Business context and reporting period
Vishay Intertechnology, Inc. manufactures discrete semiconductors and passive electronic components across six segments. This unaudited Form 10-Q covers the fiscal quarter and nine fiscal months ended October 3, 2020; comparisons are with the quarter ended September 28, 2019 and the corresponding nine-month period, unless noted.
Financial performance and position
- Third-quarter revenue: $640.2 million, up 1.9% year over year and 10.0% sequentially. Gross profit was $151.7 million; gross margin was 23.7%, versus 23.9% a year earlier. Operating income was $61.5 million (9.6% margin), versus $51.0 million (8.1%).
- Third-quarter earnings: Net earnings attributable to Vishay stockholders were $33.5 million, or $0.23 per diluted share, compared with $30.0 million, or $0.21 per diluted share. The quarter included a $3.5 million loss on early extinguishment of debt.
- Nine-month results: Revenue was $1.835 billion, down 10.9%; gross profit was $429.6 million and gross margin was 23.4%, versus $535.8 million and 26.0%. Operating income declined to $149.7 million from $238.3 million. Stockholder net earnings were $85.4 million, or $0.59 per diluted share, versus $150.0 million, or $1.03.
- Cash flow: Nine-month operating cash flow was $189.2 million, down from $212.0 million. Capital expenditures were $70.8 million versus $100.3 million. Management-defined free cash was $118.7 million versus $112.2 million; this non-GAAP measure includes operating cash flow, capital spending, and proceeds from property sales.
- Liquidity and debt: At October 3, cash and cash equivalents were $682.4 million and short-term investments were $29.5 million. Long-term debt carrying value was $392.3 million, compared with $499.1 million at year-end 2019. Management reported net cash and short-term investments of $319.7 million, a non-GAAP measure. The current ratio was 3.2:1. No revolving-credit borrowings were outstanding; usable capacity was approximately $672 million, and the company reported compliance with its covenants.
- Margins and segment trends: The third-quarter recovery was led by automotive and Asian customer demand. Optoelectronic Components and Inductors showed strong sequential revenue growth; Diodes revenue was nearly flat sequentially. Nine-month revenue declined across most segments, particularly Diodes, Resistors, and Capacitors.
Material changes versus comparable periods
- Quarterly revenue rebounded from the COVID-affected second quarter and was modestly above the prior-year quarter; year-to-date revenue and earnings remained substantially lower.
- Quarterly operating income improved year over year, helped in part by no restructuring charge in the quarter, versus $7.3 million in the 2019 quarter. Year-to-date operating income fell amid lower volume and margins.
- Average selling prices continued to decline: overall ASP fell 1.1% sequentially and 2.7% year over year in the quarter. Management attributed revenue changes chiefly to volume, pricing, and currency effects.
- Debt carrying value fell following repurchases of $134.7 million principal amount of 2025 notes and $14.3 million principal amount of 2041 debentures. Cash paid for these repurchases totaled approximately $148.2 million.
Outlook, commentary, risks, and unusual items
- Fourth-quarter guidance: Revenue of $620–$660 million and gross margin of 23.9%, plus or minus 70 basis points, assuming EUR/USD of 0.86. Management described the third-quarter order and sales recovery as strong but cautioned results may not indicate full-year performance.
- COVID-19: Facility closures and sub-full-capacity operations affected production, customers, suppliers, and shipping. Net COVID-related costs were $0.2 million in the quarter and $4.3 million year to date in cost of products sold, partly offset by SG&A benefits of $0.4 million and $0.9 million, respectively. Management considered the impact potentially temporary but noted substantial uncertainty; pandemic losses are generally excluded from insurance coverage.
- Restructuring and investment: Global cost-reduction programs are expected to deliver approximately $15 million in annual savings and be fully implemented by December 2020. The company expects about $110 million of 2020 capital spending and continued investment in strategic capacity, R&D, and engineering.
- Acquisition: Vishay acquired Applied Thin-Film Products on October 1, 2020 for approximately $25.9 million, subject to adjustments. Preliminary purchase accounting included $10.8 million of definite-lived intangibles and $6.3 million of goodwill; the acquisition did not materially affect reported-period results.
- Other items and risks: The company completed its cash-repatriation program in the second quarter, repatriating $104.1 million and paying $16.3 million in related withholding and foreign taxes. A subsidiary faces CERCLA groundwater-contamination litigation; the filing says outcomes cannot yet be evaluated. Other risks include pandemic-related demand, production and supply-chain disruption, pricing pressure, currency, tariffs, and potential asset impairment.
Important facts for investors to verify
- Whether the third-quarter demand recovery and near-1.0 book-to-bill ratio translate into sustained orders, revenue, and margins; backlog was $927.9 million.
- Progress against fourth-quarter guidance and the effects of COVID-19, customer demand, pricing, logistics costs, and facility capacity.
- Cash generation after capital spending, taxes, dividends, and debt repurchases; review the definitions and reconciliations of free cash and net cash.
- Debt principal and maturity exposure: the 2025 notes had $465.3 million principal outstanding despite a lower carrying value; monitor covenant headroom and future repurchases.
- Completion and realization of the restructuring savings, final purchase-price allocation for Applied Thin-Film Products, and developments in the CERCLA litigation.