Vishay Precision Group, Inc. — Q1 2023 Form 10-Q Summary
Business context and reporting period
Vishay Precision Group is a global provider of precision measurement and sensing technologies, operating through Sensors, Weighing Solutions, and Measurement Systems. The unaudited quarter ended April 1, 2023 is compared primarily with the quarter ended April 2, 2022.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net revenues | $88.9 million | $87.7 million | +1.4% |
| Gross profit | $37.2 million | $35.3 million | +5.5% |
| Gross margin | 41.9% | 40.2% | +1.7 percentage points |
| Operating income | $9.9 million | $8.3 million | +19.4% |
| Operating margin | 11.2% | 9.5% | +1.7 percentage points |
| Net earnings attributable to VPG stockholders | $7.0 million | $6.4 million | +9.6% |
| Diluted EPS | $0.51 | $0.46 | +10.9% |
| Adjusted EBITDA | $14.1 million | $12.6 million | +12.1% |
| Adjusted EBITDA margin | 15.9% | 14.4% | +1.5 percentage points |
Cash provided by operating activities was $8.4 million, compared with cash used in operations of $0.3 million in the prior-year quarter. Capital expenditures were $3.5 million, resulting in management-defined adjusted free cash flow of $4.9 million. Cash and equivalents were $93.3 million at April 1, 2023, versus $88.6 million at December 31, 2022.
Debt consisted of $61.0 million drawn under the revolving facility, or $60.8 million net of deferred financing costs. Reported net cash was $32.5 million. The company reported a current ratio of 4.3 to 1.0 and compliance with its debt covenants.
Segment performance and material changes
| Segment | Q1 2023 revenue | Year-over-year change | Q1 2023 gross margin |
|---|---|---|---|
| Sensors | $36.7 million | -2.7% | 41.2% |
| Weighing Solutions | $31.9 million | -2.8% | 34.9% |
| Measurement Systems | $20.3 million | +18.3% | 53.9% |
- Revenue growth was driven primarily by higher volume in Measurement Systems, particularly the Steel market.
- Sensors revenue declined because of lower advanced-sensor sales in other markets, including consumer applications, partly offset by stronger precision resistor and avionics, military and space demand.
- Weighing Solutions revenue declined mainly because of lower load-cell sales in Industrial Weighing.
- Company-wide gross margin improved because of higher selling prices, favorable foreign exchange effects, manufacturing efficiencies, and higher Measurement Systems volume. Weighing Solutions margin declined because of higher material costs, lower volume, and unfavorable mix.
- SG&A increased to $27.2 million from $26.7 million, reflecting higher wages, travel, commissions, and other fees.
- Interest expense increased to $1.0 million from $0.3 million, primarily because of higher borrowing rates.
- The effective tax rate increased to 24.1% from 20.7%, primarily due to worldwide income mix and a higher valuation allowance on deferred tax assets.
End-of-period backlog was $150.4 million, down from $155.0 million at December 31, 2022 and $170.6 million at April 2, 2022. The overall book-to-bill ratio was 0.94, compared with 0.76 in the prior quarter and 1.25 in the prior-year quarter.
Outlook, commentary, risks, and unusual items
Management stated that existing cash, credit facilities, and projected operating cash flow are expected to meet liquidity needs for at least the next 12 months. The filing does not provide quantitative full-year revenue or earnings guidance.
- Management continues to pursue product innovation, automation, manufacturing transfers, facility consolidation, cost reduction, and strategic acquisitions.
- Further manufacturing consolidation may result in additional restructuring and severance costs. Restructuring expense was $0.1 million in Q1 2023 versus $0.3 million in Q1 2022.
- Foreign currency effects reduced revenue by approximately $2.4 million year over year but reduced costs by approximately $3.6 million.
- Adjusted results excluded acquisition purchase-accounting adjustments, restructuring costs, and foreign-currency effects in both periods; prior-year adjustments also included COVID-19 and start-up costs.
- Principal risks include economic and inflationary conditions, labor and supply-chain challenges, foreign-exchange volatility, geopolitical and military instability, tariffs and trade restrictions, acquisition execution, product development, cost-reduction execution, and export-control compliance.
- On May 5, 2023, after quarter-end, the company amended its credit agreement to replace LIBOR with a term SOFR-based rate for U.S. dollar loans and update other benchmark rates, effective June 15, 2023. Management does not expect a material operating impact.
- Approximately 92% of cash was held by non-U.S. subsidiaries, and most foreign earnings were considered indefinitely reinvested.
Important facts for investors to verify
- Whether the sub-one overall book-to-bill ratio and declining backlog persist in subsequent quarters.
- Whether Measurement Systems growth offsets continued weakness in Sensors and Weighing Solutions.
- Further effects of higher material costs, interest rates, tax rates, and foreign-exchange movements on margins and earnings.
- Availability under the $75.0 million revolving facility, covenant headroom, and the financial effects of the benchmark-rate transition.
- Potential additional restructuring charges and the timing and benefits of manufacturing consolidation.
- Execution and valuation risks associated with planned or potential acquisitions.
- Management’s future quantitative guidance, which was not provided in this filing.