Q4 2022 Vishay Precision Group Inc Earnings Call
Hello, everyone and welcome to the V P G's fourth quarter fiscal 2022 earnings call.
My name is Bruno and that will be operating your call today.
During the presentation you can register to ask a question by pressing star one on your telephone keypad.
I will now hand over to your host Mr. Steve Cantor Senior director of Investor Relations. Mr. Cantor. Please go ahead.
Thank you Bruno and good morning, everyone welcome to <unk>, 2020 two fourth quarter earnings Conference call, our Q4 and full year press release and accompanying slides have been posted on our website PPG sensors dot com an audio recording of today's call will be avail.
On the Internet for a limited time and can also be accessed on the V. P. G website.
Okay.
Today's remarks are governed by the Safe Harbor 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 V. P. G. <unk> operations, we encourage you to refer to our SEC filings, especially the form 10.
For the year ended December 31.
2021 and our other recent SEC filings on the call today are ziv, shiny CEO and President and Bill Clancy CFO I'll now turn the call to Ziv for some prepared remarks, please refer to slide three of the presentation.
Steve.
Thank you Steve I.
I am pleased to report we delivered another very successful quarter and deal for V. P. G.
Beginning with our 2022 performance.
2022 was the best year in V. P. G. He still weak in terms of growth and profitability.
We grew our revenue by 14%.
Excluding the unfavorable impact of foreign exchange, we grew revenue by 21%.
We increased our adjusted diluted net EPS by 41%.
To $2 62.
We generated 62 million in adjusted EBITDA and improved our adjusted EBITDA margin to 17, 1% from 15, 7% recorded in <unk>.
We launched a new operating strategy and.
The actual build on operational diversification.
Which we believe will leverage our strong called corporate competencies.
And accelerate our long term growth potential.
We believe these strong results demonstrates.
The increasing importance of follow precision sensing and measurement solutions.
The Powell.
Our business model.
And in our growth strategy.
It is important to note that that was 2022 performance.
Is a continuation of the results we have delivered over the past several years.
And puts us closer to achieving our three to five for your financial targets.
Moving to slide four.
Turning to the fourth quarter of 2020 two.
We reported sales of $96 2 million.
Which was 6.9% higher than both year ago, and the third quarter of 2022.
I was safe performance continued to be negatively impacted by foreign exchange.
Particularly you know sensors and weighing solutions segments.
FX impacted our total fourth quarter revenues by $5 3 million compared to a year ago and by 800000, when compared to the third quarter.
Thus, excluding FX impact.
When you grew 13, 6% from prior year end.
7.9% sequentially.
We realized record adjusted diluted net EPS of <unk> 76 cents in the fourth quarter.
We successfully passed on price increases to mitigate the higher material costs.
Through 2022 compared to a year ago, we realized $8 8 million from pricing thesis.
Which is slightly above the high end of our target for incremental revenue in 2022.
From our selling price increases.
This essentially offset higher labor and material costs.
We generated adjusted EBITDA of $17 5 million and achieved an adjusted EBITDA margin of 18, 2%.
After seven consecutive quarters of book to Bill over one.
And and and the record fourth quarter revenues.
Book to Bill in the fourth quarter of <unk> 76 reflected softer fourth quarter orders.
The Q4 orders primarily reflected the following factors.
First.
Cyclicality lower orders in the test and measurement.
Humira and steel markets.
Second the timing of fortune, but even an annual and semiannual orders.
And third.
A comparison of the third quarter, which includes which included a large one time orders in the precision AG.
While near term visibility is limited we expect orders to increase sequentially in Q1 of 'twenty three and.
And to improve through the year.
We are confident about the prospects for our strategic initiatives to address emerging and broadening opportunities for our precision sensing and measurement technologies.
Looking at our business segments performance.
Moving to slide five.
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Beginning with our sensors segment fourth quarter revenue of $36 3 million declined four 1% sequentially and grew six 3% from a year ago.
Foreign currency continues to significantly impact sensors revenue and resulted in a negative impact of $300002 4 million to the sensors topline compared to the third quarter and a year ago.
<unk>.
Excluding FX impact.
Sensors revenue was down three 5% sequentially, but grew 14, 3% from a year ago.
Sales of advanced sensors soften modestly in the fourth quarter.
As for the full year advanced sensors revenue.
41% to up one.
Similarly 50 million.
With what we view as the best performing product of its kind in the market today.
We are well positioned when our customers next generation platform as we continue to be excited about the long term potential for advanced sensors.
We are seeing more opportunities.
In additional markets, including electric vehicles.
Sales of precision resistors, well modestly low oil from Q3.
Primarily due to fewer working days.
Due to local holidays.
We continued our strategic initiatives to secure design wins in new emerging markets in data centers and fiber optics equipment.
As well as industrial automation system.
For data center.
Centers.
Our product can provide enhanced levels of precision and stability, which contributes to a higher performance of those networks.
In terms of operating results for sensors gross margin of 37, 6% decline sequentially from 45%, which was primarily a result of lower volume and temporary manufacturing inefficiencies.
We expect sensors gross margin to improve in the first quarter of 2020 three.
The Central segment had the book to Bill of <unk> 76.
Selecting slowest cyclical orders for precision resistors in the test and measurement market.
Lilly for semiconductor test equipment.
And in consumer for advanced sensors.
Given our current customer discussions, we expect orders to improve in the first half of 2020 three.
Moving to slide six.
Turning to our weighing solutions segment fourth quarter sales of $33 1 billion increased five 4% from 31 4 million from the third quarter of 2022 and three 2%.
From $32 1 billion in the in the prior year period.
Excluding the negative impact of FX.
Weighing solutions revenue grew six 1% sequentially and 10, 5% year over to you.
We were pleased with the performance of our force sensors OEM initiatives.
As OEM revenue grew approximately 34% on a sequential basis and 52% on a year over year basis.
In the fourth quarter sales reflected the shipment of large orders for precision AG.
Cultural applications, which was booked in the third quarter.
This was partially offset by softer sales in the transportation market for our overload monitoring product and all.
Truck, we've run way initiatives.
Weighing solutions adjusted gross margin of 33, 4% in the fourth quarter was flat compared to 33 three.
In the third quarter as higher volume was offset by unfavorable foreign currency exchange rates.
The weighing solutions segment had the book to Bill ratio of eight two in the fourth quarter of 2022.
Selecting the timing of OEM projects.
And the streamlining of the supply chain in precision agriculture, and in Europe , and Asia for industrial weighing applications.
Moving to slide seven.
Turning to our measurement system segment.
In the fourth quarter of $26 8 million increased 29, 2% sequentially.
12.8% from a year ago from <unk>.
Reflecting growth of course, the measurement systems portfolio.
Excluding the negative impact of FX measurement systems revenue grew 31, 3% sequence.
And 16, 9% year over year over to you.
Adjusted gross margin in the fourth quarter for measurement systems was 56, 8%, which compared to 56, 7% in the third quarter of 2022.
While slightly higher on a sequential basis, the fourth quarter adjusted gross margin.
Measurement systems was impacted negatively by unfavorable product mix and foreign exchange rates.
Book to Bill for measurement systems was <unk> seven.
Reflecting.
Cyclic cyclically slow orders in steel and the timing of customer projects for vehicle safety testing in transportation and in a M. S.
Customer engagement in quote activity remains robust.
Which is a positive indicators for the second half of 2020 three.
Well now our measurement system business businesses.
Oh strong.
Market leaders.
In their respective niches demand in these businesses is loudly largely project driven.
As these systems generally have longer selling and delivery cycles and higher asp's.
We think these niches.
A number of attractive avenues for growth.
Moving to slide eight.
Yeah.
Our capital allocation strategy, which is supported by our strong cash from operation and our solid balance sheet is focused on creating shareholder value.
On three priorities.
One internal investment to support our organic growth.
<unk>.
Strategic M&A.
And three stock repurchase.
In terms of internal investments 2022 was another important year for us as we continue to streamline our manufacturing capability, while expanding our ability to address new higher volume opportunities that will further accelerate our growth.
I've mentioned.
On previous earnings calls our infrastructure projects.
Precision resistors and load cells, which followed the significant investments we have already made over the past several years.
As we complete our current projects in 2020 three.
We expect capital spending to return to a more historical levels of approximately 424.
2424, and a half a percent of revenue.
Regarding M&A.
We continue to look for attractive high quality businesses that meet our stringent requirements for strategic fit.
Financial returns and value creation we.
We are currently seeing more activity and more opportunities.
On the M&A front.
And finally regarding stock repurchase program.
We announced in August .
So at the end of 2022 we repurchased approximately two 7 million of our stock.
About 85213 shows.
Before turning the call to bill for additional financial detail.
Want to thank our employees and our customers around the world for making 2020 to a successful year for V. P. G.
Passion dedication and focus of.
V P G teams.
When our customers are the engine of our success.
I will now turn it over to Bill Clancy for more details.
Okay.
Thank you Steve.
Firing aside nine in the reconciliation tables of the slide deck, our fourth quarter 2000, and trying to revenues grew six 9% compared to the $90 1 million in the fourth quarter a year ago.
And were six 9% above the third quarter of 2022.
Foreign exchange for the fourth quarter of 2022.
Negative impact on revenues of $5 3 million compared to a year ago.
I had a negative impact of 800000 as compared to the third quarter of 2022.
The gross margin in the fourth quarter was 41, 2% compared to $38 seven in the third quarter.
On an adjusted basis, excluding 200000 of acquisition purchase accounting adjustments.
Our fourth quarter gross margin of 41 five.
<unk> compared to 41, 7% in the third quarter of 2022.
Our operating margin was 13, 6% for the fourth quarter of 2022.
Our fourth quarter adjusted operating margin was 14%, excluding 200000 of restructuring costs and the adjustment I just mentioned above.
Selling general and administrative expenses for the fourth quarter of 2022, or $26 5 million or 27, 5% of revenues compared to $25 3 million or 28, 1% of revenues for the third quarter of 2022.
The sequential increase in SG&A of $1 2 million.
Mainly relates to 600 thousands of our commissions 300000 for travel and 300000 for other expenses.
Yeah.
The adjusted net earnings for the fourth quarter of 'twenty to 'twenty, two were $10 4 million or 76 cents per diluted share.
Compared to $9 5 million or <unk> 69 cents per diluted share in the third quarter of 2022.
Adjusted EBITDA was 17 that half a million or 18, 2% of revenue and grew 23, 3% compared to $14 2 million or 15, 7% of revenue a year ago.
Our purchased Capex in the fourth quarter was $6 8 million, the majority of which reflects purchases and related infrastructure for the sensors reporting segment.
Total purchase Capex for 'twenty, 'twenty, two was $20 million or five 5% of revenues.
For 'twenty to 'twenty three we are budgeting 18 to 20 million.
Which includes approximately $7 million and carryover spending from 2022.
We generated adjusted free cash flow of $6 $8 million for the fourth quarter of 2022 as compared to $5 million for the third quarter of 2022.
We define adjusted free cash flow.
Cash from operating activities less capital expenditures plus sale of fixed assets.
Our GAAP tax rate in the fourth quarter was 17, 6%.
We are assuming an operational tax rate in the range of 20 to 23 per se for the full year of 2023.
Moving to slide 10.
We ended the fourth quarter with $88 6 million of cash and cash equivalents and total outstanding long term debt of $60 8 million.
We believe that we have a strong balance sheet and ample liquidity to support our business requirements and to find additional M&A opportunities.
Regarding the outlook.
For the first fiscal quarter of 2023 at constant fourth fiscal 'twenty trying to exchange rates.
We expect that revenue to be in the range of 85 million to $95 million.
Yeah.
In summary, our solid fourth quarter results capped a record year for PPG.
We are excited about penetrating emerging market segments with our high value precision products for our customers.
With that.
It's open the lines for questions. Thank you.
Ladies and gentlemen, if you'd like to ask a question. Please press star followed by one on the telephone keypad now.
If you'd like to cancel the question.
Star followed by two.
And please remember to one mutual microphone.
First question is from John friendship from Sidoti John Your line is now open. Please go ahead.
Good morning, everyone and thanks for taking the question.
Great quarter.
I actually wanted to drill down into the book to Bill ratio, it's been quite some time since we've seen.
Such a low reported number and it seems like there's an awful lot of factors that are involved here.
Ziv I Wonder if you can kind of talk about which ones. You think are the most temporary in nature and which ones that maybe you are you eyeball with a little bit more concern on a go forward basis.
Sure absolutely so first of all.
The book to Bill represents record record, the revenues, which which somehow what you know right.
You increased the magnitude of the book to Bill and when we are looking at the all the changes.
On the three segments three end markets three segments, it's around test and measurement for semiconductor equipment, mainly if that was a mess and to an extent also it'd be stupid those full process automation for precision resistors.
This represents a certain the easing of the supply chain and the based on the discussions we had with customers we are already.
Expecting to see an improvement in Q1 this year.
The second piece is regarding consumer electronics, which is which has affected and micro measurement given the given the the supply chain and the some of the manufacturing constraints on our customer side. We are the we are now based on delay.
This projection we have received from them.
To date, we are expecting in the second quarter to see already.
All of those coming back to a to a more to a normalized level.
The other piece the other piece is the transportation market the transportation market.
Is it to an extent has it been affected by the availability of microprocessors.
Mainly for our onboard weighing business in the U K and the.
The expectation is as well in the coming quarters, we have we are expecting to see an.
Any improvement or availability of microchips. Therefore, the demand is expected to do with them.
So all in all it's around three specific end markets and we are already as we indicated earlier, we are already expecting to see an improved older.
Oh the rate already in Q1, which is expected to improve further along 2023.
And and given your guidance with revenue of $85 million to $95 million. It certainly suggests that <unk> has ample.
Bookings in the backlog to kind of indoor.
Temporary.
Pause in the order book.
Is that fair and does that booking profile extend into the second quarter or does the orders have to come back before it becomes more problematic for the second Florida.
So historically, the backlog, which represents our our customers.
The desire to deliver product to.
Given time does it slightly represents over 50%.
Slightly over 50% of.
Backlog, which is expected to be delivered within the following quarter. So when we speak about the guidance. We are looking at the at our current backlog.
Given cutting my expectation to get the to get the product.
And what we expect to be booked and billed within within a given quarter.
That's the way we build our let's say focus sales focus model.
Yeah.
We we we don't expect the Q1.
To be to be impacted by the so called low order intake in Q4.
You want delivery and I guess.
Perfect and one last question and then ill get back into queue.
Regarding the revenue mix revenue mix was was it was very beneficial.
In Q4.
How would you expect the revenue mix to play out in Q1 versus versus Q4.
The revenue mix was favorable in a way in Q1, given the fact that.
We have the.
There was higher mix for measurement systems at their highest.
Jean <unk>.
Respect weighing solution at a lower gross margin as you know, we don't give any guidance.
Guidance regarding the gross margin, but but all in all it.
We should expect.
Similar level I would say similar level of gross margin.
In Q1.
Okay great.
Given the given given the order mix and end and some changes in the.
In the business.
So maybe maybe baby sensors, usually I think you indicated you expect a better sensor gross margin sequentially right.
So that would be beneficial.
Okay that is COVID-19.
Okay.
Okay. Thank you, Steve I'll get back into queue.
Yeah.
Yeah.
Our next question is from Bill does Lim from Titan Capital Bill. Your line is now open. Please go ahead.
Thank you a couple of different questions first of all would you. Please talk to the AG and construction market.
Despite the comments in your release it sounds like there may be something interesting happening within that within that industry within the <unk> segment.
Sure absolutely yeah regarding precision AG, Yeah, we had a very very large customer who placed a very large order in Q3.
<unk> has been delivered in Q4, they had to retrofit all their it.
Field equipment.
And they had to do it with the fast. This is why we have received a very large order at.
This business at this point in time is running in a very stable way regarding the construction.
Business, we also received.
I would say mid sized order for one of those larger equipment construction companies well buying our load cells.
And at this point in time we.
I mean, we don't see any changes at least given our visibility within the next quarter fallout spikes, but the fact that they have placed a large order.
Implied that they had a they had.
Certain requirement.
Go and change or modify.
X amount of equip.
Equipment units in the in the field.
But this is a very stable.
This for us.
The increase in the OEM business, which was quite impressive year over year or 52% that even quarter over quarter.
Implies that there is.
Stability and strength on the OEM piece as well.
We move forward in the year.
Yeah.
Thank you for that and is this a customer that you are winning market share from a competitor or.
Bob.
And why why that 50% strength at the OEM level, because that sounds like that's different from the retrofit side that you referenced.
Sure. So so so these are the type of OEM business.
The the full Central's OEM business is a very sticky business.
In most cases, given the qualification cost.
They select one supplier for peaceful I mean, this is not an exchangeable given the again the nature of qualification and test them spec, which is required for our products to fit the equipment.
Therefore, once you have been designed in and you have been designed in for the product lifecycle and now it is based on our customer demand changes that will trigger the order intake in the product lifecycle of those.
The equipment could be.
10 to 15 years, but but we once you have designed you have been designed you all deal as the sole supplier that's the way they operate.
Great. Thank you and then relative to the acquisition pipeline.
I think your your opening comments you inferred that.
There are favorable developments with discussions taking place there would you would you talk.
Broadly to what's changing and why that pipeline seems to be larger today and.
To what degree do.
To the questions about the global economic activity.
Create an opportunity for you.
Sure of course, I I I believe that the.
Is it once had once exchange rates went up.
Even in a dramatic way and Dell, we see many more opportunities for M&A, we see many more deals.
The well and in many more companies that are putting a.
Companies on the shelf some of them are privately held companies while ideals.
Being held by.
V C's of financial our financial institutions.
I could have guessed that to an extent.
They those companies were operating we said nice tailwind in the last couple of years and they would like to take advantage of the.
Of the I would say our improved operational performance.
In order to optimize the selling price given.
Given the.
The economic environment, which they may see and also the higher interest rate environment. Therefore, we we do see many more opportunities, which we have not seen it.
Of quarters ago.
Great. Thank you for the perspective.
As a reminder, ladies and gentlemen to ask any further questions. Please press star followed by one on your telephone keypad now.
Our next question is from Andy Susana <unk> from Gabelli funds.
Andy Your line is now open. Please go ahead.
Good morning Bill.
Bill and Steve.
Good morning.
Hum.
Uh huh.
Questions, how should we think about gross margin in 2023, if you look at 'twenty to 'twenty two gross margin how.
How sustainable is gross margin at around 41% its higher than our recent historical levels.
Okay.
Yeah, Andy I think as Ive mentioned on the call, especially even going in because we don't really give guidance on gross margins, but yet I think given the product mix I think we mentioned that we would see similar levels you know and in the first quarter of 'twenty three and then obviously as we go.
Out of the year like I said, we don't we don't give guidance, but we feel quite confident of the levels that we're achieving today.
And the possibilities with increase volume to just to increase.
Thank you and then the ZIP I mean.
Yeah us about inventory levels and then when orders return like how quickly can they turn into like cells in general.
Well I was kind of in backlog.
Is it on the current backlog is around four.
For eight months of sales, which is above the historical trends of three five months at this point in time, we don't have we don't have any border which is on allocation.
In any we don't have any product, which is an allocation. Therefore, we could I would say respond to any potential market uptick fairly fast.
Since we have invested in equipment and infrastructure we already.
If you take any any potential.
Volume upside.
Naturally we will have to hire more people, but I believe that these would be we would be able to do fairly quickly. So.
Once additional volume would come we would be able to turn into revenues.
I would say within a quarter or two.
Yep.
And then I.
I think it was great to see Atlanta sensors grew to 50 million in 2022.
What can we expect in advance sensor in 'twenty two 'twenty three are there like new advanced sensors applications that you are pursuing and in terms of your manufacturing capacity of advance sensors should we continue to see the capacity to ramp up Hum meaningfully higher in 2023.
So advanced sensors today.
We do have equipment capacity to support any potential volume upside, which may turn into 'twenty, which may come in in 2020 three in addition to that.
We are still servicing our current portfolio, including the some some very large customers and we diligently continue.
Designing wins at existing customers and new customers I did mention on the call and this is very.
It's fairly on the early stages that we are even that we have reached out and engaged.
Yeah.
Customers large customers beyond our consumer electronics, which are in electric vehicles. The design cycle of the nature of the product is the design cycle is around 12 to 24 months before we run on the full production run rate.
So.
While we while we continued to manage the capacity the equipment and the improving the process our team members continuously.
Looking at new opportunities for.
For designing wins in order to assure the growth of advanced sensors in the coming quarters and in the coming years.
So yes please.
Ziv, if you are able to share what we should be able to share where it can be the footprints of advance sensors in evs.
Since our since those are very early leads and discussions I would be happy to share it once the.
Once we would be once we would have more advanced steps without customers, but at this point, it's a it's still in the early.
These stages.
Okay. That's understandable yeah. Okay. Thank you so much Dave Bill and Steve.
Thank you.
Our next question is from John friendship from CS at Sidoti.
John Your line is now open. Please go ahead.
Hum.
Fortunately a lot of my follow ups have been addressed but I do want to ask a little bit about the labor inefficiency that you cited in the sensors segment <unk>.
What was that has that been fully rectified.
Yes, the the labor inefficiencies that we have incurred in Q4 is mainly due to the fact that we had to adjust to our head count to a to the volume dropped mainly for micro measurement.
This is a temporary effect that we don't expect to.
Repeated the DS.
In Q1 of 2023.
But we had to make very quick quick adjustments and it does include also some sevens. So its a you can think of that mostly as the one time effect.
Okay fair enough and regarding price increases I think you realize just under $9 million in 2022, I'm just curious about the timing of you instituting those price increases will be more benefits coming in 2023 based on the timing or would there be necessary to be in.
A round of price increases in 2023 as you can see.
To battle the inflationary curve.
Sure the $9 million of the lysine pieces.
Pieces that the company has applied between 2020, one 2022.
As we move into 2020 three.
We do see a continuation of material cost increase.
Not only for microprocessors, but also some ideal power to do so.
Due to supply chain and higher inflation cost. This is why the company has initiated another round of price increases from 'twenty to 'twenty, two we should take into effect in 2023.
In order to mitigate the material prices that the company is expected to see in 2023.
Which are naturally beyond the $9 million that has been applied.
Before.
Okay. That's it for me. Thank you very much guys.
Okay.
Okay.
We currently have no further questions I will now hand back to our speakers for final comments Mr. Steve Cantor. Please go ahead.
Before concluding I want to let investors know that we will be participating in the Sidoti conference in March and with that thank you all for joining our call and have a good day.
Okay.
Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.
Yeah.
Yeah.
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Okay.
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