Good morning, and welcome to Vishay Intertechnology’s First Quarter 2020 Conference Call. With me today, are Dr. Paul, Vishay’s President and Chief Executive Officer; and Lori Lipcaman, our Executive Vice President and Chief Financial Officer. As usual, we’ll start today’s call with the CFO, who will review Vishay’s first quarter 2020 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 webcast 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 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 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 that provides useful information about the operating performance of our businesses and should be considered by investors in conjunction with GAAP measures that we also provide. This morning, we filed a Form 8-K that outlines the various variables that impact the diluted earnings per share computation. On the Investor Relations section of our website, you can find the presentation of the first quarter 2020 financial information containing some of the operational metrics Dr. Paul will be discussing. Now, I turn the call over to Chief Financial Officer, Lori Lipcaman.

Thank you, Peter. Good morning, everyone.

Lori?

Good morning, Peter, or – excuse me, thank you, Peter. Good morning, everyone. I’m sure that most of you have had a chance to review our earnings press release. I will focus on some highlights and key metrics. Vishay reported revenues for Q1 of $613 million. EPS was $0.19 for the quarter. Adjusted EPS was $0.21 for the quarter. We have identified certain COVID-19-related charges net of certain subsidies, which are incremental to and separable from normal operations. Approximately $3.1 million of these costs are included in cost of goods sold and $0.3 million of these costs are included in selling, general and administrative expenses. These items and their related tax effects are added back when calculating our non-GAAP adjusted EPS. Also, during the quarter, we repurchased $14.3 million principal amount of our convertible debentures and recognized a U.S. GAAP loss on extinguishment. I will elaborate on these transactions in a few moments. COVID-19 has had an impact on our business. Some of our facilities had been or are temporarily closed and some are operating at levels less than full capacity. For Q1, the impact on our financial results has generally been limited, as most of our manufacturing facilities have been able to continue operating. As I stated in the introduction, we have identified certain COVID-19-related charges, incurred net of certain subsidies, which are incremental to and separable from normal operations. This includes wages paid to manufacturing employees during government-mandated shutdowns, additional wages and hardship allowances for working during lockdown periods, cost of cleaning and disinfecting facilities, cost of additional safety equipment for our employees and temporary housing for employees due to travel restrictions. The quantified COVID impacts I just described only include costs directly attributable to the outbreak and exclude indirect impacts, such as higher shipping costs, due to…

Thank you, Lori, and good morning, everyone. As expected, the first quarter has proven to be the quarter of a beginning recovery from a rather depressed second-half of 2019. Despite imposed plant shutdowns, mainly in China in the context of the coronavirus pandemic, we achieved sales close and profits better than expectations. Strong orders, in particular, from global distribution and from Asia, as well as continuously normalizing inventories in the supply chain completed the impression of an economic turnaround in our industry. Vishay in the first quarter achieved a GAAP gross margin of 24.0% of sales, adjusted gross margin of 24.5% of sales, GAAP operating margin of 7.7% of sales, and adjusted operating margin of 8.3% of sales, GAAP EPS of $0.19 and adjusted EPS of $0.21. We in the quarter generated $10 million of free cash. Let me talk about the economic environment. The development of the global economy for electronic components in the first quarter created ambivalent feelings. On the one hand, strong orders in general, a strong rebound of Asia and a widely normalized supply chain. On the other hand, a rather weak automotive sector and growing concerns for the midterm due to the lockdown of more and more economies around the world, driven by a pandemic. Backlogs and lead times have normalized in general. The price decline remains, on average, at least on quite normal levels. Some temporary delivery problems due to plant shutdowns were existing – in existence, but no real shortages to be observed. But some nervousness exists of customers after COVID-19 started to impact manufacturing in China. Let me come to the regions, Americas. We have seen a strong mill, medical and telecom, as well as computing segments, partially driven by corona, driven by the demand for working from home. There was weakness…

Thank you, Dr. Paul. We’ll now open the call to questions. Natalia, please take the first question.

[Operator Instructions] Your first question is from the line of Ruplu Bhattacharya with Bank of America.

Hi, thank you for taking my questions. Dr. Paul, the first question at a high-level, you’re guiding pretty detailed for calendar 2Q. The revenue range is still $40 million, which you’ve used in the past couple of quarters as well. The gross margin range is a little bit higher at 90 bps plus, minus. So at a high-level, can you just talk about what is giving you confidence to give guidance for calendar 2Q with given all the uncertainty that there is in the macroeconomic environment? Thank you.

First of all, we are already within the second quarter. We have some picture of the second quarter. And I think we have figured in the uncertainties to an extent. Automotive will be especially weak this quarter, will very likely recover afterwards. So we – I think, we have included most of the effects we know. So we believe that we can still stay with our plus-minus 20 to the midpoint. Concerning the variable margin, but concerning the gross margin spread, it’s a little more – a you observed properly, it’s a little broader than we normally do, because at such low levels, we had to anticipate, at very low volume, some impact on the contributive margin percent. That means a very low volume. It’s very difficult to keep the efficiency completely up. So this is why we – our spread is somewhat broader. Did that answer your question?

Yes, it did. Thanks for that. For the second question, I’d like to ask about raw material prices. Price of base metals has come down, but some things like palladium are still high and we’re also hearing about tantalum prices starting to rise. So how do you see these raw material prices varying? And how do you think they impacted margins in calendar 1Q and how do you think they’re going to impact going forward?

We analyze that. In Q1, there was all together on materials, practically no impact vis-à-vis quarter four, practically no change. And also going forward, we don’t see major changes. There is some ups and some downs in the materials. But if you take our mix, taking also the contracts we have, we don’t expect major changes going forward for the next time at least.

Okay. And my last question, I’d like to ask about inventory in the distribution channel. For the last couple of quarters, you’ve given us some estimate of how much excess inventory there has been of Vishay inventory in the channel. Do you think that has normalized? Or do you think there is still excess inventory in the channel that needs to be worked off? Thank you.

Honestly, I’m even proud a little our forecasting of that. It happened like forecasted, in fact. We have reduced since the beginning something like $130 million, and this is – was the number, if you can recall, which I said from the beginning is too much. I believe in that – in so many words that we’re back to quite normal.

Okay. Thank you for all the details.

Your next question is from the line of Karl Ackerman with Cowen.

Hello?

Karl Ackerman, your line is open.

Yes. Yes, sorry. I had on mute. Apologize. Hey, good morning, everyone. Maybe just going back to the last question on distribution. You referenced that it’s at a “normal level today.” But do you think there was double ordering at distribution this quarter caused by uncertainty relating to COVID-19? Because while it’s great – it’s certainly great to see backlog improve about $100 million sequentially, your outlook seems at – a bit at odds with some of the bookings in backlog?

You can never exclude that. There was, as I said, the distribution in general trade, but in a modest form, I think, to restock, because you don’t have everything on stock what you need. So a part of that is, for sure, related to inventory increase in distribution, whether or not this was double ordering. We never found the market so hot in the first quarter. Was that I never saw real shortages. Of course, there were plant closures here and there and competition, of course, suffered from the same. So there were some kind of nervousness to be seen at some buyers. But nevertheless, I think, overall, I do not believe in a broad double ordering in quarter one.

Got it. That’s helpful. Maybe just on your second quarter outlook, I guess, how are you thinking about the relative positioning of the end markets you serve in Q2? Clearly, automotive production is being impacted, but I guess I was a bit surprised to hear in your prepared comments that server markets are slowing and that networking infrastructure is slow. Could you just expand on what you’re seeing in those two markets, particularly as it relates to Q2? Thank you.

No, I think it was a misunderstanding. At least, I didn’t want to say that. I hope – anyway. We believe not a major change to the negatives here, no.

No, it’s – got it. Okay.

In fact, we will continue to be relatively strong, given the special needs of the situation around corona.

Got it.

5G I said. Oh, maybe this was the misunderstanding. I said 5G develops, but slowly, but this is effect.

Perfect. I’ll see the floor. Thank you.

Okay.

Your next question is from the line of Matt Sheerin with Stifel.

Yes, thank you, and good morning, Dr. Paul. Just another question if I can regarding the booking trends and the very strong book-to-bill you saw not just in distribution, but in other markets. Could you tell us what the book-to-bill levels relatively are today versus at the end of the quarter?

April was at 1.01. So it doesn’t hold back, it was not such a pretty situation in quarter one, which again was – part of it was restocking. They gave orders for restocking. So this discontinued, but it’s 1 still April was 1.

Right apparently. Okay. And then as you look at your order book now, are you starting to see cancellations and push-outs?

No, in reality, cancellations, which were quite high, say, half-a-year ago, nine months ago very high, which we expected to happen, given all the additional orders we got before. In the meantime, cancellations are quite normal. Absolutely normal. We watch that obviously.

Okay. And I know that you don’t have much visibility beyond the next couple of months. But as you look to the September quarter, given the big slowdown in auto production, with all the geographies being affected, would you expect a bit of a spike in orders in the September quarter? Or is there a concern about just end demand being weak and production coming back at a much slower pace?

Well, when you listen to your automotive customers and, again, they will not tell us differently from competition. I believe that they expect the low point of the development in automotive would be quarter two. After that, they basically indicated that they – we will count on more normal volumes. So we would expect orders from automotive to restart already in Q2. So we will see what – how accurate their forecast is, but it was a very distinct statement not only by one customer.

Okay. And just lastly, if you look at your margin outlook, it basically reflects your normal 45% to 50% margin contribution. And you haven’t – it doesn’t sound like you’ve implemented any incremental cost-cutting programs. Is that, because you do think that things will recover in the second-half? And is there a plan to implement additional cost-cutting if things don’t rebound?

It’s obvious as we’ve done in the past, Matt, as – if things really turn sour, there will be additional cost cutting in the fixed cost area. We will, on the other hand, be very careful not to destroy our plans, not to destroy, not to damage our most important projects. But we have done that in the past. We always react on fixed costs. But there are always ways to do it without destroying your structure, and we would, for sure.

Okay. Thank you.

Thank you.

[Operator Instructions] Your next question is from the line of David O’Connor with BNP Paribas. David O’Connor: Great. Good morning, and thanks for letting me ask the question. Maybe one or two from my side. Dr. Paul, you mentioned through April, the book-to-bill was at parity at 1.0.

Yes. David O’Connor: Can you give us the breakdown on the geographical trend there? Have you started to see the recovery coming through in China already? And maybe if you can give us the book-to-bills for the U.S. and Europe as well?

Unfortunately, I don’t have the split available. But it’s obvious that Asia pulls the economy at the moment. It’s quite obvious that the strong input of quarter one and that this will not be a different picture in April came from Asia. Europe is relatively the weakest, I would say. But again, I don’t have the numbers precise. David O’Connor: Okay. No problem. Thanks for that. And maybe then on the server market, you talked on the server market as it was slow, I think, from your prepared remarks. When we look at some chip makers there reporting strength in that area, given the working from home trends. Can you talk us more about how you reconcile that or some people talking it stronger? Or is that your positioning within the server supply chain?

I think it was a misunderstanding, I said it before. I even said it was strong because of these needs, corona-driven. I said it was kind of misunderstood. What is relatively slow, but as I said is the fact is the development of 5G is, it goes slowly. But the remainder is relatively strong because of the effect with the reasons you were mentioning. So maybe it was a misunderstanding, I corrected it before. David O’Connor: Okay, got it. Thank you for that. Maybe as the last question. On the inventory side as distributors, do you think coming out of the corona crisis, that distributors will start to hold structurally more inventory? Or do you think this – that was as close as possible return to normal ordering patterns and inventory levels? Thank you.

Well, after any crisis I’ve seen in my relatively long career, there was always an unexpectedly fast and strong recovery and distribution orders, we’re always leading those things. So I would expect the same to happen again after corona, depending how fast it ends, kind of, but I think we will see a steep recovery after the corona crisis. David O’Connor: Very helpful. Thank you.

There are no further questions. Are there any closing remarks?

This concludes our first quarter conference call. Thank you for your interest in the Vishay Intertechnology.