Good day and thank you for standing by. Welcome to the Vishay Intertechnology’s Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. after the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your host today, Peter Henrici, Head of Investor Relations. Please go ahead.

Thank you, Liz. Good morning. And welcome to Vishay Intertechnology’s fourth quarter and fiscal year 2023 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 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 the fourth quarter 2023 earnings conference call. I will start my remarks on slide three with a review of the demand trends for the fourth quarter by end market, channel and region. Then Lori will take you through the highlights of our financial results and guidance for the first quarter of 2024. After that, I will wrap up with a review of our key initiatives and then we will be happy to answer any questions. Before reviewing our fourth quarter performance, I want to take a moment to look back at what I shared with you a year ago on my first call as Vishay’s CEO. It’s been a remarkable year of change in Vishay as we began to implement our strategy to become a more business minded supplier. A top priority was to increase capacity for our highest growth and highest margin product lines to be ready to capitalize on the megatrends of e-mobility, sustainability and connectivity. I said that we were going to use the foundation of our operational disciplines to become a customer and market focused company. From a cash flow managed business to a P&L driven company, from a company that fulfills customer orders to one that anticipates customer needs. Today, the culture of putting the customer first has taken hold. Think customer first is strongly embraced across the organization. Decisions are being made with the customers and market dynamics in mind and we are engaging the OEMs, distributors and EMS partners on a regular basis because we have successfully invested in incremental capacity to help them scale. This puts Vishay in a unique position to drive growth. It is this customer focused and business minded approach that is creating a new Vishay. None of this…

Thank you, Joel. Good morning, everyone. I will start my review of our third quarter results on slide four. Revenues for the fourth quarter were $785.2 million. Compared to the third quarter, revenues decreased 8.0%, reflecting a 7.2% decrease in volume and a 0.7% reduction in pricing. Most of the price and volume reduction was in our semiconductor business segments. Pricing for our OEM, automotive and industrial customers under contract held steady during the quarter, while soft demand in industrial end markets put pressure on pricing and distribution channels and EMS primarily in Europe. By reportable business segment, the decrease in revenues was mainly attributable to MOSFETs, reflecting inventory digestion among customers in our other end markets, followed by diodes and Opto. Revenues of the three passive components segments, resistors, inductors and capacitors were generally stable. Compared to the fourth quarter last year, revenues were down 8.2%, reflecting a volume decrease of 9.7% and a 0.2% reduction in pricing. At quarter end, book-to-bill for consolidated Vishay was $0.75 and backlog at quarter end was 5.3 months, compared to 5.5 months at the end of the prior quarter. We returned in the fourth quarter a total of $34.8 million to stockholders comprised of dividends of $13.8 million and stock repurchases of $21.0 million. The next slide presents income statement highlights. Gross profit was $200.7 million for a margin of 25.6%, compared to 27.8% for the third quarter and in line with our guidance. Compared to the third quarter, gross margin decreased primarily due to lower volume. SG&A expenses were $122.8 million, compared to $122.5 million for the third quarter, slightly lower than our guidance due to foreign currency effects. Operating income decreased $37.3 million versus the third quarter on lower gross profit. Operating income decreased $57.5 million versus the prior year…

Thank you, Lori. Let’s turn to slide 10 for a fourth quarter update on our key near-term initiatives. During the quarter, we continued staging of our multiyear plan to expand capacity to support our highest growth and highest return product line, drive higher revenue growth, expand margins and optimize returns, and ensure Vishay is ready to capitalize on the megatrends in e-mobility, sustainability and connectivity. We invested $329.4 million in capital investments during the year, less than the $385 million we had planned at the beginning of the year due to delays in delivering and installing equipment. During the fourth quarter, we stayed on schedule with our expansion projects, including fabs located in Itzehoe, Taipei and Turin, to meet the growing long-term demand for our automotive and industrial customers. We expect to complete qualification of diodes at our 8-inch plants in Taipei and Turin, and deliver first shipments this year. At our new facilities in Mexico, which opened last quarter, we continued qualification at Juárez facility that is dedicated to increasing output of power metal strip resistors, we shipped commercial products and began qualification of automotive grade products. At our La Laguna campus, where we are initially focusing on mass production of power inductors, we advanced qualification of commercial products, and since the beginning of 2024, we have started to qualify automotive grade products. To increase MOSFET capacity, we continue to construct a 12-inch fab in Itzehoe. We are qualification -- we are in qualification of SK keyfoundry for commercial MOSFETs and still expect to be ready for shipment in the second half of 2024. As a reminder, SK keyfoundries is also an automotive-certified foundry. We announced the acquisition of the Newport wafer fab located in South Wales last November. We still expect to close this transaction in the first…

[Operator Instructions] Our first question will come from the line of Ruplu Bhattacharya with Bank of America.

Hi. Thanks for taking my questions. Joel, with respect to your discussions with the distributors, I know that you have increased the number of SKUs that the distributors are now holding. How long do you think that will last? Are you still going to continue to do that over the next couple of quarters and at what point do you think that will be sufficient? And have you seen any meaningful share shifts, I mean, have you gained any traction in any region from distributors? What are they giving you in terms of feedback in terms of the product lines that are selling when that are more in demand? And can you weave into the discussion, we talked about the inventory correction happening in the channel, what are your thoughts in terms of how long that will last in fiscal 2024?

Okay. Hi, Ruplu. Thanks for the question. The distributors, we have 16 business units in Vishay and we are probably about a third have had very active meetings. All of our divisions, the business units have scheduled meetings and we have got to cover multiple regions. So this is about the leadership of the division head and the product marketing leader, visiting the distributors in the Americas, in Europe and in Asia. So we are not quite at the midpoint of these business units, having the face-to-face meetings. There is preliminary discussion happening about part numbers where when we go into these meetings, we are actively identifying and speaking about our capabilities with capacity and lead time to support. So I’d say, overall, we are about a third pushing to a half. This is going to continue at least through the first half of this year. It may go into the third quarter as well. The feedback we are getting. Feedback has been really good. Vishay is showing that we have the capacity available to broaden our support to the distributors. We played a narrow role in the part numbers that we are finding in a number of these technologies, a narrow role in the participation. The one comment I made about the Americas, we have reached -- achieved 214 new customers based on those 7,700 part numbers that were placed at key distributors in 2023. So that’s good feedback. Customers are buying Vishay that didn’t buy Vishay and then once we learn about these customers, we approach them to offer broader technologies. We have got 16 different technologies. If they are buying one, we want to make sure they are buying multiples. So the feedback has been good. The inventory correction you talk about. We have meetings with the OEMs. We have meetings with EMS. We have meetings with our distributors. So the chain, there’s inventory at each one of those steps. The correction that we hear most say by the end of Q2, but it depends on the products. Some products are still in high demand or lack of inventory. We did not stuff the channel. We did not stuff the OEM with inventory. We were quite flexible. We didn’t enforce NCNR. We didn’t take that strategy and the meetings we are having with OEMs, they are quite happy with how Vishay allowed the OEM to be flexible last year, adjust their demand. Cancellations were high in Q3, some cancellations in Q4, but the OEMs are giving us signals that they intend to grow this year and they want to position Vishay for greater growth because of how we treated them in 2023 and the inventory that we have there is not as high as some of our peers. So this is the work we have cut out for us. So it’s a bit of a long answer, but I will say by the end of Q2 is what we are targeting for inventory correction.

Okay. Thanks for all the details there. Can I ask you on the Opto gross margin? It looks like it was down to 12% this quarter, was there any one-time items that happened there? Can you just give us your thoughts on how that the Opto gross margin should trend from here?

Hello, Ruplu. This is Lori. So, yes, there was a one-time item. We had started setting up a new silicon fab in our Heilbronn location for the Opto division. Now that we plan to close on the Newport deal, we discontinued that and we had to take a write-off on some of the work that had already been achieved up to that point, that will repeat in Q2.

Okay. Got it.

Ruplu, the Newport Fab is allowing us to -- we talk about a campus. We talk about having this fab -- silicon fab, the ability to support MOSFETs, diodes, as well as the Opto product, plus will bring in some of the thin-film resistor front end. This is a new approach for us. So we had to close the project that was initially starting in Heilbronn and that’s the write-off that Lori was talking about. We will be more efficient and be able to reduce cost overall not having duplicate fixed cost, because we will be able to put most of this into a single front-end campus in Newport.

Okay. Got it. And for the last one, if I can ask, can you just remind us on your capital allocation priorities? Joel, in terms of M&A, do you see any potential for either on the semiconductor side or on the passive side. Are there -- I know you talked about some areas where you are trying to improve your capabilities, but any thoughts on M&A? And Lori, on the capital return in terms of share buybacks, how should we think about the pace of that versus any delevering? Thank you so much.

Lori, do you want to comment first about the capital allocation?

So we still remain firmly committed to returning our free cash flow -- 70% of our free cash flow to shareholders and a minimum of $100 million for this year. So we don’t make any changes in that. We feel very strongly, that’s an important part of our capital allocation strategy.

Ruplu, regarding M&A, we continue to look and we have some targets, circuit protection is one, this would be an addition to Vishay’s portfolio. We always look to broaden our portfolio. So circuit protection is one. We also look at verticals, verticals that help us with specialty materials, that would help to advance our technology. And then we look at expansions of suppliers that are in the same businesses us, possibly better positioned in a region as we see customers speak about regionalization. We find that as also an important element, that we look at where Vishay is manufacturing today, do we expand in a particular region or can we make an acquisition that positions us quickly in that region? Those are the approaches we are taking today.

Okay. Thanks for all the detail. Appreciate it.

All right. Thanks for the questions.

Thank you. Our next question will come from the line of Matt Sheerin with Stifel.

Yeah. Thank you. Good morning, everyone. My first question just regarding your guidance for Q1. In terms of the -- you are guiding around 6%, 7% sequential decline in revenue. Is that primarily the distribution destocking or is that your OEM customers as well?

Primarily the distributor destocking. As we have met with the OEMs, the OEMs talk about, if it’s industrial OEMs, they talk about single-digit growth in 2024. The automotives were even greater growth. They were talking about 10% plus in demand of components, that isn’t necessarily car count as we know, there’s a lot of electronic content going in. So those two segments are the largest segments we have. Aerospace/Defense will continue to grow, medical as well. We see that. So those four segments representing 80%-plus of Vishay. From there, outward shipment of their product, they see growth. It’s the steps in between. So it is the distributor digestion of inventory and some at EMS.

Okay. Thank you. And then just backing into the EPS and operating margin based on your guidance, it looks like operating margin is going to take out around 6.5%, which is below the last trough back in late 2019 you were just over that. So, obviously, a huge step down year-over-year. So how should we think about operating margins as we go through the year, is this the trough here?

I’d like to say, yes, as a matter of fact, the margins are reducing to the approximately 6% we have put into place, we are going to have a lower gross margin of approximately 24% and then we have some relatively high SG&A expenses due to inflation, wage increases and our long-term incentive programs that are very -- that are putting some pressure on to the gross or the operating margin. But as revenues would pick up in the coming years, I would say, this is a potential for the trough, yes, it is trough.

Yeah. Yeah. And actually, just on OpEx, you are basically guiding for 8% SG&A growth this year and revenue should be down at least mid-to-high single digits for the year. So why not take some cost cutting actions here?

We are looking at cost cutting. It is a topic of daily and weekly discussion across the company. Looking at fixed cost, moving to manufacturing that we have in low cost countries, the volumes are down. We are using government funded short time work program. There’s a number of things that we are working on, on the top in the variable cost to reduce. The SG&A cost is also being looked at. It’s very important that we continue to be in pace with our customer, the technical staff that we have invested in, the customer is aligning us in a different way than in the past. So we do look at cost. This is the forecast we put in for the quarter. We are staying close to the market. It is -- if we see Q2 guidance being different, we are going to have to make those appropriate adjustments. We have to manage the business as we see it, but it is a very important topic to protect our margins.

Okay. Thank you.

[Operator Instructions] Our next question will come from the line of Joshua Buchalter with TD Cowen.

Hey, guys. Thank you for taking my question. I wanted to ask a sort of a bit of a bigger picture one. So as you are -- you have been very clear about that you are trying to rebuild the channel. It’s coming at a time when the channel big picture is trying to get its inventory levels down. I guess, has that dynamic of you leaning in as the channel wants needs to get things rightsized made your transition go faster or slower I guess? Is that an opportunity as your peers start to lean out of the channel to move more quickly or does sort of their -- the business activity and changes sort of seize up because of the correction? Thank you.

I would say it’s a little slower is the pace, because when you look at -- when we have a discussion with the distributor, they speak about their total umbrella of inventory. They are umbrella of inventories all suppliers. They understand where Vishay wants to go. They are investing in these SKUs. They are conscious of their requirements every quarter to their shareholders and as they report their earnings. But we are making progress, as we have shown with the number of part numbers we are adding and the feedback that we get from customers that they are finding the product. We continue this. It’s an important element of our initiative. We would like it to move faster. We really point to 2024 as a POS year, which requires Vishay to be out front with the distributor at the customer to make sure we are realizing a greater rate of POS growth, which then facilitates the continued addition and replenishment of this inventory.

I appreciate all the color there. And then in the prepared remarks, you mentioned the low single-digit ASP declines, but also confidence in your ability to offset them with cost improvements. Maybe you could spend some time talking about the near-term steps that you are undergoing with your manufacturing footprint, and how much of this is also, I guess, inflationary pressures and input costs easing as a tailwind, or again, is it mainly the self-help levers that you have been outlining for a year plus now? Thank you.

Okay. Cost reduction initiatives are required and important with each of the divisions as we go into each calendar year. So efficiencies, cost reductions of materials landing in lower cost manufacturing sites like Mexico, those additions that we spoke about. Having some of our commodity products being supported by subcontractors also provides us some cost benefits here. We have a number of levers we pull. The inflationary items, the inflationary items for the most part, seem to be leveling other than wage inflation, but materials, logistics, those items are fairly flat. Logistics has declined somewhat. So I think it’s the initiatives of our Vishay operations team with efficiencies, material reductions, improvements in the processes, which is going to help us offset this, as well as those low-cost sites.

Thanks, Joel.

All right. Thanks, Josh.

That concludes today’s question-and-answer session. I’d like to turn the call back to Joel Smejkal for closing remarks.

All right. Thank you again everyone for joining us today for the review of our fourth quarter results. As a reminder, we are holding an Investor Day, our first ever, on April 2nd at the New York Stock Exchange. We look forward to seeing you there. Thank you very much. Have a good day.

This concludes today’s conference call. Thank you for participating. You may now disconnect.