Vishay Precision Group, Inc. — Form 10-Q Summary
Business context and reporting period
VPG is a global provider of precision measurement sensing technologies, including sensors, weighing solutions, and measurement systems. The filing covers the fiscal quarter and nine fiscal months ended October 1, 2022, compared with October 2, 2021. The interim financial statements are unaudited.
Financial performance and condition
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Net revenue | $90.1 million | $82.0 million | $266.3 million | $227.9 million |
| Gross profit | $37.3 million | $31.8 million | $109.9 million | $90.3 million |
| Gross margin | 41.4% | 38.8% | 41.3% | 39.6% |
| Operating income | $11.9 million | $7.3 million | $30.8 million | $18.6 million |
| Operating margin | 13.2% | 8.9% | 11.5% | 8.2% |
| Net earnings attributable to VPG stockholders | $10.1 million | $5.4 million | $27.2 million | $14.3 million |
| Diluted EPS | $0.74 | $0.39 | $1.99 | $1.04 |
- Segment revenue for Q3 was $37.9 million for Sensors, $31.4 million for Weighing Solutions, and $20.8 million for Measurement Systems.
- Q3 adjusted EBITDA was $16.1 million, or 17.9% of revenue; nine-month adjusted EBITDA was $44.5 million, or 16.7%. These are non-GAAP measures.
- Operating cash flow for the first nine months was $20.5 million, compared with $18.1 million in the prior-year period. Capital expenditures were $15.5 million, producing management-defined adjusted free cash flow of $5.4 million.
- Cash and cash equivalents were $79.9 million at October 1, 2022, versus $84.3 million at December 31, 2021. Net cash, as defined by management, was $19.1 million.
- Total debt was $60.8 million, consisting primarily of $61.0 million drawn under the revolving facility, net of deferred financing costs. The company reported compliance with its debt covenants.
- Current assets were $236.5 million and current liabilities were $57.7 million, resulting in a current ratio of 4.1 to 1.0.
Material changes versus the prior comparable periods
- Q3 revenue increased 9.9%, while nine-month revenue increased 16.9%. Volume and pricing contributed to growth, but foreign currency translation reduced reported revenue by approximately $5.3 million in Q3 and $10.8 million year to date.
- Sensors revenue increased 23.3% in Q3 and 23.7% year to date, supported by precision resistor and advanced sensor demand. Its Q3 gross margin rose to 40.5% from 31.1%.
- Weighing Solutions revenue increased 2.4% in Q3 but declined 0.7% year to date. Its Q3 gross margin fell to 33.3% from 37.2%, primarily because of higher material costs, unfavorable product mix, foreign exchange, and inventory reductions.
- Measurement Systems revenue increased 1.0% in Q3 and 41.4% year to date, with year-to-date growth benefiting significantly from the DTS acquisition completed in June 2021. Its Q3 gross margin increased to 55.5% from 52.8%.
- SG&A increased to $25.3 million in Q3 and $77.8 million year to date, although SG&A as a percentage of revenue declined to 28.1% and 29.2%, respectively.
- Q3 and year-to-date results included restructuring costs of $0.2 million and $1.3 million, respectively. The prior-year nine-month period included $1.2 million of goodwill and indefinite-lived intangible impairment charges and $1.2 million of DTS acquisition costs.
- Other income benefited from foreign currency gains of $1.3 million in Q3 and $5.2 million year to date. The nine-month period also included a $0.2 million loss on liquidation of two European subsidiaries.
- Backlog increased to $171.7 million at quarter-end from $146.7 million at the end of Q3 2021. The consolidated book-to-bill ratio was 1.08, while inventory turnover declined to 2.47 from 2.55 a year earlier.
Guidance, outlook, commentary, risks, and unusual items
Management stated that available cash, credit facilities, and projected operating cash flow should satisfy liquidity needs for at least the next 12 months. No formal revenue or earnings guidance was provided in the filing.
- Management expects continued investment in research and development, automation, manufacturing transfers, cost reduction, and strategic acquisitions.
- Additional manufacturing consolidation could result in future restructuring and severance costs. The company cautioned that restructuring execution could affect customer service, capacity utilization, and operating results.
- The revolving facility has aggregate commitments of $75.0 million, may be increased by up to $25.0 million subject to conditions, and terminates March 20, 2025. It is secured and contains financial and other covenants.
- Approximately 91% of cash was held by non-U.S. subsidiaries, creating potential tax, repatriation, currency, and liquidity considerations.
- Principal risks include inflation, labor and supply-chain challenges, foreign exchange volatility, economic and geopolitical instability, tariffs and trade restrictions, technology and competition, acquisition integration, product development, goodwill impairment, and COVID-19-related disruptions.
- The company voluntarily self-disclosed export-control and foreign-trade filing non-compliance to the U.S. government. Potential fines or penalties were not quantified, and management did not expect the matter to have a material adverse effect.
- The board authorized repurchases of up to 600,000 common shares through August 11, 2023. VPG repurchased 32,601 shares for $1.1 million through October 1, 2022, leaving 567,399 shares authorized for repurchase.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether revenue growth and backlog convert into shipments, particularly given the Sensors Q3 book-to-bill ratio of 0.99 and foreign exchange headwinds.
- The sustainability of improved gross and operating margins after excluding acquisition accounting, restructuring, foreign exchange, start-up, and other adjustments.
- The effect of higher material, labor, interest, and restructuring costs on Weighing Solutions and consolidated profitability.
- Future cash generation after capital expenditures, inventory investment, share repurchases, and potential acquisitions.
- Revolving debt utilization, interest-rate exposure, covenant headroom, and the concentration of cash at foreign subsidiaries.
- The resolution and potential financial impact of the disclosed export-control compliance matter.
- Goodwill and intangible-asset valuation, including the impact of weaker demand, currency movements, or delayed orders on future impairment testing.