Vishay Intertechnology, Inc. — Q1 2022 Form 10-Q
Reporting period: Fiscal quarter ended April 2, 2022. Unless noted, amounts are U.S. dollars; financial statement amounts below are in millions. The company manufactures discrete semiconductors and passive electronic components across six segments.
Financial performance and position
| Metric | Q1 2022 | Comparable period | Change |
|---|---|---|---|
| Net revenue | $853.8 | $764.6, Q1 2021 | +11.7% year over year; +1.3% versus Q4 2021 |
| Gross profit / margin | $259.1 / 30.3% | $202.9 / 26.5%, Q1 2021 | Margin +3.8 percentage points |
| Operating income / margin | $146.3 / 17.1% | $97.3 / 12.7%, Q1 2021 | Margin +4.4 percentage points |
| Net earnings attributable to Vishay stockholders | $103.6 | $71.4, Q1 2021 | +45.0% |
| Diluted EPS | $0.71 | $0.49, Q1 2021 | +$0.22 |
| Operating cash flow | $33.6 | $57.3, Q1 2021 | Down $23.7 |
| Free cash (non-GAAP) | $(2.3) | $29.0, Q1 2021 | Negative, reflecting working-capital changes and elevated capital spending |
Revenue and margin gains were primarily driven by higher average selling prices; higher volume also contributed to year-over-year growth. The company reported a 23.7% effective tax rate, compared with 17.8% in Q1 2021; the prior-year rate included a discrete tax benefit. Q4 2021 earnings were affected by a $53.3 million tax-law item, so reported sequential earnings comparisons are not like-for-like.
At April 2, 2022, cash and cash equivalents were $789.2 million and short-term investments were $96.6 million, against debt of $456.5 million net of financing costs. Management’s non-GAAP net cash and short-term investments measure was $429.3 million, down from $465.2 million at year-end 2021. Current assets were $2.07 billion and current liabilities $676.4 million. Total liabilities were $1.76 billion.
Inventory increased to $602.9 million from $536.5 million at year-end. Capital expenditures were $35.9 million. The company reported $9.9 million of share repurchases and $14.5 million of dividends paid during the quarter.
Material changes and operating trends
- Backlog rose to $2.417 billion from $2.307 billion in Q4 2021; book-to-bill was 1.14, up from 1.09. The company said demand was robust and manufacturing capacity constrained shipments.
- Average selling prices increased 2.4% sequentially. Management cited broad price increases to offset higher materials, transportation, and other inflationary costs.
- Year-over-year revenue grew in five of six segments; Inductors was slightly lower. Resistors revenue was $207.0 million, Diodes $182.3 million, MOSFETs $172.7 million, Capacitors $128.0 million, Inductors $82.8 million, and Optoelectronic Components $81.0 million.
- COVID-related shutdowns in China affected MOSFET and Diodes production and contributed to sequential revenue declines in those segments. The company also reported effects from prior-quarter restrictions at a Malaysia facility.
- Foreign-currency translation reduced Q1 2022 other comprehensive income by $13.5 million. The company said euro-denominated sales and expenses substantially offset each other’s effect on operating results.
Outlook, risks, and contingencies
- Q2 2022 guidance: Revenue of $830–$870 million and gross margin of 28.1%, plus or minus 50 basis points, using Q1 exchange rates. The outlook accounts for pandemic-related disruption in China.
- 2022 investment: Expected capital expenditures of approximately $325 million to expand capacity. Management expects free cash generation to recover in line with its history, but cautions that worsening economic conditions could prevent historical cash generation.
- Capital returns: The February 2022 policy targets returning at least 70% of free cash flow, net of scheduled debt principal payments, annually. Management expected to return at least $100 million in 2022, approximately $58 million in dividends and at least $42 million in repurchases. The policy is discretionary and may be changed or suspended.
- Liquidity and debt: No principal payments on debt are due before 2025. The $750 million revolving credit facility, expiring June 2024, had no balance outstanding at quarter-end. The company reported compliance with its covenants; interest coverage was 31.61-to-1 and leverage 0.69-to-1.
- Key risks: COVID-related manufacturing and supply-chain disruption, capacity expansion delays, inflation and input costs, demand changes, currency and tax changes, competition, product development, and acquisition execution. Substantially all cash and short-term investments were held outside the U.S.; the company noted that U.S. parent obligations may initially be funded with cash on hand, cash remittances, or facility borrowings.
- The filing reported no material changes to previously disclosed risk factors, no material developments in previously disclosed legal proceedings, and no material changes in market risk. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether China-related disruption eases and production capacity catches up with demand, given backlog growth and management’s capacity-constrained shipments commentary.
- Whether price increases and mix can sustain margins as materials, labor, logistics, and other costs rise.
- Whether working capital and planned capital expenditures allow operating cash flow and free cash to recover from Q1’s negative free cash result.
- Progress against Q2 revenue and gross-margin guidance, and the expected $325 million 2022 capital-spending plan.
- Cash availability at the U.S. parent, the funding and execution of the shareholder-return policy, and the sensitivity of liquidity to overseas cash remittances and credit-facility use.