Q3 2023 Vishay Precision Group Inc Earnings Call
Speaker 1: Hello everyone, the VPG's third quarter fiscal 2023 earnings call will begin in one minute's time to allow all participants to get connected. If you would like to ask a question, please press star followed by 1 on your telephone keypad. Thank you for your patience.
Hello, everyone. The V P. J 's third quarter fiscal 2023 earnings call will begin in one minute time to allow all parties to get connected.
If you'd like to ask a question. Please press star followed by one or two that turnkey Pat. Thank you for your patience.
[music].
Speaker 1: Hello everyone and welcome to the VPG's third quarter fiscal 2023 earnings call. My name is Nadia and I'll be coordinating the call today. If you would like to ask a question, please press star followed by one on your telephone keypad. I will now hand over to your host Steve Cantor, Senior Director of investor relations to begin. Steve, please go ahead.
Hello, everyone and welcome to the V. P. J 's third quarter fiscal 2023 earnings call. My name is not yet and I'll be coordinating the call today.
You'd like to ask a question. Please press star followed by one don't know telephony heap pad I will now hand over to Steve Cantor Senior director of Investor Relations to begin Steve. Please go ahead.
Speaker 2: Thank you Nadia. Good morning everyone. Welcome to our third quarter earnings conference call today. Our third quarter press release and accompanying slides have been posted on VPG's website at vpgsensors.com. An audio recording of today's call will be available on the internet for a limited time and can be accessed through our website.
Thank you and good morning, everyone welcome to our third quarter earnings conference call today.
Our third quarter press release, and accompanying slides have been posted on <unk> website at PPG sensors Dot com.
An audio recording of today's call will be available on the Internet for a limited time and can be accessed through our website.
Speaker 2: 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 discussion of the risks associated with VPG's operations. We encourage you to refer to our SEC filings, especially the form 10k for the year ended December 31, 2022 and our other recent SEC filings.
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 <unk> operations. We encourage you to refer to our SEC filings, especially the form.
<unk> 10-K for the year ended December 31, 2022, 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.
Speaker 2: On the call today are Zeev Shoshani, CEO and President, and Bill Clancy, CFO . I'll now turn the call to Zeev for some prepared remarks. Please refer to slide 3 of the quarterly presentation.
The quarterly presentation.
Speaker 3: Thank you, Steve. I will begin with some comments on VPGs consolidated financial results and sales trends for the third quarter.
Thank you Steve I will begin with some comments on <unk> consolidated financial results.
Sales trends for the third quarter.
Speaker 3: Bill will provide financial details about the quarter and our outlook for the fourth quarter.
Bill will provide financial details about the quarter and our outlook for the fourth quarter.
Moving to slide three.
Speaker 3: To summarize the quarter results, we achieved revenue at the low end of our guidance. It's the macroeconomic environment.
To summarize the quarter results, we achieved revenue at the low end of our guidance is.
As the macroeconomic environment was challenging.
Speaker 3: orders softened sequentially primarily due to lower orders in our steel and industrial markets as trends were mixed across our businesses.
All those soften sequentially, primarily due to lower orders.
Steel and industrial markets.
Trends were mixed across our businesses.
Our cash flow remains solid and.
Speaker 3: and we deployed capital to pay down debt as well as repurchase shares.
And we deployed capital to pay down debt as well as the purchases chose.
Speaker 3: We continue to execute on long-term growth and cost reduction initiatives. Moving to slide four.
We continued to execute on long term growth and cost reduction initiatives.
Moving to slide four.
Looking at the third quarter results in detail.
Speaker 3: who reported sales of 85.9 million.
We reported sales of $85 9 million.
Speaker 3: which declined 4.7% from the year ago and 5.4% from the second quarter of 2020.
Which declined four 7% from the year ago, and five 4% from the second quarter of 2020.
Speaker 3: sequentially revenue trends across our three segments will meet.
Sequentially revenue trends across our three segments will meet.
Speaker 3: as higher sales of measurement systems were offset by lower sales in the sensors and weighing solution segments.
As higher sales of measurement systems were offset by lower sales in the sense, those and weighing solutions segments.
Speaker 3: Our cash flow was solid as we generated 13.7 million of adjusted EBITDA, an adjusted EBITDA margin of 16.0%, an adjusted free cash flow of 6 million.
Our cash flow was solid as we generated $13 7 million of adjusted EBITDA and adjusted EBITDA margin of 16% and adjusted free cash flow of $6 million.
Speaker 3: Booking in the third quarter of 76.9 million were 10.2% lower sequentially, resulting in a book-to-bill ratio of 0.9.
Booking in the third quarter of $76 9 million were 10, 2% lower sequentially, resulting in a book to bill ratio of <unk> nine.
Speaker 3: The majority of the decline, 6.3 million, related to lower steel orders.
The majority of the decline $6 3 million related to lower steel orders order trends overall reflected customers' cautious order patterns, because most of our end markets and the timing of large orders in the sensor segment, which offset higher.
Speaker 3: Order trends overall reflected customers' cautious order patterns across most of our end markets and the timing of large orders in the central segment, which offset higher demand in avionic military and space models.
Demand in avionic military and space markets.
Speaker 3: Given our visibility and our backlog, we continue to see mixed bookings, trends with some markets stabilizing and improving and some markets continuing to be soft. I now review our performance.
Given our visibility in our backlog, we continue to see mixed bookings trends with some market stabilizing and improving in some markets continue to continuing to be soft.
I will now review our performance by segment.
Speaker 3: Moving to slide five, beginning with our sensor segment, third quarter revenue of 32.5 million declined 14.1% from a year ago and 10.3% compared to the second quarter.
Moving to slide five beginning with our central segment third quarter revenue of $32 5 million declined 14, 1% from a year ago, and 10, 3% compared to the second quarter.
Speaker 3: Sequentially, the decrease primarily reflected lower revenue of precision resistors in the AMS and test and measurement end markets and lower sales of stringages in the general industrial in mouth.
Sequentially. The decrease primarily reflected lower revenue of precision resist those the MFS and test and measurement and markets and lower sales of strain gauges and the general industrial end market overall.
Speaker 3: Overall, states of advanced sensors were at stable levels comparable with the second quarter.
Overall sales of advanced sensors with stable, but at a stable level.
Comparable with the second quarter.
Speaker 3: Orders for sensors of 27.2 million were 11.3% lower sequentially, which resulted in a book
Orders for <unk> of $27 2 million were 11, 3% lower sequentially.
It resulted in a book to Bill of <unk> eight three books.
Speaker 3: Booking for precision resistors to the semiconductor test market and the AMS market were soft in the third quarter, which offset higher demand for medical applications.
Booking for precision as these stores to the semiconductor test market in the <unk> market was soft in the third quarter.
Which offset higher demand for medical applications in.
Speaker 3: In general, our distributors and OEM customers were cautious with their orders as they continued to work down their inventory.
In general our distributors and OEM customers were cautious with their orders as they continue to work down the inventory levels.
Speaker 3: We are pleased with the progress with the front sensors of both the ongoing and the new OEM and we are pleased with the progress with the front sensors of both the ongoing and the new OEM.
We are pleased we felt with the progress with advanced sensors of both the ongoing and the new OEM engagements.
Speaker 3: We continue to be well positioned with our consumer electronic customers. In addition, as part of our strategic initiative to expand our business in robotics, we achieved a key design win with the maker of humanoid robots, which is currently...
We continue to be well positioned with our consumer electronic customers. In addition, as part of our strategic initiative to expand our business in robotics, we achieved a key design win with the making of a human donors.
<unk>.
Which is currently in.
In the beta phase.
Speaker 3: In terms of operating results for tensors, adjusted gross margin of 35.9% declined sequentially from 40.1%, primarily due to lower volume and temporary labor inefficiencies due to lower production levels.
In terms of operating results for Central's adjusted gross margin of 35, 9% decline sequentially from 41%, primarily due to lower volume and temporary labor inefficiencies due to lower production levels.
Moving to slide six.
Speaker 3: Turning to our Wang Solution segment, third quarter sales of 29.0 million were 7.7% lower than a year ago and 7.3% lower than the second quarter of 2020.
Turning to our wing solutions segment third quarter sales of $29 1 million was seven 7% lower than a year ago, and seven 3% lower than the second quarter of 2020.
Speaker 3: Quentially higher sales in the transportation market were offset by lower OEM sales for precision agriculture and construction application and in the industrial weighing mouth.
Sequentially higher sales in the transportation market.
Ultracet by lower OEM sales for precision agriculture, and construction applications and in the industrial weighing market.
Speaker 3: Book to bill for weighing solutions was 0.89. Orders of 25.9 million declined 14.6% from the second quarter, reflecting lower bookings in the transportation and industrial weighing model.
Book to Bill for weighing solutions was eight nine orders of $25 9 million declined 14, 6% from the second quarter.
Selecting lower bookings in the transportation and industrial weighing markets as.
Speaker 3: as well as softness in our other markets for the medical...
As well as softness in our other markets.
For the medical equipment.
Speaker 3: We are progressing with key growth initiatives in weighing solutions.
We are progressing with key growth initiatives in weighing solutions, and we expect to see revenue for our new Red light load cell products in 2024.
Speaker 3: and we expect to see revenue for our new V-light load sell products in 2024.
Speaker 3: When solution gross margin of 38.7% was flat with all time high in the second quarter of 2020.
Weighing solutions gross margin of 38, 7% was flat with all time high in the second quarter of 2020.
Speaker 3: as lower operating cost offset by the impact of the lower volume.
As lower operating cost offset by the impact of the lower volume.
Speaker 3: As part of our ongoing cost reductions, we took steps to downsize a weighing solution manufacturing operation in China.
As part of our ongoing cost reductions, we took steps to downsize weighting solution manufacturing operation in China.
Speaker 3: and consolidated the manufacturing of those products in our facility.
And consolidated the manufacturing of those products in our facility in India.
Speaker 3: we expect to complete this production relocation in the fourth quarter.
We expect to complete this production relocation in the fourth quarter.
Moving to slide seven.
Speaker 3: Turning to our measurement system segment, third quarter revenue of $24.4 million grew 17.2% from a year ago and increased 4.6% sequentially.
Turning to our measurement systems segment third quarter revenue of $24 4 million grew 17, 2% from year ago and increased four 6% sequentially.
Speaker 3: The sequential increase was driven by higher revenue of DTS products in the AMS in transportation markets, partially offset by lower sales in the steel market.
The sequential increase was driven by higher revenue of Dts border.
The MFS in transportation markets, partially offset by lower sales in the steel market.
Speaker 3: Book to bill ratio for measurement systems was 0.98
Book to Bill ratio for measurement systems was <unk> 98.
Speaker 3: as orders of 23.8 million declined 3.5% from the second quarter.
Orders of 23 8 million.
93, 5% from the second quarter.
Speaker 3: sequentially orders for DTS products grew to a record level.
When Chile orders for Dts products grew to a record level.
Which offset a $6 $3 million decline in orders for our <unk> and.
Speaker 3: 2.3 million decline in orders for our calc and DSI steel related products
And DSI steel related products.
Speaker 3: For kelc, the decline for many record quarter in Q2 primarily reflected a general slowdown in the steel market in part due to the slower activity in China.
Full killed the decline forming near record quarter in Q2, primarily reflected a general slowdown in the steel market.
Due to the slower activity in China.
On the technology capabilities for Dts.
Speaker 3: is in the testing of new avionics platforms and systems.
He is in the testing of new avionics platforms and systems.
Speaker 3: This includes supporting the development of missile programs as well as other commercial aviation platforms.
This includes supporting the development of missile programs as well as other commercial aviation platforms.
Speaker 3: such as new prototypes of electric powered aircraft known as EVTOL.
Such as new prototypes of electric powered aircraft known as EV tolls, while these new of the Onyx platforms are still in R&D stage, we benefit from the development stages of this platform since Dps products are used in the testing phase.
Speaker 3: While these new Avionics platforms are still in the R&D stage, we benefit from the development stages of this platform since DTS products are used in the testing phase.
Speaker 3: Adjusted gross margin in the third quarter for measurement systems improved sequentially to 54.5% from 52% primarily reflecting the higher volume.
Adjusted gross margin.
In the third quarter for measurement systems improved sequentially to 54, 5% from 50.
52%, primarily reflecting the higher volume.
Speaker 3: Moving to slide 8, our diversified set of end markets, the high value of our innovative solution.
Moving to slide eight our diversified set of end markets the high value of our innovative solutions.
Speaker 3: and our deep customer relationship are among our core strengths that provides a steady...
And our deep customer relationship among our core strength.
Provides.
<unk> Foundation of course cycles despite.
Speaker 3: And by the uncertainties, currently in the global economy, our priorities are clear and unchanging.
Despite the uncertainties currently in the global economy, I will play out with is clear and unchanged.
Speaker 3: We are continuing to focus on long-term growth initiatives in the broadening set of applications.
We are continuing to focus on long term growth initiatives in a broadening set of applications that offer the highest volume long term growth potential.
Speaker 3: that offer higher volume, long-term growth potential. These applications are...
These applications.
In addition to our traditional industrial ones.
Speaker 3: As part of this initiative, we have stepped up actions to grow our OEM business.
As part of this initiative, we have stepped up actions to grow our OEM business.
Speaker 3: which leveraged the strength of our technical sales teams and our engineer to engineer solution selling mindset. At the same time, we'll...
Which leverage the strength of our technical sales teams and our engineer to engineer solutions selling mindset.
At the same time, we are continuing to execute on our cost reductions operational excellence initiatives to maximize our long term operating leverage.
Speaker 3: and our cost reductions operational excellence in issue.
Speaker 3: to maximize our long term operating level.
Speaker 3: The success we achieved in our weighing solution segment to substantially grow our margin is just one example of these efforts which we have begun several years ago. These programs entailed the consolidation and migration of manufacturing from a smaller operating to lower cost center of manufacturing X.
The success, we achieved in our weighing solutions segment to substantially grow our margin is just one example of these efforts, which we have begun several years ago.
Programs entailed a consolidation and migration of manufacturing from a smaller operating two lower cost center of manufacturing excellence as.
Speaker 3: as well as an introduction of a more automated equipment.
As well as the introduction of the more automated equipment and processes.
Speaker 3: Also, we are continuing to implement our balanced allocation strategy.
Also we are continuing to implement our balanced allocation strategy to create stockholder value.
Speaker 3: creates stockholders value to organic growth, successful M&A, and as warranted stock repurchases. We continue to look for attractive.
<unk> growth successful M&A.
And is willing to stock repurchases.
We continue to look for attractive and value creating acquisition opportunities.
Speaker 3: In addition, in the third quarter, we pay down 7 million of out there.
In addition in the third quarter, we paid down $7 million of our debt.
Speaker 3: which will reduce our interest expense. We also continue to repurchase stock in the third quarter, and we have repurchased 1.2 million of stock during the first nine months of the year.
Each will reduce our interest expense. We also continued to repurchase stock in the third quarter and we have repurchased one 2 million of stock during the first nine months of the year.
Before turning the call to Bill.
Speaker 3: For additional financial details, I would like to add the following point. As a global company, we are a global company.
For additional financial details I would like to add the following points.
As a global company VP G operates.
Speaker 3: facilities in North America, Asia, Europe , as well as...
Facilities in North America, Asia, Europe, as well as Israel.
Speaker 3: We have long history of operating in Israel and understands the challenges and uncertainties that can arise and have implemented contingency plans to content with them. We have long history of operating in Israel and understands the challenges and uncertainties that can arise and have implemented contingency plans to content with them.
We have long history of operating in Israel.
And understands the challenges and uncertainties that can arise and have implemented contingency plans to content with them.
We are proud to say.
Speaker 3: that there has not been a break in production or supply chain over many years. VPGs Israeli-based hubs have continued to operate at the near normal levels and to deliver products to our customers on schedule.
There has not been a break in production or supply chain over many years.
<unk> Israeli based hubs have continued to operate at near normal levels.
To deliver products to our customers on schedule.
Speaker 3: I want to thank VPG's employees in Israel for their daily commitment and contribution in light of the recent events there.
I want to thank <unk> employees in Israel for their daily commitment and contribution in light of the recent events, though.
Safety and wellbeing.
Speaker 3: our top priority and we have taken the proper measure to assure that.
He is our top priority and we have taken the fulfill measure to assure that.
Speaker 3: I will now turn it over to Bill Clancy for additional financial details.
I will now turn it over to Bill Clancy for additional financial details Bill.
Thanks, Steve.
Speaker 4: Referring to slide 9 and the reconciliation tables of the slide deck, in the third quarter of 2023, we achieved revenues of $85.9 million, gross profit of $35.9 million or 41.9% of sales, operating income of $8.2 million or 9.6% of revenues, and diluted net earnings per share of $0.46.
Referring to slide nine and a reconciliation table on the slide deck.
In the third quarter of 2023, we achieved revenues of $85 9 million gross profit was $35 9 million or 41, 9% of sale.
Operating income of $8 2 million or nine 6% of revenues and diluted net earnings per share of <unk> 46.
Speaker 4: On an adjusted basis, our gross profit was $36.1 million, or 42.1% of sales. Operating income was $9.6 million, or 11.2% of sales. And diluted net earnings per share was $0.47.
On an adjusted basis, our gross profit was $36 1 million or 42, 1% of sales operating income was $9 6 million or 11, 2% of sales.
Diluted net earnings per share was <unk> 47.
Speaker 4: Our third quarter revenues declined 5.4% compared to the 90.8 million in the second quarter of 2023, and we're 4.7% below the third quarter a year ago.
Our third quarter revenues declined five 4% compared to the $90 8 million in the second quarter of 2023.
Our four 7% below the third quarter a year ago.
Speaker 4: Changes in foreign currency rate had a positive effect of $500,000 as compared to a year ago, but had an unfavorable $400,000 impact compared to the second quarter of 2023.
Changes in foreign currency rates had a positive effect of $500000 as compared to a year ago, but had an unfavorable $400000 impact compared to the second quarter of 2020.
Speaker 4: Gross margin in the third quarter was 41.9% compared to 42.6% in the second quarter of 2023, mainly reflecting lower volume.
Gross margin in the third quarter was 41, 9% compared to 42, 6% in the second quarter of 2023.
Mainly reflecting lower volume.
Speaker 4: On an adjusted basis, third quarter gross margin was 4.2.1%, as compared to 4.2.7% in the second quarter of 2023.
On an adjusted basis third quarter gross margin was 42, 1% as compared to 42, 7% in the second quarter of 2020.
Speaker 4: Operating margin was 9.6% for the third quarter.
Our operating margin was nine 6% for the third quarter.
Speaker 4: Adjusted operating margin in the third quarter was 11.2% as compared to 13.2% in the second quarter of 2023.
Adjusted operating margin in the third quarter was 11, 2% as compared to 13, 2% in the second quarter of 2023.
Speaker 4: Stelling, general, and administrative expenses for the third quarter were 26.6 million or 30.9% of revenues as compared to 25.3 million or 28.1% of revenues for the third quarter of 2022. The increase in S-GNA of 1.3 million was mainly attributable to 1.2 million for a way that headcount increase.
Selling general and administrative expenses for the third quarter were $26 6 million or 38, 9% of revenue as compared to $25 3 million or 28, 1% of revenue for the third quarter of 2022.
The increase in SG&A of $1 3 million was mainly attributable to a $1 2 million for wage and headcount increases 300000 for travel.
Speaker 4: 300,000 for travel, 200,000 of commissions, and 300,000 of other costs.
On a thousand of commissions and 300000 of other costs.
Speaker 4: Partially offset by $500,000 of bonus reserve adjustments and $200,000 of positive foreign exchange rate effect.
Partially offset by $500000 of bonus reserve adjustments.
$200000 of positive foreign exchange rate effect.
Speaker 4: The third quarter results included a 1.2 million charge related to the relocation of production of some product in China to our India facility.
The third quarter results included a $1 2 million charge related to the relocation of production of some product in China.
Our India facility.
Speaker 4: The adjusted net earnings for the third quarter were 6.4 million or 47 cents per diluted share compared to 9.5 million or 59 cents per diluted share in the third quarter of 2022.
The adjusted net earnings for the third quarter were $6 4 million or <unk> 47 cents per diluted share compared to $9 5 million or <unk> 69 per diluted share in the third quarter of 2022.
Speaker 4: I adjusted EBIDA with 13.7 million or 16% of revenue compared to 16.1 million for 17.9% a year ago.
Adjusted EBITDA was $13 7 million or 16% of revenue.
<unk> to $16 1 million or 17, 9% a year ago.
Speaker 4: purchased CapEx in the first nine months of 2023 with $9.8 million, the majority of which reflects equipment purchases and related infrastructure.
Purchased capex in the first nine months of 2023 with $9 8 million, the majority of which reflects equipment purchases and related infrastructure.
Speaker 4: For the full fiscal 2023, we expect purchased CapEx to be in the range of $13 to $15 million.
For the full fiscal 2023, we expect purchase capex to be in the range of $13 million to $15 million.
Speaker 4: which includes approximately 7 million in carrier responding from 2022.
This includes approximately $7 million and carryover spending from 2022.
Speaker 4: During the third quarter, we repurchased 770,000,000 of our common stock.
During the third quarter, we repurchased $700000 of our common stock.
Speaker 4: Adjust the pre-cash flow with $6 million for the third quarter of 2023 as compared to $5 million for the third quarter of 2022.
Adjusted free cash flow was $6 million for the third quarter of 2023.
Compared to $5 million for the third quarter of 2022.
Speaker 4: We define adjusted free cash flow as cash from operating activities of $8.9 million less capital expenditures of $3 million plus sales fixed assets of $100,000.
We define adjusted free cash flow at cash from operating activities of $8 9 million.
Less capital expenditures of $3 million, but sales of fixed assets of 100000.
Speaker 4: The GAAP tax rate in the third quarter of 2023 was 27.6% as compared to 18.6% in the third quarter of 2022, primarily reflecting a higher proportion of income and higher tax rate jurisdictions.
The GAAP tax rate in the third quarter of 2023, 27, 6% as compared to 18, 6% in the third quarter of 2022.
Primarily reflecting a higher proportion of income and higher tax rate jurisdictions.
Speaker 4: We are assuming an operational tax rate in the range of 25% to 27% for the full year of 2023.
We are assuming an operational tax rate in the range of 25% to 27% for the full year of 2023.
Speaker 4: Moving to slide 10, we ended the third quarter with 94.6 million of cash and cash equivalent and total long-term debt of 53.8 million.
Moving to slide 10.
We ended the third quarter with $94 6 million of cash and cash equivalents and total long term debt.
$3 8 million.
Speaker 4: This reflects the repayment of $7 million of our outstanding balance and our revolver during the quarter, which reduces our annual interest expense by approximately $500,000.
Reflects the repayment of $7 million of our outstanding balance on our revolver during the quarter, which reduces our annual interest expense by approximately $500000.
Regarding the outlook for.
Speaker 4: For the fourth fiscal quarter, given the current market condition and uncertainties, and the fluid situation in Israel, we expect net revenue to be the range of 77 million to 87 million, at constant third fiscal quarter of 2023 exchange rates. In summary, we achieved revenue at the last-
For the fourth fiscal quarter, given the current market conditions and uncertainty and the fluid situation in Israel we.
We expect net revenue to be in the range of 77 million to $87 million at constant third fiscal quarter of 2023 exchange rate.
In summary.
We achieved revenue at the low end of our guidance.
We generated solid cash flow.
Speaker 4: and we deployed our cash to pay down debt and repurchase shares. With that,
And we deployed our cash to pay down debt and repurchase shares.
With that let's open the lines for questions.
Thank you.
Speaker 1: If you would like to ask a question, please press star for the buy one on your telephone keypad. If you would like to retract your question, please press star for the buy two.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad. If you would like to attract your question. Please press star two.
Speaker 1: When preparing to ask your question, please ensure your phone is unmuted locally.
When the panel asked a question can you just you'll find that the mutual lately.
Speaker 1: And our first question, the two John Frandreb or Sudo-T Company, John , please go ahead and line his open. Sir.
And our first question the Chi Joseph <unk> of Sidoti Company. John. Please go ahead. Your line is open.
Good morning, everybody and thanks for taking the questions.
Speaker 5: Ziva, I'd like to start in the census fragment. The AMS portion of business was not only unusually weak in the quarter, but I heard you correctly, the order bookings were also weak in AMS. Can you talk a little bit about what's going on there that seems counterintuitive to me?
I'd like to start in the Sensus segment.
The Ams portion of that business was not only unusually weak in the quarter. If I heard you correctly. The order bookings were also weak in Ams.
Can you talk a little bit about what's going on there that seems counterintuitive to me.
Hi, good morning, John.
Speaker 3: Regarding the orders for sensors, the order for sensors, as you indicated, were soft in the semi-market as well as in the AMS, but given the AMS cyclical demand, we do expect
Regarding the orders for <unk>.
The order for sensors as you indicated were soft in the semi market.
As well as in the MF, but keeping the MF cyclical.
Demand, we do expect to see much higher order intake coming in the next quarter. So this is in effect a timing issue.
Speaker 3: much higher order intake coming in the next quarter. So this is enough.
Speaker 3: Regarding the semi-conductor business and the other emerging markets, the indicates...
Regarding.
The semiconductor business.
And the other emerging markets. The indication is that is there.
Speaker 3: as they are working down their inventory levels, the expectation.
Thing down the inventory levels.
Spectation east to see and given the discussion we had with customers is to see orders coming back.
Speaker 3: and given the discussion we had with customers.
Speaker 3: The beginning of, I would say, first half of 2024, while deliveries would be...
Beginning book.
I'd say first half of 2020 full while deliveries would be.
On the second half of <unk>.
Speaker 3: but they are just reiterating the AMS. This is just a...
Next to you.
But just reiterating the Miss this is just sick.
Cyclical sick.
Speaker 3: Click on all the intake we do expect to see higher
It's cyclical order intake, we do expect to see higher order intake.
In the coming quarter.
Speaker 5: Okay, so is that impact on the gross margin just a mix of AMS?
Okay. So is that impact on the gross margin.
The mix of Ami.
Yes.
Speaker 5: Dropping off in the quarter because I've from a recall of semiconductor has been weak for a while for you guys So I would assume that's the only difference on a sequential basis is the ams Mixed impact on gross margin or mining
Dropping off in the quarter because from what I recall, a semiconductor has been weak for a while for you guys. So I would assume that's the only difference on a sequential basis as the Ams.
Mixed impact on gross margin or Mike.
There's some misunderstanding that.
Speaker 3: So the gross margin decline was primarily due to volume and temporary labor inefficiencies due to lower...
So the gross margin decline was primarily due to volume and temporary labor inefficiencies due to lower production levels, partially due to the lower <unk>, but we also have.
Speaker 3: lower AMF but we also have identified a slower or softer demand in the industrial market.
We have identified the slower or softer demand in the industrial market.
So it's both related to Ams.
Industrial.
Piece of the business.
Speaker 5: Okay, okay, got it, got it. And it seemed like you kind of called out the weakness in steel for the quarter, but the bill profile was on a .98. So it looks to me like BTS.
Okay, Okay got it got it and it seemed like.
You kind of called out the weakness in <unk>.
Steel.
For the quarter, but.
The book to Bill profile was only 98.
So.
It looks to me like Dts.
Speaker 5: kind of offset that and is that the demand that we've kind of expecting to come through with the DTS redesign, you know, and without these sufficient to kind of offset maybe what's going on the way, if not on this 10th quarter, but the December quarter.
End of offset that and is that the.
The demand that we've kind of expecting to come through with the Dts redesign.
And would that be sufficient to kind of offset maybe whats going on the way.
The September quarter, but the December quarter.
Speaker 3: Yes, your correct DTS redesign has the completion of the redesign of the DTS slice.
Yes, you are correct.
The Bts.
Design has.
The completion of the redesign of the DTA slice six yeah.
Module.
It has.
Speaker 3: supported higher bookings. In addition to that, we have booked much higher orders in DTS in related to the AMS business.
The higher bookings in addition to that we have booked much higher orders in dth in related to the Ams business. So the decline.
Speaker 3: steel market was offset by higher AMS orders.
In steel market was offset by higher HMS orders for Dts.
Speaker 5: Okay, and one last question, I'll get back into Q. Regarding your production in Israel, I'm certain everybody hopes for the best. You did talk about you have plans in place. Will you try to build up inventory in your facilities there or your product lines there, just in case, or you just operate on normal until, as normal, until there is any reason not to.
Okay.
One last question and I'll get back into queue.
Regarding your production.
Certain everybody hopes for the best you did talk about you have.
Plans in place, where you try to build up inventory.
Your facilities there are your product lines there.
Just in case or are you just sort of operate on normal until as normal until.
There is any reason not to.
Speaker 3: So while Israel represents a relatively small market for our product, we operate in two production.
Sure So while Islam represents a relatively small market for our products.
Operating two production facilities in the central part of Israel.
Speaker 3: We are operating, we are currently operating at the pure normal level, as we are meeting customers deliveries, schedule with no delays. At this point, we are currently operating at the pure normal level, as we are meeting customers
We are operating.
You can get to be a normal level as we are meeting customers' deliveries schedule with no delays.
At this point in time, given all of that.
Speaker 3: on the call given our history of operating in Israel. We understand the challenges and the uncertainties and we put in place contingent.
As I indicated on the call given our history.
Operating in Israel, we understand the challenges and uncertainties and we put in place contingency plan.
Those contingency plans includes securing a four material shipping finished goods in advance to our regional distribution center working with our freight forwarders to assure delivery.
Speaker 3: in advance to our regional distribution center, working with our faith forwarders to assure delivery and to minimize any potential business interruptions.
Any potential business interruptions and so at this point in time, yes.
A certain degree there is.
Speaker 3: fairly a small build of raw material in addition to other steps in order to assure
I would say a fairly small build of material in additional two other steps in order to assure.
The supply of product to our customers.
Perfect. Thank you I'll get back into queue.
Speaker 1: Thank you the next question. Go to Griffin Boss of Be Rylee. Griffin, please go ahead.
Thank you. The next question back to your question most of B Riley Griffin. Please go ahead. Your line is open.
Speaker 6: Hi, thanks for taking my questions. So just to start off, I wanted to build on that last question. So you increased your three to five year targets back in February 2022. And since then, we've seen the geopolitical conflict in Russia and now Israel. I'm just curious.
Hi, Thanks for taking my questions.
So just to start off I wanted to build on that last question. So.
You increased your three to five year targets back in February 2022, and since then we've seen that geopolitical conflict.
In Russia, and now now as Youre all I'm just curious.
Speaker 6: Is there any risk that you see of potentially prolonged conflict that could affect your three to five year targets that you implemented in February 2022 or those still good benchmarks that year?
Is there any risk that you see of potentially prolonged conflict that could affect your three to five year targets that you that you implemented in February 2022 are those still good benchmarks of the year.
Youre aiming for.
Speaker 3: The three to five years are definitely still a good benchmark at this point in time. The biggest effect on our business is really the slowdown.
Griffin.
Three to five years are definitely still a good benchmark at this point in time the biggest effect.
The biggest the biggest effect on our business is really the slowdown in the economy the high interest rates.
Speaker 3: to a certain degree, the slowdown in China, which affects mainly our industrial, and our industrial and steel business, as an indicated AM.
To a certain to a certain degree the slowdown in China, which affects mainly our industrial and our industrial and steel business is that indicated a myth.
Speaker 3: going strong and we have a very good indication for our customers and our distributors that the same eye conductor marks.
It's still growing strong and we have a very good indication from our customers and our distributors that the semiconductor market.
Speaker 3: as well as the consumer market will is expected to pick up next year. So the three to five years plan is definitely that.
Well as the consumer consumer market.
Wil is expected to pick up next deal. So the three to five years plan is definitely valid.
Okay, great Thanks, and just.
Speaker 6: Speaking of AMS, you talked about how DTS, the orders are strong there. Can you just clarify, was there still that $1 million headwind?
Speaking of <unk>, you talked about at Dts the orders are strong there.
Can you just clarify was there a was there still that 1 million dollar headwind.
Speaker 7: for the redesign in the third quarter, or were you implying that shipments had already started in the third quarter, and that was, you know, what helped with the strength and measurement systems? Shipments already.
For the redesign in the third quarter or were you implying that shipments had had already started in the third quarter and that was what helped with the strength and measurement systems.
Shipments already started in Q3, while the redesign has been completed.
The end of Q2, but I would say more important.
Speaker 3: I would say more important, new or higher bookings we have seen for DTS for the AMS business and this is for new features, new crash dummies that we developed for I would say for defense.
I would say higher bookings.
We have seen four bps for the Ams business and this is for new fits.
Features a new crash dummies.
We developed for flight will take for defense applications.
What's it goes higher asp's.
Items. So we do expect the Ams business to continue to be strong for Dts also in the coming future.
Due to those new designs got it developers are those are those.
Speaker 6: Got it. Are those the we-a-man dummies that you're talking about or are these new features just in general? You all spoke it. You all spoke it.
And that means that youre talking about or is this.
New features just in general you have to pull it.
You are correct women.
Speaker 3: definitely part of that, but in addition to that we have new features that has been
Definitely part of that but in addition to that we have new features.
It has been developed but women part of those programs.
Speaker 6: OK, great alright and then so shifting gears with nice to see that pay down this quarter just going forward.
Okay, Great Alright, and then shifting gears it was nice to see the debt pay down this quarter.
Going forward well.
Speaker 6: wondering if you could just give some more color about how you're prioritizing capital allocation. I know you have the three prongs of paying down that revolver, Sherry Purchases, and M&A, but just curious how you're prioritizing it. Now that we're seeing you pay down some debt, and along those lines too, if you could just talk about what you're seeing in the M&A market right now, it's just how multiple's have been trending and what you're seeing there.
I'm wondering if you could just give some more color about how you're prioritizing capital allocation I know you have.
Three prongs of paying down that revolver of share repurchases and M&A, but just curious how you're prioritizing it now.
We're seeing you pay down some debt and along those lines too. If you could just talk about what youre seeing in the M&A market right now.
Just how multiples have been trending and what youre seeing there.
Sure so.
Speaker 3: So maybe I will start with the MNA and then Bill will provide more color regarding our capital allocation. And ...
Maybe I will start with the M&A and then bill will provide more color regarding our capital allocation.
Regarding M&A, we do see many more opportunities as interest continues to be high.
Speaker 3: More opportunities regarding higher quality companies that we do believe could fit the
More opportunities regarding higher quality companies that we do believe.
<unk> portfolio.
So for in terms of the financial structure in terms of the product structure in terms of the growth rate.
Speaker 8: So far we have been in dialogue with FUQ.
So far we have been in dialogue with few companies, but at this point in time.
Nothing came to fruition, but no doubt there is much more activity and to an extent, we do see the valuations are.
Speaker 8: but no doubt there is much more activity and to an extent we do see that valuations are
Going down slowly, but they are still going down.
Can you take please the capital allocation question.
Speaker 4: Sure, so Griffin, like as Zeeve mentioned, the MNA obviously is our top priority, but besides that, now we're always looking for ways to utilize the cash to best, and we had an opportunity during the quarter to bring back over $7 million to pay down our third party debt. And we are also at this point in time continuing to buy back our stocks.
Sure. So Griffin as Dave mentioned, the M&A, obviously is our top priority, but besides that never always looking for ways to utilize the cash that back then we had an opportunity during the quarter to bring back over $7 million to pay down our third party debt and we are off.
So at this point in time, continuing to buyback our stock.
Speaker 4: through the authorization that from Board of Directors. So all in all, I think MAA is the top priority organic growth.
Through the authorization that from the board of directors. So all in all I think M&A is the top.
Priority organic growth.
Speaker 4: and then also looking at buybacks and opportunities to pay down debt as un-possible.
And then also looking at buybacks and opportunity to pay down debt.
When possible.
Speaker 6: Great, Bill, thanks, Steve. Thanks, appreciate it. I'll jump back in a few.
Okay, great. Thanks.
Thanks, Steve Thanks, I appreciate it I'll jump back in the queue.
Speaker 1: Thank you and as a reminder, if you would like to ask a question, please press the phone.
Thank you and as a reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad.
Speaker 1: and we have a follow up from John Frandreb of Siddoti Company. John , please go ahead, your line is open.
We have a follow up from John <unk> of Sidoti Company. John. Please go ahead. Your line is open.
Speaker 5: Yeah, I just don't want to go back to what's going on in steel and in the NS sector segment. Do you think that that's reflective of the UAW strike and the interruption of production in the month of October ? Or do you think it's something different? I'd like to hear your thoughts on what's impacting the steel market field.
Yes, just wanted to go back to what's going on in steel in the EMS sector segment.
Do you think that that's reflective of the UAW strike and.
The interruption of production in the month of October.
Or do you think it's something different.
I'd like to hear your thoughts on whats impacting the steel market for you.
Speaker 8: Well, as you indicated, Jones, the...
Well the.
As you as you indicated Jones.
Speaker 8: issues we have in October is part of that, but we are looking at the big picture. And the big picture is how do we manage the funnel, how do we manage the opportunities. Looking at the future opportunities while the China has more than 50% of the world's still capacity we are looking at the number of new points.
The issues, we have in October as part of that but we are looking at the big picture in the Big Pictures.
How do we manage the funnel how do we manage the opportunities looking at future opportunities while.
The China.
Has that moved in the world more than 50% of the world's steel capacity. We are looking at the number of new projects and new development in China.
Well as other parts of the world and given given the China.
The economy slowed down and the other projects, we do see that.
We do see the kind of softening in the market.
Harding.
New projects and new opportunities and this is how we.
Concluding that.
To an extent that.
And market.
Kind of softening.
Speaker 5: Fair enough. Thank you, Ziva. And since you pointed out China, just could you give us a little bit more color of what you're seeing on a geographic basis, if anything else is standing out, either positive or negative?
Fair enough. Thanks, Thank as EBIT since you pointed out China, just could you give us a little bit more color on what you're seeing on a geographic basis, if anything else is standing out either positive or negative.
And that's collectively across the whole complement.
Speaker 8: Yes, collectively across the whole company I would say that well...
Collectively across the whole company I would say that well.
Well.
Speaker 8: a little bit of a mixed bag. On one hand, we have China where we sell more industrial products and this is where we see the slowdown. On the other hand, we have Japan where we are selling much more semi-conductors.
It's a little bit of a mixed bag on one hand, we have China, where we sell more industrial products and this is where we see the slowdown on the other hand, we have Japan, where we are selling much more semi.
We are selling much more.
Semi conductor.
Speaker 8: semiconductor precision resistors we do expect to see a rebound as I indicated in 2024 I think in America AMS is strong
Semiconductor precision resistors, we do expect to see a rebound.
Indicated.
In 2024, I think in America Ams strong.
Industrial.
Kind of a flattish while.
Speaker 8: while we are also looking at, I would say, at the
While we are also.
Looking at.
I would say.
It.
Semi conductor equipment, which.
Speaker 8: The same applies as well as Asia.
Same applies as well as.
As well as Asia.
Speaker 3: And the trend is that they are starting or they are preparing to start to place orders again.
The trend is that they are.
Routing Odell.
To start to place orders again consumer we have started to see any indication of an increasing oh.
Speaker 8: increasing order intake regarding Europe . I would say that Europe we see kind of a softening in respect to the general industrial market while AMF and semi-conductor tests.
The intake regarding Europe.
Europe, we see.
Kind of a softening in respect to the general industrial market.
While.
Mrs.
The semiconductor test.
Amit.
It's still very strong.
In test and measurement.
We are projecting an increase in order intake.
At the beginning of next year.
Perfect. Thank you, Steve and again good luck.
Thank you.
Speaker 1: Thank you. We have no further questions and I'll hand back to Steve for any closing comments.
Thank you we have no further questions I'll now hand back to Steve any tightening comments.
Speaker 2: Thank you all for joining our call today and we look forward to updating you in our next call next quarter. Thank you.
Thank you all for joining our call today, and we look forward to updating you in our next call next quarter. Thank you.
Speaker 1: Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.
Thank you. This now concludes today's call. Thank you all for joining you may now disconnect your lines.
[music].
Speaker 2: Next call next quarter. Thank you.
Next call next quarter. Thank you.