Vishay Intertechnology, Inc. — Q3 2023 Form 10-Q
Reporting period: Fiscal quarter ended September 30, 2023; comparisons are with the fiscal quarter ended October 1, 2022, unless noted. Amounts are in millions of U.S. dollars except per-share data and ratios.
Business context and financial results
Vishay manufactures discrete semiconductors and passive electronic components across six segments: MOSFETs, Diodes, Optoelectronic Components, Resistors, Inductors, and Capacitors. Management attributed weaker results primarily to lower orders amid an ongoing distributor inventory correction.
| Metric | Q3 2023 | Comparable period |
|---|---|---|
| Revenue | $853.7 | $924.8 |
| Gross profit / margin | $237.6 / 27.8% | $289.5 / 31.3% |
| Operating income / margin | $115.1 / 13.5% | $183.1 / 19.8% |
| Net earnings attributable to Vishay stockholders | $65.5 | $140.1 |
| Diluted EPS | $0.47 | $0.98 |
| Cash dividends per share | $0.10 | $0.10 |
For the first nine fiscal months of 2023, revenue was $2,616.8 million, down 1.0%; operating income was $408.3 million versus $480.2 million; and net earnings attributable to Vishay stockholders were $272.3 million versus $356.0 million. Diluted EPS was $1.94 versus $2.46. Gross margin was 29.6% versus 30.7%, and the effective tax rate was 29.3% versus 23.2%.
Cash flow, liquidity, debt, and capital returns
- Nine-month operating cash flow was $359.4 million, compared with $317.8 million. Capital expenditures were $184.1 million; management-defined free cash was $176.4 million, compared with $146.1 million.
- At September 30, cash and cash equivalents were $1,095.1 million and short-term investments were $79.0 million. Long-term debt, net of financing costs, was $817.3 million. The company reported non-GAAP net cash and short-term investments of $356.9 million.
- The $750 million revolving credit facility was undrawn at quarter-end and matures May 8, 2028. Vishay reported compliance with its covenants, with a 0.80-to-1 net leverage ratio and 20.55-to-1 interest coverage ratio.
- In September, Vishay issued $750 million of 2.25% convertible notes due 2030, used proceeds in part to repurchase $370.2 million principal of its 2025 notes for $386.7 million and repay revolving borrowings, and paid $94.2 million for capped calls. The repurchase generated an $18.9 million extinguishment loss. Remaining 2025 notes had $95.1 million principal outstanding.
- Nine-month dividends and share repurchases totaled $99.5 million. The company’s policy targets returning at least 70% of annual free cash, net of scheduled debt principal payments, but may be changed or suspended.
Material changes and operating trends
- Q3 revenue declined 7.7% year over year and 4.3% from the prior quarter. Management cited lower sales volume; quarter-on-quarter ASPs also declined 0.8%.
- Backlog fell to $1,552.4 million from $2,261.4 million in Q3 2022. The book-to-bill ratio was 0.63, down from 0.69 in Q2 2023. Management linked both measures to distributor inventory correction.
- Gross margin declined year over year due primarily to lower volume, cost inflation, and manufacturing inefficiencies. SG&A rose 15.1% year over year to $122.5 million, reflecting inflation, compensation costs, and the 2023 incentive plan.
- By end market, Q3 automotive revenue increased to $316.0 million from $286.3 million a year earlier, while industrial revenue decreased to $297.5 million from $362.4 million. Resistors and Capacitors had notable sequential revenue declines; Diodes revenue increased sequentially.
- Cash conversion cycle lengthened to 111 days from 99 days a year earlier, with days sales outstanding of 48 and days inventory outstanding of 96.
Outlook, commentary, risks, and unusual items
- Management provided no specific revenue or earnings forecast in the supplied filing text. It described long-term prospects as favorable and expects approximately $350 million of capital expenditures in 2023 and approximately $1.2 billion over three years, primarily for capacity expansion outside China. Projects include a 12-inch wafer fab in Germany and expansions in inductors and GaAs manufacturing.
- Management expects the business to remain a reliable free-cash generator but cautioned that a worsening economic environment could reduce cash generation. Demand, distributor inventory correction, customer demand shifts, manufacturing efficiency, input costs, and foreign currency remain relevant risks.
- On November 8, 2023, after quarter-end, Vishay agreed to acquire Nexperia’s Newport, Wales wafer-fabrication facility and operations for approximately $177 million cash. Closing is expected in Q1 2024, subject to U.K. government review, a third party’s purchase rights, and customary conditions.
- Other notable items include $27.5 million of nine-month inventory-obsolescence write-offs and a $7.0 million fair-value liability for contingent MaxPower acquisition consideration, which could involve payments of up to $57.5 million subject to specified conditions.
- Vishay disclosed ongoing environmental remediation obligations and a new CERCLA action concerning a predecessor’s former Hicksville, New York operations; the company says it is contesting the claims. The filing added risks relating to convertible-note cash settlement, potential dilution, capped-call counterparties, and possible effects on the stock price.
Most important facts for investors to verify
- Whether distributor inventory correction eases, as reflected in order trends, book-to-bill, and backlog.
- Whether lower volumes, pricing, inflation, and manufacturing inefficiencies continue to pressure margins and cash conversion.
- Execution, returns, and funding of the planned capacity investments, including the Newport acquisition and its required approvals.
- Convertible-note cash-settlement, dilution, covenant, and liquidity exposure, including the company’s substantial overseas cash balances.
- Cash generation relative to capital spending and the sustainability of the stated stockholder-return policy; the policy is nonbinding.
- Potential timing and financial exposure from environmental remediation and related litigation.