Q3 2024 Vishay Precision Group Inc Earnings Call
The
Ezra: Hello everyone and welcome to the VP Geese 3rd quarter of this school 2024 earnings school. My name is Ezra and I will be your coordinator today. I would like to ask a question, please press star for the one on your telephone keypad now. If you change your mind, please press star for the two. I will now hand you over to your host, Steve Cantor, senior director of investor relations to begin. Steve, please go ahead.
Steve Cantor: Thank you, Astra and good morning everyone. Welcome to our third quarter.
Ezra: 2020 for earnings call. Our Q3 release and slides have been posted on our website at vpgsensors.com.
and Audio Recording of today's call will be available on the Internet for a limited time and can also be accessed on our website.
Ezra: Today's remarks are governed by the State Harbor provisions of the 1995 Private Security Litigation Reform Act.
Ezra: are actually results may vary from forward-looking statements.
Ezra: For discussion of the risks associated with BPG's operations, we encourage you to refer to our SEC filing, especially the form 10K for the year ended December 31, 2023, and our other recent SEC filings.
Nicole: I'm Nicole today, our Ziv Shoshani CEO and President and Bill Clancy, the F.O. I'll now turn the call to Ziv for some prepare remarks.
Ziv Shoshani: Thank you, Steve.
Ziv: I will begin with some commentary on our results and trends for the 12th quarter.
Ziv: Bill will provide financial details about the Quota and our outlook for the Fault Quota of 2024.
Ziv: Moving to slide 3.
Ziv Shoshani: Over all third quarter was it follows.
Ziv: Total saves were mostly stable sequentially.
Ziv: The business environment continues to be mixed as higher demand in some markets was offset by weakness in others.
Ziv: We continue to focus on broadening our funnel of new business opportunities.
Ziv: We are streamlining operation, mailing the sensors and weighing solution segments.
Ziv: The recent acquisition of Nogra expends our product offering in the steel market.
Ziv: Moving to slide fall.
Ziv: Looking at the third quarter results in details, we reported sales of 75.7 million, which was above the mid-range of our guidance.
Ziv: Order of 68.6 million declined from 73.5 million in the second quarter.
Ziv: resulting in a book to build ratio of 0.91.
Ziv: Trent continued to be mixed in our markets as all those generally represented customers on going replenishment of inventories.
Ziv: The majority of bookings declined related to certain cyclical markets, including stealing consumer.
Ziv: This contrasted with higher orders in the test and measurement and AMS, which remains well below peak levels.
Ziv: Operationaly, we reduced our manufacturing operations to align with near-term revenue trends.
Ziv: This steps resulted in temporary label inefficiencies primarily in our central segment.
Ziv: Combined with the impact of sequentially lower revenues.
Ziv: This inefficiencies contributed to a gross margin of 40% in the third quarter.
Ziv: We do not expect this level of inefficiencies to continue in the fourth quarter.
Ziv: As we continue our growth for вкус investments in business development, marketing and R&D, we are streamlining our operating cost and implementing our long-term cost reduction plans.
Ziv: Over the past few years, these programs have improved our gross margin and going forward with position as to realize potential operating leverage as our revenue recovery.
Ziv: I now review our business segment performance for the third quarter.
Ziv: Moving to slide 5.
Ziv: Beginning with our sense of segment, third quarter revenue was 28.2 million, down 13.3% for a year ago, and 2.3% sequentially.
Ziv: Compared to the second quarter, sales of precision resistors by merely in the test and measurement and AMS were higher, but were offset by lower sales of advanced sensors, mainly for consumer applications.
Ziv: Book to Bill for Senses was 0.89 as the third quarter orders for Senses of 25.1 million softens sequentially by a merely due to lower bookings for consumer-related applications.
Ziv: This offset higher orders in the test and measurement and AMS while semi-conductor equipment manufacturers, customers have placed semi-annual orders to replenish their inventories.
Ziv: The semi-conductor market remains the cyclicalist soft.
Ziv: Regarding business development activities, we continue our focus on expanding our precision resistance in fiber optic equipment.
Ziv: During the third quarter, we achieved design qualification for our resistor products in telecommunications market.
Ziv: as well as recording an order from a supplier of source laser used in fiber optic equipment.
Ziv: For advanced sensors, we continue our progress with the project with the leading developer of humanoid robots and are now in discussion with the second maker of such robots.
Ziv: In consumer, we receive initial orders from a large global bicycle accessory company and in medical we achieve the key design win with the maker of infusion pumps.
Ziv: Moving to slide 6.
Ziv: In the Wayne Solutions segment, third quarter sales were 25.2 million, at the decline of 13.1% years ago, an 8.3% from the second quarter.
Ziv: sequentially the decline was mainly due to lower sales in the industrial way of transportation and in other markets.
Ziv: Book to Bill for Wayne Solutions was 1.0
Ziv: orders of 25.2 million were essentially even with the second quarter as lower orders in the transportation market of set higher bookings in the industrial weighing and other markets.
Ziv: O'Berol.
Ziv: Slawing industrial production and capital spending around the world continues to be a headwind.
Ziv: In our other markets, we have seen modest improvement in precision-agged while construction and medical remains low.
Ziv: As a key area of business development focus for weighing solutions continues to be on expanding our content with OEM customers in precision agriculture, construction equipment and medical equipment.
Ziv: Moving to slide seven.
Ziv: Turning to our measurement system segment, third quarter revenue was 22.4 million down 8.2% year over year, but up 6.2% sequentially.
Ziv: The sequential growth was made due to higher sales of DTS products in the AMS and transportation markets.
Ziv: which offset the clients in our other markets and in steel.
Ziv: Book to Bill ratio for measurement systems was 0.82 reflecting orders of 18.2 million.
Ziv: This was a decline of 16.9% from the second quarter, primarily due to lower bookings in stealing transportation.
Ziv: While the steel market in China remains soft, we are expanding our business in India, which is one of the fastest going markets globally for steel production.
Ziv: in transportation, all the softened.
Ziv: for our DTS Crash Test Data Recorders, you primarily to project timing.
Ziv: Moving to slide 8.
Ziv: We were pleased to announce the acquisition of Nokra, a German niche supplier for laser-based measurement systems.
Ziv: which strategically extend our product offering to the steel and metal processing market.
Ziv: Nokra Precision Laser Base Systems provides an effective alternative for measuring the thickness and flatness of metal sheets during production.
Ziv: In 2025, we expect to grow knock-a-reven news as we leverage Kelks Drung Brand sales channels and existing customer base.
Ziv: We find the transaction with cash and expected to be immediately iterative.
Ziv: Given our strong balance sheet, our capital allocation strategy, by overtise internal investments and funding additional MNA opportunities that add high quality businesses to the VPG platform.
Ziv: Moving to slide 9, before turning the call to Bill, I want to highlight the release of our initial sustainability report.
Ziv: This report marks a significant milestone in VPG sustainability journey.
Ziv: We take great pride on how VPG contributes to a more sustainable world by helping to make our customers, products and processes safer, smarter and more productive.
Ziv: to deliver long-term value creation globally.
Ziv: We look forward to sharing more milestone in the future.
Speaker Change: I will now turn it over to Bill Clancy for additional financial details. Bill?
Bill Clancy: Thanks, Steve. We're firing this slide 10 and the reconciliation tables of the slide deck are a third quarter of revenues worth 75.7 million dollars.
Ziv: Gross Mars in the third quarter was 40% as compared to 41.9% in the second quarter.
Ziv: By Saddamit, Gross margin for the central segment of 31% declined to quenchily, primarily due to lower revenue and temporary operational and labor inefficiency.
Ziv: The Wang Solutions Gross Mars and a 35.1% was lower than in the second quarter, primarily due to lower volume and unfavorable product mix.
Ziv: Measurements to some gross margin of 56.8% improves or coincially reflecting higher volume and favorable product mixed.
Ziv: Total selling, general, and administrative expenses for the third quarter of 26.3 million.
Ziv: or 34.8% are revenues declined slightly from 26.5 million but 34.3% in the second quarter.
Ziv: Operation O'Margian was 5.1% as compared to 7.6% for the second quarter, primarily reflecting the lower revenue.
Ziv: on the Gap Basis. We recorded a loss per diluted share of 10 cents.
Ziv: This includes the impact of unrealized foreign exchange loss of $2.9 million or a structuring charge of $8,000 and the street tax items of $839,000.
Ziv: Including those items, adjusted net earnings for diluted share for the third quarter was 19 cents, which compares the 31 cents in the second quarter.
Ziv: adjusted EBDA with 8.1 million, where 10.5% are revenue as compared to 10.2 million, but 13.2% in the second quarter.
Ziv: Purchase CapEx in the third quarter was $1.8 million.
Ziv: For the full fiscal year of 2024, we expect to purchase catbacks to be in a range of 10 to 12 million dollars, which is significantly lower than the levels we have spent in the past few years.
Ziv: I just had free cash flow with a negative $2.3 million which compared to $4.9 million for the second quarter.
Ziv: The third quarter cash flow included $3 million a one-time tax payment.
Ziv: at 1.4 million dollars related to global insurance renewables.
Ziv: We define a dress of free cash flow as cash from operating activities of a negative $831,000, let's cap back a $1.8 million plus proceeds from the sale asset of $300,000.
Ziv: During the quarter, we repurchase 1.9 million of stock.
Ziv: The third quarter operational tax rate was 30% reflecting the income earned at higher tax rate jurisdictions.
Ziv: We are a stilling in operational tax rate of 30% for the full year of 2024.
Ziv: Moving to slide 11.
Ziv: We ended the third quarter with 81.1 million of cash and cash equivalents and total debt of $31.6 million.
Ziv: Jordan III quarter, we amended and restated our 75 million dollar credit facility that will mature in August of 2020.
Ziv: This provides us with ample liquidity for operational needs as well as to support our capital allocation strategy.
Ziv: Regarding the outlook for the 4th fiscal quarter given the current marking conditions in our backlog, we expect net revenue to be in the range of 70 million to 78 million at Concert fiscal quarter 2024 change rates.
Ziv: and summary.
Ziv: The Business Environment remains challenging as our typical markets are soft.
Ziv: We remain focused on our business development initiatives.
Ziv: And we believe we are positioned to realize that this against incremental operating leverage has revenues improved.
Ziv: With that, let's open the lines for questions.
Ziv: i
Speaker Change: Thank you very much. If you would like to ask a question, please press star for the by one on your telephone keypad now.
Speaker Change: Please ensure your devices unmuted locally.
Speaker Change: If you change your mind please press star, put it by 2.
Speaker Change: Our first question comes from Griffin Boss, with B-Riley's Curities, Griffin, your line is now open please go ahead
Griffin Boss: Hi, good morning. Thanks for taking my questions. The first, I just want to be clear the labor inefficiencies that you discussed in the censors segment. So those were completely behind you when you entered the fourth quarter. Did I hear that correctly?
Speaker Change: Yes, already in the beginning of the fourth quarter we have seen a significant improvement regarding the inefficiencies that we have booked in the third quarter, so that is correct, Viva.
Speaker Change: Okay, great. And then, just when I'm looking at the free cash flow for the quarter, it looks like DSO's stepped up to a relative high, you know, slightly higher than what they've been historically, at least over the past three years. Is there anything to read into there? Is there relates to certain customers or is that just kind of a one-time?
Speaker Change: One time to step up this quarter.
Speaker Change: Now, I'm Griffin, I would say it's probably a one-time we had, you know.
Speaker Change: I would say some sales that happened in the last week of that third quarter. We should believe this is one time. And as I mentioned, in the call, speaking about cash flows, we did have over like $3 million a month time tax payments.
Speaker Change: 1.4 million radiated to our insurance program in the rules. So our anticipation would be back in the fourth quarter to be a positive free cash flow.
Speaker Change: Okay, great, thanks Bill. And then just switching to new projects you mentioned, Hugh Milley, Robots, you got the second customer there. Is that, can we think about that as a similar size to the first customer? I think you mentioned on the last call, maybe if.
Speaker Change: a few hundred thousand dollars for the prototype stage. Just the Icarious Decides of that second customer.
Shoshani: Shoshani, so as I've indicated in earlier calls.
Ziv Shoshani: We have been working very diligently with the sizable humanoid robots.
Speaker Change: We already are expecting to book significant revenues for this year. At this point in time given the discussion and the forward-looking projection from this customer, we are expecting revenues.
Speaker Change: to double for 2025, and this is still not a full production. This is still on a pre-production level. Regarding the second humanoid customer, we are still in early stages of design. We believe that the potential size
Speaker Change: of the customer could be very similar to the initial one, but we are very early in the design stage, but we are already working with them. But they have also a very, I would say, sizable potential upside.
Speaker Change: once it comes to a full-blown production.
Speaker Change: Excellent, got it. Thank you, Ziv. And just maybe last one for me, it's nice to see the M&A, Nucra. You mentioned, you know, you expect to grow revenues in 25, and I understand it's a relatively small business, but how much of that growth would you expect is organic versus coming from, you know, being integrated into the broader calc business with those distribution channels?
Speaker Change: The NOKRA product line, with NOKRA we purchased the technology for an adjacent product portfolio which would broaden our kelp.
Speaker Change: We believe that leveraging on KELC sales channels
Speaker Change: and existing customers, we can increase NOCA revenue, I would say, significantly in 2025. We have not provided the run rate, but I could say that we are looking at...
Speaker Change: We are looking at roundabout, I would say, mid-single-digit revenues.
Speaker Change: for NOKRA, which would be almost doubling their revenue in respect to...
Speaker Change: to 2024.
Speaker Change: is the second largest steel manufacturer, and they are investing, I would say, quite significantly in their infrastructure. So all in all, between the NOKRA acquisition and the India-Pakistan deal, I would say that
Speaker Change: I would say investments, we believe that going forward, we would be more optimistic regarding steel.
Speaker Change: Okay, great Keller. Thanks for taking my questions. Appreciate it.
Keller: Thanks, Griffin.
Speaker Change: Our next question is from John Franzreb with Sudoti. John, your line is now open. Please go ahead.
John Franzreb: Good morning everyone and thanks for taking the questions. I guess I'd like to consider the end market mix and how you view it today versus how you viewed it three months ago. Ziv, are you seeing any notable changes that weren't maybe something you were expecting when we recorded second quarter results?
Ziv Shoshani: Sure, absolutely. So first, I think John...
Ziv Shoshani: It would be important to state that the biggest drop in Q in the third quarter in order intake was in the measurement systems. We had some few large projects that have been pushed out.
Ziv Shoshani: from the third quarter to the fourth quarter, so if we speak about the business environment, we are expecting in Q4 to be back to the mid-$70 million range in terms of bookings. Now, going to the different end markets and the dynamics.
Ziv Shoshani: with some large customers, for example, in the semi-conductor market, or in the general industrial market, there was more, a little bit, optimism regarding a potential upside. On the other hand,
Ziv Shoshani: stock levels have gone down and they started to place order in order to replenish their stock level which means there is we have not seen or we do not expect to see yet.
Ziv Shoshani: a larger potential upside coming from an additional demand, but at this point it's coming from the stock replenishment.
Ziv Shoshani: On the other hand, Europe, and especially UK, given the economy, is still fairly soft.
Ziv Shoshani: And at the end of the day, I would like also to say that on precision agriculture, we have seen more optimism as they have increased their order intake in Q3. So all in all, it's a mixed environment.
Ziv Shoshani: We have a certain confidence level talking to our customers based on their projection.
Ziv Shoshani: But I would say that a little bit on the longer term, the initial interest rates cuts and the expected, and the expectation for more cuts.
Ziv Shoshani: gives us a much, I would say, stronger field to be optimistic regarding a real recovery in the next few quarters, given the fact that many of our customers are
Ziv Shoshani: in the capital spending related business.
Speaker Change: Okay, against that backdrop can you kind of update us on potential levers you could pull
Ziv Shoshani: to reduce operating costs that are under consideration, or do you think that given the current environment that you're happy with the manufacturing footprint and the operational expense footprint as currently constituted?
Speaker Change: So regarding operational cost reduction beyond
Ziv Shoshani: the continuous investment, capital investment.
Ziv Shoshani: In automation and in process improvements, we continue to streamline our operations.
Ziv Shoshani: The expectation is, I mean, we are already in a further relocation of products from high labor countries to our India facility.
Ziv Shoshani: from various locations in North America, in Europe.
Ziv Shoshani: that want those projects.
Ziv Shoshani: Arik
Ziv Shoshani: operations into our large India-based operation.
Ziv Shoshani: not only necessarily regarding the initial load cells base. We have decided also to streamline more activities on the operational side and also in other staff-based functions.
Speaker Change: understood. And then, I guess, lastly, regarding M&A, was was Milker a customer of yours? Can you talk a little bit about the
Ziv Shoshani: development of that purchase. And in addition, we think about other near-term M&A targets.
Speaker Change: Is it more the smaller highly profitable ones that you're looking at or are you looking at larger revenue contributions?
Speaker Change: Thank you.
Speaker Change: NOKRA was not a customer. We knew NOKRA given the fact that when when we had discussions with customers, our current customer base, they wanted us to provide them with a wider and a larger product portfolio which we did not have to, which we didn't have to, which we couldn't offer.
Speaker Change: We have identified NOCLA.
Speaker Change: is a technology, is a small technology company.
Speaker Change: that could provide or that could...
Speaker Change: fit within the KELC portfolio and given the fact that we have the sales channel
Speaker Change: We believe that it would be fairly easy to realize those business synergies and to leverage and to, and I would say, and to grow NOKRA revenues in a fairly quick way.
Speaker Change: Regarding other M&A, in fact, we are looking at...
Speaker Change: similar businesses like NOKRA, but also we are looking at other businesses that could realize.
Speaker Change: operational synergies, if those businesses are within our own current portfolio, or could add an adjacent sensing technology.
Speaker Change: servicing
Speaker Change: servicing our customer base, but it would vary from a smaller potential customer to a much larger potential customers.
Speaker Change: Understood. Thanks. You can take my questions. I'll get back into queue.
Speaker Change: Thank you. Just as a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad now and please ensure your device is unmuted locally. If you change your mind or if your question has been answered, please press star two.
Speaker Change: Our next question is from Geoffrey Cohen with Mulholland Capital Management. Geoffrey, your line is now open, please go ahead.
Geoffrey Cohen: Yeah, good morning. I apologize. I got onto the call late, but I'm just wondering, it looks like you repurchased some stock this last quarter. Is that right?
Speaker Change: Yes, we did, Jeffrey. We repurchased $1.9 million of stock during the third quarter.
Speaker Change: Okay, and just I'm just kind of curious how you think about
Speaker Change: In terms of M&A relative to where your own stock is selling at this point, how do you think about that?
Speaker Change: From a capital allocation standpoint, we believe that our balance sheet
Speaker Change: could provide us supporting stock buyback, acquiring companies.
Speaker Change: and also continue to invest to support organic growth.
Speaker Change: Therefore, that's really, you know, we do have all the means to support.
Speaker Change: all three capital allocation strategies and this is how we operate. Naturally, first is investing in the company to enhance organic growth, but M&A and stock buyback are also
Speaker Change: are also considered, and this is why we have been doing that.
Speaker Change: Thank you very much.
Speaker Change: That ends our Q&A session. I will now hand back over to Steve for any closing remarks.
Steve Cantor: Thank you all for joining our call today. We look forward to updating you on BPG and our strategy for growth in the coming quarters. Have a great day.
Speaker Change: Thank you very much everyone for joining. That concludes today's call. You may now disconnect your lines.