Vishay Intertechnology, Inc. — Form 10-Q Summary
Reporting period: Fiscal quarter ended April 1, 2017 (13 weeks); comparisons are with the quarter ended April 2, 2016 unless otherwise noted. Amounts below are in U.S. dollars; financial-statement figures are rounded to millions.
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 a relatively sharp, broad-based demand upturn, with higher order activity across segments.
| Metric | Q1 2017 | Comparison |
|---|---|---|
| Net revenue | $606.3 million | Up 6.2% year over year and 6.2% sequentially |
| Gross profit / margin | $160.9 million / 26.5% | Up from $137.3 million / 24.1% year over year |
| Operating income / margin | $64.7 million / 10.7% | Up from $40.5 million / 7.1% year over year |
| Net earnings attributable to Vishay stockholders | $36.7 million; diluted EPS $0.24 | Up from $28.0 million; diluted EPS $0.19 |
| Adjusted net earnings / adjusted diluted EPS | $43.8 million / $0.28 | Non-GAAP measures; see filing reconciliation |
| Operating cash flow / free cash | $43.7 million / $27.9 million | Operating cash flow was $20.7 million and free cash $1.0 million in Q1 2016 |
Higher sales volume and cost reductions supported gross-margin improvement; declining selling prices and inflation remained headwinds. Revenue grew year over year in each segment, most strongly in Resistors & Inductors (9.2%) and Diodes (7.0%). Optoelectronic Components revenue fell 4.1% sequentially, though it was up 4.6% year over year. Average selling prices declined 1.3% sequentially and 3.1% year over year company-wide.
Cash, debt and liquidity
- At April 1, 2017, cash and cash equivalents were $499.4 million and short-term investments were $638.9 million. Reported debt carrying value was $378.7 million, including $163.0 million drawn under the revolving credit facility and convertible debentures. Management’s non-GAAP net cash and short-term investments measure was $759.6 million.
- Current assets were $1.954 billion and current liabilities $455.1 million; the current ratio was 4.3:1. The company reported a debt-to-Vishay-stockholders’-equity ratio of 0.23:1.
- Operating cash flow improved year over year. Capital expenditures were $16.7 million in the quarter. The company expects approximately $165 million of capital spending and $36.5 million of dividends in 2017; future dividends remain subject to Board approval.
- The $640 million revolving facility matures in December 2020. Vishay reported compliance with its covenants; leverage and interest-coverage ratios were 1.95:1 and 12.88:1, respectively. Substantially all cash and short-term investments were held outside the United States.
Material changes, outlook and notable items
- Backlog rose to $836.5 million from $653.4 million at Q4 2016; the company-wide book-to-bill ratio increased to 1.29 from 1.11. Management cautioned that backlog orders may be cancelled or rescheduled.
- For Q2 2017, management forecast revenue of $610 million to $650 million and gross margin of 26% to 28%. It also expected 2017 free cash generation to be in line with its historical performance, while noting that a weaker economic environment could undermine cash generation.
- The quarter included a $7.1 million loss on disposal of a 50% equity-method investment. The loss was not tax deductible; related contingencies could require an adjustment, which management did not expect to be material.
- Restructuring and severance expense was $1.5 million, down from $6.5 million a year earlier. The extended MOSFETs program includes transferring remaining Santa Clara manufacturing by year-end 2017; expected additional cash charges are $4 million to $8 million, with annualized savings estimated at $8 million to $9 million. The 2015 global cost-reduction programs are expected to produce approximately $35 million of annual savings when fully implemented.
- The 2042 convertible debentures remained convertible through June 30, 2017, subject to reevaluation; no conversions had occurred. The company intends to repay principal in cash and settle any excess conversion value in shares, potentially using the credit facility for principal repayment.
- Management cited economic and end-market demand, pricing pressure, foreign-exchange movements, competition and technology changes, acquisition execution, product development, and cost-program execution among risks. The filing reported no material changes to previously disclosed risk factors, legal proceedings, or market risks.
Important facts for investors to verify
- Whether the demand surge, backlog growth, and book-to-bill ratio translated into sustained shipments and revenue, given cancellation and rescheduling risk.
- Whether forecast Q2 revenue and gross-margin ranges were achieved, and whether pricing declines and inflation continued to offset volume and cost savings.
- How much of reported earnings improvement reflects core operations versus the investment-disposal loss and other unusual or non-GAAP adjustments.
- Progress, remaining cash costs, and realized savings from the MOSFETs and global restructuring programs, including the planned Santa Clara manufacturing transfer.
- Cash location and availability for U.S. needs, revolving-credit borrowings and covenant headroom, and potential cash requirements if convertible debentures are converted.
- Whether planned 2017 capital expenditures and dividends were supported by operating cash flow and free cash generation.