Vishay Intertechnology, Inc.

Greetings. Welcome to Vishay's second quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Peter Henrici, Senior Vice President, Corporate Communications. Thank you. You may begin.

Thank you, Sherry. Good morning and welcome to Vishay Intertechnology's second quarter 2022 conference call. With me today are Dr. Gerald Paul, Vishay's President and Chief Executive Officer, and Laurie Lipkerman, our Executive Vice President and Chief Financial Officer. As usual, we'll start today's call with the CFO, who will review Vishay's second quarter 2022 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 Vichay'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 second quarter 2022 financial information containing some of the operational metrics Dr. Paul will be discussing. Now, I turn the call over to Chief Financial Officer Laurie Lipkerman. Laurie Lipkerman 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. Niche reported revenues for Q2 of $864 million, a quarterly record despite a temporary closure of two key facilities in Shanghai, China for over two months. EPS was 78 cents for the quarter. Adjusted EPS was 82 cents for the quarter. We've identified certain charges for the COVID related shutdowns of our facilities in China during Q2. The cost of these government mandated shutdowns in China are incremental to and separable from normal operations. These items impacted cost of goods sold by 6.7 million and selling general and administrative expenses by 0.5 million and our added net of tax when calculating our non-GAAP adjusted EPS. We do not include in this amount indirect costs of the pandemic, which are normal costs for doing business in 2022. During the quarter, we repatriated cash from Israel as part of a program we initiated in response to a change in Israeli tax law. We repatriated $81 million to the United States, net of paid withholding and foreign taxes of $13 million. We also paid Israeli clawback tax of $12 million. These taxes had been accrued in Q4 2021 when the new tax law was enacted. The payment of these taxes is reflected as an operating cash flow on the statement of cash flows. The repatriated cash is used to fund our stockholder return policy. As we announced in February, BCS adopted a stockholder return policy which calls for us to return at least 70 percent of annual free cash to stockholders directly in the form of dividends or indirectly in the form of stock repurchases. For 2022, we intend to return at least 100 million. During Q2, we repurchased 1.4 million shares of common stock for approximately 26.3 million. We paid 14.3 million for our quarterly dividends for a total stockholder return of 40.6 million. Year to date, we repurchased 1.9 million shares of common stock for approximately $36.2 million and paid $28.8 million in dividends for a total stockholder return of $65 million. Revenues in the quarter were $864 million, up by 1.1% from previous quarter and up by 5.4% compared to prior year. Gross margin was 30.3%. Adjusted gross margin was 31.0%. Operating margin was 17.5%. Adjusted operating margin was 18.3%. EPS was 78 cents. Adjusted EPS was 82 cents. EB Dow was 192 million, or 22.2%. Adjusted EB Dow was 199 million at 23.0%. Reconciling versus prior quarter. Adjusted operating income Q2 2022 compared to operating income for prior quarter based on 10 million higher sales or 24 million higher sales excluding X rate impacts. Adjusted operating income increased by 12 million to 158 million in Q2 2022, from 146 million in Q1 2022. The main elements were average selling prices had a positive impact of 24 million, representing a 2.9% ASP increase. Volume decreased with a negative impact of 1 million, equivalent to a 0.1% decrease, primarily due to the COVID-related plant shutdowns in Shanghai. Available costs increased with a negative impact of $15 million, primarily due to higher metals and material prices. Fixed costs were flat quarter over quarter. Inventory impacts had a negative impact of $1 million. Exchange rates had a positive effect of $4 million. Reconciling versus prior year. adjusted operating income Q2 2022 compared to operating income in Q2 2021. Based on 44 million higher sales or 78 million higher excluding exchange rate impacts, adjusted operating income increased by 33 million to 158 million in Q2 2022 from 125 million in Q2 2021. The main elements were average selling prices had a positive impact of 64 million, representing an 8.1 percent ASP increase. Volume increased with a positive impact of 14 million, representing a 1.6 percent increase. Variable costs increased with a negative impact of 30 million, primarily due to increases in cost of materials and services, labor, silicon, metals and logistics not completely offset by manufacturing efficiencies and cost reduction efforts. Fixed costs increased with a negative impact of $17 million, primarily due to annual wage increases as well as general inflation. Inventory impacts had a positive impact of $4 million. Exchange rates had a negative effect of $3 million. Selling general and administrative expenses for the quarter were $110 million, slightly less than expectations due to foreign exchange effects. For Q3 2022, our expectations are approximately $107 million of SG&A expenses at current exchange rates. For the full year 2022, our expectations are $440 million of SG&A expenses. The debt shown on the face of our balance sheet at quarter end is comprised of the convertible notes due 2025, net of debt issuance costs, and $6 million outstanding on our revolving credit facility at the end of the quarter. No principal payments are due until the expiration of the revolving credit facility in June 2024. We had total liquidity of $1.6 billion at quarter end. Cash and short-term investments comprised $847 million, and $744 million is available on our credit facility. Total shares outstanding at quarter end were $143 million. The expected share count for EPS purposes for the third quarter 2022 is approximately $143 million, excluding any impact of share repurchases. Our U.S. gap tax rate for the quarter and year-to-date was approximately 24%. Our normalized effective tax rate, which excludes the tax effect of the COVID costs in China, was also approximately 24% for the quarter and year-to-date periods. We expect our normalized effective tax rate for full year 2022 to be between 23% and 24%. A 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. Also a significant change in U.S. tax laws or regulations could result in significantly different rates. Cash from operations for the quarter was $75 million. Capital expenditures for the quarter were $60 million. Free cash for the quarter was $15 million. For the trailing 12 months, cash from operations was $391 million. Capital expenditures were $253 million, split approximately for expansion $161 million, for cost reduction $16 million, for maintenance of business $76 million. Free cash generation for the trailing 12-month period was $139 million. The trailing 12-month period includes $15 million cash taxes paid for the 2022 installment of the U.S. tax reform transition tax and $25 million cash taxes paid pursuant to our Israeli repatriation program. Vichy has consistently generated in excess of $100 million cash flows from operations in each of the past 27 years and greater than $200 million for the past 20 years. Backlog at the end of quarter two was at 2,425,000,000 or 8.4 months of sales. Inventories increased quarter over quarter by 46,000,000 excluding exchange rate impacts. Days of inventory outstanding were 95 days. Days of sales outstanding for the quarter were 45 days. Days of payables outstanding for the quarter were 37 days. resulting in a cash conversion cycle of 103 days. Now we'll turn the call over to our Chief Executive Officer, Dr. Gerald Paul.