Vishay Intertechnology, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the VCHA Q1 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. If you would like to withdraw your question, press the pound key. Please be advised that today's conference is being recorded. If you require further assistance, please press star zero. I would now like to hand the conference over to our speaker today, Peter Henrici, Head of Investor Relations. Thank you. You may begin.

Thank you, Dorothy. Good morning and welcome to Vishay Intertechnology's first quarter 2021 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 first quarter 2021 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.vichet.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 risks and uncertainties that could cause actual results to differ from the forward-looking statements. For a discussion of factors that could cause results to differ, please see today's press release and Fichet's Form 10-K and Form 10-Q filings with the Securities and Exchange Commission. 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. On the investor relations section of our website, you can find a presentation of the first quarter 2021 financial information containing some of the operational metrics Dr. Paul will be discussing. Now, I turn the call over to Chief Financial Officer Laurie Lipkeman.

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. Visa reported revenues for Q1 of $765 million. EPS was 49 cents for the quarter. Adjusted EPS was 46 cents for the quarter. The only reconciling items between GAAP EPS and adjusted EPS are tax-related. There were no reconciling items impacting growth or operating margins. Revenues in the quarter were $765 million, up by 14.6% from previous quarter, and up by 24.8% compared to prior year. Gross margin was 26.5%. Operating margin was 12.7%. There were no reconciling items to arrive at adjusted operating margin. EPS was 49 cents. Adjusted EPS was 46 cents. EBITDA was $133 million, or 17.4%. There were no reconciling items to arrive at adjusted EBITDA. Reconciling versus prior quarter, operating income Q1 2021 compared to adjusted operating income for prior quarter, based on 97 million higher sales, or 94 million higher excluding X rate tax, adjusted operating income increased by $38 million to $97 million in Q1 2021 from $60 million in Q4 2020. The main elements were average selling prices had a negative impact of $4 million representing a 0.5% ASP decline. Volume increased with a positive impact of $44 million equivalent to a 14.7% increase in volume. Variable costs decreased with a positive impact of 12 million, primarily due to volume-related increased manufacturing efficiencies and cost reduction efforts, which more than offset annual wage increases and higher metal prices. Fixed costs increased with a negative impact of 17 million, primarily due to higher personnel costs related to uneven attribution of stock compensation expense, higher bonus accruals, more working days in Q1, and wage increases, partially offset by restructuring programs. Inventory impacts had a positive effect of $5 million. Request timing versus prior year. Operating income Q1 2021 compared to adjusted operating income in Q1 2020 based on 152 million higher sales or 131 million excluding exchange rate impacts, adjusted operating income increased by 46 million to 97 million in Q1 2021 from 51 million in Q1 2020. The main elements were average selling prices had a negative impact of 11 million representing a 1.4% ASP decline. Volume increased with a positive impact of $60 million, representing a 22.8% increase. Variable costs decreased with a positive impact of $7 million, primarily due to volume-related increased manufacturing efficiencies and cost reduction efforts, which more than offset higher metal prices, annual wage increases, as well as higher freight costs. Fixed costs increased with a negative impact of $6 million, primarily due to annual wage increases and higher incentive compensations partially offset by our restructuring program. Exchange rates had a negative effect of 4 million. Selling general and administrative expenses for the quarter were 106 million, slightly above our expectations when adjusted for exchange rates due to higher incentive compensation accruals given the favorable 2021 outlook Based on our cycle, our SG&A expenses are at the highest quarterly level in Q1, primarily due to uneven attribution of stock compensation expense. Directly attributable costs of the pandemic are now part of the new normal operating state. Accordingly, they are considered in our normal operating costs. For Q2 2021, our expectations are approximately 104 million of SG&A expenses. For the full year, our expectations are approximately $420 million at the exchange rates of Q1, slightly above our previous guidance due to higher incentive compensation. We early adopted the new accounting standards for convertible debt effective January 1, 2021. Pursuant to the new standard, our convertible debt is no longer bifurcated into debt and equity components. and we are no longer required to amortize the related debt discount as non-cash interest expense. This means that our reported debt balance has increased to approximately the face value of the convertible notes. It also means that our gap interest expense has decreased to approximately the cash coupon on the convertible notes plus the cost under the revolving credit facility. We expect interest expense for Q2 to be approximately $4.4 million. As described in our annual report on Form 10-K, we took actions to amend the indenture for the convertible notes due 2025 to minimize the EPS dilution of the notes under the new standard. This results in a similar impact on the diluted EPS share count to that which was achieved under the old standard when assuming net share settlement. The debt shown on the face of the balance sheet at quarter end is comprised of the convertible notes due 2025 net of debt issuance costs. There were no amounts outstanding on a revolving credit facility at the end of the quarter. However, we did use Revolver from time to time during Q1 to meet some short-term financing needs and expect to continue to do so in the future. No payments are due until 2025 and the revolving credit facility expires in June 2024. We do not repurchase any of our convertible notes due 2025 during Q1, but we continue to be authorized by our Board of Directors to repurchase up to an additional 65 million of convertible notes due 2025, subject to market and business conditions, legal requirements and other factors. We had total liquidity of $1.5 billion at quarter end. Cash and short-term investments comprised $781 million, and there are no amounts outstanding on our $750 million credit facility. Total shares outstanding at quarter end were $145 million. The expected share count for EPS purposes for the second quarter 2021 is approximately $145.5 million. Our convertible debt for purchase activity over the past three years, together with the adoption of the new convertible debt standard, significantly reduces the variability of our EPS share count. Our U.S. GAAP tax rate for Q1 was approximately 18%. During Q1, we recorded a benefit of $4.4 million due to a change in tax regulation. Our normalized effective tax rate, which excludes unusual tax items, was approximately 23% for the quarter. We expect our normalized effective tax rate for full year 2021 to be between 22% and 24%. Our consolidated effective tax rate is based on the assumed level and mix of income among our various taxing jurisdictions. A shift in income could result in significantly different results. A significant change in U.S. tax laws or regulations could result in significantly different results. Cash from operations for the quarter was $57 million. Capital expenditures for the quarter were $29 million. Free cash for the quarter was $29 million. For the trailing 12 months, cash from operations was $338 million. Capital expenditures were $128 million, split approximately for expansion $85 million, for cost reduction $8 million, for maintenance of business $35 million. Free cash generation for the trailing 12-month period was $211 million. The trailing 12-month period includes $16 million cash taxes paid related to cash repatriation, plus 15 million cash taxes paid for the 2020 installment of the U.S. tax reform transition tax. ECE has consistently generated an excess of 100 million cash flows from operations in each of the past 26 years and greater than 200 million for the past 19 years. Backlog at the end of quarter one was at 1,731,000,000. were 6.8 months of sales. Inventories increased quarter over quarter by $32 million, excluding exchange rate impacts. Days of inventory outstanding were 75 days. Days of sales outstanding for the quarter were 43 days. Days of payables outstanding for the quarter were 33 days, resulting in a cash conversion cycle of 85 days. Now I would like to turn the call over to our Chief Executive Officer, Dr. Gerald Paul.