Vishay Intertechnology : Q1 2021 Earnings Call Transcript(opens in new window)

VISHAY INTERECHNOLOGY 05-04-21/ 9:00 a.m. ET Page 1

Vishay Intertechnology

May 4, 2021

09:00 AM ET

OPERATOR:	This is Conference # 6669583
Operator:	Ladies and gentlemen, thank you for standing by and welcome to the
	"Vishay Q1 2021 Earnings Conference Call."
	At this time all participants are in a listen-only mode. After the speaker's
	remarks, there will be a question-and-answer session. To ask a question
	during this session you will need to press star one on your telephone. If you
	would like to withdraw your question press the pound key. Please be
	advised that today's conference is being recorded. If you require further
	assistance please press star zero.
	I would now like to hand the conference over to your speaker today, Peter
	Henrici, Head of Investor Relations. Thank you. You may begin.
Peter Henrici:	Thank you, Dorothy. Good morning and welcome to Vishay
	Intertechnology's first quarter 2021 conference call. With me today are Dr.
	Gerald Paul, Vishay's President and Chief Executive Officer and Lori
	Lipcaman, our Executive Vice President and Chief Financial Officer.
	As usual, we will start today's call with the CFO, who will review Vishay's
	first quarter of 2021 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
	webcasted from the investor relations' section of our website at
	ir.vishay.com. The replay for this call will be publicly available for
	approximately 30 days.
	You should be aware of 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 Vishay'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 the GAAP measures that we also provide.

On the investor relations section of our website, you can find the presentation of the first quarter 2021 financial information containing some of the operational metrics Dr. Paul would be discussing.

Now, I turn the call over to chief financial officer, Lori Lipcaman.

Lori Lipcaman: Thank you, Peter. Good morning, everyone. I'm sure that most of you have had a chance to review our press release. I will focus on some highlights and key metrics. The issue reported revenues for Q1 was 765 million. EPS was $0.49 for the quarter. Adjusted EPS was $0.46 for the quarter.

The only reconciling items between GAAP EPS and adjusted EPS are tax related. There were no reconciling items impacting gross or operating margin. Revenues in the quarter were 765 million up by 14.6% from previous quarter and up by 24.8% compared tothe prior year.

Gross margin was 26.5%, operating margin was 12.7%. There were no reconciling items to arrive at adjusted operating margin. EPS was $0.49. Adjusted EPS with $0.46, EBITDA was 133 million or 17.4%. There were no reconciling items to arrive at adjusted EBITDA.

Reconciling versus prior quarter operating income Q1 2021 compared to adjusted operating income for prior quarter based on 97 million higher sales or 94 million higher excluding ex-rate[?] impact, adjusted operating income increased by 38 million to 97 million in Q1 2021 from 60 million in Q4 2020.

The main elements were average selling prices had a negative impact of 4 million representing 0.5% ASP decline, volume increased with a positive

impact of 44 million equivalent to a 14.7% increase in volume, variable cost decreased with a positive impact of 12 million primarily due to volume-related increased manufacturing efficiencies and cost reduction efforts which more than offset and wage increases and higher metal prices.

Fixed cost increased with a negatively impact of 17 million primarily due to higher personal cost related to uneven attribution of stock compensation expense, higher bonus accruals, more working days in Q1, and wage increases partially offset by restriction in program. Inventory impact had a positive effect of 5 million.

Mix selling versus prior year, operating income Q1 2021 compared to adjusted operating income in Q1 2020 based on 152 million higher sales or 131 million excluding exchange rate impacts, adjusted operating income increased by 46 million to 97 million in Q1 2021 from 51 million in Q1 2020.

The main elements were average selling prices had a negative impact of 11 million representing a 1.4% ASP decline. Volume increased with a positive impact of 60 million representing a 22.8% increase.

Variable cost decreased for the positive impact of 7 million primarily due to volume related increased manufacturing efficiencies and cost reduction efforts which more than offset higher metal prices, annual wage increases as well as higher freight cost. Fixed cost increase was a negative impact 6 million primarily due to annual wage increases and higher incentive compensation, partially offset by restriction program. Exchange rates had a negative effect of 4 million.

Selling general and administrative expenses for the quarter were 106 million slightly above our expectations when adjusted for exchange rate. Due to higher incentive compensation accruals given the favorable 2021 outlook. Based on our cycle our SG&A expenses are at the highest quarterly level in Q1 primarily due to uneven attribution of stock compensation expense. Directly attributable cost of the pandemic now part of the new normal operating state. Accordingly, they are considered in our normal operating costs.

For Q2 2021 our expectations are approximately 104 million of SG&A expenses. For the full year our expectations are approximately 420 million

at the exchange rate of Q1 slightly above our previous guidance due to higher incentive compensation.

We early adopted the new accounting standards for convertible debt effective January 1st, 2021. Pursuant to the new standard, our convertible debt is no longer bifurcated into debt and equity component and are no longer required to amortize the related debt discount as non-cash interest expense.

This means the reported debt balance has increased to approximately the face value of the convertible note. It also means that our GAAP interest expense has decreased to approximately the cash coupon on the convertible note plus the cost on the revolving credit facility.

We expect interest expense for Q2 to be approximately 4.4 million. As described in our annual report on Form 10-K, we took actions to amend the indenture for the convertible notes due 2025 to minimize the EPS dilution of the note under the new standard. This results in a similar impact on the diluted EPS share count to which was achieved under the old standard when assuming net share settlement. The debt toll on the face of the balance sheet at quarter end is comprised of the convertible notes due 2025 net of debt issuance cost.

There were no amount outstanding on a revolving credit facility at the end of the quarter. However, we did use revolver from time to time during Q1 to meet some short-term financing needs and expect to continue to do so in the future.

No payments are due until 2025 and the revolving credit facility expires in June 2024. We do not repurchaseany of our convertible notes due 2025 during Q1 but we continue to be authorized by our board of directors to be purchased up to an additional 65 million of convertible notes due 2025 subject to market and business conditions and requirements and other factors.

We have total liquidity of 1.5 billion at quarter end. Cash and short-term investments comprised 781 million and there are no month old standing on our 750 million credit facility. Total shares outstanding at quarter end were 145 million, the expected share account for EPS purposes for the second quarter of 2021 is approximately 145.5 million.

Our convertible debt repurchase activity over the past three years together with the adoption of the new convertible debt standard significantly reduced the variability of our EPS share count.

Our U.S. GAAP tax rate for Q1 was approximately 18%. During Q1 we recorded a benefit a 4.4 million due to a change in tax regulation. Our normalized effective tax rate which excludes unusual tax items was approximately 23% for the quarter.

We expect our normalized effective tax rate for full year 2021 to be between 22% and 24%. Our consolidated effective tax rate is based on an assuming level and mix of income among our various taxing jurisdiction. A shift in income could result in significant difference result. Also, a significant change in U.S. tax laws or regulations could result in significantly difficult result.

Cash from operations for the quarter was 57 million. Capital expenditures for the quarter were 29 million. Free cash for the quarter was 29 million.

For the trailing 12 months cash from operations was 338 million, capital expenditures were 128 million but approximately for expansion 85 million, for cost reduction 8 million, for maintenance of business 35 million.

Free cash generation for the trailing 12-month period was 211 million. The trailing 12-month period include 16 million cash taxes paid related to cash repatriation plus 15 million cash taxes paid for the 2020 instalment of the U.S. tax reform transition tax.

EPS consistently generated in excess of 100 million cash flows from operations in each of the past 26 years and greater than 200 million for the past 19 years.

Backlog at the end of quarter 1 was at 1 billion 731 million or 6.8 months of sales. Inventories increased quarter over quarter by 32 million excluding exchange rate backs. Days of inventory outstanding were at 75 days. Days of sales outstanding for the quarter 43 days. Days of preambles - for the quarter were 33 days resulting in a cash conversion cycle of 85 days.