Vishay Intertechnology, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Zizhe Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Peter Henrici, Head of Investor Relations. Please go ahead, sir.

Thank you, Regina. Good morning and welcome to Vishay Intertechnology's third quarter 2020 conference call. With me today are Dr. Gerald Paul, Vishay's President and Chief Executive Officer, and Laurie Lipkeman, our Executive Vice President and Chief Financial Officer. As usual, we'll start today's call with the CFO who will review Vishay's third quarter 2020 financial results. Dr. Gerald Paul will then give an overview of our business and discuss operational performance as well as segment results in more detail. Finally, we'll reserve time for questions and answers. This call is being webcast from the Investor Relations section of our website at ir.vishe.com. The replay for this call will be publicly available for approximately 30 days. You should be aware that in today's conference call, we will be making certain forward-looking statements that discuss future events and performance. These statements are subject to risk and others. In addition, during this call, we may refer to adjusted or other financial measures that are not prepared according to generally accepted accounting principles. We use non-GAAP measures because we believe they provide useful information about the operating performance of our businesses and should be considered by investors in conjunction with GAAP measures that we also provide. This morning we filed a Form 8-K that outlines the various variables Thank you, Peter.

Good morning, everyone. I am sure that most of you have had a chance to review our earnings press release. I will focus on some highlights and key metrics. BCH reported revenues for Q3 of $640 million, significantly higher than our original expectations as preannounced on October 14th. EPS was 23 cents for the quarter. Adjusted EPS was 25 cents for the quarter. During the quarter, we repurchased another $59 million principal amount of our convertible notes due 2025 and recognized a U.S. gap loss on extinguishment. I will elaborate on these transactions in a few moments. On October 1, 2020, we completed the acquisition of the worldwide business of applied thin film products. This niche acquisition will complement our existing thin film business and strengthen our competitiveness in this market. Due to the timing of the acquisition at the end of the fiscal quarter, ATP had no impact on Q3 results. The macroeconomic effects of COVID-19 continue to impact our business and our financial results. Similar to Q1 and Q2, we have identified certain COVID-19 related charges, net of certain subsidies, which are directly attributable to the COVID-19 outbreak. These items were insignificant to Q2 and Q3 results but are added back when calculating our non-GAAP adjusted EPS for comparability. Such measures exclude indirect impacts such as general macroeconomic effects of COVID-19 on our business and higher shipping costs due to reduced shipping capacity. Revenues in the quarter were $640 million, up by 10% versus previous quarter. and up by 1.9% compared to prior year. Gross margin was 23.7%. Adjusted gross margin excluding COVID costs was also 23.7%. Operating margin was 9.6%. Adjusted operating margin excluding COVID costs was also 9.6%. EPS was 23 cents. Adjusted EPS was 25 cents. EBITDA was $94 million, or 14.7%. Adjusted EBITDA was $97 million, or 15.2%. Reconciling versus prior quarter, adjusted operating income quarter three, 2020, compared to adjusted operating income for prior quarter, based on 58 million higher sales, or 47 million excluding exchange rate impacts. Adjusted operating income increased by $20 million to $61 million in Q3 2020 from $42 million in Q2 2020. The main elements were average selling prices had a negative impact of $7 million, representing a 1.1% ASP decline. Volume increased with a positive impact of $24 million, representing a 9.4% increase. Variable costs decreased with a positive impact of $6 million, primarily due to volume-related deficiencies. Inventory impacts had a negative effect of $3 million. Reconciling versus prior year. Adjusted operating income Q3 2020 compared to operating income in Q3 2019 based on $12 million higher sales or $3 million excluding exchange rate impacts. Adjusted operating income increased by $3 million. to 61 million in Q3 2020 from 58 million in Q3 2019. The main elements were average selling prices had a negative impact of 18 million, representing a 2.7% ASP decline. Volume increased with a positive impact of 7 million, representing a 3.4% increase. Variable costs decreased with a positive impact of 13 million, Manufacturing efficiencies, cost reductions, and lower material prices more than offset increases in metal prices and labor costs. Fixed costs decreased to the positive impact of $3 million, primarily due to lower travel costs. Selling general and administrative expenses for the quarter were $90 million, which includes a net benefit of $0.4 million of subsidies in excess of identified COVID costs. For Q4 2020, our expectations are approximately $94 million of SG&A expenses at constant exchange rates. During the quarter, we were able to repurchase $59 million principal amount of our outstanding convertible notes due 2025. Year to date, we have repurchased $165 million principal amount of the convertible notes due 2025. The year-to-date average repurchase price for the notes was 95.3% of face value. The U.S. gap loss on extinguishment is primarily due to reduced market interest rates since the initial issuances, which is a key assumption in bifurcating between the debt and equity attributes. By reducing our fixed-term debt, the repurchase of the convertible notes provides us with future flexibility to better utilize our revolver and to adjust our debt levels as necessary. We continue to be authorized by our Board of Directors to repurchase up to an additional $65 million of convertible notes due 2025, as well as the remaining $3 million of convertible debentures subject to market and business conditions, legal requirements, and other factors. We had total liquidity of $1.4 billion at quarter end. Cash and short-term investments comprised $712 million. and the usable capacity on the credit facility is approximately $672 million. Our debt at quarter end is comprised of the convertible notes due 2025 and the remaining convertible debentures due in 2040 and 2041. The principal amount for face value of the converts totaled $468 million, $465 million related to the notes due 2025, and 3 million related to the remaining debentures. The current value of 392 million is net of unamortized discount and debt issuance costs. There were no amounts outstanding on a revolving credit facility at the end of Q3. However, we did utilize Revolve from time to time during Q3 to meet short-term financing needs and expect to continue to do so in the future. No principal payments are due until 2025. and the revolving credit facility expires in June 2024. We expect interest expense for Q4 to be approximately $7 million, excluding the impact of any additional convertible note repurchases in Q4. As announced last year, we are implementing global cost reduction programs, which are expected to be fully implemented by the end of 2020. The programs are intended to provide management rejuvenation and to lower costs by approximately $15 million annually when fully implemented. The year-to-date effective tax rate on a GAAP basis was approximately 23%. The year-to-date normalized tax rate was approximately 24%. For the quarter, this mathematically yields a tax rate of approximately 26% for both GAAP and normalized. Our year-to-date gap tax rate includes the unusual tax benefit related to the settlement of some of the convertible debentures in Q1. Our year-to-date normalized rate excludes the unusual tax items, as well as the tax effects of the pre-tax loss on extinguishment of debt, the identified COVID costs, and the Q2 restructuring charge. Our consolidated effective tax rate is based on an assumed level and mix of income among our various taxing jurisdictions. A shift in income could result in significantly different results. We expect our normalized effective tax rate for 2020 to be between 23 and 25%. Total shares outstanding at quarter end were 145 million. The expected share count for EPS purposes for the fourth quarter 2020 is approximately 145 million. For a full explanation of our EPS share count and variables that impact the calculation, please refer to the 8 file this morning. Cash from operations for the quarter was $64 million. Capital expenditures for the quarter were $22 million. Free cash for the quarter was $42 million. For the trailing 12 months, cash from operations was $274 million. Capital expenditures were $127 million, split approximately for expansion $87 million, for cost reduction $7 million, for maintenance of business $33 million. Free cash generation for the trailing 12-month period was $147 million. The trailing 12-month period includes $16 million cash taxes paid related to the cash repatriation, plus $15 million cash taxes paid for the current year installment of the U.S. Tax Reform Transition Tax. VC has consistently generated in excess of $100 million cash flows from operations in each of the past 25 years and greater than $200 million for the last 18 years. Backlog at the end of Q3 was at $928 million, or 4.3 months of sales. Inventories decreased quarter over quarter by $15 million, excluding exchange rate impacts. Days of inventory outstanding were 83 days. Days of sales outstanding for the quarter were 45 days. Days of payables outstanding for the quarter were 29 days, resulting in a cash conversion cycle of 99 days. Now I will turn the call over to our Chief Executive Officer, Dr. Gerald Paul.