Vishay Intertechnology, Inc. — Q1 2020 Form 10-Q
Reporting period: Fiscal quarter ended April 4, 2020. Vishay manufactures discrete semiconductors and passive electronic components for industrial, automotive, telecommunications, computing, consumer, power-supply, military/aerospace, and medical markets. Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Financial performance and position
| Metric | Q1 2020 | Comparable period / change |
|---|---|---|
| Revenue | $612.8 | Down 17.8% from $745.2 in Q1 2019; up 0.5% from $609.6 in Q4 2019 |
| Gross profit / margin | $147.2 / 24.0% | 28.3% in Q1 2019; 22.2% in Q4 2019 |
| Operating income / margin | $47.4 / 7.7% | $107.7 / 14.5% in Q1 2019; $24.3 / 4.0% in Q4 2019 |
| Net earnings attributable to Vishay / diluted EPS | $27.2 / $0.19 | $75.5 / $0.52 in Q1 2019; $14.0 / $0.10 in Q4 2019 |
| Operating cash flow / capital expenditures | $34.5 / $24.3 | $79.5 / $36.4 in Q1 2019 |
| Free cash (company-defined, non-GAAP) | $10.2 | $43.5 in Q1 2019; $28.1 in Q4 2019 |
Revenue’s year-over-year decline reflected lower volume (15.0 percentage points) and lower average selling prices (2.9 points), with foreign currency also reducing sales. Gross margin improved sequentially, mainly due to higher volume, manufacturing efficiencies, and tariff effects, but remained below the year-ago level. SG&A was $99.8 million, or 16.3% of revenue, versus 13.9% a year earlier. The effective tax rate was 24.2%.
Cash and cash equivalents were $680.7 million and short-term investments $140.7 million at quarter-end. Total debt carrying value was $552.1 million, including $54.0 million drawn on the revolving credit facility; the company-reported net cash and short-term investments were $269.3 million. The current ratio was 3.5 to 1. Total liabilities were $1.65 billion. Cash declined $13.4 million during the quarter.
Material changes and operating indicators
- Compared with Q1 2019, revenue fell across most product segments; Diodes was down 31.3%, Capacitors 21.4%, and Resistors 15.7%. Inductors revenue increased 3.0% year over year.
- Quarter-end backlog increased to $1.005 billion from $911.3 million at Q4 2019. The overall book-to-bill ratio improved to 1.17 from 0.94; distributor and OEM ratios were 1.30 and 1.04, respectively. Management noted the order recovery, particularly among distributors, may partly reflect customers preparing for supply-chain disruption.
- Inventory was $453.2 million, up from $431.7 million at December 31, 2019. Average selling prices continued to decline, with management reporting accelerating declines for commodity semiconductor products.
- Foreign-currency translation reduced other comprehensive income by $23.1 million in the quarter.
Outlook, risks, contingencies, and unusual items
- Q2 2020 guidance: Revenue of $540–$580 million and gross margin of 21%, plus or minus 90 basis points, at Q1 exchange rates. Management emphasized substantial uncertainty.
- COVID-19 disrupted manufacturing, customers, suppliers, and shipping. Some facilities were temporarily closed or operated below capacity. The company recorded net outbreak-related costs of $3.1 million in cost of products sold and $0.3 million in SG&A, partly offset by government subsidies. Management viewed the economic impact as temporary but could not predict its duration or full effect.
- The company expected approximately $110 million of 2020 capital spending and approximately $55 million of 2020 dividends, subject to Board authorization. Its global cost-reduction program was expected to deliver about $15 million of annual savings when fully implemented by December 2020; approximately $25 million of total implementation costs were expected. No restructuring charge was recorded in Q1; $18.8 million remained accrued at quarter-end.
- Q1 included a $2.9 million loss on early extinguishment of debt after repurchasing $14.3 million principal amount of 2041 convertible debentures for approximately $19.9 million. The company had approximately $100 million of unremitted foreign earnings planned for repatriation in Q2, but said COVID-19 could delay the plan.
- The company reported compliance with its credit-facility covenants, with a 15.44-to-1 interest coverage ratio and 1.67-to-1 leverage ratio. Usable revolver capacity was approximately $619 million. Covenant breach could permit termination or acceleration of debt; convertible instruments also contain cross-default provisions.
- A capacitor antitrust litigation settlement provides for Holy Stone to pay $28 million. Vishay and its related entities are to be released from specified claims under the agreement, which was subject to court approval and class notice; Vishay stated it would not contribute to the settlement under its indemnification agreement.
- Other risks include prolonged pandemic effects or recession, demand and pricing declines, manufacturing or logistics interruptions, customer credit risk, currency movements, tariffs, and execution of cost-reduction and capacity plans. Management stated market risks had not materially changed since year-end 2019.
Important facts for investors to verify
- Whether Q2 revenue and gross-margin guidance was achieved, and how COVID-19 affected facilities, demand, costs, and shipments.
- Whether backlog and book-to-bill translated into shipments, particularly given the possible distributor inventory build and continued price erosion.
- Cash generation, inventory levels, capital spending, dividends, and the use of revolver capacity; note that free cash and net cash are company-defined non-GAAP measures.
- Progress and remaining cash costs of the restructuring program, and whether projected savings were realized by the stated deadline.
- Completion and timing of the planned foreign-earnings repatriation and court approval and implementation of the antitrust settlement.