Expresses Optimism about the Company’s Financial Outlook Given the Recent Investor Day
Believes Vishay’s Excess Balance Sheet Cash Is Leading the Market to Undervalue the Company
Urges the Board to Adopt and Implement a $600 Million Accelerated Share Repurchase
NEW YORK, April 22, 2024 (GLOBE NEWSWIRE) -- Mountaineer Partners Management, LLC, which owns over 2 million shares of Common Stock, par value $0.10 per share, of Vishay Intertechnology, Inc. (the “Company”), has issued an open letter to the Company’s board of directors (the “Board”), urging the Board to enhance shareholder value at the Company by adopting and implementing a $600 million accelerated share repurchase.
The full text of the open letter delivered to the Board is below:
A LETTER TO THE BOARD OF DIRECTORS OF VISHAY INTERTECHNOLOGY, INC.
April 22, 2024
To the Board of Directors of Vishay Intertechnology,
Mountaineer Partners has been a long-term significant holder of Vishay Intertechnology, Inc. (“Vishay” or the “Company”) for more than two years, with ownership of more than 2 million of the Company’s shares outstanding. We have appreciated our ongoing dialogue with management and the Company’s board of directors (the “Board”) throughout the course of our investment and the opportunity to share our views on the steps the Board can take to unlock value for the benefit of its shareholders.
As I am sure you agree, CEO Joel Smejkal and his team presented a very compelling business plan on April 2, 2024 at Vishay’s first ever Investor Day. The market, however, had a very different take as it sent Vishay shares down that day and lower still through the end of the week.
Given Vishay’s overcapitalized balance sheet, the Board should take advantage of Vishay’s irrationally low valuation by approving and implementing a $600 million accelerated share repurchase. With over $1.5 billion of cash and revolver availability,i and a stock trading at 8.8x 2023 Adj. EPS, a $600 million share repurchase is a prudent mechanism for delivering compelling shareholder returns.
Our research indicates that should the Company combine a $600 million accelerated share repurchase with the $725 million of repurchases through 2028 indicated in the Investor Day planix, Vishay could repurchase 45% of shares outstanding at current pricesii while comfortably funding the compelling growth plan presented at the Investor Day.
Investor Day Take-Aways
Mr. Smejkal foreshadowed a strong Investor Day when, in late 2023, he highlighted that Vishay’s addressable market in electric vehicles is 700% to 1,000% greater than in internal combustion cars.iii With the automotive and industrial segments accounting for 37% and 33% of sales, respectively, a strong outlook at the Investor Day was to be expected.
At Vishay’s first ever Investor Day, the management team communicated very exciting long-term goals for 2028 relative to 2023:
- 60% Revenue growthiv
- 100% Adj. EBITDA growthv
- 340 basis points expansion in Gross Marginvi
- 650 basis points expansion in Adj. EBITDA Marginvii
- $1.2 billion of cumulative free cash flowviii
- $725 million of cumulative share repurchasesix
Vishay’s plan to deliver $5.47 billion of revenueiv and $1.42 billion of Adj. EBITDAv in 2028 is dramatically more positive than what most analysts were envisioning prior to Vishay’s Investor Day. Additionally, the Investor Day presentation implies Vishay is targeting 2028 EPS of $5.30x, assuming zero share repurchases. Since Vishay’s Investor Day presentation indicates $725mm of share repurchasesix, management’s 2028 target EPS is in fact closer to $6.41x (assuming an average repurchase price of $30), which is 163% higher than 2023 (or a 21.3% CAGR).
Even Vishay management’s near-term expectations are well above consensus projections. Slide 20 of the Investor Day presentation implies that Vishay anticipates 2024 and 2025 revenues that are 5% and 18% higher than consensus, respectively.xi
Clearly, Mr. Smejkal and his team offered an exceptionally positive message, far better than I believe almost anyone expected, yet Vishay shares traded down that day by 2.4% and finished the week even lower. The wide gulf between Vishay’s very positive newly presented outlook and its dismal stock reaction should serve as a huge wake-up call to Vishay’s management and Board.
It should be obvious to anyone that few are paying attention to Vishay and, within that group, almost no one is carefully evaluating Vishay’s public statements and exhibits. Today, Vishay trades at 8.8x trailing Adj. EPS despite management having just provided a roadmap to grow EPS by 163% over 5 years. Such a low valuation in the face of high target growth is more than simple investor skepticism. I am confident that this situation has resulted from broad-based investor ignorance.
Path Forward
Whatever the reason for the market’s apathy toward Vishay, the Board should immediately capitalize on the opportunity presented to it. The Board should approve and implement a $600 million accelerated repurchase. Vishay has more than $800 million of cash and equivalents net of the recent Newport acquisition. Moreover, the Company’s total liquidity is over $1.5 billion, which represents more than 50% of the Company’s current market capitalization.
I further note that Vishay recently implemented key changes to its executive and director compensation plans, including implementing stockholding requirements, significantly increasing stock compensation as a share of total compensation, and creating a relative Total Stockholder Return trigger for Performance Based RSUs. Thus, management and the Board should be sufficiently motivated to drive the stock price higher. Additionally, many employees would benefit from a large, accelerated share repurchase given last year’s new Long-Term Incentive Plan, which is described in your 10-K as “the first broad-based stock compensation program at Vishay in over 20 years.”
Over 40 years ago, Dr. Felix Zandman, Vishay’s founder and longtime CEO had a realization that excess balance sheet cash was a drag on the stock price. This is clear from his impressive autobiography, Never the Last Journey, where he wrote:
“But by the early 1980s I was thinking seriously about shifting gears. Among other things, I was learning that having a lot of cash on hand did not excite the stock market. […] What I was realizing was that even though the company was building assets and equity, investors were looking not at the equity itself, but at the return on equity and at future earning potential. We were rich in cash, but in effect our cash surplus was bringing in only whatever the current interest rates were. In that sense Vishay was acting like a bank, and investors were not in the market for bank interest rates of return on their money.
Recognizing that having a lot of cash was not necessarily a good thing shook my innate sense of thriftiness a bit. It spurred me into thinking about different routes we might take that would make more effective use of our assets.” (emphasis added)
Vishay’s new CFO, Dave McConnell, even highlighted during the Investor Day Q&A period that Vishay’s ROIC is being depressed by 300 to 400 basis points because of the excess cash on the balance sheet.xii
Vishay has recently made two silicon carbide acquisitions and committed to a significantly elevated capital expenditure budget and yet the Investor Day plan through 2028 still indicates year-end balance sheet cash never dipping below $587 million and total liquidity never dipping below $1.25 billion.xiii I believe that such a balance sheet plan is unreasonably conservative and prompts skepticism regarding Vishay’s long term growth plan. Vishay can easily repurchase $600 million of shares today and have more than enough of a liquidity cushion.
Conclusion
To conclude, I note that two of Vishay’s competitors, Yageo and ON Semiconductor, trade at 15.3x and 12.9x 2023 Adj. EPS, respectively, while Vishay trades at 8.8x 2023 Adj. EPS. This is an enormous valuation gap, especially when considering Vishay’s target to deliver significantly higher net income growth from 2023 through 2028 as compared to its competitors.xiv
If the Board adopts and approves a $600 million accelerated share repurchase, I believe this share repurchase would serve as a significant catalyst to prompt market attention and bring Vishay shares closer to fair value. By way of example, if Vishay shares simply traded at the average multiple of Yageo and ON Semiconductor, Vishay shares would trade at $34.40 – up 61% from current levels.
For all of these reasons, I urge the Board to support Vishay’s shareholders by adopting and implementing a $600 million accelerated share repurchase.
Sincerely,
/s/ Greg Williams
Greg Williams
Mountaineer Partners
950 Third Avenue
28th Floor
New York, NY 10022
About Mountaineer Partners
Mountaineer Partners is an investment adviser that manages an opportunistic hedge fund focused on value and event driven investments primarily in industrial, cyclical and materials businesses.
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i Vishay’s 2023 10-K shows $1,008 million of cash and equivalents on the balance sheet and zero drawn on Vishay’s $750 million revolver that matures in 2028. Vishay’s March 6, 2024, press release stated the Newport acquisition would cost $177 million. Thus, the 10-K pro forma for the acquisition would lead to a current cash balance of $831 million. Thus pro forma liquidity would be $1,582 million.
ii Based on April 15, 2024 closing price of $21.42
iii August 9, 2023, Q2 Earnings Call Transcript, Page 9, Joel Smejkal stated: “When we look at the electric vehicle, the growth in semis is often talked about as 7 times the number of semis and electric vehicle or maybe 10 times, but passives is right alongside that. The growth of passives is equal to those numbers. So, this is a strength of Vishay being able to off er semis and passives to the EV, to the hybrid vehicle as the electronic content grows even further.”
iv Vishay Investor Day presentation, 4/2/2024, slide 16 presents a 2028 revenue goal of 9-11% CAGR from $3.4B of revenue in 2023. Using the midpoint of 10% annual growth would result in cumulative growth of 61.1% of $5.47B.
v Vishay Investor Day presentation, 4/2/2024, slide 16 presents a 2028 Adj. EBITDA Margin goal of 25 to 27%. Given the midpoint revenue goal of $5.47B, the midpoint margin guide of 26% would yield Adj. EBITDA of $1.424B. This target Adj. EBITDA is 114.3% greater than $664 million achieved in 2023.
vi Vishay Investor Day presentation, 4/2/2024, slide 16 presents a 2028 Gross Margin goal of 31% to 33%. The midpoint goal of 32% minus the 2023 Gross Margin of 28.6% yields margin expansion of 340 bps.
vii Vishay Investor Day presentation, 4/2/2024, slide 16 presents a 2028 Adj. EBITDA Margin goal of 25% to 27%. The midpoint goal of 26% minus the 2023 Adj. EBITDA Margin of 19.5% yields margin expansion of 650 bps.
viii Vishay Investor Day presentation, 4/2/2024, slide 80 presents a bar chart of target Free Cash Flow by year. Using pixel measurement software and the known value for the first bar, it is possible to derive estimates for the values for each of the future bars in the exhibit. By our measurements, Vishay’s cumulative Free Cash Flow target for 2024 through 2028 is $1.184B.
ix Vishay Investor Day presentation, 4/2/2024, slide 81 reiterates Vishay’s “target to distribute ≥70% of free cash flow to stockholders in the form of dividends and stock repurchases.” On page 6 of the 2023 Q4 Transcript (page 6), Lori Lipcaman, Vishay’s then CFO, stated: “For 2024, we expect to return at least $100 million.” For simplicity’s sake, the Q4 2023 annualized dividend run rate of $55 million is assumed to remain static for the projection period. So, the math is $45 million in 2024 share repurchases plus 70% of 2025 through 2028 Free Cash Flow ($1.285 billion) minus $55 million of dividends each of those four years. In other words, 45+0.7*1285-55*4 which equals 725. Thus, Vishay’s stated plans and targets imply $725 million of share repurchase cumulatively across 2024 through 2028.
x Vishay Investor Day presentation, 4/2/2024, slide 16 states Vishay target operating margin of 19% to 21%. Based on End Note i, Vishay appears to be targeting $5.47 billion of revenue. Using the midpoint operating margin target of 20%, The 2028 operating profit target appears to be $1,069 million. Assuming 2023’s reported interest expense of $25 million continues and Vishay’s anticipated normalized effective tax rate of 31% in 2024 (page 5 of the Q4 2023 earnings call transcript), 2028 target net income would be $738 million. Accordingly, and based on the average diluted shares outstanding figure of 139,266,000 as of Q4 2023, EPS would be $5.30. Assuming $725 million share repurchase at $30 per share, Vishay would repurchase 24.17 million shares. With a reduced share count of 115.1 million, EPS would be $6.408. Vishay’s stock closed on April 15, 2024, at $21.42 which is 3.34x on $6.41 of EPS.
xi Vishay Investor Day presentation, 4/2/2024, slide 80 presents an exhibit with bars and a line chart for target capital expenditures both as an absolute value and as a % of annual revenue. Using pixel measurement software and reported historical capital expenditures and revenue, it is possible to derive estimates for the values indicated in the exhibit for each year. Once the future values are established, an estimate for revenue can be reached by dividing each year’s capital expenditure estimate by that years estimate for capital expenditure as a % of revenue. Using the pixel measurements, it appears that Vishay projects $520 million and $517 million of capital expenditures in 2024 and 2025, respectively, as well as 16% and 12.9% for capital expenditures as a % of revenue in 2024 and 2025, respectively. Using those figures, Vishay anticipates 2024 revenue of $3.25 billion and 2025 revenue of $4.01 billion. This compares to Bloomberg consensus revenue projections of $3.09 billion and $3.40 billion for 2024 and 2025, respectively (as of 4/16/24). $3.25 billion is 5.2% higher than consensus $3.09 billion and $4.01 billion is 17.9% higher than consensus $3.40 billion.
xii April 2, 2024 Investor Day transcript, Page 41, Dave McConnell stated: “Return on invested capital, 11.2% to 14% or greater. This is a gross ROIC calculation, if anybody's modeling. If we were doing net debt, it would be closer to 17% to 18%.”
xiii Vishay Investor Day presentation, 4/2/2024, slide 80 presents a bar chart of target Free Cash Flow by year. Using pixel measurement software and the known value for the first bar, it is possible to derive estimates for the values for each of the future bars in the exhibit. Combining our measurements, $55 million of dividends each year and annual share repurchases triggered by Vishay’s commitment to return at least 70% of each year’s free cash flow to investors, year-end balance sheet cash appears to trough in 2025 at $587 million before growing again to $969 million in 2028.
xiv Data from April 17, 2024, using the FA function on a Bloomberg terminal. ON Semiconductor was shown growing net income from $2,276 million in 2023 to $3,594 million in 2028 which represents 57.9% cumulative growth. Yageo was shown growing net income from TWD 16,967 million in 2023 to TWD 31,100 million in 2028, which represents 83.3% cumulative growth. Vishay reported net income of $342 million in 2023 and Vishay’s Investor Day plan implies net income of $738 million in 2028 (see End Note x) which represents cumulative growth of 115.9%.
