Preformed Line Products Company — Fiscal 2022 Form 10-K Summary
Business context and reporting period
Preformed Line Products Company designs and manufactures hardware and systems supporting overhead, ground-mounted and underground energy, telecommunications, data communication, solar and electric-vehicle infrastructure. The company operates in 20 countries and reports four geographic segments: PLP-USA, The Americas, EMEA and Asia-Pacific. This Form 10-K covers the fiscal year ended December 31, 2022, with comparisons to 2021 and 2020.
Energy products represented approximately 59% of 2022 revenue, communications products 33%, and special industries products 8%. International sales represented 47% of consolidated revenue. One customer accounted for 12.5% of consolidated revenue.
Financial performance and key metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net sales | $637.0 million | $517.4 million | 23.1% increase |
| Gross profit | $215.2 million | $166.2 million | 29.4% increase |
| Gross margin | 33.8% | 32.1% | 170 basis-point increase |
| Operating income | $69.4 million | $47.5 million | 45.9% increase |
| Operating margin | 10.9% | 9.2% | 170 basis-point increase |
| Net income attributable to PLP shareholders | $54.4 million | $35.7 million | 52.2% increase |
| Diluted earnings per share | $10.88 | $7.19 | 51.3% increase |
| Net cash provided by operating activities | $26.2 million | $33.6 million | $7.5 million decrease |
Revenue growth was driven primarily by higher volume and pricing in PLP-USA, contributions from the Maxxweld and Delta acquisitions in The Americas, and communications volume growth in EMEA. Excluding currency translation, consolidated sales increased approximately 27.8%. Foreign currency translation reduced reported sales by $24.2 million.
Raw material and transportation inflation affected PLP-USA cost of sales by approximately $23.2 million. Price increases implemented in the United States and internationally helped offset these pressures. Research and development expense increased to $4.5 million from $3.3 million.
At December 31, 2022, cash, cash equivalents and restricted cash were $37.2 million, current assets were $328.2 million, and current liabilities were $115.3 million, producing a current ratio of 2.8 to 1. Total debt was $89.5 million, compared with $59.6 million at December 31, 2021. The company had $43.3 million of unused credit-facility availability and was in compliance with its debt covenants.
Capital expenditures were $40.6 million, acquisitions used $16.2 million, dividends paid were $4.1 million, and share repurchases were approximately $5.5 million. The company paid quarterly dividends of $0.20 per share, or $0.80 per share for the year.
Backlog was approximately $379.4 million at year-end 2022 versus $242.9 million at year-end 2021. Substantially all of the 2022 year-end backlog was expected to ship in 2023.
Material changes versus the prior comparable period
- Sales increased 23%, while gross margin and operating margin each improved by approximately 170 basis points.
- PLP-USA sales increased 32% to $340.3 million, supported by energy and communications volume and prior price increases.
- The Americas benefited from the Maxxweld and Delta acquisitions; EMEA benefited from communications volume growth; Asia-Pacific sales were largely constrained by COVID-19 mitigation measures and China’s buy-local policies.
- Operating costs increased 23%, including a $6.5 million non-cash goodwill impairment charge related to Asia-Pacific.
- Other income included a $4.4 million gain from settlement of a company-owned life insurance policy.
- The company recorded approximately $1.0 million of charges related to winding down Russian operations following the conflict in Ukraine.
- Debt increased by approximately $30.0 million, principally to fund capital expenditures and acquisitions.
- Cash flow from operations declined despite higher net income, primarily because accounts receivable and inventory required substantially greater working-capital investment.
- The company acquired Maxxweld for approximately $11.2 million, Holplast for approximately $5.3 million and Delta for approximately $3.8 million during 2022.
- On February 1, 2023, the company acquired substantially all assets of Pilot Plastics for approximately $11.5 million, funded with borrowings under the credit facility.
Guidance, outlook, risks and unusual items
Management did not provide formal numerical earnings or revenue guidance. Management cited strong demand, record sales and a substantial backlog as supporting continued growth in 2023. Price increases were expected to provide a benefit in 2023, although additional inflation could require further price increases and potentially reduce demand.
Key risks include raw-material and freight inflation, supply-chain disruption, customer capital-spending reductions, intense competition, technological changes affecting wireline infrastructure, foreign currency volatility, geopolitical instability, rising interest rates, cybersecurity incidents, labor availability, environmental and regulatory obligations, and climate-related disruptions.
The Asia-Pacific goodwill impairment reflected weaker regional results, revised forecasts, COVID-19-related market headwinds and higher discount rates. Goodwill impairment assessments remain sensitive to revenue growth, operating margins, weighted-average cost of capital and market multiples.
The company is a defendant in an Alberta, Canada case involving alleged defects in spacer dampers. The plaintiff seeks approximately C$56.0 million from multiple defendants. PLP believes the claims are without merit, has reserved the low end of its estimated loss range, and states that an adverse resolution could materially affect results.
The $90.0 million credit facility was amended to use SOFR and matures March 2, 2026. Variable-rate borrowings expose the company to higher interest expense; a 100-basis-point increase in rates would have increased 2022 interest expense by approximately $0.6 million.
Management and Ernst & Young reported effective internal control over financial reporting and effective disclosure controls. The 2022 acquisitions, representing approximately 5.0% of total assets and 2.4% of net sales, were excluded from management’s internal-control assessment.
Important facts for investors to verify
- Whether the $379.4 million backlog converts into 2023 shipments and revenue as expected.
- The sustainability of price increases and gross-margin improvement amid continued material, freight and labor inflation.
- Whether Asia-Pacific operations recover or require additional goodwill or asset impairments.
- Debt maturities, floating-rate exposure, credit-facility covenants and the effect of the Pilot Plastics acquisition on leverage.
- Working-capital requirements, particularly the substantial increases in receivables and inventories.
- The outcome and adequacy of reserves for the Alberta spacer-damper litigation.
- Integration results and purchase-accounting adjustments for Maxxweld, Holplast, Delta and Pilot Plastics.
- The effect of foreign exchange movements, geopolitical events and the Russian exit on reported international results.
- The company’s ability to maintain dividends and share repurchases while funding capital expenditures and acquisitions.