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. [Operator Instructions] 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 at ir.vishay.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.vishay.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 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 ir.vishay.com, 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 in the rearview mirror. In addition, demand in China is sluggish as the country's economic recovery is taking longer than we expected. Nevertheless, we continue to see the 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…

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 inductors volume increases and higher pricing. Compared to the second quarter last year, revenues grew 3.3% reflecting a volume increase of 1.4% and 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…

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 mega trends 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 the 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 the sense of urgency. I am pleased on our progress to-date in shifting the mindset of everyone at Vishay to think customer first and placing a priority of 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 and 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 mega trends. To be ready for the next phase, we are investing $1.2 billion between 2023 and 2025, 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…

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

Hi. Thanks for taking my questions and thanks for all the details on the call. Joel one of the initiatives you've talked about is enhancing channel management. Over the last couple of months, since you've taken over as you've spoken to your distribution partners as well as other customers, what feedback have you gotten in terms of what Vishay is doing well? And what areas need improvement? So can you give us your thoughts on how you -- what are some of the things that you plan to do in terms of enhancing that channel management? And related to that, today about 54% of your revenue comes from distribution. But as you think about the secular growth drivers that are driving your two large end markets automotive and industrial as you get more EVs in the mix versus traditional combustion engines, do you still think that you'll be going through the Tier 1s, or do you think that you can have a direct relationship or more of a direct relationship, with the auto OEMs? And similarly, as renewable energy becomes a greater part of industrial, do you think that your revenues through distribution that mix can change over the next couple of 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, the Asian automotives 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.

Okay. With a number of our products, we have the right technologies in discrete semiconductors as well as passives. But as we have these technology discussions with the OEMs, there is need for Vishay to expand our portfolio. We have a list of M&A targets that we're looking at. M&A needs to be a greater part of our inorganic growth plan. It will help us to be a better supplier with broader product portfolio. So yes, M&A is going to be a greater part of our growth plan going forward. This will be in semiconductors, as we did with MaxPower and the silicon carbide technology last quarter -- in the fourth quarter of 2023. It will also be in passives. When we look at the electric vehicle, the growth in semis is often talked about as seven times the amount of semis and electric vehicle or maybe 10 times, but passives is right alongside that. The growth of passives is equal to those numbers. So this is a strength of Vishay being able to offer semis and passives to the EV, to the hybrid vehicle, as the electronic content grows even further. We can do it through our own manufacturer. We can grow through subcon qualification under the Vishay Product recipe and will also grow through M&A.

So just in terms of prioritizing the use of cash like, 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 the share buybacks is 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. 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.