Vishay Intertechnology, Inc.

along with improved order flow for legacy automotive programs as the supply chain bottlenecks have eased. Industrial, representing 37% of total revenue, was flat quarter over quarter and 7% below last year as many of the customers are normalizing their inventory positions now that the pandemic and supply chain constraints are in the rearview mirror. In addition, Demand in China is sluggish as the country's economic recovery is taking longer than we expected. Nevertheless, we continue to see the strong design activity in the area of the electric grid and EV charging infrastructure globally. In aerospace defense, one of our rapidly growing end markets, revenue grew 11% versus the first quarter. and 23% versus the second quarter last year on strong orders from commercial aviation, along with increased government spending on weapons systems in Europe and the United States. Revenue from medical customers, another promising end market for Vichy, was down 5% versus the first quarter due to the timing of orders and mix, but up 22% year over year. Based on the strong demand we saw during the quarter, especially for medical diagnostic equipment and implantable devices, book to bill at quarter end was 1.3, and we expect revenue to increase sequentially in the third quarter. Finally, in the other market segments, revenue declined 7% versus the first quarter due to some price pressure on some products sold to distribution customers in Asia. and ongoing weak consumer demand. In terms of channel sales, we're focused on reengaging with distributors to regain POS share we lost after 2017 due to many years of capacity constraints. We're also engaging more closely with EMS customers in volume-based business as well as at their EMS design activity centers. This way, we're supporting all channels while maximizing the profitability of each one. During the quarter, distribution revenue grew 4% compared to the first quarter and was down 6% compared to the second quarter last year due to improved delivery of allocated products to automotive, industrial, and aerospace defense customers. Distribution inventory at quarter end was 21 weeks versus 19 weeks last quarter, which increased in most regions. POS decreased 5%, weighed down by softer demand for telecom and computing in Asia. We are collaborating with each of our distributor partners to ensure the inventory at each of them includes a greater quantity of high running part numbers. OEM revenue grew 1% quarter over quarter and 19% year over year, primarily reflecting continued strong demand for our automotive customers as they continue to replenish inventory, particularly in the Americas. EMS grew 1% quarter over quarter as healthier supply chains allowed for improved pull in automotive industrial markets, particularly in the Americas and Asia, which more than offset weak demand, primarily in consumer computing and telecom market segments in Asia. Before turning the call over to Lori for a review of our financial results, I want to thank our employees for embracing our change. Their dedication and commitment to excellence is visible every day. We're becoming a business-minded organization and making the right decisions to act on the value of putting our customers first. We're pushing forward together to seize opportunities created by the mega trends of connectivity, mobility, sustainability and to drive faster revenue growth and higher returns. Lori, I'll now pass it over to you for the financial results.

Thank you, Joel. Good morning everyone. I will start my review of our second quarter results on slide four. Revenues for the second quarter were $892.1 million. Compared to the first quarter, revenues increased 2.4% reflecting a 2.6% increase in volume, slightly offset by a 0.7% reduction in pricing. By reportable business segment, revenue growth was driven by MOSFET volume gains, partially offset by lower pricing, and by inductors' volume increases and higher pricing. Compared to the second quarter last year, revenues grew 3.3%, reflecting a volume increase of 1.4% and 1.1% increase in pricing. At quarter end, book to bill for consolidated BCHE was 0.69 and backlog at quarter end was 6.4 months compared to 7.5 months at the end of the prior quarter as lead times continue coming down for all product segments. We returned a total of $34.2 million to shareholders. comprised of dividends of $13.9 million and stock purchases of $20.2 million. The next slide presents income statement highlights. Gross profit was $257.5 million for a margin of 28.9% compared to 32.0% for the first quarter and in line with our guidance. Compared to the first quarter, gross margin decreased on lower fixed cost absorption based on flat inventory, inflationary labor and material costs partially offset by lower logistics and freight costs. SG&A expenses were $122.9 million, $2.8 million higher than the first quarter in line with our guidance. Operating income decreased $24.0 million versus the first quarter on lower gross profit. Adjusted operating income decreased $23.4 million versus the prior year due to higher SGN expenses, primarily reflecting annual salary increases, general inflation, and equity incentive compensation. Operating margin was 15.1% compared to 18.2% for the first quarter and 18.3% on an adjusted basis for the second quarter of 2022. EBITDA was $178.0 million for an EBITDA margin of 19.9%. Our normalized effective tax rate was 28.5% for both the quarter and year-to-date period, the same as our gap effective tax rate for those periods. EPS was 68 cents per share compared to 79 cents per share for the first quarter. For your convenience, we have included in the body of the presentation a chart depicting revenue, gross margin, and book-to-bill ratios for each of our reportable business segments. Turning to slide seven, we present cash conversion cycle metrics. DSOs were 46 days, one day higher than the first quarter, and DPOs were unchanged at 32 days. Inventory was $660.0 million at quarter end, essentially flat compared to $656.7 million as of the end of Q1. Inventory days outstanding were 94 days compared to 98 days for the first quarter, bringing the cash conversion cycle for the second quarter to 108 days. On slide eight. You can see that cash flow from operations of $107.2 million for the second quarter was lower than the first quarter, primarily reflecting the annual installment of the transition tax. Total CapEx was $71.7 million for the quarter, with $44.8 million of the total invested in capacity expansion, compared to $37.6 million last year, an increase of 19.1%. On a trailing 12-month basis, total CapEx was 9.6% of revenue compared to 7.5% for the same period last year. Free cash flow for the quarter was $36.3 million compared to $84.6 million for the first quarter due to higher CapEx, the annual installment of the transition tax. Stockholder returns for the second quarter amounted to $34.2 million consisting of $13.9 million for our quarterly dividend and $20.2 million for . We repurchased 0.8 million shares at an average price of $22.87 per share during the quarter. Total liquidity at quarter end was $1.7 billion, including cash and short-term investments of $1.1 billion and availability on our revolving credit facility of $564 million. As mentioned on past earnings calls, we use the revolver from time to time to meet short-term financing needs. Turning to slide 9 for our guidance. For the third quarter of 2023, revenues are expected to be between $840 million and $880 million, reflecting a return to normal seasonality. Gross profit margin is expected to be in the range of 27.7% plus or minus 50 basis points. We still expect full year gross profit margin to be in the range of 29% plus or minus 50 basis points. STNA expenses are expected to be between $125 million plus or minus $2 million for the quarter and $495 million plus or minus $4 million for the full year at current exchange rates. Reflecting higher than expected marketing expenses, refined long-term incentive plan accruals, and additional analysis of the data. For 2023, we expect a normalized effective tax rate of approximately 28.5%. Finally, we remain committed to distributing at least 70% of our free cash flow to shareholders. in the form of dividends and stock repurchase in accordance with our stockholder return policy. For 2023, we expect to return at least $100 million. Now I'll turn the call back to Joel.

Thank you, Lori. Let's turn to slide 10 for review of our key near-term initiatives for 2023. As a reminder, when I first talked to you on the fourth quarter call, I detailed the initiatives we're focused on that are laying the foundation for accelerated revenue growth and improved returns and positioning the company to take full advantage of the next phase of the megatrends in connectivity, mobility, and sustainability. I also talked about the importance of creating a business-minded organization, one that is more responsive to customers, about changing Bechet from being a cash flow driven company to a P&L driven company, and from a company that fulfills customer orders to one that anticipates and meets the customer needs, building on Bechet's strong operational disciplines and talented and dedicated workforce. We started immediately at the beginning of January and are pushing forward with a sense of urgency. I am pleased on our progress to date in shifting the mindset of everyone at Bichet to think customer first and placing a priority of having a business-minded focus in everything we do. Our teams are embracing the changes and are dedicated to supercharging our growth. We're making progress in increasing capacity internally and externally in support of our higher growth and highest return product lines. consistent with our plans at the beginning of the year. These 30 key product lines, which serve multiple market segments, applications, and business channels, best position us for the exponential end market demand coming in the near future, driven by the megatrends. To be ready for the next phase, we are investing $1.2 billion between 2023 and 2025 2023 is a staging year, and we are committed to investing approximately $385 million, about two-thirds of which is to be spent on expansion projects. This investment in expanding capacity is expected to come online in late 2024 and 2025. The incremental capacity we invested in last year is coming online this year and through 2024. By the end of the second quarter, we had landed an annualized capacity increase of nearly 2%, particularly for power inductors, resistors, and capacitors, compared to the annualized capacity at the end of the first quarter. Volume from this incremental capacity will be available as we complete site and customer qualifications. During the second quarter, we continued to advance construction on fabs located in Germany, Taiwan, and Italy to meet the growing demand for our automotive and industrial customers. We broke ground on the new MOSFET 12-inch fab in Itzehoe, Germany during the quarter. We also continued to install equipment at our two new facilities in Mexico, one located in Juarez for power metal strip resistors and the other located in La Laguna for power inductors. We expect this investment will double our capacity for these product lines over the next two to three years. We have qualified some resistors at our Juarez facility, and we expect to begin shipping in the third quarter. At our La Laguna inductor facility, we're planning to qualify new products in the second half of this year and expect first shipments in the first quarter of 2024. At this facility, we're also planning to establish a campus bringing together product lines from other Bechet business segments. In addition to internal capacity expansions, we're continuing to work on identifying additional semiconductor foundries. Our top priority is to increase our MOSFET capacity to support growing demand from our automotive, industrial, and distribution customers. While in parallel, we are completing our new facility in Germany in 2026. During the second quarter, we qualified our first commercial MOSFET platform at a new 12-inch foundry partner. We also reached an agreement to increase wafer supply with two of our existing foundry partners. As a result, we will increase our annualized automotive capacity by 10% in 2024, up to 30% in 2026. We're also working on negotiating an agreement with another foundry to support expanded capacity for our industrial customers and even more capacity for our automotive customers. During the third quarter, we have also started to expand our low-cost Krubong Malaysia assembly site, where we are currently only manufacturing Opto products. We expand here to address the increased demand in the automotive and industrial market segments. Like our plan to establish a campus in La Laguna, Mexico, we are going to expand the back end of Krubong with MOSFETs and diodes while also addressing our customers' country of origin requirements. Phase one of this Malaysia expansion will increase our manufacturing floor space by 65% and will be completed in the third quarter of 2024. To create incremental capacity in support of our higher growth and higher return products even further, we have also been looking externally to qualify subcontractors for some commodity products. As I mentioned in the first quarter, we have qualified one subcontractor for non-automotive resistors and have started shipping these products. During the second quarter, we also started qualification of some automotive products with that same subcontractor. We're continuing to engage in developing partnerships with more than 20 other subcontractors of various sizes and still expect to have qualified and signed agreements with a number of them by year end. As an example, we're qualifying subcontractors for many new inductor products by the end of this year. We're continuing to fill gaps in technology and market coverage on silicon carbide. We're placing a priority to onboard technical resources to support silicon carbide and GAN product developments, and we've continued to add FAEs to engage our customers. As for MaxPower, the acquisition of the fourth quarter of last year, Our development of silicon carbide technology, we're on track to have samples of 1,200-volt planter technology MOSFETs available to customers in the third quarter and release them into production in the fourth quarter. We're continuing to advance the development of our 650-volt planter technology and also the 1,200-volt trench technology. In addition to investing heavily this year in CAPEX and engineering talent, We have been working to introduce Bechet solutions that more fully leverage our broad portfolio of discrete semiconductors and passives. As a reminder, Bechet semiconductors and passives can populate greater than 80% of the components on the circuit board for many power applications. For the past months, we have been building a number of automotive reference designs for customer engineers to evaluate. This quarter, we released one of them. The first one is a high-voltage intelligent battery sensor. These boards are available through our catalog distributors for customer engineers to test. We also have in the queue additional designs, including a 48-volt resettable circuit breaker, a bidirectional 48-volt 12-volt DC-to-DC converter, We also continue work on onboard charger and traction inverters designed for low-speed electric vehicle marketplace. We work together with a Tier 1 customer. Lastly, to institute organizational and cultural change, we redesigned our long-term incentive plan to align the performance of 1,000 key employees to accelerate our company growth and profitability objectives and also shareholder interests. Having a long-term incentive program for 1,000 employees is new at Bichet. This new incentive plan was approved by our shareholders at our 2022 annual meeting this past May. We're also revising our short-term incentive program for 2024 to reward risk-taking and growth. Let's turn to slide 11 for a recap of the goals we have set for ourselves for 2023. In terms of expanding capacity, we're on pace to have qualified and signed agreements with a number of subcontractors by the end of this year and to have completed our evaluation of where to build Vishay's next manufacturing facility. We're adding incremental capacity to support growth in our 30 key product lines and developing go-to-market strategies for each of them. We're on track to have samples of the 1,200-volt planter technology MOSFETs available and are making progress in the development of the 650-volt planter technology. Finally, we remain committed to holding an endless day in early 2024 and sharing with you our three-year business plan and targets for revenue growth, profitability, and return on invested capital. With that, I'll turn the call back to the operator to start the Q&A session.