Vishay Intertechnology, Inc.

Good day, and thank you for standing by. Welcome to the Vishay Intertechnology Q3 2024 Earnings Conference 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. 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. Please go ahead.

Thank you, Felicia. Good morning, and welcome to Vishay Intertechnology's third quarter 2024 earnings conference call. I am joined today by Joel Smekal, our president and chief executive officer, and by Dave McConnell, our chief financial officer. This morning, we reported results for our third quarter. A copy of our earnings release is available in the investor relations section of our website at ir.bichet.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. During the call, we will be referring to a slide presentation, which we also posted at ir.bichet.com. 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 10Q filing with the Securities and Exchange Commission. We are including information in our press release and on this conference call on various gap and non-gap measures. We have included a full gap to non-gap reconciliation in our press release, as well as in the presentation posted on ir.pichet.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 gap measures. Now, I turn the call over to President and Chief Executive Officer Joel Smacock.

Thank you, Peter. Good morning, everyone. Thank you for joining our third quarter 2024 conference call. I'll start my remarks with a review of our revenue for the third quarter by end market, channel, and region. Then Dave will take you through a review of the third quarter financial results and our guidance for the fourth quarter. After that, I'll give you a progress report on the 2024 initiative supporting our five-year strategic plan. and then we'll be happy to answer any of your questions. For the third quarter this year, revenue has held fairly constant, reflecting a prolonged period of inventory destocking as the pace of consumption by industrial customers remains slow. Backlogs are pushed out and macroeconomic conditions in Europe worsen. Automotive customers continue to adjust their forecast to sluggish demand in Europe, while order rates appear to be under control in the Americas. Despite reported revenue of $735.4 million for the third quarter that was flat with the second quarter, bookings for smart grid infrastructure, military, and high-voltage DC applications continue to improve, and we saw increasing demand related to AI servers. While the electronics industry remains in a down cycle, we are making the necessary adjustments to manage costs. Under Bechet 3.0, we are preparing to participate more fully in the next industry up cycle, and we are putting the foundation in place to capitalize on the long-term demand of e-mobility and sustainability. In previous down cycles, the company became unable to support customer demand, and to scale because the focus was on conserving cash flow, which shelved plans to prepare for the next ups. The customers want more from Bichet, so we are taking a fresh, new approach. Under Bichet 3.0, we are intelligently pressing forward with a sense of urgency, putting the customer first, working on our list of growth initiatives under our five-year strategic plan. to restore confidence and win back customers, to develop new customer relationships, expand capacity and our product portfolio to ensure we are ready to scale with our customers as demand returns, implementing our silicon carbide strategy, and becoming a more business-minded organization focused on driving profitability and enhancing returns on capital. Let's take a closer look at third quarter revenue related to the second quarter, starting with a review of revenue by end market on slide three. Automotive revenue increased 4.3% versus the second quarter, although OEM and tier one customers in Europe and in the Americas continued to pull below their schedule agreement. and EV demand weakened in the Americas and Europe. Government policy in China, however, is boosting demand for EVs and hybrids, which drove strong demand for our Opto products, particularly our rain sensors. Design activity remains focused on battery management, traction inverters, and onboard chargers. Discussions around ADAS for all vehicles and leveraging AI chipsets for driver assist and autonomous applications are advancing and resulting in many new design startups. As for industrial end markets, revenue decreased $18.5 million from the second quarter of which the Newport Legacy products accounted for 8.5 million of that. Distributors continued to adjust inventory in response to ongoing weak demand from industrial customers, more so in Europe. In addition, in Europe, we saw the normal seasonal holidays within the quarter. Also in Europe, government funding for EVs and consumer incentives for solar and heat pumps is uncertain for the foreseeable future. As a result, design activity has shifted to industrial automation, along with smart grid infrastructure, renewable energy generation and energy storage. As evident from the large orders we are receiving, we see smart grid infrastructure as a key growth driver for Vishay. For this reason, we announced this morning that we are acquiring Birkelbach, a manufacturer of metalized technical films and a very important supplier to Vishay. We're acquiring this business to ensure supply of metalized film materials that is used in the high voltage, high power film capacitors for smart grid infrastructure projects. In aerospace and defense, revenue was flat versus the second quarter and 20.2% higher than last year's third quarter. Demand from OEMs in the Americas remained strong, with the book-to-bill running over one for most products, supporting radar systems, munition replenishment, smart soldier electronic gear, and unmanned flight systems. Demand for space programs is driving new opportunities for high reliability and specially products such as custom magnetics. In Europe, commercial aerospace, ongoing supply chain issues are there, which caused orders to be pushed out. Medical revenue declined 6.2%, but was 7.4% higher than the third quarter of 2023. primarily due to delay in orders from one of our larger inductor customers in the Americas. The medical design activity for remote patient monitoring equipment presents a significant upside for Vishay in the Americas to sell our entire product portfolio. We also continue to work on designs for implantable devices. Revenue from other segments, including telecom, computing, and consumer, was up 3.2% quarter over quarter, but down 32% versus the third quarter last year. There were a lot of puts and takes this quarter, but what stands out is increasing demand for AI servers and server power in Asia. We're seeing a surge in spot orders related to AI servers, from CMs who are coming directly to suppliers for quick delivery. They're not finding the part numbers in stock in the distributor inventory. Under Bechet 3.0, our ambition is to quickly fulfill these orders and support the quarters. AI server power, power conversion, power management of the AI chipset for laptops and notebooks. Storage networks continue to dominate design activity in the other segment category. We continue to design more of the Bechet portfolio to put it in place a greater percentage of components on the board and to gain material as key chip makers are designing in the emerging AI market. Let's go to slide four. In terms of channel sales, as shown on slide four, you see that OEM and EMS revenue was essentially flat with the second quarter. Distribution revenue decreased 1.2% quarter over quarter and 7.2% year over year, reflecting the drag in Europe. While customers in the Americas and Asia are returning to normal order patterns, customers in Europe are tapping the brakes. I met with many new of these customers in September. And they told me that uncertainties about future demand trends related to geopolitical development is clouding end market demand. This becomes evident from our POS numbers for the quarter. Worldwide POS decreased 4.7%, weighed down by lower POS in Europe. Again, somewhat seasonally impacted. Distribution inventory worldwide was essentially flat. Inventory inched up by one week to 27 weeks. Let's go to slide five. Turning to slide five, you can see that revenue in Europe declined 3.3%, reflecting the weakening macroeconomic environment and seasonality, which I've been mentioning. Revenue in the Americas down slightly on lower medical volume, while revenue in Asia increased 2.1% on a pickup in automotive volume, along with the lift from AI. Before turning the call over to Dave, I'd like to acknowledge the contributions made by Bichet employees and their commitment to our business-minded approach to increasing customer focus in everything we do. It's great to see new ideas bubbling up from the empowered employees to improve profitability and operational efficiencies as decision making is being pushed down into the organization. And it's also great to see greater collaboration, forward thinking, and a willingness to take calculated risk more so than in the past. I very much appreciate the organization and how it's embracing the changes which are taking place as Bichet 3.0. These efforts keep us together on our path to achieving our 2028 financial targets. I'll now pass the call over to Dave for a review of our financial results for Q3.

Thank you, Joel. Good morning, everyone. Let's start our review of the third quarter results with the highlights on slide six. Third quarter revenues were $735.4 million, including $8 million attributed to our new product acquisition and within the range of our guidance. Revenues decreased 0.8% compared to the second quarter, reflecting a 1.0% reduction in ASPs and a 0.8% reduction in volume. By reportable business data, the $6 million decrease in revenues was mainly attributable to an $8 million decrease in lawsuits, reflecting primarily legacy Newport volume, a $4 million decrease in inductors, and a $5 million decrease in capacitors. These declines were partially offset by a $10 million increase in our opto-business segment. Compared to the third quarter last year, revenues were down 13.9%, reflecting a volume decrease net of Newport of 10% and a 4.7% reduction in NASBs. was 0.88, comprised of 0.79 for semis and 0.97 for pastors. Backlog decreased to 4.4 months compared to 4.6 months at the end of Q2. By product category, backlog for semis decreased to 3.8 months from 4.4 and for passives was at five months versus 4.9. Moving to the next slide, presenting the income statement highlights. Gross profit was 150.9 million, resulting in a gross margin of 20.5%, and included the negative impact from Newport of approximately 150 basis points. Compared to the second quarter, gross margin was 150 basis points lower, primarily due to lower volume, lower average selling prices, and increased depreciation expense. SG&A expenses were 128.5 million, in line with our guidance for the quarter, compared to 125 million for the second quarter. reflecting higher R&D expenses and higher stock compensation expense, which is partially offset by lower bonus accruals. Depreciation expense was $51 million, slightly under our guidance for the quarter, up from $49 million in quarter two, and reflects the additional equipment that has come online. During the quarter, we recorded restructuring charges of $40.6 million, designed to optimize the company's manufacturing footprint and streamline business decision-making as we execute our Vishay 3.0 growth strategy. Inclusive of the restructuring charge, GAAP operating margin was a minus 2.5% compared to 5.1% in the second quarter and 13.5% in the third quarter of 2023. Adjusted operating margin decreased to 3%, in line with the decrease in gross margin and reflecting the increase in SG&A expenses that was included in our guidance. EBITDA for the quarter was $30.9 million for an EBITDA margin of 4.2%. Adjusted EBITDA for the quarter was $71.5 million for an EBITDA margin of 9.7%, down from 11.9% in the second quarter. Our GAAP effective tax rate for the year-to-date period was approximately 36%. Due to the GAAP net loss for the quarter, the effective tax rate for the quarter was approximately 21%. Our normalized effective tax rate for the year-to-date period was approximately 31%, which yields an effective tax rate of approximately 32% for the quarter. GAAP loss per share was 14 cents compared to earnings of 17 cents per share in the second quarter, and $0.47 per share for the third quarter of 23. Adjusted EPS is $0.08 per share compared to $0.17 per share for the second quarter and $0.60 per share for the third quarter of 23. Proceeding to slide eight, for ease of reference, the presentation includes a table illustrating the revenue gross margin and book-to-bill ratios for each of our reportable business segments. Of note, for the third quarter, the results for Newport are reported substantially all in the MOSFET's business segment, weighing on that segment's gross margin approximately 700 basis points. Turning to slide nine and our cash conversion cycle metrics, Our DSO was 53 days, up from 51 days, and our DPO was 32 days, up from 31 days. Inventory was slightly, was up slightly to 687 million, resulting in inventory days outstanding of 106 days, up from 105 days in Q2. Total cash conversion cycle for the third quarter was 127 days. Continuing to slide 10, you can see we generated $51 million in operating cash for the third quarter. Total CapEx for the quarter was $60 million, including $40 million designated for capacity expansion projects. On a trailing 12-month basis, capital intensity was 10.7% compared to 9.7% for the same period last year. Due to the investments in capacity expansion projects, free cash flow for the quarter was a negative $9 million compared to a negative $87 million in the second quarter, which included sizable tax payments. On a year-to-date basis, free cash flow was negative 68 million. Stockholder returns for the third quarter amounted to 26.3 million, consisting of 13.6 million for our quarterly dividend and 12.6 million for our share repurchases. We repurchased 0.6 million shares during the quarter at an average price of $21.87 per share.

For 2024, we still expect to return at least $100 million to stockholders.

Cash and short-term investments decreased to $657 million at quarter end as we continue to deploy cash to fund our strategic plans. At the end of the quarter, we have approximately $25 million of cash on hand in the U.S. As previously noted, we are required to fund cash dividends, share repurchases, and principal and interest payments using our cash on hand in the U.S., and we are using our U.S.-based liquidity to fund our Newport expansion and other strategic investments. As a reminder, based on our planned investments and expected payments under our stockholder return policy, We expect to be free cash negative for the year and to draw on our revolver to fill the gap. The revolver also provides us with adequate liquidity fund operations in the U.S. The remaining cash and short-term investments are held in our subsidiaries around the world, outside. To repatriate accumulated earnings from these subsidiaries, we must pay foreign withholding taxes, and we have accrued for an estimated tax liability based on our expected timing of future repatriations. from certain countries, most significantly Israel and Germany. At the end of quarter three, we have approximately 83 million of cash in Israel and 110 million of cash in Germany. Our strategic plan requires significant local liquidity for expansion projects in Germany. The remaining 439 million of cash in short-term investments are held in subsidiaries that are located in countries with restrictive regulations, and high tax rates for repatriating cash. We're evaluating opportunities to deploy some of this cash for our expansion projects in Germany. We have not accrued taxes to repatriate those earnings because we have deemed them indefinitely reinvested. Okay, moving on to slide 11. The restructuring programs announced in the third quarter will result in a 60% reduction in our SGA workforce, the closure of three manufacturing facilities, which will reduce our manufacturing workforce by 2%, and various other changes in manufacturing operations and production transfers. We've recorded restructuring expenses of $40.6 million during the quarter related to expected cash severance costs. When the programs are fully implemented by the end of 2026, we expect to realize annual cost savings of 23 million, including 12 million of SG&A expenses. We expect to realize immediate annualized cost savings of approximately 9 million, including 2 million in the fourth quarter. Cash payments. Related to the restructuring program are estimated to be 24 million by the end of 2025 with the balance due in 2026. Turning to slide 12 for our guidance. For the fourth quarter of 2024, revenues are expected to be 720 million plus or minus 20 million. Gross margin is expected to be in the range of 20.0% plus or minus 50 basis points. Newport is expected to have an approximately 175 to 200 basis points drag on the gross margin in quarter four. Appreciation expense is expected to be approximately 53 million for the fourth quarter and 200 million for the full year. SG&A expenses are expected to be $126 million, plus or minus $2 million for the quarter, or $507 million for the full year. Included in the full-year SG&A guidance is the addition of approximately $15 million related to new quarters, which is offset by the favorable benefit of our restructuring programs and our continued cost containment program. For 2024, we expect a normalized effective tax rate of approximately 31%. I'll now turn the call back to Joel. All right.

Thank you, Dave. Please turn to slide 13. I mentioned earlier that even though the industry is contending with an extended down cycle, At Bechet, we are pressing forward with our ambitious five-year strategic plan and remain committed to our 2028 financial goals, including spending $2.6 billion in capex between 2023 and 2028. For the year 2024, we still plan to invest between $360 million and $390 million in capex. As a reminder, And displayed on this slide, we are pulling eight growth levers to meet our commitments to scale capacity for our customers, accelerate revenue growth, and drive greater returns through the expansion of our markets and our product portfolio. We are ready for the next upcycle. As a reminder, in 2024, we are focusing primarily on expanding capacity, both internally and externally, and on innovation. Starting with semiconductor capacity expansion projects at Newport, we are on target to complete the transfers of three silicon MOSFET structures now in Q4 and another one in the first quarter of 2025. We remain on schedule to begin production of the industrial technologies in the first quarter of 2025 and to complete the component qualifications of automotive grade components in the second quarter of 2025. At SK Key Foundry, our partner in Korea, we are on track to qualify seven product families by the end of the first quarter of 2025. three of which are automotive MOSFETs and four are commercial MOSFETs. We currently have engineering samples available of four product families and plan to have the other three available in early 2025. Through this partnership, we will be able to increase annualized capacity for MOSFETs by 12% in 2025. compared to 2024. In Taipei, Taiwan, we have internally qualified commercial and automotive diodes and are now shipping some volumes of commercial diodes. We expect to increase annualized capacity by 4.7% in 2024. and to expand capacity of constrained lines by 25% to 40%, depending on the product type. Now for passive components. At La Laguna, Mexico, we remain on track to complete the automotive qualifications for inductors before the end of the year. and continue to expect annualized capacity to increase by approximately 15% in 2024. During the quarter, we received government approval to start production of our Amathyrn product line and expect first shipments of sensor products in this quarter. line includes products that support inrush current limiting and temperature sensing applications. At our Mexico facility in Juarez, we're shipping commercially qualified current sense resistors and some automotive products. Our subcontractor initiative is going extremely well as business leaders within the organization embrace the Bechet 3.0 business-minded approach to drive profitability. We're using subcontractors to increase our capacity of lower-margin commodity products and to add products to our portfolio to best serve customer demands. We added three subcontractors during the third quarter, one for diodes, one for resistors, and one for inductors. And we added another 617 part numbers to our portfolio, bringing the year-to-date total to nearly 9,000 part number additions. In 2024, we are meeting the year to date date goals to set for the use of external capacity on our path to achieving our 2028 financial targets. For our goal of generating more than 4% revenue from outsourced passives, we are at 4.2%. We have met our goal of utilizing outsourced wafer fabs at 33% of semiconductor production. Finally, we set a goal of utilizing outside assembly for more than 20% of our semiconductor production, and on a year-to-date basis, we have also met that goal. As for innovation and our silicon carbide strategy, our plans to commercialize the 1200-volt planter technology in 2024 is advancing well. We released two products in the third quarter and plan to release seven more products in the fourth quarter. We made substantial progress with our plans to commercialize our 1200-volt trench technology, the 1700-volt planner, and the 650-volt planner during the quarter. We now have first engineering samples at customers for test. Our plan is to release the 1200-volt trench MOSFET in the first quarter of 2025, the 1700-volt planner MOSFET in the second quarter of 2025, and the 650-volt planter MOSFET in the third quarter of 2025. These silicon carbide MOSFET components support traction inverter projects and onboard charging, which open doors for us with the automotive OEMs. We continue to hold technical meetings with automotive OEM customers about their silicon carbide roadmap. We've also started to receive silicon carbide equipment at our Newport facility and are on schedule to meet our production plan in early 2026. Finally, at Electronica this year, we will release nine reference designs which showcase Bichet content on greater than 80% of the components on the board. For automotive, there is a high voltage intelligent battery shunt sensor, an 800 volt 22 kilowatt bi-directional onboard charger, an 800 volt 48 volt DC to DC converter, a power distribution unit with the Shea silicon carbide on it. In other market segments like industrial and telecom customers, we'll have a reference design for auxiliary power slide converter for solar, which uses our 1,200-volt and 1,700-volt silicon carbide and a Vichay transformer. A 3.2 kilowatt DC to AC inverter featuring our Gen 5 silicon MOSFETs. A 1.2 kilovolt DC to DC converter for telecom. This is a 72 volt, 48 volt, 12 volt DC to DC converter. Also an energy harvester, which is using our super capacitors and our photo diodes. And finally, a design for AI, a multi-phase power board that incorporates smart stage power ICs, vertical mount inductors, and polymer capacitors. These designs are examples of how Bichet can support a customer's total application using reference designs as solution selling. We are making progress on these 2024 specific initiatives, but we're also executing dozens of other initiatives behind the scenes. to shape the organization towards supporting 3.0, enabling the organization to outperform historical results in the next industry upcycle and putting us on firm footing to execute our strategic plan and achieve our 2028 financial targets. We are broadening our portfolio to participate in markets we previously did not serve. and to increase our share of our customer bill of materials supported by the incremental capacity that has landed over the past two years. With our distributors, we have stepped up engagement to meet their needs and position Bichet to win an increased share of their turns business. Since this program began, we have added nearly 28,000 additional SKUs to our distributors. We've added products to our portfolio through acquisitions like Amatherm, creating new business opportunities for inrush current and temperature sensing in automotive and industrial markets. We continue to add products through our partnerships with subcontractors and resellers. We're positioning Bechet to be a supplier with even a broader product portfolio. We're leveraging our broadening portfolio through our intense focus on customer engagement. In medical markets, for example, many customers are using Bechet for only one product. Our medical leader now is increasing our alignment with customers which may not have viewed Bechet as a strategic supplier, discovering opportunities for us to supply even more products of our portfolio. We're increasing our field engineering resources that engage customers about their technology and product roadmaps. We're creating design opportunities that increase our share of the customer bill of materials. And we're ensuring that we're ready to meet their future demands. As a result, we're positioning Bichet to participate even greater in the emerging AI markets. along with other next-generation demand drivers. While we are intensifying customer engagement, we are also restaffing about one-third of our customer-facing position and adding experienced talent to ensure the organization is driving in the same direction toward our strategic and financial goals. In terms of enhancing operational efficiency, we're optimizing our manufacturing footprint with our decision to close three manufacturing facilities, which Dave mentioned. One is in the United States, one is in Germany, and one is in China. Cementing the shape 3.0 through the execution of these initiatives is progressing according to the timeline we outlined last April, that's the investor day. Although we're still in the early innings of implementing our strategic plan, customers, partners, and employees already recognize 3.0 is becoming a vastly different organization. The feedback we hear from our stakeholders aligns with our conviction that we're on the right path to assure customers we're a reliable supplier, working with them to meet their needs over time, and to enhance our financial profile. We are moving forward with determination and we are confident in our ability to drive faster revenue growth, improve profitability, and expand return on invested capital. I look forward to reviewing our 2024 progress on our fourth quarter call next February. and sharing with you our goals for 2025 as we continue to execute our strategic plan. Felicia, let's take the first question.

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. The first question comes from the line of Ruplu Bhattacharya of Bank of America. Ruplu, please go ahead.

Hi, thank you for taking my questions. Joel, I wanted to start by asking you, how do you see the inventory of Vishay products at distribution? What innings are we in in terms of your outreach to distribution and expanding the line card of Vishay products at distribution? And when do you think, when do you expect distribution to start pulling product and growing inventory again?

Hi, Rupu. Thanks for the question. The inventory at distribution is nearing a normalized position for passives. I think we're very close on passives. The semiconductors in the channel overall is going to take a little more time. It's not necessarily the over-inventory of Vache. It's the over-inventory of our competitors who have stuffed some of the distributors' shelves. The Asia inventory, we're running at about 18 weeks. The Europe inventory, we're at 22 weeks. The Americas is longer. It's in the low 50, 50-week range, but part of that is catalog distribution. So we see that we're positioning this inventory. I mentioned we're at 27 weeks. It's because of those additional SKUs that I talked about. We're broadening our portfolio, so the inventory is dollar looks larger, but it's covering more part numbers. An interesting comment that's happening in the environment now, Rupalu, is customer visibility is quite low, and we're seeing orders in Asia where 50% to 60% of the orders are for quick delivery, and the CM is not finding the product in stock at the distributor. So we're seeing different partners come into play. So I think overall, to kind of sum it up, normalization of passives is in the moments we're in now, in this quarter, and semiconductors will be into Q1.

Okay. Thanks for all the details there, Lenny. As we look into 2025, what areas of growth do you see for Vishay, meaning which product lines do you think grow the fastest, which product lines grow slower, and how should we think about the regional mix of revenues over the next few quarters?

I've shared on the past two quarterly calls that we're now seeing the smart grid infrastructure programs accelerating. We've received additional large orders to support programs in Saudi Arabia. We mentioned in the last call about smart grid for Europe. And we've talked previously about China. So the smart grid infrastructure is now moving at a faster pace, and we're expanding. This is the large ESTA capacitor. To mention that product line, there's also other resistors that are involved in these applications. So the industrial grid is good. That's positive. We're seeing these opportunities in AI. We have reference design positions on chipsets that are coming from the large microprocessor design companies. We're following that into Asia. It can be AI for servers. It can also be AI for automotive. We're seeing that pick up. And that covers MOSFETs. That covers power inductors, current sensor resistors, polymer tantalum. So there's quite a few Viché products that are designed in. Also, one of our ICs. So we are following that. Naturally, there's multiple competitors on the design, but we're fighting to gain our share. Military, for sure, aerospace, military defense. The book to bill stays positive. We continue to see orders for replenishment. We also see orders for new military programs. That'll be positive in 2025. Space. Space exploration, space programs with low Earth orbit satellites continues to show positive signs for us. We like high technology products in those environments. Automotive. When we look at automotive, we're now in the negotiation season for 2025, negotiating the contract. The LOI quantities we see for 2025 are increasing over 2024. So that's a positive and that covers many of the Bichet division. Those are the positives, Ruvalu, going into 2025.

Okay, okay, great. Thanks for all the details there. Let me ask you one quick question and then I'll have one for Dave as well. Can you talk about the pricing environment and looking at slide 17 where you have the mix of commodity products versus custom products, do you think that mix shifts as we go into next year and the year beyond? Do you think that the mix of commodity products can decline over time based on your strategic focus on changing the mix and adding different product categories? So if you can just talk about the current pricing environment, do you see any opportunity to raise prices or lower prices, and how do you see the mix of products trending?

The current pricing environment is consistent with what we spoke about on the last call or two. There's spot opportunities out there where there's higher volume where It requires us to be a little more aggressive on pricing, so we take those opportunities to win that share. We're in the quarterly negotiation season now for our large strategic accounts. Pricing in that is consistent with what we've seen in past negotiations. It's significantly different from prior years. as far as ASP down for productivity in exchange for higher volume. So nothing dramatic there. Regarding the product mix, by adding these subcontractors, we're expanding our commodity portfolio. So I want to be clear that we're going to see growth in commodities. as well as in the specialty products. It's important that we are viewed as a full-service supplier with all of the products. So I wouldn't say you're going to see commodities go down. I think you're going to see both of these increase as the overall revenue increases in Bichang.

Okay, thanks for the details there. Dave, can I ask you one question on priorities for use of cash? As you think over the next 12 months, how would you prioritize acquisitions versus maybe a dividend increase versus more buybacks? versus doing anything with the capital structure. So if you can give us your thoughts on the best use of cash. Thank you so much. I was expecting that question from you, Rupal.

So we've done several small acquisitions in the last year and Newport, right? We continue to return $100 million to our shareholders. And we're committed to that already this year. We'll reach that target easily this year. So I think the important focus for us at the moment is the strategic plan and making sure we meet the objectives that we set for the strategic plan. And to do that, we're going to need capital. In my speech, as I said, Newport is funded mostly from the U.S., So we'll be borrowing to do that. So I don't think we want to jeopardize the five-year plan, the strategic plan. So we're going to stick that being the main focus. Okay.

Okay. Thank you for all the details. Appreciate it. Thank you, Ripley.

As a reminder, in order to ask a question, please press star 11 on your telephone. Okay, it looks like I am showing no further questions at this time. I would now like to turn it back over to management for closing remarks.

All right, Felicia, thank you very much. Thank you again for attending our Q3 earnings call. We are very excited about what we are doing in Bichet to set Bichet on a new course for growth. And as you've seen in the statements today, we are accomplishing the initiatives that we put forward. So thank you again, and we'll see you on the next earnings call in three months.