Vishay Intertechnology, Inc. — Q2 2023 Form 10-Q
Reporting period: Fiscal quarter ended July 1, 2023 (13 weeks); comparisons are primarily with the quarter ended July 2, 2022. Six-month figures cover the six fiscal months ended July 1, 2023. Dollar amounts below are in millions unless noted.
Business context and key financial results
Vishay manufactures discrete semiconductors and passive electronic components for automotive, industrial, computing, consumer, telecommunications, military, aerospace, and medical markets. It reports six product segments: MOSFETs, Diodes, Optoelectronic Components, Resistors, Inductors, and Capacitors.
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $892.1 | $863.5 | $1,763.2 | $1,717.3 |
| Gross profit / margin | $257.5 / 28.9% | $261.2 / 30.3% | $536.2 / 30.4% | $520.3 / 30.3% |
| Operating income / margin | $134.6 / 15.1% | $150.8 / 17.5% | $293.2 / 16.6% | $297.1 / 17.3% |
| Net earnings attributable to Vishay stockholders | $95.0 | $112.4 | $206.8 | $216.0 |
| Diluted EPS | $0.68 | $0.78 | $1.47 | $1.49 |
| Operating cash flow | Quarterly amount not separately shown here | — | $237.1 | $108.3 |
| Free cash (company-defined, non-GAAP) | $36.3 | $15.2 | $120.9 | $13.0 |
Q2 revenue grew 3.3% year over year, but gross profit fell 1.4% and stockholder-attributable earnings fell 15.4%. For the first half, revenue increased 2.7%, while attributable earnings declined 4.2%. The six-month effective tax rate increased to 28.5% from 23.7%.
Liquidity, debt, and capital allocation
- At July 1, 2023, cash and cash equivalents were $1,089.4 million and short-term investments were $14.4 million. Total debt, net of deferred financing costs, was $639.7 million; company-defined net cash and short-term investments were $464.1 million.
- Cash rose from $610.8 million at year-end 2022; short-term investments fell from $305.3 million, primarily as maturities returned funds to cash. Substantially all cash and short-term investments were held outside the United States.
- First-half capital expenditures were $117.3 million, compared with $95.7 million a year earlier. The company expects approximately $385 million of 2023 capital expenditures and approximately $1.2 billion over three years, primarily for expansion outside China.
- The $750 million revolving credit facility was amended and extended to May 8, 2028; $185 million was drawn at quarter-end. The company reported covenant compliance, with an interest coverage ratio of 26.70x and net leverage ratio of 0.50x. No principal payments on debt are due before 2025.
- The 2.25% convertible senior notes mature in June 2025 and were not currently convertible. The facility’s maturity can accelerate if specified liquidity conditions are not met near the notes’ maturity.
- Vishay’s policy targets returning at least 70% of annual free cash, net of scheduled debt principal payments, through dividends and/or repurchases, but the policy is discretionary. First-half dividends and repurchases totaled $68.4 million; quarterly common dividend was $0.10 per share.
Material changes and operating trends
- Management attributed pressure on orders and backlog to a distributor inventory correction. Book-to-bill declined to 0.69 from 0.84 in Q1 2023; backlog fell to $1.895 billion from $2.169 billion. The filing cautions backlog may be cancelled or rescheduled and is not necessarily indicative of future revenue.
- Q2 gross margin fell to 28.9% from 32.0% in Q1 and 30.3% a year earlier. Management cited lower average selling prices versus Q1, manufacturing inefficiencies, cost inflation, and higher costs previously absorbed in inventory and recognized when products were sold.
- Segment results were mixed. MOSFET revenue increased 30.9% year over year, while Diodes declined 9.0% and Optoelectronic Components declined 17.3%. Inductors revenue was nearly flat year over year; Resistors and Capacitors increased 4.3% and 1.2%, respectively. Several segments experienced margin pressure.
- SG&A rose to $122.9 million from $110.4 million in Q2 2022, reflecting inflation, higher compensation, and the 2023 Long-Term Incentive Plan. Interest expense also increased with higher rates and larger average revolving-credit borrowings.
- First-half operating cash flow improved substantially year over year, partly reflecting a smaller working-capital outflow. Free cash was affected by higher capital spending and U.S. transition-tax installments; the company says it expects to remain a reliable free-cash generator but warns performance could weaken if economic conditions deteriorate.
Outlook, management commentary, and other notable items
- Management described current business conditions as favorable despite the inventory correction and said it is continuing to add capacity. It expects longer-term growth from electrification, including factory automation, electric vehicles, and 5G infrastructure. No specific full-year revenue or earnings guidance is provided in the supplied filing text.
- Vishay is building a 12-inch wafer fab in Itzehoe, Germany, which it expects to raise in-house wafer capacity by approximately 70% within three to four years. It also noted expansion of Inductors capacity and recent modernization of its Heilbronn wafer fab.
- MaxPower, acquired in October 2022, may trigger contingent payments of up to $57.5 million subject to specified milestones and other conditions; the recorded contingent-consideration liability was $6.9 million. Centerline Technologies was acquired on June 30, 2023 for $5.0 million and will be integrated into Resistors.
- Q2 included no COVID-19-related reconciling items; prior-year comparative results included such costs. Management reported no material changes to previously disclosed risk factors, market risks, or legal proceedings. Disclosure controls were assessed as effective.
- Key risks cited include changing global demand, manufacturing and supply-chain interruptions, delays in capacity expansion, input-cost and pricing pressures, foreign-exchange movements, competition and technology changes, acquisition execution, and tax or trade regulation changes.
Important facts for investors to verify
- Whether the distributor inventory correction and book-to-bill below 1.0 continue, and how they affect backlog, shipments, and utilization.
- Whether gross margins recover as inflationary costs and costs held in inventory pass through, and whether manufacturing inefficiencies persist.
- Execution, timing, and returns on the planned $385 million 2023 capital program and approximately $1.2 billion three-year investment plan.
- Cash accessibility and repatriation plans, given that substantially all cash was held outside the U.S., and the funding needs of the parent company and shareholder returns.
- Revolving-credit usage, covenant headroom, and the 2025 convertible-note repayment or conversion funding plan, including the facility’s conditional maturity-acceleration provision.
- Potential MaxPower contingent payments, integration outcomes, and the preliminary acquisition accounting for Centerline.