Vishay Intertechnology, Inc. 2026 Q2 Earnings Call

Good morning. Welcome to Vishay Intertechnology's second quarter 2026 earnings conference call. I am joined today by Joel Smejkal, our President and Chief Executive Officer, and by David McConnell, our Chief Financial Officer. This morning, we reported results for our second quarter 2026. 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 refer to a slide presentation which we also posted on ir.vishay.com. You should be aware that during 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 full GAAP to non-GAAP reconciliation in our press release and in the presentation posted on ir.vishay.com, which we believe will be 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. Specifically, as it pertains to our tariff refunds, we are reporting GAAP and adjusted revenue for the second quarter.

The second quarter 2026 adjusted net revenues exclude $30.0 million for tariff refunds passed through to customers with no impact on gross profit. The tariff refunds are recognized as reductions of net revenues and costs of products sold in the second quarter 2026 GAAP results. Adjusted gross margin is calculated using adjusted net revenues. Tariff refunds have not been allocated to a reportable segment, end market, sales channel, or region. All following second quarter 2026 measures presented exclude tariff refunds. Tariff refunds do not impact any other period presented. On today's conference call, management will refer to adjusted revenues in the analysis of results for the quarter. I turn the call over to President and Chief Executive, Joel Smejkal.

Thank you, Peter. Thank you, everyone, for joining our call this morning. Let's start the call with a review of the second quarter performance. Dave will take you through a detailed review of our financial results for the quarter and our guidance for the third quarter of 2026. After that, I'll update you on the strategic levers we are pulling to drive growth and profitability. Then we'd be happy to answer any of your questions. For the second quarter, we are reporting adjusted revenue of $919 million, exceeding the top end of our revenue guidance. Revenues are growing faster over the past five quarters on strengthening demand, supported by the agility of Vishay 3.0. Compared to the first quarter, revenue grew 9.5%, 20.5% year-on-year, reflecting continued growth across all Vishay product technologies, our end markets, business channels, and regions.

Market share gains for both semis and passives came through higher consumption from increasing customer volume and increasing customer count, with increasing demand in the industrial segments, AI, aerospace, and automotive. In terms of demand dynamics, our Q2 results are a continuation of Q1. On a year-to-year basis, our results tell us that Vishay 3.0 is working as designed. With industry lead time stretching, pricing rising, and geopolitical tensions remaining, customers are concerned about the availability of products and assurance of supply. To secure supply, customers are placing orders showing longer visibility. Many customers are forecasting 6 months out with a desire to replenish their own inventories. Demand related to AI applications continues to accelerate, leading numerous customers to place orders beyond 52 weeks to make sure they have a place in our production loading. Book-to-bill for Q2 was 1.32, with semis at 1.23 and passives higher at 1.40.

Q2 is a record high bookings for resistors and inductors. As a result, our total backlog grew 18% to $1.9 billion, or 6.1 months. Having invested $900 million to expand capacity during the recent market trough years, we are reacting much faster than historically to serve more customers. We are demonstrating that we can scale with their volume production while maintaining competitive lead times. Our book-to-bill is showing us that we are getting turns orders because of the first half 2026 improved delivery performance. In the fourth quarter of 2025, we began to announce price increases related to increasing cost of metals, materials, and logistics. Price increase announcements continued through Q1 and Q2 this year. At this point, about one-third of our running part numbers have announced price increases. We saw some of the price increases land in our Q2 financials. The attractiveness of our hybrid component business model grows.

Our volume manufacture of both discrete semis and passives helps customers as they search for greater supply of all of these components on their bill of materials. As a reminder, Vishay can populate more than 80% of the components on a board in a power application. Another point to share, customers are more frequently raising their requests for Western supply of electronic components, which fits very well with our geographical manufacturing footprint and further site optimization projects. Vishay is a technically leading Western-located manufacturer. Now with our Vishay 3.0 mindset and customer-serving approach, we can supply them with the product they need. Let's turn to a review of Q2 revenue, starting with the revenue by end market on slide four.

All end markets show positive revenue increase, with industrial accounting for more than half of the increase. Industrial revenue increased 16.2% versus Q1 and 30.1% versus prior year, reflecting higher consumption primarily for smart grid, AI power, and high voltage DC projects, as well as factory automation. Bookings increased due to our ability to serve a growing POS through our distribution channel. New programs are launching the second half of 2026 and into 2027, with positive demand trends in industrial power for AI, especially as EMS customers accelerate investments in AI-related applications to support data center growth and high voltage DC transmission. We continue design discussions with customers for humanoids. To elaborate further on industrial, our bookings increased for industrial power applications for customers who are participating in power conversion and cooling projects for AI data centers. We are increasing our part count on new projects as customers add our passives to AI power management solutions.

Customers who are not AI-related, that demand is becoming increasingly concerning. These customers need to make sure they have a manufacturing spot in our queue. Escalations are increasing. In automotive, revenue increased 3.6% quarter-over-quarter and 10.1% versus prior year, reflecting ongoing demand as electronic content continues to increase for driver-assist and autonomous driving applications, plus the further adoption of hybrid and EV platforms. Bookings were strong in the Americas as customers are becoming more proactive to share their visibility and backlog placement. In some cases, customers are providing us with forecasts for the next 12 to 18 months. In Asia, we are seeing distributors and OEMs wanting to build safety stocks, but this is challenging in this high-demand market.

Aerospace defense revenue increased 4.2% versus the first quarter and 15.4% versus last year, reflecting increasing consumption by US Defense contractors related to programs that have been funded, including accelerated replenishment of components to support multiple missile programs. In Asia and Europe, we are seeing increasing demand from OEM customers and through EMS. Bookings increased sharply from distribution, driven by orders for resistors in preparation for escalating Department of Defense funding. More products will be needed to support missile programs and also next-generation radar platforms, high-energy weapons for drone defense and drone dominance projects, the Golden Dome, LEO constellations, and many more projects. Healthcare revenue increased 7% versus Q1 and 14.7% versus prior year, with longstanding customers in the Americas ramping production and EMS customers in Asia seeing improving demand and supply assurance uncertainties. We continue to identify opportunities to leverage the full Vishay portfolio in medical.

In the other category, which includes telecom, computing, and consumer, revenue grew 11.3% quarter-over-quarter and 28.4% year-over-year. Share gains, higher consumption drove volume increases for AI-related programs in Asia, as did higher demand for AI optical communication network switches. In Europe, higher demand for 5G radio projects increased as customers ramp up production. Memory shortages and higher component prices have tempered the consumer segment's demand strength a bit. Across other end markets and technologies, we continue to proactively tackle a wide array of opportunities to gain share, putting into practice the Vishay 3.0 business-minded approach. Historically, Vishay underserved or didn't serve high-margin customers during market up cycles. Vishay 3.0 has been working hard to regain these customers, where we had the print position but didn't have the capacity to fulfill orders.

I'm pleased to report that we are succeeding at both regaining customers and adding new high-margin growth customers for an overall increase in customer count. We are winning back share and seeing increased design-in and quoting activity. Let's turn to slide five for a review of Q2 by channel. Revenue by channel was led by distribution, which increased from 55% of the total in Q1 to 58% in Q2. Distribution revenue increased 15.6% versus Q1 and 24.2% versus last year, with gains in each region driven by broad-based consumption momentum and reflecting market share gains. Based on distribution reports, we are seeing consumption among existing, new, and returning customers. Distribution inventory overall decreased to 18 weeks at quarter end from 20 weeks last quarter, and POS increased 4.7% quarter-on-quarter and 20.5% year-on-year with growth in all regions.

Our initiative to expand distributor inventory by part number count and depth during the building of Vishay 3.0 is proving to bring very positive results as we provide strong support in the beginning of this market upcycle. Having a proactive business approach in tune with the availability of product is helping us to win. Strong bookings by distribution customers, particularly for industrial power, AI-related applications, and aerospace defense, reflect continued demand momentum amplified by the need to replenish inventory due to stretching lead times. In the Americas, numerous customers are discussing safety stock programs in support of escalating aerospace defense demand. Under Vishay 3.0, we are positioning ourselves to provide far more support to more customers, as reflected in our growing POS and increased SKU count. Good customer support opens up more and more new design opportunities for us.

Increasing output to distribution is a top priority, we are committed to securing share gains and expanding share. Our business unit leaders travel to distributors quarterly to be close to the pulse of the market, gain market visibility, and creating more accountability. OEM revenue was up 1.7% quarter-over-quarter and 16.8% year-over-year, reflecting solid demand related to smart grid and AI server power, as well as automotive and medical. EMS revenue increased 3.2% quarter-over-quarter and 10.8% year-over-year, reflecting industrial, aerospace, defense, and automotive program ramps in all regions, plus strengthening demand in AI. Let's go to slide six for the regions. Turning to the geographical mix on this slide, Asia accounted for over half of the revenue increase from the first quarter, increased 12.5% from increased consumption.