Q2 2023 Vishay Precision Group Inc Earnings Call
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Yes.
[music].
Hello, and welcome to the BP change second quarter fiscal 2020 earnings call.
As Elliot and I'll be coordinating your cold stacked.
If you'd like to register a question. Please press star followed by one on your telephone keypad.
I would now like to hand over to Steve comes on senior director of Investor Relations.
Please go ahead.
Thank you Kelly and good morning, everyone. Welcome to <unk> second quarter of 2023 earnings Conference call. Our Q2 press release and slides have been posted on our website at V. P. G sensors dot com.
Audio recording of today's call will be available for a limited time and can also be accessed on our website.
Sure.
Okay.
Today's remarks are governed by the safe Harbor provisions of the 1995 private Securities Litigations 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 filings, especially the Form 10-K for the year ended December 30 <unk>.
<unk> 2022, and our other recent SEC filings on the call today are ziv, <unk>, CEO , and President and Bill Clancy CFO and I will now turn the call disease for some prepared remarks, please refer to slide three of the presentation Ziv.
Yeah.
Thank you Steve.
I will begin with some commentary on <unk> consolidated financials really needed financial and sales trends for the second quarter.
Bill will provide financial details about the quarter and our outlook for the third quarter of 2023.
Moving to slide three we achieved another strong quarter for PPG, we grew revenue year over year and sequentially.
We performed well financially.
We increased adjusted gross margin adjusted operating margin and adjusted diluted EPS from Q1.
We generated $16 million of adjusted EBITDA, $9 8 million of cash from operations and $6 4 million of adjusted free cash flow, which supports our capital allocation strategy to grow stockholder value.
All of those grew sequentially.
And we have a solid outlook for the third quarter driven by our backlog.
Customer engagement remains high as we continue to extend on long term strategic growth initiatives to capture expanding and broadening opportunities for.
Our precision measurement and sensing technologies.
Moving to slide four.
Looking at the second quarter results in detail with reported sales of $98 million, which was two 5% higher than a year ago and $2, 2% higher sequentially.
Orders of $85 6 million grew 3% from the first quarter.
This reflected higher sequential bookings for all three business segments.
And resulted in a book to Bill ratio of <unk> 94.
In the current macro environment, our customers are maintaining lower inventory levels.
Nevertheless, given the custom nature of our products.
We anticipate we will see bookings improvements approximately in Q4 this year to early 2024.
As I indicated we improved our adjusted gross margin to 42 point.
7% from 41, 9% in the first quarter.
Driven by higher sales higher selling prices and the favorable impact of FX.
This was partially offset by unfavorable product mix in our measurement systems segment.
Our supply chain continued to improve compared to a year ago, we incurred higher material cost.
Which we were able to offset to higher selling prices.
The redesign of one of our <unk>.
Due to insufficient availability of key components is complete and we are on track to ship the redesign product in the fourth quarter.
In terms of our <unk>.
Any growth strategies, we continued our focus on key strategic initiatives to capture emerging opportunities for our precision measurement and sensing technologies.
As we have discussed before we have seen broadening of emerging opportunities in new markets and applications that can benefit from our high performance high precision solutions.
During the second quarter, we continued to expand our engagement with existing customers as well as develop innovative products to meet their emerging requirements.
These engagements are in the range of markets, including industrial automation robotics space and defense precision agriculture fiber optic data Center data Center network medical equipment and consume mill.
We made progress in many of these markets over the past few years and we are optimistic about the potential to contribute to our long term organic growth.
I'll touch on some of these initiatives is I know, we view our business segments performance.
For the second quarter.
Moving to slide five.
Beginning with our Central segment second quarter revenue of $36 3 million declined 10% from a year ago and was one 3% lower sequentially.
Compared to the first quarter sales of our precision resistors will slightly lower.
Sales for these products to the test and measurement market were flat and sales to the EMS market were lower as customers continue to work down inventories.
Sales of advanced sensors will flat with the first quarter.
Orders for <unk> of $36 million were two 3% higher sequentially, which resulted in a book to bill of <unk> 84.
For precision resistors.
Flat to the semiconductor test market, while orders to the EMS market will soften in the second quarter.
As our distributors continue to be cautious in the ordering pattern given the macro environment.
Strategically.
We have made progress in the second quarter with our initiatives to secure design wins for new applications for our precision to the C stores. For example, our products, we're specced into a number of new space and missile defense projects.
In addition, we are gaining traction with key fiber optics equipment makers.
New products that provide long life stability that can contribute to a more robust network performance.
All of those fully advanced sensors to the consumer market improved in Q2, but have not yet returned to the 2020 to peak levels.
We continue to get further traction with the additional applications for advanced sensors in a number of the emerging markets, including in the robotics for industrial and medical applications.
In terms of operating results for Central's adjusted gross margin of 41% decline sequentially from 41, 2%, primarily due to lower volume, partially offset by favorable foreign currency rates.
Moving to slide six.
Turning to our weighing solutions segment second quarter sales of $31 3 million were nine 8% higher than a year ago, and one 9% lower compared to the first quarter of 2023.
Sequentially higher sales in the industrial weighing market will offset by lower sales for precision agriculture and construction applications.
Book to Bill for weighing solutions was <unk> 97.
Orders of $30 3 million GUL <unk>.
Five 7% from the first quarter orders grew in the transportation market for our onboard weighing products for trucks and vans and for construction equipment.
This offset weaker demand in Europe for some legacy industrial weighing applications.
We continue to be pleased with our initiatives to expand our OEM sales for weighing solutions in a number of markets.
Including precision AG constructions medical and consumer.
Through the first half of 2023, our OEM sales grew 58% for the same period a year ago.
Am applications for precision AG applications have been among the most rapidly growing areas for the <unk>.
Weighing solution in part due to the increasing precision technology being embedded in the next generation agricultural equipment, and our strong brand and market position.
We have also been successful in penetrating consumer applications, including both high end old bikes as well as E bikes.
Links weighing solutions gross margin of 38, 7% reached an all time high in Google from 34, 9% in the first quarter.
The sequential increase was primarily due to favorable product mix, increasing selling prices and cost reduction programs.
Yeah.
Moving to slide seven.
Turning to our measurement systems segment.
Second quarter revenue of $23 3 million grew 17, 1% from a year ago and increased 14, 8% sequentially.
The sequential increase was driven by higher revenue of products in the steel market.
I mentioned earlier.
We expect the redesign of Dps products to begin shipping in the fourth quarter there.
The impact on sales of the redesign for measurement systems in Q2 was approximately $1 million, which we expect to recover in Q4.
Book to Bill ratio for measurement systems was 106 is orders of $24 7 million.
Essentially even with the first quarter.
<unk> all of those four hour calc steel or the activity system were strong as we have discussed order pattern can fluctuate quarter to quarter due to the timing of customer projects and the long lead times for these products.
One of the existing strategic opportunities in the measurement systems is an initiative to leverage <unk> technology and market leadership in the all force measurement solutions used in the steelmaking process to aluminum manufacturing.
This would represent a new market for our products.
Adjusted gross margin in the second quarter for measurement systems soften sequentially to 52% from 54, 1%, primarily reflecting the impact of approximately 1 million from unfavorable product mix.
Moving to slide eight before.
Before turning the call to Bill.
I want to highlight our strong cash flow in the quarter.
We generated $16 million of adjusted EBITDA.
And then adjusted EBITDA margin of 17, 6%.
Our adjusted free cash flow during the quarter was $6 4 million and we grew cash on our balance sheet to nearly $100 million.
Which reflects our strong operating model with the completion of our two infrastructure related projects in India and Japan.
Expected later this year, we are in the position to see our free cash flow grow further in 2024.
Given our balance sheet and ample liquidity, we can continue to support our capital allocation strategy.
The eighth stockholder value through organic growth successful M&A and they're warranted stock repurchases.
In closing I am pleased with our financial performance this quarter and our high level of designing activity with customers.
Our outlook for the third quarter is solid.
And we expect Q4 of.
2023 revenues to be at the same level in the same level as Q3 2023, given the similar business environment I will now turn it over to Bill Clancy for additional financial details Bill.
Thanks, Steve.
Referring to slide nine in the reconciliation tables in the slide deck in the second quarter of 2023, we achieved revenues of $90 8 million gross profit of $38 7 million or 42, 6% of sale.
Income of $11 8 million or 13% of our revenue and diluted earnings per share of <unk>.
<unk>.
On an adjusted basis, our gross profit was $38 8 million or 42, 7% of sale.
Operating income was $12 million.
13, 2% of sale.
Diluted net earnings per share was <unk> 58.
Our second quarter revenue increased two 2%.
<unk> to $88 9 million in the first quarter of 2023.
Our two 5% above the second quarter a year ago.
<unk> is in foreign currency rates reduced our total second quarter revenue by $700000 compared to a year ago.
Favorable $200000 impact compared to the first quarter.
Gross margin in the second quarter was 42, 6% as compared to 41, 9% in the first quarter of 2020, right where it's been.
And from higher volume higher average selling prices and favorable foreign exchange rate.
On an adjusted basis.
Second quarter gross margin was 42, 7%.
Compared to 41, 9% in the first quarter of 2020 right.
Our operating margin was 13% for the <unk>.
Second quarter.
Adjusted operating margin in the second quarter was 13, 2%.
As compared to 11, 4% in the first quarter of 2020 right.
Selling general and administrative expenses for the second quarter or $26 8 million or 29, 5% of our revenue.
Compared to <unk> 25.
$9 million or 29, 2% of revenue second quarter of 2022.
The increase in SG&A at $900000 was mainly attributable to a 700000 for wage increases.
800000 for travel.
Commission and other.
Other costs.
Partially offset by $500000 positive foreign exchange rate.
The adjusted net earnings for the second quarter were $8 million.
<unk> per diluted share compared to $9 3 million.
<unk> 68 per diluted share in the second quarter of 2022.
Adjusted EBITDA was 16 million or 17, 6% of revenue as.
As compared to $15 8 million or 17, 8% a year ago.
Purchased capex in the first six months of 2023.
$6 9 million, the majority of which reflects equipment purchases and related infrastructure for <unk>.
Fiscal 2023.
We expect purchase capex to be in the range of $18 million to $20 million, which.
Which includes approximately $7 million in carrier spending for 2022.
During the second quarter, we purchased $420000 of our stock.
Since we announced the stock repurchase authorization last August .
<unk> repurchased $3 1 million of stock.
We are pleased to announce that our board has extended its authorization for our stock repurchase plan for another year.
Adjusted free cash flow was $6 4 million for the second quarter of 2023.
Compared to $4 9 million for the second quarter of 2022.
We define adjusted free cash flow as cash from operating activities of $9 8 million less capital expenditures, which were $3 4 million.
The GAAP tax rate in the second quarter of 2023, 28, 8% as compared to 19, 2% in the second quarter of 2022.
We are assuming an operational tax rate in the range of 25 and 27% for the full year of 2020 right.
Moving to slide 10.
We ended the second quarter with $98 $5 million of cash and cash equivalents and total long term debt of $60 8 million.
Regarding the outlook.
For the third fiscal quarter, given our backlog of $139 $7 million, we expect net revenues to be in the range of $85 million to $95 million.
Constant second fiscal quarter of 2023 exchange rate.
In summary.
We've achieved solid performance in the second quarter.
We performed well financially as we increased adjusted gross margin adjusted operating margin and adjusted diluted EPS from the first quarter.
And we continue to execute on our strategic growth initiatives.
With that let's open the lines for questions. Thank you.
Thank you if you would like to ask a question. Please press star followed by one on your telephone.
You would like to withdraw your question. Please press star followed by check.
<unk> ask your question, thanks, and surely devices on mute locally.
Our first question comes from John transcribed.
Your line is open.
Yeah.
Good morning, guys and congratulations on a great quarter.
I'd like to start with the.
Really good results coming out of weighing.
The gross margin very impressive can you talk a little bit about the mix that you're seeing there and the cost reductions and the sustainability of a gross margin at that level.
Good morning, John .
The gross margin for wing solutions.
Yeah.
Adjusted gross margin reflected the favorable product mix between our force sensors on bold Wayne we have seen more seats on the truck and van way.
Sales has increased by 27, 9% sequentially full truckload volume run rate. This is regarding the mix.
And.
Also we have seen also an increased selling prices.
To offset the additional material cost reduction in addition to death.
Continues to execute on our operational excellence plan, which we will we are continuing to relocate product form higher labor cost locations to lower labor cost location. So I would say the result of the the results of the gross margin is it reflected in <unk>.
<unk> is the favorable product mix selling prices data speeds increase.
Well as the cost reduction initiatives.
So do you think that that means you've reset.
<unk> solutions margin profile permanently higher.
So I would say that.
We have reached a record level and I think that this range a range.
Is this sustainable E sustainable going forward.
The constant business environment.
Excellent.
You also touched on this in your prepared remarks, but there was a big jump in <unk> versus <unk> in your steel sales.
What are you hearing from the steel customers I know, it's a lumpy business, but how does it look for the balance of the year.
In the second quarter, we have recorded record steel bookings.
Still business is still very very strong.
I think it's still premature to say how the rest of the year is going to look like but at this point in time, it looks like a very robust business in the second quarter, we had strong bookings.
Got it.
And then your advanced sensor line, you mentioned that consumer.
Business in the advanced sensor was still down versus year ago, but how is total volume looking advanced sensor is it flat year over year is just can you give us a sense of how it's performing on a relative basis all in.
True advanced sensor revenues were flat in the second quarter compared to the first quarter order for consumer applications continued to recover while orders for industrial applications was softer.
Especially in Europe as customers continue to deplete the inventory levels and adjust their production schedules.
So.
Going back to the comments regarding consumer consumer business has improved.
Quarter over quarter and at this point in time.
See a more stable environment going forward.
For consumer, but we are not back to the to the <unk>.
2022 levels with a peak 2022 levels.
Okay, and just one last question on the tax rate significantly higher than what I was looking for.
Is that.
Certain business driving that or sales to a certain geography driving that.
Can you just talk a little bit about that.
Yes, John .
The higher tax rate for this quarter is truly driven on the mix of the income where the income has been earned and it's been obviously, it's being earned in higher tax rate jurisdictions and it was.
A year ago, that's truly a mix of where the earnings are being recorded.
Okay. Thanks, I'll get back into queue guys. Thank you.
Okay.
As a reminder, if you'd like to ask any questions. Please press star one on your telephone keypad now.
Now turning to Christian Buss with <unk> Securities. Your line is open.
Hi, Thanks, Good morning, guys.
Wanted to dig into something that <unk> talked about in terms of leveraging the <unk>.
Technology.
And that to the aluminum market are you speaking with existing customers, who have demand for your products in that market or would you be targeting a new customer base.
Similarly, when would you expect to make inroads here or is this a longer term opportunity or are you working on that on the near term.
Sure so.
Historically, the legacy business for Kentucky is in the steel market.
We have identified a similar opportunity in the aluminum steel aluminum steel mills.
Working.
We are.
With some customers in order to modify our systems. So we would be able to provide.
Similar I would say similar performance at this point in time the discussion is fairly in the early stage, but but I believe that once you establish a platform.
Scalability is going to be fairly quickly.
But we are in the design phase and in discussion.
With those customers.
Great Okay.
That's helpful. Thanks, Steve.
And then.
Just looking at that.
Q3 currently I'm, just just wanted to get a sense of how.
To the extent you could talk about it orders are trending.
Sort of into the back half of the year are they are.
See orders picking up right now.
From the Q2 levels.
Sure so in.
In the second quarter.
We have reported.
Growing up in all three segments.
If we drill down to the different reporting segments, we would see that in sensors, we had few quarter.
Quarters are fairly soft test and measurement, mainly semiconductor test and measurement business, we believe that through the end of the year.
We will start to rebound in general industrial and military and space.
Distributors are near Miss all still very very cautious in regards to the supply chain given the macro environment.
For weighing solutions.
Which is mainly driven by general industrial we have seen also softening.
For.
Older.
Softening of OLED in respect of few quarters, a few quarters ago still quarter over quarter. There is a stability.
And the.
Activation is going forward to the second half of the year is that we should expect to see a stable environment in the second half of the year and measurement systems as I mentioned, two strong quarters of book to Bill above one.
Cyclical demand coming from the steel market.
And we still have to see how this is going to resolve but the overall vibe is it looking moving into the second half of the year, we should see a stable.
Business environment in respect to the second quarter.
Okay, Great Yeah, and then just towards the end of your prepared remarks, I just want to make sure I heard you correctly did you along the same lines.
Are you expecting Q4 to be sort of similar levels as Q3, given the business environment.
We were speaking about stable business environment.
All in all in respect to the second quarter at this point in time the projection is in respect to the second quarter.
Okay sure.
And then maybe just last one for me for Bill regarding the Capex is this going to be.
Sort of a split.
Similar level in Q3, and Q4 or should we sort of expect the capex level to increase more in the fourth quarter.
Griffin, yes, so we said we would spend about $18 million to $20 million for the full year, we're at roughly what seven eight or about 7 million now so you will see.
More of the capital spending in the second half I think zee.
And as a <unk>.
Remarks that we finalized the expansion in India, and Japan. So it will be paying the majority of that probably late third quarter early fourth quarter, but overall it would be close to the $18 million to $20 million number for the year.
Perfect. Okay Super helpful. Thanks, guys.
Yeah.
We now turn to John <unk> with Sidoti Your line is open.
Hey, guys.
Just a quick update on your thoughts about the.
The M&A environment, and I recall hearing that in the prepared remarks.
Regarding the M&A environment, given our balance sheet naturally John M&A is very high on our radar.
Well now that you don't at this point in time, we have been interacting with your company.
And given the.
The business environment, and the higher interest rates.
Deals or valuation should go down but at this point in time.
We have not seen material.
Valuation drop so so we still believe it's on the higher end, but.
Slowing any dialogue.
Phew.
Few options.
At this point you didn't come to fruition, but we believe that.
In the in the coming quarters valuation would be more reasonable and we hopefully we would be able to too.
To complete.
Okay. Thank you, Steve and I'm, just curious if theres been given any.
Stagnant environment currently in.
Is there any changes to your three to five year growth targets and profitability targets.
Still intact, because I know they also encompass and potential M&A.
Yeah.
At this point in time, we have not changed our three to five year target.
Okay. Thank you for taking my follow ups.
Thanks.
As a reminder, if you'd like to ask any further question. Please press star one on your telephone keypad now.
Now turning to Hendi <unk> with Gabelli funds. Your line is open.
Good morning, Dave Bill and Steve.
Good morning.
Good morning, I have a question so currently.
Customers and distributors are being cautious with regards to the inventories.
When things normalize Gwen, let's say they have.
Comfort.
To start building in factories again.
What are the likely path toward.
Sure.
Right.
Yes.
Yeah.
Could you repeat that I'm, sorry, I didn't hear you okay.
No question.
So, let's say in terms of let's say your anticipation of inventory built once there is less macro concerns.
Let's say no more excess inventories what kind of satellite.
Signs that we should see.
Do you think they will reaffirm in penta Lee.
Mentally or could there be some step up function.
Like customers and distributors distributors.
Buying.
Buying your products to step up their inventories like what kind of capacity do you think that.
They happen when additional more.
When there is more optimism on.
On the state of the economy, and then customers and distributors.
To buy inventory start to build their inventories again.
Okay. Okay. Thank you so.
First there is a high level of customer engagement, given our market leadership and the critical nature of our products.
Therefore, we are not selling commodity wheel selling custom value added products I believe that once market market conditions would allow we and customer would be less concerned.
If I may say less hesitant.
We'll see a much more robust order intake.
Looking at our product because at the end of the day.
Products, we have.
We have been designed with our OEM.
<unk> is a unique value proposition. Therefore, we should see a much more robust order pattern once the market.
Once the market condition changes.
Okay. Thank you and then one question for Bill So Bill inventories now at 18 9 million that is I.
I think that represents working capital invested in inventories.
If you look back like inventories was running at like 62 million 76 million in 2020 in 2021.
<unk>.
Should we expect.
That the infantry in absolute dollars.
Would decline, meaning that you would be able to extract more cash from working capital and how soon do.
Do you think that can take place.
Yeah, Andy I mean, but obviously you know we have a very very strong backlog and the inventory has been built for that for that.
Backlog in the upcoming quarter, So I would anticipate.
We began to see the inventory levels to drop to a more normalized level, which over time would add some more cash.
So our financial statements.
Yeah, Okay. Thank you Steve Thank you Bill.
Yes.
Our next question comes from Zach herself with hospital capital Your line is open.
Sure.
Hey, guys.
Following up on the earlier question on the M&A.
I've talked a lot of bankers and private confirms other companies and then I guess the valuations haven't come down much.
You guys thought they might.
And the good thing is they.
The reverse I'm confident through those conversations that <unk> could get $50 $60 a share if they were to sell them.
Is that something you guys have yesterday and if so I can put you in touch with the right people.
Yeah.
Exactly I think that the board is always exploring different opportunities.
In times that are exploring all capital allocation options, including including the one that you have mentioned Nevertheless, Emma.
M&A is still high on our.
Hey, Doug.
And we believe given.
Given the fact that we have been that we are in touch and we are exploring few opportunities.
Once we complete the.
Even one or two of those acquisitions, we could definitely generate stockholder value, but all in all the board is always looking at all capital allocation options.
I hear that the problem is that you guys are at 100 million in cash for <unk>.
10 years and.
For the last three when I've been talked to you guys that you were going to buy a company in and I know that there was an opportunity to sell for.
Or to get the $50 a share to sell two years ago and you didn't take it and so you know I.
I think I talked to shareholders now and I think they would rather take the 50 to $60 a share now than to.
To keep going with the promises that.
The board says that either they would sell or the management team is going to grow by double digits.
That price is going to get to 50 50 to $60 a share anyway, but you know it hadn't happened yet and the shareholders I talked to said that they would rather sell for it and get the 50 to $60 a share now.
So is that something should I go through the management team or the board or directly to shareholders. If that's something that they want to do how can we get that done.
Well exactly.
I would say that.
As you know as a shareholder you know the channels and there is a way how to.
Given you know.
Given your opinion.
To whom you should communicate that definitely I hear what you are saying.
I really appreciate your input.
And of course, I respect very much your opinion.
And I hear you.
Thank you for your input.
This concludes our Q&A.
Back to Steve Cantor Senior director of Investor Relations for closing remarks.
Great. Thank you for joining our call today I do want to note that we will be participating in the Jefferies and Sidoti conferences in September you can see our website for more information on that and with that I'd like to wish you. All a good day and look forward to updating you next quarter.
Ladies and gentlemen, today's call is now concluded. Thank you for your participation you may now disconnect your lines.
I wish you all a good day and look forward to updating you next quarter.
Ladies and gentlemen, today's call it.