Vishay Precision Group, Inc. — Q1 2022 Form 10-Q Summary
Business context and reporting period
VPG is a global precision measurement sensing company serving industrial, test and measurement, transportation, steel, medical, agriculture, avionics, military and space markets. Its three reporting segments are Sensors, Weighing Solutions and Measurement Systems. The filing covers the fiscal quarter ended April 2, 2022, compared primarily with the quarter ended April 3, 2021.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net revenues | $87.7 million | $70.6 million | Up 24.2% |
| Gross profit | $35.3 million | $28.6 million | Up 23.2% |
| Gross margin | 40.2% | 40.5% | Down 0.3 points |
| Operating income | $8.3 million | $6.4 million | Up 29.1% |
| Operating margin | 9.5% | 9.1% | Up 0.4 points |
| Net earnings attributable to VPG stockholders | $6.4 million | $5.0 million | Up 28.1% |
| Diluted EPS | $0.46 | $0.36 | Up $0.10 |
| Cash flow from operating activities | $(0.3) million | $5.6 million | Decreased $5.9 million |
| Capital expenditures | $4.3 million | $5.7 million | Down $1.4 million |
| Adjusted free cash flow | $(4.6) million | Not clearly provided | Not comparable from filing data |
Segment revenue was $37.8 million for Sensors, $32.8 million for Weighing Solutions and $17.1 million for Measurement Systems. End-of-period backlog increased to $170.6 million from $150.5 million at year-end 2021, and the company-wide book-to-bill ratio was 1.25.
At April 2, 2022, cash and cash equivalents were $78.2 million, compared with $84.3 million at December 31, 2021. Revolving debt was $61.0 million, producing reported net cash of $17.4 million. The current ratio was 4.0 to 1.0. Approximately 89% of cash was held by non-U.S. subsidiaries.
Material changes versus the prior comparable period
- Revenue growth reflected higher volume of 13.1%, pricing of 2.0%, acquisition contribution of 10.9% and an unfavorable foreign-currency effect of 1.8%.
- Measurement Systems revenue increased 119.7%, principally because of the June 2021 acquisition of Diversified Technical Systems, Inc. (DTS), which contributed $7.7 million of revenue in the quarter.
- Sensors revenue increased 18.7%, while Weighing Solutions revenue increased 5.8%.
- Gross margin declined slightly because of start-up costs, COVID-19 effects, wage increases, labor inefficiencies, higher material prices and unfavorable foreign exchange.
- SG&A increased $4.5 million, including $4.1 million attributable to DTS and additional wage and other costs.
- Restructuring costs were $0.3 million, compared with none in the prior-year quarter, primarily for employee termination costs related to a facility closure.
- The effective tax rate decreased to 20.7% from 26.3%, primarily because of a reduction in the valuation allowance on certain tax credits.
- Operating cash flow declined to negative $0.3 million, principally reflecting working-capital investment associated with the company’s high backlog, including increases in inventories and prepaid assets.
Guidance, outlook, commentary and risks
The filing does not provide explicit quantitative full-year revenue, earnings or cash-flow guidance. 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.
Management highlighted continued opportunities from precision sensing applications, product innovation, automation, manufacturing transfers and strategic acquisitions. It is evaluating additional manufacturing consolidation and cost-reduction initiatives, which could result in future restructuring and severance costs.
The $75.0 million secured revolving credit facility matures March 20, 2025 and permits up to $25.0 million of additional capacity subject to the agreement. The company stated it was in compliance with its financial covenants at December 31, 2021; the filing does not clearly provide a covenant-compliance certification as of April 2, 2022.
Key risks include inflation, labor and supply-chain constraints, COVID-19 disruption, foreign-exchange volatility, political and military instability, tariffs and trade restrictions, acquisition integration, execution of manufacturing transfers, product-development risks and potential goodwill impairment. The company also remains exposed to tax-authority challenges and possible changes in tax expense or cash payments.
Unusual items included $0.3 million of restructuring costs, a $0.2 million loss on liquidation of two European subsidiaries, DTS purchase-accounting adjustments and start-up costs at the new advanced sensors facility in Israel. Adjusted EBITDA was $12.6 million, or 14.4% of revenue, versus $9.5 million, or 13.5%, in the prior-year quarter; these are non-GAAP measures.
Important facts for investors to verify
- Whether backlog conversion supports continued revenue growth without further deterioration in operating cash flow.
- The sustainability of margins amid wage inflation, material-cost increases, foreign exchange and advanced-sensors facility start-up costs.
- DTS integration progress, including the durability of its revenue contribution and the effect of purchase-accounting amortization.
- Available borrowing capacity, applicable interest rates and compliance with all revolving-credit covenants.
- The geographic concentration of cash and the tax consequences of repatriating foreign subsidiary earnings.
- Potential additional restructuring charges from manufacturing consolidation plans.
- The final tax impact of new foreign-tax-credit and foreign-derived-intangible-income regulations.
- Whether currency movements, COVID-19 effects and supply-chain constraints materially affect subsequent quarters.