VPG Reports Fiscal 2020 Fourth Quarter and Twelve Month Results

Vishay Precision Group

MALVERN, PA — Vishay Precision Group, Inc. (NYSE: VPG), a leading producer of precision sensors and sensors-based systems, announced its results for its fiscal 2020 fourth quarter and twelve fiscal months ended December 31, 2020.

Fourth Quarter Highlights:

  • Revenues of $75.4 million increased 9.1% from a year ago
  • Earnings per diluted share was $0.01, as compared to $0.28 reported a year ago
  • Adjusted diluted earnings per share* was $0.43, as compared to $0.28 reported a year ago
  • Gross profit margin was 38.1%, as compared to 35.0% a year ago
  • Adjusted gross profit margin* was 38.0%, as compared to 36.8% a year ago
  • Operating margin was 7.8%, as compared to 2.5% reported a year ago
  • Adjusted operating margin* was 10.7%, as compared to 7.5% reported a year ago
  • Cash from operating activities was $12.5 million with adjusted free cash flow* of $5.9 million

2020 Full Year Highlights:

  • Revenues of $269.8 million declined 5.0% year-over-year
  • Earnings per diluted share was $0.79, as compared to $1.63 reported a year ago
  • Adjusted diluted earnings per share* was $1.32, as compared to prior year $1.79 reported a year ago
  • Gross profit margin was 38.6%, as compared to 39.3% a year ago
  • Adjusted gross profit margin* was 39.0%, as compared to 39.7% a year ago
  • Operating margin was 8.4%, as compared to 10.1% reported last year
  • Adjusted operating margin* was 9.7%, as compared to 11.7% reported last year
  • Cash from operating activities was $35.3 million with adjusted free cash flow* of $13.3 million

Ziv Shoshani, Chief Executive Officer of VPG, commented, “We finished fiscal 2020 on a solid note. Fourth-quarter sales grew 11.7% sequentially reflecting broad-based growth across VPG’s businesses and across our diversified end markets. Orders on a consolidated basis grew sequentially, as many of our markets continued to rebound from the lows earlier in the year due to the global pandemic. We are optimistic that as the world returns to normalcy, we are poised to realize the potential of our long-term strategic growth and cost initiatives.

Mr. Shoshani said: “In the fourth quarter we achieved an adjusted operating margin of 10.7% which was in line with our target model while generating $12.5 million of cash from operations.

The Company’s fourth fiscal quarter 2020 net earnings attributable to VPG stockholders were $0.1 million, or $0.01 per diluted share, compared to $3.9 million, or $0.28 per diluted share, in the fourth fiscal quarter of 2019. Included in the fourth fiscal quarter 2020 were tax expense of $1.7 million primarily related to the acquisition of DSI and other discrete tax items. Included in the fourth fiscal quarter 2019 were tax benefits of approximately $3.4 million primarily related to the acquisition of DSI and other discrete tax items.

In the twelve fiscal months ended December 31, 2020, net earnings attributable to VPG stockholders were $10.8 million, or $0.79 per diluted share, compared to $22.2 million, or $1.63 per diluted share, in the twelve fiscal months ended December 31, 2019. Included in the twelve fiscal months ended December 31, 2020 were tax expense of $1.7 million primarily related to the acquisition of DSI and other discrete tax items. Included in the twelve fiscal months ended December 31, 2019 were tax benefits of approximately $3.4 million primarily related to the acquisition of DSI and other discrete tax items.

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The fourth fiscal quarter 2020 adjusted net earnings* attributable to VPG stockholders were $5.8 million, or $0.43 per diluted share, compared to adjusted net earnings* attributable to VPG stockholders of $3.9 million, or $0.28 per diluted share, for the comparable prior year period.

In the twelve fiscal months ended December 31, 2020, adjusted net earnings* attributable to VPG stockholders were $18.0 million, or $1.32 per diluted share, compared to adjusted net earnings* attributable to VPG stockholders of $24.3 million, or $1.79 per diluted share, for the comparable prior year period.

Non-cash Impairment Charge

The Company states that as a result of their regular review of goodwill and indefinite-lived intangible assets during the fourth quarter of each year, the Company states it recorded a $2.4 million pre-tax, non-cash impairment charge to reduce the carrying value of the goodwill and indefinite-lived intangible assets related to their Pacific Instruments business, which is part of the Foil Technology Products reporting segment.

Impact of Foreign Currency Exchange Rate on Balance Sheet Items

The Company states their operations in Israel and certain locations in Asia primarily generate cash in U.S. dollars, and accordingly, these subsidiaries utilize the U.S. dollar as their functional currency. For those foreign subsidiaries where the U.S. dollar is the functional currency, all foreign currency financial statement amounts are remeasured into U.S. dollars. Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in the results of operations in Other income (expense). While these subsidiaries transact most business in U.S. dollars, they may have significant costs, particularly related to payroll and leases, which are incurred in the local currency.

In the fourth quarter of 2020, the change in the dollar-shekel exchange rate resulted in an unfavorable foreign exchange impact of $1.7 million, primarily related to the shekel-denominated lease liability for a new Foil Technology Products facility in Israel. Beginning in the fourth quarter of 2020, the Company has determined to include the impact of foreign currency exchange rates on its assets and liabilities in certain of its non-GAAP measures for its current and comparative periods.

Segments

Foil Technology Products segment revenues increased 23.1% to $36.5 million in the fourth fiscal quarter of 2020 from $29.6 million in the fourth fiscal quarter of 2019, and sequentially increased 10.9% from $32.9 million in the third quarter of 2020. The year-over-year increase in revenues was primarily attributable to an increase in the Company’s advanced sensors product line primarily in their consumer-related markets and higher sales of precision resistors and their Pacific Instruments product line in the avionics, military and space market. Sequentially, the increase in revenue reflected higher precision resistor sales in the test and measurement market, an increase in their Pacific Instruments product line in the avionics, military and space market, and an increase in their advanced sensors product line primarily in their consumer-related markets.

Gross profit margin for the Foil Technology Products segment of 38.4% (or, 38.9% adjusted to exclude the impact of COVID-19) for the fourth fiscal quarter of 2020, was higher compared to 34.9% in the fourth fiscal quarter of 2019, and a decrease compared to 41.1% (or, 41.6% adjusted to exclude the impact of COVID-19) in the third fiscal quarter of 2020. The year-over-year increase in adjusted gross profit margin was primarily due to higher volume. Sequentially, adjusted gross profit margin was lower comparable to the third quarter of 2020 primarily due to manufacturing inefficiencies, unfavorable product mix and one-time inventory adjustments, partially offset by an increase in volume.

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Force Sensors segment revenues increased 7.9% to $16.3 million in the fourth fiscal quarter of 2020, from $15.1 million in the fourth fiscal quarter of 2019. Sequentially, revenue increased 17.2%, from $13.9 million in the third quarter of 2020 The year-over-year increase in revenues were primarily attributable to an increase in the Company’s OEM customers in the precision agriculture market, partially offset by lower sales in the industrial weighing market. The sequential increase in revenues, which was attributable to higher sales in the precision agriculture and industrial weighing markets, reflected the return to full production capability at the end of the third quarter of the Force Sensors operations that had been constrained due to the COVID-19 pandemic.

Gross profit margin for the Force Sensors segment was 29.1% (or, 29.6% adjusted to exclude the impact of COVID-19) for the fourth fiscal quarter of 2020, an increase compared to 24.2% in the fourth fiscal quarter of 2019, and a decrease compared to 30.5% (or, 31.2% adjusted to exclude the impact of COVID-19) in the third fiscal quarter of 2020. The year-over-year increase in adjusted gross profit margin was primarily due to higher volume, structural cost savings initiatives, an increase in inventories and a positive impact of foreign exchange, partially offset by a reduction of export grants. Sequentially, adjusted gross profit margin decreased primarily due to a reduction of inventory, partially offset by an increase in volume.

Weighing and Control Systems segment revenues decreased by 7.1% to $22.7 million in the fourth fiscal quarter of 2020, down from $24.4 million in the fourth fiscal quarter of 2019. Sequentially, revenue increased 9.4% from $20.8 million in the third fiscal quarter of 2020. The year-over-year decrease in revenues was primarily attributable lower KELK and DSI steel-related sales and lower sales in their process weighing business, partially offset by an increase in their onboard weighing products for the transportation market. The sequential increase in revenue was primarily attributable to their onboard weighing products for the transportation market and an increase in their process weighing business.

Gross profit margin for the Weighing and Control Systems segment was 44.0% (or, 42.5% adjusted to exclude the purchasing accounting adjustments related to the DSI acquisition and the impact of COVID-19) for the fourth fiscal quarter of 2020, compared to 41.6% (or, 46.8% adjusted to exclude the purchasing accounting adjustments related to the DSI acquisition) from the fourth fiscal quarter of 2019, and compared to 46.2% (or, 44.9% adjusted to exclude the purchasing accounting adjustments related to the DSI acquisition and the impact of COVID-19) from the third fiscal quarter of 2020. The year-over-year decrease in adjusted gross profit margin was primarily due to lower volume and an unfavorable product mix. The sequential decrease in adjusted gross profit margin was due to unfavorable product mix and inventory reductions, partially offset by higher volume.

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Impacts From the Global COVID-19 Pandemic

As of February 17, 2021, all of the Company’s facilities are operating without limitations with the Company implementing COVID-19 best practices with respect to working conditions and enabling some employees to work remotely where possible. Nonetheless, given the impacts to date and the ongoing uncertainty concerning the magnitude of the impact and duration of the COVID-19 pandemic, the ongoing economic disruption may continue to adversely affect the Company’s business and financial results.

Near-Term Outlook

“Given the improving business environment, our strong cash flow, financial position, and strategic investments give us confidence that we can achieve growth in 2021 as the global economy and our markets continue to recover from the pandemic. For the first fiscal quarter of 2021, at constant fourth fiscal quarter 2020 exchange rates, we expect net revenues to be in the range of $63 million to $70 million,” concluded Mr. Shoshani.

*Use of Non-GAAP Financial Information

The Company states it defines “adjusted gross profit margin” as gross profit margin before purchase accounting adjustments related to the DSI acquisition, acquisition costs, and the impacts of COVID-19 costs. The Company states it defines “adjusted operating margin” as operating margin before purchase accounting adjustments, acquisition costs, COVID-19 costs, impairment of goodwill and indefinite-lived intangible assets, restructuring costs, and executive severance costs. The Company states it defines “adjusted net earnings” and “adjusted diluted net earnings per share” as net earnings attributable to VPG stockholders before purchase accounting adjustments, acquisition costs, COVID-19 costs, impairment of goodwill and indefinite-lived intangible assets, restructuring costs, executive severance costs, foreign exchange gains and losses, and associated tax effects.

“Adjusted free cash flow” for the fourth fiscal quarter of 2020 is defined as the amount of cash generated from operating activities ($12.5 million), in excess of the Company’s capital expenditures ($7.1 million), net of proceeds, if any, from the sale of assets ($0.5 million). “Adjusted free cash flow” for the fiscal year of 2020 is defined as the amount of cash generated from operating activities ($35.3 million) in excess of their capital expenditures ($22.9 million), net of proceeds, if any, from the sale of assets ($0.9 million).

The Company’s management believes that these non-GAAP measures are useful to investors because each presents what management views as the Company’s core operating results for the relevant period. The adjustments to the applicable GAAP measures relate to occurrences or events that are outside of their core operations, and management believes that the use of these non-GAAP measures provides a consistent basis to evaluate their operating profitability and performance trends across comparable periods. These reconciling items are indicated on the accompanying reconciliation schedules and are more fully described in VPG’s financial statements presented in their Annual Report on Form 10-K and its Quarterly Reports on Forms 10-Q.

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