Vishay Intertechnology, Inc.

Good morning and welcome to Vishay Intertechnology's second quarter 2026 earnings conference call. I am joined today by Joel Smejkal, our president and chief executive officer, and by Dave McConnell, our chief financial officer. This morning, we reported results for our second quarter 2026. 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. During the call, we will refer to a slide presentation which we also posted on ir.vichet.com. You should be aware that during 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 cliches Form 10-K and Form 10-Q filings with the Securities and Exchange Commission. We are including information in our press release and on this conference call on various GAAP and non-GAAP measures. We have included full GAAP to non-GAAP reconciliation in our press release and in the presentation posted on irvche.com which we believe will be useful when comparing our GAAP and not GAAP results. 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. Specifically, as it pertains to our tariff refunds, we are reporting GAAP and adjusted revenue for the second quarter. The second quarter, 2026 adjusted net revenues exclude $30.0 million for tariff refunds passed through to customers with no impact on gross profit. The tariff refunds are recognized as reductions of net revenues and costs of products sold in the second quarter 2026 gap results. Adjusted gross margin is calculated using adjusted net revenues. Tariff refunds have not been allocated to a reportable segment, end market, sales channel or region. All following second quarter 2026 measures presented exclude tariff refunds. Tariff refunds do not impact any other period presented. On today's conference call, management will refer to adjusted revenues in the analysis of results for the quarter. Now, I turn the call over to President and Chief Executive Joel Smejkal.

Thank you, Peter. Thank you everyone for joining our call this morning. Let's start the call with a review of the second quarter performance, and Dave will take you through a detailed review of our financial results for the quarter and our guidance for the third quarter of 2026. After that, I'll update you on the strategic levers we are pulling to drive growth and profitability, and then we'd be happy to answer any of your questions. For the second quarter, We are reporting adjusted revenue of $919 million, exceeding the top end of our revenue guidance. Revenues are growing faster over the past five quarters on strengthening demand supported by the agility of VICHE 3.0. Compared to the first quarter, revenue grew 9.5%, 20.5% year on year. Reflecting continued growth across all Boucher product technologies, our end markets, business channels, and regions. Market share gains for both semis and passives came through higher consumption from increasing customer volume and increasing customer count. With increasing demand in the industrial segment, AI, aerospace, and automotives. In terms of demand dynamics, our Q2 results are a continuation of Q1, and on a year-to-year basis, our results tell us that Bechet 3.0 is working as designed. With industry lead time stretching, pricing rising, and geopolitical tensions remaining, customers are concerned about the availability of products and assurance of supply. To secure supply, Customers are placing orders showing longer visibility. Many customers are forecasting six months out with a desire to replenish their own inventories. Demand related to AI applications continues to accelerate, leading numerous customers to place orders beyond 52 weeks to make sure they have a place in our production loading. Book to bill for Q2 is 1.32 with semis at 1.23. and passives higher at 1.40. Q2 is a record high bookings for resistors and inductors. As a result, our total backlog grew 18% to $1.9 billion for 6.1 months. Having invested $900 million to expand capacity during the recent market trough years, we are reacting much faster than historically to serve more customers. We are demonstrating that we can scale with their volume production while maintaining competitive lead time. Our book to bill is showing us that we are getting turns orders because of the first half 26 improved delivery performance. In the fourth quarter of 25, we began to announce price increases related to increasing cost of metals, materials, and logistics. Price increase announcements continued through Q1 and Q2 this year. At this point, about one-third of our running part numbers have announced price increases. We saw some of the price increases land in our Q2 financials. The attractiveness of our hybrid component business model grows. Our volume manufacturer of both discrete semis and passives helps customers. as they search for greater supply of all of these components on their bill of materials. As a reminder, Bichet can populate more than 80% of the components on a board in a power application. Another point to share, customers are more frequently raising their requests for Western supply of electronic components, which fits very well with our geographical manufacturing footprints. and further site optimization projects. Bechet is a technically leading Western-located manufacturer, and now with our Bechet 3.0 mindset and customer-serving approach, we can supply them with the product they need. Let's turn to a review of Q2 revenue, starting with the revenue by end market on slide four. All end markets show positive revenue increase with industrial accounting for more than half of the increase. Industrial revenue increased 16.2% versus Q1 and 30.1% versus prior year, reflecting higher consumption primarily for smart grid, AI power, and high-voltage DC projects, as well as factory automation. Bookings increased due to our ability to serve a growing POS through our distribution channel. New programs are launching the second half of 26 and into 27. with positive demand trends in industrial power for AI, especially as EMS customers accelerate investments in AI-related applications to support data center growth and high-voltage DC transmission. We continue design discussions with customers for humanoids. To elaborate further on industrial, our bookings increased for industrial power applications for customers who are participating in power conversion and cooling projects for AI data centers. We are increasing our part count on new projects as customers add our passives to AI power management solutions. Also, customers who are not AI related, that demand is becoming increasingly concerning. These customers need to make sure they have a manufacturing spot in our queue. Escalations are increasing. In automotives, Revenue increased 3.6% quarter over quarter and 10.1% versus prior year, reflecting ongoing demand as electronic content continues to increase for driver assist and autonomous driving applications, plus the further adoption of hybrid and EV platforms. Bookings were strong in the Americas as customers are becoming more proactive to share their visibility and backlog placements. In some cases, customers are providing us with forecasts for the next 12 to 18 months. In Asia, we are seeing distributors and OEMs wanting to build safety stocks, but this is challenging in this high demand market. Aerospace defense revenue increased 4.2% versus the first quarter and 15.4% versus last year, reflecting increasing consumption by U.S. defense contractors. related to programs that have been funded, including accelerated replenishment of components to support multiple missile programs. In Asia and Europe, we are seeing increasing demand from OEM customers and through EMS. Bookings increase sharply from distribution, driven by orders for resistors in preparation for escalating Department of Defense funding. More products will be needed to support missile programs and also next-generation radar platforms, high-energy weapons for drone defense and drone dominance projects, the Golden Dome, LEO constellations, and many more projects. Healthcare revenue increased 7% versus Q1 and 14.7% versus prior year, with long-standing customers in the Americas ramping production. and EMS customers in Asia seeing improving demand and supply assurance uncertainties. We continue to identify opportunities to leverage the full Bechet portfolio in medical. In the other category, which includes telecom, computing and consumer, revenue grew 11.3% quarter over quarter and 28.4% year over year. Share gains Higher consumption drove volume increases for AI-related programs in Asia, as did higher demand for AI optical communication network switches. In Europe, higher demand for 5G radio projects increased as customers ramp up production. Memory shortages and higher component prices have tempered the consumer segment's demand strength a bit. Across other end markets and technologies, we continue to proactively tackle a wide array of opportunities to gain share, putting into practice the Vishay 3.0 business-minded approach. Historically, Vishay underserved or didn't serve high-margin customers during market cycles. Vishay 3.0 has been working hard to regain these customers where we had the print position but didn't have the capacity to fulfill orders. I'm pleased to report that we are succeeding at both regaining customers and adding new high-margin growth customers for an overall increase in customer count. We are winning back share and seeing increased design-in and quoting activity. Let's turn to slide five for a review of Q2 by channels. Revenue by channel was led by distribution, which increased from 55% of the total in Q1 to 58% in Q2. Distribution revenue increased 15.6% versus Q1 and 24.2% versus last year, with gains in each region driven by broad-based consumption momentum and reflecting market share gains. Based on distribution reports, we are seeing consumption among existing new and returning customers. Distribution inventory overall decreased to 18 weeks at quarter end from 20 weeks last quarter and POS increased 4.7% quarter on quarter and 20.5% year on year with growth in all regions. Our initiative to expand distributor inventory by part number count and depth during the building of Bichet 3.0 is proving to bring very positive results as we provide strong support in the beginning of this market upcycle. Having a proactive business approach in tune with the availability of product is helping us to win. Strong bookings by distribution customers, particularly for industrial power, AI-related applications, and aerospace defense, reflect continued demand momentum and many more. In the Americas, numerous customers are discussing safety stock programs in support of escalating aerospace defense demand. Under Bechet 3.0, we are positioning ourselves to provide far more support to more customers, as reflected in our growing POS and increased SKU count. Good customer support opens up more and more new design opportunities for us. Increasing output to distribution is a top priority, and we are committed to securing share gains and expanding share. Our business unit leaders travel to distributors quarterly to be close to the pulse of the market, gain market visibility, and creating more accountability. OEM revenue was up 1.7% quarter over quarter and 16.8% year over year, reflecting solid demand related to smart grid and AI server power, as well as automotive and medical. EMS revenue increased 3.2% quarter over quarter and 10.8% year over year, reflecting industrial, aerospace defense, and automotive program ramps in all regions, plus strengthening demand in AI. Let's go to slide six for the regions, turning to the geographical mix on this slide. Asia accounted for over half of the revenue increase from the first quarter, increased 12.5% from increased consumption. Sales grew 14.1% in the Americas on increased consumption with orders for passives reaching the highest level We have seen in more than 20 years and semis starting to accelerate as many customers move to volume production. America has ended the quarter with a book to bill of 1.5. Before turning the call over to Dave, I want to thank the Boucher employees and our reps for their hard work as we continue to transform Boucher to perform positively in this upcycle and to support more customers. Their knowledge and contribution to the success of Bichet 3.0 is well done. Everyone recognizes that Bichet is growing because of our work as a team. The early stages of this upcycle are here, and everyone is committed to taking full advantage of the opportunities to drive revenue growth and profitability. Dave, I'll pass the call to you.

Thanks, Joel, and good morning, everyone. Let's start a review of the second quarter results with the highlights on slide seven. Second quarter gap revenue was $889 million. Adjusted revenue was $919 million, exceeding our guidance range and increasing 9.5% sequentially, driven by strong volume growth of 7% and an increase in average selling prices of 2%. As a reminder, the difference between the gap and adjusted revenue represents the $30 million of tariff refunds received in the second quarter that will be passed through to our customers in the second half of 2026. Compared to the second quarter of 2025, adjusted revenue increased 21%, driven primarily by an 18% increase in volume and a 2% increase in average selling prices. Favorable foreign currency, mainly from the Euro, provided an additional 1% benefit. Moving on to the next slide, presenting the income statement highlights. Gross profit was $177 million, delivering a GAAP gross margin of 23.3% and an adjusted gross margin of 22.6%. The adjusted gross margin exceeded our guidance and represents an increase versus prior quarter. Higher volumes and improved pricing conditions drove margin expansion, helping to offset ongoing metals, materials, and logistic cost pressures. Depreciation expense was $53 million, relatively flat with quarter one. SG&A expenses were $154 million flat versus quarter one and within the line with our guidance. GAAP operating margin was 6%. Operating, adjusted operating margin was 5.8% compared to 2.6% in the first quarter and 1.4% in the second quarter of 2025. EBITDA for the quarter was $105 million for an adjusted EBITDA margin of 11.4% up from 9.3% in the first quarter. Our GAAP effective tax rate is improving as profitability increases but remains elevated as items such as U.S. taxation of foreign earnings and repatriation taxes continue to have a disproportionate impact on the effective tax rate. Q2 effective tax rate of 33.7 came in below our guidance range as pre-tax earnings exceeded expectations. Earnings per share was 19 cents for both GAAP and adjusted. compared to $0.05 per share in Q1 and an adjusted loss per share of $0.07 in the second quarter of 2025. Moving on, slide nine provides a summary table detailing revenue, gross margin, and book-to-bill ratios across our reportable segments for quick reference. All reportable segments delivered revenue growth quarter over quarter and versus prior year. Turning to slide 10, In the second quarter, our cash conversion cycle improved to 110 days from 116 days in quarter one, in part due to our increased sales volume and our continued disciplined work in capital management. DSO improved from 41 days in Q1 to 38 days, primarily due to higher revenues and the impact of our securitization program. Inventory days outstanding improved to 102 days due to increased sales volume. Overall inventory increased slightly to $807 million, mainly due to the building of safety stock and raw materials in WIPP, as well as to support the increasing backlog. Continuing to slide 11, you can see we generated $105 million in operating cash for the second quarter, which includes the tariff refunds received that we passed through to customers. We continue to deploy cash for capacity expansion projects. Total CapEx for the quarter was $95 million, including approximately $66 million for our new 12-inch wafer fab in Germany. On a trailing 12-month basis, capital intensity was 10.5%, which is a decrease from 11.3% in the prior year. Free cash flow for the quarter was $10 million, reflecting the increased operating income, as well as the tariff refunds received from the U.S. government. and additional net cash inflows related to our accounts receivable securitization program. This compares to the negative 47 million in the first quarter. Stockholder returns for the second quarter consisted of our $13.6 million quarterly dividend. We did not repurchase any shares in the quarter. During the quarter, though, we completed a public stock offering of 17.25 million shares of common stock and received cash of 830 million net of issuance costs. At the end of the quarter, our global cash and short-term investment balance was $1.3 billion, and we had $238 million outstanding on our revolver. We used a portion of the proceeds from our public stock offering to repay the outstanding balance on our revolver in July. Our cash and revolver capacity will be used to support an acceleration of our growth initiatives. At the end of the quarter, we had $423 million accessible on our revolving credit facility at the current EBITDA level. The assessable amount increased to approximately $661 million after the repayment of our credit facility in July. Moving on to slide 11 and the guidance. For the third quarter of 26, revenues are expected to be between $945 million and $975 million. At the midpoint, this represents a 21.4% increase year over year and a 4.5% increase quarter over quarter, taking into account European seasonality. Gross margin is expected to be in the range of 24.0% plus or minus 50 basis points, one quarter sooner than our goal of exiting the year at 24% quarterly gross margin. Appreciation expense is expected to be approximately 54 million for the third quarter and 215 million for the full year. SG&A expenses are expected to be 155 million plus or minus 3 million, We're continuing to invest in R&D and customer-facing activities as the overall business environment improves. Interest expense is expected to be approximately $7 million for the third quarter. Our gap effective tax rate remains elevated at low levels of pre-tax income and loss. We expect the effective tax rate to become more predictable and in the range of our historical average as earnings grow. For the third quarter of 26, we expect the effective tax rate to be between 35% and 40%. The expected share count for EPS purposes varies based on the average price of our stock during the quarter, primarily due to our convertible debt. Please refer to slide 21 that displays the range of expected share count for the third quarter. Finally, our stockholder return policy calls for us to return at least 70% of our free cash flow to stockholders in the form of dividends and stock repurchases. For 2026, we once again expect negative free cash flow due to our capacity expansion plans. And now it's time to call back to Joel.