VSH Q3 2026 earnings call transcript, November 4, 2026

After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Peter Henricci. Head of Investor Relations. Please go ahead.

Good morning and welcome to VSH Intertechnology's third quarter 2026 earnings conference call. I am joined today by Joel Smekal, our president and chief executive officer, and by Dave McConnell, our chief financial officer. This morning, we reported results for our third quarter 2026. A copy of our earnings release is available in the investor relations section of our website at ir.vshea.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.vshea.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 before. For a discussion of factors that could cause results to differ, please see today's press release and VSH'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 four GAAP measures. to non-GAAP reconciliation in our press release and in the presentation posted on IR.VSH.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.

Now, I turn the call over to President and Chief Executive Officer, Joel Smickel.

Thank you everyone for joining the Q3 2026 earnings call this morning. I'll start the call with the review of our third quarter performance and Dave will take you through a detailed review of our financial results for the quarter and our guidance for the fourth quarter. 2026. After that, I'll update you on the strategic levers we are pulling to drive growth and profitability, and then we'd be happy to answer any of your questions. For the third quarter, we are reporting revenue of $979 million, exceeding the top end of our guidance range, $945 million to $975 million. Revenue grew 7% compared to the review of our financial results. Adjusted revenue reported for the second quarter, and 24% year-over-year. Demand remained robust among industrial, automotive, aerospace defense, and AI customers. At $979 million, we have set a record with the highest quarterly revenue in VSH's history. All product technologies contributed to this new revenue high during a season. Seasonal Q3. Our passive product lines gave an extra boost. Passives were 52% of quarterly sales. As a hybrid supplier of discrete semis and passive components, VSH is uniquely positioned to sell more technologies across all market segments. Bookings remained robust. Increased 15% to reach a quarter-end backlog of $2.2 billion. For 6.6 months. Book-to-bill for Q3 was 1.29 with semiconductors and 1.28. Excuse me. Book-to-bill was 1.29 overall with semis at 1.28 and passives at 1.31. Q3 bookings for resistors were at record highs while the other technologies continued with strong bookings. Customers are driven to place larger

quantity orders with longer visibility. With the overall market supply tight for high demand semis and passives, more customers in all regions placed longer term orders with extended forecast. In some cases up to 18 months to ensure supply through 2027. End market consumption continues to grow while the channels of OEM, distribution, and EMS want to replenish inventories, this is challenging for them. In response to these industry dynamics, we continue our focus on execution. Serving our customers well and delivering on our promise that VSH 3.0 is a different company. We're a reliable supplier positioning with incremental capacity to scale with their growth requirements while maintaining competitive lead times. Customers recommend the capacity readiness business approach which the VSH 3.0 transformation has put into place. Customers in all regions give us feedback that we are not on their list as a risk supplier in this cycle. They say in past up cycles VSH was first to be on the risk supplier list. Everyone at VSH today works very hard to support the customers with timely product delivery. They are creative and flexible when customer escalations arise. As an example, Q3 compared to last year's Q3, customers have increased consumption of VSH units through our distribution channel by 57%. Under VSH 2.0, without the incremental capacity and the distributor inventory strategy, customer consumption would have been generally

flowed. Our strategy to expand part number count and to place deeper inventory on the distributor's shelves, staging inventory ahead of the upcycle under VSH 3.0 was paramount. With inventory on the shelves and distributors, VSH POS has grown significantly as parts are available to more customers and that had VSH on their bill of materials. Previously underserved customers are now not only consuming available inventory, but expanding their product demand with us. High growth applications in industrial and AI power management are attracting new customers to our portfolio for passives and semiconductors. In short, we're doing a great job of increasing our customer count and our part number count, shifting more volume to more customers. And leveraging more of our product portfolio. We have gained market share and keep expanding capacity to hold these gains and grow further. Let's turn to slide three to review the Q3 revenue, starting with revenue by end market. While each of our high growth end markets grew in the third quarter, industrial maintained its dominance. Industrial revenue increased 12% versus Q2 and 43% versus prior year. You may remember that we saw the beginning of the industrial market upturn toward the end of 2024 due to our growing customer applications for high voltage capacitors. The Americas posted strong growth with new projects supporting power management, smart grid, industrial automation ramping to

mass production. We continue to see record demand levels for polymer capacitors associated with AI server applications. In Asia, demand remains strong for power supplies, AI power customers, and high voltage DC with a modest contribution from smart grid projects. The number of our technologies being designed into power management continues to expand. Customers increase increasingly design in multiple passive components within their same power architectures, including current sense resistors, power resistors, high voltage capacitors, inductors and magnetics, and protection devices. This is contributing to increased part count on our customer bill of materials for industrial and AI server power. Customers continue to place orders for smart grid projects as we want another smart grid infrastructure program in the Americas. This one is related to Canadian data center bills and EV adoption. In automotive, revenue grew 4% quarter over quarter and 7% versus prior year. As customers began ramping new model year programs and China exports grew. Customers placed orders to secure delivery against forecast, including several EMS and OEM customers which increased order coverage. for 2027 programs. Aerospace defense revenue increased 4% versus the quarter and 23% versus last year, reflecting higher consumption levels by defense contractors in the U.S. and Europe as they continue to replenish components supporting funded weapons programs. Bookings growth in the Americas was robust, resulting in a booked a bill of 1.64 at quarter end.

Customers quickly moved their position and their backlogs as Department of Defense finalized contracts with the primes. Health care revenue increased 1% versus Q2 and 13% versus prior year. In the Americas, customer seasonality dampened demand in bookings, while in Europe and Asia, demand for new portable devices drove volume gains. Our ongoing initiative... to expand relationships with long-standing medical customers by leveraging the breadth of our portfolio continues to work. Bookings in Europe reached a new record as a customer added inductors to the Bill of Materials. In Asia, we expanded business with EMS customers concerned about tightening supply for inductors and resistors. In the other category, revenue was flat quarter over... ...reflecting increases in power supply and telecom offset by declines in consumer and PCs. Year-over-year, revenue grew 23%. With respect to demand for AI service and server power, volume grew on higher consumption and market share gains. Customers continue to add Bechet passive technologies to AI power management solutions. With the percent of passive components increasing as industrial and AI topologies move to higher voltages, and as AI requirements for higher power density, efficiency, heat dissipation, higher switching frequencies, and precision sensing drive more Bechet passive usage. In telecom, customers supporting optical communication network switches, both 800 gigabits and...

1.6 terabits drove significant volume increase. Let's turn to slide 4 for review of revenue by channel. Revenue increased in the quarter, and in each channel, led by distribution, which increased 9% quarter over quarter, and 30% year over year, and accounted for 76% of the total revenue growth. Distribution volume grew on strong demand for industrial, aerospace, and AI customers. Distribution inventory was flat at 18 weeks, and POS increased 5% quarter over quarter, and 26% year over year, with growth in each region. Bookings increased as distribution partners tried to take proactive steps to replenish inventory and pull in backlogs. Driven by lead time extensions and component price increases, along with demand momentum. OEM revenue was up 3% quarter over quarter and 14% year over year, reflecting solid demand from industrial automotive and healthcare customers. EMS revenue increased 6% quarter over quarter and 27% year over year, reflecting ongoing industrial aerospace defense and automotive program. While programs using more VSH part numbers continued to fall at EMS. Orders from EMS customers reached an all-time high in the quarter. We see this as a vote of confidence in our VSH 3.0 approach by offering competitive lead times as EMS customers support increasing demand and try to have some inventory. of critical components. Slide five is regions. Turn to our geographical mix on this slide. Asia continued to dominate revenue growth as strong demand for industrial power and AI servers, networks, and related infrastructure drove sales growth. Revenue in the Americas grew 6% and 31% year over year on record level consumption from

industrial and aerospace customers, especially for passives. Before turning the call over to Dave, I want to thank the VSH employees and our reps for their hard work as we continue to execute the VSH 3.0 growth strategy. From all their hard work, we set an all-time high in revenue for Q3. Through their dedication to intensify customer engagements,

Thank you very much.

We are preparing to start running engineering wafers in early 27. We are planning to start non-automotive part number production in the second half of 2027. At Newport, we successfully completed three additional automotive customer audits with high grades of A. Wafer output is increasing around 10% per quarter as we receive more customer program approvals, which allow us to transfer wafer loading from Itseho 8 to Newport. To support our AI customer demand, we have increased the fab loading at Korean foundries with wafer shipments at the end of Q3 to support Q4 26 customer deliveries. We plan to further increase fab loading during Q4 and in the first half of 2027. On the passive side, automotive customer qualifications at our La Laguna and Juarez facilities are progressing well. In Japan, we have increased capacity of our polymer tantalum capacitor production with much further expansion of capacity underway in La Laguna. We continue to qualify subcontractors during the quarter, adding outsourced commercial grade diodes and resistors to our portfolio. In Q3 27, we added over 17,000 SKUs with our distributors as available to sell products. In terms of innovation and new product development, we continue to execute on our silicon carbide strategy, releasing MOSFETs and diodes, which range from 650 volt to 1700 volt. In Newport, we successfully completed the conversion of the silicon carbide.

Manufacturing line to 8-inch engineering wafers. Across the VSH business units, there are many new projects with all technologies in R&D to support industrial AI power and automotive roadmaps. The electronica component show is in Germany, Munich, Germany next week. We will continue to showcase and promote the VSH solutions and reference designs. which support at least 80% of the products on the board in power applications. In closing, VSH reached a record revenue level for the third quarter, propelled by our hybrid footprint of discrete semiconductors and passives, which enabled 30% growth in distribution year over year. VSH 3.0 is delivering results which provide clear evidence that our growth and margin expansion strategy, our customer engagement focus, and our business-minded approach works. We are positioning well to take full advantage of this market upcycle and the long-term demand trends, particularly as increasing power requirements and high-voltage drive demand for all technologies. We are pushing hard to supply our customer

please press star 11 again. Our first question comes from the line of Christopher Glenn of Oppenheimer. Your line is now open. Thanks. Good morning, everyone, and congrats on the results. Nice showcase for 3.0. Curious about what you're seeing in terms of the current pace of design wins.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.