Good day, and thank you for standing by. Welcome to the Vishay Intertechnology Quarter 3 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like to now hand the conference over to our first speaker, Mr. Peter. Please go ahead.

Thank you, [ Raven ]. Good morning, and welcome to Vishay Intertechnology's Third Quarter 2025 Earnings Conference Call. I am joined today by Joel Smejkal, our President and Chief Executive Officer; and by David 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 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 to 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.

Thank you, Peter. Good morning, everyone. Thank you for joining our third quarter 2025 conference call. I'll start my remarks with a review of the third quarter performance and business conditions and then turn the call over to Dave, who will take you through a review of the third quarter financial results and our guidance for the fourth quarter of 2025. After that, I'll update you on the strategic levers we are pulling under Vishay 3.0 as we continue to execute on our 5-year strategic plan, and then we'll be happy to answer any of your questions. For the third quarter, revenue grew sequentially 4% to $791 million, 2% above the midpoint of our guidance. Many market segments were up over Q2. Automotive, industrial, computer and medical were positive. Asia achieved the greatest growth, notably from automotive customers and sales to distributors supporting computing and industrial. Our sales to Asia distribution was positive in Q3 because of a large number of orders placed in Q2 to get ahead of the tariffs. Vishay book-to-bill in the quarter was slightly below parity. Orders from OEMs were up in all regions. Orders from EMS were positive over Q2. Distribution orders in the Americas and Europe were positive above Q2, while Asia distribution orders were lower following the higher order amount in Q2, which was mentioned previously. Both semi and passive book-to-bill was slightly below 1. Book-to-bill for October is at a run rate of 1.15. Our backlog continues to build at a gradual pace as it has since the beginning of the year. Orders were up 19% year-over-year, indicating that conditions are improving in automotive, smart grid infrastructure, aerospace defense and AI-related power requirements. However, a very large portion of these orders are still placed with short-term delivery requests. Turns business, expedites, pull-ins,…

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 $791 million, up 4% compared to the second quarter, reflecting a 3% increase in volume and a 1% positive foreign currency impact related mostly to the Euro. Average selling prices, including tariff adders were flat versus the second quarter. Nearly all reportable business segments had higher revenues than the second quarter, driven mostly by volume. Compared to the third quarter of 2024, revenues increased 8%, reflecting an 8% increase in volume and a 2% positive foreign currency impact related mostly to the Euro. This was partially offset by a 2% reduction in ASPs, including tariff adders. Book-to-bill for the quarter was 0.97, broken down into 0.96 for semis and 0.98 for passives. Backlog in dollars was flat at $1.2 billion and is now at 4.4 months. Moving on to the next slide, presenting the income statement highlights. Gross profit was $154 million, resulting in a gross margin of 19.5%, slightly below the midpoint of our guidance and flat versus quarter 2. The margin performance was driven mostly by elevated metals prices as well as modest currency headwinds. The negative impact from our Newport fab was approximately 150 basis points, slightly better than our guidance. Depreciation expense was $54 million, in line with our guidance and up $1 million over quarter 2. SG&A expenses were $135 million, slightly below our guidance and down $2 million from quarter 2 on an adjusted basis. GAAP operating margin was 2.4% compared to 2.9% in the second quarter and a minus 2.5% in the third quarter of 2024. Adjusted operating margin was 1.4% in the second quarter and 3.0% in the third quarter of '24, excluding -- non-GAAP adjustments. There…

All right. Thank you, Dave. Let's go to Slide 12. Slide 12 will give us an update on the strategic levers we are pulling to drive faster revenue growth, higher margins and enhanced returns on capital as we execute our 5-year plan. Starting with capacity investments. Year-to-date, we have invested $179 million, and we expect to spend between $300 million to $350 million this year. At least 70% of this CapEx is for expansion projects. At our Newport facility, we are on schedule, increasing our wafer starts each month. During the quarter, we completed the installation of all tools for silicon and silicon carbide wafers, and we released and started production ramp-up for 2 additional technologies. Automotive customer audits are continuing. In our passive business at La Laguna, Mexico, we released commercial part numbers for production while continuing to qualify additional part numbers. We've scheduled site audits with many automotive customers. We've completed the IATF certification of our automotive-grade inductors, which opens the door to move for more site audits and supplying more automotive OEMs from this facility. We've had more than 20 audits completed at La Laguna. At our facility in Juarez, Mexico, we've passed the audits conducted by 2 of our automotive customers and continue to increase production of commercial products. Through our subcontractor initiative, we now have qualified more than 9,000 part numbers, further expanding our portfolio of diodes, resistors, capacitors and inductors. As a reminder, this initiative has a couple of objectives. The first one is to create incremental capacity internally for our high-growth products by outsourcing commodity products. The second is to broaden our product portfolio and to increase our share of customers' bill of materials. Turning to innovation in our silicon carbide strategy during the quarter. For MOSFETs, we released 3 additional products, 2…

[Operator Instructions] Our first question comes from Ruplu from Bank of America.

The first one, Joel, in the Automotive segment, did Vishay see any benefit or impact from the export restrictions that were put on Nexperia?

Ruplu, nice to hear from you. This is a dynamic conversation. I mentioned in the closing that we are in discussion with many OEMs daily and many Tier 1s. They've asked for support in line down situations, and we have been able to support in some cases, depending on how the part numbers cross. So we -- at the moment, we're seeing a lot of opportunity developing. We didn't guide or didn't place much of that in our Q4 revenue guide because at this moment, it's been shortage quantities just to keep factories moving. So we are in the conversations.

Okay. Okay. Can I switch to margins? I mean, it looks like Newport was not as big a negative impact as you had expected on fiscal 3Q margins. But just looking at the gross margin, it was maybe 20 bps below the midpoint of guidance. I think you mentioned the metal prices as one factor. Were there anything else? How was pricing? And when it comes to the metal pricing or prices and cost, are you using the strength of the balance sheet to prebuy any metals? So just any thoughts on that impact going forward?

Okay. I'll take the first part of that, and Dave can comment on the second part. The items that impact gross margin, metals was one, whether it's gold, whether it's palladium, platinum, silver, they're all at a very high rate plus copper tariff. Copper tariff is another one. So we're managing the metals, and we're preparing to pass costs on to customers. That's a negotiation season now. So we're passing metal costs on as much as possible. Exchange rate, Dave can elaborate on a little bit. There's also operational items. It's not a perfect operation. There's always things that we need to improve on with manufacturing efficiencies. So metals, exchange rate plus some operational issues is what had the gross margin flat Q3 versus Q2. Dave, do you want to talk at all about any of those items or the forward buying of metals?

Yes. No. So Ruplu, it's a good question. When you -- combining the metals and the FX impact, we're looking probably north of 50 basis points on the total, okay? So it's no small impact. So I mean everybody knows what's going on in the metals markets right now. I mean gold year-to-date, 48% increase; silver, 59%. And in October, we're seeing them go up again, okay? In terms of the FX impact, we're well balanced with the Euro, but we do make -- we do build parts in some countries where we don't have revenue, okay? And 2 countries specifically, currency, the Shekel and the new Taiwan dollar strengthened and hurts our P&L. In terms of the hedging, one thing you have to keep in mind is we don't buy just pure copper and pure gold, right? We buy premanufactured parts a lot of time or semi-finished parts or WIP, whatever you want to call it. So our vendors are incurring extra cost and passing on to us. So [indiscernible] the pricing, but we're going to approach -- we're going to put steps in place to address the metal increases where possible and passing it on to our customers. This is in motion now.

Okay. Got that. But are you doing any prebuys? Like are you seeing the strength of the balance sheet to buy and store any metals? Is that something you would look into?

We have -- we do that to some extent. We have a fairly long pipeline on some of our manufacturing times, and we will place purchase orders out into the future. But as a general purpose, we're not stockpiling metals now. It's expensive to do that.

Okay. Let me ask you another question. So it looks like book-to-bill fell about to below 1 this quarter, and this was the first time this year. When we look at the revenue guide for fiscal 4Q, I mean, that would imply total fiscal '25 revenue growth of about 4% year-on-year. Then when I look at consensus for next year, looks like consensus is modeling an acceleration to 7% year-on-year for revenues and gross margins to expand to something like 23.6% from 19.5% that you're running at today. So Joel, just when you look at the environment, when you look at the book-to-bill, and you look at consensus estimates for fiscal '26, do you see these as reasonable growth and margin expectations? And any color you can give on what can drive revenue growth and margin expansion and how you see that trending over the next year?

Okay. The October run rated book-to-bill, I mentioned is 1.15. So even though Q3 was slightly below 1, October orders across the products has moved up quickly. When we look at the market drivers, we've got 5 market drivers in what we see as an improving economy. We've got 2 of them which are supported by government spending. One is aerospace defense and the other is smart grid infrastructure. Those are 2 of the 5. We've got AI that we're all watching the AI server build and the power requirements. We've got automotive and industrial overall, auto, industrial, aerospace, defense, AI, medical as well. So we're seeing these market segments lining up. The customer engagements that we have, people are talking about mid-single-digit growth next year across these segments to high single-digit growth. We've done a good job of getting in the customer meetings. I think the October bill is a nice signal for us. We've got some product lines that the customers are placing further out orders like the high-power capacitor that we've got programs that we have to deliver in 2026, and that will continue to develop the industrial business behind that. So I see a growth next year [ receiving ], like you said, consensus of plus 7%. I think that's in line as we do our budgeting right now. We are developing our budget for 2026, and we're expecting to grow because of these 5 end market segments, which are showing positive signs. This is kind of a different year we're moving into. In the past, when you looked at how many market segments we were aligning to drive an economy, we had the telecom boom in the 2000. We had auto booms in the late 2000s and the pre-COVID years. But now we've got 5 market segments that Vishay supports that we see are lining up to be positive in 2026. So I think the revenue growth, what the consensus has put together is in line with what we're hearing from customers. The margin growth you talked about, we've got a plan to get Newport to margin neutral by the end of Q1. So that will raise our gross margin by 1.5%, 150 basis points. So we move to 21% plus the manufacturing efficiency and cost reduction projects we have internally division by division, passing on the metals cost that we talked about, plus then the volume growth, which we expect to see volume efficiencies on. So I think what you listed there is similar to what we're viewing for 2026.

Okay. Okay. That's helpful. And maybe I'll just throw one more in if we have time. Dave, can you elaborate on the capital return strategy? I mean, how would you prioritize any debt reduction versus buybacks versus any acquisitions [ that you pipeline? ]

Sure, absolutely. So our cash balance has been decreasing. I think everybody can see that. And in the U.S., we're certainly in a net borrowing position. We're at $189 million, I think, on the revolver. The Newport CapEx is slowing, but Newport is not up and running completely yet. So we still need to fund U.S. money to fund Newport. So we don't see right now, given our current liquidity in the U.S. that we would want to be doing any share buybacks. We are continuing the dividend. Dividend is important to us. But we're not looking right now to purchasing shares.

[Operator Instructions] Our next question comes from Peter Peng with JPMorgan.

You mentioned about some volume growth in the first quarter. Is it right to read into that, that you're expecting more seasonal trends? I think typically, your first quarter is up somewhere in the low single digits. Is that kind of the way you're thinking about seasonal trends into the first quarter?

Seasonal is an interesting word now. It's hard to say what's seasonal right now. You're right, in the past, Q1 did see some increase because of the Q4. Q4 is just a comment about Q4, it's not a 13-week quarter. It's a 12-week quarter. Customers tell us that they're going to be closing between Christmas and New Year. So we're really running a shorter quarter to have flat revenue. So we see that we are making a good push. Q1, Chinese New Year is in February. We're watching order activity now based on lead times to see is the customer going to be bringing in product before Chinese New Year or setting the stage for after. So I would say that's the seasonal effect that's there that is common Q1 after Q1 is Chinese New Year. However, industrial programs, aerospace, defense spending, the push to replenish the weaponry I don't think we're in anything that could be considered seasonal. Automotive, with what's happening with shortages and preventing line downs, we're doing our best to support OEMs that are coming to us in Tier 1. So I don't think I could put seasonality on that one. The industrial grid designs and those projects continue to move positively, plus then medical. Medical is always dependent on FDA approval of programs. So if I said seasonal for compute or because of the China New Year holiday, I think that's the only part of seasonal I would consider. We see the better bookings again in October, 1.15 right now, that run rate. If that continues, that sets us up for a better Q1.

Perfect. And then just going back to the gross margin dynamics, you mentioned that the Newport headwind is going to roll off in the first quarter and then you're going to be potentially passing some of the middle cost. And so what's the kind of the right base level to think about the margins as we kind of look into Q1?

We don't normally guide that far ahead, right? We're guiding for Q4. We are diligent in our cost improvement projects internally. The negotiation season is now with the large customers that have annual contracts. So too early to say we have a result of what the ASP change might be. I think we need a little more time yet to really dial in what the impact of, in particular, those negotiations -- the results of those negotiations is going to be.

Got it. Okay. And then last quarter, I think you mentioned about a change in [ work ] configuration at that large compute customer and that you guys are working to qualify. Maybe you can provide some update on that progress.

Okay. We are always connected to the AI design centers. We -- I mentioned we have branched out to a number of AI companies and building the hardware. Continuing to talk with the main players, continuing to offer more Vishay products, whether it's MOSFETs and ICs, that's what gets all the attention in the conversation. So we're in design activity there, plus the passive components. The capacitors, the resistors, the inductors. So we take a large -- a wide umbrella, a big toolbox and we go into the AI leaders, and we promote the broad portfolio. So we're gaining good traction. We're getting good design and print position.

Okay. One more, if I may. Just a follow-up on the Nexperia situation. I know you guys are not baking any revenue, but what's the potential -- how material of an impact could this be to your business as you kind of talk to your customers? Maybe a sense of what the magnitude is?

We're crossing part numbers. We're helping automotives with avoiding line downs. And it's not just Vishay. There's other suppliers, our competitors who are also helping this because we need to make sure the automotives are running and they don't have to do production stops because that impacts more than just Nexperia's volume, it impacts everybody. So I think what I'm hearing on the street is everybody is taking the opportunity to help. Vishay with the lineup of products, we crossed the best of our ability, but the automotives have to make a decision on how does the program perform with a Vishay product in it or another competitor's product in it. So it takes some time. We like the conversations we're in. We're being given a great opportunity to tell the automotive OEM and Tier 1 more about Vishay. They like what they hear. They like to hear about our footprint. They may not have known much about us in the past, the OEM -- so it's hard to put a number on it at this point. It's so dynamic. Because it's geopolitical, things could change in a moment. We saw what happened with April 2 and the announcement of tariffs and how that changed the business in a moment. We saw what happened here now with the geopolitical announcements of China and the Dutch about Nexperia. So I think it's too early for us to really put any type of number on it. There's too many moving parts.

This -- I'm showing no further questions at this time. I would like to turn it back over to management for closing remarks.

All right. Thank you, Raven. Thank you, everyone. Thank you for joining us on our third quarter earnings call. The combination of directionally positive signals and Vishay's capacity readiness is encouraging. We look forward to reporting our fourth quarter results to you in February. Thank you very much. Have a good day.

Thank you.