Vishay Intertechnology, Inc. (VSH) Q4 2022 Earnings Report, Transcript and Summary

Greetings. And welcome to the Vishay Intertechnology’s Fourth Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [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, Investor Relations for Vishay Intertechnology. Thank you. You may begin.

Thank you, Melissa. Good morning. And welcome to Vishay Intertechnology’s fourth quarter 2022 earnings conference call. I am 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 fourth 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 the 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. I am Joel Smejkal and it is my pleasure to be speaking with you today on my inaugural call as Vishay’s new Chief Executive Officer. On today’s call, I am going to open with some brief remarks about my background and my assessment of the company today. Then I will turn the call over to our CFO, Lori Lipcaman, who will go over our financial results for the fourth quarter and then the first quarter guidance. After that, I will share with you our ambitions for the company in the future and our plans for 2023. Let’s begin with slide number three. Over the course of my at Vishay, in my positions in engineering, marketing, sales, operation and business development, I have worked with colleagues throughout the organization to identify new business opportunities, develop next-generation products and to broaden Vishay’s participation across its market segments and business channels, always with a mindset to enable our customers to be successful. From my engineering, marketing and operational roles, I have worked inside the Vishay organization and gained an understanding of the internal dynamics of the company. In my sales and business development roles, I have seen Vishay from the outside in. I have seen Vishay from the eyes of the customer. Behind the scenes, I have been working to guide a shift at Vishay towards growth, to influence an increase in capacity, to push us forward in our product innovation, the investment in silicon carbide and to broaden our attention to serving new customers. As such, I have a unique background to lead Vishay in my new position as CEO. To see with the clear view where we have missed opportunities, where we have underperformed and what we need to do to unleash the potential of Vishay. The customers clearly expect more from Vishay. What else do I see? Vishay is a financially strong company, with a broad product portfolio of discrete semiconductors and passive components. Vishay has strong operational discipline and a terrific, hard working and smart workforce. We have a pristine balance sheet that gives us stability, but also the capability to grow at greater rates. We have a global manufacturing footprint with multiple manufacturing locations for a number of product lines that positions us to meet our customer’s need for supply in their region of consumption. And we are a supplier to all market segments, with strong technology position in automotive, industrial, military, avionics and medical. Supporting the megatrends of electrification, data storage and wireless communications are critical to our future success. In automotive, where EV and electronic content and new sensing features are rapidly growing. In industrial, where factory automation, renewable energy collection and energy transmission are propelling greater electronic component demand. In military, where governments are increasing the funding on defense programs and customers are developing more advanced radar systems and missile guidance systems. To commercial aerospace, where dollars are flowing into satellite communications and flight systems. And in medical technology, where companies are innovating new medical diagnostic equipment, instruments and implantable devices. One might say that Vishay is a sleeping giant, often capacity constrained with long lead times. We have underinvested in CapEx and technical resources. We have to change and reshape the company to drive growth and optimize returns and shareholder value. Under my leadership we are going to reorient Vishay. We are going to reorient from an operations focused company to a customer and market focused company, from a cash flow managed business to a P&L driven company, while upholding our capital return policy, from a company that fulfills customer orders to one that anticipates customer need and is ready to support, from a company focus on the present to one that is forward-looking and from a proficient organization to when it’s dynamic and rewards risk taking. In the month leading up to my taking control as the CEO, I spent a great deal of time with Vishay’s new leadership team, so that we could collectively hit the ground running on January 1st. It’s critical that we start immediately. Externally, I have met with key customers, both distributors and OEMs, to dig deeper into their needs and share where Vishay will be going in this new era. Internally, I have met with nearly 70 senior leaders one-on-one to hear their views on our opportunities to grow and the operational apps that we must close. I have been injecting new ideas and changes to our business processes using multiple employee communications to start creating a business minded organization. I have stressed that in order to propel our growth and meet the increasing demand for our products, we must shift our mindset to think customer first in everything we do. I will provide more detail about what we have planned for the future after Lori has completed her review of the financial results. Lori, please proceed.

Thank you, Joel. Good morning, everyone. I will start my review of our fourth quarter results on slide four. Revenues for the fourth quarter were $855 million, slightly below the low end of our guidance, reflecting in part the impact of COVID-related absences at our plants in China, and in part, lower than expected sales to distribution, reflecting the start of an inventory correction. Distribution inventory at quarter end was 19 weeks, compared to 16 weeks for the third quarter. Revenues decreased 7.5% versus the third quarter, reflecting stable -- relatively stable pricing and 8.0% decline in volumes. As expected, volumes came down from the spike in the third quarter when we were catching up on loss set shipments after the shutdown in Shanghai during the second quarter. Revenues were 1.5% higher than fourth quarter last year on pricing, offset by flat volumes. EPS was $0.51 per share. Adjusted EPS was $0.69 per share, compared to $0.98 per share and $0.93 per share, respectively, for the third quarter. Adjusted earnings for these two quarters reflect differences in tax expense. I will elaborate further on these items in a few moments. Book-to-bill for consolidated Vishay was 0.94. Backlog at quarter end was 7.8 months for passive and 8.3 months for semis. CapEx for the year increased $106.9 million or 49% versus 2021 to $325.3 million in line with our expectations of spending $325 million. Nearly all of the increase related to capacity expansion outside of China. We returned a total of $140.2 million to shareholders, well above the target of 70% of free cash flow and well above the $100 million that we anticipated at the time we announced our new stockholder return policy last February. Slide five presents a breakdown of revenues by sales channel and end markets. I want to call your attention to a few data points. Sales to distribution decreased 12.4% from the third quarter. As mentioned earlier, we have started to see indications of an inventory correction. For our two largest markets by revenues, revenues from the automotive market decreased 6.4% versus the third quarter, primarily reflecting the third quarter catch-up in MOSFET volume out of our Shanghai facility. In addition, automotive OEMs pulled less inventory as they focused on consuming inventory by year-end. In fact, in the fourth quarter of 2021, automotive revenues were up 7.1%. Revenues from industrial customers decreased 10.0% versus the third quarter, along with a decrease in distribution revenues. On slide six, you can see the revenue breakdown for the fourth quarter by business segment and by region. Although revenue in Asia declined by 12.8%, POS in the region declined modestly. Please turn to slide seven. Gross profit was $249.1 million for a margin of 29.1%, compared to 31.3% for the third quarter reflecting lower volumes. Compared to our guidance of 30%, plus or minus 50 basis points, gross profit margin was impacted by lower than expected volumes and some input cost inflation. Operating expenses were $113.8 million, above quarter operating expenses of $106.4 million, primarily reflecting the addition of MaxPower. As a result of the reduction in gross profit and higher operating expenses, operating income decreased by $47.8 million to $135.3 million versus the third quarter. Operating income increased $13.7 million or 11.2% over 4Q 2021. Operating margin was 15.8%, compared to 19.8% for the third quarter and 14.4% for the fourth quarter of 2021. EBITDA was $171.0 million for an EBITDA margin of 20.0%. During 4Q, we made the determination that substantially all unremitted earnings in Germany are no longer indefinitely reinvested. As a result, we recorded additional tax expense of $60 million. Change in indefinite reinvestment assertion will provide greater access to the company’s offshore cash balances and enable us to sustainably fund our growth plans and our stockholder return policy. With the change in assertion -- while the change in assertion provide access to these foreign cash balances, these amounts will be repatriated only as needed. Also during 4Q, we recognized a tax benefit of $34 million upon the release of a valuation allowance. Our U.S. GAAP tax rate for the year includes these unusual items and was approximately 28%, which mathematically yields a rate of 46% for 4Q. Our normalized effective tax rate, which excludes these unusual items, and for full year 2022, excludes the tax effect of the COVID cost in China in 2Q was approximately 23% for the quarter and 24% for the year. The change in indefinite reinvestment assertion also impacts our assertion on future earnings. Our consolidated effective tax rate is based on an assumed level of mix of income among various tax jurisdiction. We expect the normalized effective tax rate for full year 2023 of approximately 30%. On slide eight, we present cash conversion cycle metrics. DSOs were 45 days, compared to 42 days for the third quarter, as we receive payments from several of our customers in Asia shortly after quarter end. Inventory was $618.9 million at quarter end, essentially flat versus third quarter, primarily due to exchange rate impacts. Inventory days outstanding were 93 days, compared to 90 days for the third quarter. DPOs were 31 days, compared to 33 days for the third quarter, bringing the cash conversion cycle for the fourth quarter to 107 days. Turning to slide nine, you can see that Vishay continues its track record of strong cash flow generation. Cash from operations for the quarter was $165.5 million. CapEx was $153.1 million for the quarter with $101.5 million invested in capacity expansion, primarily in Mexico and bringing the total CapEx for expansion in 2022 to $214.6 million, an increase of 52% compared to 2021. Full year total CapEx was 9.3% of revenues, compared to 6.7% for 2021. Free cash flow for the quarter was $14.1 million and for the full year was $160.2 million. Under our stockholder return policy, we have committed to return at least 70% of annual free cash flow to stockholders directly in the form of dividends or indirectly in the form of stock repurchases. We announced the policy in February of 2022. We set an expectation to return at least $100 million in 2022. For the fourth quarter, our stockholder return amounted to $42.4 million, consisting of $14.1 million for our quarterly dividend and $28.3 million for share repurchases. We purchased a total of 4.2 million shares at an average price of $19.57 during the year. This brings the total stockholder returns for 2022 to $140.2 million or 87.5% of annual free cash flow. Total liquidity at quarter end was $1.6 billion, including cash and structural investments of $916.1 million and $707.1 million availability on our revolving credit facility. As mentioned on past earnings calls, we use the revolver from time-to-time to make short-term financial -- financing needs. Turning to slide 10 for our guidance. For the first quarter of 2023, revenues are expected to be between $825 million and $865 million, reflecting ongoing inventory correction and stable pricing. Gross profit margin is expected to be in the range of 28.0%, plus or minus 50 basis points. Operating expenses are expected to be between $116 million and $119 million for the quarter and between $475 million and $485 million for the full year at current exchange rates. For 2023, as mentioned earlier, we expect a normalized effective tax rate of approximately 30%. Consistent with our stockholder return policy, we plan to distribute at least 70% of our free cash flow to shareholders in the form of dividends and stock repurchases. For 2023, we expect to return at least $100 million. I will now turn the call back to Joel.

Thank you, Lori. Let’s please turn to slide 11. While we work through what we expect will be a narrow inventory correction with our distributor customers during the first quarter and likely into the second quarter, we embarked on a new era at Vishay. I shared with you earlier my ideas about what Vishay has been and what it has the potential to become. To drive growth and margin expansion, over the next three years, we are committed to investing around $1.2 billion in CapEx and investing to enhance our operational capabilities. Our strong liquidity means that we can invest more heavily over the next couple of years to position Vishay for greater growth without sacrificing our stockholder return policy and with free cash flow expected to stay around its historical average. 2023 is our first year to drive change at Vishay and stage the company for the future. We know that we need to become a company that anticipates customer need, supports increasing customer demand and is delivering revenue growth and expanding margins. We are already implementing a number of initiatives in 2023. In 2024, we will advance many of these initiatives and begin to have increased manufacturing capacity available. Beginning late 2024 and into 2025, we will be in better shape to capture the next steps of the growing demand for electrification in our key end markets. Let’s take a look at slide 12. Slide 12 I have laid out our near-term initiatives. First, we have many great products across our semiconductor and passive component technologies. We have identified 30 key product lines for growth across each business segment. Most of these product lines serve multiple market segments, applications and business channels. These products are in high demand today and our customers are telling us they want more. We are developing go-to-market strategies for each one of these product lines, concentrating our resources on improving the technical performance of non-commodity custom products to better position Vishay to support the mega trends toward electrification and data communication. Second, we are expanding capacity internally and externally. In 2019 and 2020, Vishay somewhat slowed capacity investment and it is imperative that we make up for past underinvestment to be able to reduce our lead times and drive growth. We are not only planning to spend more, but we are going to spend judiciously on those 30 identified growth product lines. In 2023, we expect to increase CapEx to approximately $385 million, mostly on capacity expansion projects outside of China. These include our new power inductor site in Mexico, a resistor expansion also in Mexico, diode manufacturing in Taiwan and the new MOSFET 12-inch fab in Itzehoe, Germany. Today, much of our capacity is committed. MOSFETs and resistors have lead times that extend over one year. Our goal is to continue to grow with established customers, but to also have capacity to sell for new and emerging customers. To achieve that objective and create room for growth, we are identifying opportunities to subcontract production of commodity products and expect to have resources qualified throughout the year. We are also identifying additional foundries to alleviate the most constrained semiconductor product lines. This way we will have incremental capacity to allocate to serve more customers and end markets. Third, we are shipping our thinking about channel management. Today, Vishay places a priority on strategic accounts. By growing our capacity and capabilities, we are going to enhance our ability to support all of the business channels of OEM, distribution and EMS, while maximizing the profitability of each one through a focus on high-margin customers. Fourth, increasing our technical resources that face customers and also filling gaps internally in market segment coverage and intensifying our activities in R&D. We will see an increase in operating expenses over the next couple of years as we add these engineering talents, fill gaps in our technology and become a preferred supplier to more customers and more broadly sell our portfolio. The acquisition of MaxPower and the silicon carbide technology last October is an illustration of this increased investment. Fifth, we are moving towards solution selling. Customer engineers look for suppliers who can provide solutions to advance their technologies. Vishay semiconductor and passives can populate greater than 80% of the components on a circuit board in many applications. We need to be sure we are technically speaking to customer engineers about applications and the performance improvement that Vishay components can bring from the full array of our portfolio. We recently started introducing Vishay’s Solutions at Electronic in last November in Munich, Germany, we showed six automotive reference design applications. These were a mix of onboard chargers, converters, intelligent battery management systems and DC-to-DC converters to be promoted online or engineers to test and observe the performance of the Vishay’s components in these high demand solutions. Sixth, we are implementing organizational and structural change at Vishay. Vishay has operated in separate silos between sales and marketing to become a more responsive company that maneuvers and reacts favorably to customer requests. We are fostering collaboration internally and externally, particularly in the functions connected to customer programs. As part of this effort, we are flattening the organizational structure and redefining some leadership roles. We decided in favor of empowering the regional sales leader and our strategic account leaders to drive business growth in their area of responsibility rather than filling the position of Executive Vice President Global Sales. We have combined the sales and marketing functions by region under regional sales leaders, bringing together the commercial, technical and strategic resources to meet our customer’s needs. These regional sales heads will report directly to me. Our Chief Technical Officer, Roy Shoshani, is taking on a broader mandate to reenergize our product innovation, grow our preferred supplier status and develop closely connected to our customer CTOs and understand the direction of their technology. Reenergizing our product innovation to align with our customer technology roadmap, will involve both internal R&D investments and acquisitions depending on which avenue is most suitable. Finally, our Chief Operating Officer, Jeff Webster, a new position at Vishay, now drives the operations of both passive and semiconductors under one responsibility. This change is designed to break down barriers between passive and semis. Under Jeff’s expertise and leadership, we are determined to drive operational excellence, cost reduction, capacity expansions, subcontractor qualifications, all resulting in a greater service by Vishay to our customers. We are pushing down decision-making into the organization to empower our leaders and to facilitate timely action. They will create more speed within Vishay. We are going to reward collaboration, enable forward-looking behavior and empower risk taking. And we are going to build accountability, both individual and shared, within the organization by aligning incentive compensation to personal and company growth and profitability initiatives. These are significant changes for Vishay. The six initiatives I laid out for you are the foundation for our ambition to unleash the potential at Vishay, realizing the full value of our broad product portfolio and becoming a customer first serving company and for our goals of driving topline growth and expanding margins. Let’s go to slide 13. Slide 13 drills down into our goals for 2023. By the end of 2023, we intend to have qualified and signed agreements with a number of subcontractors and completed an evaluation of where to build Vishay’s next manufacturing factories, as we continue to deemphasize China in favor of other low cost locations. Designed and implementing our go-to-market strategies for each of the 30 key product lines by region and end market to put more horsepower behind them. Third, the MaxPower acquisition is progressing well. Samples of 600-volt and 1200-volt planar technology MOSFETs will be available to customers in Q3 of 2023. We target to release both of these voltages and move them to production in the first quarter of 2024. Our development of the 1200-volt FRED technology also moves forward as we continue to engineer and evaluate this product’s targeted high competitive performance. Our design and activities in the 1200-volt automotive and industrial applications continue. And finally, we will develop a three-year business plan, which we look forward to sharing with you early in 2024. In closing, the electrification of our world and the need to communicate more data brings exciting growth opportunities for Vishay. We have the right products, a well-established and expanding manufacturing footprint and the right people to do more for our customers. We are aligning the organization towards faster growth and greater profitability. With the new management team in place, we are setting the stage for substantial growth starting in 2025 and I am excited to be leading Vishay through these changes ahead and into the future. Melissa, we are ready to begin the question-and-answer session.

Thank you. [Operator Instructions] Our first question comes from the line of Joshua Buchalter with Cowen and Company. Please proceed with your question.

Thanks for taking my question, and Joel, congratulations on the first earnings call as CEO. I wanted to start with a shorter term question, can you walk us through some of the confidence and the assumptions behind the timing of the inventory digestion and wrapping up in the first half of 2023, is there any particular end markets that you have assumptions for improvement in the shorter term and it would be helpful to hear what you are seeing by end market, given some divergent trends we are hearing across the mixed signal space in several of your markets? Thank you.

Okay. Joshua, thanks for the question. End markets, automotive, anything EV vehicle production or design and EV related for charging stations, this continues to be very strong. Our design activity is strong and also the demand that’s pulled through the distributors will help deplete that inventory in the first quarter. Industrial overall is a strong segment for us, as you know. Industrial design and factory automation, robotics, most things towards electrification continue. So that will help pull through some of our inventory. If we get into industrial where we talk about power tools and things like that, I think, there’s going to be some slowness there. Military defense that continues to be stable to growing. And medical as well, I have met with a couple of medical customers and the projections for growth are strong and this will help us move that inventory. This is why we feel in the first quarter and second quarter, it should move rather quickly. We feel we have a good position in our core market segments and we also feel because Vishay has had long lead times that the amount of stock is not so excessive.

Yeah. Thanks for all the color there. And then, I guess, longer term -- thanks for the details on the capacity expansion plans. I guess I was trying to square away, it sounds like you are going to outsource more of the commoditized parts. How should we think about what level you are investing and what’s your expected total capacity increases over the next few years? And given you are planning to outsource an increased portion of your products, is any of these predicated on fabs, some of your smaller fabs closing and while investing in the larger ones? Thank you.

Yeah. We have a couple of approaches here since for semiconductors and also passives. Talk about passives first. There’s a number of product lines which are commodity. We have commodity products, non-commodity products and customs in each of our portfolios. We look at the commodities and we want to qualify subcontractors to help us there. We can qualify subcontractors in 2023. We will be able to use that capacity to support customer demand on commodities and use our internal capacity on the non-commodity and custom products to also improve the delivery of those products. We have got a number of subcons that we are in process of qualifying now. So we see this as an intermediate improvement into our ability to supply products in 2023. On the semiconductor side, you are right, it’s about foundries, it’s about getting wafer capacity. We have spoken to a number of wafer fabs, we are aligning capacity and starting some qualification steps. As far as investment, we haven’t had to make a significant investment, there’s capacity that we found available and this as well will help us with the front end of semiconductors 2023.

Thank you. If I could squeeze one last one in. There were reports of, I think, it was a fire at one of your subcontractors happening in earlier this year. Was that -- did that play it all into the guidance, I just wanted to confirm if there’s anything baked in for the subcontractor issue? Thank you.

There was a fire at a plating facility in China. The name is Welnew. We have through Jeff’s efforts leading our operation. This is one example of Jeff being responsible for the semiconductors passage to the complete organization. We have internal plating capacity that we found in one of the diodes facilities. This plating line was supporting MOSFET. So Jeff was able to move the production to the plating lines in Vishay and we feel that in the first quarter, we will be able to overcome this issue, and yes, it’s included in our guidance. We believe by the end of Q1 we will have overcome that problem.

Got it. Thank you and congrats on the first earnings call again.

Thanks, Joshua.

Thank you. Our next question comes from the line of Matt Sheerin with Stifel. Please proceed with your question.

Yes. Thank you very much and good morning. Just want to get a sense of how you see margins playing out this year. You talked about the inventory correction, obviously, weighing on volumes and you have also got some investments, it sounds like perhaps some OpEx pruning as well. You are guiding margins down several hundred basis points year-over-year on gross margin. Does that bottom here at 28% or should it go lower, particularly if Q2 was down? How should we think about margins?

Lori, go ahead.

Well, okay, so we guided to the 28% plus minus 50 basis points. We believe margins will be relatively stable throughout the year with potentially a slight increase towards the end of the year, but relatively flat.

I can add more to that. We have a year of staging Vishay. There’s some operational expenses, as you talked about, that are going to be required and you compare it to prior years. So we have got a year of 2023 to stage Vishay and OpEx is required to better position the company and through some of those operational gaps that I talked about after meeting with 70 employees. We see pressure always on input costs. We see pressure on inflation. We see pressure on wages. So with materials seem to be relatively stable, our gross margins at this point seem to be flat or stable through the rest of the year because of the activities internally and also be able to maintain our price level. We see the pricing will be stable throughout the year. If we have excessive increases in our input costs, then we are going to have to raise prices as well. But there was quite a large price increase that was done in 2022. So, I think, overall, as Lori said, we will see margins be stable through the forward quarters of this year.

Okay. Thanks for that. And then on the CapEx increase, could you give us an idea of the revenue generated from that CapEx? Is it 1:1 in terms of revenue, what kind of capacity are we talking about in terms of volumes?

It will be better than 1:1. The inductor expansion that we are putting in Mexico, we expect to double our capacity, the inductors. The resistor expansion in Mexico pushes us as well almost to doubling and that’s one of our metal strip technology. So these capacity increases are going to be quite significant. When we talk about $1.2 billion over three years is significant compared to prior history in Vishay of $160 million per year. So you are going to see Vishay positioning ourselves for substantially greater growth.

Is there a concern that there may be too much supply, particularly if we are in a tough macro environment for the next couple of years? It sounds like you said, some of this capacity is already accounted for in terms of customers, so have you been working with customers to ensure that you are going to be able to shift to orders?

Yes. With our backlog now at eight months. That’s eight months backlog with the customer base that we call strategic accounts at our distributor partners. We are meeting with a lot of customers beyond that and they have greater demand for Vishay product. When we talk about these 30 focused products, these are exciting products in Vishay that support multiple segments and multiple applications. So it’s our responsibility to position Vishay to grow and these products are in high demand. So shifting, we are not concerned about it at the moment, because we have a lot of customer demand that’s developing and our design activities are strong. It’s really positioning this company for greater growth. There will be bumps in the road. It’s a cyclical business that we are in. But Vishay has a great potential to grow significantly in the future.

Okay. Sounds good. Thanks very much.

Thanks, Matt.

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

Hi. Thank you for taking my questions and congrats on the new role Joel. Let’s have you on board. In your slide on near-term initiatives, you talked about two things. You talked about enhanced -- enhancing the channel management and you talked about solution selling. So I was wondering if you can elaborate more on that. What do you think needs to change in terms of channel management? And can you give us a sense of like when you say solution selling, what does that bring, what is that exactly and what is the margin differential between what you sell as individual products versus solutions?

Okay. The enhanced channel management, as mentioned, we had our priorities on the strategic accounts. Many of them were a small set of automotive customers or industrial customers, could be telecom as well. Distribution is a large part of our business, as you know, it’s nearly 60%. We have had long lead times and we were not supporting the channel of distribution to the level we could have based on the opportunities that were in front of us. The EMS segment, meeting with a number of the EMS, the leading EMS companies, they have significant demand for Vishay. Vishay is well positioned on build [ph] of materials. They try to buy Vishay as one of their first sources, but if our lead times are long and we are not able to support them, they have to ship, they have to look at other suppliers or go back to the OEM and ask for another source to be qualified. So we have not been able to support that business. We have the opportunity to do it. Our design and activities at SGA and OEM are strong. But we need to be able to support those design wins through the channel of distribution as well, if it’s not direct to customer and also through the EMS. So it’s really supporting all business channels, OEM, distribution and EMS at a greater rate, having the capacity to enjoy our design wins. Your second question was about solution selling. Vishay is a quite unique company by having semiconductors through passive. As we go to engineers at our customer and we speak about one technology, we can actually sell many technologies and design in many products to support their solution. In the past, maybe we sold based on a data sheet a particular product. In the future, we are going to talk about applications and solutions. Silicon carbide, this acquisition is going to be very helpful for Vishay. Silicon carbide is an enabling technology. It’s a technology that’s in the first discussion with the customer as they talk about 400-volt or 800-volt inverter designs. Having Vishay offering silicon carbide puts us in those first discussions with customers and then it allows us to bring in our discrete semiconductor portfolio and the passives in that same conversation. We feel we are uniquely positioned as one of the few suppliers that can do this.

Okay. Thanks for the details there. Maybe I can ask one for Lori. On slide 15, you are talking about the company changed its indefinite reinvestment assertion. Does that impact your thoughts on share buybacks and how you repatriate cash and can you just remind us on the priorities for your capital allocation and how should we think about the pace of buybacks?

Okay. So it absolutely does enable us to bring back in a sustainable manner cash to the U.S. So that we can fulfill our commitment to the shareholder return policy.

Okay. And maybe I will ask one more for Joel. So you have laid out a $1.2 billion CapEx plan for the next three years. Beyond what you have stated for fiscal 2023, I think, $380 something million, should we assume an equal amount in each of the outer two years, 2024 and 2025? And can you give us some more details on what specifically you are investing in, like what are some of the areas where -- which product lines are you investing in CapEx and how should we think about these facilities coming online, like, how quickly does supply come online based on your investments?

Okay. The capital, as we said, this year is $385 million. When we get into 2024 or 2025, it will be $400 million or greater in each of those two years. Looking across our products, it goes to these 30 focused part numbers. There’s resistor products that require more investment. The inductors we spoke about expanding with a new facility in Mexico. That facility is built, and we are starting to stage the new lines in it now, but there’s production space available in the building. So over the next two years to three years, that capacity will continue to grow and fill that power inductor facility. Custom magnetics is another part of inductors -- of our inductor portfolio. We sell heavily to medical and military, but we need to expand that portfolio, because we have more opportunities in automotive and in industrial inverters. Capacitors, we look at the polymer tantalum and Vishay has a technology that we need to enhance the ability to supply. We have polymers growing to over $1 billion TAM and we need to be a bigger player in capacitors with the polymer tantalum. We move over to OPTO coupler sensing in automotive and industrial. We have got proximity sensors. We have got sensors for light sensor. We have rain sensors. We have got a number of products for automotive that require us to enhance our offering, increase our capacity on the sensing products. Diodes with silicon carbide diodes and I mentioned silicon carbide on MOSFET, we have to invest there as well. So these 30 products, as we put our go-to-market strategies together and the dollars attached to it, that’s where you are going to see the products, it’s really quite broad across Vishay investment.

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

Thank you. Ruplu, thank you.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I will turn the floor back to Mr. Smejkal for any final comments.

Thank you, Melissa. And thank you for everyone for joining our call today. I look forward to meeting and talking with you over the coming weeks and also to speaking with you again in early May when we report our first quarter 2023 financial results. Thank you very much.

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