repurchases and dividends on liquidity.
- Access to cash held predominantly outside the United States, repatriation-related taxes, and continued compliance with revolving-credit covenants.