Q2 2020 Vishay Intertechnology Inc Earnings Call
With me today, Dr., Gerald Paul Fischer, President and Chief Executive Officer, and Lori Lipcaman, our executive Vice President.
Financial losses.
As usual, we'll start todays call what the CFO, who will review V shape second quarter Twentytwenty financial results.
Dr. Gerald Paul will then give an overview of our business interest costs operational performance as well that segment results in more detail.
Finally, we'll reserve time for questions.
Sure.
This call is being webcast from the Investor Relations section of our website at <unk> I already talked Vishay Dot com.
A replay for this call will be publicly available for approximately 30 days.
You should be aware that in today's conference call, we'll 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, because we shape.
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 I'm not prepared according to generally accepted accounting principles.
We use non-GAAP measures because we believe they provide useful information.
About the operating performance off our businesses.
And should be considered by investors in conjunction with GAAP measures that we also provide.
This morning, we filed form 8-K that outlines the various variables that impact the diluted earnings per share computation.
On the Investor Relations section of our website you can find a presentation off the second quarter Twentytwenty financial information.
Painting, some off the operational metrics Dr., Paul would be discussing.
No 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 in key metrics.
You should reported revenues for Q2 of 582 million.
<unk> was 17 cents for the quarter.
Adjusted EPS was 18 cents kinda corridor.
During the quarter, we completed the cash repatriation program, we initiated in response to U.S. tax reform.
We repatriated 104 million to the United States and paid withholding foreign taxes 16 million.
These Texas had been in crude upon enactments, yes tax reform in 2017.
The payment of East, Texas is reflected as an operating cash flow understating the castle.
During the quarter, we repurchased 75.8 million principal them out of our convertible notes due in 2025, using some of the repatriated cash and recognize the U.S. GAAP loss on extinguishment.
Similar to Q1, we have identified certain could 19 related charges net of certain subsidies, which are incremental to inseparable from normal operations.
These items were insignificant to Q2, but our added back and coakley their non-GAAP adjusted EPS for compare ability purposes with Q1.
I will elaborate on these transactions in a few moments.
[noise] could 19 continues to have an impact on our business.
Well some of our factories had been temporarily closed and some are operating at levels lessen full capacity.
Actually all of our manufacturing facilities have been able to continue operating.
However, the overall macroeconomic effects and the pandemic have burned our financial results.
As I stated in the introduction, we've identified certain cobot 19 related charges none of certain subsidies.
Which are incremental to separable from normal operations.
This concludes wages could command actually employees during government mandated shut down.
Additional wages are hard took allowances for working during locked down period.
[laughter] cleaning and disinfecting facility.
Cost of additional safety equipment for our employees.
And temporary housing for employees due to travel restrictions.
The quantified could impact I. Just described only include call directly attributable to the outbreak.
Exclude indirect impacts such as general macroeconomic effects cobot 19 on our business and higher shipping costs due to reduced shipping capacity.
Dr. Paul will elaborate further on the impact of covert 19 on our operations and on our expectations for future results in a field.
Revenues in the quarter were 582 million down by 5.1% from previous quarter.
And down by 15.1% compared to prior year.
Gross margin was 22.5 person.
Adjusted gross margin, excluding cold and cough, 22.6%.
Operating margin was 7.0%.
Adjusted operating margin, excluding corporate costs and restructuring was 7.2%.
[noise] bps was 17 cents.
Adjusted EBITDA.
Uh huh.
[noise] can be done with 78 million or 13.4%.
Adjusted EBITDA was 80 million 13.7.
Reconciling versus prior quarter, adjusted operating income quarter to 2020 compared to adjusted operating income for prior quarter.
Based on 31 million lower sale.
31 million, excluding exchange rate impact.
Operating income decreased by 9 million.
To 42 million in Q2, 2020, I'm 51 million in Q1 2000.
The main elements where.
Volume decreased from the negative impact of 17 million.
Into a 5.2 [laughter] decreased drilling.
Fixed cost decreased because of cousins 13 million.
I'm rarely due to lower personnel.
Inventory impacts the negative effect 6 million.
[noise] reconciling versus prior year.
Adjusted operating income quarter to 2020 compared to operating income quarter to 2019.
Based on 104 million lower sales or 100 million lower excluding exchange rate effects.
Adjusted operating income decreased by 38 million.
To 42 million in Q2 2020.
79 million in Q2 2019.
He made elements where.
Average selling prices had a negative impact of 16 million.
Listen to a 2.7% U.S.P. decline.
Volume decreased the negative impact of 39 million, representing a 12.7% decrease.
Variable cost decrease the positive impact of 9 million.
Increases and labor and logistics costs and metal prices were more than offset by cost reduction and the when the true pricing.
Fixed cost decreased for the positive impact of 6 million, primarily lower due to lower travel.
Selling general and administrative expenses for the quarter.
89 million, which includes a net benefit of 0.7 million subsidies in excess of identified calls it costs.
[noise] SGN it costs came in lower than a expectation.
Merely due to continuing those continue lower travel cost related to the pandemic.
For Q3.
Stations are approximately 92 million shares.
<unk> expenses.
And approximately 375 million for the full year.
Using the current exchange rate when U.S. D equals 0.87 year old.
Second half 2020.
During the quarter, we completed the cash repatriation program, we initiated in response to this tax reform.
We repatriated 104 million to the United States that up at holding and foreign taxes of 16 million.
Substantially all of these amounts have been utilized to pay down our revolving credit facility to zero and to repurchase 75.8 million convertible notes.
Since the enactment of U.S. tax reform, we haven't repatriated for 1 billion net to the U.S. at a cash tax cost of approximately 211 million.
[noise] substantially all amounts have been allocated or are you from lives to.
Pay down the outstanding balance on a revolving credit facility to zero.
Repurchase convertible debt instruments.
Intercompany debt.
[noise] funds certain capital expansion projects and pay the U.S. transition to.
During the quarter, we were able to repurchase 75.8 million principal amount outstanding convertible notes.
Due in 2025.
We were able to repurchase the notes at an average of 93% face value.
USGIF loss on extinguishment, I'm really due to the write off of unamortized issuance.
By reducing a fixed term debt repurchase of the convertible notes provides us with future flexibility to better utilize our revolver and to adjust our doesn't levels as necessary.
We continue to be authorized by our board of directors to repurchase up to an additional 124 million of convertible notes due 2025.
As well as the remaining 3 million of convertible debentures.
Subject to market a business conditions legal requirements and other factors.
We had total liquidity 1.4 billion at quarter end.
Cash and short term investments comprised 757 million.
And the usable capacity on the credit facility approximately 620 million.
[noise] our debt at quarter end is comprised of the convertible notes due in 2025.
And the remaining convertible debentures due in 2000 42041.
The principal amount were face value of the convert totaled 527 million.
524 million related to the notes during 2025 and 3 million related to the remaining debentures.
The carrying value of a 438 million is net of unamortized discount and debt issuance costs.
There were no amounts outstanding on our revolving credit facility at the end of quarter too.
However, we do expect to utilize revolver in Q3 and from time to time, including for additional repurchases convertible notes and the payment of the next installment of the U.S. tax reform transition tax in Q3.
No principal payments are due until 2025 and the revolving credit facility expires in June 2024.
We expect interest for Q3 to be approximately 7.7 million [laughter].
Excluding the impact of any additional convertible note repurchases in Q3.
As announced last year, we are implementing global cost reduction program.
A small adjustment to the amounts recorded in Q3 in Q4 in 2019 was recorded in to Q2 2020.
All participants in the programs are now I got to fight. The programs are intended to provide management meet your for nation and lower cost by approximately 15 million annually when fully implemented by the end of 2000.
[noise] year to date effective tax rate on a GAAP basis with approximately 21%.
The year to date normalized tax rate was approximately 23%.
For the quarter. This mathematically young GAAP tax rate approximately 16%.
And then normalized rate approximately 18%.
Our GAAP tax rate includes the unusual tax benefits related to the settlement of some of the convertible debentures.
Our normalized rate, excluding the unusual tax item that whatever the tax effects of the identified conference call.
Restructuring charge and the pre tax loss on extinguishment.
Our consolidated effective tax rate is based on some level and mix of income among our various taxing jurisdictions.
It's just an income could result in nothing different result.
We now expect our normalized effective tax rate for 2020 to be between 23, 25%.
I assume mix of income indoor tax return Dickson versus higher tax rate jurisdictions.
Disproportionately higher than we assumed at the end of Q1.
We continue to evaluate the provisions the U.S. taxable.
Particularly aspects of guilty and be taxed.
Generally at lower levels of pretax income guilty and be have a larger proportional effect and does increase our tax rate.
Higher levels income in the U.S. reduced the amount of guilty be taxes, which was the case futures.
Total shares outstanding at quarter end were 145 million.
We expect the share count for F purposes, with a third quarter 2020, approximately 145 minutes.
For full explanation of art as share count and variables that impact the calculation.
Please refer to the E. P. We filed this morning.
Cash from operations for the quarter was 90 million.
Capital expenditures for the quarter were 25 million.
Free cash for the quarter with 66 million.
For the trailing 12 month cash from operations.
186 million.
Capital expenditures for 135 million.
Split approximately for expansion 90 million for cost reduction 7 million for maintenance of business 38 million.
Free cash generation for the trailing 12 month period was 151 million.
The trailing 12 month period includes three 5 million cash taxes paid related to cash repatriation.
The next installment of the U.S. tax reform transition tax 15 million. This deferred until Q3 permitted for company all companies by the IRS in response to Cook at 19.
You she has consistently generated in excess of 100 million.
Cash flows from operations in each of the past 25 years and greater than 200 million for the last 18 years.
Backlog at the end of quarter to was at 914 million or 4.7 months of sales.
Inventories decreased quarter over quarter by 10 million, excluding exchange rate impacts.
Days of inventory outstanding were 91 days.
These sales outstanding for the quarter were 48 days.
These of payables outstanding for the quarter were 31 days.
Now turning to cash conversion cycle of 180.
Now I'll turn the call over to our Chief Executive Officer, Dr. Gerald Paul.
Thank you.
Good morning, everybody.
She's worldwide business into second quarter Hes been mysteriously influenced by cool 19.
There is substantial restrictions for the citizens of many countries, which <unk> the global economy.
We successfully addicted to these gingerly uncertainty vitamins by cutting production capacities and by substantially tighten the influx of course.
<unk> sales at the high into from a guidance, we managed to beat expectations for the quarter.
Gross margin of 3% to 2.5% of sales gross margin a trusted 22.6 person.
Operating margin of 7.2 person to sales and adjusted operating margin.
1.2%.
Earnings per share point 17.
Adjusted earnings per share point 18 Douglas.
By decreasing inventories and by reducing Capex to do extrinsic vitamins tweak the.
She continued to generate free cash <unk>, we achieved 66 million higher than in place.
A few remarks.
Economic environment.
Is indicated global economy, the second quarter Hes been slow down by cool.
Demonstrably, but my could seek to suffer two very different degree.
In general automotive has been hit the most <unk> remained strong.
Asia started to recover.
It's Europe and do you is for a week.
Backlogs and lead times continue to normalize there's no shortage of supply.
We see low price pressure in Chile.
Do you expect for the first quarter, some weakening of <unk>, but also a notice it for the recovery.
To move to see.
Going through the geographic regions.
Americas had a self <unk> with a significant <unk> distribution buildings and.
Europe did exceptionally poorly also due to cope with really the plant shutdowns in automotive.
Industrial markets in Europe.
Keeping a mix nutrition.
See recovery of Asian markets continues despite cool no problems.
For the fact that could do not problems did exist there was growth in automotive in China.
And this also tailwind for me to and computing.
The inventory built it Asian distribution, apparently was a preparation for than expected.
Coming to distribution.
Well the distribution suffered in the C <unk> declining but real person.
Quota and by 15%.
<unk> decreased versus play across the Americas by 35% Indeed unit by 19%.
<unk> was flat versus prior quarter.
Inventories at distributors into <unk> increased by 29 billion of to reduction of 60 million into first quarter.
The second quarter inventory to into distribution decreased 2.7 from 2.9 into first quarter.
2.5 tons for it achieved.
Yeah.
In the Americas.
1.4 inventory turns off the 1.8 tons into first quarter and 1.5 times in play here.
In Asia 4.1 to himself to 3.8 in Q1 and 3.2 in prior year [noise].
Europe 3.2 ends up to 3.7 in Q1 and 2.0.
Let me comment on the industry segments.
The second quarter to automotive industry in general and didn't particularly in the Western Hemisphere June two impacts experienced the historically.
The business.
A bright spot was easier, namely, China, but the business really came back and of course, if the second quarter.
It's most plant closure is now behind us the industry clearly has started to recover.
Also the industrial segments suffered into second quarter, but the pictures really different into various fiction since these book business.
Industrial equipment, it's been this oil and gas <unk> week is power supplies smart metering and <unk> in a cheap performed reasonably well.
Pandemic related equipment provides an upside with government spending on power instance, petition projects quite often you still need.
Remote learning and look at home continues to push the till equivalent computer Mike.
Do you over or admitted to my could continues strong.
Also military markets remain positive and steady, but commercial avionics you see no substantial crisis.
Let me talk about our business development.
Q2 sales excluding impacts came in at the high end of our guidance.
<unk> east stronger than expected.
We achieved sales were 582 million versus 613 billion in quota and 685 million in prior year.
Excluding exchange rate impact sales into sick would've been down by 31 billion of 5%. This has played a quota and down versus prior year by 100 million well by 15%.
Book to Bill into second quarter was point 82.
Compared to one point 17 into first quarter, driven like into first quarter by distribution.
Some de 2.75 book to Bill for distribution of to 1.3 into first quarter point 90 cities for himself to 1.4 doses.
Point 81 for same yourself to one point 27 into first quarter point 80 city for Passives after 1.8.
Points 81 for the Americas after 1.28 into first quarter.
Point 86 for Asia after 1.39.
Point 78 for Europe after one point so team.
Back to look into second quarter decreased to 4.7 months.
From 4.9 month 4.7 in say music and 4.8 passives.
We see low price pressure.
No price decline versus prior quarter and minus 2.7%.
Right.
We see price declines slowing down for sami's.
Minus 0.2% this is probably a cool to minus 4.5 person.
Yeah.
There was virtually no price decline.
Subs.
Slightly higher prices points, the person's versus player quota and slightly lower prices 0.9%.
Yeah.
Some comments on operations.
In the second wouldn't be again, offset the norm and negative impacts on the country produce much in overcoming also the consequences of capacity cuts and increased logistics close.
It's only minor exceptions, so what would be she plans currently can operate.
<unk> fish.
Adjusted its unique close into second quarter, keeping it 90 million.
No to simply better than expectations predominantly due to lower than anticipated type of course.
Manufacturing fixed close in Q2 came in at 124 million slightly below expectations also.
Total employment at the end of to second quarter was 21555 people, which is 2.4 person down from prior year.
Excluding exchange it impact inventories in the quarter decreased by 10 million.
By 3 million enroll materials and by 7 billion in deep in finished goods.
Inventory turns into second quarter, but at the city's victory Liberty 3.9 down from 4.2.
Quota.
Oh, a target a intones remains at three to four turns.
Capital spending in the second quarter was 25 million.
This is 34 million in probably close to expectations.
19 billion for expansion wouldn't billion for cost reduction and 5 billion for the maintenance of the business.
For 2003 in TV expect Capex of approximately 110 billion in accordance with the requirements of the markets.
Concerning cash flow.
We generated cash from operations of 286 million on a trailing 12 months basis, including 35 billion cashed, Texas for cash pit season.
And we generated free cash of 151 billion on a trailing 12 months basis, including the same 35 for medium case, Texas for cash repatriation I think we can see you do you mean to be at IGI label Jewson cash.
Coming to the product lines in those doctors you systems.
With resistance, we enjoy very strong position that you ought to industrial and medical market segments in V. two ofer virtually all of this system <unk> cheese.
Vishays through additional and historically growing business currency surface in particular from the weakness of the automotive market sector.
Sales in the quarter.
135 million.
Down by 24 million little by 15 to since this play a quota and down by 28 million was 17% <unk> AWS excluding exchange.
Yes.
Book to Bill into second quarter was point 70 city up to 1.5 and probably a quota.
Which had been supported by strong we'll just from distribution.
Backlog in the quarter remained flat at 4.4 months.
Gross margin into who would have declined to 23% of seals after 3% to 8% in prior quarter practically due to lower volume.
Inventory turns in Q2 with three points of enough to 4.2 in prior quarter again, the expectation also fully says that he means to be.
Four turns.
We have seen low to normal price decline no price decline versus prior quarter and minus 2.1%.
Yeah.
We continue to see significant opportunities to further expand through system business the midterm.
Inductors.
The business consists of power inductors analytics.
Exploiting to growing need for conductus in general we should develop the platform of robust and deficient power inductors envy lead the marketing.
It was magnetics video precision in specialty business is showing steady growth since use.
Also in inductance recurrent the experience of temporary slowdown, mostly driven by the placement weakness of the automotive market.
Sales of conductus into second quarter 65 million.
Down by 9 billion about 12% versus prior quarter in down versus prior year by 12 million well by 15% old excluding exchange impacts.
Book to Bill into second quarter for into this was point 96 after point 98 in place for them.
Backlog in Q2 has grown to 5.3 months from 4.8 month in play a quota.
Gross margin in the second quarter remains at the very good level of 31% of seals, a bit to customer mix and some limited inventory build helped.
Inventory turns into cool to reduced to 3.8 after 4.6 in prior quarter to talk it also free and up to three means Buffalo towns.
We have seen steeples selling prices in into this increase of 1.2 person versus prior quarter and a slight decrease of 0.5%.
Just trying to you.
Inductors continue to carry our highest confidence for gross it's into passive split for you.
Capacitors.
Oh a business. This capacity. This is based on a broad range of technologies with the strong position in American and European market niches.
We enjoy increasing opportunities into field of pilots in submission.
If you look through cost, namely in Asia, respectively, China.
Also capacitors experience, the plus and general market weakness use in the second quarter with 84 million tend to sit below prior quarter in 24% below prior year.
The exchange rate effects.
Book to Bill into sick <unk> point 90, after 1.2 in probably a quota.
Backlog has increased to five months from 4.6, the first quarter.
Mostly due to lower volume and no more inventory build gross much in into second quarter decreased 18% of seals after 22% in play a quota.
Inventory turns into quarter three to 3.3 below acceptable difference if to work on it.
Steve was increasing selling prices we have seen.
Point, plus 0.1% versus prior quarter, plus 0.8% versus prior year.
BV continue to benefit for capacity. This from strong we my kids and do you own going need for agreed expansions mainly in China.
Opto.
Vicious business.
Opto products consists of census, infer that the impetus receivers corpus and any these for automotive applications seals in the quarter were 49 million, 9% below prior quarter in 19% below prior year without the exchange rate impact.
Book to Bill in the quarter was point 96 after 1.4 in prior quarter the backlog piece at the very high level of 6.1 month of to 5.6 into first quarter.
Gross margin in the quarter was a 24% of sales up to 27%.
The first quarter.
Lower volume.
And temporarily increased inefficiencies in the context of coffee driven plant closings with the reasons.
In fact do you hope to business in Q2 in terms of manufacturing suffered the most.
Yeah, finishing plans it's been closed four weeks.
Yeah, good inventory turns a deal to business of 4.9 into seeking quota is compared to 5.7 in quarter. One price decline for two is normal we've seen minus point pretty precise and this is player quoted minus 2.1%.
Yeah.
We are confident that opto products going forward, but you could contribute noticeably to our growth.
And we are in process to modernize into expense.
Hi, good pearland fit in Germany.
Diodes.
Diodes for vitiated pretty since abroad commodity business.
ER noxious supplier builds fight.
Vichy office virtually all technologies as well is the most complete product portfolio.
The business has a very strong position in the automotive and industrial market segments and kept growing steadily and profitably since yes.
Personally diodes suffer from the weakness or if its mean market.
And relatively high inventory levels into supply chain.
So you'll see the quota.
124 million up by each person versus prior quarter, but three of person below prior year without exchange it impacts.
Book to Bill will slow in the quarter points 61. After one point 36 in Q1, all driven by distribution.
Backlog decreased to 4.5 months from six month in prior quarters, but this is denied.
Gross margin in the quota improved to 20% sales as compared to 17% in Q1 due to higher volume.
Inventory turns remained at a good level of 4.2.
After 4.1, the first quarter.
The price decline his normalized for diodes.
We have seen higher prices of 0.9% versus prior quarter and a decline of 3.9% this play yet.
Last but for at least the most fits.
Vichy is one of the market leaders in most of it and systems.
It's most fits we enjoy a strong.
And the growing market precision in automotive, which in view of an increasing use of most fits in automotive will provide the success from future.
Sales in the quarter built 119 million, 2% above prior quota.
And 7% below prior year, excluding exchange treat these things.
Book to Bill issue was point 97 into quarter after 1.3 else into first quarter.
Backlog remains at 4.4 month as compared to 4.5 month in Q1.
Gross margin in the quarter posted 23% of seals slightly below Q1, it's 24%.
Inventory turns into quarter 3.7 is compared to 3.6 into first quarter.
This relatively normal price decline for mosfets minus 1.3% versus prior quarter and minus 6.0% versus prior year.
Mosfets without any doubt remain key for vishay schools going forward.
Let me summarize.
No doubt.
This unprecedented pandemic currently impact very many segments of the world economy also electronics.
However.
Yeah clear reasons for confidence first before.
We seemingly have reached a bottom into fundamentals so for Dick Tony growth remain completely intact.
Vishay has proven its ability to dealing with temporary economic towns numerous times and really most of the two inches of this crisis, Israel and I believed it the first half of 2003 into has already shown that.
We will continue to focus on profitability and cash generation.
Neither neglecting always synch long term switches new of course, safeguarding the health and wellbeing of our employees.
For the third quarter, we assuming the exchange rate of one point $15 to the Euro guide to a sales range of between 582 620 million it across much of 22.8% plus minus 70 basis points.
Thank you very much Peter.
Thank you Dr. Paul.
Well now open the call to question Dorothy Please take the first question.
First question comes from the line.
Yep.
America.
Hi, Thank you for taking my questions are Dr., Paul can you talk a little bit more about inventory a distribution book to Bill was down 2.75.
And you know you said the POS was down what are you seeing someone regional basis and in the past you've quantified how much excess inventory you think there is that distribution any any updates to that point. So just your thoughts on inventory a distribution would be helpful. Thank you, yes [noise].
Sure distribution you do remember it was a problem for you to go be identified to just it's appropriate then you distribution real divide started to reduce inventory and after quarter. One we were able to classify practically this distribution this inventory level that global distribution, it's more or less than normal so would the hit to reduce.
You know into first quarter substantially.
The inventory and now he built half of it for two they have produced in the into first quarter I.
I believe to inventory level is not yet problem really I think the up into often see a year ago.
Inventory build in Asia via freezing that's tied to see it be if reasons to believe at least at a part of the inventory built was really aiming at a better future in quarter three in quarter. Four so at this point in time I would not be concerned it maybe a little different from product line to product line. They are some b. I would see no problem and.
Yes, yes, we have to watch.
And I believe to situation in infant concerning inventories is assess it better than it has been.
Got it.
Maybe you for my next question if you can touch on what you're hearing from your automotive customers with respect to demand coming back in the second quarter. You, obviously had inefficiencies of both from coal related demand as well as from automotive shutdowns, but do you anticipate the same level of inefficiency.
Or do you think that gets better now and how do you see demand recovering in the third quarter mm.
Feedback, we get and already see passionately is that the automotive industries coming back no question about it the best way to touched it used to look at the pools from consignment stocks. In this case you see it it's really directly to the idea of demand you can see it like that.
It really dropped just three months to put these pools dropped in the in a prudent me to 50% of normal 50% of normally Q2 to shutdowns.
Already in tune it recovered nicely and the promise of so to speak to forecast for the third quarter to normal level.
So in that sense, we get back to normal of course, it has to be proven that these costs can be sold off the books, which on the other hand.
I think David.
Okay and me for my last question.
Lori you repurchased about 76 million of the convertible notes. These for a long dated notes. So just I'm trying to understand like why did you.
Do that what was the reasoning behind the repurchase and do you expect to repurchase more debt going forward. Thanks.
So so.
The last part first we are still authorized by our board of directors to repurchased an additional 124 million at the same debentures as well as 3 million of the original.
No it's that route that though.
Then the there they the idea was to make it a little bit more flexible in terms of our debt and to pay down our revolver. So it could make a better used to but in the future.
And the macro conditions were appropriate so that we could be purchase them at 93% effect sellers.
Okay, that's great for us to do it now.
Okay. Thanks for all the details appreciate.
No.
Your next question comes from the line of Karl Ackerman with Alan.
Hey, good morning, Thanks for taking my question. Many two if I may.
I first wanted to focus on just manufacturing utilization now I know I know in the second quarter you facing several manufacturing challenges from Tobey 19 implementations.
It makes it but are your facility is now fully open and then second you know whatever your peers located in Taiwan.
Recently indicated that are manufacturing utilization was in the 60% range in Q2, I'm curious whether your manufacturing facilities are above or below that range and if you expect returned to full utilization.
We ended the year and I've told you can see yes, you can see directly from our sales lift was that our manufacturing sites cannot be fully utilized in our case fear for a very hits or genius programs not so easy to give a complete number four or the shape, but of course into second quarter. They have can come shutdowns of our customers.
Okay, and beauty effected by Schwartz work by having that so putting your hate holidays et cetera. So we reacted to it and I was proud to say that except basically.
Minor effects or the plants, if we see managed it without major inefficiencies isn't might affect of course, the situation looks better now with automotive free opening their plants.
So I am but as it relates to inefficiencies I'm quite positive it's fear of going to improved here at the end and make up foot foot is for the Stifel Nicolaus <unk> quarter, but altogether. It was very pleased with the reaction of accounts did quite nicely and it was a sharp drop US you know in euro prevented Schwartz.
Yes, I said, which was a good instrument relatively cheap and you could.
You could keep your workforce because between expectant rightly so recovery or for that so we have to people can react.
Did I answer your question.
Ah Yes, that's that's helpful.
Yeah.
I know you know I know, it's all the moving parts with silver 19, it's been challenging.
Have you guys forecast the entire automotive market. However, I was hoping you may speak to your Cogs and opportunities for electric vehicles over the next topic 18 months I ask because that sooner market has definitely doubled since the start of your store. So your commentary would be helpful. Thanks.
Yeah. It's a small she is still small share, but I completely agree that this provides a nice chance for the components industry. It's obvious that electronic content would be very favorable for us in electric cars and it's also true that in Europe, It's eastern I believe Austin Ws electrochromic its funding public funding so I.
Do you expect a positive impact.
But for the next 12 months I don't see good for change to built so it will be helpful. But no change to vote longer term it helps us know krish.
Our next question comes from the line of Shawn Harrison with <unk> capital.
Hi, good I guess, good morning, or good afternoon, everybody well.
[laughter] go to Dr., Paul I I want to dig into I guess, how you parse through these numbers, where you've got extremely well we book to bills, but backlogs are greater than typical on just kind of the ability to forecast out yes, three months, maybe even six months. So just parsing through you know the volatility you're seeing and book.
The bills, but still healthy backlog and what that really tells you about your customers right now.
Well, we also tractor shippable backlog of course, not only to total pick up.
But of course [noise].
I'm quite a shelf consignments stock ritu, its hard to be forecasted, but you've watched it very much in detail. These days and suppose from consign on from automotive, which is really for the most part automotive.
Is coming up sharply so it helps us but I must agree of course these are not to time sort.
Oh stable outlook since I've met effect and you know we have been too pessimistic, obviously slightly too pessimistic in quarter, two I believe realistic in quarter three.
But I completely agree if this was a Christian that that of course forecasting. It at this point in time, it's not easiest summit effect, but ER.
But not too far off to know.
In the dynamic.
I guess, we're through July here have you seen any normalization either in kind of the appeal way dynamics, the the backlog or the book to Bill So you're not that far below parity in many of these business lines.
Oh, sorry, I didn't catch you dispose peewee distribution.
I wish I was either looking at P. away distribution for July your book to bills for July just be seen some normalization Oh you are short period, if anybody book bills Yeah.
Two line shows a pet coke closer to one close to one actually so in that sense. If you want to interpreted this no partner stabilization I can agree sure to light is a more well balanced close to one.
Okay, and then lastly from me Lori just the repurchase of the debentures is that kind of the best way you think right now to utilize the cash versus buyback is at a more efficient.
Away to to get the share count down here in the near term.
Yeah, no, but the real driver was the flexibility.
In in the U.S is usage of our revolver.
No.
Yes, we do think as most effective.
Thank you very much.
Your next question comes from the line of Matt Sheerin with Stifel.
Yes, Thank you and good morning, Dr., Paul I wanted to I'm just follow up on your commentary regarding the automotive recovery could you talk about what you're seeing a by region.
Your peers are talking about relative strength in Asia, and China continued weakness in a U.S. and then youre up holiday shutdowns. So could you tell us what you're seeing there.
I can follow my competitors and something that affect my colleagues Asia has never dropped off Asia was strong also in quarter, two and automotive was quite strong Europe's close a lot of constant judo HPT me I see that dropped like a stone in automotive from quarter to and T., a it's clear completely clear too.
We've seen that the plants if opened the puts and.
Consigned to soak up back to normal nearly so cemetery now to like America remains relatively weak disappointed this really true.
And are you expecting a December then to be enough corridor in all your regions from what you can tell now in automotive.
Don't know how it will go into U.S. somewhat as a middle effect I believe that.
Asia will continue to be strong I believe Europe respect to how free enormous but the restriction that these costs will have to be sold at the end of course, but we'll have to my belief and the U.S. I have a skeptic picture. So indeed, it would in automotive with the third quarter p. better than to seeking to sofias.
Okay I wanted to ask about the relative strength, you're seeing in your MOSFET business, which seem less worse. If you will then then your other markets.
Got a function of content gains or share gain its contour their lives right.
No you're absolutely right. We believe in content gains we have quite success with most fits in quite a few automotive automotive customers, which we didn't have before these automotive customer. So we are gaining comped no question.
Okay, and lastly regarding your Capex and capacity expansion I know.
I know the company strategy has been to add capacity, even in tough times, because you want to get ready for the next upcycle, how could you tell us where things stand there.
Okay, well, we are but at the run rate of 3.2 billion in 2018 has been part of the yeah.
I believe for next year, we at least be left is a capacity in terms of sales back because we invested and a in the meantime, I do not believe there will be a shortage of capacity I don't think so for next year, but we expect makes yup.
But there's enough room.
Okay. Thank you.
Thank you.
Your next question comes on line of David O'connor.
Hi, there.
Great. Thanks for taking my question a couple on my side, maybe firstly Dr., Paul you talk to vote on your prepared remarks and capacitors in she turns 3.3 times below the acceptable levels that just wondering what kind of actions are you, taking there and to get back on track compared to the rest of the cycle with me for an old.
Revenues from the reactions, we have one tool you want to be above 3.5, or seven capacity is still.
There are certain reasons why capacitors will never be the product line restrict that inventory turns it take me technical reasons, but 3.3 was too low and fear or bringing down certain raw materials. We've watched funds waterfront process. So look we hit a massive decline of the business and the.
Consider not even yet and I emphasize yet to follow completely in terms of inventories. So we don't need that evolution people to work on it and I'm sure. If we get back to 2.7 or would ever be it.
Okay got it thanks, rather and then maybe is that for my next question can you talk a slight evoke bookings in Europe, you said in July and think on the previous questions that and they're approaching Parsi, what's that across the industrial segment as well in Europe or is that still wait to me.
Cannot answer for Tonight Pita have have you looked at the teach the split tufty with us and no. We we only gave out the the book to Bill for the total company or close to parity.
Not by region and helped by segment.
But the major recovery in Europe will come from automotive and quite a feat. There's no question. The problem is that you won't see that's easily in book to Bill, it's mostly from consignment store, which by nature on sleeve of Big tracing book to Bill not to its sales what doesn't sales at the same time right. This is the definition of consignment. So.
It would not be two helpful.
To look at book to Bill I believe in Europe alone because it is automotive studies consent.
This is getting but it's every Q2.
Okay understood.
Maybe as my last question just on the backlog did you do any specific cleaning up the backlog in Q2 and could you just elaborate more on your previous comment that you're tracking shippable backlog was.
What you're seeing or what exactly you mean with us.
[noise] oil.
Normally I'm quoting only to total backlog, but of course, you know when when these parts of the backlog due to be shipped and for that for instance, if you could you can see an X four weeks snakes 13 weeks, we watch normally the ship it to pick up close to an existing drugs.
Additionally to the total backlog.
So it's quite normal I think if people to dust.
And as a matter of fact this only it does not have to pulls from consignments stocks completing could it and so I don't see those to compete picture at the moment.
We expect improvement from consignment store to automotive.
Sorry, I missed your question maybe could you.
Yeah, No that's helpful and maybe just on the backlog did you do any specific cleaning up the backlog you know cleaning it no no no no cleaning no.
No.
Okay.
Thanks, so much.
Thank you.
And there are no further questions at this time kinda back over to you for closing remarks.
Thank you the RFP. This concludes our second quarter conference call. Thank you for your interest and Vishay Intertechnology.
[noise]. Thank you ladies and gentlemen, it does this conference call you may now disconnect.
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