Q3 2022 Vishay Precision Group Inc Earnings Call
It will be available on the Internet for a limited time and can also be accessed on our website.
Today's remarks are governed by the safe Harbor provision provisions of the 1995 Private Securities Litigation Reform Act. Our actual results may vary from forward looking statements for a discussion of the risks associated with <unk> operations. We encourage you to refer to our SEC.
Fillings, especially the Form 10-K for the year ended December 31, 2021, and our other recent SEC filings on the call today are <unk>, CEO and President and Bill Clancy CFO I'll now turn the call to Zee for some prepared remarks, please refer to slide three of the quarterly.
Presentation.
Keith.
Thank you Steve.
I will begin with some commentary on <unk> consolidated financial results and sales trends for the third quarter.
Bill will provide financial details about the quarter and our outlook for the fourth quarter of 2022.
We achieved another solid quarter for PPG.
We grew our revenue sequentially.
And for me a year ago, despite ongoing headwinds from foreign currency.
We delivered 69.
And adjusted EPS.
And achieved an adjusted EBITDA margin of 17, 9%.
All of those grew slightly.
The second quarter, and we had the positive book to Bill of one <unk>.
<unk>.
Our strong backlog positions us well for the fourth quarter.
Compared to the first nine months of 2021, our revenue year to date increase.
16, 9% or 22, 7%, excluding the impact of currency.
We generated $11 8 million of cash from operations and $5 million of free cash flow.
Which supports our capital allocation strategy to grow shareholder value.
We repurchased one 1 million of our common stock during the third quarter.
And we expect to continue to execute our share repurchase program in the fourth quarter.
One $1 million.
Moving to slide four.
Looking at the third quarter results in detail.
We reported sales of $91 million, which was nine 9% higher than a year ago.
One 6% above the second quarter of 2022.
Our sales performance was impacted by foreign exchange, which continued to be a significant headwind in the quarter.
Particularly in our sensors and weighing solutions segment FX.
FX impacted our total revenue by $5 3 million compared to a year ago and by one 8 million when compared to the second quarter.
Excluding FX impacts revenue grew 17, 5%.
Format pilot.
From the <unk> and three 7% sequentially.
Orders of $96 9 million grew sequentially.
And we had the book to Bill ratio of one eight.
Right.
This is our seventh sequential quarter of reporting book to Bill above one.
Which we accomplished.
In an uncertain global macroeconomic environment.
We generated an adjusted EBITDA margin of 17, 9%.
And adjusted diluted net earnings per share of <unk> 69.
These results reflect the steps we have taken to further optimize our manufacturing operations and footprint while investing.
In our growth and global competitiveness.
While higher costs have continued to impact some of our businesses. We have passed on price increases to mitigate these higher material labor and logistics costs.
Through the first nine months of 2022.
Compared to the same timeframe.
A year ago.
We realized $6 3 million from price increases.
This puts us on track to achieve the high end of our target of $6 million to $8 million of incremental revenue in 2022 from our.
ASP increases.
I will now review our business segment performance in the third quarter.
Moving to slide five.
Beginning with our sensors segment, which includes our advanced sensor products and our precision resistors.
Third quarter revenue of $37 9 million grew 23, 3% from a year ago and six 1%.
And was six <unk> percent lower sequentially.
Foreign currency continued to significantly impact <unk> revenue and resulted in a negative impact of $2 7 million and 700000 to the sensors topline compared to a year ago.
And the second quarter, respectively.
Excluding the FX impact <unk> revenue grew 35, 1% from a year ago and was down four 2% sequentially.
Sales of advanced sensors, where at a rate of $50 million annualized run rate in the third quarter.
For the first nine months of 2022.
Sales were 45% higher than the same period a year ago.
We continue to reduce our manufacturing lead times and work with both existing and new customers or new projects across a range of applications.
Sales of precision resist those were modestly lower from the second quarter.
Roughly half of the decline was related to unfavorable currency effects.
And the other half of the decline related to lower sales in the test and measurement market in Asia.
We continued our strategic initiatives to secure design wins in new emerging applications in data centers and EV battery.
Book to Bill for sensors was <unk> 99.
So orders of 37 4 million declined from the second quarter, which reflected two factors first the timing of some large semi annual customer orders, which were recorded in the second quarter.
Second we had softer demand for precision resistors in the semiconductor equipment market and lower orders for spring ages.
In terms of operating results.
<unk> gross margin of 45% decline sequentially from 44, 3%.
Reflecting lower volume onetime inventory adjustments and unfavorable foreign exchange.
Exchange.
In conjunction with our strategic operational excellence plan in the third quarter, we completed the shutdown of our legacy spring engage facility in Israel.
Which we expect will yield approximately $1 million in annual cost savings.
We also completed the expansion of our Japanese facility.
For our precision resistors product to support new automated manufacturing line that will give us the infrastructure to address key growth opportunities.
And we will increase our long term manufacturing efficiency.
Moving to slide six.
Turning to our weighing solutions segment.
Which is comprised of our <unk> onboard weighing and process weighing businesses.
Third quarter sales.
<unk> 31, 4 million or 10, 3% higher than Q2.
The increase primarily related to higher sales of OEM <unk> in our precision agriculture, and construction markets and higher sales of our onboard weighing products in Europe .
Due to improved availability of electronic components.
As we indicated in our final earnings call.
We redesigned electronic boards.
OEM <unk> product to improve.
The supply chain availability.
This redesign product.
We'll ship in the third quarter.
Book to Bill for weighing solutions was 1.5 orders of $33 1 million increased 12, 8% from the second quarter.
Mainly due to a large order for precision agriculture applications.
Weighing solutions gross margin of 33, 3% compared to 33, 7% in the second quarter.
Wing solutions gross margin was impacted by unfavorable foreign exchange and higher material costs, which were offset by higher volume and.
And our selling price increases.
Moving to slide seven.
Turning to our measurement systems segment revenue.
Our revenue in the third quarter of $28 million increased four 5% sequentially, reflecting higher project driven sales of DSI.
Metal alloy development tools and higher sales of bps the same.
50 crash test systems.
Orders rebounded strongly from the second quarter and grew 35, 7% sequentially.
<unk> higher demand, particularly for Dts product in the avionics military and space market.
And for health systems sold to the steel market.
As we have discussed before.
Order pattern can fluctuate.
Quarter to quarter due to the timing of customer projects and long lead time for this product.
The stronger orders, which resulted in a book to bill ratio of 127 positions.
Positions measurement systems for a sequential growth in the fourth quarter.
Adjusted gross margin in the third quarter full measurement systems improved sequentially to 50 56, 7% from 53, 3% due to higher sales and favorable product mix.
Moving to slide eight.
Before turning the call to Bill <unk>.
I want to comment on our capital allocation strategy.
And and the resilience of our business strategy and cost structure.
As I mentioned earlier in the in the third quarter, we generated $16 1 million of adjusted EBITDA and an adjusted EBITDA margin of 17, 9%.
We believe that our strong balance sheet and ample liquidity support the capital allocation strategy.
That can fund organic growth.
M&A opportunities.
Stock repurchases.
We have seen.
We have been executing the stock repurchase program, we announced in August .
And to buy back up to 600000 shares of our outstanding common stock.
In Q3.
We repurchased approximately one $1 million of.
Of our stock or about 33000 shares.
And we expect to continue to execute our program in Q4.
In parallel we are continuing to invest to optimize our manufacturing and to accelerate our longer term growth.
In addition to the projects we have been completing in.
In the sensors segment.
That I mentioned earlier.
We expect to complete.
Our manufacturing project.
In India in early 2023.
We believe this long term investments support our ability to address expanding growth opportunities.
While there are uncertainties.
In the current macroeconomic environment.
We like our diversified application.
In the end customer base.
As we have demonstrated in the past we.
We expect this balance.
Would provide relative stability.
In the face.
Economic trends that may impact specific markets.
I will now turn it over to Bill Clancy for additional financial details Bill.
Okay.
Thanks, Steve referring to slide nine and a reconciliation table of the slide deck in the third quarter of 2022, we achieved revenues of $90 1 million gross profit of $37 3 million or 41, 4% of sales operating income of $11 9 million or 13.
2% of revenue and diluted net earnings per share of <unk> 74.
On an adjusted basis, our gross profit was $37 6 million or 41, 7% of sales.
Operating income was $12 3 million or 13, 7% of sales and diluted net earnings per share was <unk> 69.
Our third quarter revenues increased one 6% compared to $88 six.
Compared to $88 6 million in the second quarter of 2022.
And were nine 9% above the third quarter a year ago.
Foreign exchange for the third quarter negatively impacted revenues by $5 3 million compared to a year ago and negatively impacted revenues by $1 8 million as compared to the second quarter of 2022.
Gross margin in the third quarter was 41, 4% compared to 42, 1% in the second quarter of 2022, which benefited from higher volume and selling price increases, which was more than offset by higher material costs.
Unfavorable foreign exchange rates and reduction in inventories.
On an adjusted basis third quarter gross margin was 41, 7%.
As compared to 42, 9% in the second quarter of 2022.
Our operating margin was 13, 2% for the third quarter.
Adjusted operating margin in the third quarter was 13, 7%, which was the same as in the second quarter of 2022.
Selling general and administrative expenses for the third quarter were $25 3 million or 28, 1% of revenues compared to $24 6 million or 30% of revenues for the third quarter of 2021.
The increase in SG&A of $700000, mainly relate to 600000 per head count and wage increases 500000 of fees 400000 for travel.
And 400000 of other costs, partially offset by $1 2 million of positive foreign exchange rates.
The adjusted net earnings for the third quarter were $9 5 million or <unk> 69 per diluted share.
Compared to $7 1 million or <unk> 52 per diluted share in the third quarter of 2021.
Adjusted EBITDA was $16 1 million or 17, 9% of revenue compared to $13 7 million or 16, 8% a year ago.
Purchased capex in the third quarter of 2022 was $4 8 million, the majority of which reflects equipment purchases and related infrastructure.
For fiscal 2020, so we expect purchase capex to be in the low $20 million range.
Approximately half of our purchases are infrastructure related to support additional capacity expansions for growth initiatives.
For precision resistors in the sensor segment.
For sensors and the Wang solutions segment.
The other 50% of Capex is mainly for equipment for expansion and cost efficiencies in the sensor segment.
Adjusted free cash flow was $5 million for the third quarter of 2022 as compared to $3 million for the third quarter of 2021.
We define adjusted free cash flow as cash from operating activities of $11 8 million less capital expenditures of $6 8 million.
Yes.
The GAAP tax rate in the third quarter was 18, 6% as compared to 23, 4% in the third quarter of 2021.
Recall that in the prior year, our tax rate reflected a onetime tax benefit of approximately $600000 associated with the Dts acquisition.
We are assuming an operational tax rate in the range of 20% to 22% for the full year of 2022.
Moving to slide 10.
We ended the third quarter with $79 9 million of cash and cash equivalents and total long term debt of $60 8 million.
Regarding the outlook for.
For the fourth fiscal quarter.
We expect net revenue to be in the range of 88 million to $98 million at a constant third fiscal quarter of 2000 and trying to exchange rates.
In summary.
We achieved solid performance in the third quarter.
We grew our orders in the quarter, which underscores the strength of our business model and strategy.
Our healthy backlog positions us to finish 2022 on a strong note.
And we continue to implement a balanced capital allocation strategy aimed at increasing our long term shareholder value.
With that let's open the lines for questions. Thank you.
We will now begin the Q&A session, if you'd like to ask a question. Please press star followed by one on your Touchtone keypad.
If for any reason you would like to remove that question. Please press star followed by <unk>.
Again to ask a question press Star one we will pause briefly to lock questions to generate in Q.
The first question is from the line of John <unk> with Sidoti You May proceed.
Hi, Good morning, guys. Thanks for taking the questions.
I guess I can start with the really impressive order book that you registered in the quarter I'm curious.
How firm is the order backlog.
In other downturns could customers cancel orders or they take delivery no matter what.
As you know John .
We are servicing many many niche markets in some cases, we have noncancelable non returnable policy.
This point the backlog the aged backlog breakdown is around I would say.
<unk> will take you to around 50%, which is expected to be delivered.
Within the next quarter, while the.
The other part.
Early next year.
Backlog is a breakdown of short term orders and longer term projects, which is confirmed by our customers. We feel that given the nature of our business and the products we deliver.
We feel that the <unk>.
Backlog is very firm.
Great that's good to hear.
Nick.
We don't expect cancellations.
Okay.
And what are your thoughts about what's going on in Europe , what are your customers telling you about it.
Telling you I mean, how are you preparing for maybe potential production manufacturing production disruptions this coming winter.
Okay. So looking at our global operational footprint, we have very we have a.
A very very small footprint in Europe , most of all of our larger operations are based in North America Asia and east.
So.
More so therefore the reef.
Losing manufacturing is very very small.
Because we have a very small footprint most of our technology centers are in Europe , but very little on the operational side regarding the customer sentiment.
Some some stabilization on the general.
The general industrial market, we still see good trends from our European customers.
Got it and last quarter, you were having some success.
The consumer products market.
If that carried over into the third quarter and are you still getting new kind of wins branching into different markets.
The outlook there.
The consumer market.
Is mainly around <unk>. So the central segment ended on wing solutions in the sense in the sensor segment, we have seen is stable.
Capitalization in the consumer electronics.
Market as well as the consumer market and given the indication we have received from customers.
<unk>.
We we.
We don't.
At this point in time any.
Significant changes from the.
From the Q3 order run rate, we see which we see as it is the level of stabilization was the level of a baseline at this point in time, we don't see it.
Any signs of recession for our business.
Okay good to hear.
One last question your long term.
Goals.
Include Emma.
M&A.
Give us an update where you are seeing out there as far as targeted acquisitions.
Many of the prices lofty prices coming down just your overall thoughts would be great. Thanks.
Sure.
The market volatility, we definitely see multiple opportunities.
We have been.
In dialogue and we are.
All the time exploring M&A opportunities as part of our capital allocation strategy.
I do believe that there are already some signs of lower valuations, if I may say more reasonable valuations.
This point in time.
I have nothing tangible to report.
No doubt.
M&A is very high on our capital allocation strategy.
Great. Thanks, I'll get back into queue.
Thank you.
Thank you Mr. Frans van.
Again, if you'd like to ask a question on today's call. Please dial star one.
Next question is from the line of Bill <unk> with Teton Capital Management you May proceed.
Thank you that's <unk> capital.
How would you characterize the price increases that you have achieved so far.
To your ultimate need to recapture.
The increase was please.
We.
Bill if you can recall, we started the price increase.
While ago, given the size of tobacco, we have started that already.
J D.
More than a year ago, we believe.
We have seen that those prices.
It.
Has been offset offsetting the higher pandemic driven costs.
And we are not alone we are not alone in raising prices in our markets.
Our approach to pricing is to realize value from our products and technologies without damaging our customer relationship and this was the policy all along.
I do believe that too.
It was so far it was quite a success.
<unk>.
It's never.
It's never easy or it's never trivial, but I think that if you approach it correctly and if you have the right stickiness relationship with your customers.
This is something that.
We have been able to execute.
As I said for us the most important without damaging our customer relationships.
Alright.
Dissipating additional price increases that will flow through or are you largely yes.
Thank you Dave.
As I indicated before we run.
Full price increase.
For the first nine months was around $6 $3 million.
For the for the first nine months of this year in respect to last year.
The momentum will continue and we are definitely going to achieve.
Our target six to eight we will be on the higher end to the $8 million in Q4, which means we will see.
We will see an additional well.
Price increases flowing into the Q4, which is a continuation of the momentum you have.
The last few quarters.
Okay at this point.
Yes. It was really more of my focus is are you anticipating that run rate to increase further or does.
Does that largely capture.
You are.
You have done.
Regarding additional price increases all I would say re assessing our.
Pricing.
<unk>, we are in the midst of looking or are we viewing doing during this budget process also our strategy into 2023, given all the moving parts the additional cost pandemic caused the higher logistics.
The labor cost increase and we.
We are in the stages of reassessing, the our price policy.
I would say that all in all we should expect to see.
The positive momentum moving to 2023 regarding price increases, but at this point in time.
It will be how to tell it what magnitude, but they do believe that the positive momentum.
We will continue into next year.
Okay. That's helpful and one additional question if I may relative to the truck and van way.
Market could you give us an update in terms of the activity level that you are seeing there and how you anticipate that market.
K 12 market.
Sure absolutely distasteful truck win one way were flattish sequentially.
Reflecting continued tight supply of vehicles in Europe .
In weaker economic factors in the U K.
While shortages of some micro chips has eased availability of new vehicles for our customers.
Main tight.
While we are hopeful to see improvement in 2023 at this point in time, given the economic headwinds in Europe . It is difficult to predict the exact timing.
So.
To summarize we still see.
And the effect regarding the supply of vehicles, which is.
Which is affecting our ability to sell many more plus many more.
Units.
Of truck, where you have runway.
Thank you great.
Great quarter.
Okay. Thank.
Thank you.
Thank you.
There are no questions remaining in queue. So as a reminder, if you'd like to ask a question on today's call. It is star one.
There are no additional questions waiting at this time, so I'd like to turn the call back over to Steve Cantor for concluding remarks.
Thank you all for joining our call today, we look forward to meeting some of you at the Baird Industrials Conference. This week in Chicago and to updating you again at our next earnings conference call have a great day. Thanks.
That concludes today's conference call. Thank you for joining and please enjoy the rest of your day.