Vishay Precision Group, Inc. — Q1 2019 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 unaudited quarter ended March 30, 2019 is compared with the quarter ended March 31, 2018.
Key Financial Metrics
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Net revenue | $76.5 million | $73.1 million | 4.7% increase |
| Gross profit | $33.1 million | $28.5 million | 16.0% increase |
| Gross margin | 43.2% | 39.0% | +4.2 percentage points |
| Operating income | $12.6 million | $8.2 million | 54.0% increase |
| Operating margin | 16.5% | 11.2% | +5.3 percentage points |
| Net earnings attributable to VPG | $8.2 million | $5.0 million | 65.2% increase |
| Diluted EPS | $0.61 | $0.37 | Increase |
| Operating cash flow | $8.1 million | $1.8 million | Increase |
| Capital expenditures | $3.3 million | $4.3 million | Decrease |
| Free cash, as defined by management | $4.8 million | Not clearly provided | Not comparable from filing text |
SG&A was $20.4 million, or 26.7% of revenue, compared with $20.3 million, or 27.8%, in the prior-year quarter. The effective tax rate declined to 27.2% from 30.1%, primarily due to the worldwide income mix.
At March 30, 2019, cash and cash equivalents were $93.1 million, total debt was $25.9 million, and management-defined net cash was $67.2 million. The current ratio was 4.0 to 1.0. Approximately 92% of cash was held by non-U.S. subsidiaries, and the company had approximately $1.6 million of deferred tax liability associated with a planned foreign cash distribution.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven by higher volume in Foil Technology Products and Weighing and Control Systems, partly offset by lower Force Sensors volume and unfavorable currency effects.
- Foil Technology Products revenue increased 8.5% to $37.0 million; Weighing and Control Systems revenue increased 15.4% to $22.7 million; Force Sensors revenue decreased 13.0% to $16.7 million.
- Gross margin improved across all three segments. Management cited volume, manufacturing efficiencies, export grants in India, and favorable operating performance.
- Backlog declined to $87.1 million from $93.4 million at year-end 2018, and the consolidated book-to-bill ratio was 0.92 versus 0.93 in Q4 2018 and 1.05 in Q1 2018.
- Operating cash flow improved substantially, while capital expenditures declined. Debt decreased from $27.1 million at December 31, 2018 to $25.9 million.
- The company adopted the new lease accounting standard on January 1, 2019, recording a $9.9 million operating lease right-of-use asset and approximately $10.1 million of related lease liabilities, net of interest. Opening retained earnings included a $0.5 million lease-related adjustment.
Guidance, Outlook, Commentary, Risks, and Unusual Items
The filing does not provide specific revenue, earnings, or margin guidance. Management stated that current cash, credit facilities, and projected operating cash flow should satisfy liquidity needs for at least the next 12 months. The $30.0 million secured revolving facility was available subject to the credit agreement, and the company was in compliance with its financial covenants at March 30, 2019.
- Management continues to pursue automation, manufacturing transfers, facility consolidation, research and development, and strategic acquisitions. Additional restructuring and severance costs may arise from future cost-reduction initiatives.
- A new Israel facility of approximately 121,400 square feet is expected to begin occupancy in December 2019 to support the advanced sensors business.
- No restructuring costs were recorded in either comparable quarter, and no legal proceedings or material changes to previously reported risk factors were disclosed.
- Key risks include weaker demand or order cancellations, the Force Sensors downturn, backlog and book-to-bill below one, foreign exchange volatility, tariffs and trade regulation, political and economic instability, acquisition integration, technology and product-development execution, and cost-reduction implementation.
- Foreign exchange reduced Q1 2019 revenue by approximately $2.5 million versus the prior year and increased the reported foreign exchange loss to $0.7 million from $0.5 million.
- Tax positions remain subject to examination; an unfavorable resolution of uncertain tax matters could increase expense and require cash payments, including interest and penalties.
Investor Verification Checklist
- Verify whether the Force Sensors revenue decline and lower OEM demand are temporary or indicate sustained weakness.
- Monitor backlog, book-to-bill, and segment order trends, particularly because consolidated book-to-bill was below one.
- Assess whether the Q1 gross-margin improvement is sustainable or reflects temporary volume, manufacturing, export-grant, or currency benefits.
- Confirm the availability of the revolving facility, covenant headroom, and debt repayment schedule through the December 2020 credit agreement maturity.
- Evaluate the concentration of cash outside the United States, planned repatriations, and related tax costs.
- Track execution, capital spending, lease obligations, and potential restructuring costs associated with the new Israel facility and manufacturing transfers.