Vishay Intertechnology, Inc.

Good day, and thank you for standing by. Welcome to the Vishay Intertechnology Q2 2024 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone, and you will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Peter Henrici, Investor Relations. Please go ahead.

Thank you, Jill. Good morning and welcome to Vishay Intertechnology's second quarter 2024 earnings conference call. Joel Smekal, our President and Chief Executive Officer, and Dave McConnell, Our chief financial officer will join me today. This morning, we reported results for our second quarter. A copy of our earnings release is available in the investor relations section of our website at ir.vichet.com. This call is being broadcast live over the web and can be accessed through our website. In addition, today's call is being recorded and will be available via replay on our website. We will be referring to a slide presentation during the call, which we also posted at ir.fiche.com. You should be aware that in today's conference call, we will be making forward-looking statements discussing 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. We are including information on various gap and non-gap measures in our press release and on this conference call. We have included the full gap to non-gap reconciliation in our press release and in the presentation posted on ir.vichet.com, which we believe you will find useful when comparing our gap and non-gap results. We use non-gap 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. Now, I turn the call over to President and Chief Executive Officer Joel Smekal.

Joel Smekal Thank you, Peter. Good morning, everyone. Thank you for joining our second quarter 2024 conference call. I'll start my remarks with the review of our revenue for the second quarter by end market, channel, and region. Then Dave will take you through a review of the second quarter financial results and our guidance for the third quarter. After that, I'll give you a progress report on our 2024 initiatives under our five-year strategic plan to answer any of your questions. For the second quarter, we are reporting results in line with our revenue, gross profit margin, and SG&A guidance. Revenue of $741.2 million was essentially flat versus the first quarter, impacted negatively by lower volume pulls from automotive customers and from industrial customer destocking. The revenue was impacted positively by an additional revenue of $13.1 million from our Newport acquisition and also sparks from China and Taiwan related to AI server demand, notebooks, and consumer devices. Distribution revenue was up quarter on quarter, a testament to our intensified customer re-engagement initiative supported by the capacity that has come online over the last 12 months. We are making good progress in executing Bichet 3.0. As we expected, the inventory digestion continued into the second quarter. Some of the customers are still carrying a high level of semiconductor inventory from some of their suppliers. Nevertheless, we are starting to see indications of inventory rebalancing, and bookings are steadily improving, particularly from automotive and industrial customers. We've also started to see replenishment activities from the distributor channel and on certain passive product lines, higher consumption rates for semiconductors, as demand ramps up for AI servers and vehicle computing. Let's take a closer look now at the second quarter revenue, starting with a review of revenue by end market on slide three. Automotive revenue declined 6.7% from the first quarter and 13.6% compared to last year's second quarter, as tier one automotive customers pulled below their schedule agreement plans, primarily in Europe. OEMs in North America and Europe pulled back on EV production and postponed some of their new EV platforms. Based on input from our customers in Europe and the Americas, we're seeing flat automotive demand tied to persistent high interest rates, driving consumers to look towards purchasing less expensive compact cars containing less electronic content. Even though sales were lower, design activity continued on all automotive electronics, including battery management systems, ADAS, and with the increasing discussion around AI chipsets. We also stepped up our engagement with automotive OEMs and tier ones. Because we are investing in capacity expansion, an automotive OEM signed an important first time silicon MOSFET supply agreement with us. For our silicon carbide push, we held more technical meetings with existing and potential new customers around silicon carbide MOSFETs tied to traction inverter projects and assemblies and modules for onboard charging. These customer programs are planned for 2026 and 2027 launches. Our action item is to provide customer engineers with samples of both the planter and the trench silicon carbide technologies as we now move towards commercializing these products. Turning to industrial end markets, with customers continuing to destock inventory during the second quarter, overall demand remains sluggish. Excluding Newport, industrial revenue was essentially flat quarter over quarter. Late in the quarter, we started to see improved bookings in Asia for power meters, high voltage DC applications, and factory automation. including a first signal of improving orders in China. We also received sizable follow-on orders for high voltage capacitors under a smart grid supply agreement with a European customer for a total of now approximately $113 million since the beginning of the year. Design activity remained focused on smart grid infrastructure, industrial automation, renewable energy, and energy storage. Near term, we expect industrial automation will continue to be a key driver of design activity, while the government funding for EV charging networks and grid projects keeps getting pushed out. Revenue to aerospace and defense end markets declined 3.3% from the quarter and was 17.2% higher than last year's second quarter. Sales were down due to a temporary lull in orders, polls from key OEMs, both in the Americas and Europe, related to their supplies chain shortages, and a directive also from the Turkish government to not receive products made in Israel. Orders for applications around missile guidance systems and combat aircraft remained strong. Demand from OEMs in the Americas remained solid. with some of them pushing for master supply agreements to facilitate awarding contracts to Bichet as a preferred supplier. This is a direct result of our customer re-engagement initiative. We are also supplying military materials to EMS to satisfy their contracts with Aerospace and Defense OEMs. As we look forward into the year, we expect to complete these supply agreements in the third quarter. setting us up for increased share of new contracts in Q4 and in 2025. Medical revenue increased 14.7% from the first quarter and was slightly below last year's second quarter. We delivered an all-time high of custom magnetics to our largest medical customer, who has now resolved their supply chain issues. Because we see great growth potential in the medical end market, We have hired a medical segment leader, a newly created role at Vishay, who is focused on deepening our engagement with existing customers and developing relationships with new customers, more fully leveraging the breadth of our product portfolio, similar to the steps we're taking with the distributor re-engagement initiative. This medical leader will bring the appropriate technologies of Vishay into the discussions with these medical customers. While design activity remained focused on implantable devices and remote monitoring equipment, we also see activity in home patient monitoring and diagnostics as these applications have taken hold along with the adoption of telemedicine that started during the pandemic. Revenue from the other categories included telecom, computing, and consumer end markets was down 2.3% quarter over quarter. and 37.3% versus the second quarter last year. We continue to see pockets of growth like orders for AI servers and server power projects as key manufacturers in China and Taiwan now launched initial production. Orders related to notebook computers continue to grow in Asia as well. Design activity continued to increase in the areas of AI server power, AI chipsets, laptops, and tablets, and storage networks. While we have a good initial position on AI reference designs, mainly with MOSFETs and diodes, we are designing in more of the Vishay portfolio to gain a greater percentage of Vishay components on the at key chipset makers in the emerging AI market. This is another example of the benefits of our Vishay 3.0 initiatives As we've increased our field application engineering resources and extended capacity, we're now positioning Bechet to fully participate in the AI market growth. Turning to channel sales on slide four, OEM revenue decreased 11.1% quarter over quarter and 19.1% year over year on lower volumes from industrial and automotive customers, primarily in the Americas and Europe. EMS revenue increased 1% versus Q1, 15.9% below prior year, with increasing order flow tied to improving customer demand and higher demand related to AI servers, particularly in China and Taiwan. In the Americas, EMS revenue, excluding military, was lower as end customers reduced forecasts and lead times remained short, allowing customers to wait and be less visible about their future demand needs. Our EMS customers, which are focused on military end markets, are performing well and have positive outlooks. Distribution revenue increased 7.6% versus the first quarter and was down 15.5% versus last year. Our initiative to deepen engagement with our distribution customers is beginning to pay off. Part number and pricing reviews have resulted in increased SKU count on the distributor shelves. In Q224, we've increased our SKU count at distribution by over 10,000 part numbers, quarter over quarter. These positions help to position Bechet and win increased share of Tern's business. At the same time, we continue to meet with the distributors to expand our local coverage, particularly in Asia. Distribution inventory worldwide declined by $22.8 million while we added approximately $14 million of inventory on the new SKUs. Inventory held steady quarter over quarter at 26 weeks. POS worldwide was 2.3% lower with weakness in Europe and some softness in the Americas. While POS improved in Asia due to strong demand from the China EV customers, especially those who are increasing their focus on overseas markets for growth. Finally, let's turn to slide five for a look at the revenue by region. Revenue in the Americas was slightly higher, up 1% on distribution and medical, while Asia revenue was flat with some bright spots developing on industrial and AI. Europe revenues were lower as its macroeconomic challenges continued to weaken demand. Before turning the call over to Dave, I'd like to express my appreciation to all Bechet employees for their continued dedication and commitment to implementing Bechet 3.0. Their focus to deepen our customer engagement, to drive internal cost controls, and to become business-minded in everything we do aligns all of us to faster decision-making as well as driving towards greater financial outcomes. I'll now hand the call over to Dave with the financial review of Q2.