Q4 2024 Vishay Precision Group Inc Earnings Call
Good morning, everyone, and welcome to the
Ezra: VPG fourth quarter fiscal 2024 earnings call. My name is Ezra and I will be your coordinator today. If you would like to ask a question please press star followed by one on your telephone keypad. If you change your mind please press star followed by two.
Speaker Change: I will now hand you over to Steve Cantor, Senior Director of Investors Relations, to begin. Steve, please go ahead.
Steve Cantor: Thank you, Esra. Good morning, everyone. Welcome to VPG's 2024 fourth quarter earnings conference call. Our Q4 and full year press release and accompanying slides have been posted on our website.
Steve Cantor: 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.
Steve Cantor: 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.
Steve Cantor: For a discussion of the risks associated with VPG's operations, we encourage you to refer to our SEC filings, especially the Form 10-K for the year ended December 31, 2023, and our other recent SEC filings.
Speaker Change: On the call today are Ziv Shoshani, CEO and President, and Bill Clancy, CFO. I'll now turn the call to Ziv for some prepared remarks. Please refer to slide three of the quarterly presentation.
Ziv Shoshani: Thank you, Steve. I'll begin by reviewing our sales and business trends for fiscal 2024 and the fourth quarter, and then provide an update on our 2025 priorities.
particularly our business development activity.
Ziv Shoshani: Bill will provide financial details for the fourth quarter and for our Q1 guidance.
Speaker Change: Beginning with our 2024 performance, it was a challenging year for VPG.
Revenue of $306.5 million reflected continued macroeconomic and cyclical headwinds.
Speaker Change: Moving to slide 4. These headwinds impacted our fourth quarter revenue, which declined 4% sequentially.
Speaker Change: On the other hand, our consolidated orders grew 5.5% sequentially and resulted in a book-to-bill of 1.0.
Speaker Change: This marked the first quarter of a positive book to build in eight quarters and a return to a sequential order growth after six consecutive quarters.
Speaker Change: Booking in our sensors and weighing solution segment grew to the highest quarterly level of the year.
Speaker Change: while measurement systems booking reflected cyclical softness and a push out of five million of orders of which two million is expected to be booked in Q1 of 25.
Speaker Change: We are encouraged by these order trends and believe they may signal the beginning of the recovery and support our increased optimism for 2025.
I'll now review the business segment performance.
Speaker Change: However, it's important to note that sensor bookings grew 7.0% sequentially, resulting in a book-to-bill of 1.04%.
Speaker Change: The order growth reflected higher demand for precision resistors in the test and measurement for semiconductor back-end equipment.
and in AMS.
All the trends for advanced sensor stringages were stable.
Speaker Change: Moving to slide 6, in the weighing solution segment, fourth quarter sales increased 2.2% from the third quarter.
Speaker Change: The increase was driven by higher revenue in the industrial weighing market and for precision agriculture and construction applications.
This offset lower sales in the transportation market.
Speaker Change: Wayne Solution orders of $28.9 million grew 14.5% from the third quarter, resulting in a book-to-bill of $1.12. Bookings were higher for General Industrial.
Speaker Change: and for transportation applications as well as in our other markets, mainly in the medical and construction.
Moving to slide 7
Speaker Change: In the measurement system segment, revenue in the fourth quarter of $21.2 million declined 5.3% sequentially.
Speaker Change: The sales decline reflected lower DSI sales, which offset approximately $1 million of added sales related to the acquisition of NOKRA at the end of September.
Speaker Change: We are pleased to report that the integration of NOKRA is proceeding on track.
Speaker Change: NOKRA-differentiated laser-based thickness measurement technology broadens our calc product offering in the steel market.
Speaker Change: We believe we can grow this business to $6 million in 2025 as we continue to leverage Kelk's brand and the sales channels.
Speaker Change: In the fourth quarter, measurement systems orders declined 8.9% sequentially, which includes $5 million in customer push-outs, of which $2 million is expected to be booked in Q1 of 2025.
This change was primarily related to orders of DTS products.
Speaker Change: in the AMS market and DSI systems for the steel market, which offset the additional orders for NOKRA as a result Book-to-Bill for measurement systems of 0.78 declined from 0.82 in the third quarter. Moving to slide eight.
Our priorities for 2025 are clear.
Speaker Change: First, our business development activity is focused on securing design wins in new applications and new customers in robotics, consumer, data center, medical, and aerospace and defense.
Speaker Change: These opportunities are being driven by megatrends such as industrial automation and electrification.
Speaker Change: In 2024, our business development projects contributed about $18 million in revenue.
Speaker Change: While we are pleased with the early momentum of these efforts, the potential is significant. Typically, the design cycle and lead time for our projects, from the initial customer discussions to revenue, can be as much as 30 months.
Speaker Change: Over the next 3-4 years, we believe that these new opportunities may contribute $100 million of revenue in aggregate across our business segments.
Speaker Change: We expect to further broaden our business development funnel over this period of time.
I want to highlight a couple of the current initiatives.
Speaker Change: Our project with the leading developer of a humanoid robot to provide advanced sensor stringages continues to proceed well. The project reflects our ability to utilize our extensive expertise in deep engineering design and manufacturing to create high-performance solutions.
Speaker Change: In the fourth quarter, we received additional prototype orders from this customer.
Speaker Change: Since the beginning of this project, we have received approximately $1.5 million in prototype revenue.
Speaker Change: dollars in revenue annually, as the humanoid robots are expected to be deployed in larger numbers over the next two to three years.
Speaker Change: As I indicated last quarter, we are also in the process of providing prototypes to more humanoid robotic developers.
Speaker Change: This innovative system builds on our flagship simulation tool utilized in metal alloy testing and marks our entry into the new and untapped market for VPG.
Speaker Change: Its focus on the testing of ceramic and composite non-conductive materials which require extremely high temperatures.
Speaker Change: Since we do not address the ceramics test market today, this represents a significant growth opportunity that could potentially double the size of DSI over time.
Speaker Change: Another priority for 2025 is to continue to implement our long-term efficiency initiatives.
Speaker Change: This effort in 2024 yielded approximately 5 million net improvements resulting from manufacturing efficiencies and higher selling prices.
Speaker Change: In 2025, we are putting in place a minimum of $5 million for additional annual cost reductions.
Speaker Change: A focal point of our strategy is optimizing our facility in India, which supports high-volume business development initiatives.
Speaker Change: and plays a vital role in our manufacturing consolidation. As a result, our manufacturing footprint in China is dedicated to supporting the Chinese domestic market.
Speaker Change: To improve efficiency, we are moving most of our shared functional services to the India facility.
This transition
Speaker Change: expected to take about 18 months should save us an additional one million annually once completed.
Speaker Change: M&A continues to be an important complement to our organic growth initiatives.
Speaker Change: Our strong balance sheet provides us with the means to acquire larger businesses with recognized brands and growth paths.
Speaker Change: Before turning the call to Bill for additional comments, I want 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?
Bill Clancy: Thank you, Ziv. Referring to slide 9 and the reconciliation tables of the slide deck, our fourth quarter 2024 revenues were $72.7 million.
Speaker Change: Adjusted gross margin of 38.3% in the fourth quarter compared to 40% in the third quarter of 2024.
Speaker Change: This includes a $700,000 impact from unfavorable product mix, as well as $200,000 of one-time material adjustments.
sequentially by segment.
Speaker Change: Gross margin for sensors of 32% increase as improved manufacturing efficiencies offset the impact from lower volume.
Speaker Change: Wayne Solutions gross margin of 34.1% declined from the third quarter, primarily due to higher material costs and a reduction in inventory, which was partially offset by the higher volume.
Speaker Change: Adjusting for acquisition-related purchase accounting impact. Adjusted gross margin for measurement systems of 51.2% declined sequentially.
primarily due to lower volume and unfavorable product mix.
Speaker Change: Our operating margin was 0.3% for the fourth quarter of 2024, and adjusted operating margin was 0.8%, excluding $378,000 of adjustments as outlined in the reconciliation tables.
Speaker Change: Selling General and Administrative Expense for the fourth quarter of 2024 was $27.3 million, or 37.5% of revenues, as compared to $26.3 million, or 34.8% of revenues, for the third quarter of 2024.
The increase included approximately $400,000 related to the NOCRA acquisition.
Speaker Change: and one-time cost of $300,000 for measurement systems R&D projects and $200,000 of other fees.
Speaker Change: The gap tax rate for the full year of 2024 was not a meaningful number given the geographic mix and the level of income.
Speaker Change: We are assuming an operational tax rate of approximately 27% for the full year of 2025.
Speaker Change: The adjusted net earnings for the fourth quarter of 2024 were $400,000 or $0.03 per diluted share compared to $2.5 million or $0.19 per diluted share in the third quarter of 2024.
Speaker Change: As I mentioned, our results were impacted by unfavorable product mix and one-time costs.
Speaker Change: Combined, on a tax-effective basis, these impacted our fourth quarter 2024 diluted EPS by $1.1 million, or $0.08 per share.
Speaker Change: Adjusted EBITDA was $5.1 million or 7% of revenues as compared to $8.1 million or 10.7% of revenue in the third quarter.
CapEx in the fourth quarter was 2.2 million dollars.
Speaker Change: Total CapEx for 2024 was $9.2 million, worth 3% of revenues.
Speaker Change: For 2025, we are budgeting $10 to $12 million for capital expenditures.
Speaker Change: We generated just the free cash of $4.6 million for the fourth quarter of 2024 as compared to a negative $2.3 million in the third quarter.
Speaker Change: The improvement was driven by a $4 million reduction in inventory in the fourth quarter.
Our stock repurchase program expired in August of 2024.
Speaker Change: For the full year of 2024, we repurchased $7.8 million of common stock for 188,413,000 shares. Moving to slide 10.
Speaker Change: We ended the fourth quarter with $79.3 million of cash and cash equivalents and total outstanding long-term debt of $31.4 million.
Speaker Change: We believe that we have a strong balance sheet and ample liquidity to support our business requirements and to fund M&A.
regarding the outlook.
Speaker Change: For the first fiscal quarter of 2025, at constant fourth fiscal quarter 2024 exchange rates, we expect net revenues to be in the range of $70 million to $76 million.
Speaker Change: In summary, our fourth quarter of bookings grew sequentially, resulting in a book-to-bill of 1.0 for the quarter.
Speaker Change: We are excited about the potential for our business development initiatives, and we continue to implement additional efficiency programs which expand our operating leverage as revenues strengthen.
With that, let's open the lines for questions. Thank you.
Speaker Change: Thank you very much. We will now open the floor for the Q&A session. If you would like to ask a question, please press star followed by 1 on your telephone keypad now. Please ensure your device is unmuted locally. If you change your mind or your question has already been answered, please press star followed by 2.
Thank you.
Speaker Change: Our first question comes from John Franzreb with Sudoti. John, your line is now open, please go ahead.
Good morning, everyone, and thanks for taking the questions.
John Franzreb: Ziv, I guess I want to start with the census segment. Can you talk a little bit about what's going on in the test and measurement and avionics markets there? And when do you expect to see a turnaround in the census business?
Ziv Shoshani: Good morning, John. If we look at the sense of business, you see that the book-to-bill is over one for Q4. We already started to receive.
Ziv Shoshani: larger semi-annual orders in Q4 for AMS business. We also see a recovery in the back-end equipment.
Ziv Shoshani: for IC chip testing. It didn't yet come at the front end, but already in the back end, which is a strong indication that we start to see the semiconductor continues to go back.
Ziv Shoshani: Given the sensor bookings, we should expect to see a positive trend in net bookings in the sensor segment in Q1 and Q2 and for the rest of the year. I would say that the expectation is that there would be an acceleration.
of all the intake in the second half.
Ziv Shoshani: But already we see those positive signs and it's very encouraging regarding semiconductor equipment and regarding AMS business. And we still expect to see the front-end equipment bookings.
to come in the next coming quarters.
That's good to hear.
Speaker Change: And actually, rather than ask you a blanket question about tariffs, I'm actually curious about the steel market in particular. Did you see any meaningful revenue spend during the last 2018 steel tariffs? Anything you can kind of share about the history of the steel market and tariffs based on your experience?
Speaker Change: Regarding tariffs, as you know, our main manufacturing facility is in India and we are sourcing most of our steel and aluminum from India suppliers.
Speaker Change: So tariffs was, you know, tariffs from China was not a significant impact. We did not see any significant impact.
Speaker Change: As the new administration has increased the tariffs from 25% to 35%, our footprint in China is very, very limited, most of our Chinese operations.
We are selling into the Chinese domestic market.
the cost or the excess effect on VPG's P&L.
Speaker Change: regarding future tariffs on goods coming from China is going to be extremely limited, at best around $200,000.
Speaker Change: in 2025, given current volume. We hope and we do expect to see a nice backwind by getting more market share in our low sales business in the United States, given the fact that
Speaker Change: There are very few manufacturers that have non-Chinese operational base like we do in India, while most of them...
tariffs or still I if I would say that
If
Speaker Change: If the tariffs would, I believe that we should expect to see more manufacturing from U.S. based steel manufacturers that should also give us a positive back wind for kelp products which are sold into U.S. suppliers.
Speaker Change: Yeah, that's what I was kind of curious about, where you'd see in calc and the load sensors and everything. Just curious on those thoughts there.
We have a question, I guess, I go ahead.
Speaker Change: No, no, sorry. I'm just saying we didn't see the effect yet, given the fact that the tariff has been implemented or put in place a while ago, a very short time, but we do believe it will happen in the coming months. We should expect to see an effect.
Understood, understood.
Thank you.
Speaker Change: Regarding the $5 million in cost savings, can you talk a little bit about the expected timings of realizing those cost savings via either, is it a mix of pricing and productivity or is it just pure productivity?
Speaker Change: Any color would be helpful. When we are looking about cost reduction, or I would say a minimum of additional cost reduction of 5 million in 2025 in respect to 2024, we are looking at
Speaker Change: continuation of moving from high-labor countries to low-labor countries by now our India facility is the largest facility
Speaker Change: for VPG and it takes a much bigger role in our future. We are thinking about more automation.
Speaker Change: in the, I would say, in some of the facilities. So all in all, it's all about yield and efficiency improvements in all our larger manufacturing base.
locations.
Speaker Change: Okay, and just one last question I'll get back in the queue. Regarding NOCRA, it's about 1 million dollars of revenue contribution. Were they accretive to the operating income line? Can you, any kind of color there would be helpful?
Speaker Change: which is at least a 50% higher run rate than the complete 2024 which definitely would provide us with very nice margins.
Positive mountains, naturally.
Unidentified Participant: Okay, Ziv, I appreciate you taking my questions. I'll get back into the queue.
Speaker Change: Thank you very much. Our next question comes from Griffin Boss with B Ridley Securities. Griffin, your line is now open. Please go ahead.
Speaker Change: and weighing solutions book-to-bill pushing, you know, above one. Are you seeing any customer trends that might suggest that capital spending and demand is now picking up given, you know, less macro uncertainty, or are the increased orders you're seeing today, or I guess in the fourth quarter, more so inventory replenishment?
Thank you very much. Thank you. Thank you.
Speaker Change: first half I would say more of a positive or more moderate optimism while we are looking for an accelerated uptick in the second half.
Speaker Change: and process weighing on the weighing solutions which also applies for some customers also in this in the industrial sensor segment. We are also looking at
continued depletion of our customer inventories
Speaker Change: being generated by those business development initiatives. So all of the three effects, we feel much more confident regarding the order intake and the demand going forward.
Ziv Shoshani, William Clancy, Steve Cantor
Speaker Change: plus, is that sustainable cost savings at higher revenue levels? Or is this more so optimizing for the current revenue profile of the business?
Speaker Change: from higher labor countries into India, and this is kind of a permanent...
cost once the system is in place.
Speaker Change: Regarding the other four million, and here it's minimum four million, we are looking at further consolidation.
to our India facility while also adding more automation.
Speaker Change: in some other high-labor manufacturing facilities. So we are looking at permanent cost savings regardless of volume. In a way, we are just reducing the cost base of our products.
of our Cost of Goods Sold.
putting in place more efficiency initiatives.
Speaker Change: Excellent. Okay. Thank you, Steve. Appreciate it and thanks for taking my questions.
Speaker Change: We have our next question from John Franzreb with Sudoti. John your line is now open, please go ahead.
John Franzreb: Yes, Ziv, I just have a question about the new product development.
Speaker Change: I think you said there was $18 million of revenue recognized from new product development in 2024. Andrew, I think you alluded to $100 million of new product opportunity.
Speaker Change: I didn't catch the timeline on that. What's the timeline on that and does it does it manifest, you know, more likely one year versus another? What kind of visibility do you have on that?
in essence, business which the company did not have.
in respect to products or customers.
The infrastructure has been put in place.
feel
Speaker Change: a BD funnel in a much more consistent way. When we are looking into the funnel, given the design cycle that I've indicated earlier that may take up to 30 months, we have realized that 18 million.
Speaker Change: of revenues has been realized in 2024 due to new business development initiatives. Our target for 2025 is 30 million.
Speaker Change: to 2027-2028, up to, in aggregate, for an additional $100 million of new business with new products or new customers that the company did not have before.
Speaker Change: And is it fair to assume that the margin profile of the new products is at least as good as the current gross margin profile, or is it... you tell me.
So I would say that the...
Speaker Change: The profit profile should be similar or better than the existing profile. The fact is that, on one hand, our business initiative goes for...
Speaker Change: You know, smaller scale opportunities at higher margins, but when we also speak about
Speaker Change: significant volume, we also need to be cost competitive. So overall, it could be with slightly lower margins, but overall it should be at least the same or much better than our current average gross margin.
Great, I appreciate the clarity. Thank you, Ziv.
Thank you.
Steve Cantor: I will now hand back over to Steve for any closing remarks.
Thank you.
Steve Cantor: Thank you. I want to note that we will be participating in the Sudoti conference in March and we look forward to updating you on BPG next quarter. Thank you all and have a good day.
Speaker Change: Thank you very much Steve and thank you to Bill and Ziv for being our speakers today. That concludes our conference call. We appreciate everyone for joining. You may now disconnect your lines.
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