Greetings, and welcome to Vishay's Quarter 1 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Peter Henrici, Senior Vice President, Corporate Communications. Thank you, and over to you, sir.

Thank you, Hemant. Good morning, and welcome to Vishay Intertechnology's first quarter 2022 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 will start today's call with the CFO, who will review Vishay's first quarter 2022 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 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. 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. On the Investor Relations section of our website, you can find the presentation of the first quarter 2022 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, and 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 Q1 of $154 million, a quarterly record. EPS was $0.71 for the quarter. There were no reconciling items between GAAP and adjusted for Q1 2022. As we announced in February, Vishay has adopted a stockholder return policy which calls for us to return at least 70% of annual free cash to stockholders directly in the form of dividends or indirectly in the form of stock repurchases. For 2022, we intend to return at least $100 million. Considering, we did not purchase any shares for the first 2 weeks of the quarter, we are off to a solid start. During Quarter 1, we repurchased 517,000 shares of common stock for approximately $9.9 million. We paid $14.5 million for our quarterly dividends for a total stockholder return of $24.4 million. Revenues in the quarter were $854 million, up by 1.3% from previous quarter and up by 11.7% compared to prior year. Gross margin was 30.3%. Operating margin was 17.1%. There were no reconciling items to arrive at adjusted operating margin. EPS was $0.71. There were no reconciling items between GAAP and adjusted EPS for Q1 2022. EBITDA was $181 million or 21.2%. There were no reconciling items to arrive at adjusted EBITDA. Reconciling versus prior quarter operating income in Q1 2022 compared to operating income for prior quarter based on 11 million higher sales or 16 million higher sales excluding exchange rate impacts. Our premium income increased by $24 million $146 million in Q1 2022 from $122 million in Q4 2021. The main elements were average selling prices had a positive impact of $20 million…

Thank you, Lori and good morning, everybody. Despite ongoing pandemic related issues and then accelerating inflation rate, the first quarter for Vishay has been one of its most successful quarters ever. We continue to enjoy quite unique economic conditions. We keep maximizing production output in all plants and continue to expand critical manufacturing capacities. I think we achieved quite excellent results for the first quarter gross margin of 30.3% of sales versus 27.3% in Quarter 4. Operating margin of 17.1% of sales versus 14.4% of sales in Quarter 4. Earnings per share of $0.71 versus $0.25 in Quarter 4 and adjusted earnings per share also $0.71 in the quarter versus $0.62 in Quarter 4. Free cash in the quarter was negative at $2 million. For the year, we, on the other hand, expect, again a solid generation of free cash. As said before, we continue to operate on the fairly brilliant economic conditions characterized by record for still growing backlogs and lead times and low inventory levels in the supply chain. Practically all market segments globally do very well. Also the automotive sector starts to recover from quite extreme shortages of supply, but more slowly than anticipated. The sales volume principally keeps being determined by manufacturing capacities, increasingly impacted by logistics issues. Major shortages of supply continue to exist. In view of increased inflationary pressures on their costs, manufacturers continue to raise selling prices in the markets for the most part in acceptance. All regions remained exceptionally strong. There is no decline visible at this point. POS in all regions are above all-time highs and quarter levels remain high. Talking about distribution, global distribution is in excellent shape. The business outlook is fairly strong In view of record backlogs and consistently growing POS. POS in the quarter was 18% above…

Thank you, Dr. Paul. We will now open the call to questions. Hemant please take the first question.

[Operator Instructions] Now, the first question comes from the line of Matt Sheerin with Stifel. Please go ahead.

Yes, thank you. Good morning everyone. A few questions from me. Dr. Paul, just starting on your guidance. You're talking about $35 million in sales impact in Shanghai. Could you tell us what product areas, I know you have some MOSFET exposure there, but what are some of the product areas that are affected and looking beyond the next quarter, are you expecting back to kind of normal levels in the September quarter there?

First of all, Matt, you hit the nail on the top, it's really for the MOSFETs, but also some diodes, but for the most part it's indeed MOSFETs and it's hard to predict what happens there, but we do expect and already started to see some improvements of the conditions in Shanghai. So I'm quite optimistic that we will be able to catch up in a way because this is - we have seen the inventory increasing. So it was produced and we are going to reduce the inventory and sell the stuffs obviously during the year.

Okay. And then in terms of the ASP increases, which are very significant, you're talking 8% to 9% or so across your semiconductor products. And when you talk about backlog, is that also factoring in price increases? We are hearing from some distributors and customers that suppliers are coming back and changing pricing of orders that are already in backlog. Are you doing that and do you expect that to improve and benefit you as you get through the year?

Matt, our backlog includes these price increases of course, but as a matter of fact, the backlog is so huge as a secondary effect, I would say.

Okay. And then, I mean you talked about lean inventory levels at distribution. But if you look at some of the distribution customers, specifically the big EMS players, and I know you have exposure there, though their inventories are at record highs. We don't know exactly what's there. But are you concerned at all that there may be an imbalance in some of your components are sitting in inventory and may lead to some correction at some point?

Well, there is no orderly reporting as you know, but in this case, at least the end customers in general, you have - don't have the same visibility as you have with distribution. As a matter of fact, there is more inventory at the EMS, but for us for Vishay, inventories at distribution matter so much more because that the sales to distribution is so much higher than into EMS, but I don't want to deny that. Indeed, there is some increased inventory at the EMS, but altogether they are to say that the supply chain is still, I would call lately.

Okay, thank you. And just lastly, I think you just mentioned that you're expecting your capacity to increase 2% to 3% sequentially and per quarter as you're adding capacity. Is that correct and is that on a unit basis so from a - and given the ASP increases, you should grow revenue even faster than that.

Well, this is really our - it's basically - it's a simulation of cost of goods sold really that means we have pieces, not a piece in our case. We have a broad product spectrum. So it's really our ability to sell more, this represents the ability to sell more 3% to 4% - 2% to 3%, excuse me, per quarter.

Thank you. The next question comes from the line of Joshua Buchalter with Cowen. Please go ahead.

Thank you for taking my questions and congrats on the solid quarter. I want to ask about gross margins. Obviously a huge beat in the first quarter and then the step down in the second quarter. Is this a function of timing increases that are - pricing increase timing to match inflationary cost pressures that maybe shift some parts of the higher ASPs before the higher cost wafers went out or is there something else in the mix that we should be thinking about regarding multi-sequential increase in the first quarter and decrease in the second quarter?

Okay. As I tried to say in the presentation, the first quarter benefited from a few singularities. There has been a very positive product mix and also there were some inventory valuation adjustments. Moreover, I believe that during the quarter, pricing - the increase of prices was ahead of rising input costs. So altogether, this will normalize somewhat in quarter two, but still we expect for quarter two, a very decent result. But Quarter 1 included, as I said some positive singularities. Does this answer your question?

Yes. That's helpful. Thank you. And for my follow-up, is there any - thank you for quantifying the impact of the COVID shutdowns on the top line. Was there any impact of timing and shipments that might have increased inventory a little bit in - more than you would have expected in the second quarter and then I guess as a follow-up, would you expect as we exit the second quarter that were sort of back to normal. Any - or would you expect any lingering impact from second half seasonality? Thank you.

Yes. As a matter of fact, we increased finished goods and we're in process in the quarter. And this of course had to do with the disruption with - of the internal supply chain and if you look at our goods in transit, they in particularly came up in the quarter. So you can work from the assumption that during the year, this will normalized of course, and this will turn into sales. Most of that increased inventory will indeed turn into sales as soon as we can ship again in the regular form and I'm quite optimistic this dispute take place in the foreseeable future.

Thank you. The next question comes from the line of Ruplu Bhattacharya with Bank of America. Please go ahead.

Hi, thank you for taking my questions. Dr. Paul, I was wondering if you can give some more details on the guidance, I mean 2Q, second quarter is typically the strongest sequential quarter for Vishay. I was trying to understand the press release, you said, due to production challenges, COVID lockdowns in April, you're guiding 5 - looks like $850 million at the midpoint, which is flat with respect to 1Q. So I was wondering, our production sites still down in Shanghai and do you expect those to remain down throughout the quarter and what is your expectation for a recovery from that? So just trying to understand where things are right now in terms of lockdowns for your facilities and how you see that trending over the quarter?

Very clear. Ruplu, the point is indeed it's Shanghai, indeed it's very much MOSFETs and indeed we have 2 problems. Problem one is that the plant - our main packaging plants here at the moment is running only at 20% or something a max capacity, which will improve now as a next step, but April was low and this is reflected in our guidance of course for the sales and then the second one is that we still need to ship of course, and even - and also the harbor is not easy. But also, in this case, we do believe to see improvements in the foreseeable future. Exact timing is of course not possible to give, but we are - it's moving in the right direction. And - but this of course is the explanation for $35 million less sales which we otherwise would have had in quarter two.

Okay, thanks for the clarification. For my second question, if I can ask on margins, the Opto segment gross margins grew to 40%, which it seems rather unusual. I mean, I think you said you had a mix benefit and selling prices were higher. Same on the MOSFETs, I think gross margin reached 34%. How should we think about these 2 segment margins as we look over the next couple of quarters? Do you think they remain high or do you think they normalize back down?

Historically is profitable line - a very profitable line, as you know, which we had a few quarters of problems, since quite some time it's back on course - for sure a singularity. Every - all the good things came together like in other quarters, it happens that all the bad things come together. But indeed price increases and we believe that take - there is still more of it and positive for that mix is tangible and really beefed up the quarter. 40% in Opto is not the normal performance, I wouldn't exaggerate. In the case of MOSFETs, on the other hand, I see the 34% is of course also the result of price increases. And on the other hand I foresee in MOSFETs for some time, shortages for some time. So I believe in MOSFETs, you can produce more even.

Okay, got it. And then maybe for my last question, if I can ask. Your capital allocation priorities, when you look at the current macro environment, can you give us your thoughts on share buybacks versus any M&A? Do you have any opportunities that you're looking at or are you considering things in this environment and then thoughts on the dividend increase?

Okay. Hello Ruplu, this is Lori. So, as we mentioned, we did begin our shareholder return program and we completed, we returned the shareholders just under $25 million already in Q1 despite the fact that the program actually started being executed late in February. So we have indicated that on the shareholder return policy, we plan to return at least $100 million this year.

Okay. And then, any thoughts on M&A, or do you think this is an environment that is conducive for M&A, is that something you're considering?

We just acquired this Barry Industries and we continue to look. We are out for specialty companies, and I believe it's a good strategy and we continue to look to get. We're not getting these companies, the specialty companies, not necessarily has to do with the economy. So we are looking and I think there are opportunities.

Thank you. [Operator Instructions] The next question comes from the line of Matt Sheerin with Stifel. Please go ahead.

Yes, thanks. I just have a follow-up question to Dr. Paul and that's regarding the company's announcement of a CEO succession plan that you announced post your last earnings call and I wanted - I was hoping that you could talk about that transition. What kind of - how that transition is going, what kinds of changes at all should investors expect from the company as you go through that change?

I am here since all times, Matt as you know and I guess you know my age. I think it's nothing but natural that you think of an end of the career. I'm very proud having had the opportunity. I know, since quite some time that I would take to step and we do have very good people in Vishay and the two ones announced for my succession as CEO and COO I know no since very many years, they are very loyal to Vishay, they are very capable and I believe that this year, under these two, we will flourish, and I think a few new ideas, obviously good. May I say it like that.

Thank you. [Operator Instructions] Ladies and gentlemen, we have reached the end of the question-and-answer session and I would like to turn the call back to Peter Henrici for closing remarks. Thank you.

Thank you for joining us today, on today's call and for your interest in Vishay Intertechnology. This concludes our first quarter conference call.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.