Vishay Intertechnology, Inc. — Q2 2021 Form 10-Q
Business context and reporting period. Vishay manufactures discrete semiconductors and passive electronic components for industrial, automotive, computing, consumer, telecommunications, military, aerospace, and medical markets. This filing covers the 13-week fiscal quarter ended July 3, 2021, and the six fiscal months then ended. The year-ago comparison quarter was ended July 4, 2020.
Financial performance and liquidity
Amounts are in millions of dollars, except per-share data and ratios.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net revenue | $819.1 | $581.7 | $1,583.8 | $1,194.6 |
| Gross profit / margin | $229.3 / 28.0% | $130.7 / 22.5% | $432.2 / 27.3% | $277.9 / 23.3% |
| Operating income / margin | $125.4 / 15.3% | $40.8 / 7.0% | $222.6 / 14.1% | $88.2 / 7.4% |
| Net earnings attributable to Vishay stockholders | $93.2 | $24.7 | $164.6 | $51.9 |
| Diluted EPS attributable to Vishay stockholders | $0.64 | $0.17 | $1.13 | $0.36 |
| Operating cash flow | $117.5 | $90.4 | $174.8 | $124.9 |
| Free cash (non-GAAP) | $85.3 | $66.1 | $114.3 | $76.3 |
Q2 revenue rose 40.8% year over year and 7.1% sequentially. Management attributed the recovery primarily to higher sales volume; it said sales were constrained by capacity. Gross margin improved mainly on volume and manufacturing efficiencies. For the six-month period, higher volume drove revenue growth, while average selling prices modestly reduced growth; currency translation and an acquisition also contributed.
At July 3, 2021, cash and cash equivalents were $726.8 million, short-term investments $129.0 million, and long-term debt, net of deferred financing costs, $454.0 million. Management’s non-GAAP net cash and short-term investments measure was $401.8 million. Current assets were $1,911.7 million and current liabilities $639.1 million; the reported current ratio was 3.0 to 1. Total assets were $3,350.8 million. The company had no revolver balance at quarter-end, though it borrowed and repaid $467 million during the six months. Its $750 million revolving facility runs to June 2024; management reported covenant compliance, with leverage and interest coverage ratios of 0.94 to 1 and 25.47 to 1, respectively.
Material changes and operating trends
- Growth was broad across segments and end markets. Q2 revenue increased year over year in each of the six segments; Resistors was the largest segment by quarterly revenue at $194.7 million. Optoelectronic Components revenue declined 2.5% sequentially, while the other five segments grew.
- Backlog reached a reported record $2,050.2 million, up from $1,731.2 million in Q1 2021. The book-to-bill ratio remained above 1 at 1.38, but fell from 1.67. Management cautions that orders in backlog may be cancelled or rescheduled, often without penalty.
- Quarterly average selling prices increased 1.0% sequentially; management characterized pricing pressure as very low and said selective increases were being implemented to offset higher material and transportation costs. Metals prices, cost inflation, and unfavorable local-currency costs remained offsets in some areas.
- Inventory was $507.9 million at quarter-end, up from $448.3 million at December 31, 2020. Accounts receivable rose to $398.7 million from $338.6 million. Inventory turnover was 4.8, unchanged from Q1.
Outlook, commentary, and risks
- For Q3 2021, management expected revenue of $810 million to $850 million and gross margin of 28.3%, plus or minus 50 basis points. These are forward-looking estimates, not reported results.
- Management expected approximately $250 million of 2021 capital expenditures and approximately $55 million of 2021 dividends, subject to Board authorization. The quarterly dividend was $0.095 per share.
- Management described a continuing demand recovery and cited electrification, factory automation, electric vehicles, and 5G infrastructure as longer-term growth drivers. It planned to expand strategic manufacturing capacity and invest in R&D, technical marketing, and engineering resources. It did not anticipate material restructuring in 2021, while noting that a worsening industry environment or prolonged pandemic impact could require further action.
- Risks discussed include changes in customer demand, COVID-19-related manufacturing or supply-chain disruptions, delays in capacity expansion, inflation and material costs, foreign-exchange movements, competition and technology changes, and execution risks involving product development and acquisitions. The company said previously disclosed risk factors and market risks had no material changes during the period.
- Unusual accounting and tax matters: adoption of ASU 2020-06 on January 1, 2021 increased reported debt carrying value and changed equity balances; management said diluted share-count impact was not significant. Tax-regulation changes provided a $3.9 million Q2 tax benefit ($8.3 million for the six months). Q2 interest expense was lower year over year, partly because adoption eliminated amortization of the convertible-debt discount.
- The 2025 convertible notes had $465.3 million principal outstanding, a 2.25% cash coupon, and were not currently convertible. The remaining 2040 debentures were redeemed in February 2021. Substantially all cash and short-term investments were held outside the United States; management cited the undrawn credit facility as a source of U.S. liquidity.
Key facts for investors to verify
- Whether the Q3 revenue and margin outlook was achieved, especially given capacity constraints and the high, potentially cancellable backlog.
- Whether order momentum, book-to-bill, and inventory levels support continued growth without excess inventory or demand normalization.
- How volume gains, pricing, inflation, metals costs, freight, and currency effects affect gross margins in subsequent periods.
- Capital-spending execution, cash conversion, and the sustainability of management’s free-cash and liquidity position; free cash and net cash are non-GAAP measures.
- Debt and covenant headroom, including the effects of any convertible-note conversion or additional borrowing, and the availability of cash held outside the United States.