Business context and reporting period
Vishay Intertechnology, Inc. manufactures discrete semiconductors and passive electronic components serving automotive, industrial, computing, consumer, telecommunications, military and aerospace, and medical markets. This unaudited Form 10-Q covers the fiscal quarter and nine fiscal months ended October 1, 2022; comparisons are with the quarter and nine months ended October 2, 2021 unless noted.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $924.8 million | $813.7 million | $2,642.1 million | $2,397.4 million |
| Gross profit / margin | $289.5 million / 31.3% | $225.7 million / 27.7% | $809.9 million / 30.7% | $658.0 million / 27.4% |
| Operating income / margin | $183.1 million / 19.8% | $123.5 million / 15.2% | $480.2 million / 18.2% | $346.2 million / 14.4% |
| Net earnings attributable to Vishay stockholders | $140.1 million; diluted EPS $0.98 | $96.8 million; diluted EPS $0.67 | $356.0 million; diluted EPS $2.46 | $261.4 million; diluted EPS $1.80 |
| Operating cash flow | Not separately reported in the income statement comparison | Not separately reported | $317.8 million | $310.5 million |
| Free cash (company-defined, non-GAAP) | $133.1 million | $79.2 million | $146.1 million | $193.6 million |
Q3 revenue rose 13.7% year over year; nine-month revenue increased 10.2%. Q3 stockholder earnings rose about 45% year over year. Management attributed revenue and margin improvement mainly to higher volume and, versus 2021, higher selling prices. Foreign exchange and inflation, including metals and transportation costs, partly offset gains. Average selling prices were flat sequentially in Q3.
Liquidity, debt and capital allocation
- At October 1, 2022, cash and cash equivalents were $735.0 million and short-term investments were $182.6 million. Debt carrying value was $458.1 million, leaving reported net cash and short-term investments of $459.5 million, a non-GAAP measure.
- Current assets were $2.11 billion versus current liabilities of $717.0 million. Inventory was $615.9 million, up from $536.5 million at December 31, 2021.
- Nine-month capital expenditures were $172.2 million, versus $118.2 million a year earlier. The company expected approximately $325 million of capital expenditures for 2022. Management said free cash was affected by working-capital changes, elevated capital spending, and repatriation-related taxes.
- The $750 million revolving credit facility had no balance outstanding at quarter-end; it expires in June 2024. The company reported compliance with covenants, with interest coverage of 36.01x and leverage of 0.61x. Convertible senior notes have $465.3 million principal outstanding and mature in June 2025; they were not then convertible.
- A board policy adopted in February 2022 targets returning at least 70% of annual free cash flow, net of scheduled debt principal payments, through dividends and/or repurchases. Nine-month dividends and repurchases totaled $97.7 million. The quarterly common dividend was $0.10 per share.
Material changes, outlook and notable items
- Sequentially, Q3 revenue increased 7.1% and gross margin increased to 31.3% from 30.3%. The book-to-bill ratio fell to 0.88 from 1.07, and backlog declined to $2.261 billion from $2.425 billion. Management said the decline reflected a catch-up in shipments after Shanghai operations resumed; distributor and OEM Q3 book-to-bill ratios were 0.77 and 1.03, respectively.
- For Q4 2022, management forecast revenue of $860 million to $900 million and gross margin of 30.0%, plus or minus 50 basis points. This is forward-looking guidance, not a guarantee.
- China COVID-19 shutdowns in Q2 caused reported nine-month costs of $6.7 million in cost of products sold and $0.5 million in SG&A, net of subsidies. The Q3 recovery in shipments helped semiconductor-segment revenue.
- A $5.9 million tax benefit was recognized in Q3 following resolution of a tax audit. The company also paid $25.2 million in taxes associated with repatriating $81.2 million from Israel during Q2.
- After quarter-end, on October 28, 2022, Vishay acquired MaxPower Semiconductor for $50 million cash, net of cash acquired. Additional contingent payments of up to $57.5 million may be due if specified conditions are met. MaxPower’s power MOSFET and silicon-carbide development is intended to support automotive and industrial markets.
- Management cited demand and economic conditions, inflation, foreign exchange, supply-chain or manufacturing interruptions, capacity expansion, competition, and acquisition execution and integration among risks. It reported no material change to previously disclosed risk factors or market risks. A previously disclosed third-party proceeding involving subsidiary Vishay GSI was dismissed in September 2022.
Most important facts for investors to verify
- Whether the sub-1.0 book-to-bill ratio and lower backlog indicate weakening demand beyond the shipment catch-up described by management.
- Whether inventory growth, capital spending, and working-capital use affect future free cash generation and the company’s 70% stockholder-return target.
- Whether Q4 revenue and gross-margin guidance is achieved, given inflation, currency effects, and demand conditions.
- The funding, accounting treatment, and milestone outcomes for the MaxPower acquisition and potential contingent payments.
- The location and accessibility of cash: substantially all cash and short-term investments were held outside the United States, while parent-company obligations are paid in the U.S.