Vishay Intertechnology, Inc. — Q3 2021 Form 10-Q
Reporting period: Fiscal quarter ended October 2, 2021; year-to-date figures cover the nine fiscal months then ended. Unless noted otherwise, dollar amounts below are in millions.
Business context
Vishay manufactures discrete semiconductors and passive electronic components across six segments: MOSFETs, Diodes, Optoelectronic Components, Resistors, Inductors, and Capacitors. Its products serve industrial, automotive, computing, consumer, telecommunications, military and aerospace, medical, and other markets. Management said demand remained robust, with shipments constrained by manufacturing capacity.
Financial performance and liquidity
- Q3 revenue: $813.7 million, up 27.1% from $640.2 million a year earlier, but down 0.7% sequentially from $819.1 million. Year-to-date revenue was $2,397.4 million, up 30.7% from $1,834.7 million.
- Q3 profitability: Gross profit was $225.7 million and gross margin 27.7% (23.7% in Q3 2020; 28.0% in Q2 2021). Operating income was $123.5 million, a 15.2% margin, versus $61.5 million and 9.6% a year earlier. Net earnings attributable to Vishay stockholders were $96.8 million, or $0.67 per diluted share, versus $33.5 million, or $0.23.
- Year-to-date profitability: Operating income was $346.2 million (14.4% margin) versus $149.7 million (8.2%). Net earnings attributable to stockholders were $261.4 million, or $1.80 per diluted share, versus $85.4 million, or $0.59.
- Cash flow: Nine-month operating cash flow was $310.5 million, compared with $189.2 million. Capital expenditures were $118.2 million versus $70.8 million. Management-defined free cash was $193.6 million versus $118.7 million; Q3 free cash was $79.2 million.
- Cash, debt, and liquidity: At October 2, cash and cash equivalents were $831.8 million and short-term investments $84.2 million. Long-term debt, net of deferred financing costs, was $454.8 million, consisting principally of 2.25% convertible notes due 2025. Management reported net cash and short-term investments of $461.1 million. The current ratio was 3.1:1; the $750 million revolving facility had no balance outstanding, and the company reported compliance with its financial covenants.
- Other metrics: Backlog rose to $2,243.9 million from $2,050.2 million in Q2; Q3 book-to-bill was 1.26, down from 1.38. The quarterly dividend was $0.095 per share.
Material changes and management commentary
- Year-over-year revenue growth was driven primarily by higher volume; management also cited improved manufacturing efficiencies and strategic price increases. Q3 average selling prices increased 1.3% sequentially.
- Sequential gross-margin pressure reflected lower volume and inflation, particularly higher metals, materials, and transportation costs. Labor shortages limited output, including in Resistors and Capacitors; sales remained capacity-constrained overall.
- Q3 revenue declined sequentially in Optoelectronic Components, Resistors, Inductors, and Capacitors, while MOSFETs and Diodes grew. COVID-related restrictions affected the Malaysia optoelectronics facility, which resumed full operations in mid-September.
- Management cited continued capacity expansion and investment in strategic product lines, research and development, and engineering. The company was building a 12-inch wafer fab in Germany, with expected in-house wafer capacity growth of approximately 70% within three to four years.
Outlook, risks, and unusual items
- Q4 2021 outlook: Revenue of $805 million to $845 million and gross margin of 27.7%, plus or minus 50 basis points, at Q3 exchange rates. Management expected 2021 capital expenditures of approximately $250 million and dividends of approximately $55 million, subject to Board approval.
- Key risks and uncertainties include changes in customer demand and the global economy; COVID-related or other manufacturing and supply-chain interruptions; capacity-expansion execution; labor availability; materials, metals, logistics, and currency costs; competition and pricing; and tax, trade, and tariff changes. Backlog orders may be cancelled or rescheduled and are not necessarily indicative of future revenue.
- Q3 included a $5.7 million tax benefit from releasing a valuation allowance; year-to-date tax benefits from regulatory changes totaled $8.3 million. These items supported reported earnings. The company adopted ASU 2020-06 in January 2021, increasing the reported carrying value of convertible debt and changing related interest accounting; debt comparisons with 2020 are affected by this change.
- Prior restructuring programs were fully implemented; no material restructuring was anticipated for 2021. The filing reported no material changes to previously disclosed risk factors or market risks and no material developments in previously disclosed legal proceedings.
Important facts for investors to verify
- Whether Q4 revenue and margin guidance is achieved, particularly given capacity limits and slowing sequential backlog and book-to-bill growth.
- Whether price increases and productivity gains offset metals, materials, labor, and transportation cost inflation.
- How planned capital spending translates into usable capacity, including progress at the German wafer fabs and recovery from operational disruptions.
- The sustainability of earnings after considering discrete tax benefits and the accounting effects of ASU 2020-06.
- Liquidity, cash generation, and covenant headroom, including the location of cash balances and funding needs for dividends, investment, and 2025 convertible-note obligations.