Vishay Intertechnology, Inc. — Q1 2018 Form 10-Q
Reporting period: Fiscal quarter ended March 31, 2018; comparisons are with the quarter ended April 1, 2017 unless otherwise noted. Dollar amounts are in millions except per-share figures. Prior-period results were recast for accounting changes where applicable.
Business context and results
Vishay manufactures discrete semiconductors and passive electronic components across five segments: MOSFETs, Diodes, Optoelectronic Components, Resistors & Inductors, and Capacitors. Management reported sustained, broad-based demand across end markets, with orders continuing at high levels.
| Metric | Q1 2018 | Comparable period | Change |
|---|---|---|---|
| Revenue | $716.8 | $604.8 | +18.5% year over year; +6.4% versus Q4 2017 |
| Gross profit / margin | $205.3 / 28.6% | $161.7 / 26.7% | Margin +1.9 percentage points |
| Operating income / margin | $104.1 / 14.5% | $67.6 / 11.2% | Income +54.0% |
| Net earnings attributable to Vishay stockholders | $62.4 | $36.7 | +69.8% |
| Diluted EPS | $0.39 | $0.24 | Up $0.15 |
| Cash from operating activities | $46.9 | $43.7 | Up $3.2 |
| Capital expenditures | $28.3 | $16.7 | Up $11.6 |
| Free cash, company-defined | $18.8 | $27.9 | Down $9.2 |
Revenue growth reflected higher volume, favorable currency translation and a smaller acquisition contribution, partly offset by lower average selling prices. Gross-margin improvement was principally volume-driven; price erosion and inflation remained offsets. Segment revenue grew year over year in all five segments. Resistors & Inductors had the largest revenue increase, while Optoelectronic Components recorded the highest segment gross margin at 37.8%.
Financial position and liquidity
- At March 31, cash and cash equivalents were $839.6 and short-term investments were $501.2, versus $748.0 and $547.1 at year-end. The company reported net cash and short-term investments of $934.4, a non-GAAP measure.
- Total debt, as presented in the company’s net-cash reconciliation, was $406.4, up from $370.5 at year-end. This includes $184.0 drawn on the revolving facility and carrying amounts of convertible debentures. The balance sheet separately reports $251.0 of redeemable convertible debentures as temporary equity.
- Current assets were $2,294.9 and current liabilities $529.0; the current ratio was 4.3 to 1. Total debt to Vishay stockholders’ equity was 0.27 to 1.
- The $640 million revolving facility had $184 million outstanding and matures in December 2020. The company reported compliance with its financial covenants: interest coverage of 15.70 to 1 and leverage of 1.46 to 1.
- Operating cash flow improved year over year, but working-capital changes were a significant use of cash. Inventory rose to $460.6 from $429.7 at year-end, and accounts receivable rose to $376.5 from $340.0.
Outlook, commentary and risks
- Q2 2018 outlook: Revenue of $740–$780 million and gross margin of 28.5%–29.5%, using Q1 exchange rates. Management expected 2018 free cash to be in line with its historical experience, while cautioning that weaker economic conditions could impair cash generation.
- Capacity and investment: Management said demand exceeded capacity for certain products, with longer lead times and some supply shortages. It planned capacity increases while controlling fixed-cost growth. Expected 2018 capital spending was approximately $225 million, above prior expectations, partly due to currency effects and customer requirements.
- Demand indicators: Backlog was $1.499 billion, up from $1.320 billion in Q4 2017; book-to-bill was 1.22. Management cautioned that orders in backlog may be cancelled or rescheduled, often without penalty.
- Tax and repatriation: The company had not adjusted its provisional 2017 Tax Cuts and Jobs Act accounting in Q1. It provisionally expects $180 million of transition-tax payments over eight years and recorded $1.3 million of Q1 tax expense from remeasurement of foreign-tax liabilities. GILTI estimates and other TCJA effects remain subject to change; substantially all cash and short-term investments were held outside the United States.
- Convertible debt: Debentures due 2040 and 2042 were convertible through June 30, 2018, pending reevaluation. Vishay intends to repay principal in cash and settle any excess in shares, potentially using the credit facility; no conversions had occurred.
- Other notable items: Vishay acquired UltraSource for approximately $13.4 million; it contributed $2.7 million of Q1 revenue. Management did not anticipate material restructuring in 2018. A European Commission fine of approximately €782,000 related to conduct attributed to an acquired business before Vishay’s acquisition; the former owner agreed to indemnify Vishay and the subsidiary.
- Risks highlighted: Economic and end-market demand, pricing pressure, inflation and materials costs, capacity constraints, foreign exchange, acquisition execution and integration, and uncertainty in applying new tax rules. The filing reported no material change in previously disclosed risk factors or market risks.
Most important facts for investors to verify
- Whether Q2 revenue and gross-margin guidance was achieved, and whether the elevated backlog converted into shipments without material cancellations or delays.
- Whether capacity additions and the $225 million capital-spending plan eased supply constraints while supporting margins and cash generation.
- How working capital, especially inventory and receivables, affected operating cash flow and free cash in subsequent quarters.
- Updates to provisional TCJA tax accounting, transition-tax payments, foreign repatriation plans and the expected effective tax rate.
- Convertible-debenture conversion status, potential cash principal repayment needs, and continued compliance with credit-facility covenants.
- Final purchase-price allocation for UltraSource and any developments regarding the European Commission fine and indemnification.