Vishay Precision Group, Inc. — Q1 2021 Form 10-Q Summary
Business context and reporting period
VPG designs, manufactures, and markets precision sensors, sensor-based measurement systems, specialty resistors, and strain gages. Its three reporting segments are Foil Technology Products, Force Sensors, and Weighing and Control Systems. The filing covers the fiscal quarter ended April 3, 2021, compared with the quarter ended March 28, 2020.
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net revenues | $70.6 million | $67.7 million | 4.3% increase |
| Gross profit | $28.6 million | $25.1 million | 14.2% increase |
| Gross margin | 40.5% | 37.0% | 350 basis-point increase |
| Operating income | $6.4 million | $4.6 million | 38.6% increase |
| Operating margin | 9.1% | 6.9% | 220 basis-point increase |
| Net earnings attributable to VPG | $5.0 million | $3.3 million | 49.8% increase |
| Diluted EPS | $0.36 | $0.24 | Increase of $0.12 |
| Operating cash flow | $5.6 million | $6.3 million | Decrease of $0.7 million |
Financial position, cash flow, debt, and liquidity
- Cash and cash equivalents were $96.2 million at April 3, 2021, compared with $98.4 million at December 31, 2020.
- Total debt, net of deferred financing costs, was $40.6 million, consisting primarily of $41.0 million drawn under the revolving facility.
- Net cash, as defined by management, was $55.5 million at quarter-end, versus $57.8 million at year-end 2020.
- Capital expenditures were $5.7 million, compared with $3.3 million in the prior-year quarter. Management-defined adjusted free cash flow was negative $0.1 million.
- The company had a $75.0 million secured revolving facility, expiring March 20, 2025, with potential capacity expansion of up to $25.0 million subject to the credit agreement.
- Management stated that cash, available credit, and projected operating cash flow should satisfy liquidity needs for at least the next 12 months. The company was in compliance with its debt covenants at April 3, 2021.
- Approximately 92% of cash was held by non-U.S. subsidiaries, and most foreign earnings were considered indefinitely reinvested.
Material changes versus the prior comparable period
- Revenue growth reflected higher volume in Foil Technology Products and Force Sensors, favorable foreign exchange effects, and lower volume in Weighing and Control Systems.
- Foil Technology Products revenue increased 7.3% to $32.7 million, with margin improving to 39.9% from 36.7%.
- Force Sensors revenue increased 15.2% to $16.9 million, with margin improving to 35.7% from 24.3%.
- Weighing and Control Systems revenue decreased 7.0% to $20.9 million, primarily because of lower project-driven DSI revenue and KELK steel-related revenue. Segment margin was 45.6%, compared with 45.7%.
- SG&A expense increased to $22.2 million from $20.3 million, partly due to personnel costs and foreign currency effects.
- No restructuring costs were recorded in Q1 2021, compared with $0.1 million in Q1 2020.
- The effective tax rate declined to 26.3% from 32.3%, primarily because of changes in the mix of worldwide income.
- Backlog increased to $100.7 million from $87.6 million at the end of Q4 2020, and the company-wide book-to-bill ratio increased to 1.21 from 0.93.
Guidance, outlook, commentary, risks, and unusual items
The filing does not provide explicit numerical revenue or earnings guidance. Management reported that all facilities were open and operational as of May 11, 2021, while continuing COVID-19 precautions. The company expects to complete the transition of its advanced sensors business to a new Israel facility in the third quarter of 2021.
- Management continues to pursue automation, manufacturing transfers, facility consolidation, cost reductions, research and development, and strategic acquisitions.
- Q1 results included $0.4 million of net COVID-19-related impact, $0.1 million of start-up costs for the new Israel facility, and $0.7 million of foreign-exchange gains within the non-GAAP reconciliations.
- Adjusted EBITDA was $9.5 million, or 13.5% of revenue, compared with $8.3 million, or 12.2%, in the prior-year quarter. Non-GAAP measures are company-defined and may not be comparable with those of other companies.
- Principal risks include COVID-19-related disruption, supply-chain and manufacturing-transfer execution, foreign currency volatility, tariffs and trade regulation, acquisitions and integration, competition and technology changes, product development, goodwill impairment, and restructuring costs.
- Tax positions remain subject to examination by tax authorities; unfavorable determinations could increase expense and require cash payments. Future restructuring plans may also generate additional severance and exit costs.
- No legal proceedings, material changes to previously disclosed market risks, or off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Whether the improved gross margin and Force Sensors profitability are sustainable after favorable mix, manufacturing efficiencies, cost controls, and foreign-exchange effects.
- Whether backlog and the 1.21 book-to-bill ratio convert into revenue, particularly given the project-driven nature of some orders and customers’ ability to cancel or reschedule shipments.
- The timing and total cost of the advanced sensors facility transition in Israel and any additional manufacturing-consolidation programs.
- Cash availability by jurisdiction, potential tax consequences of repatriating foreign cash, and continued compliance with revolving-credit covenants.
- The effect of COVID-19, foreign currency movements, supply-chain conditions, and steel-related demand on future results.
- The comparability of management’s adjusted EBITDA and adjusted free cash flow measures with GAAP cash flow and peer-company metrics.