Quarterly Report for Quarter Ending June 28, 2025 (Form 10-Q)

Our goal is to enhance stockholder value by growing our business and improving earnings per share. Since 1985, we have pursued a business strategy of growth through focused research and development and acquisitions. We plan to continue to grow our business through intensified internal growth supplemented by opportunistic acquisitions, while maintaining a prudent capital structure. We have developed go-to-market strategies and are investing in and expanding the key product lines for growth that we have identified. In addition, we are strategically expanding our outsourced production of commodity products to subcontractors. At the same time, we are enhancing our channel management while investing in internal resources by adding customer-facing engineers and filling gaps in technology and market coverage. Taken together, each of these initiatives supports our Think Customer First organizational culture.

We are focused on realizing the full value of our broad product portfolio, becoming a customer-first company, and capitalizing on the mega trends of e-mobility, sustainability, and connectivity to drive top line growth, expand margins, and optimize stockholder returns. We are using eight strategic levers to achieve these goals. Despite the industry recovery being slower than expected, we remain committed to our long-term plan of increasing our capacity to assure our customers of reliable volume as they scale. While we plan to advance our capacity expansion projects, we have and will continue to modulate spending in response to order flow and the timing of customer demand and qualification. The decreased lead time for equipment and the increased subcontractor capacity are also variables that allow us to adjust our capacity spending. For 2025, we plan to spend between $300 million to $350 million for capital expenditures, at least 70% of which will be invested in capacity expansion projects for high growth products lines, including our wafer fab expansions.

In addition to enhancing stockholder value through growing our business, in 2022, our Board of Directors adopted a Stockholder Return Policy, which calls for us to return at least 70% of free cash flow, net of scheduled principal payments of long-term debt, on an annual basis. See further discussion in "Stockholder Return Policy" below.

Tariff Impact

The newly announced U.S. tariffs will impact our future results. The tariff rates and application are currently unsettled and any potential demand distraction is not able to be estimated at this time. Historically, we have charged tariff adders to customers to offset increased costs. The gross profit impact of the tariffs and tariff adders is approximately zero, but they negatively impact gross profit margin. The net impact of tariffs on gross profit margin in the second fiscal quarter was (40) basis points.

(1) Operating margin for the second fiscal quarter of 2025 includes an $11.3 million gain recognized upon the favorable resolution of a contingency. Operating margin for the third fiscal quarter of 2024 includes $40.6 million of restructuring and severance expenses (see Note 2 to our consolidated condensed financial statements). Operating margin for the fourth fiscal quarter of 2024 includes $66.5 million of goodwill impairment charges.

See "Financial Metrics by Segment" below for net revenues, book-to-bill ratio, and gross profit margin broken out by segment.

Revenues increased versus the prior fiscal quarter and prior year quarter. The increases versus the prior fiscal quarter and prior year quarter are primarily due to higher sales volume and favorable exchange rate impacts. The book-to-bill ratio remained above 1.0 for the third consecutive quarter. Backlog was relatively flat versus the prior fiscal quarter and prior year fiscal quarter. We continue to increase capacity for critical product lines. Average selling prices, including tariff adders, were flat versus the prior fiscal quarter, but decreased versus the prior year fiscal quarter.

Gross profit margin increased versus the prior fiscal quarter, but decreased versus the prior year fiscal quarter. The increase versus the prior fiscal quarter is primarily due to higher sales volume and lower fixed costs. The decrease versus the prior year quarter is primarily due to lower average selling prices and higher fixed costs. Costs associated with the Newport wafer fab also contributed to the decrease versus the prior year quarter.

Net revenues of the Diodes segment increased versus the prior fiscal quarter and the prior year quarter, but decreased versus the prior year-to-date period. The increases versus the prior fiscal quarter and prior year quarter are primarily due to increased sales to distribution customers, industrial end market customers, and customers in the Asia region. The decrease versus the prior year-to-date period is primarily due to decreased sales to OEM customers, automotive end market customers, and customers in the Americas region.

Gross profit margin increased slightly versus the prior fiscal quarter, but decreased versus the prior year periods. The increase versus the prior fiscal quarter is primarily due to higher sales volume. The decreases versus the prior year periods is primarily due to lower average selling prices.

Segment operating margin was flat versus the prior fiscal quarter, but decreased versus the prior year periods. The decreases versus the prior year periods are primarily due to decreased gross profit.

Average selling prices decreased versus the prior fiscal quarter and prior year periods.

Income Taxes

For the fiscal quarter ended June 28, 2025, our effective tax rate was 83.7%, as compared to 3.2% and 34.2% for the fiscal quarters ended March 29, 2025 and June 29, 2024, respectively. For the six fiscal months ended June 28, 2025, our effective tax rate was 125.9%, as compared to 31.3% for the six fiscal months ended June 29, 2024. Our current effective tax rate is not indicative of expected future tax rates due to relatively small items having a disproportionate impact on the current effective tax rate. When pre-tax earnings increase, we expect that our effective tax rate will be higher than the U.S. statutory rate, excluding unusual transactions.

We operate in a global environment with significant operations in various locations outside the United States. Accordingly, the consolidated income tax rate is a composite rate reflecting our earnings and the applicable tax rates in the various locations where we operate. Part of our historical strategy has been to achieve cost savings through the transfer and expansion of manufacturing operations to countries where we can take advantage of lower labor costs and available tax and other government-sponsored incentives.

Additional information about income taxes is included in Note 4 to our consolidated condensed financial statements.

In order to manage our working capital and operating cash needs, we monitor our cash conversion cycle. The following table presents the components of our cash conversion cycle during the five fiscal quarters beginning with the second fiscal quarter of 2024 through the second fiscal quarter of 2025:

		Fiscal quarters ended
		2nd Quarter 2024				3rd Quarter 2024				4th Quarter 2024				1st Quarter 2025				2nd Quarter 2025
Days sales outstanding ("DSO") (a)			51				53				53				53				53
Days inventory outstanding ("DIO") (b)			105				106				109				110				109
Days payable outstanding ("DPO") (c)			(31	)			(32	)			(34	)			(34	)			(32	)
Cash conversion cycle			125				127				128				129				130

a) DSO measures the average collection period of our receivables. DSO is calculated by dividing the average accounts receivable by the average net revenue per day for the respective fiscal quarter.

b) DIO measures the average number of days from procurement to sale of our product. DIO is calculated by dividing the average inventory by average cost of goods sold per day for the respective fiscal quarter.

c) DPO measures the average number of days our payables remain outstanding before payment. DPO is calculated by dividing the average accounts payable by the average cost of goods sold per day for the respective fiscal quarter.

Cash paid for property and equipment for the six fiscal months ended June 28, 2025 was $126.2 million, as compared to $115.6 million for the six fiscal months ended June 29, 2024. To be well positioned to service our customers and to fully participate in growing markets, we have increased and expect to maintain a relatively high level of capital expenditures for expansion in the mid-term. We remain committed to our long-term plan of increasing Vishay's capacity, to assure our customers of reliable volume as they scale. While we plan to advance our capacity expansion projects, we have and will continue to modulate spending in response to order flow and the timing of customer demand and qualifications. The decreased lead time for equipment and the increased subcontractor capacity are also variables that allow us to adjust our capacity spending. For 2025, we plan to spend between $300 million to $350 million for capital expenditures, at least 70% of which will be invested in capacity expansion projects for high growth product lines, including our wafer fab expansions.

"Net cash and short-term investments (debt)" does not have a uniform definition and is not recognized in accordance with GAAP. This measure should not be viewed as an alternative to GAAP measures of performance or liquidity. However, management believes that an analysis of "net cash and short-term investments (debt)" assists investors in understanding aspects of our cash and debt management. The measure, as calculated by us, may not be comparable to similarly titled measures used by other companies.

Our business is geographically diverse and our cash is generated by our subsidiaries around the world. Cash dividends to stockholders, share repurchases, and principal and interest payments on our debt instruments need to be paid by the U.S. parent company, Vishay Intertechnology, Inc. We continue to allocate capital responsibly between our business, our lenders, and our stockholders. The capital allocated to our business is further allocated between our subsidiaries to meet local operating cash needs, to fund capital expenditures as part of our growth plan, and to meet corporate funding needs while also aiming to minimize our tax expense.

We repatriated $75 million of accumulated earnings to the United States in the second fiscal quarter of 2025 and paid withholding taxes, in Israel, of $9.4 million. As of June 28, 2025, $26.5 million of our cash and cash equivalents and short-term investments were held by our U.S. subsidiaries. As of June 28, 2025, we are in a net borrowing position in the U.S. and we expect to continue to be at least throughout 2025, primarily due to Newport expansion funding requirements. As of June 28, 2025, we have approximately $491.1 million of German and Israeli earnings that are deemed not indefinitely reinvested. Based on the expected timing of future repatriations, we estimate that the tax liability to repatriate these unremitted earnings will be approximately $75.3 million, which has been accrued, but will only be paid upon repatriation of the unremitted earnings. Repatriating these unremitted earnings earlier than currently planned may not be possible and would incur additional tax expense. We also have amounts of unremitted foreign earnings held by subsidiaries in countries other than Israel and Germany, which continue to be reinvested indefinitely, that we have not accrued for the incremental foreign income taxes and withholding taxes payable to foreign jurisdictions that would be incurred to repatriate these amounts. Certain of these subsidiaries are located in countries with restrictive regulations and high tax rates for repatriating cash. Due to the uncertainties associated with the ability, timing, and method to repatriate these unremitted earnings and other complexities associated with its hypothetical calculation, determination of the amount of tax expense that would be incurred to repatriate the unremitted earnings is not practicable, but could be significant. Our undrawn credit facility provides us with adequate operating liquidity in the United States.

Upon successful completion of our growth plan, we expect to generate increasingly higher levels of free cash that will be sufficient to meet our long-term financing needs related to normal operating requirements, regular dividend payments, share repurchases pursuant to our Stockholder Return Policy, while allowing us to manage our repatriation and financing activities to minimize tax and interest expense. During the current period of intensified capital expenditures to achieve our growth plans, we are considering a combination of additional and alternative sources of financing and our cash on hand to fund a portion of the capital expenditures that would conserve cash for future acquisitions while enabling us to minimize tax expense.

We maintain a $750 million revolving credit agreement with a consortium of banks led by JPMorgan Chase Bank, N.A., that matures on May 8, 2028. The maximum amount available on the revolving credit facility is restricted by the financial covenants described below. The credit facility also provides us the ability to request up to $300 million of incremental facilities, subject to the satisfaction of certain conditions, which could take the form of additional revolving commitments, incremental "term loan A" or "term loan B" facilities, or incremental equivalent debt.

Pursuant to the credit facility, the financial maintenance covenants include (a) an interest coverage ratio of not less than 3.25 to 1; and (b) a net leverage ratio of not more than 3.25 to 1 (and a pro forma ratio of 3.00 to 1 on the date of incurrence of additional debt). Net leverage ratio reduces the measure of outstanding debt by up to $250 million of unrestricted cash.

The credit facility limits or restricts us from, among other things, incurring indebtedness, incurring liens on its respective assets, making investments and acquisitions (assuming our pro forma net leverage ratio is greater than 2.75 to 1.00), making asset sales, and paying cash dividends and making other restricted payments (assuming our pro forma net leverage ratio is greater than 2.50 to 1.00).

We were in compliance with all financial covenants under the credit facility at June 28, 2025. Our interest coverage ratio and net leverage ratio were 10.69 to 1 and 2.34 to 1, respectively. We expect to continue to be in compliance with these covenants based on current projections. Based on our current EBITDA and outstanding revolver balance, the usable capacity on the credit facility is approximately $275 million.