Good morning, my name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vishay Intertechnology First Quarter 2018 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Peter Henrici, Senior Vice President Corporate Communications. Sir, you may now begin.

Thank you, Regina. Good morning, and welcome to Vishay Intertechnology's First Quarter 2018 Conference Call. With me today are Dr. Gerald 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 our first quarter 2018 financial results. Dr. Gerald Paul will then give an overview on 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 they provide 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 per share computation. On the Investor Relations section of our website, you can find a presentation of the first quarter 2018 financial information, containing some of the operational metrics Dr. Paul will be discussing. On June 12, Johan Vandoorn, Executive Vice President, Chief Technical Officer and Deputy to the CEO, will present at the Stifel 2018 Cross Sector Conference in Boston. Now, I turn the call over to Chief Financial Officer, Lori Lipcaman.

Thank you, Peter. Good morning, everyone. I am 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 quarter 1 of $717 million, at the upper end of our guidance, when adjusted for exchange impacts of $10 million and a recent acquisition. In February, we acquired substantially all of the assets of UltraSource Inc., a U.S.-based thin film circuit and thin film circuit and thin film interconnect manufacturer, which contributed about $3 million of revenues to the quarter. EPS was $0.39 for the quarter, adjusted EPS was $0.40 for the quarter. The difference between GAAP EPS and adjusted EPS for the first quarter of 2018 are income tax related items. There are no pretax reconciling items. Yesterday, Vishay announced an increase of the quarterly dividend of 26% to $0.085 per share or $0.34 annualized. The significant increase demonstrates our commitment to return capital to Vishay's stockholders and shows confidence in the strength of Vishay's ongoing cash flows. Effective January 1, 2018, we adopted several new accounting standards. Where required by the applicable new standards, prior periods have been recast to retrospectively reflect the impact of the standards. Recast statements of operations for each quarter of 2017 and the full year's 2017 and 2016 are included in the financial tables within our earnings press release. The impact of these new accounting standards on income before taxes was not material, though the new standards impacted various individual line items, which slightly changed historical gross margin and operating margin calculations. More detailed discussion of the impact of these new accounting standards will be included in our quarterly report on Form 10-Q, when it is filed. During the first quarter, we did not repurchase any shares…

Thank you, Lori, and good morning, everybody. Vishay continues to enjoy very excellent business conditions in virtually all of its markets. Record volume and good efficiencies supported the further substantial increase of profitability. We are also continuing to expand critical manufacturing capacities. Vishay in the first quarter achieved a gross margin of 29% of sales, an operating margin of 15% of sales, an operating margin of 15% of sales, GAAP EPS of $0.39 and adjusted EPS of $0.40. 2018 is also expected to be another strong year in terms of cash generation. Talking about the economic environment. Economic environment in the first quarter continued to be very friendly in particularly -- in all aspects. No major changes to prior quarters were to be seen. In particular, our key markets, automotive and industrial, keep growing fast. Market demand continues to exceed available manufacturing capacities in several product areas, leading to shortages of supply. High order levels continue to be driven by distribution in all regions. Economic environment creates new business opportunities and allows more stable pricing. Concerning the regions, all regions continue to do well. In the Americas, the economic outlook remains strong and looks favorable for the remainder of the year 2018. Many industrial segments like robotics, lighting and energy metering do enjoy healthy growth. The oil and gas business rebounds. The European market remains very strong and continues to be driven by the automotive and industrial segments, as strengthening euro does not seem to weaken growth in this markets. We see very strong Asian markets, mainly for industrial equipment, energy, infrastructure and automotive electronic equipment. The strong results in the first quarter defied the normal seasonality in Asia. Talking about distribution. Worldwide distribution, also in the first quarter, enjoyed quite excellent business conditions. The POS increased by 14% quarter-over-quarter…

Thank you Dr. Paul, we will now open the call for questions. Regina please take the first question.

Our first question will come from the line of Shawn Harrison with Longbow Research. Please go ahead.

I guess Dr. Paul if you could help me out in terms of the backlog is rising but some of the book-to-bills came down some of it went up. How do you I guess maybe you can talk about potential concern on this elongated backlog and some record book-to-bills, any concerns on cancellations coming up or do you think it's just the lead time environment we're in? We're not going to see any easing in your backlog statistics for a number of quarters?

In order to add to your question, also in April, we had a very positive backlog of 1.26 so it goes on. As a matter of effect, we see broad and, of course, you can imagine that we are interested in what goes on in the supply chain and we are frequently talking to distribution customers. At this point in time we have no reason to believe that this request is high demand will come down. There are shortages for so many product, for product lines which we produce if I cannot see at a point in time there will be of course a normalization of backlogs which at record levels. But this doesn’t mean that we will see a reduction into sales, because at the moment the backlog is simply high and of course, there will be some double ordering included, but this does not concern me.

Is there a way to think about, on a percentage basis, how much your capacity is increasing across the company, given the increase in CapEx forecast for the year?

It's, of course, just an example. We are going to invest for expansion this year about 120 million, which should be good for 150 million to 180 million sales depending on the product we invest for and whether we fix bottlenecks or we have to invest across the board for a line.

Okay. And then, I don't know if this is a question for you Dr. Paul, or Lori, but given, your stock is up sharply this morning or up nicely this morning, and you had such a robust quarter and robust guidance. Maybe one could do the thinking of why there wasn't any buyback during the March quarter and kind of the comment on metered activity going forward, given the robust cash position.

Do you allow me to answer to the extent? So as a matter of fact, we just increased the dividend substantially. And of course, there are all kinds of considerations going on all the time. Dividend increase, I think, was a good first contribution to shareholder value, based on this environment we have in any respect.

Is there a thought going forward? I know bringing back cash to the U.S. was talked about on a slow basis, but when should we expect that to accelerate, maybe?

Okay, so let me pass it on to Lori now.

Excuse me. So as you know, we announced the repatriation that we're planning of the 1.1 billion in quarter four. We explained that we would like to do it at a measured pace, but we do plan to begin some activity already as early as a quarter two. But it steps through several countries, as you know. So for it to come back to the U.S, it's likely to be in the second half of the year.

Our next question will come from the line of Ruplu Bhattacharya with Bank of America. Please go ahead.

Dr. Paul, just to build on the capacity adds that you're having, can you kind of describe for us which areas you're adding capacity? And what I'd like to understand is, based on the demand that you see now, how quickly do you think your supply comes in line with demand? Is that in the next quarter? Or do you think it'll take significantly longer than that for supply to match demand?

Let me first of all give you the cheap answer, this depends on the demand of course also. But we add capacity successively. Every quarter, you see it from our sales numbers, since we started to invest at an accelerated pace. It was a first quarter last year when we started. We add capacity in many, many of our most popular lines, if I can call it like that, quarter after quarter. And at the moment, as we talk, we have many programs running, and so basically, what I said is 120 million approximately this year for expansion is just a snapshot. So we started programs that have been started last year come to fruit now. And you have seen our guidance. Our guidance goes up to midpoint of 760 million in the second quarter. This of course is fed by capital, which we have spent over the last 12 months. There is a focus, we invest into diodes, we invest into the MOSFET capacity, very much also into resistors and inductors. So these are the focus points of the investments, but this is not new, and by the way, we will need this capacity going forward, regarding -- this regarding how the demand of short term will come, but at the moment, there is no weakening to be seen.

And then, can you talk a little bit about the pricing environment? Have you been able to raise prices on various different product lines? And are you seeing any pushback from your customers? Are you -- do you think you can raise prices even further?

Vishay produces specialty products and commodity products. We are talking really the commodity product area, which in worse times and less good times are always subject to price decline. And it's true, we are able to keep prices overall very stable at this times, which includes, of course, also price increases. On the other hand, we have some contracts -- we have continuous contracts which call for ongoing price reduction. But as the total is very close to 0 in many of these commodity lines, we also are able to implement price increases naturally, partially to distribution.

And then, maybe for my last question, I'd like to ask about the margins in Opto and MOSFETs. The Opto margins came back quite strong, but how sustainable is it at this level? And then, can you clarify what happened with the MOSFETs. I mean, I think revenue was up sequentially, but the margins were down a little bit. So was there any onetime items in the quarter?

No, it was inventory. First of all, it was practically the same. It was 1 percentage point difference, at -- basically driven by inventory movements. I'm very happy with MOSFETs, our history in the last years and our turnaround which we had for the MOSFETs. And what we have now is sustainable, no question. In fact, we want to increase capacity, which is never bad for the gross margin as a matter fact, right? This was one and what was the other product line. Opto?

Opto.

But we announced that practically. Opto's normal performance is around, don't quote me, by a point on 35%, 34%, 35%. Last time we were under and we had some singularities and an inventory reduction. This time it was the -- first of all, we had no negative singularities and we had some inventory increase. So all this circulates, oscillates around this 35%. So no surprise in any direction. Opto is a very profitable line and the average performance is around this 35% gross.

Our next question will come from the line with Jim Suva with Citi.

Pricing was better, which is great. Do you think this sustains for the next, say, one, two, three quarters? Or given the book-to-bill and backlog's so strong, it kind of seems like stronger than normal historical pricing should be sustained for quite a while.

Well, looking at the backlog level, I would agree that we will see good pricing, stable pricing for some time. It depends, of course, on the development of the economy, no question. On the other hand, given the situation as we see it, I would agree with you that we would see a more stable -- much more stable price environment for some time.

And then, for Lori, again, can you just help us better understand, you've got a stock buyback and your dividend increase is very strong, but not buying back any stock in the quarter was just kind of very interesting. Should we -- how should we think about that?

So as a matter of fact, I think, with some of our new tax laws in the U.S. and the fact that we announced a repatriation of cash, we're giving some careful consideration to how we want to deploy that cash when it arrives in America. And then, we are likely to continue with some activities in one form or another that would prospectively modify, potentially, our capital structure.

Okay. And my last question, Lori, did I hear correctly, you said it gets back to the U.S. kind of second half of this year?

Yes, yes. It -- I think you -- we explained that it goes through several countries on its way to the U.S. and it -- we would expect that the first flow of cash into the U.S. is likely to be in the second half.

Our next question will come from the line of [Kelvin Park] with Stifel. Please go ahead.

Question on the capacity expansion. I think you mentioned, out of the 2025 for fiscal year $120 million will be devoted for capacity expansion. Could we just go over to what...

Approximately.

Approximately, yes. But could you be able to outline what that actually comes in terms of top line sales and unit capacity? And even looking further, if the current trends continue and looking into the first half of fiscal year '19, if you might potentially increase that level? Maintain the same? Just to get a gauge of what -- how the management team is strategizing that right now.

Well, on the average, but this is very different from line to line. For instance, if you have a foundry, you do not have to invest objectively as much if you want to increase your sales, but on average, it's not wrong to say that based on $120 million sales, you'll get between $150 million -- excuse me, $120 million capital, you get something like incremental $150 million to $180 million sales on average. And this will kick in as we go. Already the present increases from quarter-to-quarter were determined by capital spending of 2017. So of course it's a process, kind of. But if you ask me about the impact of these additional $120 million in the calendar year, then I would say, yes, between $150 million, $180 million more sales, depending really where we invest in the detail, yes.

And then, potentially into fiscal year 2019?

Yes. By nature of things, this will carry on. The impact of the present capital -- or the capital of 2018 will be seen then and available in the course of 2019. This course -- it's a consistent increase of our capacity quarter-by-quarter, really. So the second half of -- the second half of this year from a capacity standpoint will be -- not from a sales necessarily, but because there are the working days also, but from an output standpoint per day will be higher than in the first half. For sure, this is a continuous program.

Right. And to follow up on the pricing program -- the pricing leverage, I know you mentioned distribution, you have levers to pull to increase pricing there, but long-term contracts have stipulated price declines. I know for some of the certain segments, you've actually seen increases in ASP. Do you see distribution pricing power? Do you -- to potentially increase in the coming quarters? And are there potential levers to pull in your fixed term, fix contracts to realize less of an ASP decline, given the current supply shortages situation?

First of all, when we have -- when we go for a contract and have concluded the contract, we honor that. We don't go back and renegotiate the prices on OEMs long -- longer-term contracts, we don't do that. Concerning distribution, for sure, I foresee, given the present situation, I have to foresee stable pricing for the quarters to come. There's no question about it. Maybe even price increases to a degree. Depends on the case and depends on the product line, of course. This is what I see, so I see quite stable pricing environment for some time to come, I do. Of course, if the economic conditions would change abruptly, which we cannot see at this point in time, this would have an impact by nature of things on the pricing of commodity products, especially starting in distribution, right?

I will now turn the program back over to management for any further remarks.

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