Vishay Precision Group, Inc. — 2020 Q3 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. The company reports three segments: Foil Technology Products, Force Sensors, and Weighing and Control Systems. The filing covers the 13-week fiscal quarter and nine fiscal months ended September 26, 2020, compared with September 28, 2019.
Key Financial Metrics
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Net revenues | $67.5 million | $67.4 million | $194.4 million | $214.8 million |
| Gross profit | $27.3 million | $25.8 million | $75.5 million | $87.5 million |
| Gross margin | 40.5% | 38.3% | 38.9% | 40.7% |
| Operating income | $8.1 million | $6.2 million | $16.7 million | $26.9 million |
| Operating margin | 12.0% | 9.2% | 8.6% | 12.5% |
| Net earnings attributable to VPG stockholders | $5.6 million | $4.5 million | $10.7 million | $18.3 million |
| Diluted EPS | $0.41 | $0.33 | $0.78 | $1.35 |
| Cash provided by operating activities | Not separately provided | Not separately provided | $22.8 million | $24.6 million |
Q3 revenue was essentially flat year over year, while gross profit increased 6.0% and operating income increased 31.3%. Nine-month revenue declined 9.5%, operating income declined 37.8%, and diluted EPS declined 42.2%. Q3 SG&A was $19.1 million, or 28.4% of revenue, compared with 28.3% in the prior-year quarter. The effective tax rate was 27.1% in Q3 and 29.0% for the first nine months.
At September 26, 2020, cash and cash equivalents were $89.8 million, compared with $86.9 million at December 31, 2019. Total debt was $40.7 million, including $41.0 million of revolving debt, net of $0.4 million of deferred financing costs. Management reported net cash of $49.1 million and a current ratio of 4.6 to 1.0. Capital expenditures were $15.8 million for the first nine months, compared with $8.6 million in the prior-year period. Management-defined adjusted free cash flow was $7.4 million.
Material Changes Versus the Prior Comparable Period
- Q3 revenue increased $0.1 million, or 0.2%, despite a 6.6% volume decline, due principally to the DSI acquisition and foreign currency effects.
- Q3 gross margin improved 220 basis points, primarily from manufacturing efficiencies, cost controls, higher Force Sensors volume, and favorable foreign exchange, partly offset by product mix in Weighing and Control Systems.
- For the first nine months, revenue fell $20.4 million, primarily from lower volume across all segments. Force Sensors revenue fell 24.0%, including the effect of Indian production restrictions.
- Foil Technology Products revenue increased 2.5% in Q3 but declined 6.9% year to date. Force Sensors revenue declined 14.5% in Q3 and 24.0% year to date. Weighing and Control Systems revenue increased 8.8% in Q3 and declined 2.6% year to date.
- Q3 restructuring costs were $0.1 million versus $0.5 million in the prior-year quarter. Year-to-date restructuring costs were $0.7 million versus $0.5 million, while the prior-year period also included $0.6 million of executive severance.
- Q3 2019 included a one-time $0.8 million gain on liquidation of a subsidiary, which was not repeated in 2020.
- VPG completed the $40.3 million acquisition of Dynamic Systems Inc. in November 2019. DSI contributed to Weighing and Control Systems revenue; the company recorded a $0.2 million purchase-price adjustment during 2020.
- The company entered into a new $75.0 million secured revolving credit facility in March 2020, replacing prior revolving and term facilities. The facility matures March 20, 2025 and permits a potential additional $25.0 million, subject to terms.
Outlook, Management Commentary, Risks, and Unusual Items
Management stated that all facilities were operating without limitations as of November 3, 2020. Indian government restrictions on the Force Sensors facility were lifted July 1, 2020; management estimated that the restrictions reduced Q3 Force Sensors revenue by approximately $2.5 million and operating income by approximately $1.0 million, and reduced nine-month revenue by approximately $10 million and operating income by approximately $4 million from pre-COVID run-rate levels.
The filing does not provide formal revenue or earnings guidance. Management believes cash, credit facilities, and projected operating cash flow will be sufficient to meet liquidity needs for at least the next 12 months. The company was in compliance with its interest coverage and leverage covenants at September 26, 2020. The credit agreement restricts cash dividends and is secured by substantially all assets, excluding real estate.
Key risks include the duration and economic effects of COVID-19, foreign currency volatility, international political and economic conditions, supply-chain and manufacturing disruptions, tariffs and trade regulation, execution of cost-reduction and facility-consolidation programs, acquisition integration and realization of synergies, product development and technology changes, customer order cancellations or rescheduling, and potential goodwill impairment. The company also recorded a $14.8 million operating lease right-of-use asset and corresponding liability for a new Israeli manufacturing facility during the second quarter.
Most Important Facts for Investors to Verify
- Whether the recovery of the Indian Force Sensors operation is sustained and whether COVID-19 disruptions recur.
- Whether DSI integration produces expected revenue, cost, and strategic benefits without additional purchase-accounting or restructuring charges.
- Force Sensors volume recovery, segment margins, and the effect of reduced export grants and product mix.
- Compliance with leverage and interest-coverage covenants and available capacity under the $75.0 million revolving facility.
- The sustainability of Q3’s 40.5% gross margin and 12.0% operating margin after excluding or including restructuring, COVID-19, and acquisition-related items.
- Capital spending requirements and cash availability, including the concentration of approximately 91% of cash at non-U.S. subsidiaries.
- Potential additional restructuring costs and the carrying values of goodwill and acquired intangible assets.