Q1 2020 Earnings Call
Good day and welcome to the VPG 2021st quarter results Conference call. All participants will be in listen only mode shouldn't you need assistance well you signaled conference specialist by pressing the star <unk> followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one all your touched.
So.
Withdraw your question. Please press Star then too. Please note that this event is being recorded I went out what you turn the conference over to Steve Cats, or senior director of Investor Relations. Please go ahead Sir.
Thank you operator, and good morning, everyone.
Welcome to <unk>, 2021st quarter earnings Conference call. Our Q1 press release that accompanying slides posted on its website VPG sensors dot com.
Audio recording of today's call will be available on the Internet or limited time can also be access our website.
Today's remarks are governed by the Safe Harbor provision something 1995 private Securities Litigation Reform Act.
Our actual results may vary from forward looking statements.
For a discussion of the risks associated with VP operations, we encourage you to refer to our <unk>, especially in the form 10-K for the year ended December 31, 2000 lives and our other research.
We see filings.
The call today are they shoddy CEO and President Bill Class C CFO.
I'll turn the call to see for some prepared remarks, please refer to slide three of the quarterly presentation.
Thank you, Steve Hey, I will begin with <unk> with some commentary.
Thank you Steve.
I will begin with some commentary on VPG is consolidated financial results.
And sales trends the impact of the Cobi 19 pandemic on our business and the strategy and actions, we have taken to mitigate that impact.
Bill will provide financial details and our second quarter 2020 outlook.
Moving to slide three.
I'd like to begin my remarks by commenting that vpgs deem it around the world full data, how the walk and for their dedication. During these challenging times is the adjusted quickly.
Local restrictions and extra ordinary working conditions.
<unk> commitment to meeting the needs of our customers. It hasn't been totally example alley.
Moving to slide pool.
Given the rapidly changing market conditions over the past few months.
We are satisfied with our financial and operating performance in the first quarter, though.
We have ended the quarter, though with the positive book to Bill of 1.8 and grew our <unk> all those 4.4% from the same quartile either go.
Moving to slide five.
I'll discuss the operational and each and its impact on VPG.
<unk> 19.
It's dependent make beginning one for the around the world.
We took steps to keep all employees and customers safe.
These measures included.
Spending business travel, enabling employees, whose functions allowed to work from home effectively.
We also implemented workplace distancing any three sanitizing common areas as well as adjusting our what shifts to minimize the contact with all the employees.
We know for employees, who tested positive for the Vivus well be doing.
Have tested negative after a very quiet quarantine period and two out currently under the <unk>.
It's Tom please state and local jurisdictions around the world implemented stay at home all those we quickly made adjustments to maintain the continued deal follow operations, while complying with those regulations.
Why is the majority of Vpgs facilities were able to continue operations.
You too that central nature of our for that.
Our two facilities in India, and China will most significantly impacted.
As we indicated email earnings call in February our facility in China.
Was impacted by approximately three week by government imposed restrictions.
That's facilities, we tend to production you meet fab Wally.
When those restrictions were lifted.
Our facility in India was also shutdown beginning in late March is the result, well stay at home all that imposed by the Indian government.
Why is this all though has been extended to may 17th we.
We received.
Well, what do we do impossible operations, when our India facility.
As of today.
With the exception the fall, India facility, our supply chains and logistics network.
Oh functioning.
As we are able to meet our customers' needs we create that any 10 local meet these moneytwo and manage the situation.
Financially we have implemented.
The company wide salary fleas and reduced our planned capital spending full 2020 by 30%.
Moving to slide five.
In terms of the impact on demand for our product.
Why don't we VPG strength.
Easy both diversity of VPG markets, which is a major differentiated from other pure play Sensima technology companies.
During times of Tubulin, Toby Olin's market conditions as we are seeing now.
This brett enable us to maintain our financial momentum.
We didn't our segment is stronger end markets offset weaker ones.
Full force technology bought that segment first quarter assays will 30.5 billion grew 2.8% sequentially, reflecting growth in precision for this those and strain gauges in test and measurement and consumer markets, which offset weak.
Kill sales in the general industrial market.
Oh, they'll for FTP into first quarter group for the fourth quarter of 29 team and include the significant Odell for advanced sensors, which resulted in a book to Bill 1.25 as compared to 1.18.
So what those sales or four cents holes.
14.7% 14.7 million.
Declined 2.4%.
<unk>.
Fourth quarter of 29 team.
Reflecting slower whether it be men in being does still waned markets.
As well as modest impact form a temporary government mandated shutdown of our China facility.
Nonetheless, we so well.
Oh, yes, even save for decision AG and construction applications, while a book to Bill for four cents sold in Q1 was one point or two we expect our second what those assays for would be well that's to be impacted by the essentially.
Drop down of our manufacturing facility in Chennai.
India.
That I mentioned earlier.
Assuming the full the opening of this facility on May 17.
We expect our four cents or revenues.
Second quartile to be reduced by approximately 5 million to 7 million, which is reflected in our guidance.
We also expect our operating profit to be impacted by approximately 3.5 million, reflecting the lower revenues.
Very quiet payments to employees using the shutdowns.
Period and <unk>.
Partial operations and higher logistics costs.
Well I think the lifting of these restrictions we anticipate we will be able to we covered the majority of the revenue shortfall in future quarters.
Sales.
Oh weighing and control system in the first quartile of 22.5 million declined 7.9% sequentially.
The declining WCS say was primarily due to the timing of the end user even project in the steel market.
Which offset modestly higher revenues for certain onboard weighing solutions.
We expect to see lower revenue in the second quarter in WCS.
By minimally in the transportation market.
Book to Bill full WCS was <unk> 0.9.
The first quarter of plenty plenty.
As the world content.
We did see Joel impact full from depending.
On the business environment, we are confident in both our strategy and our strong financial position to wed, though these 2 billion times. We believe that we have ample liquidity, we have met cash of 42 million on our balance sheet.
And then you'll <unk> revolving credit facility, we put in place in March 2020.
That's not only gives us.
Expanded Boeing capacity should we meet should we need it but also offers us no borrowing rate.
And more favorable items.
Given the high degree of uncertainty in the macro environment, well focused on what we can control, which how our key strategic initiatives to both Google Hello business and to reduce our operating costs.
These initiatives, which are critical.
To our company's future intact, and we are and we intend to be fully ready to realize.
Still potential is the global economic environment normalizes.
On the gold side, we are moving forward, we thought well FTP manufacturing project he needs right.
As we have discussed.
This project will support future growth of advanced pencils White assays will be sport with essentially flat.
Well actually we received large all those in Q1.
Our other markets such as consumer and medical.
Pulled the overload protection initiatives in Europe, our truck.
We invested we solution.
We have already been test.
We have already been tested by our key OEM truck and bus manufacturers.
And we have received very positive feedback.
However, several of them.
Have signaled the Dell pushing out the implementation felt the into 2021.
Pending Eddie tend to be to a more normalized economic activity.
Our aftermarket OEM sales will be Boardex, which was expected to be book. This year was pushed into 2021.
On the cost side, we have already implemented a number of initiatives.
Over the past few years to consolidate our manufacturing footprint and two we'd use our operating costs.
We believe the steps, which have been already contributed to the margin improvement in some key areas will increase.
Our operating leverage.
And financially towns once we see the town to a more normalized economic condition.
As we continue to meet the challenges over the pandemic and as we can remain vigilant.
In protecting our employees and our customers. We are confident that we will successfully navigate.
<unk> these challenges.
This confidence is based on our strong business model.
And financial position.
I will de Ville set of markets.
And the depth of experience of the VPG management team across the world.
I'll now turn over to build Clancy for an additional financial details Bill.
Thanks, Steve.
Referring to page seven other slide deck and the first quarter of 2020, we achieved revenues of 67.7 million.
Operating income of 4.6 million or 6.9%, our revenues and net earnings per diluted share up 24 cents.
On an adjusted basis, which excludes 500 to 15000.
Acquisition purchase accounting adjustments related to the Dxi acquisition in November 2019.
And 130000 of restructuring costs.
Our adjusted operating income was 5.3 million or 7.8% of sale at our adjusted net earnings per diluted share, which 29 cents.
Our first quarter 2020 revenue declined 2.1%.
Compared to 69.1% six 9.1 million in the fourth quarter that were down 11.5% as compared to 76.5 million in.
In the first quarter, a year ago, which what the historical high quarter for VJ.
Foreign exchange negatively affect that revenues by $600000. So the first quarter out 2020.
Compared to a year ago and had no impact as compared to the Q4 2019.
Our gross margin in the first quarter was 37%.
Our gross margin on an adjusted basis was 37.8%, which improved from 36.8% in the fourth quarter 2019.
Our operating margin was 6.9% for the first quarter of 2020.
Excluding the above mentioned purchase accounting adjustment that restructuring charges, our first quarter adjusted operating margin was 7.8%, which increased from 7.5% we recorded in the fourth quarter of 2019.
Selling general and administrative expenses for the first quarter of 2020, or 20 point threemillion or 30% of revenues.
This compares to 20.4 million or 26.7% for the first quarter of last year at 20.2 million or 29.2% and the fourth quarter 2019.
The sequential SJ day in the first quarter reflected the inclusion of a full quarter of SG the expenses for Dxi.
The adjusted net earnings for the first quarter, our 2020 were 3.9 billion or 29 cents per diluted share.
Improved from 3.7 million or 27 cents per diluted share in the fourth quarter 2019.
The impact of foreign exchange rates for the first quarter of 2020 was positive compared to the first quarter 2019 by approximately 400000 or three cents per diluted share.
We generated adjusted free cash flow a $3 million for the first quarter, our twentytwenty as compared to 4.8 million. So the first quarter 2019.
We define free cash flow as cash from operating activities, let capital expenditures plus any sale fixed assets.
The GAAP tax rate in the first quarter was 32.3%.
We are assuming an operational tax rate in the range of 27 to 29 per se for 2020 planning purposes.
We ended the first quarter with 82.7 million of cash and cash equivalents and sort of long term debt of 40.6 million.
As Steve mentioned.
In March we put in place I knew revolving credit facility that gives us greater flexibility and lower interest expense as well as less restrictive covenants.
Well the net leverage ratio of about one time, we believe that we have a strong balance sheet and ample liquidity to support our business requirements and to find additional M&A opportunities.
Turning to our outlook.
Given the expected impacts, resulting from the Kobe 19 pen data.
We currently expect net revenue in the range of 56 million to 62 million for the second quarter up 2020.
What's the service costs that first quarter 2020 exchange rate.
In summary.
Well the cobot 19 pandemic continue to create uncertainty around the world.
We are prepared to meet these challenges as we remain diligent and protecting our employees and our customers.
Our strong operating model financial position diverse set of markets combined with our commitment to our strategic initiatives gives us confidence in our ability to not only successfully navigate these challenging times, but to accelerate our performance as conditions returned to normal.
With that let's open the lines for questions.
Thank you.
We will now be getting the question and answer session to ask a question you May Press Star then one touched on.
If you are using a speakerphone please pick up your handset before pressing the keys.
All your question. Please press Star then to at this time, we'll pause momentarily to assemble roster.
Again, if you have a question. Please press Star then one our first question will come from John Franzreb.
Dougherty and company. Please go ahead.
Good morning, guys congratulations on a good corridor.
John first question is.
Regarding the reduction in Capex can you kind of put a number around with with respect to capital spending will be for the full year.
And could you also discuss a little bit about how that's impacting the.
Advanced sensor product line.
Now what are your expectations on on.
Incremental revenue contribution the timing of funding of the project no little bit more detailed that'd be helpful. Thank you.
Okay.
No John you initially.
We have.
You have stated that the expected capital spending for plenty plenty he's going to be around $33 million.
And during those times, we have decided to push out at around 30%, which would reduce the capital spending.
<unk> to the low Twentys outflows.
Capital spending there has been pushed out was more equipment related the which would relate it for expansion.
For some product lines with our customer has pushed out the the launch for those products as well as the India second flow expansion.
We have not all the capital spending we charge related to advance sensors in respect to the construction and the transition to the new building. In addition to all the capacity and the equipment that is expected to be placed all on plan at this point.
One thing time, we don't see any delays in transitioning to the new building, which is expected to be early in Q3 of this year and we don't expect any delays in expansion knowing costly adoption for all the major initiatives of the company and full 2020.
Okay.
Okay fair enough and Zee.
Regarding India.
I guess two questions one.
What's your confidence level that you're going to be up on that the timeline.
Talking about mid month.
And and secondly, do.
Do you expect to recover.
The last.
Orders there.
Next quarter or will be kind of playing out over a couple of quarters or do you assume maybe some of that volumes is permanently lost.
Okay very good so maybe we'll stop with their level of uncertainty we have in respect we opening the plant on May 17, as you know John we don't have the crystal ball, but what we hear.
In the field.
That does he is the high likelihood that our facility will be abo facility in the only industrial zone will be back.
On track on May 17, and the reason is that if we look at the initial shutdown the Indian government has implemented.
As of late March on P. late May 4th it was.
Pretty much nationwide then they the Indian government, we're looking at certain pockets, where you have higher infection rates and low infection rates. Fortunately I will facility in the industrial zone. We are eating Chennai. These must be in yellow, we choose not which is considered the any infection rate, but not really to be high.
I speak to the like Red zone, which other possible India.
Oh mock like that they'll full we do believe that on one hand. This is a yellow zone, which means the infection rate is not so high and given the situation than diminish shows that the Indian government takes we do feel the disease the high probability that.
They will Lizzy open.
The complete industrial zone and to a full production.
As of May 17th.
And I had the second half my question.
Regarding but yes, the second half regarding looking <unk>.
He viewing the Collin backlog of four cents old customer by customer we have identified the majority of the custom of all the in OEM customers. If you kind of the cool OEM customers. These the speaker business, it's a designing when customers well, we have a unique position, where we provide the value add that well.
The most.
Bill full we believed that the likelihood.
Oh and being able to sheep.
The board have talked to produce and to ship the product while customer is extremely high at this point in time, we are and given the fact that we also have ongoing discussions with the customers you know some some of the volume whatever we can.
We'll be.
Mission to allow the Chinese facility, but but given the fact that India. They present, 80% of the segment capacity a full pencil capacity and the fact that we have an open dialogue with our customers.
We believe the daily the very high likelihood that the majority of the backlog and what the backlog we would we.
We'll be able to to deliver thought customers now regarding the timing it really depends how quickly we would be able to when pop and the to catch up. So I don't believe we would be able the complete backlog with a complete.
But then we'll be.
The bulk of the full sheep the complete.
Backlog.
We didn't know we've seen a quote feel but but I do believe that he's a very high likelihood that the most of the catch up could be done within two quarters. Given the fact again that we would be able to open the facility on May 17.
Mm into a full production.
Perfect exactly I was looking for.
And lastly, I apologize if I Miss this did you mention anything about order tempo companywide.
In April how that looks compared to March.
No John we didn't give any industry, we did not give any guidance or refer to that at all.
Again, if you have a question. Please press Star then one our next question will come from Sarkis Sherbetchyan from B. Riley FBR. Please go ahead.
Hey, good morning, and thanks for taking my question here.
Good morning, Soucie, So Morningstar keys.
So first questions on the for sensors.
The revenue being down 5 million 7 million in this quarter.
That sequentially from Q1 or is that year over year.
No. This is this is the sequentially this is sequentially from.
This is sequentially from Q1.
Given the given calling backlog and given current market conditions.
Okay and that's the same goes for the 3.5 million to operating profit correct.
The 3.5 operating Wolf.
Pretty much consist of the majority of the shortfall.
Well for.
Contribution margin, we would not be able to get you to the fact that we are not that we will not be able to ship the product and the fact that we will have to continue to paid employees.
During the shutdown time, and some smaller additional logistics cost.
Right.
Got it and I'm in into FTP segment, you mentioned, a significant orders for advanced sensors. Obviously, the Buildout continues so I guess is there you know.
The ability to maybe quantify that are or help us give.
Kind of some somewhat of a flavor of what that means.
We did see we did indicate that to quarter over quarter, though.
Invensense, so the <unk> revenues they'll flat.
And the fact fees that on one hand.
I will the traditional markets.
We trial.
General Industrial industrial waiting for example, under that falls also oil and gas and industrial automation, our way way down on the other hand.
We have a very nice uptick in regards to consume it and medical so so those two end markets, where the able to offset.
The significant oil.
In the other end markets, which.
We feel very much the Westin DC environment.
Okay, and sorry, if I missed this but what were the revenues for advanced sensors.
We did not disclose it to.
Revenues for advanced sensors, but but we said that this is all the.
I think in five quarters, we said, it's only been the double digit to.
Area, but we have never provided the.
It was nice number.
Okay. I guess you can appreciate you know, saying revenues for advanced sensors are flat, but not having a number attached to it makes it kind of hard for us to understand I'm looking under the hood, what that means and as we think about consumer in medical being strong in that area can you maybe talk about what.
Type of.
Application it might be hitting so that we can get a better sense for you know whether this is a unit volume growth story or whether you're taking market share just going to help us understand that.
Okay. So we got to think consumer since.
As.
We indicated in the past advent census has unique features.
We'll buy you.
Well by only without design.
And we are the only one we'll have a certain capability and abilities to produce certain form factor. So if the even close with certain functionality delightful on the consumer Paul we are we had been more unique position. Unfortunately, we are on builder disclosed M.D.A.M.D. So I.
I will not be able to provide.
More information regarding the type of application, but the galloping medical we have many many.
The Flynn to new applications.
Like <unk>.
Infusion pumps, and other applications, which help peaking very nicely given the environment today.
Okay. Thanks for that at least that's right for Dxi, Turkey.
Steve Steve Kathryn just wanted to add a little more color to whats you suggested and just so it's clear the the book to Bill and advanced sensors was up a significant positive so well over one in.
The first quarter.
So that's including that the puts and takes that secret described.
Thanks for that.
Just moving onto the the contribution from D. S. I in the first quarter can you maybe help us understand what sales contribution were and maybe profit contribution.
Sure the Dxi contribution in the first walk though.
Revenue wise was 3.7 million.
You'd be D.A., adjusted EBITDA margin of 33.5%.
Which is 1.2 million.
And the gross margin level of Ah.
At 59%.
Oh, that's pretty good do you expect kinda that level of performance to continue or do you think you can extract some more synergies you guys you kind of integrate the business.
Well Dxi has been performing extremely well since we acquired them.
In Q4 19, as we move on we have seen and this is part of the nature of the business some.
Well it would be to slow the intake, which was part of that than we do believe that bill will be a smaller the effect.
In regards to some customers being we'd be pushing out deliveries due to the Cobiz 19.
Pandemic.
So I do believe.
The level of for the integration.
The cost reduction.
Oh all in place.
But Tim.
But the revenue will be a little would be to will we will probably may change due to the Colby 19, which means some of the oldest if we did we have expected to book.
Although the in this coming quarter may be pushed by a quote though too.
Got it and I guess, if you can maybe provide some broader color on on the end markets right. I mean, you mentioned some of the more specific ones inside of the segments, but I guess, you step back and look at kind of the end markets whether its.
The onyx military space or test and measurement.
Or just kind of industrial like what.
What looks exciting calling in the next few quarters, what what looks like there maybe continued challenges just kind of want to hear what you're seeing real time.
True so really format for a minute high level company wide perspective, we do see it we had seen than we do see still a very strong demand in test and measurement.
Input piccolo full semiconductor equipment testing.
We do see a.
Strong demand is they mentioned im on the consumer specifically Accupoint Vincenzo also on the medical Paul.
We have seen very.
Good old the intake full precision AG and construction.
<unk> might be more flat.
Why and.
The downside or that we kill the intake either on the.
Industrial Wayne.
And the general industrial which is consistent with oil and gas industrial automation and and tooling for automotive. So since VPG is highly diversified we have some end markets we charge.
Which I'll not performing so well, but on data and we have other end markets, which well, which all performing very well so on the high level one balance yeah, though.
Great. Thank you so much for that I'll hop back in.
Again, if you have a question. Please press Star then one our next question will come from Brett Hendrickson Nokomis. Please go ahead.
Hey, guys. Good morning. This isn't why it was a queuing up but I just missed.
Right before you said orders were flat in steel what were the areas of strength by the way just because I missed it might know.
The strength part of the company the.
Finally at more than measurement.
But as you can test and measurement and what else then measurement.
As we speak about A.M.S. I'll be oneq military and space.
The consumer.
For advanced pencils and medical only know.
Okay, good and advance sensors, which was a against where my original question was can you remind us.
The new facility in Israel.
You might probably rather talking about a unit basis, what's the capacity increase going to be versus your existing facility when you get that.
Fully up and running.
Currently forming equipment capacity I mean for me space capacity, we would be in a position.
Who will provide the.
Whatever is needed in respect to the market's requirement, which could be if if if you want to qualify for X sevenx, forming equipment capacity naturally we don't buy the equipment ahead of time, but we would be able.
To ramp up fairly quickly full I'm not bills, if the to 52 cents. Once we once we transitioned to another 50% to 50% of the calling the capacity 50% to 60%.
Sorry to do so if I'm not falling so you're going to five to seven times the space and you could if you needed you could quickly Philip half for that space.
<unk>.
No currently we have configuring the pulled up.
That we are going to utilize the space in a very efficient we naturally.
As we are going to put more and more equipment in place.
There will be some internal reorganization will we would be able to.
Provide the more capacity as needed.
Regarding the these a certain area will we may well, we may have been Nick a space, which we intend it disappointing time police solved in all due to a captured the revenue until.
Deal did the men is going to until the demand is going to people by that.
Okay. So summarize that they will lead the complete facility. He is going to be utilized in an optimal way since day one.
Good good and.
Can you clarify what you said about what the has.
I know you don't want to give the exact amount in the in the quarter of advanced sensors revenue, but can you clarify what you said to start you are about the.
Well the historical advance sensors revenue.
I think that the during the past work those we have been speaking about some high teens and since then.
We are beyond Beth.
But I have not provided more commented on that.
And you're speaking on an annualized basis.
On an annualized basis, yes, yes.
Okay.
Great. Okay, I'll talk to you guys offline thanks for the time to.
Thank you.
This concludes our question and answer session I will let to turn the conference back over to Steve cancer for any closing remarks. Please go ahead Sir.
[noise] before closing I want to let listeners know that well be participating in bear virtual Investor Conference on June 4th they'll be more information on that posted on our website.
And with that will now close the call and thank you all for participating have a good day.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Oh.