Vishay Precision Group, Inc. (NYSE:VPG) Q4 2023 Earnings Call Transcript February 14, 2024
Vishay Precision Group, Inc. beats earnings expectations. Reported EPS is $0.61, expectations were $0.31. VPG isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator:
,: I will now hand you over to Steve Cantor, Senior Director of Investor Relations to begin. Steve, please go ahead.
Steve Cantor: Thank you, Chach, 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 vpgsensors.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. 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 VPG'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 to Ziv for some prepared remarks. Please refer to Slide 3 of the quarterly presentation.
Ziv Shoshani: Thank you, Steve. 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 EBITDA and EBITDA margin of 17.0% and a record $30.8 million of adjusted free cash flow. 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 4. Turning to the fourth quarter of 2023. 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 $0.61. 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 customers’ projects. 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. 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 will now review our performance by business segment for the fourth quarter. Moving to Slide 5. 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 the 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. 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% improved sequentially from 35.9%, primarily due to higher volume and improved manufacturing efficiencies. 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 6. Turning to our Weighing Solutions 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.
A team of scientists in a laboratory environment, examining precision resistors and strain gages.
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 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 7. Turning to our Measurement Systems segment. 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%, 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 0.73, declined from 0.98 in the third quarter, which had included record orders for DTS in the AMS market. The decline in book-to-bill reflects the timing of customers’ projects. In the fourth quarter, steel-related orders grew sequentially, while orders in AMS were down from a record level. 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 KELK solution for aluminum manufacturing. In addition, we are addressing opportunities in the Indian market, which is currently small, but is expected to grow double-digit over the next several years.
We have added local sales and service support capabilities to meet this growing potential. Moving to Slide 8. 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 prioritized internal investment, M&A, stock repurchase and paying down our revolving credit facility. In terms of internal investments, we completed growth focus in operational capability and automation projects in 2023. For example, we have increased the automation in our India facility to support higher volume businesses. 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 levels of approximately 4% of revenue.
Regarding M&A, we continue to look for attractive high-quality businesses that meets 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 Clancy: Thank you, Steve. Referring to Slide 9 and the reconciliation tables of the slide deck, our fourth quarter 2023 revenues were at $89.5 million. Adjusted gross margin of 43% in the fourth quarter as compared to 42.1% in the third quarter of 2023. 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 and administrative expense for the fourth quarter of 2023 was $26.4 million or 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. 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 the $13.7 million or 16% of revenue in the third quarter of 2023. CapEx in the fourth quarter was $5.3 million. Total CapEx for 2023 was $15.2 million or 4.3% of revenues. 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 activities, less capital expenditures, plus the sale of fixed assets.
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 common stock or 188,000 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 revolving 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 entered the fourth quarter with $84 million of cash and cash equivalent and total outstanding long-term debt of $31.9 million, which reflects the paydown of the revolver and the stock repurchases during the quarter. 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 constant fourth fiscal quarter of 2023 exchange rates, 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 and 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.
