Q4 2023 Vishay Precision Group Inc Earnings Call
Operator: www.circlelineartschool.com Thank you for your patience, everyone; the BPG fourth quarter and FY 2023 earnings call will begin. During the presentation, you will have the opportunity to ask a question by pressing star 4x1 on your telephone keypad. Good morning, everyone, and welcome to the VPD fourth quarter and FY 2023 earnings call. My name is Chach, and I'll be the coordinator for your call today. During the presentation, you can register to ask a question by pressing star 1 on your telephone keypad. If you change your mind, please press the star followed by 2.
Thank you for your patience, everyone. The V P G fourth quarter and FY 2023 earnings call will begin shortly during the presentation. If you will have the opportunity to ask a question by pressing star followed by one on your trial.
Thank you Pat.
[music].
Good morning, everyone and welcome to the V. P G fourth quarter and FY 'twenty two 'twenty three earnings call. My name is chats and I'll be the coordinator for your call today. During the presentation. You can register to ask a question by pressing star one and I'm trying to think he Pat if you can.
And your mind. Please press star followed by two I will now hand, you over to Steve Cantor Senior director of Investor Relations to begin Steve. Please go ahead.
Steven Cantor: I will now hand you over to Steve Cantor, Senior Director of Investor Relations, to begin. Steve, please go ahead. Thank you, Josh, and good morning, everyone. Welcome to VPG's 2023 fourth quarter earnings conference call. Our Q4 and full year press release and accompanying slides have been posted on our website, vpgcensors.com. An audio recording of today's call will be available on the internet for a limited time and can also be accessed on our website.
Thank you Chad and good morning, everyone. Welcome to <unk> 2023 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.
<unk> on the Internet for a limited time and can also be accessed on our website.
Steven Cantor: Today's remarks are governed by the safe harbor provisions of the 1995 Private Securities Litigation Reform Act. However, our actual results may vary from forward-looking statements. For a discussion of the risks associated with BPG's operations, we encourage you to refer to our SEC filings, especially the Form 10-K for the year ended December 31, 2022, and our other recent SEC filings. On the call today are Ziv Shoshani, CEO and President, and Bill Clancy, CFO. And now I'll turn the call over to Ziv for some prepared remarks. Please refer to slide three of the quarterly presentation. Thank you, Steve.
Today's remarks are governed by the safe Harbor provisions of the $19 95 Private Securities Litigation Reform Act. Our actual results may vary from forward looking statements for a discussion of the risks associated with Btg's operations. We encourage you to refer to our SEC filings.
The Form 10-K for the year ended December 31, 2022, and our other recent SEC filings.
On the call today are <unk>, CEO, and President and Bill Clancy CFO.
And now I'll turn the call to Ziv for some prepared remarks, please refer to slide three of the quarterly presentation.
Thank you, Steve we delivered a solid quarter and the second best year ever for PPG.
Ziv Shoshani: We delivered a solid quarter and the second best year ever for VPG, despite a challenging macro environment, mainly in the second half of the year. Beginning with our 2023 performance, as shown in more detail in the accompanying slides. For the full year, we achieved revenue of $355 million and adjusted diluted net EPS of $2.17, and we improved our adjusted gross margin to 42.4%. We generated $60.4 million in adjusted EBDA, an EBDA margin of 17.0%, and a record $30.8 million of adjusted free cash. We deployed our cash to repurchase stock and to pay down our revolving debt in order to provide value to our stockholders. We completed infrastructure expansion projects in India and Japan and have accelerated our business development activities to capture new opportunities for our precision sensing and measurement solutions. Moving to slide four.
Spite challenging macro environment, mainly in the second half of the year.
Beginning with our 2020 performance as shown in more detail in the accompanying slides.
For the full year, we achieved revenue of $355 million and adjusted diluted net EPS of $2 17.
And we improved our adjusted gross margin to 42, 4%.
We generated 64 million in adjusted EBITDA.
And EBITDA margin of 17.1% and a record $38 million of adjusted free cash flow would.
We deployed our cash to repurchase stock and to pay down our revolving debt in order to provide value to our stockholders.
We completed infrastructure expansion projects in India, and Japan, and have accelerated our business development activities to capture new opportunities for our precision sensing and measurement solutions.
Moving to slide four.
Ziv Shoshani: Turning to the fourth quarter of 2022, we achieved revenue of $89.5 million, which was above the high end of our guidance and 4.3% higher than the third quarter. We delivered adjusted diluted EPS of 61 cents.
Turning to the fourth quarter of 2023.
We achieved revenue of $89 5 million, which was above the high end of our guidance and four 3% higher than the third quarter.
We delivered adjusted diluted EPS of <unk> 61.
Order trends were mixed sequentially as growth in our sensors and weighing solutions segments was offset by lower measurement systems bookings due to the timing of customer projects.
Ziv Shoshani: Order trends were mixed sequentially as growth in our sensors and weighing solution segments was offset by lower measurement systems bookings due to the timing of customers' projects. We generated record-level adjusted free cash flow of $13.5 million, adjusted EBDA of $16.5 million, and achieved an adjusted EBITDA margin of 18.5%. We deployed capital to pay down bank debt as well as to repurchase shares.
We generated record level adjusted free cash flow of $13 5 million adjusted EBITDA of $16 5 million and achieved an adjusted EBITDA margin of 18, 5%.
We deployed capital to pay down bank debt as well as to repurchase shares.
Ziv Shoshani: We continue to execute on our long-term organic growth initiatives in terms of new product development and expanding our engagement with customers in larger markets. We are also continuing our cost reduction efforts to move production to lower cost locations, invest in automation, and reduce material costs. I'll now review our performance by business segment for the fourth quarter. Moving to slide five.
We continue to execute on our long term organic growth initiatives in terms of new product development and expanding our engagement with customers in larger markets.
We are also continuing our cost reduction efforts to move production to lower cost locations investing in automation and reducing material costs.
I'll now review our performance by business segment for the fourth quarter.
Moving to slide five.
Beginning with our sensors segment fourth quarter revenue of $34 3 million grew five 3% sequentially, but was five 7% lower than a year ago.
Ziv Shoshani: Beginning with our sensor segment, fourth-quarter revenue of $34.3 million grew 5.3% sequentially, but was 5.7% lower than a year ago. The sequential growth was driven by higher sales of precision resistors in test and measurement, as sales related to semiconductor tests and production applications improved from the third quarter. Revenue trends for the rest of our markets, including consumer for advanced sensors, were stable.
The sequential growth was driven by higher sales of precision resistors in the test and measurement.
Sales related to semiconductor test and production applications improved from the third quarter.
Revenue trends for the rest of our markets, including consumer for advanced sensors were stable.
Ziv Shoshani: We continued our strategic initiatives to secure design wins in new emerging markets in data centers and fiber optics equipment, as well as robotics and industrial automation systems. In terms of operating results for sensors, gross margin of 40.2 percent improved sequentially from 35.9 percent, primarily due to higher volume and improved manufacturing efficiency. Book to bill for sensors was 0.85, which was modestly up from the third quarter as orders grew 7.8% sequentially. This reflected stronger demand in test and measurement and higher customer project-related orders in avionics, military, and space or AMS. Moving to slide six.
We continued our strategic initiatives to secure design wins in new emerging markets in data centers and fiber optics equipment as well as the robotics and industrial automation systems.
In terms of operating results for sensors gross margin of 42% improved sequentially from 35, 9%, primarily due to higher volume and improved manufacturing efficiencies.
Book to Bill for sensors was eight five which was modestly up from the third quarter as orders grew seven 8% sequentially. This reflected stronger demand in test and measurement and higher customer project related orders in avionics military and space.
Mrs.
Moving to slide six.
Ziv Shoshani: Turning to our weighing solution segment, fourth-quarter sales of $30.4 million increased 5.1% from $29.0 million in the third quarter, but were 8.0% lower than a year ago. Sequentially, the increase was driven by higher OEM sales for precision agriculture and construction applications and higher sales in general industrial, which offset lower sales in the transportation market. Weighing solutions' adjusted gross margin of 35.6% in the fourth quarter declined from 38.7% in the third quarter primarily due to a reduction in inventory and unfavorable product mix partially offset by higher volume.
Turning to our weighing solutions segment fourth quarter sales of $34 million increased five 1% from $29 1 million in the third quarter, but were 8.1% lower than a year ago.
Sequentially. The increase was driven by higher OEM sales for precision agriculture, and construction applications and higher sales in general industrial which offset lower sales in the transportation market.
Weighing solutions adjusted gross margin of 35, 6% in the fourth quarter declined from 38, 7% in the third quarter, primarily due to a reduction in inventory and unfavorable product mix, partially offset by higher volume.
Book to Bill for weighing solutions of <unk> 91 in the fourth quarter improved modestly from the third quarter.
Ziv Shoshani: Book to build for weighing solutions of 0.91 in the fourth quarter improved modestly from the third quarter. Orders of $27.7 million grew 7.2% due to higher bookings for industrial weighing and transportation applications. Moving to slide seven.
Holders of $27 7 million grew seven 2% due to higher bookings for industrial weighing and transportation applications.
Moving to slide seven.
Ziv Shoshani: Turning to our Measurement Systems section, revenue in the fourth quarter of $24.8 million increased 2.0% sequentially but was 7.5% lower year over year. The sequential growth reflected higher DTS sales for AMS applications, which offset lower sales for our steel-related businesses. Adjusted gross margin in the fourth quarter for measurement systems was 56.1 percent, which compared to 54.5 percent in the third quarter of 2022. The higher adjusted gross profit margin in the fourth quarter of 2023 reflected higher volume and favorable product mix. However, book-to-bill for measurement systems of 0.73 declined from 0.98 in the third quarter, which included record orders for DTS in the AMS mark. The decline in book-to-bill reflects the timing of customers' projects.
Turning to our measurement systems segment revenue in the fourth quarter of $24 8 million increased 2.1% sequentially, but was seven 5% lower year over year, the sequential growth reflected higher dts sales for AOS applications, which offset lower.
Sales for our steel related businesses.
Adjusted gross margin in the fourth quarter for measurement systems was 56, 1%, which compared to 54, 5% in the third quarter of 2023.
The higher adjusted gross profit margin in the fourth quarter of 2023 reflected the higher volume and favorable product mix.
Book to Bill for measurement systems of <unk> seven three declined from 98 in the third quarter, which had included record orders for Dts in the Ms market.
The decline in book to Bill reflects the timing of customers' projects in the fourth quarter still related orders grew sequentially, while orders in a mess with it down from a record level, we see positive trends for Dts with our Ams customers.
Ziv Shoshani: In the fourth quarter, steel-related orders grew sequentially while orders in AMS were down from a record level. However, we see positive trends for DTS with our AMS customers. Despite the muted near-term outlook for the steel market, we are pursuing VPG-specific opportunities with new products, such as our development of the calc solution for aluminum manufacturing. In addition, we are addressing opportunities in the Indian market, which is currently small but is expected to grow double-digits over the next several years. We have added local sales and service support capabilities to meet this growing potential. Moving to slide eight.
Despite the muted near term outlook for the steel market will pursuing <unk> specific opportunities with new products, such as our development of calc solution for aluminum manufacturing.
In addition, we are addressing opportunities in the Indian market.
Which is currently small but is expected to grow at double digits over the next several years.
We have added local sales and service support capabilities to meet this growing potential.
Moving to slide eight.
Ziv Shoshani: As I indicated, we were pleased with our cash generation, both for the fourth quarter and for 2023, which included record-adjusted free cash. We continue to deploy cash as part of our capital allocation strategy, which prioritizes internal investment. M&A, Stock Repurchase, and paying down our revolving credit facilities. In terms of internal investments, we completed growth focus, and operational capability and automation projects in 2023. For example, we have increased automation in our India facility to support higher volume businesses.
As I indicated we were pleased with our cash generation both for the fourth quarter and for 2023, which included record adjusted free cash flow.
We continue to deploy cash as part of our capital allocation strategy, which prioritize internal investment.
M&A stock repurchase and paying down our revolving credit facility.
In terms of internal investments, we completed growth focus and operational capability and automation projects. In 2023. For example, we have increased automation in our India facility to support higher volume businesses.
Steven Cantor: In addition, we are continuing to consolidate production to this location. As such, we expect capital spending to return in 2024 to a more historical level of approximately 4% 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 are currently seeing a more favorable M&A environment. Thank you, Ziv.
In addition, we are continuing to consolidate production to dislocation.
As such we expect capital spending to return in 2024 to a more historical levels of approximately 4% 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 are currently seeing a more favorable M&A environment before turning the call to bill for additional.
Comments I would like to thank our employees and our customers around the world for their continued commitment and dedication I will now turn it over to Bill Clancy Bill.
William M. Clancy: Referring to slide nine and the reconciliation tables of the slide deck, our fourth quarter 2023 revenues were $89.5 million. Our operating margin was 13.4% for the fourth quarter of 2023. Our fourth quarter adjusted operating margin was 13.6%, excluding $130,000 of restructuring costs. Selling general administrative expense for the fourth quarter of 2023 was $26.4 million, for 29.4% of revenues as compared to $26.6 million, or 30.9% of revenues for the third quarter of 2023. The GAAP tax rate for the full year of 2023 was 32.3%, primarily reflecting the geographic mix of income.
Thank you Steve.
Referring to slide nine and a reconciliation table of the slide deck, our fourth quarter 2023 revenue for $89 5 million.
Adjusted gross margin of 43% in the fourth quarter as compared to 42, 1% in the third quarter of 2020.
Our operating margin was 13, 4% for the fourth quarter of 2023, our fourth quarter adjusted operating margin was 13, 6%.
<unk> $130000 of restructuring costs.
Selling general and administrative expense for the <unk>.
Fourth quarter of 2023 was $26 4 million.
29, 4% of our revenue.
As compared to $26 6 million or 30.
89% of our revenue for the third quarter of 2020 right.
The GAAP tax rate for the full year of 2023 was 32, 3%, primarily reflecting the geographic mix of income.
William M. Clancy: We are assuming an operational tax rate of approximately 27% for the full year of 2024. The adjusted net earnings for the fourth quarter of 2023 were $8.2 million, or $0.61 per diluted share, compared to $6.4 million, or $0.47 per diluted share, in the third quarter of 2023. Adjusted EBITDA was $16.5 million, or 18.5% of revenues, which is 20.3% higher than $13.7 million, or 16% of revenue, in the third quarter of 2023. CapEx in the fourth quarter was $5.3 million.
We are assuming an operational tax rate of approximately 27% for the full year of 2024.
The adjusted net earnings for the fourth quarter of 2020 rate were $8 2 million or <unk> 61 per diluted share compared to $6 4 million or <unk> 47 per diluted share in the third quarter of 2020.
Adjusted EBITDA was $16 5 million.
Or 18, 5% of revenue.
Which is 23% higher than the $13 7 million or 16% of revenue in the third quarter of 2020 right.
Capex in the fourth quarter was $5 3 million.
Total capex for 2023 was $15 2 million.
Four 3% of revenue.
William M. Clancy: Total CapEx for 2023 was $15.2 million, or 4.3% of revenue. We generated a just and free cash flow of $13.5 million for the fourth quarter of 2023, as compared to $6 million for the third quarter of 2023. We define a just and free cash flow as cash from operating activities, less capital expenditures, plus the sale of fixed assets.
For 2024, we are budgeting $14 million to $16 million for capital expenditures.
We generated adjusted free cash flow of $13 5 million.
For the fourth quarter of 2023 as compared to $6 million for the third quarter of 2023.
We define adjusted free cash flow as cash from operating activity less capital expenditures plus the sale of fixed assets.
As Ive indicated in the fourth quarter, we repurchased $4 $7 million of our stock for 153000 shares.
William M. Clancy: As Ziv indicated, in the fourth quarter, we repurchased $4.7 million of our stock for 153,000 shares. For the full year of 2023, we repurchased $5.9 million of Commenstock for 188,000 shares. In addition, during the fourth quarter, we paid down $22 million of our revolving bank debt.
For the full year of 2023, we repurchased $5 $9 million of common stock or 188000 shares.
In addition, during the fourth quarter, we paid down $22 million of our revolving bank debt.
For the full year, we reduced our outstanding robbing bank debt by $29 million.
William M. Clancy: For the full year, we reduced our outstanding arriving bank debt by $29 million, which we estimate will result in net interest savings of approximately $1 million in 2024, assuming no additional borrowing. Moving to slide 10. We end the fourth quarter with $84 million of cash and cash equivalents and total outstanding long-term debt of $31.9 million, which reflects the paydown of the revolver and the stock repurchases during the quarter.
Which we estimate will result in net interest savings.
There are approximately $1 million in 2024, assuming no additional borrowing.
Moving to slide 10.
We ended the fourth quarter with $84 million of cash and cash equivalents and total outstanding long term debt of $31 9 million.
Which reflects the paydown of the revolver at the stock repurchases during the quarter.
Operator: We believe that we have a strong balance sheet and ample liquidity to support our business requirements and to fund additional M&A opportunities. Regarding the outlook, for the first fiscal quarter of 2024 at a constant fourth fiscal quarter 2023 exchange rate, we expect net revenue to be in the range of $80 million to $90 million. In summary, we achieved fourth-quarter sales above the highs of our guidance. We generated record-level cash flow, which we are deploying to pay down our revolving bank debt and to repurchase shares. We are excited about the potential in emerging markets and applications in consumer, industrial automation, medical, and material development with our high-value precision measurement and sensing products for our customers. With that, let's open the lines for questions. Thank you. Thank you, Bill. If you'd like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two.
We believe that we have a strong balance sheet and ample liquidity to support our business requirements and to fund additional M&A opportunity.
Regarding the outlook.
For the first fiscal quarter of 2024 at constant fourth fiscal quarter of 2023 exchange rates we.
We expect net revenue to be in the range of 80 million to $90 million.
In summary.
We achieved fourth quarter sales above the high end of our guidance.
We generated record level cash flow, which we are deploying to pay down our revolving bank debt and to repurchase shares.
We are excited about the potential in emerging market and applications in consumer.
Industrial automation medical and materials development with our high value precision measurement and sensing products for our customers.
With that let's open the lines for questions. Thank you.
Thank you Bill if you'd like to ask a question. Please press star followed by one on your Tyler. Thank you Pat now.
Your mind, Please press star followed by Chase.
<unk> to ask your question. Please ensure your spine is unmated lately.
Our first question today comes from Christian Buss from B Riley Securities. Please go ahead.
Hi, Thanks for taking my question. So first it's great to see the profitability and cash flow improvements $13 5 million free cash flow, 82% free cash flow conversion.
Ziv Shoshani: Our first question today comes from Griffin Boss from B Riley Securities. Please go ahead. Hi, thanks for taking my question. So first, it's great to see the profitability and cash flow improvements, 13 and a half million free cash flow, 82% free cash flow conversion. Can you just speak to how sustainable that might be moving forward now that you're obviously starting to see the benefits of the investments you made in optimizing your operating expenses? Good morning, Griffin.
Can you just speak to how sustainable that might be moving forward now that you're obviously starting to see the benefits of the investments you made in optimizing your operating expenses.
Good morning, good evening I think that.
Given the hour.
Serious guidance and the level of investments topics that we are planning to hold that we intend to invest in 2024.
Ziv Shoshani: I think that given our sales guidance... and the level of investment capital, we tend to invest in 2024. I would say that it's quite sustainable. Naturally, Decache, the next generation will also depend on you, on the account receivable. The Bulletproof Executive 2013, given the level of revenue. Okay, yeah, great. Crazy, thanks for that.
I would say that it's quite sustainable.
Q4 performance naturally the cash generation will also depends on the receiver on the.
Accounts receivable.
And payable.
I would say fluctuation or working capital fluctuations, but all in all the Q4 performance our sustainable give.
Given the level of revenue as we move into 2024.
Okay, great great. Thanks for that and then.
So shifting gears in terms of order flow like you said, it's sort of a mixed bag.
Measurement systems seems a bit soft while there could be some green shoots in sensors and weighing solutions.
Ziv Shoshani: And then the shifting gears in terms of order flow, like you said, it's sort of a mixed bag. Measurement systems seem a bit soft, while there could be some green shoots and sensors and weighing solutions. So, I mean, obviously, you've seen this type of environment before in the past.
I mean, obviously you have seen this type of environment before in the past so with that context can you just talk more about what youre seeing generally with distributor inventory levels and potential need for and timing of restocking events and then more generally just your high level thoughts on 2024 potential inflection.
Ziv Shoshani: So, with that context, can you just talk more about what you're seeing generally with distributor inventory levels and the potential need for and timing of restocking events? And then, more generally, just your high-level thoughts on 2024 potential inflection points and maybe, you know, your positioning for a return to growth in the back half of the year? Absolutely. Orders for Q4 declined, but they grew 2.2%.
Points and maybe your.
You are positioning for a return to growth in the back half of the year.
Yes, absolutely.
Orders for.
For Q4 has declined two 2% sequentially, but grew two 2% from <unk>.
We indicated there is a mixed bag or mixed signals on the test and measurement we see.
An upside of six 3% still upsides industrial weighing upside general industrial and upside.
The improved business environment, which is which.
Which is.
The outcome of lower inventory in the pipeline in the last.
The last I would say four quarters.
And we also.
And we also see some other mark some other end markets, which are still not improved yet overall, we believe the near term order trends that have reached the bottom in most of our end markets.
Ziv Shoshani: As we indicated, there is a mixed bag or a mix of test and measure, and AppSci, www.larryweaver.com, and the outcome, lower inventory in the pipeline for the last, I would say, four. And we also...
We expect the trends to modestly improve in the first half of the year.
And strengthen in the second half of 2024.
Based on customer feedback.
And improvement.
The improvement in order intake in Q4 of 2023 in the sensors and in the wing solutions segment, we believe that.
As I indicated is both of them up in some of our key markets, but in the first half of 2024, we expect to see a modest growth in avionic military and space semiconductor testing in consumer while orders for industrial OEM application such as precision agriculture construction.
Ziv Shoshani: , some other end markets which are still not... All of this has not been proven yet. Overall, we believe that near-term order trends have reached the bottom of the pyramid. We expect all the best. Strengthened in the second half, uh... based on customer feedback and the improvement in order intake in Q4 of 2020, in the sensors and in the wing solution sector. We believe that all... As I indicated, business has bottomed out in some of our key marks, Semiconductor Testing and Consumer, while orders for industrial OEM applications, such as precision, agriculture, construction, transportation, and a portion of the steel market, www.thevenusproject.com. We expect that the order intake run... We expect it to improve for those and more applications in the second half. 2020
<unk> transportation and.
And a portion of the steel market is expected to continue to be flat, which means in a way so but those.
The end markets, we expect to do.
Order intake two run rate.
He is expected to improve for those end markets.
Applications in the second half of 2024, so all in all just to summarize.
We are looking at the modest increase already in the first half while this increase should be accelerated in the second half of the year.
In respect that you can take improvement.
Great. Yeah, that's that's great context, thanks for the detail there and just last one for me and then I'll turn it over you mentioned.
Are you seeing a more favorable M&A environment, obviously, that's a top capital allocation priority for you just.
Just curious last last call you mentioned you were in.
Some early dialogues with a few companies nothing really bearing fruit, but just curious if any of those discussions have advanced or at that list of companies Youre talking to has grown in the last quarter.
Well, well well I would say that.
As I indicated in our last call we have been in dialogue with few companies. Some of the projects has been moving forward while others. We are still in discussions you know this is a period of quite a bit of uncertainty. Therefore, some of the companies are still contemplating regarding deposits, but all in all the Q <unk>.
Ziv Shoshani: So all in all, just to summarize. We are looking at the model, already, first half, while it's being accelerated in the second. Excellent. Great. Yeah, that's a great context.
M&A potential is increasing and we are in.
We are very positive about that but so far.
Ziv Shoshani: Thanks for the detail there. And just one last one for me, and then I'll turn it over. You mentioned you're seeing a more favorable M&A environment. Obviously, that's a top capital allocation priority for you. Just curious, on last call, you mentioned you were in some early dialogues with a few companies, nothing really bearing fruit. But I'd just curious if any of those discussions have advanced or if that list of companies you're talking to has grown in the last quarter. Well, I would say that, as I indicated in our last call, we have been in dialogue with a few companies. Some of the projects have been moving forward, while others are still in discussions. You know, this is a period of quite a bit of uncertainty.
I have nothing to report I have no nothing tangible to report but.
This activity takes a very high priority for the company.
Great. Okay fair enough. Thanks for taking my questions I appreciate it.
The next question from the line is from John from that from Sidoti and company. Please go ahead.
Good morning, guys and thanks for taking the questions.
I'd like to start with.
Your commentary on.
The measurement systems business and the.
Deferral of some project activity.
Is that entirely surrounding the size of that business or is there something more that we should be cognizant of.
Okay. So good morning, John So measurement systems book to Bill for the quarter was <unk> 73.
Which declined from nine eight in the third quarter. Please bear in mind that.
The decline also include a record a record orders for Dps <unk> military and space business.
Ziv Shoshani: Therefore, some of the companies are still contemplating the process, but all in all, the Q level. M&A potential is increasing, and we are very positive about that. But so far, I have nothing to report. I have nothing tangible.
In the final quarter.
And the decline in the book to Bill reflect also the timing given the project nature of its the timing of customer projects in Q4 still related orders grew sequentially and while orders.
Military and space were down from the record level, we expect business environment improvements for the avionic military and space going forward and this is based on our business development funnel and the projects.
Ziv Shoshani: But this activity takes a very high priority for the... Great, okay, yeah, fair enough. Thanks for taking my questions. I appreciate it. The next question on the line is from John Franzreb from Sudoti and Company. Please go ahead.
Projects that are expected to.
<unk>.
Two.
Get finalized in the coming quarters and turn into orders so despite the fact.
We have seen a specific decline.
Military.
Ziv Shoshani: Good morning, guys, and thanks for taking the questions. Ziv, I'd like to start with a little commentary on the measurement systems business and the deferral of some project activity. Is that entirely surrounding the kelp side of that business, or is there something more that we should be cognizant of? decline from 0.98 in the third quarter.
Space, given the project nature of the business or the timing of project nature of the business. We do see a very positive trend also on this end market.
In 2020, Okay. So alright.
So so count goes up a little bit sequentially Dts that was down a lot because they had a big order flow in Q3 and that should stabilize in the first half is that we're looking at there.
Ziv Shoshani: Please bear in mind that the decline also includes a record order for DTS in the avionics, military, and space business the prior quarter, and the decline in the book-to-bill reflects also the timing, given the project nature, it's the timing of customers' projects. And while orders in avionics, military, and space were down from the record level, we expect business environment improvements for avionics, Military, and space going And this is based on our business development funnel and the projects that are expected to get finalized in the coming quarters and turn into orders. So despite the fact that we have seen a specific decline. Avionic Military, Based, given the project nature of the business or the timing project nature of the business, we do see a very positive trend also in 2024.
And is expected to modestly improve and improve much more in the second half.
Of the year excellent.
Excellent.
I am curious whats.
What's driving the higher tax rate these days seems to be ticking up a lot.
Yes, so John so good morning, so the higher tax rate predominantly we had.
The geographic mix of income so depending upon where our income already and generated right now it's being generated in higher tax rate than we've seen in the past.
We lost so but then the GAAP tax rate this year had some <unk>.
One time costs were for tax positions, but as we mentioned we're going to participate.
27% operationally in 2024.
Okay.
And by my Reckoning. This is the most aggressive share repurchase quarter.
I think since the company went public.
Can you just kind of walk through the decision process there and why are you so aggressive in repurchasing stock.
William M. Clancy: Okay, so Kelp is up a little bit sequentially. DTS was down a lot because they had a big order flow in Q3 and that should pretty much stabilize in the first half. Is that what we're looking at there? And is expected to modestly improve and improve much more in the second half. Excellent. I'm curious, what's driving the higher tax rate these days? keeps me kicking up a lot.
Well, John as you recall and I think we've talked about that.
As part of our capital allocation, we've always listed as.
Internal growth M&A and the buyback of the stock was always one of the top parameters for our capital allocation.
And we will continue to incorporate all of those attributes and the capital allocation.
William M. Clancy: Yeah, so John, good morning. So the higher tax rate is predominantly because we have a geographic, you know, mix of income. So depending upon where our income is being generated, you know, right now it's being generated at higher tax rates than we've seen in the past. We've also, within this gap tax rate this year, had some one-time costs for tax positions. But as we mentioned, you know, we're going to participate. 27% operationally in 2024. Okay. And by my reckoning, this was the most aggressive share repurchase quarter. I think she's probably gone public.
And we will continue and we're continuing to be very active in the market today.
Okay and one last question on revenue growth.
You mentioned a couple.
Potential items and when you went through the segment presentations and data centers and our new product development in EMS.
If we were going to look at.
Near term revenue catalysts opportunities, especially new ones, which are the most viable near term revenue.
Ziv Shoshani: Um, can you just kind of walk through the decision process there and why you're so aggressive on repurchasing stock? Well, John, as you recall, and I think we've talked about this, it's, you know, as part of our capital allocation, you know, we've always listed new internal growth, M&A, and, and the buyback of the stock was always one of the top parameters for capital allocation. Okay, and one last question on revenue growth. Ziv, you mentioned a couple, I don't know, potential items when you went through the segment, you know, presentations, you know, data centers, and new product development and MS. If we were going to look at, like, near-term revenue catalyst opportunities, especially new ones, which are the most viable near-term revenue opportunities for the company? So if we are looking at 2024, we are looking at two verticals.
Opportunities for the company.
Okay.
So if we're looking at 2020 full we're looking in two verticals. One is the vertical of the macro macro improvement macro economy proven given the fact that we have seen inventory is being depleted in the queue.
And I would say that's part of that.
That would run the improvement would be test and measurement for semi conductor equipment for for the central piece.
In addition to.
In addition to the <unk>.
General Industrial is also expected to improve.
The other piece is our business development at.
The pvt.
Respect to new applications.
A link to new applications and new products that we have developed in that case I could give as an example.
What I did mentioned regarding the aluminum based systems, that's a new completely new market for us and we have just.
Started to provide.
The systems in order to enter into a new market. In addition to that as I mentioned I think in the prior call the humanoid application.
We are at the very final design stage, but once the prototype.
The prototype phase is going to take off the expectation is over the time.
It's also going to gain more volume and then for example, I have on the wing solution side that we have developed.
Ziv Shoshani: One is the vertical of the macro, macro-improvement, macro-economy improvement given the fact that we have seen inventories..., depleted. And I would say that part of that would run the improvement would be test and measure. Semiconductor Equipment.
And you are cost.
Very cost competitive product, which we have applied for a patent and we believe it's also going to gain momentum.
Really two verticals for the potential upside of revenue.
One is the macro economy change and the other piece is our business development activities to capture new business.
Perfect.
Ziv Shoshani: General Industrial that is also expected. The other piece is our business development, with respect to new applications, selling to new applications, and new products that we have developed. In that case, I... For example, what I did mention regarding the aluminum-based systems is that that's a completely new market for us, and we have just started developing the systems in order to enter into a new market. In addition to that, as I mentioned in the prior call, the humanoid application, where we are at the very final design stage, but once the prototype is ready, we will be able to launch it. The prototype phase, product for which we have applied for a patent, and we believe there are really two verticals for the potential upside of Revit. And the other piece is our business development. CAPT, Perfect.
Actually I'll get back into queue, and let somebody ask some questions.
<unk>.
Thank you as a reminder.
Any further questions. Please press star followed by one on your China. Thank you Pat now.
We have a follow up question from John Frenzy. Please go ahead.
Well I.
I have to ask about the <unk>.
We had a five year long term targets.
Do you still think a viable given the.
Protracted.
Downdraft, we've had in the bookings profile.
Okay.
Yeah.
Well I would say John if you can recall, we put our three year plan in respect to revenues.
The 45% if I can recall.
Margin and then we also set an OMB as you could see despite.
The so called.
<unk> mixed.
Business environment.
The company has achieved in Q4, a record gross margin of 43%.
Which means.
We are working on optimizing our topline growth in terms of business development activities.
Ziv Shoshani: And with that, actually, I'll get back into Q&A if somebody has some questions. Thank you, Ziv. Thank you. As a reminder, to ask any further questions, please press start 4 by 1 on your telephone keypad now. We have a follow-up question from John Franzeb. Please go ahead.
We continue to we continue to look at Oh, we have a longer term plan regarding operational excellence with respect to accretion seems movement for that relocation, so seeing cheaper material, which is growing which is which.
In combination with the top line revenue is going through.
I think there is there.
We are.
High level of confidence that we have.
Going to meet the 45%.
Ziv Shoshani: Well, I have to ask about the three- to five-year long-term targets. Do you still think they're viable given the protracted downdraft we've had in the booking order profile? We expect revenues of 45%, if I can recall, gross margin. And then we also set... the so-called, in a way, Ziv Shoshani achieved in Q4 a record gross margin of $43.5 billion. Thumbs up for development.
Gross margin.
Each will also shorten profitability target so so.
The mix so called the content mix mixed in.
I would say mixed business.
This environment.
I'm quite confident that the plan that we have laid out.
Three five year plan is very viable.
Okay excellent that's good to hear and just one last question any update on production.
Capabilities in Israel has it still been a non factor just I think it'd be prudent.
Ziv Shoshani: We continue to... oh, we have a longer-term plan regarding operational excellence in respect of Efficiency Improvement Product Relocation, sourcing cheaper materials, which is going, in combination with the top-line revenue, is going to... I think there is a, which will also assure the profitability target. I would say mixed business environment. I am, and the plan that we have laid out. The five-year plan is very vile.
First up on that topic.
Sure so.
I would say as you know we have two operations in Israel. They are located in the center of Israel.
We are operating in Israel at the normal levels.
<unk>.
Actions that we have taken.
Prior quarters in respect to securing raw materials shipping finished goods in advance and working with our fleet for those still applies there is no issue whatsoever with all operations working.
Ziv Shoshani: Okay, excellent. That's good to hear. And just one last question. Any update on production? I think it would be prudent to brush up on that topic.
With full efficiency.
And at the optimum capacity so.
Operations.
Hello.
The operating impact working at a normal level.
That's great to hear thanks for the update.
This concludes the Q&A session I will now hand over to Steve to conclude.
Ziv Shoshani: Sure. So, I would say, as you know, we have two operations in Israel. They are located in the center of Israel.
Thank you before concluding I want to note that PPG will be presenting at the Sidoti small cap conference.
Ziv Shoshani: We are operating in Israel at a normal level. The actions that we have taken in prior quarters in respect to securing raw materials in advance with our freight forwarders still apply. There is no issue whatsoever with our operations. We are working with full efficiency and Optimum Capacity. So our operations in Israel are operating intact, working at a normal level.
March 13th and 14th.
We will be posting details regarding our webcast of our presentation on our website. So please check that for details.
With that thank you all for joining our call. We look forward to updating you next quarter.
Thank you everyone. This concludes today's call. Thank you for joining you may now disconnect your lines.
Steven Cantor: This concludes the Q&A session, so I'll now hand over to Steve to conclude. Thank you, everyone. This concludes today's call. Thank you for joining us. You may now disconnect your line.
[music].
Okay.
Yes.
Yeah.
Okay.
Yeah.
Okay.
Okay.
Okay.