Good day, and thank you for standing by. Welcome to the Vishay Intertechnology Q3 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Peter Henrici. Please go ahead.

Thank you, Felicia. Good morning, and welcome to Vishay Intertechnology's Third Quarter 2024 Earnings Conference Call. I am joined today by Joel Smejkal, our President and Chief Executive Officer, and Dave McConnell, our Chief Financial Officer. This morning, we reported results for our third 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 making -- 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 filing 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 to non-GAAP reconciliation in our press release as well as in the presentation posted on ir.vishaycom, 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.

Thank you, Peter. Good morning, everyone. Thank you for joining our third quarter 2024 conference call. I'll start my remarks with a review of our revenue for the third quarter by end market, channel, and region, then Dave will take you through a review of the third quarter financial results and our guidance for the fourth quarter. After that, I'll give you a progress report on the 2024 initiatives supporting our five-year strategic plan, and then we'll be happy to answer any of your questions. For the third quarter this year, revenue has held fairly constant, reflecting a prolonged period of inventory destocking as the pace of consumption by industrial customers remains slow. Backlogs are pushed out and macroeconomic conditions in Europe worsen. Automotive customers continue to adjust their forecast to sluggish demand in Europe, while order rates appear to be under control in the Americas. Despite reported revenue of $735.4 million for the third quarter, that was flat with the second quarter, bookings for smart grid infrastructure, military, and high voltage DC applications continued to improve, and we saw increasing demand related to AI servers. While the electronics industry remains in a down-cycle, we are making the necessary adjustments to manage costs. Under Vishay 3.0, we are preparing to participate more fully in the next industry upcycle and we are putting the foundation in place to capitalize on the long-term demand of e-mobility and sustainability. In previous down-cycles, the company became unable to support customer demand and to scale because the focus was on conserving cash flow, which shelves plans to prepare for the next [Technical Difficulty]. The customers want more from Vishay, so we are taking a fresh new approach. Under Vishay 3.0, we are intelligently pressing forward with a sense of urgency, putting the customer first, working…

Thank you, Joel. Good morning, everyone. Let's start our review of the third quarter results with the highlights on Slide 6. Third quarter revenues were $735.4 million, including $8 million attributed to our Newport acquisition, and within the range of our guidance. Revenues decreased 0.8% compared to the second quarter, reflecting a 1.0% reduction in ASPs and a 0.8% reduction in volume. By reportable business segment, the $6 million decrease in revenues was mainly attributable to an $8 million decrease in MOSFETs [ph], reflecting primarily legacy Newport volume, a $4 million decrease in inductors, and a $5 million decrease in capacitors. These declines were partially offset by a $10 million increase in our Opto business segment. Compared to the third quarter last year, revenues were down 13.9% reflecting a volume decrease net of Newport up 10% and a 4.7% reduction in ASPs. Book-to-bill for the quarter was 0.88 comprised of 0.79 for semis and 0.97 for passives. Backlog decreased to 4.4 months compared to 4.6 months at the end of Q2. By product category, backlog for semis decreased to 3.8 months from 4.4 and for passives was at five months versus 4.9. Moving to the next slide, presenting the income statement highlights. Gross profit was $150.9 million, resulting in a gross margin of 20.5% and included a negative impact from Newport of approximately 150 basis points. Compared to the second quarter, gross margin was 150 basis points lower, primarily due to lower volume, lower average selling prices, and increased depreciation expense. SG&A expenses were $128.5 million, in line with our guidance for the quarter, compared to $125 million for the second quarter, reflecting higher R&D expenses, and higher stock-compensation expense, which was partially offset by lower bonus accruals. Depreciation expense was $51. -- was $51 million, slightly under our guidance…

All right. Thank you, Dave. Please turn to Slide 13. I mentioned earlier that even though the industry is contending with an extended down-cycle, at Vishay, we are pressing forward with our ambitious five-year strategic plan and remain committed to our 2028 financial goals, including spending $2.6 billion in CapEx between 2023 and 2028. For the year 2024, we still plan to invest between $360 million and $390 million in CapEx. As a reminder and displayed on this slide, we are pulling eight growth levers to meet our commitments to scale capacity for our customers. Accelerate revenue growth and drive greater returns through the expansion of our markets and our product portfolio. We are ready for the next up-cycle to support [Technical Difficulty] sustainability. Let's turn to Slide 14 [Technical Difficulty] on these levers. As a reminder, in 2024, we are focusing primarily on expanding capacity, both internally and externally, and on innovation. Starting with semiconductor capacity expansion projects, at Newport, we are on target to complete the transfers of three silicon MOSFET structures now in Q4, and another one in the first quarter of 2025. We remain on schedule to begin production of the industrial technologies in the first quarter of 2025 and to complete the component qualifications of automotive grade components in the second quarter of 2025. At SK keyfoundry, our partner in Korea, we are on track to qualify seven product families by the end of the first quarter of 2025, three of which are automotive MOSFETs and four are commercial MOSFETs. We currently have engineering samples available of four product families and plan to have the other three available in early 2025. Through this partnership, we will be able to increase annualized capacity for MOSFETs by 12% in 2025 compared to 2024. In Taipei, Taiwan, we…

Thank you. At this time, we will conduct the question-and-answer session. [Operator Instructions] The first question comes from the line of Ruplu Bhattacharya of Bank of America. Ruplu, please go ahead.

Hi, thank you for taking my questions. Joel, I wanted to start by asking you, how do you see the inventory of Vishay products at distribution? What innings are we in terms of your outreach to distribution and expanding the line card of Vishay products at distribution? And when do you think -- when do you expect distribution to start pulling product and growing inventory again?

Hi, Ruplu. thanks for the question. The inventory at distribution is nearing a normalized position for passives. I think we're very close on passives. The semiconductors in the channel overall, it's going to take a little more time. It's not necessarily the over-inventory of Vishay. It's the over-inventory of our competitors who have stuffed some of the distributors' shelves. The Asia inventory, we're running at about 18 weeks. The Europe inventory, we're at 22 weeks. The Americas is longer. It's in the low 50 -- 50-week range, but part of that is catalog distribution. So we see that we're positioning this inventory. I mentioned we're at 27 weeks, it's because of those additional SKUs that I talked about. We're broadening our portfolio, so the inventory dollar looks larger, but it's covering more part numbers. An interesting comment that's happening in the environment now, Ruplu, is customer visibility is quite low and we're seeing orders in Asia, where 50% to 60% of the orders are for quick delivery, and the CM is not finding the product in-stock at the distributor. So we're seeing different partners come into play. So I think, overall, to kind of sum it up, normalization of passives is in the moments we're in now, in this quarter, and semiconductors will be into Q1.

Okay. Thanks for all the details there. Let me ask you another question. As we look into 2025, what areas of growth do you see for Vishay, meaning, which product lines do you think grow the fastest, which product lines grow slower, and how should we think about the regional mix of revenues over the next few quarters?

I have shared on the past two quarterly calls that we're now seeing the smart grid infrastructure programs accelerating. We've received additional large orders to support programs in Saudi Arabia. We mentioned in the last call about smart grid for Europe and we've talked previously about China. So the smart grid infrastructure is now moving at a faster pace and we're expanding this is the large ESTA capacitor. To mention that product line, there's also other resistors that are involved in these applications. So the industrial grid is good, that's positive. AI, we're seeing these opportunities in AI. We have reference design position on chipsets that are coming from the large microprocessor design companies. We're following that in the Asia. It can be AI for servers. It can also be AI for automotive. We're seeing that pick-up and that covers MOSFETs, that covers power inductors, current sense resistors, polymer tantalum, so there's quite a few Vishay products that are designed in, also one of our ICs. So we are following that. Naturally, there's multiple competitors on the design, but we're fighting to gain our share. Military for sure, aerospace, military defense, the book-to-bill stays positive. We continue to see orders for replenishment. We also see orders for new military programs, that will be positive in 2025. Space, space exploration, space programs with low-earth orbit satellites continue to show positive signs for us. We like high-technology products in those environments. Automotive, when we look at automotive, we're now in the negotiation season for 2025, negotiating the contract. The LOI quantities we see for 2025 are increasing over 2024. So that's a positive and that covers many of the Vishay divisions. Those are the positives, Ruplu, going into 2025.

Okay. Okay, great. Thanks for all the details there. Let me ask you one quick question and then I'll have one for Dave as well. Can you talk about the pricing environment? And looking at Slide 17, where you have the mix of commodity products versus custom products, do you think that mix shifts as we go into next year and the year beyond? Do you think that the mix of commodity products can decline over time based on your strategic focus on changing the mix and adding different product categories? So if you can just talk about the current pricing environment. Do you see any opportunity to raise prices or lower prices? And how do you see the mix of products trending?

The current pricing environment is consistent with what we spoke about in the last call or two. There is spot opportunities out there where there's higher volume, where it requires us to be a little more aggressive on pricing, so we take those opportunities to win that share. We're in the quarterly negotiated -- we're in the quarter negotiation season now for our large strategic accounts. Pricing in that is consistent with what we've seen in past negotiations [Technical Difficulty] significantly different from prior years, as far as ASP down for productivity in exchange for higher volume, so nothing dramatic there. Regarding the product mix, by adding these subcontractors, we're expanding our commodity portfolio. So I want to be clear that we're going to see growth in commodities as well as in the specialty products. It's important that we are viewed as a full-service supplier with all of the products. So I wouldn't say you're going to see commodities go down. I think you're going to see both of these increase as the overall revenue increases in Vishay.

Okay. Thanks for the details there. Dave, can I ask you one question on priorities for use of cash? As you think over the next 12 months, how would you prioritize your acquisitions versus maybe a dividend increase versus more buybacks versus you doing anything with the capital structure? So just -- if you can give us your thoughts on the best use of cash? Thank you so much.

Sure. I was expecting that question from you, Ruplu, so -- yes, no, seriously, so we've done several small acquisitions in the last year and Newport, right? We continue to return $100 million to our shareholders and we're committed to that already. This year -- we'll reach that target easily this year. So I think that the important focus for us at the moment is the strategic plan and making sure we meet the objectives we set for the strategic plan. And to do that, we're going to need capital. The Newport, as -- in my speech, as I said, Newport is funded mostly from the U.S., so we'll be borrowing to do that. So I don't think we want to jeopardize the five-year plan, the strategic plan. So we're going to stick that being the main focus. Okay?

Okay. Thank you for all the details. Appreciate it.

Thank you, Ruplu.

[Operator Instructions] Okay. It looks like I am showing no further questions at this time, I would now like to turn it back over to management for closing remarks.

All right, Felicia, thank you very much. Thank you again for attending our Q3 earnings call. We are very excited about what we are doing in Vishay to set Vishay on a new course for growth, and as you've seen in the statements today, we are accomplishing the initiatives that we put forward. So thank you again, and we'll see you on the next earnings call in three months.