Vishay Precision Group, Inc. — FY2022 Form 10-K Summary
Business context and reporting period
Vishay Precision Group (VPG), listed on the NYSE under VPG, designs and manufactures precision measurement and sensing technologies, including sensors, weighing solutions, and measurement systems. Its products serve industrial, test and measurement, transportation, steel, medical, agriculture, avionics, military, space, and consumer applications. The filing covers the fiscal year ended December 31, 2022, with fourth-quarter information included.
VPG reports three segments: Sensors, Weighing Solutions, and Measurement Systems. The company had approximately 2,700 employees at year-end, with approximately 84% located outside the United States.
Financial performance and key metrics
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net revenues | $362.6 million | $317.9 million | +14.0% |
| Gross profit | $149.6 million | $125.1 million | +19.5% |
| Gross margin | 41.3% | 39.4% | +1.9 percentage points |
| Operating income | $43.8 million | $27.4 million | +60.0% |
| Operating margin | 12.1% | 8.6% | +3.5 percentage points |
| Net earnings attributable to VPG stockholders | $36.1 million | $20.2 million | +78.4% |
| Diluted EPS | $2.63 | $1.48 | +77.7% |
| Cash flow from operations | $33.0 million | $33.5 million | Down slightly |
| Capital expenditures | $21.3 million | $17.1 million | Higher investment |
| Adjusted free cash flow | $12.2 million | Not clearly provided in the filing text | Not comparable |
Adjusted, non-GAAP results were gross profit of $151.4 million, operating income of $47.2 million, net earnings attributable to VPG stockholders of $35.9 million, diluted EPS of $2.62, and adjusted EBITDA of $62.0 million. Adjusted EBITDA margin was 17.1%, compared with 15.7% in 2021.
| Segment | FY2022 Revenue | FY2021 Revenue | FY2022 Margin | Margin Change |
|---|---|---|---|---|
| Sensors | $152.2 million | $127.9 million | 40.1% | +4.5 percentage points |
| Weighing Solutions | $125.7 million | $125.4 million | 34.3% | -2.3 percentage points |
| Measurement Systems | $84.6 million | $64.7 million | 53.6% | +1.4 percentage points |
At December 31, 2022, cash and cash equivalents were $88.6 million, total debt was $60.8 million net of deferred financing costs, and reported net cash was $27.8 million. The current ratio was 3.9 to 1.0. Approximately 83% of cash and cash equivalents were held by non-U.S. subsidiaries.
Fourth-quarter 2022 performance
- Revenue was $96.2 million, up 6.9% sequentially and 6.9% year over year.
- Gross margin was 41.2%, compared with 41.4% in the third quarter and 38.7% in the fourth quarter of 2021.
- Sensors revenue was $36.3 million, up 6.3% year over year but down 4.1% sequentially.
- Weighing Solutions revenue was $33.1 million, up 3.2% year over year and 5.4% sequentially.
- Measurement Systems revenue was $26.8 million, up 12.8% year over year and 29.2% sequentially.
- Company-wide backlog ended the quarter at $155.0 million, down from $171.7 million at the end of the third quarter. The fourth-quarter book-to-bill ratio was 0.76.
Material changes versus the prior comparable period
- Revenue growth was driven by higher volume, average selling price increases, and the inclusion of DTS revenue, partly offset by a $16.1 million adverse foreign-exchange effect on revenue.
- Sensors revenue increased 19.1%, primarily from precision resistors and advanced sensors. Its margin improved to 40.1% from 35.6%.
- Weighing Solutions revenue was essentially flat as pricing and volume gains were largely offset by foreign-exchange effects. Margin declined because of higher material costs, unfavorable product mix, and inventory reductions.
- Measurement Systems revenue increased 30.9%, benefiting from DTS, KELK, and DSI sales. Margin improved to 53.6%.
- SG&A increased to $104.3 million from $95.3 million, reflecting DTS-related costs, wage increases, travel, and other fees, while SG&A as a percentage of revenue declined to 28.8% from 30.0%.
- Interest expense increased to $2.3 million from $1.2 million as borrowing rates rose.
- The effective tax rate declined to 18.9% from 21.1%, primarily due to geographic earnings mix and releases of uncertain tax reserves.
- The company recorded $1.5 million of restructuring costs in 2022 versus $0.1 million in 2021. No goodwill or indefinite-lived intangible impairment was recorded in 2022, compared with $1.2 million in 2021.
Liquidity, debt, guidance, and outlook
- VPG believes existing cash, credit facilities, and projected operating cash flow will fund liquidity needs for at least the next 12 months.
- The secured revolving credit facility provides $75.0 million of capacity, with potential expansion of up to $25.0 million, and terminates March 20, 2025. Borrowings outstanding were $61.0 million at year-end.
- The credit agreement includes interest coverage and leverage covenants, restricts cash dividends, and is secured by substantially all assets of the company and certain guarantors. VPG reported compliance at December 31, 2022.
- Management expects 2023 capital expenditures of approximately $18.5 million, including approximately $10.4 million for Sensors capacity expansion and $5.9 million for building projects, mainly in Asia.
- Management expects to continue automation, manufacturing transfers, facility consolidation, research and development, and strategic acquisitions. No specific revenue or earnings guidance was provided.
Risks, contingencies, and unusual items
- Demand is cyclical, and backlog may be canceled or rescheduled without penalty. The fourth-quarter book-to-bill ratio below one indicates weaker incoming orders than shipments during the quarter.
- Key risks include inflation, supply-chain disruption, labor shortages, raw-material costs and availability, foreign-exchange volatility, rising interest rates, tariffs and trade restrictions, geopolitical instability, and operations in Israel, China, India, and other international markets.
- VPG relies on certain specialized materials from a limited number of suppliers, including some single-source suppliers, and estimates that a 10% change in raw-material costs could affect 2022 net earnings by approximately $2.5 million.
- A hypothetical 10% adverse foreign-currency movement would have affected 2022 net earnings by approximately $3.6 million; the company had no currency hedging arrangements at year-end.
- VPG voluntarily self-disclosed export-control filing noncompliance involving certain 2022 shipments. Management does not believe the matter will materially affect the business, results, cash flows, or financial condition, but fines or penalties remain possible.
- The DSI goodwill reporting unit had a relatively narrow impairment cushion: fair value exceeded carrying value by approximately 8% at year-end. Changes in forecasts, discount rates, or long-term growth assumptions could result in future impairment.
- Approximately $233.2 million of undistributed foreign earnings were reported at year-end. Additional withholding taxes of approximately $24.7 million were estimated if the remaining earnings were distributed.
- The company repurchased 85,213 shares under a 600,000-share authorization during 2022. The credit agreement restricts cash dividends.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. Goodwill valuation for the DSI reporting unit was identified as the critical audit matter.
Most important facts for investors to verify
- Whether the decline in fourth-quarter backlog and 0.76 book-to-bill ratio persists into 2023.
- Whether Sensors and Measurement Systems margin improvements offset continued pressure in Weighing Solutions.
- Execution and returns from the planned $18.5 million of 2023 capital expenditures and manufacturing expansions.
- Debt repayment or refinancing plans before the March 2025 revolving-facility maturity, including the effect of higher interest rates.
- Progress and remaining costs from restructuring, automation, and facility-consolidation initiatives.
- Potential outcomes of the export-control self-disclosure, tax audits, foreign withholding taxes, and other contingencies.
- Whether DSI and DTS achieve the assumptions supporting their goodwill valuations, particularly the limited DSI impairment cushion.
- Currency, raw-material, labor, geopolitical, and supply-chain developments affecting margins and cash flow.