VISHAY PRECISION GROUP, INC. Overview
VPG is a global, diversified company focused on precision measurement sensing technologies, including specialized sensors, weighing solutions, and measurement systems. Many of our precision measurement sensing products and solutions are "designed-in" by our customers and address growing applications across a diverse array of industries and markets. Our products are marketed under a variety of brand names that we believe are characterized as having a very high level of precision and quality, and we employ an operationally diversified structure to manage our businesses. Driven by the continued proliferation of data generated by the expanding use of sensors across a widening array of industrial and non-industrial applications, precision measurement technologies help ensure and deliver required levels of quality of mission-critical or high-value data. Over the past few years, we have seen a broadening of precision sensing applications in both our traditional industrial markets and new markets, due to the development of higher functionality in our customers' end products. Our precision measurement solutions are used across a wide variety of end markets upon which we focus, including industrial, test and measurement, transportation, steel, medical, agriculture, avionics, military and space, and consumer product applications. The Company has a long heritage of innovation in sensor technologies that provide accuracy, reliability and repeatability that make our customers' products safer, smarter, and more productive. As the functionality of customers products increases, and they integrate more precision measurement sensors and related systems into their solutions in order to link the mechanical and physical world with digital control and/or response, we believe this will offer substantial growth opportunities for our products and expertise.
Overview of Financial Results
VPG reports in three product segments: the Sensors segment, the Weighing Solutions segment, and the Measurement Systems segment. The Sensors reporting segment is comprised of the foil resistor and strain gage operating segments. The Weighing Solutions segment is comprised of specialized modules and systems used to precisely measure weight, force torque, and pressure. The Measurement Systems reporting segment is comprised of highly specialized systems for steel production, materials development, and safety testing. Net revenues for the fiscal quarter endedOctober 1, 2022 were$90.1 million versus$82.0 million for the comparable prior year period. Net earnings attributable to VPG stockholders for the fiscal quarter endedOctober 1, 2022 were$10.1 million , or$0.74 per diluted share, versus$5.4 million , or$0.39 per diluted share, for the comparable prior year period. Net revenues for the nine fiscal months endedOctober 1, 2022 were$266.3 million versus$227.9 million for the comparable prior year period. Net earnings attributable to VPG stockholders for the nine fiscal months endedOctober 1, 2022 were$27.2 million , or$1.99 per diluted share, versus$14.3 million , or$1.04 per diluted share, for the comparable prior year period. The results of operations for the fiscal quarter and nine fiscal months endedOctober 1, 2022 andOctober 2, 2021 include items affecting comparability as listed in the reconciliations below. The reconciliations below include certain financial measures which are not recognized in accordance withU.S. generally accepted accounting principles ("GAAP"), including adjusted gross profits, adjusted gross profit margin, adjusted operating income, adjusted operating margin, adjusted net earnings, adjusted net earnings per diluted share, EBITDA, and adjusted EBITDA. These non-GAAP measures should not be viewed as an alternative to GAAP measures of performance. Non-GAAP measures such as adjusted gross profits, adjusted gross profit margin, adjusted operating income, adjusted operating margin, adjusted net earnings, adjusted net earnings per diluted share, EBITDA, and adjusted EBITDA do not have uniform definitions. These measures, as calculated by VPG, may not be comparable to similarly titled measures used by other companies. Management believes that these non-GAAP measures are useful to investors because each presents what management views as our core operating results for the relevant period. The adjustments to the applicable GAAP measures relate to occurrences or events that are outside of our core operations, and management believes that the use of these non-GAAP measures provides a consistent basis to evaluate our operating profitability and performance trends across comparable periods. In addition, the Company has historically provided these or similar non-GAAP measures and understands that some investors and financial analysts find this information helpful in analyzing the Company's performance and in comparing the Company's financial performance to that of its peer companies and competitors. Management believes that the Company's non-GAAP measures are regarded as supplemental to its GAAP financial results. -24- --------------------------------------------------------------------------------
Net Earnings Attributable to VPG
Gross Profit Operating Income Stockholders Diluted Earnings Per share
October 2, October 1, October 2, October 1, October 2,
Three months ended October 1, 2022 October 2, 2021 October 1, 2022 2021 2022 2021 2022 2021
As reported - GAAP $ 37,320 $ 31,845 $ 11,884 $ 7,265 $ 10,118 $ 5,379 $ 0.74 $ 0.39
As reported - GAAP
Margins 41.4 % 38.8 % 13.2 % 8.9 %
Acquisition purchase
accounting adjustments
(a) 260 1,329 260 1,329 260 1,329 0.02 0.10
COVID-19 impact (b) - 111 - 111 - 111 - 0.01
Start-up costs (c) - 970 - 970 - 970 - 0.07
Restructuring costs - 165 - 165 - 0.01 -
Foreign currency
exchange (gain)/loss
(d) - - (1,261) 38 (0.09) 0.01
Less: Tax effect of
reconciling items and
discrete tax items - - (194) 754 (0.01) 0.06
As Adjusted - Non GAAP $ 37,580 $ 34,255 $ 12,309 $ 9,675 $ 9,476 $ 7,073 $ 0.69 $ 0.52
As Adjusted - Non GAAP
Margins 41.7 % 41.8 % 13.7 % 11.8 %
Net Earnings Attributable to VPG
Gross Profit Operating Income Stockholders Diluted Earnings Per share
October 1, October 2, October 1, October 2,
Nine fiscal months ended October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021 2022 2021 2022 2021
As reported - GAAP 109,904 90,265 30,750 18,628 $ 27,229 $ 14,260 $ 1.99 $ 1.04
As reported - GAAP
Margins 41.3 % 39.6 % 11.5 % 8.2 %
Acquisition purchase
accounting adjustments
(a) 1,310 2,259 1,310 2,259 1,310 2,259 0.10 0.17
Acquisition costs - - 1,198 - 1,198 - 0.09
COVID-19 impact (b) 138 (66) 138 (574) 138 (574) 0.01 (0.04)
Start-up costs (c) 150 2,258 150 2,258 150 2,258 0.01 0.17
Impairment of goodwill
and indefinite-lived
intangibles - - - 1,223 - 1,223 - 0.09
Restructuring costs 1,330 - 1,330 - 0.10 -
Foreign currency
exchange (gain)/loss (d) (5,195) (523) (0.38) (0.04)
Less: Tax effect of
reconciling items and
discrete tax items (496) 2,160 (0.03) 0.16
As Adjusted - Non GAAP $ 111,502 $ 94,716 $ 33,678 $ 24,992 $ 25,458 $ 17,941 $ 1.86 $ 1.32
As Adjusted - Non GAAP
Margins 41.9 % 41.6 % 12.6 % 11.0 %
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Three months ended Nine fiscal months ended
October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021
Net earnings attributable to VPG
stockholders $ 10,118 $ 5,379 $ 27,341 $ 14,260
Interest Expense 636 328 1,393 906
Income tax expense 2,323 1,662 6,539 3,688
Depreciation 2,937 2,955 8,622 8,691
Amortization 960 970 2,897 2,342
EBITDA 16,974 $ 11,294 46,792 $ 29,887
EBITDA MARGIN 18.8 % 13.8 % 17.6 % 13.1 %
Impairment of goodwill and
indefinite-lived intangibles - - - 1,223
Acquisition purchase accounting
adjustments (a) 260 1,329 1,310 2,259
Acquisition costs - - - 1,198
Restructuring costs 165 - 1,330 -
COVID-19 impact (b) - 111 138 (574)
Start-up costs (c) - 970 150 2,258
Foreign currency exchange (gain)/loss
(d) (1,261) 38 (5,195) (523)
ADJUSTED EBITDA $ 16,138 $ 13,742 $ 44,525 $ 21,986
ADJUSTED EBITDA MARGIN 17.9 % 16.8 % 16.7 % 9.6 %
(a) Acquisition purchase accounting adjustments include fair market value adjustments associated with inventory recorded as a component of costs of products sold.
(b) COVID-19 impact is the net impact to the Company of costs incurred as a result of the COVID-19 pandemic, net of government subsidies received.
(c) Start-up costs in 2022 and 2021 are associated with the ramp up of our new
manufacturing facility in
(d) Impact of foreign currency exchange rates on assets and liabilities.
Financial Metrics
We utilize several financial measures and metrics to evaluate performance and
assess the future direction of our business. These key financial measures and
metrics include net revenues, gross profit margin, end-of-period backlog,
book-to-bill ratio, and inventory turnover.
Gross profit margin is computed as gross profit as a percentage of net revenues.
Gross profit is generally net revenues less costs of products sold, but could
also include certain other period costs. Gross profit margin is a function of
net revenues, but also reflects our cost-cutting programs and our ability to
contain fixed costs.
End-of-period backlog is one indicator of potential future sales. We include in
our backlog only open orders that have been released by the customer for
shipment in the next twelve months. If demand falls below customers' forecasts,
or if customers do not control their inventory effectively, they may cancel or
reschedule the shipments that are included in our backlog, in many instances
without the payment of any penalty. Therefore, backlog is not necessarily
indicative of the results expected for future periods.
Another important indicator of demand in our industry is the book-to-bill ratio,
which is the ratio of the amount of product ordered during a period compared
with the amount of product shipped during that period. A book-to-bill ratio that
is greater than one indicates that revenues may increase in future periods.
Conversely, a book-to-bill ratio that is less than one is an indicator of lower
demand and may foretell declining sales. The book-to-bill ratio is also impacted
by the timing of orders, particularly from our project-based product lines.
We focus on inventory turnover as a measure of how well we manage our inventory.
We define inventory turnover for a financial reporting period as our costs of
products sold for the four fiscal quarters ending on the last day of the
reporting period divided by our average inventory (computed using each
quarter-end balance) for this same period. A higher level of inventory turnover
reflects more efficient use of our capital.
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--------------------------------------------------------------------------------The quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business. The following tables show net revenues, gross profit margin, end-of-period backlog, book-to-bill ratio, and inventory turnover for our business as a whole and by segment during the five quarters beginning with the third quarter of 2021 through the third quarter of 2022 (dollars in thousands):
3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter
2021 2021 2022 2022 2022
Net revenues $ 81,974 $ 90,017 $ 87,665 $ 88,618 $ 90,057
Gross profit margin 38.8 % 38.7 % 40.2 % 42.1 % 41.4 %
End-of-period backlog$ 146,700 $ 150,500 $ 170,600 $ 171,400 $ 171,700 Book-to-bill ratio 1.21 1.06 1.25 1.08 1.08 Inventory turnover 2.55 2.82 2.69 2.52 2.47 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 2021 2021 2022 2022 2022 Sensors Net revenues$ 30,721 $ 34,149 $ 37,750 $ 40,280 $ 37,879 Gross profit margin 31.1 % 32.1 % 37.8 % 44.3 % 40.5 % End-of-period backlog$ 70,100 $ 72,900 $ 81,300 $ 84,200 $ 80,600 Book-to-bill ratio 1.37 1.11 1.27 1.17 0.99 Inventory turnover 3.14 3.53 3.54 3.20 3.04 Weighing Solutions Net revenues$ 30,676 $ 32,071 $ 32,768 $ 28,459 $ 31,399 Gross profit margin 37.2 % 34.0 % 36.9 % 33.7 % 33.3 % End-of-period backlog$ 42,600 $ 41,800 $ 43,600 $ 43,000 $ 43,000 Book-to-bill ratio 1.06 0.98 1.06 1.03 1.05 Inventory turnover 2.47 2.63 2.61 2.33 2.48 Measurement Systems Net revenues$ 20,577 $ 23,797 $ 17,147 $ 19,879 $ 20,779 Gross profit margin 52.8 % 54.7 % 51.8 % 49.9 % 55.5 % End-of-period backlog$ 34,000 $ 35,800 $ 45,700 $ 44,200 $ 48,100 Book-to-bill ratio 1.18 1.08 1.56 0.98 1.27 Inventory turnover 1.92 2.18 1.68 1.90 1.68 Net revenues for the third quarter of 2022 increased 1.6% from the second quarter of 2022 mainly due to increased volume in the Weighing Solutions and Measurement Systems reporting segments partially offset by decreased volume in the Sensors reporting segment. Net revenues increased 9.9% from the third quarter of 2021 with increased volume primarily from the Sensors reporting segment. Net revenues in the Sensors reporting segment decreased 6.0% compared to the second quarter of 2022 and increased 23.3% from the third quarter of 2021. Excluding the unfavorable impact of foreign currency exchange rates, revenue increased 35.1% from the third quarter of 2021. Excluding the unfavorable impact of foreign currency exchange rates, revenue decreased 4.2% from the second quarter of 2022. Sequentially, the decrease primarily reflected lower advanced sensors revenue in Other markets (mainly for consumer applications) and lower revenue of precision resistors in the Test and Measurements market. The year-over-year increase in revenues was primarily attributable to higher sales of precision resistors in the Test and -27- --------------------------------------------------------------------------------
Measurements market and higher revenue of our advanced sensors products primarily in Other markets (mainly for consumer applications).
Net revenues in the Weighing Solutions reporting segment increased 10.3% from the second quarter of 2022 and increased 2.4% from the third quarter of 2021. The year-over-year and sequential increases in revenues were primarily attributable to increases in our Other markets for precision agriculture and construction applications. Net revenues in the Measurement Systems reporting segment increased 4.5% from the second quarter of 2022 and increased 1.0% from the third quarter of 2021. Sequentially, the increase in revenue was primarily due to the higher revenue ofDynamic Systems Inc. ("DSI") products in the Steel market and ourDiversified Technical Systems Inc. ("DTS") products in the Transportation market. The year-over-year increase was primarily attributable to increased revenue in the Steel market.
Overall gross profit margin in the third quarter of 2022 decreased 0.7% as compared to the second quarter of 2022 and increased 2.6% from the third quarter of 2021.
Sequentially, the decrease in the gross profit margin in the Sensors and Weighing Solutions reporting segments was partially offset by an increase in the gross profit margin in the Measurement Systems reporting segments. In the Sensors reporting segment, the gross profit margins decreased sequentially due to lower volume, one-time inventory adjustments, and unfavorable foreign currency exchange rates. In the Weighing Solutions reporting segment, the sequential decrease in gross profit margins was primarily due to higher materials costs and reduction of inventories partially offset by higher volume and selling price increases. The sequential increase in the gross profit margins in the Measurement Systems reporting segment was a result of favorable product mix and higher volume.
Compared to the third quarter of 2021, the Sensors and Measurement Systems reporting segments had higher gross profit margins, while the Weighing Solutions reporting segment gross profit margin was lower.
The Sensors reporting segment had a higher gross profit margin due to higher volume and selling price increases partially offset by unfavorable foreign currency exchange rates and wage increases. In the Measurement Systems reporting segment, the gross profit margin was higher as compared to the third quarter of 2021 primarily due to lower purchase accounting adjustments related to the DTS acquisition, partially offset by unfavorable product mix. The Weighing Solutions reporting segment decrease in gross profit margin as compared to 2021 was primarily due to higher materials costs, unfavorable product mix, unfavorable foreign currency exchange rates, and reduction of inventories, partially offset by higher volume and selling price increases.
Optimize Core Competence
The Company's core competencies include our innovative, deep technical and applications-specific expertise that adds value to our customers' products, our strong brands and customer relationships, our focus on operational excellence, our ability to select and develop our management teams, and our proven M&A strategy. We continue to optimize all aspects of our development, manufacturing and sales processes, including by increasing our technical sales efforts; continuing to innovate in product performance and design; and refining our manufacturing processes. Our Sensors segment research group developed innovations that enhance the capability and performance of our strain gages, while simultaneously reducing their size and power consumption as part of our advanced sensors product line. We believe this unique foil technology will create new markets as customers "design in" these next generation products in existing and new applications. Our development engineering team is also responsible for creating new processes to further automate manufacturing, and improve productivity and quality. Our advanced sensors manufacturing technology also offers us the capability to produce high-quality foil strain gages in a highly automated environment, which we believe results in reduced manufacturing and lead times, improved quality and increased margins. As a sign of our commitment to these businesses, we signed a long-term lease for a state-of-the-art facility that has been constructed inIsrael . We fully transitioned to this facility in the third quarter of fiscal 2021. Our design, research, and product development teams, in partnership with our marketing teams, drive our efforts to bring innovations to market. We intend to leverage our insights into customer demand to continually develop and roll out new, innovative products within our existing lines and to modify our existing core products in ways that make them more appealing, addressing changing customer needs and industry trends in terms of form, fit, and function. We also seek to achieve significant production cost savings through the transfer, expansion, and construction of manufacturing operations in countries such asIndia ,China , andIsrael , where we can benefit from improved efficiencies or available tax and other government-sponsored incentives. In the past several years, we incurred restructuring expense related to closing and -28- -------------------------------------------------------------------------------- downsizing of facilities as part of the manufacturing transitions of our load cell products to facilities inIndia andChina , which marked key milestones in our ongoing strategic initiatives to align and consolidate our manufacturing footprint. Acquisition Strategy We expect to continue to make strategic acquisitions where opportunities present themselves to grow and expand our segments. Historically, our growth and acquisition strategy had been largely focused on vertical product integration, using our foil strain gages in our load cell products, and incorporating those products into our weighing solutions. In recent years, we widened our acquisition strategy to include a broader set of precision measurement systems and product companies. We expect to expand our expertise, and our acquisition focus, outside our traditional vertical approach to other precision measurement solutions, including in the fields of measurement of force, weight, pressure, torque, tilt, motion, and acceleration. We believe acquired businesses will benefit from improvements we implement to reduce redundant functions and from our current global manufacturing and distribution footprint.
Research and Development
Research and development will continue to play a key role in our efforts to introduce innovative products to generate new sales and to improve profitability. We expect to continue to expand our position as a leading supplier of precision foil technology products. We believe our R&D efforts should provide us with a variety of opportunities to leverage technology, products, and our manufacturing base in order to ultimately improve our financial performance.
Cost Management
To be successful, we believe we must seek new strategies for controlling operating costs. Through automation in our plants, we believe we can optimize our capital and labor resources in production, inventory management, quality control, and warehousing. We are in the process of moving some manufacturing to more cost effective locations. This may enable us to become more efficient and cost competitive, and also maintain tighter controls of the operation. Production transfers, facility consolidations, and other long-term cost-cutting measures require us to initially incur significant severance and other exit costs. We are realizing the benefits of our restructuring through lower labor costs and other operating expenses, and expect to continue reaping these benefits in future periods. However, these programs to improve our profitability also involve certain risks which could materially impact our future operating results, as further detailed in Part I, Item 1A "Risk Factors" of our Annual Report on Form 10-K, filed with theSecurities and Exchange Commission onMarch 4, 2022 . We are evaluating plans to further reduce our costs by consolidating additional manufacturing operations. These plans may require us to incur restructuring and severance costs in future periods. While streamlining and reducing fixed overhead, we are exercising caution so that we will not negatively impact our customer service or our ability to further develop products and processes.
We test the goodwill in each of our reporting units for impairment at least annually, as of the first day of our fourth quarter, and whenever events or changes in circumstances occur indicating that a possible impairment may have been incurred. Determining whether to test goodwill for impairment, and the application of goodwill impairment tests, require significant management judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. Changes in these estimates could materially affect the determination of fair value for each reporting unit. A slowdown or deferral of orders for a business, with which we have goodwill associated, could impact our valuation of that goodwill.
Foreign Currency
We are exposed to foreign currency exchange rate risks, particularly due to transactions in currencies other than the functional currencies of certain subsidiaries.U.S. GAAP requires that entities identify the "functional currency" of each of their subsidiaries and measure all elements of the financial statements in that functional currency. A subsidiary's functional currency is the currency of the primary economic environment in which it operates. In cases where a subsidiary is relatively self-contained within a particular country, the local currency is generally deemed to be the functional currency. However, a foreign subsidiary that is a direct and integral component or extension of the parent company's operations generally would have the parent company's currency as its functional currency. We have subsidiaries that fall into each of these categories. -29- --------------------------------------------------------------------------------
Foreign Subsidiaries which use the Local Currency as the Functional Currency
Our operations inEurope ,Canada , and certain locations inAsia primarily generate and expend cash using local currencies, and accordingly, these subsidiaries utilize the local currency as their functional currency. For those subsidiaries where the local currency is the functional currency, assets and liabilities in the consolidated condensed balance sheets have been translated at the rate of exchange as of the balance sheet date. Translation adjustments do not impact the results of operations and are reported as a separate component of equity. For those subsidiaries where the local currency is the functional currency, revenues and expenses are translated at the average exchange rate for the period. While the translation of revenues and expenses intoU.S. dollars does not directly impact the consolidated condensed statement of operations, the translation effectively increases or decreases theU.S. dollar equivalent of revenues generated and expenses incurred in those foreign currencies.
Foreign Subsidiaries which use the
Our operations inIsrael and certain locations inAsia primarily generate cash inU.S. dollars, and accordingly, these subsidiaries utilize theU.S. dollar as their functional currency. For those foreign subsidiaries where theU.S. dollar is the functional currency, all foreign currency financial statement amounts are remeasured intoU.S. dollars. Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in the results of operations. While these subsidiaries transact most business inU.S. dollars, they may have significant costs, particularly related to payroll, which are incurred in the local currency and significant lease assets and liabilities.
Effects of Foreign Currency Exchange Rate on Operations
For the fiscal quarter ended
For the nine fiscal months endedOctober 1, 2022 , exchange rates decreased net revenues by$10.8 million , and decreased costs of products sold and selling, general, and administrative expenses by$7.7 million , when compared to the comparable prior year period. -30- --------------------------------------------------------------------------------
Results of Operations
Results of operations by reporting segments for the fiscal quarter and nine
fiscal months ended
Statement of operations' captions as a percentage of net revenues and the effective tax rates were as follows:
Fiscal quarter ended Nine fiscal months ended
October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021
Costs of products sold 58.6 % 61.2 % 58.7 % 60.4 %
Gross profit 41.4 % 38.8 % 41.3 % 39.6 %
Selling, general, and
administrative expenses 28.1 % 30.0 % 29.2 % 30.4 %
Operating income 13.2 % 8.9 % 11.5 % 8.2 %
Income before taxes 13.8 % 8.7 % 12.9 % 8.0 %
Net earnings 11.3 % 6.6 % 10.4 % 6.3 %
Net earnings attributable to
VPG stockholders 11.2 % 6.6 % 10.2 % 6.3 %
Effective tax rate 18.6 % 23.4 % 19.4 % 20.3 %
Net Revenues
Net revenues were as follows (dollars in thousands):
Fiscal quarter ended Nine fiscal months ended
October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021
Net revenues $ 90,057 $ 81,974 $ 266,340 $ 227,902
Change versus comparable
prior year period $ 8,083 $ 38,438
Percentage change versus
prior year period 9.9 % 16.9 %
Changes in net revenues were attributable to the following:
vs. prior year vs. prior year-
quarter to-date
Change attributable to:
Change in volume 13.7 % 14.2 %
Change in average selling prices 2.9 % 2.5 %
Foreign currency effects (6.7) % (4.8) %
Acquisitions 0.0 % 5.0 %
Net change 9.9 % 16.9 %
During the fiscal quarter and nine fiscal months ended October 1, 2022 , net
revenues increased 9.9% and 16.9%, respectively, as compared to the comparable
prior year periods, with increased volume primarily from the Sensors reporting
segment.
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--------------------------------------------------------------------------------Gross Profit Margin
Gross profit as a percentage of net revenues was as follows:
Fiscal quarter ended Nine fiscal months ended
October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021
Gross profit margin 41.4 % 38.8 % 41.3 % 39.6 %
The gross profit margin for the fiscal quarter and nine fiscal months ended
October 1, 2022 increased 2.6% and 1.7%, respectively, as compared to the
comparable prior year periods. For the fiscal quarter period, the Sensors and
Measurement Systems reporting segments reported higher gross profit margins
while the Weighing Solutions reporting segment reported lower gross profit
margins when compared to the prior year period. For the nine fiscal month
period, the Sensors and Measurement Systems reporting segments reported higher
gross profit margins while the Weighing Solutions reporting segment reported
lower gross profit margins when compared to the prior year period.
Segments
Analysis of revenues and gross profit margins for each of our reportable segments is provided below.
Sensors
Net revenues of the Sensors segment were as follows (dollars in thousands):
Fiscal quarter ended Nine fiscal months ended
October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021
Net revenues $ 37,879 $ 30,721 $ 115,909 $ 93,712
Change versus comparable
prior year period $ 7,158 $ 22,197
Percentage change versus
prior year period 23.3 % 23.7 %
Changes in Sensors segment net revenues were attributable to the following:
vs. prior year vs. prior year-
quarter to-date
Change attributable to:
Change in volume 32.1 % 28.3 %
Change in average selling prices 1.7 % 1.9 %
Foreign currency effects (10.5) % (6.5) %
Net change 23.3 % 23.7 %
Net revenues increased 23.3% for the fiscal quarter ended October 1, 2022 , as
compared to the comparable prior year period and increased 23.7% for the nine
fiscal months ended October 1, 2022 , as compared to the comparable prior year
period. The year-over-year increase in revenues was primarily attributable to
higher sales of precision resistors in the Test and Measurements market and
higher revenue of our advanced sensors products primarily in Other markets
(mainly for consumer applications).
Gross profit as a percentage of net revenues for the Sensors segment was as
follows:
Fiscal quarter ended Nine fiscal months ended
October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021
Gross profit margin 40.5 % 31.1 % 40.9 % 36.8 %
The gross profit margin increased 9.4% for the fiscal quarter ended October 1,
2022 , when compared to the comparable prior year period due to higher volume and
selling price increases partially offset by unfavorable foreign currency
exchange rates and wage increases. Additionally, there were higher start-up
costs associated with our new advanced sensors facility in 2021.
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The gross profit margin increased 4.1% for the nine fiscal months ended
Weighing Solutions
Net revenues of the Weighing Solutions segment were as follows (dollars in thousands):
Fiscal quarter ended Nine fiscal months ended
October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021
Net revenues $ 31,399 $ 30,676 $ 92,626 $ 93,319
Change versus comparable
prior year period $ 723 $ (693)
Percentage change versus
prior year period 2.4 % (0.7) %
Changes in Weighing Solutions segment net revenues were attributable to the
following:
vs. prior year vs. prior year-
quarter to-date
Change attributable to:
Change in volume 4.5 % 0.2 %
Change in average selling prices 5.3 % 4.0 %
Foreign currency effects (7.4) % (4.9) %
Net change 2.4 % (0.7) %
Net revenues increased 2.4% for the fiscal quarter ended October 1, 2022 , and
decreased 0.7% for the nine fiscal months ended October 1, 2022 as compared to
the comparable prior year periods. The increase in fiscal quarter net revenues
was primarily attributable to increases in our Other markets for precision
agriculture and construction applications, while the same market reflected a
decrease for the nine fiscal month period. Both the fiscal quarter and nine
fiscal month periods were negatively impacted by foreign currency exchange rate
effects.
Gross profit as a percentage of net revenues for the Weighing Solutions segment
was as follows:
Fiscal quarter ended Nine fiscal months ended
October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021
Gross profit margin 33.3 % 37.2 % 34.7 % 37.5 %
The gross profit margin for the fiscal quarter ended October 1, 2022 decreased
3.9% as compared to the comparable prior year period and decreased 2.8% for the
nine fiscal months ended October 1, 2022 when compared to the prior year period.
The decrease for the fiscal quarter was primarily due to higher materials costs,
unfavorable product mix, unfavorable foreign currency exchange rates, and
reduction of inventories, partially offset by higher volume and selling price
increases. The decrease for the nine fiscal month period was primarily due to
lower volume, higher materials costs, unfavorable product mix, unfavorable
foreign currency exchange rates, and reduction of inventories, partially offset
by selling price increases.
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--------------------------------------------------------------------------------Measurement Systems
Net revenues of the Measurement Systems segment were as follows (dollars in thousands):
Fiscal quarter ended Nine fiscal months ended
October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021
Net revenues $ 20,779 $ 20,577 $ 57,805 $ 40,871
Change versus comparable
prior year period $ 202 $ 16,934
Percentage change versus
prior year period 1.0 % 41.4 %
Changes in Measurement Systems segment net revenues were attributable to the
following:
vs. prior year vs. prior year-
quarter to-date
Change attributable to:
Change in volume 1.3 % 14.3 %
Change in average selling prices 1.8 % 1.2 %
Foreign currency effects (2.1) % (2.1) %
Acquisitions 0.0 % 28.0 %
Net change 1.0 % 41.4 %
Net revenues increased 1.0% for the fiscal quarter ended October 1, 2022 as
compared to the comparable prior year period and increased 41.4% for the nine
fiscal months ended October 1, 2022 as compared to the comparable prior year
period. The increase for the fiscal quarter was primarily due to increased
revenue in the Steel market. The increase in revenue for the nine fiscal months
period was primarily attributable to the addition of revenue for DTS, which was
acquired on June 1, 2021 , and higher revenue of our KELK and DSI steel-related
businesses.
Gross profit as a percentage of net revenues for the Measurement Systems segment
were as follows:
Fiscal quarter ended Nine fiscal months ended
October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021
Gross profit margin 55.5 % 52.8 % 52.5 % 50.8 %
The gross profit margin for the fiscal quarter ended October 1, 2022 increased
2.7% compared to the third quarter of 2021. The increase was primarily due to
lower purchase accounting adjustments related to the DTS acquisition partially
offset by an unfavorable product mix.
The gross profit margin for the nine fiscal months ended
Selling, General, and Administrative Expenses
Selling, general, and administrative ("SG&A") expenses are summarized as follows (dollars in thousands):
Fiscal quarter ended Nine fiscal months ended
October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021
Total SG&A expenses $ 25,271 $ 24,580 $ 77,824 $ 69,216
As a percentage of net
revenues 28.1 % 30.0 % 29.2 % 30.4 %
SG&A expenses for the fiscal quarter ended
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SG&A expenses for the nine fiscal months ended October 1, 2022 increased $8.6
million compared to the comparable prior year periods with $6.1 million of the
increase driven by SG&A expenses from DTS. The remaining increase is from
additional SG&A expenses related to wage increases, travel costs, and other
fees.
Impairment of
For the nine fiscal months endedOctober 2, 2021 , as a result of our interim impairment test, we recorded a$1.2 million pre-tax, non-cash impairment charge which reduced the carrying value of our goodwill and indefinite-lived intangible assets. Acquisition Costs
For the nine fiscal months ended
Nine
fiscal
months
ended
October 2, 2021
Legal fees $ 341
Appraisal fees 18
Other (investment banker and insurance costs) 839
$ 1,198
Restructuring Costs
Restructuring costs reflect the cost reduction programs implemented by the
Company. Restructuring costs are expensed during the period in which the Company
determines it will incur those costs and all requirements for accrual are met.
Because these costs are recorded based upon estimates, actual expenditures for
the restructuring activities may differ from the initially recorded costs. If
the initial estimates are too low or too high, the Company could be required to
either record additional expense in future periods or to reverse part of the
previously recorded charges.
The Company recorded $0.2 million and $0.0 million of restructuring costs during
the fiscal quarter ended October 1, 2022 and October 2, 2021 , respectively, and
$1.3 million and $0.0 million of restructuring costs during the nine fiscal
months ended October 1, 2022 and October 2, 2021 , respectively. Restructuring
costs were comprised primarily of employee termination costs, including
severance and statutory retirement allowances, in connection with various cost
reduction programs.
Other Income (Expense)
Interest expense for the fiscal quarter and nine fiscal months ended October 1,
2022 was higher when compared with the comparable prior year periods mainly due
to higher borrowing rates in 2022.
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--------------------------------------------------------------------------------The following table analyzes the components of the line "Other" on the consolidated condensed statements of operations (in thousands):
Fiscal quarter ended
October 1, 2022 October 2, 2021 Change
Foreign currency exchange gain (loss)
(38)$ 1,299 Interest income 91 151 (60) Pension expense (81) (151) 70 Other (48) 212 (260)$ 1,223 $ 174$ 1,049 Nine fiscal months ended October 1, 2022 October 2, 2021 Change Foreign currency exchange gain$ 5,195 $ 522$ 4,673 Interest income 235 216 19 Pension expense (261) (431) 170 Other (163) 114 (277)$ 5,006 $ 421$ 4,585 Foreign currency exchange gains represent the impact of changes in foreign currency exchange rates. For the fiscal quarter and nine fiscal months endedOctober 1, 2022 , the change in foreign currency exchange gains and losses during the period, as compared to the prior year periods, is largely due to exposure to currency fluctuations with the Israeli shekel, the Japanese yen, the Canadian dollar, and the British pound. The change in the dollar-shekel exchange rate resulted in a favorable foreign currency exchange impact primarily related to the shekel-denominated lease liability for the Sensors facility inIsrael .
Included in Other for the nine fiscal months ended
Income Taxes
VPG calculates the tax provision for interim periods using an estimated annual effective tax rate methodology based on projected full-year pre-tax earnings among the taxing jurisdictions in which we operate with adjustments for discrete items. The effective tax rate for the fiscal quarter endedOctober 1, 2022 was 18.6% compared to 23.4% for the fiscal quarter endedOctober 2, 2021 . The effective tax rate for the fiscal quarter endedOctober 1, 2022 was lower than the prior year period primarily due to foreign currency exchange gains and losses, tax rate changes and a reduction in our valuation allowance on deferred tax assets. The effective tax rate for the nine fiscal months endedOctober 1, 2022 was 19.4% compared to 20.3% for the nine fiscal months endedOctober 2, 2021 . The effective tax rate for the nine fiscal months endedOctober 1, 2022 was lower than the prior year period primarily due to changes in the mix of worldwide income and foreign currency exchange gains and losses, tax rate changes and a reduction in our valuation allowance on deferred tax assets. The Company and its subsidiaries are subject to income taxes imposed by theU.S. , various states, and the foreign jurisdictions in which we operate. Each jurisdiction establishes rules that set forth the years which are subject to examination by its tax authorities. While the Company believes the tax positions taken on its tax returns for each jurisdiction are supportable, they may still be challenged by the jurisdiction's tax authorities. In anticipation of such challenges, the Company has established reserves for tax-related uncertainties. These liabilities are based on the Company's best estimate of the potential tax exposures in each respective jurisdiction. It may take a number of years for a final tax liability in a jurisdiction to be determined, particularly in the event of an audit. If an uncertain matter is determined favorably, there could be a reduction in the Company's tax expense. An unfavorable determination could increase tax expense and could require a cash payment, including interest and penalties. -36-
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Financial Condition, Liquidity, and Capital Resources
We believe that our current cash and cash equivalents, credit facilities and projected cash from operations will be sufficient to meet our liquidity needs for at least the next 12 months. OnMarch 20, 2020 , the Company entered into a Third Amended and Restated Credit Agreement (the "2020 Credit Agreement") among the Company, the lenders named therein,Citizens Bank , National Association andWells Fargo Bank, National Association as joint lead arrangers andJPMorgan Chase Bank, National Association as agent for such lenders (the "Agent"), pursuant to which the terms of the Company's multi-currency, secured credit facility were revised to provide a secured revolving facility (the "2020 Revolving Facility") in an aggregate principal amount of$75.0 million , with a sublimit of$10.0 million which can be used for letters of credit for the account of the Company or its subsidiaries that are parties to the Credit Agreement. The proceeds of the 2020 Revolving Facility may be used on an ongoing basis for working capital and general corporate purposes. The aggregate principal amount of the 2020 Revolving Facility may be increased by a maximum of$25.0 million upon the request of the Company, subject to the terms of the 2020 Credit Agreement. The 2020 Credit Agreement terminates onMarch 20, 2025 . Interest payable on amounts borrowed under the 2020 Revolving Facility is based upon, at the Company's option, (1) the greatest of: the Agent's prime rate, the Federal Funds rate, or a LIBOR floor (the "Base Rate"), or (2) LIBOR or CDOR plus a specified margin. An interest margin of 0.25% is added to Base Rate loans. Depending upon the Company's leverage ratio, an interest rate margin ranging from 1.50% to 2.75% per annum is added to the applicable LIBOR or CDOR rate to determine the interest payable on the LIBOR or CDOR loans. The Company is required to pay a quarterly fee of 0.25% per annum to 0.40% per annum on the unused portion of the 2020 Revolving Facility, which is determined based on the Company's leverage ratio each quarter. Additional customary fees apply with respect to letters of credit. The obligations of the Company under the 2020 Credit Agreement are secured by pledges of stock in certain domestic and foreign subsidiaries, as well as guarantees by substantially all of the Company's domestic subsidiaries. The obligations of the Company and the guarantors under the 2020 Credit Agreement are secured by substantially all the assets (excluding real estate) of the Company and such guarantors. The 2020 Credit Agreement restricts the Company from paying cash dividends and requires the Company to comply with other customary covenants, representations, and warranties, including the maintenance of specific financial ratios. The financial maintenance covenants include an interest coverage ratio and a leverage ratio. The Company was in compliance with its financial maintenance covenants atOctober 1, 2022 . If the Company is not in compliance with any of these covenant restrictions, the credit facility could be terminated by the lenders, and all amounts outstanding pursuant to the credit facility could become immediately payable. Our business has historically generated significant cash flow. For the nine fiscal months endedOctober 1, 2022 , cash provided by operating activities was$20.5 million compared to cash provided by operations of$18.1 million in the comparable prior year period. Our net cash used in investing activities for the nine fiscal months endedOctober 1, 2022 was lower compared to the prior year period mainly due to the acquisition of DTS which took place in the second quarter of 2021. Our net cash used in financing activities for the nine fiscal months endedOctober 1, 2022 was lower than the comparable to prior year period due to the 2021 borrowings in connection with the acquisition of DTS.
Approximately 91% and 87% of our cash and cash equivalents balance at
See the following table for the percentage of cash and cash equivalents, by
region, at
October 1, 2022 December 31, 2021
Israel 24 % 25 %
Asia 27 % 24 %
Europe 15 % 18 %
United States 9 % 13 %
United Kingdom 11 % 12 %
Canada 14 % 8 %
100 % 100 %
We earn a significant amount of our operating income outside the United States ,
and we consider the majority of the undistributed earnings of our foreign
subsidiaries to be indefinitely reinvested, as of October 1, 2022 . As a result,
as discussed above, a significant portion of our cash and short-term investments
are held by foreign subsidiaries. The Company will continue to evaluate its cash
needs. However, we currently do not intend, nor do we foresee a need, to
repatriate funds in excess of what
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is already planned. The Company will evaluate the possibility of repatriating
future cash provided such repatriation can be accomplished in a tax efficient
manner. In addition, we expect existing domestic cash, short-term investments,
and cash flows from operations to continue to be sufficient to fund our domestic
operating activities and cash commitments for investing and financing
activities, such as debt repayment and capital expenditures, for at least the
next 12 months and thereafter for the foreseeable future.
If we should require more capital in the United States than is generated by our
domestic operations, for example, to fund significant discretionary activities,
such as business acquisitions, we could elect to repatriate future earnings from
foreign jurisdictions or raise capital in the United States through debt or
equity issuances. These alternatives could result in higher tax expense,
increased interest expense, or dilution of our earnings.
Adjusted free cash flow generated during the nine fiscal months ended October 1,
2022 , was $5.4 million . We refer to the amount of cash provided by operating
activities ($20.5 million ) in excess of our capital expenditures ($15.5 million )
and net of proceeds from the sale of assets ($0.4 million ) as "adjusted free
cash flow."
The following table summarizes the components of net cash at
October 1, 2022 December 31, 2021
Cash and cash equivalents $ 79,910 $ 84,335
Third-party debt, including current and long-term:
Revolving debt 61,000 61,000
Deferred financing costs (220) (286)
Total third-party debt 60,780 60,714
Net cash $ 19,130 $ 23,621
Measurements such as "adjusted free cash flow" and "net cash" do not have
uniform definitions and are not recognized in accordance with U.S. GAAP. Such
measures should not be viewed as alternatives to GAAP measures of performance or
liquidity. However, management believes that "adjusted free cash flow" is a
meaningful measure of our ability to fund acquisitions, and that an analysis of
"net cash" assists investors in understanding aspects of our cash and debt
management. These measures, as calculated by us, may not be comparable to
similarly titled measures used by other companies.
Our financial condition as of October 1, 2022 remains strong, with a current
ratio (current assets to current liabilities) of 4.1 to 1.0, as compared to a
ratio of 3.6 to 1.0 at December 31, 2021 .
Cash paid for property and equipment for the nine fiscal months ended October 1,
2022 was $15.5 million compared to $11.2 million in the comparable prior year
period.
As of
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--------------------------------------------------------------------------------Safe Harbor Statement
From time to time, information provided by us, including, but not limited to, statements in this report, or other statements made by or on our behalf, may contain or constitute "forward-looking" information within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve a number of risks, uncertainties, and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from those anticipated. Such statements are based on current expectations only, and are subject to certain risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, expected, estimated, or projected. Among the factors that could cause actual results to materially differ include: general business and economic conditions; impact of inflation, global labor and supply chain challenges; difficulties or delays in identifying, negotiating and completing acquisitions and integrating acquired companies; the inability to realize anticipated synergies and expansion possibilities; difficulties in new product development; changes in competition and technology in the markets that we serve and the mix of our products required to address these changes; changes in foreign currency exchange rates; political, economic, health (including the COVID-19 pandemic) and military instability in the countries in which we operate; difficulties in implementing our cost reduction strategies, such as underutilization of production facilities, labor unrest or legal challenges to our lay-off or termination plans, operation of redundant facilities due to difficulties in transferring production to achieve efficiencies; compliance issues under applicable laws, such as export control laws, including the outcome of our voluntary self-disclosure of export control non-compliance; significant developments from the recent and potential changes in tariffs and trade regulation; our efforts and efforts by governmental authorities to mitigate the COVID-19 pandemic, such as travel bans, shelter-in-place orders and business closures and the related impact on resource allocations, manufacturing and supply chains; our status as a "critical", "essential" or "life-sustaining" business in light of COVID-19 business closure laws, orders and guidance being challenged by a governmental body or other applicable authority; our ability to execute our new corporate strategy and business continuity, operational and budget plans; and other factors affecting our operations, markets, products, services, and prices that are set forth in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 . We caution you not to place undue reliance on forward-looking statements, which speak only as of the date of this report or as of the dates otherwise indicated in such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. -39-
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