Vishay Precision Group, Inc. — 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021, including fourth-quarter 2021 results. VPG provides precision measurement technologies through three reporting segments: Sensors, Weighing Solutions, and Measurement Systems. In the fourth quarter, the Company formally adopted its operationally diversified structure and recast prior-period segment information.
Business Context and Reporting Period
- Products include precision resistors, strain gages, load cells, onboard weighing systems, steel-production measurement systems, thermal-mechanical simulation systems, and data-acquisition systems.
- VPG operates globally across industrial, test and measurement, transportation, steel, medical, agriculture, avionics, military and space, and consumer markets.
- The Company acquired Diversified Technical Systems, Inc. (“DTS”) on June 1, 2021 for $47.2 million. DTS reports within Measurement Systems.
Key Financial Metrics
| Metric | FY 2021 | FY 2020 | Change |
|---|---|---|---|
| Net revenues | $317.9 million | $269.8 million | 17.8% increase |
| Gross profit | $125.1 million | $104.3 million | 20.0% increase |
| Gross margin | 39.4% | 38.6% | 0.8 percentage-point increase |
| Operating income | $27.4 million | $22.7 million | 20.8% increase |
| Operating margin | 8.6% | 8.4% | 0.2 percentage-point increase |
| Net earnings attributable to VPG stockholders | $20.2 million | $10.8 million | 87.5% increase |
| Diluted EPS | $1.48 | $0.79 | Increase |
| Effective tax rate | 21.1% | 41.0% | Decrease |
| Cash flow from operations | $33.5 million | $35.3 million | Decrease |
| Capital expenditures | $17.1 million | $22.9 million | Decrease |
| Adjusted free cash flow | $16.7 million | Not clearly provided | Not comparable from filing text |
Non-GAAP profitability: Adjusted operating income was $35.2 million, or an 11.1% margin, compared with $26.2 million, or a 9.7% margin, in 2020. Adjusted EBITDA was $49.9 million, or a 15.7% margin, compared with $38.0 million, or a 14.1% margin.
Segment and Fourth-Quarter Performance
| Segment | FY 2021 Revenue | FY 2021 Revenue Change | FY 2021 Gross Margin |
|---|---|---|---|
| Sensors | $127.9 million | 5.9% increase | 35.6% |
| Weighing Solutions | $125.4 million | 23.7% increase | 36.6% |
| Measurement Systems | $64.7 million | 35.7% increase | 52.2% |
- Fourth-quarter 2021 consolidated revenue was $90.0 million, up 19.3% from the fourth quarter of 2020 and 9.8% sequentially.
- Fourth-quarter backlog increased to $150.5 million from $87.6 million at the end of the fourth quarter of 2020. The Company cautions that orders may be canceled or rescheduled without penalty.
- Fourth-quarter book-to-bill was 1.06, while quarterly gross margin was 38.7%.
- Measurement Systems benefited from DTS and higher KELK and DSI steel-related sales. Sensors experienced pressure from foreign exchange, wage increases, and labor inefficiencies. Weighing Solutions was affected by product mix and higher material costs.
Liquidity, Debt, and Capital Resources
- Cash and cash equivalents were $84.3 million at December 31, 2021, compared with $98.4 million at December 31, 2020.
- Total third-party debt was $60.7 million, consisting primarily of $61.0 million outstanding under the secured revolving credit facility, net of deferred financing costs.
- Net cash, as defined by management, was $23.6 million versus $57.8 million in the prior year.
- The revolving facility has aggregate commitments of $75.0 million, may be increased by up to $25.0 million subject to conditions, and terminates March 20, 2025. The Company was in compliance with its financial covenants at year-end.
- Approximately 87% of cash and cash equivalents were held outside the United States. Potential repatriation may result in withholding and other taxes.
- Management expects cash, credit facilities, and projected operating cash flow to satisfy liquidity needs for at least the next 12 months.
Material Changes Versus the Prior Comparable Period
- Revenue growth reflected higher volume across all reporting segments, the DTS acquisition, and favorable foreign currency effects. Acquisitions contributed approximately 7.1 percentage points to consolidated revenue growth.
- Weighing Solutions recovered from COVID-19-related production restrictions in India during 2020.
- Gross margin improved overall, although Sensors margin declined to 35.6% from 39.3% because of start-up inefficiencies at the new Israel facility.
- SG&A increased to $95.3 million from $78.3 million, primarily due to DTS-related expenses, higher personnel costs, and foreign exchange effects.
- Income tax expense declined to $5.5 million from $7.5 million, and the effective tax rate fell primarily because of changes in valuation allowances and the DTS acquisition.
- Operating cash flow declined modestly despite higher earnings, reflecting increased accounts receivable and inventory balances.
- Goodwill and indefinite-lived intangible asset impairment declined to $1.2 million from $2.4 million. The 2021 charge related primarily to the instrumentation reporting unit.
Guidance, Outlook, Risks, and Unusual Items
- Management did not provide consolidated revenue or earnings guidance in the filing.
- Capital expenditures for 2022 are expected to be approximately $32.4 million, including capacity expansion in Sensors and Asia.
- Management expects continued investment in research and development, automation, manufacturing transfers, and strategic acquisitions. R&D expense was $17.2 million in 2021.
- Key unusual or nonrecurring items included DTS acquisition costs of $1.2 million, acquisition-related purchase accounting adjustments of $2.8 million, Israel facility start-up costs of $3.2 million, impairment charges of $1.2 million, and restructuring costs of $0.1 million.
- Major risks include COVID-19 effects, labor shortages, supply-chain disruption, raw-material costs and availability, foreign currency volatility, tariffs and trade restrictions, geopolitical risks including Israel operations, competition, acquisition integration, cybersecurity, ERP implementation, product qualification, and customer order cancellations.
- A 10% adverse foreign-currency movement was estimated to affect 2021 net earnings by approximately $3.0 million. A 10% change in commodity-sensitive raw-material costs was estimated to affect net earnings by approximately $1.9 million.
- The Company identified DSI goodwill and indefinite-lived trade name valuation as a critical audit matter; fair value exceeded carrying value by approximately 12% and 15%, respectively, making the balances sensitive to changes in forecasts, discount rates, and growth assumptions.
- Internal controls were assessed as effective, but DTS was excluded from management’s internal-control assessment because it was acquired during 2021. DTS represented 4.4% of total assets and 6.0% of 2021 net revenue.
Most Important Facts an Investor Should Verify
- Reconcile reported GAAP earnings with adjusted earnings and EBITDA, including all acquisition, start-up, impairment, restructuring, COVID-19, and tax adjustments.
- Assess whether the $150.5 million backlog and book-to-bill trends convert into revenue, given cancellation and rescheduling rights.
- Monitor Sensors margin recovery following the Israel facility start-up and evaluate the planned 2022 capital expansion.
- Review DTS integration, provisional purchase accounting, goodwill, and intangible-asset valuation assumptions.
- Evaluate leverage, covenant headroom, variable-rate exposure, and the March 2025 revolving-facility maturity.
- Assess the concentration of cash outside the United States and potential tax costs of repatriation.
- Track labor availability, material costs, supply-chain continuity, foreign exchange, and geopolitical exposure.
- Consider governance implications of Class B shares, which carry ten votes per share and provide concentrated voting control.