Greetings, and welcome to the Vishay Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Peter Henrici, Investor Relations. Thank you Mr. Henrici. You may begin.

Thank you, Devin. Good morning and welcome to Vishay Intertechnology's second quarter 2023 earnings conference call. I'm joined today by Joel Smejkal, our President and Chief Executive Officer; and by Lori Lipcaman, our Chief Financial Officer. 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. 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 on our website. 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 Vishay's 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 a full GAAP and non-GAAP reconciliation in our press release as well as in the presentation posted on our website, which we believe you will find useful when comparing our GAAP and non-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. Now I turn the call over to President and Chief Executive Officer, Joel Smejkal.

Thanks, Peter. Good morning, everyone. I'll start my remarks on slide 3 with a review of the demand trends for the second quarter and then Lori will take you through the highlights of our financial results. After that I'll come back to give you a progress report on the near-term initiatives we're implementing to improve all customer-facing aspects of our business as we set the stage for faster top-line growth and margin expansion. Then we'd be happy to answer any questions. So let's go to slide 3. For the second quarter, Vishay delivered solid results with a revenue of US$892.1 million near the top-side of our guidance range and EPS of $0.68 also near the top-side of our guidance range. Revenue increased both quarter-over-quarter and year-over-year driven by growth in automotive. Looking at our revenue mix, first by end markets. Automotive, which accounted for 35% of total revenue, grew 9% versus the first quarter and 22% versus the second quarter last year. We're seeing sustained demand in all regions for products that support increased electronic content, ADAS features, EV and hybrid vehicles, 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 behind us. In addition, demand in China is sluggish as the country's economic recovery is taking longer than we expected. Nevertheless, we continue to see 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 weapon systems in Europe and the United States. Revenue from medical customers, another promising end market for Vishay, 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 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 market 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 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, particularly in the automotive and industrial markets 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 dedicated 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 megatrends of connectivity, mobility, and 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 4. 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 inductor volume increases and higher pricing. Compared to the second quarter last year, revenues grew 3.3% reflecting a volume increase of 1.4% and a 1.1% increase in pricing. At quarter end, book-to-bill for consolidated Vishay 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 repurchases 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 SG&A 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 GAAP effective tax rate for those periods. EPS was $0.68 per share compared to $0.79 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 7, 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 8 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 of 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 and 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 share repurchases. We repurchased 0.8 million shares at an average price of $20.80 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. SG&A 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.

Thank you, Lori. Let's turn to slide 10 for a 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 Vishay 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 customer needs, building on Vishay's strong operational disciplines and talented and dedicated workforce. We started a media at the beginning of January and our push forward with a sense of urgency. I am pleased with our progress to-date in shifting the mindset of everyone at Vishay to think customer first and placing priority on 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, with 2023 as 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 are 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 Vishay 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 are expanding 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 1 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 on onboarding technical resources to support silicon carbide and GaN product development, 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 is on track to have samples of 1,200-volt planner 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 planner 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 Vishay Solutions that more fully leverage our broad portfolio of discrete semiconductors and passives. 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 to work on onboard charger traction inverters designed for the low-speed electric vehicle marketplace. We work together with a Tier 1 customer. Lastly, to institute organizational 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 interest. Having a long-term incentive program for 1,000 employees is new at Vishay. 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 are 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 planner technology MOSFETs available and are making progress in the development of the 650-volt planner technology. Finally, we remain committed to holding an Analyst 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.

Thank you. Our first question comes from the line of Ruplu Bhattacharya with Bank of America. Please proceed with your question.

Hi. Thank you for addressing my questions and for the detailed information provided on the call. Joel, one of the initiatives you mentioned is improving channel management. Over the past few months, since you took over, what feedback have you received from your distribution partners and other customers regarding what Vishay is doing well and what areas may need improvement? Could you share your thoughts on your plans to enhance channel management? Additionally, currently about 54% of your revenue is derived from distribution. Considering the long-term growth factors in your major markets, automotive and industrial, as electric vehicles become more prevalent compared to traditional combustion engines, do you expect to continue working through Tier 1 suppliers, or do you anticipate establishing a more direct relationship with automotive OEMs? Similarly, as renewable energy gains a larger share in industrial sectors, do you foresee changes in the revenue mix from distribution over the next few years?

Okay. I'll – Ruplu, thanks for the question. I will address the second question in the answer, first. We are working directly with many automotive Tier 1s. So, this is very important for us because we need to be in line with their technology road maps and where they're going with new products. So the European automotive, the US automotive, and the Asian automotive were in direct discussion. The business will continue to be direct, with the automotive accounts. They are driving new technology and they prefer to be very closely connected to the manufacturer, the manufacturer of components because there's a lot of new technology needs as we move forward in hybrid and electric vehicles. Solutions are yet to be discovered. So these close contacts of the manufacturers technology in the OEM continue to be a necessity. So, we'll continue that. Jumping back to your first question about visiting the leaders of the distributors. Yes, I've done that. We've had multiple conversations. They're excited about where Vishay is going. Vishay was somewhat away from the distributor channel. We did have products. We did have it as part of 50% or greater of our total sales, but the growth of distribution required more from Vishay. So we talk about capacity and we talk about the business-minded direction of Vishay, and organizing to have sufficient capacity for the channel of distribution. They're excited about it. Vishay they see on many bill of materials. So, having the supply of product makes the distributor even more valuable to their end customer because they don't have to cross or find another supplier if Vishay can support the demand. EMS is the same. I've met with a number of the EMS leaders. Same story. Vishay is prevalent on bill of materials. They'd like to buy Vishay. If Vishay's lead time can be reasonably in line, they see more opportunity for us to grow our business. So, covering all of that, you're right. There's going to be some accelerated growth at the OEMs. But where we're going is to have sufficient capacity, to support the business through distribution, support the business direct to the OEM as well as support the business through EMS. We need to have the capacity to support all business channels.

Okay. Thank you for the details there. For my follow-up, if I can ask, as you look out over the next two, three years and you look at the growth in the secular trends that are happening in EVs and in industrial. How much of the growth for Vishay do you think comes from organic growth versus needing to do M&A? And can you give us your thoughts on capital return and uses of cash? How do you prioritize further M&A? And do you see that more in the semiconductor side or on the passive side versus maybe reducing debt versus share buybacks? Thanks.

We have the right technologies in discrete semiconductors and passives for many of our products. However, as we engage in technology discussions with OEMs, it is clear that Vishay needs to broaden our portfolio. We are currently assessing a list of potential M&A targets. M&A must play a larger role in our inorganic growth strategy, as it will enable us to become a better supplier with a more extensive product range. Therefore, M&A will be a significant aspect of our growth strategy moving forward. This will include semiconductors, similar to our recent acquisition of MaxPower and the silicon carbide technology in the fourth quarter of 2023, as well as passives. In the electric vehicle sector, while the growth of semiconductors is often highlighted as being seven to ten times that of conventional vehicles, the growth of passives is comparable. This positions Vishay strongly to provide both semiconductors and passives for electric and hybrid vehicles as electronic content continues to increase. We will expand through our own manufacturing capabilities, by qualifying subcontractors under the Vishay Product approach, and through M&A.

So just in terms of prioritizing the use of cash, how would you rank order M&A versus delevering versus returning cash to shareholders via buyback?

We will still in our capital allocation meet the requirements that we have for the cash to shareholders. That's still very important. The dividend and share buybacks are still a priority. M&A is at that same level of priority. We're a technology company. We need to stay abreast. So, it will be a priority, a higher priority in M&A.

Okay. Thank you for all the details. I appreciate it.

Ruplu, thank you very much.

Thank you. There are no further questions at this time. I'd like to turn the floor back over to Joel Smejkal for closing comments.

All right. Thank you very much. Thank you all for attending the call and joining us today. In closing, we are committed to making the necessary investments in capacity, customer-facing resources, and innovation to make Vishay ready to take full advantage of the next phase of our market growth for the megatrends of connectivity, mobility, and sustainability. We're making good progress and I look forward to giving you the next update when we report the third quarter results in early November. Thank you very much for attending today.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.